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, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-10239
PLUM CREEK TIMBER COMPANY, L.P.
(Exact name of registrant as specified in its charter)
Delaware 91-1443693
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
999 Third Avenue, Seattle, Washington 98104-4096
Telephone: (206) 467-3600
Indicate by check mark 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
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PLUM CREEK TIMBER COMPANY, L.P.
COMBINED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended September 30,
-----------------------------
1998 1997
---- ----
(In Thousands, Except Per Unit)
<S> <C> <C>
Revenues.......................... $ 174,476 $ 198,663
--------- --------
Costs and Expenses:
Cost of Goods Sold.............. 131,851 135,024
Selling, General and
Administrative................ 10,524 15,973
--------- --------
Total Costs and Expenses.... 142,375 150,997
--------- --------
Operating Income.................. 32,101 47,666
Interest Expense.................. (14,859) (14,991)
Interest Income................... 433 328
Reorganization Costs.............. (1,222) -
Other Expense - Net............... (37) (238)
--------- --------
Income before Income Taxes........ 16,416 32,765
Provision for Income Taxes........ 374 (36)
--------- --------
Net Income........................ $ 16,042 $ 32,801
General Partner Interest.......... 8,498 8,329
--------- --------
Net Income Allocable to
Unitholders....................... $ 7,544 $ 24,472
========== =========
Net Income per Unit............... $ 0.16 $ 0.52
========== =========
</TABLE>
See accompanying Notes to Combined Financial Statements
PLUM CREEK TIMBER COMPANY, L.P.
COMBINED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
------------------------------
1998 1997
---- ----
(In Thousands, Except Per Unit)
<S> <C> <C>
Revenues.......................... $ 510,600 $ 541,873
--------- --------
Costs and Expenses:
Cost of Goods Sold.............. 371,619 370,734
Selling, General and
Administrative................ 37,954 37,568
--------- --------
Total Costs and Expenses.... 409,573 408,302
--------- --------
Operating Income.................. 101,027 133,571
Interest Expense.................. (44,435) (45,511)
Interest Income................... 900 787
Reorganization Costs.............. (2,970) -
Other Expense - Net............... (548) (930)
--------- --------
Income before Income Taxes........ 53,974 87,917
Provision for Income Taxes........ 521 534
--------- --------
Net Income........................ $ 53,453 $ 87,383
General Partner Interest.......... 25,097 23,758
--------- --------
Net Income Allocable to
Unitholders....................... $ 28,356 $ 63,625
========== =========
Net Income per Unit............... $ 0.61 $ 1.37
========== =========
</TABLE>
See accompanying Notes to Combined Financial Statements
PLUM CREEK TIMBER COMPANY, L. P.
COMBINED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
---- ----
(In Thousands)
<S> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents....... $ 127,629 $ 135,381
Accounts Receivable............. 33,561 28,698
Inventories..................... 53,625 58,956
Timber Contract Deposits........ 3,142 3,711
Other Current Assets............ 6,999 5,508
--------- --------
224,956 232,254
Timber and Timberlands - Net...... 865,801 887,694
Property, Plant and
Equipment - Net................. 180,421 163,556
Other Assets...................... 12,678 17,393
--------- --------
Total Assets................. $1,283,856 $ 1,300,897
========== ===========
LIABILITIES
Current Liabilities:
Current Portion of
Long-Term Debt.................. $ 18,400 $ 18,400
Accounts Payable................ 19,740 12,990
Interest Payable................ 16,482 9,556
Wages Payable................... 10,098 17,156
Taxes Payable................... 7,669 4,757
Workers' Compensation
Liabilities................... 1,450 1,450
Other Current Liabilities....... 15,699 9,683
--------- --------
89,538 73,992
Long-Term Debt.................... 565,600 584,000
Lines of Credit................... 200,000 161,000
Workers' Compensation Liabilities. 7,518 8,466
Other Liabilities................. 2,311 3,102
--------- --------
Total Liabilities............... 864,967 830,560
--------- --------
Commitments and Contingencies
PARTNERS' CAPITAL
Limited Partners.................. 419,894 469,824
General Partner................... (1,005) 513
--------- --------
Total Partners' Capital......... 418,889 470,337
--------- --------
Total Liabilities and
Partners' Capital............. $1,283,856 $1,300,897
========== ===========
</TABLE>
See accompanying Notes to Combined Financial Statements
PLUM CREEK TIMBER COMPANY, L. P.
COMBINED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
------------------------------
1998 1997
---- ----
(In Thousands)
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income........................ $ 53,453 $ 87,383
Adjustments to Reconcile
Net Income to
Net Cash Provided
By Operating Activities:
Depreciation, Depletion
and Amortization............. 50,304 51,688
(Gain)Loss on Asset
Dispositions - Net........... 444 (200)
Working Capital Changes, net of
effect of business acquisition:
Accounts Receivable.......... (4,863) (11,081)
Inventories.................. 9,312 1,461
Timber Contract Deposits and
Other Current Assets....... (890) 10,548
Accounts Payable............. 6,750 6,070
Other Accrued Liabilities.... 8,796 10,996
Other.......................... 3,361 (167)
--------- --------
Net Cash Provided By
Operating Activities............ $ 126,667 $ 156,698
--------- --------
Cash Flows From Investing Activities:
Additions to Properties......... $ (50,916) $ (14,205)
Proceeds from Asset Dispositions 800 375
--------- --------
Net Cash Used In Investing
Activities...................... $ (50,116) $ (13,830)
---------- --------
Cash Flows From Financing Activities:
Cash Distributions.............. $ (104,903) $ (99,020)
Retirement of Long-Term Debt.... (18,400) (17,400)
Borrowings on Lines of Credit... 550,000 637,500
Repayments on Lines of Credit... (511,000) (637,500)
--------- --------
Net Cash Used In Financing
Activities...................... $ (84,303) $(116,420)
--------- --------
Increase (Decrease) In Cash
and Cash Equivalents............ (7,752) 26,448
Cash and Cash Equivalents:
Beginning of Period............. 135,381 123,892
--------- --------
End of Period................... $ 127,629 $ 150,340
========= ==========
</TABLE>
See accompanying Notes to Combined Financial Statements
PLUM CREEK TIMBER COMPANY, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
The combined financial statements include all the accounts
of Plum Creek Timber Company, L.P. (the "Partnership"), Plum
Creek Manufacturing, L.P. ("Manufacturing") and Plum Creek
Marketing, Inc. ("Marketing"). All significant intercompany
transactions have been eliminated in the combination.
The Partnership owns 98 percent of Manufacturing and 96
percent of Marketing. Plum Creek Management Company, L.P. (the
"General Partner") manages the businesses of the Partnership,
Manufacturing and Marketing and owns the remaining two percent
general partner interest of Manufacturing and four percent of
Marketing. As used herein, "Company" refers to the combined
entities of the Partnership, Manufacturing and Marketing.
The financial statements included in this Form 10-Q are
unaudited and do not contain all of the information required by
generally accepted accounting principles to be included in a full
set of financial statements. The financial statements in the
Partnership's 1997 annual report on Form 10-K include a summary
of significant accounting policies of the Company and should be
read in conjunction with this Form 10-Q. In the opinion of
management, all material adjustments necessary to present fairly
the results of operations for such periods have been included.
All such adjustments are of a normal and recurring nature. The
results of operations for any interim period are not necessarily
indicative of the results of operations for the entire year.
Reclassifications of certain prior period amounts have been made
in order to be consistent with current period presentation.
The taxable income, deductions, and credits of the
Partnership and Manufacturing are allocated monthly to the
Unitholders based on the number of depositary units representing
limited partner interests ("Units") held. Distributions of cash
to a Unitholder are considered a non-taxable return of capital to
the extent of the Unitholder's basis in the Units (as such basis
is increased by the allocable share of the Partnership's and
Manufacturing's taxable income). However, Unitholders are
required to include in their income tax filings their allocable
share of the Partnership's and Manufacturing's income, regardless
of whether cash distributions are made. In virtually all cases,
a Unitholder's 1998 cash distribution will significantly exceed
the tax liability related to the Unitholder's allocated taxable
income from the Partnership and Manufacturing. For tax-exempt
entities, such as IRAs, most of the Partnership's and
Manufacturing's taxable income is treated as Unrelated Business
Taxable Income ("UBTI"). To the extent a tax-exempt entity has
more than $1,000 of UBTI for a tax year, it may be required to
pay federal income taxes. Marketing, as a separate taxable
corporation, provides for income taxes on a separate company
basis. Marketing provides for deferred taxes in order to reflect
the tax consequences in future years of the difference between
the financial statement and tax basis of assets and liabilities
as of the balance sheet date.
Net Income per Unit is calculated using the weighted average
number of Units outstanding, divided into the combined Company
net income, after adjusting for the General Partner interest. The
weighted average number of Units outstanding was 46,323,300 for
the three and nine month periods ended September 30, 1998
and 1997, respectively.
2. REORGANIZATION
On June 8, 1998 the Partnership announced that the Board of
Directors of PC Advisory Corp. I ("Advisory Corp"), the ultimate
general partner of the Partnership, had authorized the
Partnership to seek approval from its Unitholders to convert (the
"Conversion Transaction") its structure from a publicly traded
Master Limited Partnership into a publicly traded Real Estate
Investment Trust (the "REIT"). The Conversion Transaction is
conditioned upon the approval of the holders of two-thirds of the
Partnership's outstanding Units. In connection with the
Conversion Transaction, the Unitholders will exchange, on a one-for-one
basis, their Units for shares of common stock in the
REIT. The General Partner will exchange its general partner
interest in the Partnership and Manufacturing and its interest in
Marketing for a 27% equity interest in the REIT and will also
receive certain control rights. The solicitation of Unitholder
approval of the Conversion Transaction and the exchange of shares
in the REIT for the Partnership's outstanding Units will be made
by means of a proxy statement/prospectus provided to the
Unitholders. The Partnership is currently preparing a proxy
statement/prospectus and anticipates completing the Conversion
Transaction by the early part of 1999. Reorganization costs are
being expensed in the period incurred and are reflected as a
separate line item in the financial statements.
On September 11, 1998, a Unitholder, individually and as a
purported representative of all Unitholders as of June 8, 1998
(the "Plaintiff'), filed a purported class action lawsuit (the
"Action") in the Court of Chancery in the State of Delaware
against the Partnership, the General Partner and Advisory Corp
(the "Plum Creek Defendants"), alleging that the General
Partner's receipt of a 27% equity interest in the REIT violates
the General Partner's and Advisory Corp's fiduciary duties to the
Unitholders. The Plaintiff seeks (i) to certify the Action as a
class action on behalf of all Unitholders of record as of June 8,
1998, with the Plaintiff designated class representative, (ii) to
enjoin the Plum Creek Defendants from submitting the Conversion
Transaction for Unitholder approval without providing for (a)
separate votes concerning conversion to a REIT and the General
Partner's receipt of a 27% equity interest in the REIT and (b) an
evaluation by independent financial advisors, and (iii) damages,
costs and expenses incurred in the Action, including an award of
reasonable attorneys' fees and expenses. The Plum Creek
Defendants dispute the Plaintiff's allegations and intend to
defend themselves vigorously and to proceed with the Unitholders'
meeting.
3. INVENTORIES
Inventories consisted of the following (in thousands):
September 30, December 31,
1998 1997
---------- -----------
Raw materials (logs) $ 21,288 $ 29,177
Work-in-process 6,902 6,108
Finished goods 16,987 15,295
Export logs 303 715
------ ------
45,480 51,295
Supplies 8,145 7,661
------ ------
Total $ 53,625 $ 58,956
======= =======
Excluding supplies, which are valued at average cost, the
cost of the LIFO inventories valued at the lower of average cost
or market (which approximates current cost) at September 30, 1998
and December 31, 1997 was $44.2 million and $50.0 million,
respectively.
4. TIMBER AND TIMBERLANDS AND PROPERTY, PLANT AND EQUIPMENT
Timber and timberlands consisted of the following (in
thousands):
September 30, December 31,
1998 1997
----------- -----------
Timber and logging roads - net $ 767,107 $ 789,513
Timberlands 98,694 98,181
------- -------
Timber and Timberlands - net $ 865,801 $ 887,694
======= =======
Property, plant and equipment consisted of the following (in
thousands):
September 30, December 31,
1998 1997
------------ -----------
Land, buildings and improvements $ 64,593 $ 61,155
Machinery and equipment 266,753 235,349
------- -------
331,346 296,504
Accumulated depreciation (150,925) (132,948)
------- -------
Property, Plant and
Equipment - net $ 180,421 $163,556
======= ========
5. BORROWINGS
As of September 30, 1998, the Company had $200.0 million of
borrowings under its revolving line of credit ("Line of Credit").
Subject to customary covenants, the Line of Credit allows the
Partnership to borrow from time to time up to $225 million,
including up to $20 million of standby letters of credit issued
on behalf of the Partnership or Manufacturing, through December
13, 2001. As of September 30, 1998, the Company had no
outstanding standby letters of credit. As of October 2, 1998,
$125.0 million of borrowings on the Line of Credit were repaid.
See Note 7 of Notes to Combined Financial Statements for new
indebtedness incurred subsequent to September 30, 1998.
6. STOCK-BASED COMPENSATION
On April 17, 1998, the fifth and final targets under the
Company's 1994 long-term incentive plans were met. As a result,
the General Partner has adopted new incentive plans with similar
terms in which awards may be earned through the year ending
December 31, 2003. During the second quarter of 1998, grants of
1,158,500 Unit Appreciation Rights were made to officers and key
employees which over the life of the plan could result in
1,158,500 Units being earned if all targets were met.
7. SUBSEQUENT EVENTS
On October 13, 1998, the Board of Directors of the General
Partner authorized the Partnership to make a distribution of
$0.57 per Unit for the third quarter of 1998. Total
distributions will equal approximately $35.5 million (including
$9.1 million to the General Partner) and will be paid on November
24, 1998 to Unitholders of record on November 13, 1998.
On November 12, 1998, the Partnership acquired 905,000 acres
of forest lands in central Maine (the "Maine Timberland
Acquisition") from S.D. Warren Company, a Pennsylvania
corporation, for a purchase price of $180 million. As part of
the acquisition, the Partnership will enter into a long-term
fiber supply agreement to supply fiber to S.D. Warren Company's
paper facility in Skowhegan, Maine, at prevailing market prices.
The acquisition was financed with approximately $3 million
in cash and the balance with unsecured promissory notes that were
issued to the seller. The notes have an average maturity of 10
years with an expected average interest rate ranging from 7% to
8%.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
As used herein, "Company" refers to the combined entities of
the Partnership, Manufacturing, and Marketing. "Resources
Segment" refers to the combined timber and land management
businesses of the Partnership and "Manufacturing Segment" refers
to the combined businesses of Manufacturing and Marketing.
RECENT DEVELOPMENTS
Maine Timberland Acquisition
----------------------------
On November 12, 1998, the Partnership acquired 905,000 acres
of forest lands in central Maine (the "Maine Timberland
Acquisition") from S.D. Warren Company, a Pennsylvania
corporation, for a purchase price of $180 million. The purchase
price was determined through arm's length negotiations. As part
of the acquisition, the Partnership will enter into a long-term
fiber supply agreement to supply fiber to S.D. Warren Company's
paper facility in Skowhegan, Maine, at prevailing market prices.
The acquisition was financed with approximately $3 million
in cash and the balance with unsecured promissory notes that were
issued to the seller. The notes have an average maturity of 10
years with an expected average interest rate ranging from 7% to
8%. See Financial Condition and Liquidity and Note 7 of Notes to
Combined Financial Statements.
Stone Container - Mill Shutdown
-------------------------------
On October 23, 1998, the Partnership was notified by Stone
Container Corporation ("Stone") that it would be shutting down
its Frenchtown linerboard plant in Montana for approximately 30
days and, as a result, it would not be purchasing wood chips
during this shutdown. Press releases issued by Stone indicated
that the shutdown was in response to global oversupply of paper.
The Partnership does not believe that, under the terms of its
long-term supply agreement with Stone, Stone has the right to
refuse to purchase the Partnership's wood chips during this
shutdown. The Partnership has submitted the matter to
arbitration and intends to vigorously assert its rights under the
supply agreement. However, the Partnership's operating income
for the fourth quarter of 1998 could be reduced by up to
approximately $2.0 million if Stone is excused from purchasing
the Partnership's wood chips during the shutdown.
CURRENT MARKET CONDITIONS
Prices for domestic logs in the Cascades Region have
declined approximately 18% compared to third quarter 1997. The
downward price pressure is primarily due to weak lumber prices
and an excess supply of logs. Excess supply continues as a
result of the re-direction of export quality logs to the domestic
market resulting from the economic crisis in Asia. Additionally,
third quarter 1998 prices in the Cascades Region were
approximately 13% below second quarter 1998 prices primarily due
to the weather-related seasonal increase in harvesting activity
and the seasonal decline in lumber demand. Domestic log prices in
the Rocky Mountain Region have declined modestly since the third
quarter of 1997 and second quarter of 1998 primarily due to weak
lumber prices and an excess supply of logs as a result of the
Asian economic crisis. Third quarter sawlog and pulp log prices
in the Southern Region have declined compared to the third
quarter of 1997 and the second quarter of 1998 primarily due to
improved harvesting conditions and weak lumber prices.
Export log prices for the third quarter of 1998 declined
approximately 15% compared to the third quarter 1997, but
increased slightly over second quarter 1998 prices. The decline
from the prior year is primarily due to Japan's stagnant domestic
economy, which has resulted in lower housing starts, higher
unemployment, and low consumer confidence. Third quarter 1998
prices improved slightly over second quarter 1998 prices
primarily due to low inventories on the West coast and in Japan
as a result of weather-related harvesting curtailments in the
Pacific Northwest. Additionally, Japanese inventories were
impacted by a decline in Russian exports as a result of Russia's
economic turmoil.
Third quarter 1998 industry composite indices for lumber
prices were 17% below third quarter 1997, primarily due to the
worldwide excess supply of lumber. Despite declining lumber
prices, the demand for lumber remains extremely strong, with
housing starts for the first nine months of 1998 approximately 9%
above starts for the same period in 1997. However, due to weak
Asian markets, the U.S. supply of lumber continues to increase.
During the first six months of 1998, the supply of lumber in the
U.S increased by approximately 2% compared to the same period in
the prior year, primarily due to a rise in lumber imports and a
sharp decline in lumber exports. Furthermore, lumber imports from
Canada are now expected to exceed the duty-free quota as a result
of the weak Asian markets, a strong U.S dollar, and declining log
prices. Additionally, third quarter board prices in the repair
and remodel markets have declined approximately 15% compared to
third quarter 1997 prices, primarily due to excess supply.
European lumber producers are now exporting into the U.S. markets
approximately three times the volume (155 MMBF or 20% of the U.S.
board market) they exported in 1997 as a result of weak Asian
markets.
Third quarter 1998 commodity plywood prices increased
approximately 4% compared to third quarter 1997 and approximately
22% compared to second quarter 1998. The price increase is
primarily due to significant increases in OSB prices, seasonal
increase in demand and several announced mill closures. However,
by the end of the third quarter, OSB prices had retreated to
second quarter levels and, as a result, commodity plywood prices
were under downward pressure. Specialty grade plywood prices
strengthened during the third quarter of 1998, and prices remain
firm.
Third quarter 1998 MDF prices increased modestly compared to
the third quarter of 1997 and second quarter 1998 prices. The
upward price pressure continues to be primarily due to strong
demand and longer than expected start-up times for new capacity.
Demand continued to grow at approximately 15% per year, with
demand seasonally the strongest during the second and third
quarters.
IMPACT OF THE YEAR 2000 ISSUE
Overview of Plan
----------------
The Year 2000 Issue is the result of computer programs being
written using two digits rather than four to define the
applicable year. This could result in a system failure or
miscalculation in the year 2000 when using date sensitive
software. During the first quarter of 1997, the Company adopted a
Year 2000 Plan to identify and address both internal and external
Year 2000 issues. The Year 2000 Plan addresses information
technology systems, process control systems and embedded chips
used in its manufacturing operations, and key business
relationships.
Pursuant to the Plan, the Company completed a company-wide
assessment of its information technology systems in 1997 to
determine the impact of the Year 2000 issue. Most of the
necessary revisions to the systems and processes will be
completed by year-end 1998, with complete testing and
verification of the systems and processes for Year 2000
compliance during 1999. Based on the Company's assessments, Year
2000 Issues are not expected to have a material impact on the
Company's financial position, results of operations or liquidity.
Assessment of Company's State of Readiness
------------------------------------------
Over the last five years the Company has replaced many of
its business computer systems in order to realize cost savings
and process improvements. A majority of these replacements, all
of which are year 2000 compliant, were completed prior to the
company-wide Year 2000 Issue assessment, and the related costs
have been capitalized. In 1999, the replacement of the payroll
and human resources systems, which are Year 2000 compliant, will
be completed at an estimated cost of $300,000 for 1998 and
$110,000 for 1999. These costs will also be capitalized.
Currently, the payroll and human resources system replacement is
70% complete.
The Company's log accounting systems have required program
modifications to achieve Year 2000 readiness. The program
modifications and testing will be completed in early 1999 at a
cost of $28,000 for 1998 and $7,000 for 1999. Company
programmers are performing all remediation efforts and the costs
will be expensed as incurred. Currently, the log accounting
systems modifications and testing are 80% complete.
Earlier this year, the Company completed an inventory of the
process control systems and embedded chips used in its
manufacturing operations and identified the systems that could be
subject to Year 2000 problems. The systems used in the lumber
and plywood operations will require minimal changes, while the
MDF systems will require the replacement of certain process
control software. The modifications and testing of the
manufacturing control systems will be completed in 1999 at a cost
of $33,000 for 1998 and $132,000 for 1999. These costs will be
expensed as incurred. Currently, the modifications and testing
of the manufacturing process control systems is 60% complete.
As part of the Company's Year 2000 Plan, service providers,
vendors, suppliers and customers that are critical to the
Company's operations ("Key Business Partners") have been notified
and steps are being undertaken to determine their stage of Year
2000 readiness through questionnaires, interviews, and other
available means. The Company's efforts to determine the readiness
of Key Business Partners and the potential impact on the
Company's operations if such Key Business Partners are not Year
2000 compliant will be ongoing through year-end 1999.
Risks of the Company's Year 2000 Issues
---------------------------------------
The Company relies on Key Business Partners for materials
and services. If such Key Business Partners fail to achieve Year
2000 compliance, it may temporarily impact the ability of the
Company to operate. However, the impact of the failure of a Key
Business Partner would be limited to the extent that alternate
supplies of materials or services were available to meet the
Company's operating requirements.
The Company is also dependent upon its customers for sales
and cash flow. Year 2000 interruptions in its customers'
operations could result in reduced sales, increased inventory or
receivable levels, and cash flow reductions. While these events
are possible, the Company's customer base is broad enough to
minimize the effects of individual occurrences.
Contingency plan
----------------
The Company is working with its operating units to evaluate
the need for contingency plans intended to mitigate possible
business disruptions. Contingency plans may include increasing
raw materials inventories, securing alternate sources of supply,
or modifying production schedules. Additionally, should the
Company determine that certain Key Business Partners would fail
to achieve Year 2000 readiness, contingency plans will be
developed.
RESULTS OF OPERATIONS
THIRD QUARTER 1998 COMPARED TO THIRD QUARTER 1997
The following table compares operating income by segment for
the quarters ended September 30, 1998 and 1997.
Operating Income by Segment
Quarter Ended September 30,
--------------------------
(In Thousands)
1998 1997
---- ----
Resources Segment................. $ 37,854 $ 50,443
Manufacturing Segment............. 4,333 12,324
Other Costs and Eliminations...... (10,086) (15,101)
-------- --------
Total........................ $ 32,101 $ 47,666
======== ========
Resources Segment revenues decreased by $13.3 million, or
11%, to $107.6 million for the quarter ended September 30, 1998,
compared to $120.9 million for the quarter ended September 30,
1997. This decline was primarily due to a $4.0 million decrease
in land sales revenue, decreased Cascades Region export log sales
volume, and lower Cascades and Rockies Region sawlog prices. The
decrease in land sales revenue is primarily due to the timing of
land sales throughout the year. Cascades Region export log sales
volume decreased by approximately 25% compared to the third
quarter of 1997, primarily due to low Japanese demand resulting
from the continued weak Asian economy. Cascades and Rockies
Region sawlog prices decreased approximately 18% and 4%,
respectively, compared to the third quarter of 1997, primarily
due to weak lumber markets and an abundant supply of logs.
Resources Segment operating income was 35% and 42% as a
percentage of revenues for the quarters ended September 30, 1998
and 1997, respectively. The decline was primarily due to
decreased log sales prices in all regions and decreased land
sales revenues. Resources Segment costs and expenses decreased
by $0.8 million, or 1%, to $69.7 million for the quarter ended
September 30, 1998, compared to $70.5 million for the quarter
ended September 30, 1997.
Manufacturing Segment revenues decreased by $12.9 million,
or 10%, to $118.1 million for the quarter ended September 30,
1998, compared to $131.0 million for the quarter ended September
30, 1997. This decline was primarily due to decreased Southern
plywood volume and lower Northwest and Southern lumber prices,
offset in part by increased Northwest lumber volume. Southern
plywood volume has decreased compared to the prior year third
quarter as a result of closing the Southern plywood facility in
July 1998. Northwest and Southern lumber prices have decreased
by 12% and 20%, respectively, compared to the same period a year
ago, primarily due to worldwide overproduction of lumber. The
supply of lumber in the U.S. has increased primarily due to
decreased exports to Japan and increased imports from Europe and
Canada. Additionally, Southern lumber continues to experience
increased competition from both Western producers and engineered
wood products. Northwest lumber volume has increased 12%
compared to the third quarter of 1997, primarily due to the
addition of the Meridian, Idaho remanufacturing facility.
Manufacturing Segment operating income was 4% and 9% as a
percentage of revenues for the quarters ended September 30, 1998
and 1997, respectively. The decrease is primarily due to a
decline in Northwest and Southern lumber prices. Manufacturing
Segment costs and expenses decreased by $4.9 million, or 4%, to
$113.8 million for the quarter ended September 30, 1998, compared
to $118.7 for the quarter ended September 30, 1997. This
decrease was primarily due to lower Southern plywood sales
volume, offset in part by higher Northwest lumber sales volume.
Other Costs and Eliminations (which consists of corporate
overhead, intercompany log profit elimination, and intercompany
LIFO elimination) decreased operating income by $10.1 million in
the third quarter of 1998, compared to a decrease of $15.1
million in the third quarter of 1997. The variance of $5.0
million is primarily due to lower corporate overhead. Corporate
overhead decreased by $4.1 million compared to the third quarter
of 1997 primarily due to the expense recognized during the third
quarter of 1997 as a result of achieving the fourth target under
the Company's 1994 long-term incentive plans.
Reorganization Costs are costs associated with the proposed
conversion of the Partnership to a REIT. See Note 2 of Notes to
Combined Financial Statements. Reorganization costs consist of
fees for legal, investment banking and tax consultants, as well
as printing and other related costs. Reorganization costs are
being expensed as incurred.
The income allocated to the General Partner increased by
$0.2 million to $8.5 million for the quarter ended September 30,
1998, compared to $8.3 million for the quarter ended September
30, 1997. This increase was due primarily to higher quarterly
distributions to Unitholders. The General Partner's incentive
distribution is based on the number of outstanding Units times a
percentage of the per Unit distribution paid to Limited Partners.
The distribution for the second quarter of 1998, which was paid
during the third quarter of 1998, was $0.57 per Unit, compared to
$0.55 per Unit paid during the third quarter of 1997. Net income
is allocated to the General Partner based on 2 percent of the
Company's net income (after adjusting for the incentive
distribution), plus the incentive distribution.
NINE MONTHS 1998 COMPARED TO NINE MONTHS 1997
The following table compares operating income by segment for
the nine months ended September 30, 1998 and 1997.
Operating Income by Segment
Nine Months Ended
September 30,
-----------------
(In Thousands)
1998 1997
---- ----
Resources Segment. . . . . . . . . $101,850 $119,335
Manufacturing Segment. . . . . . . 14,122 36,148
Other Costs and Eliminations . . . (14,945) (21,912)
--------- ---------
Total............................ $101,027 $133,571
========= =========
Resources Segment revenues decreased by $17.6 million, or
6%, to $274.3 million for the nine months ended September 30,
1998, compared to $291.9 million for the nine months ended
September 30, 1997. The decrease was primarily due to lower
export log sales volume, decreased Cascades Region domestic and
export log sales prices and decreased land sales revenues, offset
in part by higher Cascades Region domestic log sales volumes.
Export log sales volume and prices decreased by approximately 37%
and 21%, respectively, compared to the first nine months of 1997,
primarily due to low Japanese demand resulting from the continued
weak Asian economy. Cascades Region domestic log sales prices
decreased by approximately 14% compared to the first nine months
of 1997, primarily due to the abundant supply of logs and weak
lumber prices. The decrease in land sales revenues is primarily
due to the timing of land sales throughout the year. Cascades
Region domestic logs sales volume increased by approximately 23%
compared to the first nine months of 1997, primarily due to the
re-direction of export quality logs to the domestic market as a
result of weak Asian markets.
Resources Segment operating income was 37% and 41% as a
percentage of revenues for the nine months ended September 30,
1998 and 1997, respectively. The decline is primarily a result
of decreased log sales prices in the Cascades and Rockies Regions
and decreased land sales revenues. Resources Segment costs and
expenses decreased by $0.1 million to $172.5 million for the nine
months ended September 30, 1998, compared to $172.6 million for
the nine months ended September 30, 1997.
Manufacturing Segment revenues decreased by $16.6 million,
or 4%, to $358.1 million for the nine months ended September 30,
1998, compared to $374.7 million for the nine months ended
September 30, 1997. This decrease was primarily due to lower
Northwest and Southern lumber prices and decreased Southern
plywood volume, offset in part by increased Northwest lumber,
plywood and MDF sales volume. Northwest and Southern lumber
sales prices decreased by 13% and 11%, respectively, compared to
the first nine months of 1997, primarily due to the worldwide
overproduction of lumber. The supply of lumber in the U.S.
increased primarily due to decreased exports to Japan and
increased imports from Europe and Canada. Additionally, Southern
lumber continues to experience increased competition from both
Western producers and engineered wood products. Southern plywood
sales volume has decreased compared to the first nine months of
1997 as a result of closing the Southern Region plywood facility
in July 1998. Northwest lumber sales volume increased by 6%
compared to the first nine months of 1997, primarily due to the
addition of the Meridian, Idaho remanufacturing facility in May
1998. Northwest plywood sales volume increased by 5% compared to
the first nine months of 1997, primarily due to additional shifts
and improved fiber recovery. MDF sales volume increased by 10%
compared to the first nine months of 1997, primarily due to
strong demand and increased production as a result of operational
improvements.
Manufacturing Segment operating income was 4% and 10% as a
percentage of revenues for the nine months ended September 30,
1998 and 1997, respectively. The decrease is primarily due to a
decline in Northwest and Southern lumber sales prices.
Manufacturing Segment costs and expenses increased by $5.4
million, or 2%, to $344.0 million for the nine months ended
September 30, 1998, compared to $338.6 for the nine months ended
September 30, 1997. This increase was primarily due to higher
sales volumes for Northwest lumber, plywood and MDF, offset in
part by decreased Southern plywood volume.
Other Costs and Eliminations (which consists of corporate
overhead, intercompany log profit elimination, and intercompany
LIFO elimination) decreased operating income by $14.9 million in
the first nine months of 1998, compared to $21.9 million in the
first nine months of 1997. The variance of $7.0 million is
primarily due to intercompany log profit elimination. The profit
on intercompany log sales is deferred (eliminated) until
Manufacturing converts existing log inventories into finished
products and sells them to third parties (at which time
intercompany profit is recognized). During the first nine months
of 1998, intercompany log profit of $7.6 million was released
while $0.3 million was deferred during the first nine months of
1997. The increase in operating income due to intercompany log
profit is primarily due to the build-up of log inventories in the
Company's Southern Region during the fourth quarter of 1997 and
the subsequent processing of these logs during the first quarter
of 1998 as a result of weather-related harvest restrictions
during the first quarter. Additionally, operating income
decreased as a result of achieving the fifth and final target
under the Company's 1994 long-term incentive plans in April 1998.
The expense related to these plans was approximately $11.9
million for the first nine months of 1998, compared to an expense
of approximately $6.9 million for the first nine months of 1997.
This increase in corporate overhead was almost entirely offset
during the same period by lower incentive compensation accruals
due to lower earnings levels.
Reorganization Costs are costs associated with the proposed
conversion of the Partnership to a REIT. See Note 2 of Notes to
Combined Financial Statements. Reorganization costs consist of
fees for legal, investment banking and tax consultants, as well
as printing and other related costs. Reorganization costs are
being expensed as incurred.
The income allocated to the General Partner increased by
$1.3 million to $25.1 million for the nine months ended September
30, 1998, compared to $23.8 million for the nine months ended
September 30, 1997. This increase was primarily due to higher
quarterly distributions to Unitholders. The General Partner's
incentive distribution is based on the number of outstanding
Units times a percentage of the per Unit distribution paid to
Limited Partners, which was $1.69 per Unit during the first nine
months of 1998, compared to $1.61 per Unit during the first nine
months of 1997. Net income is allocated to the General Partner
based on 2 percent of the Company's net income (after adjusting
for the incentive distribution), plus the incentive distribution.
FINANCIAL CONDITION AND LIQUIDITY
During the first nine months of 1998, net cash provided by
operating activities totaled $126.7 million, compared to $156.7
million for the same period in 1997. The decrease of $30.0
million was primarily due to lower net income of $33.9 million.
However, there was a favorable working capital variance of $1.1
million. The positive working capital variance is primarily
related to a favorable $7.9 million fluctuation in Inventories
and a favorable $6.4 million fluctuation in Other Current
Liabilities, offset in part by an unfavorable $11.7 million
fluctuation in Other Current Assets. The favorable Inventory
fluctuation is primarily due to the build-up of log inventories
in the Company's Southern Region during the fourth quarter of
1997 and the subsequent processing of these logs during the first
quarter of 1998 in anticipation of weather-related harvesting
curtailments during the first quarter of 1998. The favorable
Other Current Liabilities fluctuation is primarily due to the
partially deferred funding of the fifth target of the Company's
1994 long-term incentive plans until the first quarter of 1999.
The unfavorable Other Current Assets fluctuation is primarily due
to the collection of a $9.9 million installment note receivable
in the first quarter of 1997 related to a fourth quarter 1996
"higher and better use" land sale.
As described above under Recent Developments, on November
12, 1998, the Partnership acquired 905,000 acres of forest lands
in central Maine from S.D. Warren Company, a Pennsylvania
company, for a purchase price of $180 million. The acquisition
was financed with approximately $3 million in cash and the
balance with unsecured promissory notes that were issued to the
seller. The notes will have an average maturity of 10 years with
an expected average interest rate ranging from 7% to 8%. See
Note 7 of Notes to Combined Financial Statements.
The Partnership has an unsecured Line of Credit with a group
of banks. Subject to customary covenants, the Line of Credit
allows the Partnership to borrow from time to time up to $225
million for general corporate purposes, including up to $20
million of standby letters of credit issued on behalf of the
Partnership or Manufacturing. The Line of Credit matures on
December 13, 2001 and bears a floating rate of interest. As of
September 30, 1998, the Partnership had $200.0 million
outstanding under the Line of Credit. As of October 2, 1998, the
Partnership had repaid $125.0 million of the borrowings under the
Line of Credit.
The Company's borrowing agreements contain certain
restrictive covenants, including limitations on harvest levels,
sales of assets, cash distributions and the incurrence of
indebtedness. In addition, the Line of Credit requires the
maintenance of an interest coverage ratio. The Company was in
compliance with its debt covenants as of September 30, 1998.
The Company has begun discussions with its lenders in order
to explore obtaining certain consents in connection with the
Conversion Transaction. Management believes that the outcome of
such discussions will not be material to the Company's financial
position, results of operations or liquidity.
The Partnership will distribute $0.57 per Unit for the third
quarter of 1998. The distribution will equal $35.5 million
(including $9.1 million to the General Partner), and will be paid
on November 24, 1998 to Unitholders of record on November 13,
1998. The computation of cash available for distribution includes
required reserves for the payment of principal and interest, as
well as other reserves established at the discretion of the
General Partner for working capital, capital expenditures, and
future cash distributions.
Cash required to meet the Company's quarterly cash
distributions, capital expenditures and principal and interest
payments will be significant. As a result of the indebtedness
incurred to finance the Maine Timberland Acquisition and as a
result of current and expected operating performance, the General
Partner expects that the Partnership may not be able to incur
significant levels of additional indebtedness in 1999, under the
terms of its current debt agreements. The General Partner
believes, however, that expected borrowings in the fourth quarter
of 1998 under its Line of Credit, cash otherwise on hand and cash
flows from continuing operations will be sufficient to fund
planned capital expenditures, distributions, and interest and
principal payments in 1999.
CAPITAL EXPENDITURES
Capital expenditures for the first nine months of 1998
totaled $50.9 million, compared to $14.2 million for the same
period in 1997. Total 1998 capital expenditures are expected to
be approximately $60 million, excluding the Maine Timberland
Acquisition, compared to $28.3 million expended in 1997. Planned
capital expenditures for the Resources Segment in 1998 are
primarily for road construction and reforestation. The
Manufacturing Segment's 1998 principal capital projects include a
$22.0 million investment at the Joyce, Louisiana facility to
expand lumber operations, acquisition of a remanufacturing
facility in Meridian, Idaho for $9.4 million (which includes $4.0
million of working capital), as well as replacements and upgrades
of equipment in several of the manufacturing facilities. Capital
expenditures in 1999 are expected to approximate $28 million,
including $6 million to complete the Joyce, Louisiana facility
expansion.
OTHER INFORMATION
In June 1998, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities"
("FAS 133"). FAS 133 establishes a new model for accounting for
derivatives and hedging activities. The implementation of FAS
133 is required for financial statements issued for periods
beginning after June 15, 1999; earlier application is permitted.
Adoption of this standard is not expected to have a material
impact on the Company's financial position, results of operations
or cash flows.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On September 11, 1998, a Unitholder, individually and as a
purported representative of all Unitholders as of June 8, 1998
(the "Plaintiff"), filed a purported class action lawsuit (the
"Action") in the Court of Chancery in the State of Delaware
against the Partnership, the General Partner and Advisory Corp
(the "Plum Creek Defendants"), alleging that the General
Partner's receipt of a 27% equity interest in the REIT violates
the General Partner's and Advisory Corp's fiduciary duties to the
Unitholders. The Plaintiff seeks (i) to certify the Action as a
class action on behalf of all Unitholders of record as of June 8,
1998, with the Plaintiff designated class representative, (ii) to
enjoin the Plum Creek Defendants from submitting the Conversion
Transaction for Unitholder approval without providing for (a)
separate votes concerning conversion to a REIT and the General
Partner's receipt of 27% equity interest in the REIT and (b) an
evaluation by independent financial advisors, and (iii) damages
and costs and expenses incurred in the Action, including an award
of reasonable attorneys' fees and expenses. The Plum Creek
Defendants dispute the Plaintiff's allegations and intend to
defend themselves vigorously and to proceed with the Unitholders'
meeting.
There is no other pending or threatened litigation involving
the Partnership which the General Partner believes would have a
material adverse effect on the financial position, the results of
operations or liquidity of the Company.
Items 2, 3, and 4 of Part II are not applicable and have been
omitted.
ITEM 5. OTHER INFORMATION
See Recent Developments Maine Timberland Acquisition.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits
Each exhibit set forth below in the Index to Exhibits is
filed as a part of this report. Exhibits not incorporated by
reference to a prior filing are designated by an asterisk ("*");
all exhibits not so designated are incorporated herein by
reference to a prior filing as indicated.
INDEX TO EXHIBITS
Exhibit
Designation Nature of Exhibit
- ----------- -----------------
2.5* Purchase and Sale Agreement by and between S.D.
Warren Company as seller and Plum Creek Timber
Company, L.P. as purchaser dated as of October 5,
1998. See attached exhibit.
3.1 Amended and Restated Agreement of Limited
Partnership of Plum Creek Timber Company, L.P.
dated June 8, 1989, as amended and restated
through October 17, 1995 (Form 10-Q, File No.
1-10239, for the quarter ended September 30,
1995).
3.2 Certificate of Limited Partnership of Plum Creek
Timber Company, L.P., as filed with the Secretary
of State of the state of Delaware on April 12,
1989 (Form S-1, Regis. No. 33-28094, filed May,
1989).
27* Financial Data Schedule for the quarter ended
September 30, 1998. See attached exhibit.
(b) Reports on Form 8-K
The Partnership filed a current report on Form 8-K dated
July 20, 1998, in which it provides the audited financial
statement for Plum Creek Timber Company, Inc., which was formed
in connection with the planned conversion to a publicly traded
Real Estate Investment Trust.
SIGNATURES
PLUM CREEK TIMBER COMPANY, L.P.
(Registrant)
By: Plum Creek Management Company, L.P.
as General Partner
By: /s/ Diane M. Irvine
--------------------------
DIANE M. IRVINE
Vice President and
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial and
Accounting Officer)
Date: November 13, 1998
Execution Copy
PURCHASE AND SALE AGREEMENT
BY AND BETWEEN
S.D. WARREN COMPANY
AS SELLER
AND
PLUM CREEK TIMBER COMPANY, L.P.
AS PURCHASER
DATED AS OF OCTOBER 5, 1998
TABLE OF CONTENTS
Page
1. PURCHASE OF LLC INTEREST. . . . . . . . . . . . . . . 2
2. PURCHASE PRICE AND TERMS. . . . . . . . . . . . . . . 2
2.1. PURCHASE PRICE. . . . . . . . . . . . . . . 2
2.2. ADJUSTMENT TO PURCHASE PRICE. . . . . . . . 2
3. CLOSING . . . . . . . . . . . . . . . . . . . . . . . 3
4. REPRESENTATIONS AND WARRANTIES OF SELLER. . . . . . . 3
4.1. ORGANIZATION AND CORPORATE POWER. . . . . . 3
4.2. AUTHORIZATION . . . . . . . . . . . . . . . 3
4.3. NO VIOLATION OR CONFLICTS . . . . . . . . . 3
4.4. CONTRACTS, LEASES AND ACCESS RIGHTS AND
EASEMENTS . . . . . . . . . . . . . . . . . . . . . . 4
4.5. ENVIRONMENTAL MATTERS . . . . . . . . . . . 4
4.6. SUITS, ACTIONS OR PROCEEDINGS . . . . . . . 5
4.7. BROKER FEES . . . . . . . . . . . . . . . . 5
4.8. COMPLIANCE. . . . . . . . . . . . . . . . . 6
4.9. TITLE . . . . . . . . . . . . . . . . . . . 6
4.10. TAXES. . . . . . . . . . . . . . . . . 6
4.11. LLC INTEREST AND SUBSIDIARIES. . . . . 6
4.12. EMPLOYMENT AGREEMENT AND BENEFITS. . . 7
4.13. LABOR RELATIONS AND EMPLOYMENT.. . . . 8
4.14. ABSENCE OF CHANGES . . . . . . . . . . 8
4.15. CONDUCT OF BUSINESS. . . . . . . . . . 8
4.16. ANCILLARY AGREEMENTS . . . . . . . . . 9
4.17. ACCURACY AND COMPLETENESS OF
REPRESENTATIONS . . . . . . . . . . . . . . . . . . . 9
5. REPRESENTATIONS AND WARRANTIES OF PURCHASER . . . . . 9
5.1. ORGANIZATION AND POWER. . . . . . . . . . . 9
5.2. AUTHORIZATION; NO VIOLATION OR CONFLICTS. . 9
5.3. BROKER FEES . . . . . . . . . . . . . . . .10
5.4. SUITS, ACTIONS OR PROCEEDINGS . . . . . . .10
5.5. FINANCIAL STATEMENTS. . . . . . . . . . . .10
6. SURVIVAL; KNOWLEDGE; MATERIALITY. . . . . . . . . . .11
6.1. SURVIVAL. . . . . . . . . . . . . . . . . .11
6.2. SELLER'S KNOWLEDGE DEFINED. . . . . . . . .11
6.3. MATERIALITY DEFINED . . . . . . . . . . . .11
7. CONDITION OF TITLE AND TITLE INSURANCE. . . . . . . .11
7.1. CONDITION OF TITLE. . . . . . . . . . . . .11
7.2. TITLE INSURANCE . . . . . . . . . . . . . .12
8. LIMITATIONS OF REPRESENTATIONS AND WARRANTIES.. . . .13
8.1. LIMITATION OF REPRESENTATIONS . . . . . . .13
8.2. LIMITATION OF WARRANTIES. . . . . . . . . .14
9. CONTRACTS; LEASES; ACCESS RIGHTS AND EASEMENTS;
PERSONAL PROPERTY . . . . . . . . . . . . . . . . . .14
9.1. CONTRACTS . . . . . . . . . . . . . . . . .14
9.2. LEASES. . . . . . . . . . . . . . . . . . .14
9.3. ACCESS RIGHTS AND EASEMENTS . . . . . . . .14
10. PERSONAL PROPERTY . . . . . . . . . . . . . . . . . .14
11. EMPLOYEES AND BENEFIT PLANS . . . . . . . . . . . . .14
11.1. TERMINATION AND REHIRING OF EMPLOYEES.14
11.2. RETIREMENT PLANS . . . . . . . . . . .16
11.3. WELFARE PLANS. . . . . . . . . . . . .18
11.4. RETIREE COVERAGES. . . . . . . . . . .18
11.5. AMENDMENT AND MODIFICATION OF PLANS. .19
11.6. WORKER'S COMPENSATION. . . . . . . . .19
11.7. SEVERANCE PAYMENTS . . . . . . . . . .19
12. CERTAIN PRE-CLOSING MATTERS . . . . . . . . . . . . .19
12.1. ACCESS TO INFORMATION. . . . . . . . .19
12.2. CONDUCT OF BUSINESS PRIOR TO CLOSING .20
12.3. NON-SOLICITATION . . . . . . . . . . .20
12.4. CONSERVATION EASEMENTS . . . . . . . .20
12.5. LENDER CONSENTS. . . . . . . . . . . .21
13. HART-SCOTT-RODINO FILING. . . . . . . . . . . . . . .21
14. CONFIDENTIALITY; PUBLIC ANNOUNCEMENTS; RETURN OF
INFORMATION . . . . . . . . . . . . . . . . . . . . .22
14.1. CONFIDENTIALITY. . . . . . . . . . . .22
14.2. PUBLIC ANNOUNCEMENTS . . . . . . . . .22
14.3. EXCEPTIONS TO CONFIDENTIALITY. . . . .22
14.4. RETURN OF ORIGINALS. . . . . . . . . .22
14.5. INJUNCTIVE RELIEF. . . . . . . . . . .23
15. PRE-CLOSING TRANSACTIONS. . . . . . . . . . . . . . .23
15.1. PURCHASE OF SKYLARK PROPERTY . . . . .23
15.2. TRANSFER OF ASSETS TO SDW TIMBER II. .23
15.3. TRANSFER OF LLC INTEREST TO SDW TIMBER I23
15.4. PURCHASER RIGHTS . . . . . . . . . . .23
16. CLOSING MECHANICS . . . . . . . . . . . . . . . . . .23
16.1. CONDITIONS TO PURCHASER'S OBLIGATIONS.23
16.2. CONDITIONS TO SELLER'S OBLIGATIONS . .25
16.3. PRORATIONS . . . . . . . . . . . . . .25
16.4. CLOSING COSTS. . . . . . . . . . . . .25
16.5. CLOSING. . . . . . . . . . . . . . . .25
17. INDEMNIFICATION . . . . . . . . . . . . . . . . . . .27
17.1. INDEMNIFICATION BY SELLER. . . . . . .27
17.2. INDEMNIFICATION BY PURCHASER . . . . .27
17.3. SET-OFF. . . . . . . . . . . . . . . .28
18. POST-CLOSING MATTERS. . . . . . . . . . . . . . . . .28
18.1. ENDORSEMENT OF PAYMENTS. . . . . . . .28
18.2. TAXES. . . . . . . . . . . . . . . . .29
18.3. CERTAIN POST-CLOSING COVENANTS OF
PURCHASER . . . . . . . . . . . . . . . . . . . . . .29
18.4. THIRD-PARTY CONSENTS . . . . . . . . .29
18.5. ASSIGNMENT BY PURCHASER. . . . . . . .30
19. RESTRICTIONS ON TRANSFERS OF TIMBERLANDS; RIGHT OF
FIRST OFFER . . . . . . . . . . . . . . . . . . . . .30
19.1. LIMITS ON CERTAIN TRANSFERS OF
TIMBERLANDS . . . . . . . . . . . . . . . . . . . . .30
19.2. TRANSFERS NOT SUBJECT TO AGREEMENT . .31
19.3. TRANSFERS NOT SUBJECT TO FIRST OFFER
RIGHT . . . . . . . . . . . . . . . . . . . . . . . .31
19.4. TRANSFERS SUBJECT TO RIGHT OF FIRST
OFFER . . . . . . . . . . . . . . . . . . . . . . . .31
19.5. CLOSING TERMS. . . . . . . . . . . . .33
19.6. MEMORANDA OF RIGHTS; TRANSFEREES TO
ASSUME FIBER SUPPLY AGREEMENT . . . . . . . . . . . .33
19.7. RELEASES OF RIGHTS . . . . . . . . . .34
19.8. SURVIVAL . . . . . . . . . . . . . . .34
20. TERMINATION . . . . . . . . . . . . . . . . . . . . .34
20.1. TERMINATION. . . . . . . . . . . . . .34
20.2. EFFECT OF TERMINATION. . . . . . . . .35
21. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . .35
21.1. FURTHER ASSURANCES . . . . . . . . . .35
21.2. INTEGRATION. . . . . . . . . . . . . .35
21.3. COUNTERPARTS . . . . . . . . . . . . .35
21.4. SEVERABILITY . . . . . . . . . . . . .35
21.5. SUCCESSORS AND ASSIGNS . . . . . . . .36
21.6. GOVERNING LAW. . . . . . . . . . . . .36
21.7. ASSIGNMENT . . . . . . . . . . . . . .36
21.8. CAPTIONS AND SECTION HEADINGS. . . . .36
21.9. NOTICES. . . . . . . . . . . . . . . .36
21.10. TIME IS OF THE ESSENCE . . . . . . . .37
21.11. COSTS AND EXPENSES . . . . . . . . . .37
21.12. ATTORNEYS' FEES AND OTHER COSTS. . . .37
21.13. WAIVER OF CONSEQUENTIAL AND PUNITIVE
DAMAGES.. . . . . . . . . . . . . . . . . . . . . . .37
21.14. SECTION 1031 TRANSACTION . . . . . . .38
22. DEFINITIONS.. . . . . . . . . . . . . . . . . . . . .38
SCHEDULES
Schedule 2.2 1998 and 1999 Harvesting Forecasts
Schedule 4.3 Consents, Approvals, Etc. Required by
Seller
Schedule 4.5 Environmental Matters
Schedule 4.6 Suits, Actions or Proceedings
Schedule 4.8 Noncompliance
Schedule 4.9 Timberlands and Skylark Property
Schedule 4.12 Employment Agreements
Schedule 4.13 Labor Relations and Employment
Schedule 5.2 Consents, Approvals, Etc. Required by
Purchaser
Schedule 9.1 Material Contracts
Schedule 9.2 Material Leases
Schedule 9.3 Material Access Rights and Easements
Schedule 10 Personal Property
Schedule 11.1(a)(i) Timberland Employees
Schedule 11.1(a)(ii)Absent Employees
Schedule A Deferred Obligations
Schedule B Excluded Assets
EXHIBITS
Exhibit 2.1 Purchaser's Notes
Exhibit 12.4 Conservation Easement Terms
Exhibit 16.1(a) Fiber Supply Agreement
Exhibit 19.6 Memorandum of Rights
Exhibit 22 Statement of Assets
PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT ("Agreement") is made
and entered into as of this fifth day of October, 1998 by
and between S.D. WARREN COMPANY ("Seller"), a Pennsylvania
corporation, whose address is 225 Franklin Street, Boston,
Massachusetts 02110 and PLUM CREEK TIMBER COMPANY, L.P., a
Delaware limited partnership, whose address is 999 Third
Avenue, Suite 2300, Seattle, Washington 98104 ("Purchaser").
RECITALS
A. Seller owns approximately 904,504.78 acres of
timberland and associated property and assets (such acres
are hereinafter referred to as the "Timberlands") located in
the central portion of Maine.
B. Prior to the closing of the transactions
contemplated hereunder ("Closing"), Seller shall purchase
approximately 787.33 acres of timberland and associated
property and assets ("Skylark Property") located in the
central portion of Maine from Skylark, Inc. ("Skylark"), a
Maine corporation and wholly-owned subsidiary of Seller.
C. Prior to Closing, Seller shall (1) transfer (a)
the Timberlands and the Skylark Property, and (b) Seller's
rights appurtenant thereto, including the Improvements,
Contracts, Leases, Access Rights and Easements, Current
Assets and Personal Property (each as defined in Section 22
below), to SDW Timber II, L.L.C. ("SDW Timber II"), a
Delaware limited liability company and wholly-owned
subsidiary of Seller, and (2) then transfer its limited
liability company ownership interest (the "LLC Interest") in
SDW Timber II to SDW Timber I, L.L.C. ("SDW Timber I"), a
Delaware limited liability company and wholly-owned
subsidiary of Seller.
D. At Closing, SDW Timber I shall transfer, and
Seller shall cause SDW Timber I to transfer, the LLC
Interest to Purchaser and Purchaser shall purchase the LLC
Interest from SDW Timber I pursuant to the terms of this
Agreement.
E. This transaction is conditioned, among other
things, upon the simultaneous closing of a fiber supply
agreement ("Fiber Supply Agreement") between Purchaser and
Seller which involves Purchaser's agreement to supply Seller
with wood fiber.
AGREEMENTS
NOW, THEREFORE, in consideration of the mutual
covenants set forth in this Agreement, the receipt and
sufficiency of which are acknowledged, and subject to all
terms of this Agreement, the parties agree as follows:
1. PURCHASE OF LLC INTEREST. Subject to the contingencies
and other terms and conditions contained herein, on the
Closing Date (as defined in Section 3 below), Seller agrees
to cause SDW Timber I to sell, transfer and deliver to
Purchaser the LLC Interest and Purchaser agrees to purchase
and acquire the LLC Interest for the consideration specified
in Section 2 below.
2. PURCHASE PRICE AND TERMS.
2.1. PURCHASE PRICE. In consideration of the sale and
transfer of the LLC Interest to Purchaser, Purchaser shall
pay Seller an aggregate amount ("Purchase Price") equal to
the sum of $174,314,633 (subject to later adjustment
pursuant to Section 2.2 below). At Closing, Purchaser shall
(i) pay to Seller (on behalf of SDW Timber I) $2,939,633 in
cash ("Cash Consideration"), representing the value of the
machinery, equipment and Skylark Property, payable by wire
transfer in immediately available funds in U.S. dollars in
accordance with written instructions of Seller given to
Purchaser prior to Closing; and (ii) provide to SDW Timber I
senior, unsecured promissory notes ("Purchaser's Notes"),
collectively in the principal amount of $171,375,000, the
terms and conditions of which notes shall be described in
Exhibit 2.1 attached hereto and incorporated herein by this
reference.
2.2. ADJUSTMENT TO PURCHASE PRICE.
The amount of timber contemplated to be harvested from
the Timberlands by Seller during Seller's fiscal year
commencing October 1, 1997 is set forth on a harvesting
forecast ("1998 Harvesting Forecast") and the amount of
timber contemplated to be harvested by Seller during
Seller's fiscal year commencing October 1, 1998 is set forth
on a harvesting forecast ("1999 Harvesting Forecast"), and
each is attached hereto as Schedule 2.2. Immediately
following the Closing Date, Purchaser and its accountants
shall be provided with reasonable access to all of Seller's
books, records, accounting and other documents reasonably
necessary to confirm the actual amount of timber harvested
from the period commencing October 1, 1997 through the
Closing Date. In the event that, based upon Purchaser's
review of such books, records and documents, Purchaser
determines that (i) the actual amount of timber harvested
(by volume, product mix or method (clear cut and partial
harvest)) until the date hereof exceeded the amount
contemplated to be harvested pursuant to the 1998 Harvesting
Forecast by more than five percent (5%), or (ii) the actual
amount of timber harvested by volume or method (clear cut
and partial harvests) from the date hereof until the Closing
Date exceeded the amount contemplated to be harvested
pursuant to the 1999 Harvesting Forecast by more than one
percent (1%), Purchaser shall submit a harvesting report
("Harvesting Report") to Seller setting forth the basis for
this determination. Seller shall have 10 days to review the
Harvesting Report and to deliver a notice of any dispute
regarding the determination made by Purchaser ("Harvesting
Dispute Notice"). In the event that Seller does not deliver
a Harvesting Dispute Notice within such period, the
Harvesting Report shall be deemed accepted by Seller, and
Seller shall pay to Purchaser, within two (2) business days
of the expiration of such review period, an amount equal to
the fair market value of such excess harvested timber as of
the Closing Date (based on volume, product mix or method
(clear cut and partial harvest)) offset by any undercut of
product mix. Such payment shall be made by wire transfer of
immediately available funds in U.S. dollars.
3. CLOSING. The Closing shall occur at the offices of
Ropes & Gray, One International Place, Boston, Massachusetts
on October 30, 1998, unless such date is extended pursuant
to Sections 7.2 or 13 or otherwise by agreement of the
parties, but in no event later than December 31, 1998
("Closing Date").
4. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller
represents and warrants to Purchaser that, as of the date of
execution of this Agreement (unless otherwise indicated),
and as of the Closing Date, the following are true and
correct:
4.1. ORGANIZATION AND CORPORATE POWER. (i) Seller is a
corporation duly organized and validly existing under the
laws of the Commonwealth of Pennsylvania, and, as of the
Closing Date, each of SDW Timber I and SDW Timber II is a
limited liability company duly organized and validly
existing under the laws of the State of Delaware; (ii) each
of Seller and, as of the Closing Date, SDW Timber II (A) is
qualified to do business and is in good standing in the
State of Maine, and (B) has the corporate or limited
liability company power and authority, as applicable, to own
its assets and conduct its timberlands business in the
manner presently conducted, and (iii) each of Seller and, as
of the Closing Date, SDW Timber I has the corporate or
limited liability power and authority, as applicable, to
execute and deliver this Agreement, to perform its
obligations hereunder and to consummate the transactions
contemplated herein in accordance with the terms hereof.
4.2. AUTHORIZATION. The execution and delivery by
Seller of this Agreement and the due consummation of the
transactions contemplated herein have been duly and validly
authorized by all necessary corporate action on the part of
Seller and this Agreement constitutes a valid and legally
binding obligation of Seller, enforceable against Seller in
accordance with its terms, except as such enforceability may
be limited by applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium,
receivership or similar laws affecting creditors' rights
generally, or general principles of equity. This Agreement,
and, when executed, any agreements to be executed by Seller
ancillary hereto, have been duly executed and delivered.
4.3. NO VIOLATION OR CONFLICTS. Except for such
violations or defaults which would not have a Material
Adverse Effect (as defined in Section 6.3 below), neither
the execution and delivery of this Agreement by Seller nor
the consummation by Seller of the transactions contemplated
herein: (i) constitute or will constitute a violation of
Seller's charter or bylaws; (ii) result or will result in
the breach of or the imposition of any lien on any Assets
(as defined in Section 22 below) pursuant to, or constitute
or will constitute a default under, any indenture or bank
loan or credit agreement or other material agreement or
instrument to which Seller is a party or by which it or its
property may be bound or affected; or (iii) violate any
judgment, order, decree, statute or regulation of any
governmental authority or arbitrator binding on Seller, or
cause the termination of any license, permit or consent
relating to the Assets. Except for consents, approvals or
authorizations which will have been obtained or actions
which will have been taken on or prior to the Closing Date,
no consent, approval, authorization or action by or filing
with any governmental authority, or any person having legal
rights against or jurisdiction over or party to any
agreement with Seller, is required in connection with the
execution and delivery by Seller of this Agreement or the
consummation by Seller of the transactions contemplated
herein, except as set forth on Schedule 4.3 and approvals if
not obtained which would not otherwise have a Material
Adverse Effect.
4.4. CONTRACTS, LEASES AND ACCESS RIGHTS AND EASEMENTS.
To Seller's knowledge, each Contract, Lease and Access Right
and Easement is valid and in full force and effect except
for Contracts, Leases and Access Rights and Easements the
termination of which would not have a Material Adverse
Effect (and except as noted on Schedule 9.3). To Seller's
knowledge, each Contract, Lease (except for any Leases
terminating upon assignment) and Access Right and Easement
(other than a prescriptive easement and except as noted on
Schedule 9.3) is enforceable by Seller and there is no
default (or any condition that with the passage of time or
the giving of notice would constitute a default) thereunder
by Seller. To Seller's knowledge, each prescriptive
easement is enforceable by Seller only to the extent
necessary to give access consistent with Seller's current
practices. Neither Seller nor, to Seller's knowledge, any
other party thereto has breached any material provision of,
or is in default in any material respect under, the terms of
any Contract, Lease or Access Right and Easement.
4.5. ENVIRONMENTAL MATTERS. To Seller's knowledge,
except as set forth on Schedule 4.5:
(a) there are no underground storage tanks on the
Timberlands, the Skylark Property or the Improvements (as
defined in Section 22 below);
(b) Seller has not received notification from any
third party, including, but not limited to, any governmental
agency, alleging that the Timberlands, the Skylark Property
or the Improvements are not materially in compliance with
environmental laws;
(c) Seller holds all material licenses, permits
or consents under or relating to environmental laws from all
governmental authorities that are necessary for the conduct
of all business relating to the Timberlands or the Skylark
Property;
(d) Seller is currently conducting all business
relating to the Timberlands or the Skylark Property in
compliance in all material respects with environmental laws;
(e) there are no environmental claims pending or
threatened asserting that the Timberlands or the Skylark
Property are not in material compliance with environmental
laws;
(f) Seller is not subject to any material
liability or obligation with respect to the Timberlands or
the Skylark Property for any cleanup or other response
action relating to any environmental matter;
(g) there has been no spill of any hazardous
substance involving the Assets in a quantity required to be
reported under any environmental law not reported in
accordance with such law; and
(h) based on no independent investigation or due
diligence, there are no known populations of species on the
Timberlands or the Skylark Property which are protected by
the Endangered Species Act.
As used in this Agreement, the term "environmental laws"
shall mean all applicable federal, state or local laws,
rules, regulations, governmental permits or other binding
determinations of any governmental authority relating to or
addressing the environment, including, without limitation,
the Comprehensive Environmental Response, Compensation and
Liability Act, the Resource Conservation and Recovery Act,
the Toxic Substances Control Act, the Clean Water Act, the
Clean Air Act, the Oil Pollution Control Act of 1990, the
Maine Pesticide Control Act of 1975 and the Maine
Coordination of Administration of Superfund Amendments Act
of 1986, each as amended.
4.6. SUITS, ACTIONS OR PROCEEDINGS. Except as
disclosed in Schedule 4.6, to the knowledge of Seller, there
is: (i) no court or administrative judgment or order which
could have a Material Adverse Effect on the Timberlands or
the Skylark Property or current operations thereon; and (ii)
no legal, administrative or other suit, action, proceeding
or arbitration or governmental investigation pending or
threatened which could reasonably be expected to have a
Material Adverse Effect on the Timberlands or the Skylark
Property or current operations thereon. Except as set forth
in Schedule 4.6, Seller has no knowledge of any suit,
action, arbitration or other proceeding threatened or
pending before any court or governmental agency which may
result in the restraint or prohibition of the consummation
of the transactions contemplated by this Agreement.
4.7. BROKER FEES. Except for Donaldson Lufkin &
Jenrette Securities Corporation, with respect to whose fees
Seller shall be solely responsible, Seller has not employed
any broker, agent or finder or incurred any liability for
any brokerage fees, agents' commissions or finders' fees, in
connection with the transactions contemplated by this
Agreement.
4.8. COMPLIANCE. Except as disclosed on Schedule 4.8,
to Seller's knowledge, Seller has not received notification
from any governmental agency or third party alleging that
the Timberlands, the Skylark Property or the Improvements
are not in compliance in all material respects with
applicable laws (other than environmental laws, which are
covered in Section 4.5). Seller has no knowledge of any
such violations relating to the use of the Timberlands, the
Skylark Property or the Improvements. Seller holds all
licenses, permits or consents from all governmental
authorities necessary to conduct all business related to the
Assets, except as would not otherwise have a Material
Adverse Effect.
4.9. TITLE. As of the Closing Date, SDW Timber I is
the record and beneficial owner of the LLC Interest, and SDW
Timber I owns the LLC Interest free and clear of all liens,
security interests, charges and encumbrances. Upon delivery
to Purchaser of a certificate representing the LLC Interest,
and upon SDW Timber I's receipt of payment therefor, title
to the LLC Interest will pass to Purchaser, free and clear
of any liens, security interests, charges or encumbrances.
As of the Closing Date, subject to the Permitted Exceptions
(as defined in Section 7.1 below), except as otherwise
indicated on Schedule 4.9, SDW Timber II has good and
marketable title to the Timberlands, the Skylark Property
and Improvements and title to all other Assets, and at
Closing such Assets will be free and clear of all liens,
security interests, charges and encumbrances other than
Permitted Exceptions. To Seller's knowledge, Seller or, as
of the Closing Date, SDW Timber II, as applicable, has legal
or other access rights to the Timberlands and the Skylark
Property sufficient for timber harvest activity consistent
with Seller's current practices, and has not received any
notice terminating or threatening to terminate such rights.
To Seller's knowledge, no condemnation proceedings have been
commenced, or are proposed or threatened, affecting any of
the Assets. Schedule 4.9 sets forth the approximate acreage
of the Timberlands and the Skylark Property and is true and
correct in all material respects.
4.10. TAXES. Seller has (or on or before the
Closing Date will have) duly and timely filed all material
tax returns relating to its business or the Assets required
to be filed by it on or before the Closing Date ("Covered
Returns"), and has (or by the Closing Date will have) duly
and timely paid, or is contesting in appropriate
proceedings, all taxes shown to be due on such Covered
Returns, all deficiencies and assessments of such taxes of
which notice has been received by Seller, and all other
material taxes due and payable on or before the Closing
Date.
4.11. LLC INTEREST AND SUBSIDIARIES. As of the
Closing Date:
(a) LLC Interest. SDW Timber I is the only
member of SDW Timber II and the LLC Interest is the only
outstanding limited liability company interest in SDW Timber
II. Except for this Agreement, there is no warrant, right,
option or other contractual obligation or commitment
requiring SDW Timber II to issue any additional limited
liability company interest or pursuant to which Seller, SDW
Timber I or SDW Timber II has granted any right to any
person to acquire any interest in SDW Timber II.
(b) Subsidiaries. SDW Timber II has no
subsidiaries and does not own, directly or indirectly, any
capital stock of, any partnership, limited liability company
or other ownership interest in, or any other security issued
by, any other corporation, organization, association or
entity.
(c) Tax Status. Neither SDW Timber I nor
SDW Timber II has elected nor will it elect to be classified
as a corporation for federal income tax purposes under
Treasury Regulation Section 301.7701-3.
(d) Business. As of the Closing Date, except for
the Skylark Property transferred to SDW Timber II pursuant
to the Skylark Asset Purchase Agreement (as defined in
Section 15.1 below) and the Assets and Assumed Liabilities
(as defined in Section 22 below) transferred to SDW
Timber II pursuant to the SDW Timber II Asset Purchase
Agreement (as defined in Section 15.2 below), SDW Timber II
has no assets and liabilities. SDW Timber II is engaged in
no business other than the business related to the
Timberlands or the Skylark Property.
4.12. EMPLOYMENT AGREEMENT AND BENEFITS.
(a) Employment Agreements and Plans. Schedule
4.12 lists all written agreements, contracts and commitments
of the following types to which Seller is a party covering
any Timberland Employee (as defined in Section 11.1(a)):
(i) employment, employee severance and employee retention
agreements; (ii) collective bargaining agreements; and
(iii) bonus, incentive or deferred compensation, stock
option and retirement agreements (other than any such
agreement that is subject to the Employee Retirement Income
and Security Act of 1974, as amended ("ERISA")).
(b) ERISA. All employee benefit plans that are
subject to ERISA and are currently maintained or contributed
to by Seller for the benefit of Timberland Employees (the
"Plans") comply in all respects with the requirements of
ERISA and the Internal Revenue Code of 1986, as amended (the
"Code"), except for any failures to comply that would not
reasonably be expected to have a Material Adverse Effect.
No Plan that is a pension plan is or ever has been a
"multiemployer plan" as such term is defined in Section
3(37) of ERISA.
(c) Tax Qualification. Each Plan intended to be
qualified under Section 401(a) of the Code has received a
favorable determination letter from the IRS as to its
qualification under the Code and, to Seller's knowledge, no
amendment to any such Plan has been adopted since the date
of such determination letter that will adversely affect such
determination of qualification, except for any such
amendment as would not reasonably be expected to have a
Material Adverse Effect.
4.13. LABOR RELATIONS AND EMPLOYMENT. Except as
set forth on Schedule 4.13, with respect to each Timberland
Employee: (i) no certification campaign, labor strike,
dispute, slowdown, stoppage or lockout is pending, or to
Seller's knowledge, threatened; (ii) Seller is in compliance
with all applicable laws respecting employment practices,
terms and conditions of employment and occupational safety
and health; (iii) no unfair labor practice charge or
complaint against Seller is pending or, to Seller's
knowledge, threatened before the National Labor Relations
Board; and (iv) no grievance or arbitration proceeding
arising out of any collective bargaining agreement is
pending, except in each case under clauses (i), (ii), (iii)
and (iv) as would not reasonably be expected to have a
Material Adverse Effect.
4.14. ABSENCE OF CHANGES. As of the Closing Date,
since the date of this Agreement, Seller and/or SDW Timber
II, as applicable, has operated all business relating to the
Timberlands and the Skylark Property only in the ordinary
course of business, and has not:
(a) Sold, transferred or conveyed any Assets
except in the ordinary course of business;
(b) Suffered any change in any business relating
to the Timberlands or the Skylark Property, taken as a
whole, that would reasonably be expected to have a Material
Adverse Effect;
(c) Suffered any material destruction, damage or
loss relating to the Assets or any business related to the
Timberlands or the Skylark Property, taken as a whole, that
would reasonably be expected to have a Material Adverse
Effect;
(d) Incurred any liability or obligation, made
any purchase commitment, or entered into any transaction
that would constitute or result in any Assumed Liability (as
defined in Section 22 below), other than in the ordinary
course of business;
(e) Amended or modified in any material respect,
or entered into, any Contracts, Leases or Access Rights and
Easements other than in the ordinary course of business; or
(f) Maintained the Assets, including adequate
inventory and spare parts, other than substantially in
accordance with current maintenance practices.
4.15. CONDUCT OF BUSINESS. From October 1, 1997
through the Closing Date, Seller and/or SDW Timber II, as
applicable, has operated its business relating to the
Timberlands in the ordinary course of its business and in
conformance with the 1998 Harvesting Forecast or the 1999
Harvesting Forecast, as applicable. Seller and/or SDW
Timber II, as applicable, has harvested timber for the
fiscal year commencing October 1, 1997 substantially in
accordance with, and has not materially exceeded by volume,
product mix or method, the levels described in the 1998
Harvesting Forecast or the 1999 Harvesting Forecast, as
applicable. From the date hereof to the Closing Date,
harvesting by Seller and/or SDW Timber II, as applicable, of
the Timberlands shall not exceed by volume or method the
levels described in the 1998 Harvesting Forecast or the 1999
Harvesting Forecast, as applicable, by more than one percent
(1%) of the applicable forecasted amounts. From the date
hereof to the Closing Date, harvesting by Seller of the
Timberlands will be done in a manner consistent by stand as
outlined in the 1999 Harvesting Forecast with the goal of
harvesting the type and amounts of products shown in the
1999 Harvesting Forecast.
4.16. ANCILLARY AGREEMENTS. As of the SDW II
Closing Date, accurate and complete descriptions of the
Assets, Excluded Assets (as defined in Section 22 below),
Assumed Liabilities and Excluded Liabilities (as defined in
Section 22 below) are contained in each of Section 1 (and
its accompanying schedules) of the Skylark Asset Purchase
Agreement and the SDW Timber II Asset Purchase Agreement.
4.17. ACCURACY AND COMPLETENESS OF REPRESENTATIONS.
The representations and warranties of Seller contain no
material inaccuracy, misstatement or omission that would
make such representations or warranties misleading in any
material respect. The schedules to this Agreement are
complete and accurate as of the date of execution of this
Agreement, and, as of the Closing Date, have been updated
and are complete and accurate as of such date.
5. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser
represents and warrants to Seller that, as of the date of
execution of this Agreement, and as of the Closing Date, the
following are true and correct:
5.1. ORGANIZATION AND POWER. Purchaser (i) is a
limited partnership duly formed and validly existing under
the laws of the State of Delaware, and (ii) is qualified to
do business and is in good standing in the State of
Washington and (iii) has the power to execute and deliver
this Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated herein in
accordance with the terms hereof.
5.2. AUTHORIZATION; NO VIOLATION OR CONFLICTS. The
execution and delivery of this Agreement by Purchaser and
the due consummation of the transactions contemplated herein
have been duly and validly authorized by all necessary
action on the part of Purchaser, and this Agreement
constitutes a valid and legally binding obligation of
Purchaser, enforceable against Purchaser in accordance with
its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium, receivership or similar
laws affecting creditors' rights generally, or general
principles of equity. This Agreement, and, when executed,
any agreements to be executed by Purchaser ancillary hereto,
have been duly executed and delivered. Except for such
violations or defaults which would not have a Material
Adverse Effect on Purchaser's business, taken as a whole,
neither the execution and delivery of this Agreement or the
Purchaser's Notes by Purchaser nor the consummation by
Purchaser of the transactions contemplated herein or
therein: (i) constitute or will constitute a violation of
Purchaser's partnership agreement; (ii) result or will
result in the breach of, or the imposition of any lien on
any assets of Purchaser pursuant to, or constitute or will
constitute a default under, any indenture or bank loan or
credit agreement, or other material agreement or instrument
to which Purchaser is a party or by which it or any of its
properties may be bound or affected, or (iii) violate any
judgment, order, decree, statute or regulation of any
governmental authority or arbitrator binding on Purchaser.
Except for consents, approvals, or authorizations which will
have been obtained or actions which will have been taken on
or prior to the Closing Date, no consent, approval,
authorization or action by any governmental authority or any
person having legal rights against or jurisdiction over or
party to any agreement with Purchaser, is required in
connection with the execution and delivery by Purchaser of
this Agreement or the Purchaser's Notes or for consummation
by Purchaser of the transactions contemplated herein, except
as set forth on Schedule 5.2 and approvals which would not
have a Material Adverse Effect on Purchaser's business,
taken as a whole.
5.3. BROKER FEES. Except for The Goldman Sachs Group,
L.P., with respect to whose fees Purchaser shall be solely
responsible, Purchaser has not employed any broker, agent or
finder or incurred any liability for any brokerage fees,
agents' commissions or finders' fees in connection with the
transactions contemplated herein.
5.4. SUITS, ACTIONS OR PROCEEDINGS. Purchaser has no
knowledge of any suit, action, arbitration or other
proceeding pending before any court or governmental agency
which may result in the material restraint or prohibition of
the consummation of the transactions contemplated by this
Agreement.
5.5. FINANCIAL STATEMENTS.
(a) Financial Information. Seller has been
furnished with the consolidated audited balance sheets of
the Purchaser and its consolidated subsidiaries as of
December 31, 1997, December 31, 1996 and December 31, 1995
and the related statements of earnings and shareholders
equity and cash flows for the fiscal years ended on such
dates, accompanied by the notes thereto and by the reports
thereon of Coopers & Lybrand LLP (collectively, the
"Financial Statements").
(b) Character of Financial Information. Unless
otherwise disclosed therein, the Financial Statements were
prepared in accordance with generally accepted accounting
principles consistently applied throughout the periods
specified therein and present fairly, in all material
respects, the consolidated financial position and results of
operations of the Purchaser and its subsidiaries as of the
dates and for the periods specified therein in accordance
with generally accepted accounting principles.
(c) Acquiring for own Account. Purchaser is
acquiring the LLC Interest for its own account and not with
a view to its distribution within the meaning of Section
2(11) of the Securities Act of 1933, as amended. Purchaser
confirms that Seller has made available to Purchaser and its
representatives and agents the opportunity to ask questions
of the officers and other management employees of Seller and
to acquire such additional information about the business
and financial condition of Seller as Purchaser has
requested, and all such information has been received.
6. SURVIVAL; KNOWLEDGE; MATERIALITY.
6.1. SURVIVAL. The respective representations and
warranties of Seller and Purchaser contained herein or in
any Schedule, Exhibit, certificate or other instrument
delivered by or on behalf of such party pursuant to this
Agreement (except for the representations and warranties in
Section 4.9 with respect to the Timberlands, the Skylark
Property and the Improvements, (which shall terminate at
Closing) and Section 4.5 with respect to environmental
matters (which shall survive the Closing for a period of two
(2) years)) shall survive the Closing for a period of 18
months, and thereafter shall expire and terminate, and each
party shall be forever released from liability to the other
based upon such representations and warranties except as to
matters for which notice has been given by a party of the
inaccuracy or breach of any representation or warranty on or
prior to such termination date.
6.2. SELLER'S KNOWLEDGE DEFINED. The term "knowledge"
as used in this Agreement with respect to Seller shall mean
actual current knowledge (as opposed to constructive or
imputed knowledge) of the fact or matter in question by any
Vice President of Seller and J. Pinkerton, Paul Fortin,
Norman Chase, Douglas Denico, Elvin Hawes, Sharon Fortin,
John Fogarty and Steve Robe.
6.3. MATERIALITY DEFINED. The terms "material," and
"materially," as used in this Agreement shall refer to (a)
with respect to any agreement or right, an agreement or
right the loss or absence of which could reasonably be
expected to have a Material Adverse Effect, and (b) with
respect to any violation or breach, a violation or breach
which could reasonably be expected to have a Material
Adverse Effect. "Material Adverse Effect" shall mean a
lessening of the value of the Assets, or the operations of
the Timberlands, as applicable, or damages of at least
$1,000,000.
7. CONDITION OF TITLE AND TITLE INSURANCE.
7.1. CONDITION OF TITLE. As of the Closing Date, title
to the Timberlands, the Skylark Property and the
Improvements shall be in accordance with Section 4.9 hereof.
Monetary encumbrances or defects to be discharged by Seller
shall be paid from Seller's funds at Closing or Seller shall
indemnify Purchaser against such monetary encumbrances or
defects. In addition to any other permitted exceptions
agreed upon by the parties, the following shall not be
deemed unacceptable encumbrances or defects: rights reserved
in federal patents or state deeds; building or use
restrictions consistent with current zoning; easements
(including prescriptive easements), restrictions, defects,
non-monetary encumbrances and other matters, including lack
of insurable access, not inconsistent in a material respect
with the current use of the Timberlands, the Skylark
Property and the Improvements, taken as a whole; and any
other non-monetary encumbrance or defect that does not, when
aggregated with all other such encumbrances or defects,
affect the value of the Timberlands and the Skylark
Property, collectively, by more than $1,000,000
(collectively, "Permitted Exceptions").
7.2. TITLE INSURANCE. As of October 1, 1998, Seller
has obtained and provided to Purchaser commitments for 1992
ALTA owner's fee title insurance policies for each of the
fee parcels included in the Timberlands and the Skylark
Property from First American Title Insurance Company ("Title
Company") evidencing title through the date indicated
thereon (collectively, the "Title Commitment") together with
the title exception documents referred to therein. The
Title Commitment is subject to the standard printed
exceptions except for parties in possession (other than
tenants under the Leases) and mechanic's and materialmen's
liens. Seller shall pay all costs of obtaining and
providing the Title Commitment to Purchaser including any
title search costs (but not the costs of the title insurance
premium for the Title Company issuing an owner's title
insurance policy to SDW Timber II based on the Title
Commitment ("Title Policy"), which costs shall be borne by
Purchaser).
Notwithstanding any other term or provision hereof to
the contrary, if for any reason Seller has not delivered or
caused to be delivered the Title Commitment (with copies of
title exception documents) to Purchaser as of October 1,
1998, then the Closing Date may, at Purchaser's option, be
extended by an additional day for each day of delay in the
delivery of such documents.
If the Title Commitment contains matters which
Purchaser reasonably determines are not Permitted
Exceptions, Purchaser must notify Seller in writing of
Purchaser's objections ("Title Objections") to any such
matters within 30 days after October 1, 1998. Any matters
reflected in the Title Commitment and not: (i) timely
objected to by Purchaser as hereinabove provided; or (ii)
constituting Monetary Liens (as defined below), are and
shall be Permitted Exceptions.
Seller shall have a period of 60 days after
Purchaser's notice of Title Objections within which to
resolve the Title Objections to Purchaser's reasonable
satisfaction and furnish to Purchaser and Title Company
evidence that the Title Objections have been so resolved or
notify Purchaser in writing that Seller is unable or
unwilling to resolve the Title Objections. Any Title
Objection shall be deemed to have been resolved if Seller
provides to Purchaser an endorsement to the Title Commitment
which provides for affirmative insurance with respect to any
such Title Objection. If Seller declines to resolve any
Title Objections, is unable to resolve the Title Objections
or does not respond to Purchaser's notice of Title
Objections, then, notwithstanding the Closing Date,
Purchaser shall have the earlier of: (i) five (5) days after
receipt of Seller's written notice that Seller is unable or
unwilling to resolve Title Objections; or (ii) 15 days after
Purchaser's notice to Seller of Title Objections within
which to elect, at Purchaser's sole option, between the
following alternatives:
(a) accept title to the Timberlands and the
Skylark Property in its then existing condition without any
diminution of the Purchase Price; or
(b) if such Title Objections represent an
aggregate diminution in value in excess of $1,000,000
referred to in Section 7.1, terminate this Agreement by
written notice to Seller whereupon this Agreement shall be
void and without further recourse to the parties, except as
otherwise provided herein; provided, however, that if
Purchaser elects to terminate as provided above, Seller
shall have the option, exercised by written notice to
Purchaser within 10 days of receipt of Purchaser's notice to
terminate, to reduce the Purchase Price by an amount equal
to the diminution in value of the Timberlands caused by such
Title Objections in excess of such $1,000,000.
If Purchaser does not provide timely notice to Seller
of any Title Objections or elects to accept title
notwithstanding any Title Objections as provided above, then
all matters shown on the Title Commitment which have been
accepted or deemed to have been accepted by Purchaser
(excluding Monetary Liens) shall be and become Permitted
Exceptions.
Notwithstanding the foregoing, Seller shall on or
before the Closing Date remove and discharge from the title
to the Timberlands or the Skylark Property any mortgage,
deed of trust, security agreement, pledge, financing
statement, lien, or mechanic's and materialmen's liens,
judgment or other encumbrance or title exception of a
monetary nature (collectively, "Monetary Liens"). Seller
shall cooperate, at no expense to Seller, with Purchaser to
resolve any other title matters after Closing as reasonably
required from time to time; provided, however, that Seller
shall bear no cost for such cooperation unless such title
matter was an obligation of Seller's to be fulfilled prior
to or in connection with Closing pursuant to the terms of
this Agreement.
8. LIMITATIONS OF REPRESENTATIONS AND WARRANTIES.
8.1. LIMITATION OF REPRESENTATIONS. Purchaser agrees
that neither Seller nor its agents, officers, employees or
assigns shall be held to any covenant or representation
respecting the condition of the Assets not set forth herein,
nor shall Purchaser or Seller or the assigns of either be
held to any covenant or agreement for alterations,
improvements or repairs unless the covenant or agreement
relied on is contained herein.
8.2. LIMITATION OF WARRANTIES. Except for the
representations and warranties made in this Agreement and
the agreements attached as exhibits hereto, Purchaser
specifically acknowledges and agrees that Seller does not
make any other representations or warranties of any kind
whatsoever, either express or implied, with respect to the
Assets, and Purchaser assumes the risk that adverse physical
conditions may not have been revealed by its investigation
of the Assets.
9. CONTRACTS; LEASES; ACCESS RIGHTS AND EASEMENTS;
PERSONAL PROPERTY.
9.1. CONTRACTS. Schedule 9.1 sets forth a list of all
material Contracts.
9.2. LEASES. Schedule 9.2 sets forth a list of all
material Leases.
9.3. ACCESS RIGHTS AND EASEMENTS. Schedule 9.3 sets
forth a list of all material Access Rights and Easements
evidenced by written documents other than deeds.
10. PERSONAL PROPERTY. Schedule 10 sets forth a list of
substantially all of the Personal Property.
11. EMPLOYEES AND BENEFIT PLANS.
11.1. TERMINATION AND REHIRING OF EMPLOYEES.
(a) The employees identified on Schedule
11.1(a)(i) ("Timberland Employees") include all persons
employed in the business that is the subject of this
Agreement. The employees identified on Schedule 11.1(a)(ii)
("Absent Employees") include all Timberland Employees
currently on leaves of absence for any reason, including,
but not limited to, military leave, family or medical leave,
long or short term disability, educational leave or personal
leave. On and as of the Closing Date, Seller will take all
action necessary to terminate the Timberland Employees and
shall pay such employees all accrued employment-related
financial obligations due to them through the close of
business on the Closing Date. The parties agree that a
Transitioning Employee's (as defined in Section 11.1(b))
termination of employment with Seller at the Closing shall
not constitute his or her retirement for purposes of the
Retirement Plan (as defined in Section 11.2(a) below) or for
the beginning any Retiree Coverages (as defined in Section
11.4 below) for which the Transitioning Employee is or may
be eligible (it being understood that any Retiree Coverages
for which a Transitioning Employee is or may qualify shall
be provided only following his or her termination of
employment by Purchaser.)
(b) Purchaser shall extend offers of employment
not less than 10 days before Closing to each of the
Timberland Employees other than the Absent Employees and
other than up to eight (8) additional Timberland Employees
selected solely at Purchaser's discretion; provided,
however, that Purchaser shall not be required to extend
offers of employment to any former employees of Seller
terminated by Seller prior to the Closing Date. Each such
offer of employment shall: (i) be contingent upon such
Timberland Employee's passing Purchaser's mandatory
applicant substance abuse test, (ii) be effective subject to
and as of the Closing, (iii) provide for employment at the
current location of employment of such Timberland Employee,
(iv) be at a salary or hourly wage rate, as applicable, that
is at least equal to the current salary or hourly wage rate
of such Timberland Employee, (v) provide for employee
benefits that are substantially comparable to employee
benefits provided to other similarly situated employees of
Purchaser, and (vi) be for a position appropriate to such
Timberland Employee's skill, experience and training. Those
Timberland Employees who accept such offers of employment
with Purchaser and who subsequently pass Purchaser's
mandatory applicant substance abuse test are referred to as
"Transitioning Employees." Those Timberland Employees who
do not accept such offers of employment, or who accept such
offers but who subsequently fail Purchaser's mandatory
applicant substance abuse test, are referred to as
"Nontransitioning Employees."
(c) Effective from and after the first day after
Closing and except as provided elsewhere in this Section 11,
Purchaser shall assume and become solely responsible for any
and all liabilities in respect to the Transitioning
Employees relating to or arising in connection with any
actual or constructive termination of any such Transitioning
Employee's employment by Purchaser after the Closing.
Purchaser agrees that it will not take any action with
respect to Transitioning Employees that would cause Seller
any liability under the Worker Adjustment and Retraining
Notification Act of 1990, as amended ("WARN") or any similar
applicable federal or state law or regulation. From and
after the Closing Seller shall remain solely responsible for
any and all liabilities for: (i) accrued but unpaid
salaries, wages, vacation or sick pay, deferred compensation
or other similar payroll items arising as a result of
services rendered by any Timberland Employee to Seller at
any time prior to Closing; and (ii) for any actions taken by
Seller at any time prior to Closing with respect to any
Timberland Employee or with respect to any benefits plans.
Each Transitioning Employee will be credited with his or her
years of employment service with Seller for purposes of
determining the number of vacation days available to him or
her as an employee of Purchaser.
(d) From and after the Closing, Seller shall
remain solely responsible for any and all liabilities with
respect to the Nontransitioning Employees for all claims
arising under WARN, the Consolidated Omnibus Budget
Reorganization Act, as amended ("COBRA"), disability plans,
the Family and Medical Leave Act of 1993, as amended
("FMLA"), or retirement plans. From and after the Closing,
Seller also shall remain solely responsible for: (i)
disability benefits payable under any disability benefit
plan to those Timberland Employees who, on the Closing Date,
are on long or short-term disability status and are entitled
to benefits under such plans; and (ii) post-retirement
health and life insurance benefits payable under the terms
of any plan that provides such post-retirement benefits to
former employees of Seller and their eligible spouses and
dependents who, on the Closing Date, are receiving such
post-retirement benefits under such plan; and (iii) for any
and all liabilities with respect to Nontransitioning
Employees for retirement, health or other benefits.
(e) For two (2) years after the date hereof,
Seller shall not directly or indirectly, without the prior
written consent of Purchaser, recruit, offer employment,
employ (including employment as a consultant), lure or
entice away or in any other manner persuade or attempt to
persuade any Transitioning Employee or an employee of
Purchaser or any subsidiary, group, division of Purchaser or
any Affiliate (as defined in Section 22 below) thereof, to
leave the employ of Purchaser unless such person's
employment has been terminated by the Purchaser or an
Affiliate thereof.
11.2. RETIREMENT PLANS.
(a) Seller's Plans.
(i) Responsibility for Existing Plans.
Subject to the balance of this
Section 11, Seller will retain all
liability and responsibility for the
disposition of interests under the S.D.
Warren Salaried Investment Plan
("Investment Plan") and the S.D. Warren
Company Retirement Plan for Salaried
Continuing Employees ("Retirement Plan")
with respect to those Transitioning
Employees or their beneficiaries who, as
of the Closing Date, are participants in
the Investment Plan or Retirement Plan.
No Transitioning Employee who is such a
participant will be eligible to make any
contributions to the Investment Plan or
accrue benefits under the Retirement
Plan and Seller will not be obligated to
make any contribution with respect to
any such participant in the Investment
Plan, with respect to compensation
earned by such Transitioning Employee on
or after the Closing Date; provided,
however that Purchaser shall notify
Seller upon the termination of
employment with Purchaser of any
Transitioning Employee which occurs
prior to two years from the Closing
Date. Seller agrees that it will amend
its defined benefit plan as necessary to
recognize the service of Transitioning
Employees with Purchaser for purposes of
vesting and eligibility for subsidized
early retirement and supplemental
benefits with respect to their accrued
benefits under such plan as of the
Closing Date. Seller agrees that it
will cause the entire account balance of
each Transitioning Employee who is a
participant in the Investment Plan to be
fully vested as of the Closing Date.
(ii) Rollover of Investment Plan Balances.
Seller further agrees that each
Transitioning Employee's entire vested
account balance in the Investment Plan
shall be distributed as promptly as
practicable following the Closing Date
if the Transitioning Employee consents
thereto (if such consent is required),
which distribution, if a Transitioning
Employee so elects, may be rolled over,
directly or otherwise in accordance with
applicable law and regulations, to an
individual retirement account or to one
or more defined contribution retirement
plans qualified under Section 401(a) of
the Code maintained by Purchaser or any
of its subsidiaries or Affiliates
("Purchaser Defined Contribution Plan").
Purchaser agrees it shall take or cause
to be taken all such action as may be
necessary to cause the Purchaser Defined
Contribution Plan to accept such
rollovers, which shall consist solely of
cash or cash and any promissory note or
notes representing an outstanding loan
from the Investment Plan to the
Transitioning Employee. Seller
represents to Purchaser that: (i) the
Investment Plan has been determined by
the Internal Revenue Service to qualify
under Section 401 of the Code; and
(ii) that it has determined, after
consulting with counsel, that the
distributions completed by this Section
11.2(a)(ii) are consistent with
applicable law, including specifically
Section 401(k)(10) of the Code.
(b) Purchaser's Plans.
(i) Defined Benefit Retirement Plans.
Effective as of the first day after the
Closing Date, Purchaser shall amend any
existing defined benefit pension plans
to provide for (A) the immediate
participation of the Transitioning
Employees on the same basis as the
Purchaser's similarly situated employees
are then eligible to participate, and
(B) the recognition under each such plan
of all the Transitioning Employee's
service with Seller completed prior to
the Closing only for purposes of
eligibility to participate and vesting
under each such plan, but not for
purposes of determining the amount of
benefit accrual under the plan. Seller
and Purchaser acknowledge that the
provisions of this Section 11.2(b)(i) do
not require Purchaser to provide the
Transitioning Employees or their
otherwise eligible spouses and
dependents with Retiree Coverages.
(ii) Defined Contribution Plans. Effective
as of the first day after the Closing
Date, Purchaser shall amend any existing
Purchaser Defined Contribution Plans to
provide for (A) the immediate
participation of the Transitioning
Employees on the same basis as
Purchaser's similarly situated employees
are then eligible to participate, and
(B) to the extent permissible under
applicable law and within the control of
Purchaser, the recognition of all
service of the Transitioning Employees
with Seller completed prior to and as of
the Closing only for purposes of
eligibility to participate and vesting,
but not for purposes of credited
service.
11.3. WELFARE PLANS.
(a) Seller's Plans. From and after the Closing,
Seller shall remain solely responsible for liabilities for
claims of the Transitioning Employees and their eligible
dependents incurred prior to the Closing under those plans
that are health, disability, accident or life insurance
plans, and Purchaser shall be solely responsible for all
such liabilities for claims incurred by any Transitioning
Employee or his or her eligible dependents after the
Closing. For the purposes of this Section 11.3, a claim for
health benefits shall be deemed to have been incurred when
the services that are the subject of such claim are rendered
and a claim for disability, accident or life insurance shall
be deemed to have been incurred when the last event giving
rise to such claim occurs. This Section 11.3(a) shall not
be construed to require Purchaser to provide health,
disability, accident or life insurance plans that are the
same or similar to plans that Seller currently provides to
the Timberland Employees.
(b) Purchaser's Plans. Effective from and after
the first day after the Closing, Purchaser shall cause each
Transitioning Employee and his or her eligible dependents to
become eligible to participate immediately in each employee
welfare benefit plan (as such term is defined in
Section 3(l) of ERISA) maintained, as of the Closing Date,
by Purchaser and each other benefit arrangement maintained
by Purchaser for the benefit of similarly situated employees
of Purchaser. Purchaser shall cause each such welfare plan
to: (i) recognize the 1998 co-payments and deductible
expenses of the Transitioning Employees and their eligible
dependents incurred under those plans that are health
benefit plans, and (ii) waive all pre-existing condition
exclusions and limitations of the Transitioning Employees
and their eligible dependents.
(c) Cooperation of Parties To Ensure Coverage.
Purchaser and Seller shall cooperate in ensuring that
welfare benefit coverage for Transitioning Employees and
their eligible dependents on and prior to the Closing is
coordinated with such coverage provided after the Closing.
11.4. RETIREE COVERAGES. Seller agrees it will
take such action as may be necessary to recognize the
service of the Transitioning Employees with Purchaser for
purposes of determining the Transitioning Employees'
eligibility for the continuation of and entitlement to the
benefits of Seller's medical and life insurance coverage for
an employee and his or her spouse and eligible dependents,
and reimbursement of Medicare premiums of an employee and
his or her spouse, subsequent to retirement or death
("Retiree Coverages"), as such Retiree Coverages are now or
may be in effect from time to time hereafter. The parties
agree that a Transitioning Employee's termination of
employment with Seller at the Closing shall not constitute
his or her retirement for purposes of beginning any Retiree
Coverages for which the Transitioning Employee is or may be
eligible but instead that any Retiree Coverages for which a
Transitioning Employee is or may qualify shall be provided
only following his or her termination of employment from
Purchaser.
11.5. AMENDMENT AND MODIFICATION OF PLANS. Except
as expressly provided in Sections 11.2 and 11.3, nothing
contained in this Section 11 shall limit the rights of
Purchaser or Seller to amend, modify or terminate from time
to time or at any time any of their respective benefit
plans, or confer on any third party, including, but not
limited to, any Transitioning Employee, any rights as a
third-party beneficiary of the provisions herein.
11.6. WORKER'S COMPENSATION. From and after the
Closing: (a) Seller shall remain solely responsible for all
workers' compensation claims of any Nontransitioning
Employees and for workers' compensation claims of any
Transitioning Employees that are based on any accident that
occurred or injury that was documented prior to Closing, and
(b) Purchaser shall be solely responsible for all workers'
compensation claims of any Transitioning Employees that are
based on any accident that occurred or injury that occurred
on or after Closing.
11.7. SEVERANCE PAYMENTS. Purchaser shall promptly
notify Seller of (a) the termination without cause by
Purchaser of any Transitioning Employee within two (2) years
following the Closing Date and (b) the amount of any
severance payments made to any such person (a "Terminated
Transitioning Employee"), which shall be reasonably
equivalent to existing severance benefit payments in place
for similarly situated employees of Purchaser. Seller may,
in its sole discretion and at its sole expense, provide any
Terminated Transitioning Employee additional severance
payments to compensate for any difference between severance
payments made by Purchaser and the amount such Terminated
Transitioning Employee would have received pursuant to
Seller's severance policy as in effect on the date hereof.
12. CERTAIN PRE-CLOSING MATTERS.
12.1. ACCESS TO INFORMATION. Upon full execution
hereof and reasonable prior notice, Seller will permit
Purchaser to have reasonable access to all records and
information in Seller's possession regarding timber
inventories, road agreements, title, environmental matters
and other matters relating to (a) the Timberlands or the
Skylark Property, (b) the operation thereof, or (c) the
Improvements. Seller shall provide to Purchaser schedules
and copies of any and all Contracts, Leases and Access
Rights and Easements relating to the Timberlands and the
Skylark Property, as well as copies of all environmental
site assessments, if any, and all other materials reasonably
requested by Purchaser. Upon reasonable notice to Seller,
Purchaser shall have reasonable access to physically inspect
any and all Assets.
12.2. CONDUCT OF BUSINESS PRIOR TO CLOSING. From
the date hereof until the Closing, except as permitted by
this Agreement or as otherwise consented to by Purchaser in
writing, which consent shall not be unreasonably withheld or
delayed, Seller shall:
(a) carry on any business relating to the
Timberlands and the Skylark Property in the ordinary course
and in the same manner in which such business has previously
been conducted and substantially in accordance with the 1998
Harvesting Forecast or the 1999 Harvesting Forecast, to the
extent applicable, and to the extent to preserve intact the
relationships with customers, suppliers and others having
business dealings relating to the Timberlands;
(b) maintain its books of account and records
relating to the Timberlands and the Skylark Property
business in its usual, regular and ordinary manner,
consistent with past practice; and
(c) not hire any individuals for employment in
the business that is the subject of this Agreement without
Purchaser's consent or terminate any Timberland Employee
unless Seller (i) terminates such Timberland Employee for
cause or (ii) obtains Purchaser's prior consent.
Notwithstanding the preceding sentence, Seller shall be
entitled to continue to conduct harvesting operations on the
Timberlands during the period from the date hereof until the
Closing, so long as the amount of timber harvested during
such period does not substantially depart from the 1998
Harvesting Forecast or the 1999 Harvesting Forecast, to the
extent applicable.
12.3. NON-SOLICITATION. From the date hereof until
the Closing, Seller (a) shall not initiate, solicit or
encourage the making of any inquiry or proposal made by a
third party relating to such party's acquisition (other than
pursuant to this Agreement) of all or substantially all of
the Timberlands or Assets, whether through a direct
acquisition of assets or through an acquisition of equity
interests, or both (any such inquiry or proposal, an
"Acquisition Proposal"), and (b) shall not engage in
negotiations or discussions (including making any counter-
proposal) with, or furnish any information or data to, any
third party relating to an Acquisition Proposal (other than
the transactions contemplated by this Agreement).
12.4. CONSERVATION EASEMENTS. From the date hereof
and hereafter, Purchaser and Seller shall use their best
commercially reasonable efforts to cooperate with respect to
any grant of the conservation easements relating to
Timberlands property located at Moosehead Lake or the West
Outlet of the Kennebec River ("Conservation Easements") to
the State of Maine or any organization or agency acting on
its behalf. The parties agree that any Conservation
Easement shall be in compliance with the terms and
conditions ("Conservation Easement Terms") attached hereto
as Exhibit 12.4; provided, however, that the terms and
conditions of any Conservation Easement granted by Seller
prior to Closing may deviate from the Conservation Easement
Terms upon the approval of Purchaser, which approval may
not be unreasonably withheld, and provided further that
Seller may receive at least $2,900,000 and $350,000,
respectively, in consideration of the Moosehead Lake and
West Outlet Conservation Easements without the consent of
Purchaser. Prior to Closing, Seller shall notify Purchaser
of material developments with respect to negotiations
relating to any such Conservation Easement. Purchaser shall
have the right to participate in such negotiations;
provided, however, that prior to Closing, Seller shall
control such negotiations. If Seller agrees to binding
terms with respect to any Conservation Easements with the
State of Maine or its agent prior to Closing in compliance
with the Conservation Easement Terms, Purchaser shall close
the transaction effectuating the grant of such Conservation
Easement after Closing. In the event that Seller and the
State of Maine (or its agent) agree upon the final terms and
conditions with respect to any Conservation Easement and
close on such terms and conditions prior to Closing, Seller
shall forward to Purchaser by wire transfer the
consideration specified in the Conservation Easement Terms,
together with any reimbursement for timber, as described in
Section 6(a)(4) of the Conservation Easement Terms for
Moosehead Lake. If Purchaser closes in compliance with the
Conservation Easement Terms after Closing, and the
consideration actually paid to Purchaser for the
Conservation Easements is less than the consideration set
forth in the Conservation Easement Terms, Seller shall
forward the difference to Purchaser by wire transfer. If
Purchaser closes on such terms after Closing and the
consideration actually paid to Purchaser for the
Conservation Easements is more than the consideration set
forth in the Conservation Easement Terms, Purchaser shall
forward the difference to Seller by wire transfer. In the
event that Seller and the State of Maine (or its agent) do
not reach binding agreement with respect to the terms of any
Conservation Easement prior to the Closing, Purchaser shall
continue such negotiations after Closing; provided, however,
that Purchaser shall not take any action with respect to
Timberlands that are the subject of the Conservation
Easements involving any third party other than the State of
Maine or its agent through the first calendar quarter of
1999.
12.5. LENDER CONSENTS. Promptly following the date
of this Agreement, Seller shall use its best efforts to
obtain requisite consents from its lenders pursuant to the
terms of the Credit Agreement (as defined in Section 22
below); provided, however, that Seller must obtain such
consents within 21 days from the date of this Agreement,
unless otherwise agreed upon by the parties. If Seller does
not waive this condition or fails to notify Purchaser that
Seller has elected to waive this condition within 21 days of
the date hereof, Purchaser may terminate this Agreement.
13. HART-SCOTT-RODINO FILING. Within 10 days after the
date of this Agreement, Purchaser and Seller shall make
appropriate filings under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended ("HSR Act"), and will
seek expedited review by the examining agency. Seller and
Purchaser shall expeditiously attempt to resolve any issues
that may arise in connection therewith. Each party shall
pay its requisite filing fee, if any, and all costs and
expenses relating to such party's compliance with the terms
of this Section 13.
14. CONFIDENTIALITY; PUBLIC ANNOUNCEMENTS; RETURN OF
INFORMATION.
14.1. CONFIDENTIALITY. Subject to the provisions
of Section 14.3 below, neither Seller nor Purchaser shall
disclose the content or substance of this Agreement to any
individual, firm, partnership, corporation, entity,
governmental authority or other party except its Affiliates
and its advisors, agents, lenders and representatives
assisting each respective party in connection with this
transaction, until such disclosure is agreed upon in writing
and then only to accomplish the consents and approvals
required hereunder.
14.2. PUBLIC ANNOUNCEMENTS. No press releases or
other public statements concerning this Agreement or the
transactions contemplated hereby shall be made by either
party without the prior written approval of the other, which
approval shall not be unreasonably withheld, delayed or
conditioned. Each party shall have the right to review the
other party's press releases prior to release for
consistency purposes. Notwithstanding the foregoing, it is
understood that Seller and Purchaser will be permitted to
make filings, on Form 8-K or 10-Q or otherwise, with the
Securities and Exchange Commission, or other filings as
required by stock exchanges (including the rules of the New
York Stock Exchange) with respect to or referring to this
Agreement and the transactions contemplated hereby (which
may be included as exhibits thereto any such release or
public announcement, and copies of the Agreement and any
exhibits thereto), and the parties shall cooperate with one
another with respect to such filings.
14.3. EXCEPTIONS TO CONFIDENTIALITY. Each party
hereto, its representatives, agents and employees shall hold
in strict confidence and shall not use or disclose to any
person or organization (except as permitted under
Section 14.1 or 14.2 above) any information or data
concerning or provided pursuant to this Agreement or the
transactions contemplated hereby except to the extent that
(i) such information has been published or constitutes a
matter of public knowledge or record, (ii) such disclosure
reasonably appears to be required by a governmental agency
having jurisdiction over the parties, (iii) such information
is necessary in connection with any suit brought to enforce
the obligations of any party hereunder, or (iv) if based
upon the legal opinion of counsel for the disclosing party,
such counsel reasonably believes that disclosure is
necessary or desirable to avoid conflict with or violation
of any applicable law, rule or regulation.
14.4. RETURN OF ORIGINALS. In the event of
termination of this Agreement for whatever reason, at
Seller's request, Purchaser will return all originals and
copies of documents, work papers and other material obtained
hereunder, whether obtained before or after the execution
hereof; provided, however, that Purchaser shall have no
obligation to return such materials if they are subject to
the exceptions in Section 14.3 above. Subject to Subsection
14.1 and 14.2 and the exceptions in Section 14.3 above,
Purchaser agrees that it will not disclose or divulge any
such information to any other person without Seller's
written consent, and will use its best efforts to keep any
information so obtained confidential.
14.5. INJUNCTIVE RELIEF. The parties acknowledge
that, in the event of any breach of this Section 14, the
harm suffered by the injured party would not be compensable
by damages, and accordingly the injured party would not be
compensable by damages, and accordingly the injured party
shall, in addition to any other remedy it may have, be
entitled to an injunction against such breach.
15. PRE-CLOSING TRANSACTIONS.
15.1. PURCHASE OF SKYLARK PROPERTY. Prior to
Closing, Seller shall purchase the Skylark Property from
Skylark pursuant to the terms of an agreement ("Skylark
Asset Purchase Agreement") between Seller and Skylark in
form and substance reasonably satisfactory to both parties.
15.2. TRANSFER OF ASSETS TO SDW TIMBER II. Prior
to Closing, Seller shall organize SDW Timber II as its
wholly-owned subsidiary and then transfer the Assets and
certain liabilities associated with the Timberlands to SDW
Timber II pursuant to the terms of an agreement (the "SDW
Timber II Asset Purchase Agreement") between Seller and SDW
Timber II in form and substance reasonably satisfactory to
both parties.
15.3. TRANSFER OF LLC INTEREST TO SDW TIMBER I.
Prior to Closing, Seller shall organize SDW Timber I as its
wholly-owned subsidiary and then contribute the LLC Interest
to SDW Timber I pursuant to the terms of an agreement ("LLC
Purchase Agreement") between Seller and SDW Timber I in form
and substance reasonably satisfactory to both parties.
15.4. PURCHASER RIGHTS. Purchaser shall have the
right to be involved in such pre-closing transactions and to
inspect and approve all documentation in connection
therewith (including without limitation deeds, assignments
and bills of sale) to the extent necessary to protect its
rights hereunder.
16. CLOSING MECHANICS.
16.1. CONDITIONS TO PURCHASER'S OBLIGATIONS. The
obligations of Purchaser to perform this Agreement are
subject to the satisfaction, on or before the Closing Date,
of each of the following conditions and any other conditions
to Purchaser's obligations hereunder specified elsewhere in
this Agreement, unless waived in writing by Purchaser in its
sole discretion:
(a) Other Documents and Agreements. Seller shall
have executed and delivered (i) the Fiber Supply Agreement
attached as Exhibit 16.1(a) hereto, (ii) a lease for
Marshall Yard between SDW Timber II, as landlord, and
Seller, as tenant, in a form mutually agreed upon by both
parties ("Marshall Yard Lease"); and (iii) the other
documents set forth in Section 16.5(a) below.
(b) Material Inaccuracies. Seller's
representations and warranties set forth herein and in the
Fiber Supply Agreement shall be true and correct in all
material respects on and as of the Closing Date and Seller
shall have delivered a certificate to that effect at
Closing.
(c) Performance of Obligations. All actions to
be taken by Seller prior to Closing in connection with the
consummation of the transactions contemplated hereby and all
certificates, instruments and other documents required to
effect the transactions contemplated hereby will be
reasonably satisfactory in form and substance to Purchaser
and its counsel, and Seller shall have satisfactorily
performed all of its pre-Closing covenants contained herein.
(d) Title Insurance Policy. At Purchaser's
expense, SDW Timber II shall have received a Title Policy in
substantially the form described in Section 7.2, subject
only to Permitted Exceptions.
(e) Suits, Actions or Proceedings. No
injunction, order, ruling or other final non-appealable
decision shall have been issued by any court or governmental
agency and be then in effect prohibiting the consummation of
the transactions contemplated by this Agreement, and all
governmental and regulatory approvals and clearances which
are required to consummate such transactions shall have been
obtained.
(f) Casualty, Loss or Condemnation. As a
condition to Purchaser's obligation to consummate the
transactions set forth herein, the Timberlands shall not
have become subject, subsequent to the date of this
Agreement and prior to the Closing Date, to physical damage
by fire, flood, windstorm, earthquake or other similar
occurrence, or to any condemnation proceeding, which causes
or may result in a loss affecting at least 50,000 acres of
the Timberlands or the Skylark Property or diminishing the
value of the Timberlands or the Skylark Property,
collectively, by at least $20,000,000. If Purchaser elects
to waive the condition set forth in this Section 16.1(f), or
if any material casualty or condemnation loss affects less
than 50,000 acres or diminishes the value of the Timberlands
or the Skylark Property, collectively, by less than
$20,000,000, the amounts payable by Purchaser to Seller
shall be reduced to reflect the diminution in value
resulting or expected to result from the casualty or
condemnation, in which event Seller shall be entitled to
retain any compensation awards, insurance proceeds or other
payment or relief resulting from such casualty or
condemnation. If the parties cannot agree upon the extent
of the diminution in value, the determination shall be made
by an independent expert mutually agreed upon by the
parties.
16.2. CONDITIONS TO SELLER'S OBLIGATIONS. The
obligations of Seller to perform this Agreement are subject
to the satisfaction, on or before the Closing Date, of each
of the following conditions and any other conditions to
Seller's obligations hereunder specified elsewhere in this
Agreement, unless waived in writing by Seller in its sole
discretion:
(a) Other Documents and Agreements. Purchaser
shall have executed and delivered (i) the Fiber Supply
Agreement, (ii) the Marshall Yard Lease, and (iii) the other
documents set forth in Section 16.5(b) below.
(b) Material Inaccuracies. Purchaser's
representations and warranties set forth herein and in the
Fiber Supply Agreement shall be true and correct in all
material respects on and as of the Closing Date and
Purchaser shall have delivered a certificate to that effect
at Closing.
(c) Performance of Obligations. All actions to
be taken by Purchaser prior to Closing in connection with
the consummation of the transactions contemplated hereby and
all certificates, instruments and other documents required
to effect the transactions contemplated hereby will be
reasonably satisfactory in form and substance to Seller and
its counsel, and Purchaser shall have satisfactorily
performed all of its pre-Closing covenants contained herein.
(d) Suits, Actions or Proceedings. No
injunction, order, ruling or other final non-appealable
decision shall have been issued by any court or governmental
agency and be then in effect prohibiting the consummation of
the transactions contemplated by this Agreement, and all
governmental and regulatory approvals and clearances which
are required to consummate such transactions shall have been
obtained.
(e) Purchaser's Notes. The Purchaser's Notes
shall be in a form reasonably acceptable to Seller and shall
reflect the terms and conditions described in Exhibit 2.1
hereto.
16.3. PRORATIONS. All personal property taxes,
real property taxes, forest patrol assessments, rents, water
and utility payments and similar costs and expenses shall be
prorated as of the Closing Date.
16.4. CLOSING COSTS.
(a) Seller shall pay the cost of the Title
Commitment, and
(b) Purchaser shall pay the title insurance
premium required under the Title Policy and any extended
coverage, if any, or any endorsements with respect thereto.
16.5. CLOSING. At Closing:
(a) Seller shall deliver to Purchaser:
(i) a certificate representing the LLC
Interest;
(ii) executed copies of the following:
(A) Fiber Supply Agreement;
(B) Certificate, signed by the
President or any Vice President of Seller,
dated the Closing Date, to the effect that
the conditions specified in Section 16.1
hereof, to the extent relating to
representations, warranties covenants and
agreements of Seller, have been satisfied;
(C) A legal opinion prepared by
Seller's in-house counsel relating to
Seller's existence, power, authority,
execution and delivery, but not
enforceability;
(D) Marshall Yard Lease; and
(E) Nonforeign Affidavit to the effect
that Seller is not a foreign person
as that term is used in Section
1445 of the Internal Revenue Code
of 1986, as amended;
(iii) copies of the following executed
documents:
(A) Skylark Asset Purchase Agreement;
(B) SDW Timber II Asset Purchase
Agreement; and
(C) LLC Purchase Agreement; and
(iv) Such other documents and instruments as
Purchaser reasonably requests.
(b) Purchaser shall deliver to Seller the
following:
(i) Cash Consideration; and
(ii) Executed copies of the following:
(A) Purchaser's Notes and related
agreements;
(B) Fiber Supply Agreement;
(C) Certificate, signed by the
President or any Vice President of
Purchaser, dated the Closing Date,
to the effect that the conditions
specified in 16.2 hereof, to the
extent relating to the
representations, warranties,
covenants and agreements of
Purchaser, have been satisfied;
(D) a legal opinion prepared by
Purchaser's in-house counsel
relating to Purchaser's existence,
power, authority, execution and
delivery, but not enforceability;
(E) Marshall Yard Lease (executed by
Purchaser as the owner of the LLC
Interest); and
(F) Such other documents and
instruments as Seller reasonably
requests.
17. INDEMNIFICATION.
17.1. INDEMNIFICATION BY SELLER. Seller shall
indemnify Purchaser and hold it harmless from any claim,
damage, liability, loss, cost, deficiency, judgment or
expense, including, without limitation, reasonable
attorneys' fees and other costs and expenses incident to any
fines or penalties imposed by governmental entities,
actions, suits, proceedings or investigations or the defense
of any claims, whether prior to or at trial or in appellate
proceedings), arising out of, resulting from or relating to
any of the following:
(a) any breach by Seller of any of its
representations, warranties, covenants or agreements made in
or pursuant to this Agreement or the attachments, exhibits
(except for the Fiber Supply Agreement) or schedules hereto
which indemnification obligation shall be limited by the
term of survival of such representations and warranties set
forth in Section 6.1; and
(b) any obligation or liability arising under or
with respect to (i) any Excluded Asset, or (ii) any Excluded
Liability; and
(c) any expenses, compensating or rollback taxes
which become payable as a result of Seller or SDW Timber
II's removal of Timberlands, the Skylark Property or any
other lands located within the State of Maine from the
current forest land or timberland tax designation arising
prior to the Closing Date.
17.2. INDEMNIFICATION BY PURCHASER. Purchaser
shall indemnify Seller and hold it harmless from any claim,
damage, liability, loss, cost, deficiency, judgment or
expense, including, without limitation, reasonable
attorneys' fees and other costs and expenses incident to any
fines or penalties imposed by governmental agencies,
actions, suits, proceedings or investigations or the defense
of any claims (whether prior to or at trial or in appellate
proceedings), arising out of, resulting from or relating to
the following:
(a) any breach by Purchaser of any of its
representations, warranties, covenants or agreements made in
or pursuant to this Agreement or the attachments, exhibits
(except for the Fiber Supply Agreement) or schedules hereto
(which indemnification obligation shall be limited by the
term of survival of such representations and warranties set
forth in Section 6.1);
(b) any claims by third parties, including, but
not limited to, governmental entities, or any fines or
penalties for violations of law and obligations imposed by
law, including, but not limited to, any environmental laws,
arising out of the operation or ownership of the
Timberlands, the Skylark Property or the Improvements by
Purchaser or SDW Timber II after the Closing Date;
(c) any damage to Seller's property or claims by
third parties arising out of activities of Purchaser or its
invitees, agents or contractors in performing tests on or
inspections of the Timberlands, the Skylark Property or the
Improvements prior to Closing;
(d) any acts, omissions, events or circumstances
on or in connection with the operation, condition or
ownership of the Timberlands, the Skylark Property or the
Improvements occurring on or after the Closing Date; and
(e) any expenses, compensating or rollback taxes
which become payable as the result of Purchaser or SDW
Timber II's removal of the Timberlands or the Skylark
Property located within the State of Maine from the current
forest land or timberland tax designation on or after the
Closing Date.
17.3. SET-OFF. Purchaser, as maker of the
Purchaser's Notes, shall have no right to set off and apply
the amount of any claims, damages, liabilities, losses,
costs, deficiencies, judgments or expenses referenced in
this Section 17 against any amounts payable under the
Purchaser's Notes.
18. POST-CLOSING MATTERS.
18.1. ENDORSEMENT OF PAYMENTS. In the event that,
after the Closing, (i) Purchaser shall receive any payment
of any amount that is an Excluded Asset (including, but not
limited to, any account receivable) or (ii) Seller shall
receive any payment of any amount that is an Asset, the
party receiving such payment shall promptly deliver it to
Seller (in the case of any such amounts received by the
Purchaser) or the Purchaser (in the case of any such amounts
received by Seller), endorsed where necessary, without
recourse in favor of such other party.
18.2. TAXES AND OTHER OBLIGATIONS. From the date
hereof until the date which is two (2) years after the
Closing Date, the parties shall use their best commercially
reasonable efforts to cooperate with respect to matters
relating to (a) the payment of taxes in connection herewith
or relating to the Assets, including the preparation and
filing of tax returns and any other filings relating to any
such taxes or changes as may be required and (b) the
fulfillment of other obligations hereunder, including the
indemnification obligations in Section 17.
18.3. CERTAIN POST-CLOSING COVENANTS OF PURCHASER.
From the Closing Date and during the Term, Purchaser shall,
and shall cause SDW Timber II to:
(a) directly or indirectly convey, assign, lease
or transfer the Timberlands or any part thereof only in
accordance with Section 19;
(b) cultivate, manage and maintain the
Timberlands in accordance with the Sustainable Forestry
Principles of the American Forest and Paper Association (the
"AFPA"), as in effect on the date hereof;
(c) cooperate with Seller to identify and remove
or have removed within 14 days of the Closing Date, at
Seller's expense, any felled timber remaining on the
Timberlands that was harvested by Seller's own harvesting
crews; and
(d) as the owner of the LLC Interest, at its own
expense and with the cooperation of Seller, shall, as
reasonably directed by Seller: (i) have SDW
Timber II extend the Leases for their full current terms,
notwithstanding any provisions in the Leases mandating
termination upon the consummation of the transactions
contemplated by this Agreement; and (ii) have SDW Timber II
execute and deliver such documents as may be necessary in
order that the Leases, and any lease renewal options, shall
remain in full force and effect following the Closing.
18.4. THIRD-PARTY CONSENTS. Notwithstanding
anything to the contrary in this Agreement, this Agreement
shall not constitute an agreement to assign or transfer any
Contracts, Leases, or Access Rights and Easements if an
assignment or transfer or an attempt to make such an
assignment or transfer without the consent or approval of a
third party would constitute a breach or violation thereof
or affect adversely the rights of Purchaser or Seller
thereunder; and any transfer or assignment to Purchaser by
Seller of any interest under any such Contracts, Leases, or
Access Rights and Easements that requires the consent or
approval of such third party shall be made subject to such
consent or approval being obtained. In the event any such
consent or approval is not obtained on or prior to the
Closing Date, Seller shall continue to cooperate in all
reasonable respects with Purchaser in its efforts to obtain
any such consent or approval after the Closing Date until
such time as such consent or approval has been obtained, and
Seller will cooperate in all reasonable respects with
Purchaser in any lawful and economically feasible
arrangement to provide that Purchaser shall receive the
interest of Seller in the benefits under any such Contracts,
Leases, or Access Rights and Easements (except that any such
arrangement shall not require performance by Seller as
agent); provided, however, that Purchaser shall undertake
to and shall pay or satisfy the corresponding liabilities
for the enjoyment of such benefit to the extent Purchaser
would have been responsible therefor if such consent or
approval had been obtained.
18.5. ASSIGNMENT BY PURCHASER. Following any
assignment by Purchaser of the Fiber Supply Agreement to a
REIT Subsidiary (as defined in Section 11 of the Fiber
Supply Agreement) pursuant to the terms of Section 11
thereof, in the event of the termination of the Stumpage
Agreement (as defined in Section 11 of the Fiber Supply
Agreement) prior to the end of the Term (as defined in
Section 3 of the Fiber Supply Agreement), (1) Purchaser
shall directly contract with Seller pursuant to a stumpage
agreement on substantially the same terms and conditions as
the Stumpage Agreement, and (2) another REIT subsidiary
shall purchase the Merchantable Pulpwood (as defined in
Section 2(e) of the Fiber Supply Agreement), Biomass (as
defined in Section 2(c)(iii) of the Fiber Supply Agreement)
and sawlogs that otherwise would not be required to be sold
to Seller pursuant to the Fiber Supply Agreement. Purchaser
or any assignee thereof shall not amend or terminate the
Stumpage Agreement in a way that could negatively impact the
ability of any assignee of Purchaser to perform its
obligations under the Fiber Supply Agreement.
19. RESTRICTIONS ON TRANSFERS OF TIMBERLANDS; RIGHT OF
FIRST OFFER.
19.1. LIMITS ON CERTAIN TRANSFERS OF TIMBERLANDS.
So long as the Fiber Supply Agreement is in effect and
subject to the terms and conditions hereof, Purchaser shall
not effect, cause or permit any Transfer to any other entity
except in compliance with the terms of this Section 19. The
term "Transfer" means any sale, conveyance, exchange,
long-term lease, grant, assignment or other transfer (whether by
agreement, operation of law or otherwise), of all or any
portion of the Timberlands, but does not include a transfer
consisting of (i) the Skylark Property, (ii) conservation
easements (which, in the case of any Conservation Easement,
shall be governed by Section 12.4), (iii) stumpage contracts
in the ordinary course of business, (iv) operating leases
for hunting in the ordinary course of business, or (v) other
recreational permits in the ordinary course of business;
provided, however, in the case of a transfer of the type
listed in (ii) and (iii) above, such transfer does not
materially affect the operation of the Timberlands or
adversely affect Purchaser's obligations under the Fiber
Supply Agreement. The term "Permitted Transfer" means any
Transfer:
(a) that is a transfer in one or a series of
transactions, of (i) up to an aggregate of 50,000 acres with
no more than 25,000 acres of the Timberlands transferred
during the first 25 Annual Periods (as defined in Section
2(a) of the Fiber Supply Agreement) of the Term (the
"Initial 50,000 Acres");
(b) to any Affiliate of Purchaser that assumes
all liabilities and obligations of Purchaser under this
Section 19 and the Fiber Supply Agreement or the Stumpage
Agreement, as applicable, (including Purchaser's obligations
with respect to Seller's First Offer Right (as defined in
Section 19.4 below)); provided, however, that Purchaser
shall remain primarily liable for such liabilities and
obligations, subject to Section 11 of the Fiber Supply
Agreement;
(c) to any entity that merges or consolidates
with or into Purchaser or SDW Timber II, or acquires all or
substantially all of the assets of Purchaser and that
assumes all liabilities and obligations of Purchaser or SDW
Timber II under this Section 19 and the Fiber Supply
Agreement or the Stumpage Agreement, as applicable; or
(d) in connection with a land exchange, swap or
similar arrangement involving Purchaser or SDW Timber II's
acquisition of replacement timber property located in Maine
("Replacement Property"), provided that (i) Purchaser shall
have demonstrated to Seller's reasonable satisfaction that
Purchaser's obligations under this Section 19 and the Fiber
Supply Agreement or the Stumpage Agreement, as applicable,
can be satisfied by use and exploitation of such Replacement
Property (it being understood that the requirements of this
Subsection (i) shall be deemed to have been satisfied if
such Replacement Property is less than or equal to 7,500
acres and is in the same Zone (as defined in Section 22
below) or a closer Zone to the Pulp Mill (as defined in
Section 1 of the Fiber Supply Agreement) than the
Timberlands property for which it is exchanged); (ii) such
Replacement Property shall be and become subject to
Purchaser and SDW Timber II's liabilities and obligations
and Seller's rights hereunder, including the First Offer
Right in this Section 19; (iii) such Replacement Property
shall be deemed to constitute a part of the Timberlands and
made subject to the recorded memoranda described in Section
19.6; and (iv) Purchaser shall have demonstrated to Seller's
satisfaction that it has good and marketable title to the
Replacement Property.
19.2. TRANSFERS NOT SUBJECT TO AGREEMENT. Any
Permitted Transfer of all or part of (i) the Initial 50,000
Acres (a "Permitted 50,000 Acre Transfer") or (ii) any
portion of the Timberlands that is transferred in exchange
for Replacement Property in accordance with Section 19.1(d)
above shall be free of any right of Seller granted under
this Section 19 and the Fiber Supply Agreement.
19.3. TRANSFERS NOT SUBJECT TO FIRST OFFER RIGHT.
All other Permitted Transfers shall be free of Seller's
First Offer Right under this Section 19.
19.4. TRANSFERS SUBJECT TO RIGHT OF FIRST OFFER.
Seller shall have a right of first offer (the "First Offer
Right") with respect to any proposed Transfer except as
otherwise provided in Section 19.2 and 19.3.
(a) If, at any time during the Term, Purchaser or
SDW Timber II desires to effect, cause or permit a Transfer
other than a Permitted Transfer, Purchaser or SDW Timber II
shall, prior to effecting, causing or permitting any such
Transfer, give to Seller written notice of such desire (a
"Transfer Notice"). Such Transfer Notice shall specify (i)
the acreage and interest proposed to be transferred (the
"Notice Acreage"), (ii) the proposed purchase price (which
shall be an all-cash price) for the Notice Acreage (the
"Notice Price") and, (iii) if Seller elects to exercise its
First Offer Right, any proposed reduction in the volume
requirements of the Fiber Supply Agreement or the volume
requirements of the Stumpage Agreement, as applicable;
(b) Following receipt of such Transfer Notice,
Seller may exercise its First Offer Right to purchase the
Notice Acreage by giving written notice thereof (a "Notice
of Election") to Purchaser not later than the date that is
30 days after the date on which Purchaser receives such
Transfer Notice (such date of receipt, the "Notice Date");
and
(c) In the event that Seller does not give a
Notice of Election to Purchaser within the applicable period
specified in Section 19.4(b), Purchaser or SDW Timber II
shall be free for the six (6) months following the
expiration of such period to enter into a binding purchase
and sale agreement to effect a Transfer of all of the Notice
Acreage without further restriction under this Section 19.4
at a price that is not less than the Notice Price, and
otherwise upon the terms specified in the Transfer Notice.
If such price is not an all-cash price (a "Non-Cash Price),
the consideration received must be at least equal to the
Notice Price. The parties shall negotiate in good faith to
determine whether the Non-Cash Price is at least equal to
the Notice Price.
(i) If Seller and Purchaser do not agree
that the Non-Cash Price is at least
equal to the Notice Price within three
(3) days of the commencement of such
negotiations, such matter shall be
resolved by an arbitrator selected by
the parties which is a nationally
recognized accounting firm or investment
bank. If the parties fail to agree on
the selection of an arbitrator within
eight (8) days of the commencement of
negotiations regarding the Non-Cash
Price, the parties shall each select an
arbitrator within five (5) days
thereafter and the two arbitrators shall
select a third arbitrator within five
(5) days of their selection. If one of
the parties does not select an
arbitrator within the time provided
herein, the arbitrator chosen solely by
the other party shall be responsible for
determining the selection of such
arbitrator.
(ii) Each party shall submit to the
arbitrator(s) and to the other party
within five (5) days of the date of
selection of the arbitrator(s), the
arguments and any relevant information
in support of its position. Within five
(5) days of the date the parties have
stated their positions, the
arbitrator(s) shall have rendered a
final decision. If a party has failed
to timely submit its argument, the
arbitrator(s) shall select the other
party's position. During the pendency
of the arbitration proceedings,
Purchaser may not effectuate a Transfer
of the Notice Acreage. If the
arbitrator(s) determine that the Non-Cash
Price is less than the Notice
Price, the Purchaser may not effectuate
a Transfer of the Notice Acreage.
Absent fraud, collusion, willful
misconduct or manifest legal error, the
arbitrator's decision shall be final and
non-appealable, and judgment may be
entered in any court having jurisdiction
thereof.
19.5. CLOSING TERMS. The following terms and
conditions shall apply to the consummation of any purchase
by Seller of any Notice Acreage pursuant to an exercise of
any First Offer Right in respect thereof in accordance with
Section 19.4:
(a) Seller shall pay one-half, and Purchaser
shall pay one-half, of all transfer, excise or similar taxes
on the deed or deeds given by Purchaser or SDW Timber II.
Seller shall pay the recording fees for all documents to be
recorded and all costs of examining and insuring title.
Each party shall pay its own attorneys' fees. There shall
be a proration of any applicable ad valorem taxes. Each
party shall pay all other expenses of the transaction
incurred by it, including all brokers' commissions;
(b) Purchaser or SDW Timber II shall convey the
property to Seller by quitclaim deed with covenant; and
(c) A closing shall be held on or before the date
that is 45 days after Seller delivers its Notice of
Election. The exact time, place, and date of the closing
for such transaction will be selected by Purchaser or SDW
Timber II at least 10 days prior to such closing. At such
closing, Purchaser or SDW Timber II shall execute and
deliver to Seller one or more quitclaim deeds with covenant
in proper form for recording, an affidavit that Purchaser or
SDW Timber II is not a foreign person as defined in and in
compliance with Section 1445 of the Code, satisfactory
evidence of the power and authority of Purchaser or SDW
Timber II, as applicable, to perform thereunder and a
settlement statement.
19.6. MEMORANDA OF RIGHTS; TRANSFEREES TO ASSUME
FIBER SUPPLY AGREEMENT.
Purchaser acknowledges and agrees that Seller's rights
under this Section 19 and the Fiber Supply Agreement
constitute an encumbrance that runs with the land and an
encumbrance on the Timberlands and that Purchaser's
obligations under this Section 19 and the Fiber Supply
Agreement constitute a covenant that runs with the land and
that one (1) or more memoranda of the rights of Seller
granted herein substantially in the form of Exhibit 19.6
hereto may be placed on record in all jurisdictions where
any portion of the Timberlands (including Replacement
Property) is located. Such encumbrance shall not apply to
the Skylark Property and the memoranda of rights shall not
include the Skylark Property. Purchaser shall cause SDW
Timber II to execute such memoranda.
19.7. RELEASES OF RIGHTS.
(a) Seller shall provide Purchaser a written
release of its rights under the Fiber Supply Agreement and
any rights under this Section 19, as set forth in the
memoranda of rights for (i) any proposed Permitted 50,000
Acre Transfer, and (ii) any transfer in exchange for
Replacement Property in accordance with Section 19.1(d)
above. Seller shall provide Purchaser a written release of
its rights under this Section 19 as set forth in the
memoranda of rights for any transfer of all or a portion of
the Timberlands pursuant to Section 19.4(c). Such release
shall be provided by Seller within 10 business days of the
date on which Seller receives a written request by Purchaser
for such release, in a form and substance reasonably
acceptable to Purchaser and Seller and in proper form for
recording.
(b) All release requests pursuant to this Section
19.7 shall be sent by overnight mail to Seller. Purchaser
shall pay any recording charges for recording of any such
releases, but shall not be obligated to pay Seller any fees
or other consideration for the releases.
19.8. SURVIVAL. The provisions of this Section 19
shall survive for so long as the Fiber Supply Agreement is
in effect.
20. TERMINATION.
20.1. TERMINATION. In addition to the termination
rights under Section 12.5, this Agreement may be terminated
by either party, at its option exercisable by prior written
notice to the other party, if (i) the other party shall
default in the performance of any of its agreements or
obligations herein, and such default continues unremedied
(A) with respect to a monetary default 14 days after written
notice from the non-defaulting party; (B) with respect to
non-monetary defaults, for a period of 60 days after written
notice from the non-defaulting party; provided that if such
default cannot reasonably be cured within such sixty-day
period, a party shall not be in default if the party
commences cure within such sixty-day period and diligently
pursues such cure to completion; (ii) the other party shall
commence any case, proceeding or other action (A) relating
to bankruptcy, insolvency, reorganization, adjustment,
winding-up, liquidation, dissolution, composition or other
relief with respect to it or its debts, or (B) seeking
appointment of a receiver, trustee, custodian, conservator
or other similar official for it or for all or any
substantial part of its assets, a general assignment for the
benefit of its creditors; (iii) there shall be commenced
against the other party any case, proceeding or other action
of a nature referred to in clause (ii) above and such
proceeding is not dismissed within 60 days; or (iv) the
Closing has not occurred (other than through the failure of
any party seeking to terminate this Agreement to comply
fully with its obligations under this Agreement) on or
before December 31, 1998, or such later date as the parties
may agree upon.
20.2. EFFECT OF TERMINATION. Each party's right of
termination under this Section 20 is in addition to any
other rights it may have under this Agreement or otherwise,
and the exercise of a right of termination will not be an
election of remedies. If this Agreement is terminated
pursuant to Section 20.1, all further obligations of the
parties under this Agreement will terminate, except that the
obligations in Section 14 will survive; provided, however,
that if this Agreement is terminated by a party because of
the breach of the Agreement by the other party or because
one or more of the conditions to the terminating party's
obligations under this Agreement is not satisfied as a
result of the other party's failure to comply with its
obligations under this Agreement, the terminating party's
right of pursue all legal and equitable remedies will
survive such termination unimpaired.
21. MISCELLANEOUS.
21.1. FURTHER ASSURANCES. If, at any time after
the Closing Date, either party shall consider or be advised
that any further information, instruments or assurance or
any other things are reasonably necessary or desirable in
connection with this Agreement or the Purchaser's Notes, the
other party shall provide such information, execute and
deliver all such instruments and assurances and do all
things reasonably necessary and proper in connection
therewith provided that the party receiving any such request
shall not be required to incur any expenses or liabilities
in connection with any such action.
21.2. INTEGRATION. This Agreement and the
documents delivered pursuant hereto contain the entire
agreement between the parties with respect to the subject
matter hereof and supersede all prior negotiations. None of
the parties shall be bound by nor shall be deemed to have
made any representations, warranties or commitments except
those required to be made by the terms of this Agreement, or
those which are contained herein or in the documents
delivered pursuant hereto.
21.3. COUNTERPARTS. This Agreement may be executed
in any number of counterparts, each of which shall be deemed
to be an original instrument, and all such counterparts
together shall constitute one Agreement.
21.4. SEVERABILITY. Any term or provision of this
Agreement that is invalid or unenforceable in any
jurisdiction shall, as to that jurisdiction, be ineffective
to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and
provisions of this Agreement or affecting the validity or
enforceability of any of the terms or provisions of this
Agreement in any other jurisdiction. If any term or
provision of this Agreement is so broad as to be invalid or
unenforceable, the provision shall be interpreted to be only
so broad as is valid or enforceable. Subject to the
foregoing provisions of this Section 21.4, if any term or
provision of this Agreement is invalid or unenforceable for
any reason, such circumstances shall not have the effect of
rendering such term or provision invalid or unenforceable in
any other case or circumstance.
21.5. SUCCESSORS AND ASSIGNS. This Agreement shall
be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and permitted
assigns.
21.6. GOVERNING LAW. This Agreement shall be
governed by and construed in accordance with the internal
laws of the State of Maine.
21.7. ASSIGNMENT. Neither party may assign its
rights or obligations hereunder without the prior written
consent of the other, which consent shall not be
unreasonably withheld, delayed or conditioned.
21.8. CAPTIONS AND SECTION HEADINGS. The headings
used in this Agreement are for convenience only and shall
not affect the construction of any of the terms of this
Agreement.
21.9. NOTICES. Notices under this Agreement shall
be in writing and shall be effective on the earlier of when
actually delivered or three (3) business days after being
deposited in the United States' mails as certified mail,
return receipt requested, directed to the other party at the
address set forth below or to such other address as the
party may be given in writing (by certified mail or
facsimile).
If to Seller: Sappi Fine Paper North America
S.D. Warren Company
225 Franklin Street
Boston, Massachusetts 02110
Attention: Trevor L. Larkan
Facsimile: (617) 368-6352
With a copy to: S.D. Warren Company
225 Franklin Street
Boston, Massachusetts 02110
Attention: Jennifer L. Miller, Esq.
Facsimile: (617) 368-6352
With a copy to: Ropes & Gray
One International Place
Boston, Massachusetts 02110-2624
Attention: David B. Walek, Esq.
Facsimile: (617) 951-7050
If to Purchaser: Plum Creek Timber Company, L.P.
999 Third Avenue, Suite 2300
Seattle, Washington 98104-4096
Attention: William R. Brown
Facsimile: (206) 467-3794
With a copy to: Plum Creek Timber Company, L.P.
999 Third Avenue, Suite 2300
Seattle, Washington 98104-4096
Attention: James A. Kraft, Esq.
Facsimile: (206) 467-3799
With a copy to: Cairncross & Hempelmann, P.S.
701 Fifth Avenue, 70th Floor
Seattle, Washington 98104-7016
Attention: Daniel C. Vaughn, Esq.
Facsimile: (206) 587-2308
21.10. TIME IS OF THE ESSENCE. Time is of the
essence with respect to this Agreement.
21.11. COSTS AND EXPENSES. Except as otherwise
indicated in Section 16.4 above, each party to this
Agreement shall pay its own costs and expenses (including,
without limitation, the fees and expenses of its agents,
representatives, counsel and accountants) incurred in
connection with the transactions contemplated by this
Agreement.
21.12. ATTORNEYS' FEES AND OTHER COSTS. If either
party initiates any proceeding in law, equity or arbitration
concerning this Agreement or any of its provisions, the
party that substantially prevails in such proceeding shall
be paid by the party not so prevailing therein all costs and
expenses incurred in such proceeding, including reasonable
attorneys' fees at the arbitration, pretrial, trial and
appellate levels as determined by the arbitrator(s) or
court(s) considering the matter.
21.13. WAIVER OF CONSEQUENTIAL AND PUNITIVE DAMAGES.
Each party hereby waives any right to recover consequential,
punitive, exemplary or similar damages in any arbitration,
lawsuit, litigation or proceeding arising out or resulting
from this Agreement. Each party certifies and acknowledges
that (a) no representative, agent or attorney of any other
party has represented, expressly or otherwise, that such
other party would not, in the event of arbitration,
litigation or other proceeding, seek to enforce the
foregoing waiver, (b) it understands and has considered the
implications of this waiver, (c) it makes this waiver volun-
tarily, and (d) it has been induced to enter into this
Agreement by, among other things, the mutual waivers and
certifications in this Section 21.13.
21.14. SECTION 1031 TRANSACTION. Purchaser is
considering consummating this transaction as part of an
exchange under Section 1031 of the Code. Seller shall
reasonably cooperate with Purchaser in documenting and
completing the 1031 exchange but shall not be obligated to
incur any additional out-of-pocket costs or expenses in
connection with such cooperation.
22. DEFINITIONS.
(a) Terms Generally. The words "hereby," "herein,"
"hereof," "hereunder" and words of similar import refer to
this Agreement as a whole and not merely to the specific
section, paragraph or clause in which such word appears.
The word "party" or "parties" means a party or the parties
to this Agreement, unless preceded by the word "third" or
unless the context shall otherwise expressly require. All
references herein to Sections, Subsections, Schedules and
Exhibits, respectively, shall be deemed references to
Sections and Subsections of, and Schedules and Exhibits to,
this Agreement unless the context shall otherwise require.
The words "include," "includes" and "including" shall be
deemed to be followed by the phrase "without limitation,"
unless already expressly followed by such phrase or the
phrase "but not limited to." The definitions given for
terms in this Section 22 shall apply equally to both the
singular and plural forms of the terms defined. Whenever
the context may require, any pronoun shall include the
corresponding masculine, feminine and neuter forms.
Except as otherwise expressly provided herein, any
reference to time limits which end on a day which is a
weekend day or holiday shall be extended to the next full
business day.
(b) Certain Terms. Whenever used in this Agreement,
the following terms shall have the respective meanings given
to them below or in the Sections indicated below.
"Absent Employees" shall have the meaning provided in
Section 11.1(a).
"Access Rights and Easements" shall mean all of Seller
or Skylark's access rights, rights of way, permits and
easements (including any acquired by prescription)
appurtenant, as applicable, to the Timberlands or the
Skylark Property.
"Acquisition Proposal" shall have the meaning provided
in Section 12.3.
"Affiliate" shall mean any entity controlling,
controlled by or under common control with another entity.
"AFPA" shall have the meaning provided in Section
18.3(b).
"Agreement" shall have the meaning provided in the
preamble to the Agreement.
"Annual Period" shall have the meaning given such term
in Section 2(a) of the Fiber Supply Agreement.
"Assets" shall mean, collectively, the Timberlands,
Skylark Property, Improvements, Contracts, Leases, Access
Rights and Easements, Current Assets and Personal Property.
"Assumed Liability" shall mean the following
liabilities and obligations of Seller assumed by SDW Timber
II pursuant to the SDW Timber II Asset Purchase Agreement:
(1) all liabilities and obligations under the Contracts
relating to performance after the Closing Date; (2) all
liabilities and obligations under the Leases relating to
performance after the Closing Date; (3) all liabilities and
obligations under the Access Rights and Easements relating
to performance after the Closing Date; (4) all liabilities
and obligations under environmental laws arising out of the
operation or ownership of the Assets by SDW Timber II after
the Closing Date; (5) deferred obligations expressly set
forth in Schedule A attached hereto and incorporated herein
by this reference; and (6) all liabilities and obligations
set forth in deeds, easements, declarations and other
instruments of record relating to performance after the
Closing Date.
"Biomass" shall have the meaning given such term in
Section 2(c)(iii) of the Fiber Supply Agreement.
"Cash Consideration" shall have the meaning provided in
Section 2.1.
"Closing" shall have the meaning provided in Recital A
to the Agreement.
"Closing Date" shall have the meaning provided in
Section 3.
"COBRA" shall have the meaning provided in Section
11.1(d).
"Code" shall have the meaning provided in Section
4.12(b).
"Conservation Easement" shall have the meaning provided
in Section 12.4 of the Agreement.
"Conservation Easement Terms" shall have the meaning
provided in Section 12.4 of the Agreement.
"Contracts" shall mean all of Seller's development
rights, air rights, water, water rights, mineral rights, oil
and gas rights, ditch and ditch rights, and contracts
excluding Leases but including, without limitation, purchase
orders and agreements, instruments, operating contracts,
stumpage contracts, sapling agreements, personal property
leases, permits, licenses, governmental consents and
agreements, approvals and clearances, and service,
maintenance, utility and operating contracts and warranties,
including, without limitation, agreements for construction
of roads or other improvements and rights under any payment
or performance bonds relating to or associated with the
Timberlands.
"Covered Returns" shall have the meaning provided in
Section 4.10.
"Credit Agreement" shall mean the Second Amended and
Restated Credit and Guarantee Agreement dated as of March 6,
1998 among SDW Holdings Corporation, a Delaware corporation,
Seller, the several banks, financial institutions and other
lenders party thereto and The Chase Manhattan Bank, as
Agent.
"Current Assets" shall mean all of Seller's rights and
interest in and to current assets used in the business (i)
as shown on the Statement of Assets, or (ii) arising after
the date of the Statement of Assets in the ordinary course
of business relating to the Timberlands or the Skylark
Property, as applicable.
"Delivered Products" shall have the meaning given such
term in Section 2(e) of the Fiber Supply Agreement.
"ERISA" shall have the meaning provided in Section
4.12(a).
"Excluded Assets" shall mean the assets of Seller
relating to the Timberlands or the Skylark Property, as
applicable, which are not purchased by SDW Timber II
pursuant to the SDW Timber II Asset Purchase Agreement and
are set forth on Schedule B attached hereto.
"Excluded Liabilities" shall mean any and all
liabilities of Seller other than the Assumed Liabilities.
"Fiber Supply Agreement" shall have the meaning
provided in Recital E to the Agreement.
"Financial Statements" shall have the meaning provided
in Section 5.5(a).
"First Offer Right" shall have the meaning provided in
Section 19.4.
"FMLA" shall have the meaning provided in Section
11.1(d).
"Harvesting Dispute Notice" shall have the meaning
provided in Section 2.2.
"Harvesting Report" shall have the meaning provided in
Section 2.2.
"HSR Act" shall have the meaning provided in Section
13.
"Improvements" shall mean all improvements on the
Timberlands and the Skylark Property, including, without
limitation, buildings and other permanent structures located
on the Timberlands and the Skylark Property.
"Initial 50,000 Acres" shall have the meaning provided
in Section 19.1(a).
"Investment Plan" shall have the meaning provided in
Section 11.2(a)(i).
"Knowledge" shall have the meaning provided in Section
6.2.
"Leases" shall mean all real property leases relating
to the Timberlands and the Skylark Property.
"LLC Interest" shall have the meaning provided in
Recital C to the Agreement.
"LLC Purchase Agreement" shall have the meaning
provided in Section 15.3.
"Marshall Yard Lease" shall have the meaning provided
in Section 16.1(a).
"Material Adverse Effect" shall have the meaning
provided in Section 6.3.
"material and materially" shall have the meaning
provided in Section 6.3.
"Merchantable Pulpwood" shall have the meaning given
such term in Section 2(e) of the Fiber Supply Agreement.
"Monetary Liens" shall have the meaning provided in
Section 7.2(b).
"1998 Harvesting Forecast" shall have the meaning
provided in Section 2.2.
"1999 Harvesting Forecast" shall have the meaning
provided in Section 2.2.
"Non-Cash Price" shall have the meaning provided in
Section 19.4(c).
"Nontransitioning Employees" shall have the meaning
provided in Section 11.1(b).
"Notice Acreage" shall have the meaning provided in
Section 19.4(a).
"Notice Date" shall have the meaning provided in
Section 19.4(b).
"Notice of Election" shall have the meaning provided in
Section 19.4(b).
"Notice Price" shall have the meaning provided in
Section 19.4(a).
"Permitted Exceptions" shall have the meaning provided
in Section 7.2.
"Permitted 50,000 Acre Transfer" shall have the meaning
provided in Section 19.2.
"Permitted Transfer" shall have the meaning provided in
Section 19.1.
"Personal Property" shall mean all of Seller's personal
property, tangible and intangible, relating to the
Timberlands or the Skylark Property, including, without
limitation, all furniture, fixtures, equipment, vehicles and
tools, maps, seeds, property books, aerial photos, plans,
drawings, specifications, renderings, engineering studies,
biological studies, grading or drainage studies,
environmental records, computer disks, hard disks, business
records, customer lists, correspondence and related data,
materials and documents in Seller's possession, and all
administrative software, including the timber inventory and
computerized forest industry software program, data base
software program and mapping software programs.
"Plans" shall have the meaning provided in Section
4.12(b).
"Purchase Price" shall have the meaning provided in
Section 2.1.
"Purchaser" shall have the meaning provided in the
preamble to the Agreement.
"Purchaser Defined Contribution Plan" shall have the
meaning provided in Section 11.2(a)(ii).
"Purchaser's Notes" shall have the meaning provided in
Section 2.1.
"REIT Subsidiary" shall have the meaning provided in
Section 11 of the Fiber Supply Agreement.
"Replacement Property" shall have the meaning provided
in Section 19.1(d).
"Retiree Coverages" shall have the meaning provided in
Section 11.4.
"Retirement Plan" shall have the meaning provided in
Section 11.2(a)(i).
"SDW Timber I" shall have the meaning provided in
Recital C to the Agreement.
"SDW Timber II" shall have the meaning provided in
Recital C to the Agreement.
"SDW Timber II Closing Date" shall mean the date of the
closing of the transaction whereby Seller shall transfer the
Assets and certain liabilities associated with the
Timberlands to SDW Timber II pursuant to the SDW Timber II
Asset Purchase Agreement.
"SDW Timber II Asset Purchase Agreement" shall have the
meaning provided in Section 15.2.
"Seller" shall have the meaning provided in the
preamble to the Agreement.
"Skylark" shall have the meaning provided in Recital B
to the Agreement.
"Skylark Asset Purchase Agreement" shall have the
meaning provided in Section 15.1.
"Skylark Property" shall have the meaning provided in
Recital B to the Agreement.
"Statement of Assets" shall mean the current assets
used in Seller's timberlands business for the month ended
August 25, 1998 attached hereto as Exhibit 22.
"Stumpage Agreement" shall have the meaning provided in
Section 11 of the Fiber Supply Agreement.
"Term" shall have the meaning given such term in
Section 3 of the Fiber Supply Agreement.
"Terminated Transitioning Employee" shall have the
meaning provided in Section 11.7.
"Timberlands" shall have the meaning provided in
Recital A to the Agreement.
"Timberland Employees" shall have the meaning provided
in Section 11.1(a).
"Title Commitment" shall have the meaning provided in
Section 7.2.
"Title Company" shall have the meaning provided in
Section 7.2.
"Title Objections" shall have the meaning provided in
Section 7.2.
"Title Policy" shall have the meaning provided in
Section 7.2.
"Transfer" shall have the meaning provided in Section
19.1.
"Transfer Notice" shall have the meaning provided in
Section 19.4(a).
"Transitioning Employees" shall have the meaning
provided in Section 11.1(b).
"WARN" shall have the meaning provided in Section
11.1(c).
"Zone" shall have the meaning given such term in
Section 1(b) of the Fiber Supply Agreement.
[The remainder of this page intentionally has been left
blank.]<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement as of the day and year first above written.
SELLER: S.D. WARREN COMPANY
By:___________________________
Title:________________________
PURCHASER: PLUM CREEK TIMBER COMPANY, L.P.
By: Plum Creek Management
Company, L.P., Its General
Partner
By:___________________________
Title:________________________
Exhibit 2.1 to the
Purchase and Sale Agreement
Between S.D. Warren Company
and Plum Creek Timber Company,
L.P.
Dated as of October 5, 1998
PLUM CREEK TIMBER INSTALLMENT NOTES
Summary of Principal Terms
Issuer: Plum Creek Timber Company, L.P. ("Plum Creek").
Form: Senior Unsecured Notes (the "Buyer Notes").
Principal Amount: $171,375,000
Offering Price: 100% of Principal Amount.
Maturity: Minimum average life of 10 years.
Interest Rate: The Buyer Notes will bear interest,
payable quarterly in arrears at:
200 basis points over the U.S. Treasury
securities having maturities equal to
the Buyer Notes ("Benchmark
Treasuries"), plus 40 basis points
the rates will be fixed at Closing
subject to one (1) adjustment 90 days
after Closing for each Buyer Note, or
such earlier time as is mutually agreed
upon by Plum Creek and S.D. Warren
Company, equal to the difference in (a)
the rate at which Plum Creek could
borrow, less Benchmark Treasuries, as
determined by a nationally recognized
investment bank, assuming a private
placement of notes issued through a
special purpose structured debt vehicle,
and (b) 200 basis points.
Ranking: The Buyer Notes will rank pari passu with
other senior debt, including the senior
revolver, and will rank senior to all
subordinated debt of Plum Creek.
Intercreditor Issues: Cross-default and cross-acceleration to
Plum Creek's senior notes, senior
revolver
and other material debt.
Mandatory
Redemption: None.
Call Provisions: None.
Covenants: Reflect Plum Creek's 1996 Senior Note
covenant package, amendments
contemplated to facilitate the Company's
REIT conversion.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary information extracted from the Combined Financial
Statements of Plum Creek Timber Company, L.P. for the nine months ended
September 30, 1998 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 127,629
<SECURITIES> 0
<RECEIVABLES> 34,883
<ALLOWANCES> 1,322
<INVENTORY> 53,625
<CURRENT-ASSETS> 224,956
<PP&E> 1,197,147
<DEPRECIATION> 150,925
<TOTAL-ASSETS> 1,283,856
<CURRENT-LIABILITIES> 89,538
<BONDS> 765,600
0
0
<COMMON> 0
<OTHER-SE> 418,889
<TOTAL-LIABILITY-AND-EQUITY> 1,283,856
<SALES> 510,600
<TOTAL-REVENUES> 510,600
<CGS> 371,619
<TOTAL-COSTS> 409,573
<OTHER-EXPENSES> 548
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 44,435
<INCOME-PRETAX> 53,974
<INCOME-TAX> 521
<INCOME-CONTINUING> 53,453
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 53,453
<EPS-PRIMARY> 0.61
<EPS-DILUTED> 0
</TABLE>
