<PAGE>
FORM 8-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 16, 1994
SCOTT PAPER COMPANY
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 1-2300 23-1065080
- --------------------------------------------------------------------------------
(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification
incorporation) Number)
Scott Plaza
Philadelphia, Pennsylvania 19113
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (610) 522-5000
None
----------------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
Item 2. Acquisition or Disposition of Assets.
-------------------------------------
On December 20, 1994, pursuant to a Stock Purchase Agreement dated as of
October 8, 1994, as supplemented (the "Warren Agreement"), among Scott Paper
Company ("Scott"), Sappi Limited, a South African corporation ("Sappi") and SDW
Acquisition Corporation ("Acquisition"), a wholly-owned subsidiary of SDW
Holdings Corporation ("Holdings"), Scott consummated the sale of all of the
outstanding common shares, no par value, of S. D. Warren Company ("Warren") and
the S. D. Warren International business in Belgium. Warren manufactures and
sells coated free-sheet paper, uncoated paper and specialty paper, with
manufacturing operations in Muskegon, Michigan, Skowhegan, Maine, Westbrook,
Maine, and Mobile, Alabama and approximately 900,000 acres of timberlands in
Maine.
Scott received $1.6 billion, consisting of approximately $1.48 billion in
cash and the buyer's assumption, supported by a letter of credit, of
approximately $120 million in debt and capital lease obligations relating to
Warren facilities. The consideration received by Scott is subject to adjustment
after the closing based on the value of Warren's net assets, as defined in the
Warren Agreement, on the closing date.
In addition, the parties entered into a number of ancillary agreements
which, among other things, provide for (a) long-term arrangements between or
among Scott, Warren and Mobile Energy Services Company, Inc. ("MESC"), relating
to the Mobile, Alabama site, including an agreement under which Warren will
purchase pulp from Scott's pulp mill at that site (see Item 5 below), and (b)
transition services.
The foregoing description is a summary only and is not intended to be
complete. A copy of the Stock Purchase Agreement is filed as an exhibit to this
Report on Form 8-K and is incorporated herein by reference in its entirety.
Item 5. Other Events
------------
(a) On December 16, 1994, Scott consummated the sale of the energy and
recovery complex (the "Energy Complex") located at its Mobile, Alabama mill site
to MESC, which is a wholly-owned subsidiary of The Southern Company. The assets
sold include fixtures and equipment, certain contracts related to the Energy
Complex, certain supplies and spare parts. In addition, the land under the
Energy Complex was leased to MESC under a lease with an initial term of twenty-
five years and optional renewal terms. Scott received approximately $350
million, consisting of approximately $265 million in cash and the buyer's
assumption, guaranteed by The Southern Company, of approximately $85 million of
liabilities under a tax-exempt financing relating to the Energy Complex.
In addition, Scott, Warren and MESC have entered into a number of ancillary
agreements with initial terms of twenty-five years and
<PAGE>
optional renewal terms. Among other things, these agreements provide for (a)
the processing by MESC of power, steam and pulping liquor and the provision of
additional services, in each case as applicable, to Scott's tissue mill and pulp
mill and to Warren's paper mill, (b) the supply by Scott's pulp mill of biomass
to the Energy Complex and of water to all facilities at the site, (c) the
coordination of operations by all facilities at the site, and (d) common
services arrangements.
(b) Scott intends to use the net after-tax proceeds from the sale of Warren
and the Mobile Energy Complex to reduce its debt by approximately $1.3 billion
(including the above-mentioned assumptions of debt) and to repurchase Scott
common shares in open market transactions for approximately $300 million. Scott
intends to complete the debt repayment in January 1995 and to repurchase shares
during the first half of 1995.
Item 7. Financial Statements and Exhibits
---------------------------------
(b) Unaudited Pro Forma Consolidated Balance Sheet of Scott as of
September 24, 1994 reflecting the disposition of Warren as if the
transaction had occurred as of September 24, 1994. Unaudited Pro
Forma Consolidated Statements of Operations for the nine months
ended September 24, 1994 and for the year ended December 25, 1993
as if the transaction had occurred as of the beginning of the
periods indicated.
(c) Exhibits:
2.1 Stock Purchase Agreement dated as of October 8, 1994 by and
among Scott, Sappi Limited and SDW Acquisition Corporation.
Pursuant to Item 601(b)(2) of Regulation S-K, the Disclosure
Schedules and Exhibits referred to in the Agreement are
omitted. Scott agrees to furnish supplementally a copy of
any such Disclosure Schedule or Exhibit to the Commission
upon request.
2.2 Supplemental Agreement to Stock Purchase Agreement dated as
of October 8, 1994 by and among Scott, Sappi Limited and SDW
Acquisition Corporation dated December 19, 1994. Pursuant to
Item 601(b)(2) of Regulation S-K, the Exhibits referred to
in the Supplemental Agreement are omitted. Scott agrees to
furnish supplementally a copy of any such Exhibit to the
Commission upon request.
<PAGE>
Signatures
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SCOTT PAPER COMPANY
By: /s/ John P. Murtagh
---------------------------------
John P. Murtagh
Senior Vice President, General
Counsel and Secretary
Date: December 23, 1994
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SCOTT PAPER COMPANY
-------------------
PRO FORMA CONSOLIDATED BALANCE SHEET
------------------------------------
SEPTEMBER 24, 1994
------------------
Unaudited
(Millions)
--------
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ---------
<S> <C> <C> <C>
Assets
- ------
Current assets
Cash and cash equivalents $ 106.1 $ 194.2 $ 300.3
Receivables 602.1 (91.5) 510.6
Inventories 498.4 (136.3) 362.1
Deferred income taxes 223.2 (7.8) 215.4
Prepaid items and other 68.9 (3.6) 65.3
---------- ----------- ---------
1,498.7 (45.0) 1,453.7
Plant assets at cost 7,527.8 (2,491.1) 5,036.7
Accumulated depreciation (3,447.9) 1,149.4 (2,298.5)
---------- ----------- ---------
4,079.9 (1,341.7) 2,738.2
Timber resources 112.8 (28.1) 84.7
Investment in and advances
to affiliates 310.4 -- 310.4
Construction funds held by trustees 91.4 (1.4) 90.0
Notes receivable, goodwill
and other assets 502.8 (21.8) 481.0
---------- ----------- ---------
Total $ 6,596.0 $ (1,438.0) $ 5,158.0
========== =========== =========
Liabilities and Shareholder's Equity
- ------------------------------------
Current liabilities
Payables to suppliers and others $ 779.5 $ (86.3) $ 693.2
Accruals for restructuring program 418.2 -- 418.2
Current maturities of long term debt 108.1 (3.4) 104.7
Accrued taxes on income 51.6 153.3 204.9
---------- ----------- ---------
1,357.4 63.6 1,421.0
Long-term debt 2,518.1 (1,021.7) 1,496.4
Deferred income taxes and
other liabilities 1,004.6 (204.9) 799.7
---------- ----------- ---------
4,880.1 (1,163.0) 3,717.1
Preferred shares 7.1 -- 7.1
Common shareholders' equity 1,708.8 (275.0) 1,433.8
---------- ----------- ---------
Total $ 6,596.0 $ (1,438.0) $ 5,158.0
========== =========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
SCOTT PAPER COMPANY
-------------------
PRO FORMA STATEMENT OF CONSOLIDATED OPERATIONS
----------------------------------------------
YEAR ENDED DECEMBER 25, 1993
----------------------------
Unaudited
(Millions, Except on a Per Share Basis)
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ---------
<S> <C> <C> <C>
Sales $ 4,728.8 $ (1,143.9) $ 3,584.9
---------- ----------- ---------
Costs and expenses
Production costs 3,552.4 (971.2) 2,581.2
Marketing and distribution 598.7 (62.0) 536.7
Research, administration and general 237.7 (29.9) 207.8
Restructuring 489.6 (66.1) 423.5
Other 4.0 4.5 8.5
---------- ----------- ---------
4,882.4 (1,124.7) 3,757.7
---------- ----------- ---------
Loss from operations (153.6) (19.2) (172.8)
Interest expense 182.0 (50.9) 131.1
Other income and expense 4.2 -- 4.2
---------- ----------- ---------
Loss before taxes (331.4) 31.7 (299.7)
Income tax benefit (64.0) 9.2 (54.8)
---------- ----------- ---------
Loss from continuing operations before
share of losses of international
equity affiliates (267.4) 22.5 (244.9)
Share of losses of international
equity affiliates (21.7) -- (21.7)
---------- ----------- ---------
Loss from continuing operations $ (289.1) $ 22.5 $ (266.6)
========== =========== =========
Loss per share: $ (4.09) $ (3.78)
========== =========
</TABLE>
The accompanying notes are an integral part of these pro forma financial
statements.
<PAGE>
SCOTT PAPER COMPANY
-------------------
PRO FORMA STATEMENT OF CONSOLIDATED OPERATIONS
----------------------------------------------
NINE MONTH PERIOD ENDED SEPTEMBER 24, 1994
------------------------------------------
Unaudited
(Millions, Except on a Per Share Basis)
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ---------
<S> <C> <C> <C>
Sales $ 3,449.1 $ (828.9) $ 2,620.2
---------- ----------- ---------
Costs and expenses
Production costs 2,562.5 (720.9) 1,841.6
Marketing and distribution 409.7 (47.7) 362.0
Research, administration and general 173.1 (20.9) 152.2
Other 0.6 -- 0.6
---------- ----------- ---------
3,145.9 (789.5) 2,356.4
---------- ----------- ---------
Income from operations 303.2 (39.4) 263.8
Interest expense 137.3 (39.0) 98.3
Other income and (expense) 4.1 -- 4.1
---------- ----------- ---------
Income before taxes 170.0 (0.4) 169.6
Taxes on income 63.8 -- 63.8
---------- ----------- ---------
Income from continuing operations before
share of earnings of international
equity affiliates 106.2 (0.4) 105.8
Share of earnings of international
equity affiliates 19.8 -- 19.8
---------- ----------- ---------
Income from continuing operations $ 126.0 $ (0.4) $ 125.6
========== =========== =========
Earnings per share: $ 1.78 $ 1.77
========== =========
</TABLE>
The accompanying notes are an integral part of these pro forma financial
statements.
<PAGE>
Scott Paper Company
-------------------
Notes to Unaudited Consolidated Condensed Pro forma Financial Statements
------------------------------------------------------------------------
1. As described in Item 2, on December 20, 1994, Scott completed the sale of
S.D. Warren (Warren) and announced its intention to reduce Scott's corporate
debt and to repurchase Scott common shares with the net after-tax proceeds.
Scott's historical financial results have been restated on a pro forma basis
to reflect these transactions. These pro forma consolidated financial
statements should be read in conjunction with the historical consolidated
financial statements and notes thereto of Scott. Additionally, the pro forma
consolidated financial statements are not necessarily indicative of the
actual results that would have been achieved had the transactions occurred
on those dates, nor are they necessarily indicative of future results.
2. All summary consolidated balance sheet pro forma adjustments assume the
transactions giving rise to the adjustments were consummated on the balance
sheet date. The pro forma balance sheet adjustments give effect for the
disposition of substantially all assets and certain liabilities of Warren
and the debt and share repurchase transactions. Scott currently estimates
that any gain or loss to be recorded related to the sale of Warren will not
be material and the pro forma financial statements do not reflect any gain
or loss related to the sale of Warren.
Net after-tax proceeds from the sale of Warren were assumed to be used to
reduce debt (including debt assumed by the purchaser of Warren) and to
repurchase 3.9 million of the Company's common shares. The estimated after-
tax loss to be recorded related to the repurchase of debt has been reflected
as of the beginning of the period.
3. All summary consolidated condensed statement of operations pro forma
adjustments assume the transactions giving rise to the adjustments were
consummated immediately prior to the first day of the year ended December
25, 1993; accordingly, no gain or loss from the transactions are reflected
in the consolidated condensed statements of operations for the periods
presented.
The pro forma consolidated condensed statements of operations gives effect
for the following unaudited pro forma adjustments:
(a) Elimination of the results of operations, associated with the Warren
sale, for the periods presented.
(b) Elimination of interest expense based on the assumed reduction in debt.
(c) Calculation of the pro forma tax provision using the statutory rates for
the periods presented in accordance with generally accepted accounting
principles.
4. Earnings per share appearing on the pro forma consolidated condensed
statements of operations relating to the sale of Warren has been determined
after deducting the dividends on Scott's preferred shares. Earnings per
share are based on the average number of common shares outstanding for the
nine month periods ended September 24, 1994 and the year ended December 25,
1993 of 70.7 million and 70.1 million shares, respectively. The average
number of shares was adjusted to reflect the assumed buy back of 3.9 million
shares, at the September 24, 1994 closing price of $61.25 per share, with a
portion of the proceeds from the sale.
<PAGE>
EXHIBIT INDEX
-------------
Exhibit
- -------
2.1 Stock Purchase Agreement dated as of
October 8, 1994 by and among Scott Paper
Company, Sappi Limited and SDW Acquisition
Corporation. Pursuant to Item 601(b)(2)
of Regulation S-K, the Disclosure
Schedules and Exhibits referred to in the
Agreement are omitted.
2.2 Supplemental Agreement to Stock Purchase
Agreement dated as of October 8, 1994 by
and among Scott, Sappi Limited and SDW
Acquisition Corporation dated December 19, 1994.
<PAGE>
EXHIBIT 2.1
- --------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT
BY AND AMONG
SCOTT PAPER COMPANY, SAPPI LIMITED
AND
SDW ACQUISITION CORPORATION
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------------------
DATED AS OF OCTOBER 8, 1994
------------------
<PAGE>
TABLE OF CONTENTS
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<TABLE>
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Page
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<C> <C> <S> <C>
BACKGROUND.......................................................... 1
TERMS............................................................... 2
I. PURCHASE AND SALE............................................ 2
1.1 Purchase and Sale of the Shares....................... 2
1.2 Consideration......................................... 2
1.3 Closing............................................... 2
1.4 Deliveries by Seller.................................. 3
1.5 Deliveries by Buyer................................... 4
1.6 Adjustment of Initial Purchase Price
After the Closing..................................... 4
1.7 Transactions.......................................... 8
II. RELATED MATTERS.............................................. 9
2.1 Leases and Licenses................................... 9
2.2 Ancillary Agreements.................................. 9
2.3 Intercompany Accounts................................. 11
2.4 Resignations.......................................... 11
III. REPRESENTATIONS AND WARRANTIES OF SELLER..................... 12
3.1 Organization of Seller; Authority..................... 12
3.2 Title to Shares....................................... 12
3.3 Organization and Qualification of
the Company........................................... 13
3.4 Capitalization........................................ 13
3.5 Subsidiaries.......................................... 14
3.5A Capitalization of Subsidiaries........................ 14
3.6 No Violation; Consents and Approvals.................. 15
3.7 Financial Statements; Undisclosed
Liabilities........................................... 16
3.8 Absence of Certain Changes or Events.................. 18
3.9 Title to Personal Property............................ 18
3.9A. Scott Leased Assets................................... 19
3.10 Title to Real Property................................ 19
3.11 Intellectual Property................................. 23
3.12 Litigation............................................ 24
3.13 Employee Benefit Plans................................ 25
3.14 Taxes................................................. 30
3.15 Contracts and Commitments............................. 32
3.16 Compliance with Laws.................................. 35
3.17 Insurance............................................. 36
</TABLE>
i
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Page
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<C> <C> <S> <C>
3.18 Labor Matters......................................... 36
3.19 Environmental......................................... 37
3.20 Entire Business....................................... 39
3.21 Brokers............................................... 39
3.22 Accounts; Safe Deposit Boxes; Powers
of Attorney; Officers and Directors................... 40
3.23 Corporate Name........................................ 40
3.24 Effect of Transaction................................. 40
3.25 Suppliers............................................. 40
3.26 Customers; Distributors............................... 41
3.27 Transactions with Affiliates.......................... 41
IV. REPRESENTATIONS AND WARRANTIES OF SAPPI AND
BUYER........................................................ 41
4.1 Organization; Authority............................... 41
4.2 No Violation; Consents and Approvals.................. 42
4.3 Litigation............................................ 43
4.4 Financing............................................. 43
4.5 Acquisition of the Shares for In-
vestment; Securities Act.............................. 43
4.6 Investigation by Sappi and Buyer...................... 43
4.7 Brokers............................................... 44
V. COVENANTS OF THE PARTIES.............................. 44
5.1 Conduct of the Company's Business..................... 44
5.2 Access to Information Prior to the
Closing; Confidentiality; Coopera-
tion.................................................. 47
5.3 Reasonable Efforts.................................... 49
5.4 Consents.............................................. 49
5.5 Antitrust Notification................................ 50
5.6 Public Announcements.................................. 50
5.7 Supplemental Disclosure............................... 51
5.8 Confidentiality....................................... 52
5.9 Insurance............................................. 52
5.10 Assignment of Confidentiality Agree-
ments................................................. 52
5.11 Certain Licenses and Permits.......................... 52
5.12 Records............................................... 53
5.13 Entire Business....................................... 54
5.14 Additional Real Property.............................. 54
VI. ADDITIONAL AGREEMENTS........................................ 55
6.1 Tax Matters........................................... 55
(a) Certain Definitions.............................. 55
</TABLE>
ii
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<TABLE>
<CAPTION>
Page
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<C> <C> <S> <C>
(b) Section 338(h)(10) Election...................... 55
(c) Transfer and Similar Taxes....................... 56
(d) Return Filings, Refunds and
Credits.......................................... 57
(e) Termination of Tax Sharing
Agreements....................................... 60
(f) Carrybacks....................................... 60
(g) Elections........................................ 60
(h) Timing Adjustments............................... 60
6.2 Company Employees; Employee Con-
tracts and Benefits................................... 62
(a) Certain Definitions.............................. 62
(b) Assumption of Liabilities of,
and Transfer of Assets from,
Scott Pension Plans and Warren
Pension Plans.................................... 63
(c) Defined Contribution Plans....................... 64
(d) Other Benefits................................... 66
(e) Right to Change Benefits......................... 66
(f) Collectively Bargained Benefits.................. 67
6.3 Financing Arrangements................................ 67
(a) Financings to be Terminated by
Seller Before Closing Date....................... 67
(b) Tax-Exempt Bond Financings....................... 67
(c) Cross Border Leases.............................. 69
(d) Safe Harbor Leases............................... 70
(e) Mobile Taxable Bonds............................. 70
(f) Westbrook Biomass Cogeneration
Facility Financing............................... 71
(g) Letters of Credit................................ 72
(h) Further Assurances............................... 73
6.4 Solicitation.......................................... 73
6.5 Financing............................................. 74
6.6 Covenant Not to Compete............................... 74
6.7 Termination of Certain Commitments.................... 75
6.8 Certain Agreements.................................... 76
6.9 Worker's Compensation................................. 76
6.10 Provision of Notices of Default....................... 76
VII. CONDITIONS TO OBLIGATIONS OF SELLER................... 76
7.1 Conditions............................................ 76
(a) Representations and Warranties................... 76
(b) Performance...................................... 77
(c) Officer's Certificate............................ 77
(d) Opinion of Counsel............................... 77
</TABLE>
iii
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Page
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<C> <C> <S> <C>
(e) No Injunction or Statute......................... 77
(f) No Proceeding.................................... 77
(g) Expiration or Termination of
HSR Periods...................................... 77
(h) Ancillary Agreements............................. 78
VIII. CONDITIONS TO OBLIGATIONS OF BUYER........................... 78
8.1 Conditions............................................ 78
(a) Representations and Warranties................... 78
(b) Performance...................................... 78
(c) Officer's Certificate............................ 78
(d) Opinion of Counsel............................... 78
(e) No Injunction or Statute......................... 78
(f) No Proceeding.................................... 79
(g) Expiration or Termination of
HSR Periods...................................... 79
(h) Ancillary Agreements............................. 80
(i) Consents and Approvals; Permits.................. 80
(j) Material Adverse Change.......................... 80
(k) Financing........................................ 80
(l) Financial Statements............................. 80
(m) Transfer of Scott Assets......................... 80
8.2 Alternative Satisfaction of Condi-
tion.................................................. 81
8.3 Benefit of Assignment................................. 83
IX. TERMINATION, AMENDMENT AND WAIVER............................ 84
9.1 Termination........................................... 84
9.2 Procedure and Effect of Termination................... 85
9.3 Amendment, Modification and Waiver.................... 86
X. FEES AND EXPENSES: SURVIVAL OF REPRESEN-
TATIONS; INDEMNIFICATION..................................... 86
10.1 Fees and Expenses..................................... 86
10.2 Survival of Representations........................... 87
10.3 Tax Indemnification................................... 87
10.4 Seller's Agreement to Indemnify....................... 92
10.5 Seller's Limitation of Liability...................... 93
10.6 Buyer's Agreement to Indemnify........................ 94
10.7 Buyer's Limitation of Liability....................... 95
10.8 Environmental Indemnification......................... 95
(a Buyer Indemnification of Seller.................. 95
(b) Seller Indemnification of Buyer.................. 96
</TABLE>
iv
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Page
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<C> <C> <S> <C>
(c) Environmental Claims Arising
from Joint Operations in Mo-
bile, Alabama................................... 96
10.9 Conditions of Indemnification With
Respect to Third-Party Claims........................ 97
10.10 Other Claims......................................... 98
10.11 Sole Remedy.......................................... 99
XI. DISPUTE RESOLUTION.......................................... 100
11.1 General.............................................. 100
11.2 Meeting of Executive Officers........................ 100
XII. MISCELLANEOUS............................................... 101
12.1 Further Assurances................................... 101
12.2 Notices.............................................. 101
12.3 Entire Agreement..................................... 102
12.4 Severability......................................... 103
12.5 Binding Effect; Assignment........................... 103
12.6 No Third-Party Beneficiaries......................... 103
12.7 Counterparts......................................... 104
12.8 Interpretation....................................... 104
12.9 Forum; Service of Process............................ 104
12.10 Governing Law........................................ 105
12.11 Attorney Fees........................................ 105
12.12 Specific Performance................................. 105
12.13 Sappi Obligation..................................... 106
12.14 Defined Terms........................................ 106
</TABLE>
v
<PAGE>
Exhibits
Exhibit 1.6(c) Closing Statement
Exhibit 2.2(a) Term Sheet for Mobile Pulp Agreement
Exhibit 2.2(b) Term Sheet for Mobile Energy Agreement
Exhibit 2.2(c) Term Sheet for Mobile Utilities Agreement
Exhibit 2.2(d) Term Sheet for Mobile Shared Facilities
Agreement
Exhibit 2.2(e) Term Sheet for Mobile Operating Agreement
Exhibit 2.2(f) Term Sheet for Transition Agreement
Exhibit 2.2(g) Form of License Agreement
Exhibit 2.2(h) Term Sheet for Asset Agreement
Exhibit 2.2(i) Term Sheet for Winslow Agreement
vi
<PAGE>
STOCK PURCHASE AGREEMENT
------------------------
STOCK PURCHASE AGREEMENT, dated as of October 8, 1994 (the
"Agreement"), by and among SCOTT PAPER COMPANY, a Pennsylvania corporation
("Seller"), SAPPI LIMITED, a corporation organized under the laws of the
Republic of South Africa ("Sappi"), and SDW ACQUISITION CORPORATION, a
Pennsylvania corporation ("Buyer").
BACKGROUND
----------
A. Buyer is a wholly owned subsidiary of SDW Holdings Corporation, a
Delaware corporation ("Holdings"). On the date of this Agreement, Holdings is a
wholly owned subsidiary of Sappi.
B. Buyer desires to acquire from Seller, and Seller desires to
dispose of, the business, properties and assets of S.D. Warren Company, a
Pennsylvania corporation and wholly owned subsidiary of Seller (the "Company"),
including, without limitation, certain of the facilities located in Mobile,
Alabama, and in Belgium, used in the Company's business and certain other assets
used in or necessary to the conduct of the business of the Company and its
Subsidiaries as conducted on the date hereof and as presently intended to be
conducted. The business, properties and assets being transferred, directly or
indirectly, to Buyer pursuant to this Agreement and the Ancillary Agreements (as
defined herein) are referred to collectively as the "Continuing Business".
C. Sappi has agreed, subject to and effective only upon receipt of
approval of the South African Reserve Bank to enter into this Agreement, to
cause Buyer to comply with Buyer's obligations hereunder until the Closing Date.
D. To effect such transfer of the Continuing Business, Buyer desires
to purchase from Seller, and Seller desires to sell to Buyer, all of the issued
and outstanding common shares, no par value (the "Shares"), of the Company, upon
the terms and subject to the conditions hereinafter set forth.
<PAGE>
TERMS
-----
In consideration of the foregoing and of the representations,
warranties, covenants, agreements and conditions contained herein, and intending
to be legally bound hereby, the parties agree as follows:
I. PURCHASE AND SALE.
-----------------
1.1 Purchase and Sale of the Shares. Upon the terms and subject to
-------------------------------
the conditions of this Agreement, at the closing provided for in Section 1.3
hereof (the "Closing"), Seller shall sell, convey, assign, transfer and deliver
to Buyer, and Buyer shall purchase, acquire and accept from Seller, all right,
title and interest in and to the Shares, free of liens, encumbrances, security
interests, mortgages, pledges, claims, options or restrictions of any kind
(collectively, "Liens"), and Seller shall agree not to enter into any
competitive operation pursuant to the terms and conditions of Section 6.6 hereof
(the "Covenant").
1.2 Consideration. Upon the terms and subject to the conditions of
-------------
this Agreement, in consideration of the aforesaid sale, conveyance, assignment,
transfer and delivery of the Shares (which represent ownership of the Continuing
Business), and grant of the Covenant, at the Closing, Buyer shall pay to Seller
the sum of One Billion Six Hundred Million Dollars ($1,600,000,000) less any
indebtedness of the Company for borrowed money outstanding (including all
capitalized lease obligations) on the Closing Date (which indebtedness will not
be less than $118 million) in cash (the "Initial Purchase Price").
1.3 Closing. Subject to Article IX hereof, the Closing of the
-------
transactions contemplated by this Agreement and the Ancillary Agreements (as
hereinafter defined) shall take place at the offices of Skadden, Arps, Slate,
Meagher & Flom, 919 Third Avenue, New York, New York, at 10:00 a.m., Eastern
Standard Time, on December 9, 1994, or if the conditions to Closing set forth in
Articles VII and VIII hereof shall not have been satisfied or waived by such
date, as soon as practicable (but in no event less than five business days)
after such conditions shall have been satisfied or waived, or at such other
place, date and time as shall be agreed upon
2
<PAGE>
in writing by all of the parties hereto; provided, however, that the parties
-------- -------
hereto intend that such Closing shall be deemed to be effective, and the
transactions contemplated by this Agreement and the Ancillary Agreements shall
be deemed to occur simultaneously at 12:01 a.m. on the date on which the Closing
actually occurs (the "Closing Date").
Notwithstanding the foregoing, if on any date on or after December 9,
1994, the conditions set forth in Article VIII (other than those set forth in
Section 8.1(h) or (k) (provided that the funds referred to therein would be
required to be made available on such date if requested)) have been satisfied or
waived, Buyer shall have the right to determine not to consummate the
transactions contemplated hereby on the date established for the Closing
pursuant to this Section 1.3 by paying Seller $2 million in cash in order to
defer the Closing for up to seven days from such date (a "Buyer Deferral").
Buyer may elect to exercise its right to effect a Buyer Deferral on more than
one occasion; provided, however, that no such Buyer Deferral shall postpone the
-------- -------
Closing Date to a date later than December 30, 1994.
1.4 Deliveries by Seller. Prior to or at the Closing, Seller shall
--------------------
deliver or cause to be delivered to Buyer the following:
(a) A stock certificate or stock certificates representing the
Shares, duly endorsed or accompanied by stock powers duly executed in blank or
duly executed instruments of transfer with appropriate transfer stamps, if any,
affixed, and any other documents that are necessary to transfer title to the
Shares to Buyer;
(b) the minute books, stock books, stock ledgers and corporate seals
of each of the Company and each of its Subsidiaries;
(c) the resignations referred to in Section 2.4 hereof; and
(d) all other documents, certificates, instruments or writings
required to be delivered by Seller at or prior to the Closing pursuant to this
Agreement or otherwise required in connection herewith.
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<PAGE>
1.5 Deliveries by Buyer. Prior to or at the Closing, Buyer shall
-------------------
deliver or cause to be delivered to Seller the following:
(a) cash in an amount equal to the Initial Purchase Price, by wire
transfer of immediately available funds to a bank account designated in writing
by Seller at least three business days prior to the Closing Date; and
(b) all other documents, certificates, instruments or writings
required to be delivered by Buyer at or prior to the Closing pursuant to this
Agreement or otherwise required in connection herewith.
1.6 Adjustment of Initial Purchase Price After the Closing.
------------------------------------------------------
(a) As used in this Agreement:
(i) "Assets", as of any date, means all assets of the Continuing
Business under GAAP (with inventories valued on a FIFO basis), net of applicable
reserves, other than (A) any refunds of Taxes, and (B) receivables from Seller
or any of its affiliates;
(ii) "Liabilities", as of any date, means all liabilities of the
Continuing Business under GAAP to the extent that the Continuing Business is and
will be responsible for the payment of such items after Closing, other than (A)
current and deferred Taxes with respect to any taxable period ending on or
before the Closing Date, (B) accruals for restructurings and for pensions and
other post-retirement benefits, and (C) payables to Seller or any of its
affiliates;
(iii) "Net Assets", as of any date, means an amount equal to
(A) Assets less (B) Liabilities;
(iv) "June Balance Sheet" means the unaudited combined balance
sheet of the Continuing Business as of June 25, 1994, which is set forth in
Section 3.7 of the disclosure schedule attached hereto and made a part hereof
(the "Disclosure Schedule");
(v) "Base Net Assets" means an amount equal to $1.565 billion;
4
<PAGE>
(vi) "Closing Date Balance Sheet" (Statement of Assets Sold and
Liabilities Transferred) means the audited balance sheet of the Continuing
Business as of the Closing Date prepared in accordance with GAAP, without regard
to any effect of the Financing;
(vii) "Closing Net Assets" means an amount equal to the Net Assets of
the Continuing Business as of the Closing Date as derived from the Closing Date
Balance Sheet; provided, however, that for purposes of determining the Closing
-------- -------
Net Assets, the value of the non-current Assets shall equal the value thereof
reflected on the June Balance Sheet, plus actual capital expenditures incurred
in accordance with the provisions of this Agreement, less actual depreciation;
(viii) "Closing Statement" means the statement of Closing Net Assets,
together with the computation of the adjustment pursuant to Section 1.6(b), to
be delivered by Seller after the Closing; and
(ix) "GAAP" means U.S. generally accepted accounting principles,
consistently applied throughout the periods presented in accordance with
Seller's historical accounting policies and practices, including those set forth
in Section 3.7 of the Disclosure Schedule.
(b) The Initial Purchase Price shall be (A) increased by the amount,
if any, by which Closing Net Assets exceeds Base Net Assets, or (B) decreased by
the amount, if any, by which Base Net Assets exceeds Closing Net Assets;
provided, however, that in the event that Closing Net Assets is more than $1.564
- -------- -------
billion and less than $1.566 billion, no such adjustment shall be made.
(c) Within sixty days after the Closing Date, Seller shall prepare in
good faith and deliver to Buyer the Closing Date Balance Sheet, certified by an
officer of Seller as having been prepared in accordance with this Section 1.6,
together with a signed, unqualified audit report thereon of Coopers & Lybrand.
Seller shall also prepare in good faith and deliver to Buyer, simultaneously
with the delivery of the Closing Date Balance Sheet, the Closing Statement,
certified by an officer of Seller as having been prepared in accordance with
this Section 1.6, setting forth Seller's computation of Closing Net Assets and
the adjustment proposed by Seller, if any,
5
<PAGE>
to the Initial Purchase Price as a result of such computation. If so requested
by Buyer in writing, Seller shall also deliver to Buyer, or permit Buyer or its
independent auditors to review, the working papers of Seller relating to the
Closing Statement and the Closing Date Balance Sheet.
At Seller's or Buyer's option, a physical inventory shall be conducted
by the Company and its Subsidiaries on or before the Closing Date for the
purpose of preparing the Closing Date Statement, and each of Buyer and Seller
and their respective independent auditors shall have the right to observe the
taking of such physical inventory. The respective costs or expenses incurred in
connection with such taking of physical inventory shall be borne by each party.
(d) If Buyer disagrees in good faith with the Closing Date Balance
Sheet or the Closing Statement, Buyer may, within ninety days after the Closing
Date, deliver a written notice to Seller (a "Disagreement Notice"), signed by
Buyer's chief financial officer, setting forth its computations and specifying
in reasonable detail those items or amounts in the Closing Date Balance Sheet
and the Closing Statement as to which Buyer disagrees and the basis for such
disagreement. Buyer shall be deemed to have agreed with all other items and
amounts contained in the Closing Date Balance Sheet and the Closing Statement
other than those so specified in such Disagreement Notice. If Buyer does not
deliver a Disagreement Notice to Seller within ninety days after the Closing
Date, the Closing Date Balance Sheet and the Closing Statement shall become
final, conclusive and binding upon the parties, and the adjustment, if any,
reflected in the Closing Statement shall be made to the Initial Purchase Price
and paid in accordance with this Section 1.6.
(e) If a Disagreement Notice is delivered to Seller pursuant to this
Section 1.6, the parties shall seek in good faith to reach agreement on the
disputed items or amounts in order to determine the amount of the adjustment to
the Initial Purchase Price which in no event shall be more favorable to Seller
than reflected in the Closing Statement nor more favorable to Buyer than
reflected in such Disagreement Notice. If the parties do not resolve all
disputed items and amounts within thirty
6
<PAGE>
days after delivery of such Disagreement Notice, this Agreement and the disputed
items and amounts will be submitted to Ernst & Young, or if such firm is unable
or unwilling to act, such other independent, nationally recognized accounting
firm which has not provided services to either Seller or its affiliates or Buyer
or its affiliates during the one-year period immediately preceding the date
hereof (the "Independent Accountants"), for determination of the appropriate
adjustment to the Initial Purchase Price pursuant to this Section 1.6. The
written report of the Independent Accountants (the "Report") shall be delivered
to Buyer and Seller promptly, but in no event later than twenty business days
after such disputed items and amounts are submitted to the Independent
Accountants, and shall be final, conclusive and binding upon the parties. The
procedures for resolution of disputes concerning the Closing Date Balance Sheet
and the Closing Statement set forth in this Section 1.6 are intended to be final
and exclusive of any other contest or appeal in relation thereto, so that if (i)
Buyer shall have failed to give the Disagreement Notice within the required
ninety-day period, or (ii) having so given the Disagreement Notice, Buyer
subsequently reaches written agreement with Seller on the disputed items or
amounts, or (iii) no such agreement is reached and the matter is submitted to
the Independent Accountants and they issue their Report, then in all such cases
neither party shall be entitled to subject the Closing Date Balance Sheet, the
Closing Statement, such agreement or the Report to appeal to any court or
tribunal. The fees and expenses of the Independent Accountants regarding the
preparation and delivery of the Report shall be borne equally by Buyer and
Seller. The fees and disbursements of Buyer's independent auditors incurred in
connection with their review of the Closing Date Statement shall be borne by
Buyer, and the fees and disbursements of Seller's independent auditors incurred
in connection with preparation of the Closing Date Statement and review of any
Disagreement Notice shall be borne by Seller.
(f) Within five business days after the earliest to occur of (i) in
the event no Disagreement Notice has been delivered by Buyer in accordance with
Section 1.6(d), the date that is ninety days after the Closing Date, (ii) mutual
agreement in writing by Seller and Buyer as to the amount of the adjustment, if
any, and
7
<PAGE>
(iii) delivery of the Report to Seller and Buyer by the Independent Accountants,
Buyer shall pay Seller an amount in cash equal to the amount by which Closing
Net Assets exceeds Base Net Assets or Seller shall pay Buyer an amount in cash
equal to the amount by which Base Net Assets exceeds Closing Net Assets, as the
case may be, together, in either case, with interest in accordance with Section
1.6(g) below.
(g) Any amount payable pursuant to this Section 1.6 will be made by
wire transfer of immediately available funds to an account designated in writing
by the party receiving such payment at least three business days prior to the
date such payment is due and shall include interest, to the extent such amount
payable is less than $25,000,000, at the Prime Rate (as hereinafter defined) as
in effect on the Closing Date and, to the extent such amount payable is equal to
or greater than $25,000,000, at the Prime Rate as in effect on the Closing Date
plus 2% per annum, in each case from the Closing Date to the date the payment is
made. Interest payable under the provisions of this Section 1.6 shall be
computed on the basis of a 365-day year and actual days elapsed. As used in
this Agreement, the term "Prime Rate" shall mean the rate of interest from time
to time announced publicly by Morgan Guaranty Trust Company of New York as its
base rate. The Initial Purchase Price, as adjusted pursuant to this Section
1.6, is herein referred to as the "Purchase Price."
(h) From the Closing Date until the final determination of the amount
of the adjustment, if any, each party and its representatives will have
reasonable access to the Company and its employees and records in order to
assist in such determination.
1.7 Transactions. All of the transactions contemplated by this
------------
Agreement and the Ancillary Agreements (other than the Merger Agreement and the
Asset Agreement) shall be deemed to occur simultaneously on the Closing Date at
the time set forth in Section 1.3 hereof, and no such transaction shall be
deemed to have been consummated until all such transactions have been
consummated. The transaction contemplated by the Merger Agreement and the Asset
Agreement shall be deemed to occur immediately after the transactions referred
to in the immediately preceding sentence. Substantially con-
8
<PAGE>
temporaneously with the purchase and sale of the Shares pursuant to this
Agreement, Buyer intends to consummate the Financing as contemplated by Section
4.4 hereof (which is expected to include borrowings secured by properties and
assets of the Company and its Subsidiaries) and, effective immediately after the
purchase and sale of the Shares pursuant to the Agreement, to consummate the
merger of Buyer with and into the Company, which shall be the surviving
corporation thereof (pursuant to which the Company will assume, by operation of
law, all liabilities of Buyer, including with respect to the Financing). Seller
and the Company acknowledge such intentions and agree that the Financing and
such merger shall be considered transactions contemplated by this Agreement for
all purposes of this Agreement.
II. RELATED MATTERS.
---------------
2.1 Leases and Licenses. Prior to or at the Closing, Seller shall
-------------------
use its reasonable efforts (which shall not require Seller to incur any
financial obligation to any party) to cause the owners of such assets as are
described in Section 2.1 of the Disclosure Schedule (the "Scott Leased Assets")
to either (A) to the extent required by the terms of such leases or licenses,
consent to the assignment, transfer, sublease or sublicense to the Company or
its Subsidiaries by Seller or its Subsidiaries and affiliates of their
respective right, title and interest, whether legal or equitable, in and to the
Scott Leased Assets, in which event (or in the event no such consent is
required) Seller or its Subsidiaries and affiliates shall effect such
assignment, transfer, sublease or sublicense, or (B) enter into a lease or
license agreement, as the case may be, with the Company or its Subsidiaries on
terms and conditions substantially in accord with those in effect on the date
hereof between such owners and Seller or its Subsidiaries and affiliates with
respect to the Scott Leased Assets. The term "Subsidiary" means, with respect
to a specified person, any other person of which a majority of the voting power
of the voting equity securities or equity interests is owned, directly or
indirectly, by such specified person.
2.2 Ancillary Agreements. Prior to or at the Closing, Seller (or its
--------------------
Subsidiaries or affiliates) and Buyer shall, and Seller shall cause the Company
and, if
9
<PAGE>
the MESC Sale (as defined) has occurred, MESC to, enter into such of the
following ancillary agreements to which each is a party on substantially the
terms and conditions set forth in Exhibits 2.2(a) through 2.2(i), respectively,
and otherwise in form and substance reasonably satisfactory to Seller and Buyer:
(a) the Pulp Supply Agreement between Seller and the Company,
substantially as set forth in Exhibit 2.2(a) hereto (the "Mobile Pulp
Agreement");
(b) the Energy Services Agreement between the Company and (i) if the
Closing occurs prior to the sale by Seller to Mobile Energy Services Company
("MESC") of the energy complex located in Mobile, Alabama (the "MESC Sale"),
Seller and (ii) if the Closing occurs simultaneously with or after the MESC
Sale, MESC, substantially as set forth in Exhibit 2.2(b) hereto (the "Mobile
Energy Agreement");
(c) the Water and Effluent Agreement between Seller and the Company,
substantially as set forth in Exhibit 2.2(c) hereto (the "Mobile Utilities
Agreement");
(d) the Shared Facilities and Services Agreement among Seller, the
Company and, if the Closing occurs simultaneously with or after the MESC Sale,
MESC, substantially as set forth in Exhibit 2.2(d) hereto (the "Mobile Shared
Facilities Agreement");
(e) Master Operating Agreement among Seller, the Company and, if the
Closing occurs simultaneously with or after the MESC Sale, MESC, substantially
as set forth in Exhibit 2.2(e) hereto (the "Mobile Operating Agreement");
(f) Corporate Transition Services Agreement between Seller and the
Company, substantially as set forth in Exhibit 2.2(f) hereto (the "Transition
Agreement");
(g) Trademark License Agreement between Seller and the Company,
substantially as set forth in Exhibit 2.2(g) hereto (the "License Agreement");
(h) Belgium Asset Purchase Agreement between Scott Continental N.V.
and the Company, substantially as
10
<PAGE>
set forth in Exhibit 2.2(h) hereto (the "Asset Agreement"); and
(i) Northeast Practices Agreement between Seller and the Company,
substantially as set forth in Exhibit 2.2(i) hereto (the "Winslow Agreement").
Prior to or at the Closing, Seller shall, if requested by Buyer no
less than five business days prior to the Closing, cause the Company to enter
into a merger agreement (the "Merger Agreement") pursuant to which Buyer shall
merge with and into the Company, which shall be the surviving corporation
thereof, immediately following the Closing. Such Merger Agreement shall be in
form and substance reasonably satisfactory to Seller.
Together, the Mobile Pulp Agreement, Mobile Energy Agreement, Mobile
Utilities Agreement, Mobile Shared Facilities Agreement, Mobile Operating
Agreement, Transition Agreement, License Agreement, Asset Agreement, Winslow
Agreement and Merger Agreement are referred to herein as the "Ancillary
Agreements."
2.3 Intercompany Accounts. On or prior to the Closing Date, Seller
---------------------
shall, and shall cause its Subsidiaries (including the Company) and affiliates
to, take all actions necessary to settle as of the Closing all intercompany
payables or receivables, indebtedness and other accounts between the Company and
its Subsidiaries, on the one hand, and Seller and its respective Subsidiaries or
affiliates (other than the Company and its Subsidiaries), on the other hand. No
adjustment shall be made to the Initial Purchase Price or the Purchase Price as
a result of any such cancellation.
2.4 Resignations. At the Closing, Seller shall cause to be delivered
------------
to Buyer and the Company duly signed resignations (from the members of the
applicable board of directors), effective as of the Closing, of all directors of
the Company and each of its Subsidiaries and shall take such other action as is
necessary to accomplish the foregoing.
11
<PAGE>
III. REPRESENTATIONS AND WARRANTIES OF SELLER.
----------------------------------------
Solely for the purposes of the representations and warranties of
Seller set forth in Article III (other than Section 3.9(c), 3.9A, 3.11(b), the
second sentence of Section 3.16 and Section 3.23), unless the context otherwise
requires, any reference to "the Company and its Subsidiaries" in this Article
III means the Continuing Business as though on or prior to the date hereof
Seller had assigned or transferred or otherwise caused to be assigned or
transferred to the Company all right, title and interest of Seller (or Seller's
Subsidiaries and affiliates, other than the Company) to the Scott Assets (as
hereinafter defined). Seller represents and warrants to Buyer as follows:
3.1 Organization of Seller; Authority. Seller is a corporation duly
---------------------------------
organized, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania, and has all requisite corporate power and
corporate authority to enter into this Agreement and such of the Ancillary
Agreements to which Seller is a party, to perform its obligations hereunder and
thereunder and to consummate the transactions contemplated hereby and thereby.
The execution, delivery and performance by Seller of this Agreement and by
Seller or the Company of such Ancillary Agreements to which it is a party, and
the consummation of the transactions contemplated hereby and thereby have been
duly authorized by all necessary corporate action on the part of Seller or the
Company, as the case may be. This Agreement has been (and each such Ancillary
Agreement upon execution and delivery will be) duly executed and delivered by
each such party thereto and constitutes (and each such Ancillary Agreement, upon
execution and delivery, will constitute) a legal, valid and binding obligation
of such of Seller and the Company as is a party thereto, enforceable against
such party thereto in accordance with its and their respective terms.
3.2 Title to Shares. Seller has good and valid title to the Shares,
---------------
free and clear of all Liens, and upon delivery to Buyer at the Closing of a
certificate or certificates representing the Shares, duly endorsed by Seller for
transfer to Buyer or accompanied by stock powers duly executed in blank, and
upon receipt by Seller of the Initial Purchase Price, good and valid
12
<PAGE>
title to the Shares will pass to Buyer, free and clear of any Liens. Other than
this Agreement, the Shares are not subject to any voting trust agreement or
other contract, agreement, arrangement, commitment or understanding, including
any such agreement, arrangement, commitment or understanding restricting or
otherwise relating to the voting, dividend rights or disposition of the Shares.
3.3 Organization and Qualification of the Company. Each of the
---------------------------------------------
Company and each of its Subsidiaries is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction listed as its
jurisdiction of incorporation in Section 3.3 of the Disclosure Schedule and has
all requisite corporate power and corporate authority to own, lease and operate
the properties it owns, leases or operates and to conduct its business as
conducted on the date hereof. Each of the Company and each of its Subsidiaries
is duly qualified or licensed to do business as a foreign corporation and is in
good standing in each jurisdiction in which the property owned, leased or
operated by it or the nature of the business conducted by it makes such
qualification necessary, except in those jurisdictions where the failure to be
so duly qualified or licensed and in good standing would not, individually or in
the aggregate, reasonably be expected to result in a material adverse effect on
the business, assets, results of operations, condition (financial or otherwise)
or prospects of the Company and its Subsidiaries taken as a whole (a "Material
Adverse Effect"). A list of the jurisdictions in which the Company and its
Subsidiaries are so qualified is set forth in Section 3.3 of the Disclosure
Schedule. Seller has made available to Buyer (i) complete and correct copies of
the Articles of Incorporation and Bylaws of the Company, as in effect as of the
date of this Agreement, and the comparable governing instruments, as in effect
as of the date of this Agreement, of the Company's Subsidiaries and (ii) each
document listed in or described in the Disclosure Schedule, which are complete
and correct in all material respects. The stock certificate and transfer books
and the minute books of the Company and each of its Subsidiaries (which have
been made available for inspection by Buyer prior to the date hereof) are true
and complete in all material respects.
3.4 Capitalization. The authorized capital stock of the Company
--------------
consists of 1,000 shares of common
13
<PAGE>
stock, no par value, of which 1,000 shares, constituting the Shares, are validly
issued and outstanding, fully paid and nonassessable. The Shares are owned of
record and beneficially by Seller. Such Shares have not been issued in
violation of, and are not subject to, any preemptive, subscription or similar
rights. Except for the Shares, there are no shares of capital stock or other
equity securities of the Company outstanding. There are no outstanding
warrants, options, "phantom" stock rights, agreements, convertible or
exchangeable securities or other commitments pursuant to which Seller or the
Company is or may become obligated to issue, sell, purchase, return or redeem
any shares of capital stock or other securities of the Company, or which give
any person the right to receive any benefits or rights similar to any rights
enjoyed by or accruing to the holders of shares of capital stock of the Company.
Except as set forth in Section 3.4 of the Disclosure Schedule, there are no
outstanding bonds, debentures, notes or other indebtedness having the right to
vote on any matters which stockholders of the Company may vote.
3.5 Subsidiaries. Except as set forth in Section 3.5 of the
------------
Disclosure Schedule, the Company does not own, directly or indirectly, any
capital stock or other equity interest in or of any corporation, partnership,
joint venture or other entity.
3.5A Capitalization of Subsidiaries. The authorized capital stock of
------------------------------
Presumpscot Water Power Co., a wholly owned Subsidiary of the Company
("Presumpscot"), consists of 3,000 shares of common stock, $100 par value, of
which 2,295 shares are owned by the Company. The authorized capital stock of
Skylark, Inc., a wholly owned Subsidiary of the Company ("Skylark"), consists of
1,000 shares of common stock, $100 par value, of which 26 shares are owned by
the Company (the issued and outstanding shares of common stock of Presumpscot
and Skylark, respectively, are collectively referred to herein as the
"Subsidiary Shares"). The Subsidiary Shares are validly issued and outstanding,
fully paid and nonassessable. The Subsidiary Shares are owned of record and
beneficially by the Company. Such Subsidiary Shares have not been issued in
violation of, and are not subject to, any preemptive, subscription or similar
rights. Except for the Subsidiary Shares, there are no shares of capital stock
or other equity securities of either Presumpscot or
14
<PAGE>
Skylark outstanding. There no outstanding warrants, options, "phantom" stock
rights, agreements, convertible or exchangeable securities or other commitments
pursuant to which Seller or any of its affiliates (including the Company) is or
may become obligated to issue, sell, purchase, return or redeem any shares of
capital stock or other securities of Presumpscot or Skylark, or which give any
person the right to receive any benefits or rights similar to any rights enjoyed
by or accruing to the holders of shares of capital stock of Presumpscot or
Skylark. There are no outstanding bonds, debentures, notes or other
indebtedness having the right to vote on any matters which stockholders of
Presumpscot or Skylark may vote.
3.6 No Violation; Consents and Approvals. Except as set forth in
------------------------------------
Section 3.6 of the Disclosure Schedule, the execution and delivery by Seller of
this Agreement and by Seller or the Company of such of the Ancillary Agreements
to which Seller or the Company is a party does not, and the consummation of the
transactions contemplated hereby and thereby and compliance with the terms
hereof and thereof will not (with or without notice or lapse of time, or both),
conflict with, or result in any violation of or default under, or give rise to a
right of termination, cancellation or acceleration of any obligation or to loss
of a material benefit under, or to increased, additional, accelerated or
guaranteed rights or entitlements of any person under, or result in the creation
of any Lien upon any of the properties or assets of the Company or any of its
Subsidiaries under, (a) any provision of the Articles of Incorporation or Bylaws
of Seller, the Company or any of the Subsidiaries of the Company, (b) any
judgment, order or decree, or statute, law, ordinance, rule or regulation
applicable to Seller, the Company or any of the Subsidiaries of the Company or
the property or assets of Seller, the Company or such Subsidiaries or (c) any
material note, bond, mortgage, indenture, license, agreement, lease or other
instrument or obligation to which Seller, the Company or any of the Subsidiaries
of the Company is a party or by which Seller, the Company or such Subsidiaries
or any of their respective assets may be bound. Except as set forth in Section
3.6 of the Disclosure Schedule, no consent, approval, order or authorization of,
or registration, declaration or filing with, any court, administrative agency or
commission or other governmental entity, au-
15
<PAGE>
thority or instrumentality, domestic or foreign (a "Governmental Entity") or any
third person, is required to be obtained or made by or with respect to Seller,
the Company, any of the Subsidiaries of the Company or their respective
affiliates in connection with the execution and delivery of this Agreement or
such of the Ancillary Agreements to which such persons are a party, or the
consummation by such persons of the transactions contemplated hereby and
thereby, other than, in each case, (i) compliance with and filings under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act")
and under foreign laws regulating competition, (ii) compliance with and filings
under Section 13(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), (iii) compliance with and filings under Federal and state
environmental statutes as described in Section 3.6 of the Disclosure Schedule
and (iv) those which may be required solely by reason of Sappi's or Buyer's or
any of their respective affiliates (as opposed to any other third party's)
participation in the transactions contemplated hereby and thereby.
3.7 Financial Statements; Undisclosed Liabilities.
---------------------------------------------
(a) Section 3.7 of the Disclosure Schedule sets forth the June
Balance Sheet. Except as set forth in Section 3.7 of the Disclosure Schedule,
the June Balance Sheet (a) presents fairly, in all material respects, the
financial condition of the Continuing Business as of the date indicated and (b)
has been prepared on a basis consistent with normal accounting practices of the
Company including, without limitation, those listed in Section 3.7 of the
Disclosure Schedule.
(b) As promptly as practicable after the date hereof, but in no event
later than October 25, 1994, Seller shall provide Buyer, (x) combined financial
statements reflecting the financial position of the Continuing Business at
December 26, 1992, December 25, 1993, and September 24, 1994, and the results of
its operations and its cash flows for each of the one-year periods ended
December 26, 1992 and December 25, 1993 and the nine months ended September 24,
1994 (together, the "Audited Financial Statements"), and unaudited combined
financial statements reflecting the financial position of the Continuing
Business at September 25, 1993, and the re-
16
<PAGE>
sults of its operations and its cash flows for the nine-month period ended on
such date (such financial statements, together with the Audited Financial
Statements, the "Financial Statements"), all prepared in accordance with U.S.
generally accepted accounting principles consistently applied throughout the
periods presented ("U.S. GAAP") and the requirements of the SEC applicable to
financial statements included in a registration statement on Form S-1 filed with
the SEC in connection with a public offering of debt securities and all in a
form suitable for inclusion in such a registration statement and (ii) a signed,
unqualified audit report thereon (other than with respect to the financial
statements as of and for the nine month period ended September 25, 1993) of
Coopers & Lybrand. The Financial Statements will present fairly, in all
material respects, the financial condition and the results of operations of the
Continuing Business as of the dates and for the periods indicated (except in the
case of the Financial Statements as at and for the period ended September 25,
1993, which may be subject to normal year-end adjustments). Seller shall use
reasonable efforts to provide selected financial data of the Continuing Business
at December 31, 1989, December 31, 1990 and December 31, 1991 and for the one
year periods ended on such dates in a form that satisfies the requirements of
Item 301 of Regulation S-K under the Securities Act of 1933 (the "Selected
Financial Data") by October 25, 1994 or as soon as reasonably practicable
thereafter.
(c) Section 3.7(c) of the Disclosure Schedule sets forth the combined
financial statements reflecting the financial position of the Continuing
Business at December 26, 1992, December 25, 1993 and June 25, 1994 and the
results of its operations for each of the one-year periods ended December 26,
1992 and December 25, 1993 and the six-month period ended June 25, 1994. Except
as set forth in Section 3.7(c) of the Disclosure Schedule, such financial
statements (a) present fairly, in all material respects, the financial condition
and the results of operations of the Company as of the dates and for the periods
indicated and (b) have been prepared on a basis consistent with normal
accounting practices of the Company including, without limitation, those listed
in Section 3.7 of the Disclosure Schedule.
17
<PAGE>
(d) Undisclosed Liabilities. To the knowledge of Seller, neither the
-----------------------
Company nor any of its Subsidiaries has incurred any material liability or
material obligation which would be required to be reflected in the Financial
Statements under GAAP, other than (a) such as have been reflected in the June
Balance Sheet and (b) such as have been incurred by the Company or its
Subsidiaries in the ordinary course of business since June 25, 1994.
3.8 Absence of Certain Changes or Events. Except as set forth in
------------------------------------
Section 3.8 of the Disclosure Schedule, during the period from the date of the
June Balance Sheet to the date of this Agreement, (i) the Company and its
Subsidiaries have operated their respective businesses only in the ordinary
course consistent with past practice and have made reasonable efforts consistent
with past practice to preserve the Company's and its Subsidiaries' relationships
with customers, suppliers, distributors, lenders, creditors and others with whom
the Company or any of its Subsidiaries deals, (ii) the Company and its
Subsidiaries have not engaged in or taken any of the activities, prohibited to
be taken by the Company and its Subsidiaries during the period from the date of
this Agreement to the Closing Date by Section 5.1 hereof, and (iii) there have
occurred no changes or events which, individually or in the aggregate, have
resulted in or could reasonably be expected to result in a Material Adverse
Effect.
3.9 Title to Personal Property. (a) Except as set forth in Section
--------------------------
3.9(a) of the Disclosure Schedule, the Company or one of it Subsidiaries has
good and valid title to, or a valid and enforceable right to use, all personal
property (whether tangible or intangible) which is used in or necessary for the
conduct of the business of the Continuing Business as conducted on the date
hereof (the "Personal Property") (except such as have been sold or otherwise
disposed of after the date hereof in the ordinary course of business and in
accordance with Section 5.1 hereof, and accounts, bills and notes receivables
subsequently collected), in each case, free and clear of all Liens, other than
(i) mechanics', carriers', workmen's, repairmen's or similar liens arising or
incurred in the ordinary course of business with respect to liabilities that are
not yet due or delinquent, (ii) liens or security interests for taxes, as-
18
<PAGE>
sessments and other governmental charges which are not due and payable or which
may hereafter be paid without penalty and for which adequate reserves have been
made in the Financial Statements in accordance with U.S. GAAP and (iii) other
imperfections of title or encumbrances, if any, which imperfections of title or
other encumbrances, individually or in the aggregate, do not and would not
reasonably be expected to materially impair the use of the property to which
they relate in the conduct of the Continuing Business as conducted on the date
hereof or detract materially from the value of such assets (the Liens described
in clauses (i), (ii) and (iii) above are hereinafter referred to collectively as
the "Permitted Liens").
(b) All the material tangible personal property of the Company and
its Subsidiaries has been maintained in all material respects in accordance with
the past practice of the Company and its Subsidiaries.
(c) Section 3.9(c) of the Disclosure Schedule identifies all material
assets owned by Seller (or Seller's Subsidiaries and affiliates, other than the
Company and its Subsidiaries) that are used in or necessary to the conduct of
the Continuing Business as conducted on the date hereof.
3.9A. Scott Leased Assets. Section 2.1 of the Disclosure Schedule
-------------------
describes all material assets that are leased by or licensed to Seller or its
Subsidiaries and affiliates (other than the Company and its Subsidiaries) by
third parties (and identifies for each such asset the third party whose consent
is required for the transfer of such asset to the Company) that are used in or
necessary for the conduct of the Continuing Business as conducted on the date
hereof.
3.10 Title to Real Property.
----------------------
(a) As used in this Agreement, the term "Real Property" shall mean
all real property and interests in real property owned in fee or leased by the
Company and its Subsidiaries, including, without limitation, the Mill Sites and
the Timberlands (in each case, as hereinafter defined), as described in Section
3.10(a) of the Disclosure Schedule (which Section sets forth a reasonably
detailed description of each parcel of Real Property,
19
<PAGE>
including an indication as to whether a parcel is owned in fee or leased and, if
leased, the material terms of such lease). Except as set forth in Section
3.10(a) of the Disclosure Schedule, the Real Property constitutes all real
property and interests in real property used in or necessary for the conduct of
the business of the Continuing Business as conducted on the date hereof.
(b) As used in this Agreement, the term "Mill Sites" shall mean the
Real Property as described in Section 3.10(b) of the Disclosure Schedule.
(c) As used in this Agreement, the term "Mill Sites Permitted Liens"
shall mean:
(i) All building codes, planning commission regulations and zoning
ordinances and other similar laws, ordinances, regulations, rules, orders or
determinations of any federal, state, county, municipal or other governmental
authority heretofore, now or hereafter enacted, made or issued by any such
governmental authority affecting the Mill Sites, including, riparian rights and
rights of navigational servitude of the United States of America or the state in
which such Mill Site is located;
(ii) All recorded easements, licenses or flowage rights, rights-of-
way, covenants, conditions, restrictions, reservations, licenses, agreements and
other similar matters and the unrecorded agreements set forth on Section
3.10(c), in each case located over or under the Mill Sites as granted in the
usual course of business;
(iii) All immaterial encroachments, overlaps, boundary line disputes,
shortages in area and other matters not of record which would be disclosed by an
accurate survey or physical inspection of the Mill Sites;
(iv) All existing public roads and streets; and
(v) All minerals of whatever kind and character, including, without
limitation, all metals, precious and base, metallic and non-metallic minerals,
all coal, iron ore, oil, gas, sulfur, methane gas in coal seams, limestone and
other minerals, metals and ores located on, in or under each of the Mill Sites
and all rights with
20
<PAGE>
respect to the mining, extraction and removal of the minerals so located, which
have heretofore been granted or leased to, or excepted or reserved by persons or
entities (other than Seller or any of its affiliates) all in accordance with the
terms set forth in such grant, lease, exception or reservation.
(d) As used in this Agreement, the term "Timberlands" shall mean the
Real Property as described in Section 3.10(d) of the Disclosure Schedule.
(e) As used in this Agreement, the term "Timberlands Permitted Liens"
shall mean:
(i) All building codes and zoning ordinances and other laws,
ordinances, regulations, rules, orders or determinations of any federal, state,
county, municipal or other governmental authority heretofore, now or hereafter
enacted, made or issued by any such authority affecting the Timberlands,
including those of the Land Use Regulatory Commission of the State of Maine, and
(B) riparian rights and rights of navigational servitude) of the United States
of America or the State of Maine;
(ii) All recorded easements, licenses, flowage rights, rights-of-way,
covenants, conditions, restrictions, reservations, licenses, agreements and
other similar matters and the unrecorded agreements set forth on Section 3.10(d)
of the Disclosure Schedule, in each case, located on, over or under the
Timberlands granted in the usual course of business;
(iii) All immaterial encroachments, overlaps, boundary line disputes,
shortages in area, cemeteries and burial grounds and other similar matters not
of record which would be disclosed by an accurate survey or inspection of the
Timberlands;
(iv) All existing public and private roads and streets (whether
dedicated or undedicated);
(v) All minerals of whatever kind and character, including, without
limitation, all metals, precious and base, metallic and non-metallic minerals,
all coal, iron ore, oil, gas, sulfur, methane gas in coal seams, limestone and
other minerals, metals and ores located on, in or under each of the Timberlands
and all rights with
21
<PAGE>
respect to the mining, extraction and removal of the minerals so located, which
have heretofore been granted or leased to, or excepted or reserved by persons or
entities (other than Seller or any of its affiliates), all in accordance with
the terms set forth in such grant, lease, exception or reservation;
(vi) All existing leases, licenses and other agreements, if any, for
roads and research, bridges, boat ramps, woodyards, forestry practice and
research activities, hunting and fishing (including cabins and camps relating
thereto) and other residential and recreational purposes, whether or not of
record;
(vii) Timber cutting and hauling contracts and timber sales
agreements and similar agreements which have been entered into by the Company in
the ordinary course of business as described on Section 3.10(d) of the
Disclosure Schedule;
(viii) Any immaterial loss or claim that may arise by reason of or in
connection with any indefiniteness or uncertainty in the legal descriptions of
the Timberlands;
(ix) Any immaterial loss or claim due to lack of access to any
portion of the Timberlands;
(x) Rights, if any, of persons in possession, with or without the
consent of the owner of the Timberlands.
(f) Except as set forth in Section 3.10(b), 3.10(d) or 3.10(f) of the
Disclosure Schedule, the Company or one of its Subsidiaries has (i) such title
to all Real Property owned by it as required for the conduct of its business as
conducted on the date hereof, including, without limitation, good and marketable
fee title to the Real Property which are Mill Sites and Timberlands and (ii)
valid and subsisting leasehold interests in all Real Property leased by it, in
each case, free and clear of all mortgages, liens, security interests,
easements, covenants, options, rights of refusal, rights-of-way and other
encumbrances or restrictions of any nature whatsoever, except (A) with respect
to all Real Property, including, without limitation, the Mill Sites and
Timberlands, the Permitted Liens, (B) with respect to the Mill
22
<PAGE>
Sites, the Mill Sites Permitted Liens and (C) with respect to the Timberlands,
the Timberlands Permitted Liens. The Mill Site Permitted Liens and the
Timberlands Permitted Liens do not, individually or in the aggregate, materially
impair the continued use and operation of the Real Property to which they relate
in the Continuing Business as presently conducted.
3.11 Intellectual Property.
---------------------
(a) Section 3.11(a) of the Disclosure Schedule sets forth a complete
list of all material patents, trademarks (registered or unregistered), trade
names, service marks, assumed names and copyrights (such items, together with
all applications therefor and all other material intellectual property and
proprietary rights whether or not subject to statutory registration or
protection of the Company or any of its Subsidiaries that are used in or
necessary for the conduct of the business of the Company and its Subsidiaries as
conducted on the date hereof, being collectively referred to herein as the
"Intellectual Property") owned, filed or licensed by the Company or any of its
Subsidiaries or used in or necessary for the conduct of the business of the
Company and its Subsidiaries as conducted on the date hereof, including, to the
extent available, the following: the owner thereof, the date (if any) on which
the exclusive right to the use thereof expires, if applicable, and, with respect
to registered trademarks, all jurisdictions in which such trademarks are
registered or applied for and all registration and application numbers and the
date on which such registration must be renewed.
(b) Except as set forth in Section 3.11(b) of the Disclosure
Schedule, the Company or one of its Subsidiaries has full title to the
Intellectual Property used in or necessary for the conduct of its business as
conducted on the date hereof, free and clear of all Liens, and no material
claims have been asserted of which the Company or any of its Subsidiaries has
been given notice by any person with respect to the use by the Company or any of
its Subsidiaries of the Intellectual Property.
(c) Except as set forth in Section 3.11(c) of the Disclosure
Schedule, the Company or one of its Subsidiaries have the right to use, execute,
reproduce, dis-
23
<PAGE>
play, perform, modify, enhance, distribute, prepare derivative works of and
sublicense, without payment to any other person, such of the Intellectual
Property as the Company or one of its Subsidiaries own and the right to use all
other Intellectual Property, and the consummation of the transactions
contemplated hereby will not materially conflict with, alter or impair any such
rights.
(d) Except as set forth in Section 3.11 of the Disclosure Schedule,
neither the Company nor any of its Subsidiaries has granted any options,
licenses or agreements of any kind relating to Intellectual Property or the
marketing or distribution thereof. Neither the Company nor any of its
Subsidiaries is bound by or a party to any options, licenses or agreements of
any kind relating to the Intellectual Property of any other person, except as
set forth in Section 3.11 of the Disclosure Schedule. To the knowledge of the
Company, the use of the Intellectual Property listed in Schedule 3.11 in the
business of the Company and its Subsidiaries as presently conducted does not and
would not reasonably be expected to violate, conflict with or infringe the
intellectual property of any other person relating to the Warren Products
currently sold in the United States. Except as set forth in Section 3.11(d) of
the Disclosure Schedule, neither Seller, the Company nor any of its Subsidiaries
is aware of any material infringement or improper use of the Intellectual
Property by any other person.
(e) The Intellectual Property listed in Section 3.11(a) of the
Disclosure Schedule has been maintained in confidence in accordance with the
Company's customary practice.
3.12 Litigation. Section 3.12 of the Disclosure Schedule sets forth
----------
a description (including, to the extent reasonably available, the nature of the
action, the amount in controversy and any non-monetary relief sought) of each
claim, action, suit, investigation or proceeding pending or, to the knowledge of
Seller, threatened against or affecting the Company or any of its Subsidiaries
or any of their respective assets, operations or businesses, at law or in
equity, by or before any Governmental Entity, or by or on behalf of any third
party, which (i) relates to or involves more than
24
<PAGE>
$100,000, (ii) presents in large degree the same legal and factual issues as
other actions or claims which, in the aggregate, relate to or involve more than
$500,000, (iii) seeks any material injunctive relief or (iv) directly relates to
the transactions contemplated by this Agreement or the Ancillary Agreements.
Except as noted in Section 3.12 of the Disclosure Schedule, none of the lawsuits
or claims listed therein as to which there is a reasonable possibility of
adverse determination would reasonably be expected to have, if so determined,
individually or in the aggregate, a Material Adverse Effect. To the knowledge
of Seller, except as set forth in Section 3.12 of the Disclosure Schedule,
neither the Company nor any of its Subsidiaries is a party or subject to or in
default under any judgment, order, injunction or decree of any Governmental
Entity or arbitration tribunal applicable to it or any of its properties,
assets, operations or businesses. Except as set forth in Section 3.12 of the
Disclosure Schedule, there is no material lawsuit or claim by the Company or any
of its Subsidiaries pending, or which the Company or any such Subsidiary intends
to initiate, against any other person. Except as set forth in Section 3.12 of
the Disclosure Schedule, to the knowledge of Seller, there is no pending
investigation of or affecting the Company or any of its Subsidiaries by any
Governmental Entity nor has the Company received written notice of any such
threatened investigation.
3.13 Employee Benefit Plans.
----------------------
(a) Section 3.13(a) of the Disclosure Schedule sets forth a complete
list of each "employee pension benefit plan" (as defined in Section 3(2) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"))
(hereinafter a "Pension Plan"), "employee welfare benefit plan" (as defined in
Section 3(1) of ERISA, hereinafter a "Welfare Plan"), and each other plan or
written arrangement or policy relating to stock options, stock purchases,
compensation, deferred compensation, severance, fringe benefits or other
employee benefits, in each case maintained or contributed to by Seller or the
Company or any other person or entity that, together with the Company, is
treated as a single employer under Section 414(b), (c), (m) or (o) of the Code
(each a "Commonly Controlled Entity") for the benefit of any present or former
officers, employees, agents, directors or independent contractors of the Company
or any of its
25
<PAGE>
Subsidiaries (all the foregoing being herein called "Benefit Plans"). Seller
has made available to Buyer true, complete and correct copies of (i) each
Benefit Plan, (ii) the most recent annual report on Form 5500 filed with the
Internal Revenue Service with respect to each Benefit Plan (if any such report
was required by applicable law), (iii) the most recent summary plan description
(or similar document) for each Benefit Plan for which such a summary plan
description is required by applicable law or was otherwise provided to plan
participants or beneficiaries, and (iv) each trust agreement relating to each
Benefit Plan qualified and exempt from Federal income taxes under Section 401(a)
of the Code. To the knowledge of Seller, each such Form 5500 and each such
summary plan description (or similar document) was as of the date thereof true,
complete and correct in all material respects.
(b) Each Benefit Plan has been administered in all material respects
in accordance with its terms. The Company, its Subsidiaries and all the Benefit
Plans are in compliance in all material respects with the applicable provisions
of ERISA, the Internal Revenue Code of 1986, as amended (the "Code"), and all
other applicable Federal or foreign laws. All reports, returns and similar
documents with respect to the Benefit Plans required to be filed with any
Governmental Entity or distributed to any Benefit Plan participant have been
duly and timely filed or distributed and, to the knowledge of Seller all
reports, returns and similar documents actually filed or distributed were true,
complete and correct in all material respects.
(c) All contributions to, and payments from, the Benefit Plans that
may have been required to be made in accordance with the terms of the Benefit
Plans, any applicable collective bargaining agreement and, when applicable,
Section 302 of ERISA or Section 412 of the Code, have been timely made. There
has been no application for or waiver of the minimum funding standards imposed
by Section 412 of the Code with respect to any Benefit Plan that is a Pension
Plan (hereinafter a "Company Pension Plan"). No Company Pension Plan had an
"accumulated funding deficiency" within the meaning of Section 412(a) of the
Code as of the end of the most recently completed plan year. All such
contributions to, and payments from, the Benefit Plans, except those pay-
26
<PAGE>
ments to be made from a trust qualified under Section 401(a) of the Code, for
any period ending before the Closing Date that are not yet, but will be,
required to be made, will be properly accrued and reflected on the June Balance
Sheet and in the books and records of the Company on the Closing Date.
(d) Each Company Pension Plan that is intended to be a tax-qualified
plan has been the subject of a determination letter from the Internal Revenue
Service to the effect that such Company Pension Plan is qualified and exempt
from Federal income taxes under Sections 401(a) and 501(a), respectively, of the
Code; no such determination letter has been revoked, and, to the knowledge of
Seller, revocation has not been threatened; no event has occurred and no
circumstances exist that would adversely affect the tax-qualification of such
Company Pension Plan; and such Company Pension Plan has not been amended since
the effective date of its most recent determination letter in any respect that
would adversely affect its qualification or require security under Section 307
of ERISA. Seller has made available to Buyer a copy of the most recent
determination letter received with respect to each Company Pension Plan for
which such a letter has been issued, as well as a copy of any pending
application for a determination letter. Seller has also made available to Buyer
a marked copy of each Company Pension Plan showing changes made from the text
thereof, as submitted to the Internal Revenue Service in connection with the
most recent determination letter therefor. No event has occurred that could
subject any Company Pension Plan to tax under Section 511 of the Code.
(e) Section 3.13(e) of the Disclosure Schedule, discloses whether:
(i) any "prohibited transaction" (as defined in Section 4975 of the Code or
Section 406 of ERISA) has occurred that involves any Benefit Plan; (ii) any
Company Pension Plan has been terminated or has been the subject of a
"reportable event" (as defined in Section 4043 of ERISA and the regulations
thereunder); and (iii) to the Company's knowledge, the Company, any of its
Subsidiaries or any fiduciary of any Benefit Plan has engaged in any transaction
or acted in a manner that would, or has failed to act so as to, subject the
Company, any such Subsidiary or fiduciary to any
27
<PAGE>
liability for breach of fiduciary duty under ERISA or any other applicable law.
(f) Seller has made available to Buyer the most recent actuarial
report or valuation with respect to each Defined Benefit Plan. The information
supplied to the actuary by Seller, the Company or any Subsidiary of the Company
for use in preparing those reports or valuations was complete and accurate in
all material respects and neither the Company nor Seller has any reason to
believe that the conclusions expressed in those reports or valuations are
incorrect. To the knowledge of Seller, there are not any facts or circumstances
that would materially change the funded status of any such Defined Benefit Plan
since the date of such actuarial report, other than (i) amendments thereto for
incentive retirements and (ii) changes in the market value of assets after the
date of this Agreement.
(g) No Commonly Controlled Entity has incurred any liability to a
Pension Plan (other than for contributions not yet due) or to the Pension
Benefit Guaranty Corporation (other than for the payment of premiums not yet
due), which liability has not been fully paid as of the date hereof.
(h) Prior to the Closing Date, no Commonly Controlled Entity has (i)
engaged in a transaction described in Section 4069 of ERISA that could subject
the Company to liability at any time after the date hereof or (ii) acted in a
manner that could, or failed to act so as to, result in fines, penalties, taxes
or related charges under (A) Section 502(c), (i) or (1) of ERISA, (B) Section
4071 of ERISA or (C) Chapter 43 of the Code.
(i) No Commonly Controlled Entity is required to contribute to any
"multiemployer plan" as defined in Section 4001(a)(3) of ERISA or has withdrawn
from any such multiemployer plan where such withdrawal has resulted or could
result in any "withdrawal liability" (within the meaning of Section 4201 of
ERISA) that has not been fully paid.
(j) There are no pending investigations by any Governmental Entity,
termination proceedings, other claims (other than routine claims for benefits)
or other suits or proceedings against any of the Benefit Plans
28
<PAGE>
that would give rise to any material liability of the Company.
(k) The Company and its Subsidiaries comply in all material respects
with the applicable requirements of Section 4980B(f) of the Code with respect to
each Benefit Plan that is a group health plan, as such term is defined in
Section 5000(b)(1) of the Code.
(l) No Continuing Employee (as hereinafter defined) will be entitled
to any additional benefits or any acceleration of the time of payment or vesting
of any benefits under any Pension Plan qualified and exempt from Federal income
taxes under Sections 401(a) and 5.01(a), respectively, of the Code or under any
Welfare Plan as a result of the transactions contemplated by this Agreement.
(m) During the period beginning on January 1, 1994, and ending on the
date of this Agreement, there has been no change (i) in any actuarial or other
assumption used to calculate funding obligations with respect to any Company
Pension Plan or (ii) in the manner in which contributions to any Company Pension
Plan are made or the basis on which such contributions are determined.
(n) Section 3.13(n) of the Disclosure Schedule provides an estimate
of the liability of the Company and each of its Subsidiaries for "postemployment
benefits" as defined in Statement of Financial Accounting Standards No. 112
("FAS 112") that would have been required to be accrued on the June Balance
Sheet if FAS 112 had been in effect for the period reflected thereon.
(o) No Continuing Employee, as defined in Section 6.2, has received
or will receive prior to the Closing Date notification from Seller or the
Company that his employment will be terminated on or after the thirtieth day
after the Closing Date. All the employees (other than two) of the Company who
have been identified prior to the date of this Agreement to be terminated
(involuntarily or by retirement) and who have been notified of such termination
shall be terminated on or prior to December 1, 1994. The costs associated with
such terminations shall be the sole responsibility of Seller.
29
<PAGE>
3.14 Taxes.
-----
(a) For purposes of this Agreement, (A) "Tax" or "Taxes" means all
Federal, state, county, local, municipal, foreign and other taxes, assessments,
duties or similar charges of any kind whatsoever, including all corporate
franchise, income, sales (including bulk sales), use, ad valorem, intangibles,
receipts, severance, single business, value added, profits, license,
withholding, payroll, employment, excise, premium, real property, personal
property, customs, net worth, estimated, capital, gains, transfer, stamp,
documentary, social security, alternative minimum, accumulated earnings, goods
and services, recapture, recording, severance, environmental (including taxes
under Section 59A of the Code), occupation and other taxes, and including any
interest, penalties and additions imposed with respect to such amounts; (B)
"Taxing Authority" means any governmental or any quasi-governmental body
exercising any taxing authority or any other authority exercising Tax regulatory
authority; and (C) "Return" or "Returns" means all returns, declarations of
estimated tax payments, reports, estimates, information returns and statements
with respect to Taxes, including any related or supporting information filed
with respect to any of the foregoing, maintained, filed or required to be filed
with any Taxing Authority in connection with the determination, assessment,
collection or administration of any Taxes.
(b) The Company and each of its Subsidiaries, and each consolidated,
combined, unitary, affiliated or aggregate group of which the Company or any of
its Subsidiaries is or has ever been a member (an "Affiliated Group"), has
timely filed (taking into account applicable extensions) with the appropriate
Taxing Authority all Returns relating to the Company, the Subsidiaries or the
Continuing Business required to be filed by it prior to the Closing Date and
each such Return was complete and correct in all material respects at the time
of filing.
(c) The Company and its Subsidiaries, or Seller on their behalf, have
paid all Taxes that they are required to have paid.
(d) No liens for Taxes exist with respect to any of the assets or
properties of the Company or any of its Subsidiaries.
30
<PAGE>
(e) Except as set forth in Section 3.14(e) of the Disclosure
Schedule, no deficiency for any Tax has been asserted in writing against the
Company or any of its Subsidiaries.
(f) Immediately prior to the Closing the Company and each of its
Subsidiaries will be members of the consolidated group, within the meaning of
Treas. Reg. Section 1.1502-1(h), of which Seller is the common parent.
(g) There are no circumstances under which any payment or other
entitlement under any employment, severance or termination agreement, other
compensation arrangement or Benefit Plan (as defined in Section 3.13(a) hereof)
currently in effect that could be received by any person who is a "disqualified
individual" with respect to the Company or any of its Subsidiaries (as such term
is defined in proposed Treasury Regulation Section 1.280G-1) could be
characterized as an "excess parachute payment" (as such term is defined in
Section 280G(b)(1) of the Code), taking into account only payments or
entitlements that could be received by such person under any employment,
severance or termination agreement, other compensation arrangement or Benefit
Plan currently in effect.
(h) None of the Company or any of its Subsidiaries will be required
to include in a taxable period on or after the Closing Date taxable income
attributable to income that economically accrued in a taxable period ending on
or before the Closing Date, including as a result of the installment method of
accounting, the completed contract method of accounting, the long-term contract
method of accounting or the cash method of accounting.
(i) Except as set forth on Section 3.14(m) of the Disclosure
Schedule, none of the Company or any of its Subsidiaries will be required in a
taxable period beginning on or after the Closing Date to include any amount in
income pursuant to Section 481 of the Code (or any comparable provisions of
state, local or foreign law), by reason of a change in accounting methods or
otherwise, as a result of actions taken prior to the Closing Date.
31
<PAGE>
(j) Section 3.14(j) of the Disclosure Schedule lists the years which
are under audit and the years for which the relevant statute of limitations has
not expired for the following tax jurisdictions: federal, Maine, Alabama,
Massachusetts, New York, and Michigan.
3.15 Contracts and Commitments. Section 3.15 of the Disclosure
-------------------------
Schedule sets forth a list of all of the following agreements, contracts and
commitments, whether written or oral (other than the Ancillary Agreements), to
which the Company or any of its Subsidiaries is a party or by which the Company
or any of its Subsidiaries or their respective assets are bound (which list
identifies (where the context does not otherwise so indicate), for each such
agreement, contract or commitment, the clauses set forth below applicable
thereto and the annual cash expenditures or revenues of the Company in respect
thereof):
(a) employment agreements or severance agreements or employee
termination arrangements that are not terminable at will by the Company without
penalty;
(b) collective bargaining agreements or other contracts with any
labor union;
(c) covenants not to compete in any business or geographic area or
not to engage in any business activity or restricting the development,
manufacture, marketing or distribution of any products or services;
(d) agreements or contracts involving obligations in excess of
$100,000 with Seller or any of its affiliates (other than the Company or any of
its Subsidiaries) or any current or former officer, director or employee of the
Company, any of its Subsidiaries or Seller or any of such affiliates (other than
employment and severance agreements covered by clause (a) above);
(e) agreements, contracts or other instruments under which the
Company or any of its Subsidiaries has borrowed or loaned money, or any note,
bond, indenture or other evidence of indebtedness for borrowed or loaned money
or any guarantee of such indebtedness, in each case, other than advances to
employees in the ordinary course of business and extension of credit to the
trade;
32
<PAGE>
(f) joint venture agreements or other agreements involving the
sharing of profits;
(g) leases or similar agreements involving obligations in excess of
$200,000 in any twelve month period and which are not terminable by the Company
or such Subsidiary at any time by notice of not more than twelve months for a
cost of less than $200,000 under which (A) the Company or any of its
Subsidiaries is lessee of, or holds or uses, any machinery, equipment, vehicle
or other tangible personal property owned by any person or (B) the Company or
any of its Subsidiaries is a lessor or sub-lessor of, or makes available for use
by any person, any tangible personal property owned or leased by the Company or
such Subsidiary;
(h) powers of attorney from the Company or any of its Subsidiaries,
other than such as have been granted to customs brokers in the ordinary course
of business;
(i) agreements, contracts or other instruments involving obligations
in excess of $200,000 (including so-called take-or-pay or keepwell agreements)
under which (A) any person (including the Company or any of its Subsidiaries)
has directly or indirectly guaranteed indebtedness, liabilities or obligations
of the Company or any of its Subsidiaries or (B) the Company or any of its
Subsidiaries has directly or indirectly guaranteed indebtedness, liabilities or
obligations of any person (in each case other than endorsements for the purpose
of collection in the ordinary course of business);
(j) agreements, contracts or other instruments under which the
Company or any of its Subsidiaries has, directly or indirectly, made any capital
contribution to, or other investment in, any person (other than the Company or
any of its Subsidiaries or the extension of credit to the trade);
(k) agreements or instruments providing for indemnification of any
person with respect to liabilities relating to any current or former business of
the Company, any of its Subsidiaries or any predecessor person;
(l) (A) continuing contracts for the purchase of materials (including
raw materials and inventory), supplies or equipment, (B) management, service,
consult-
33
<PAGE>
ing or other similar type of contracts or (C) advertising agreements or
arrangements, in each case, involving obligations in excess of $200,000 in any
twelve month period which are not terminable by the Company or such Subsidiary
at any time upon notice of not more than 12 months;
(m) material licenses, options or other agreements relating in whole
or part to the Intellectual Property set forth in Section 3.11 of the Disclosure
Schedule (including any license or other agreement under which the Company or
any of its Subsidiaries is licensee or licensor of any such Intellectual
Property); and
(n) any other agreement, contract or commitment not entered into in
the ordinary course of business;
provided, however, that the following agreements, contracts and commitments need
- -------- -------
not and are not listed in Section 3.15 of the Disclosure Schedule: (i)
contracts and orders for the purchase or sale of raw materials or inventory in
the ordinary course of business and which do not have a remaining term in excess
of six months after the date of this Agreement, (ii) in the case of agreements,
contracts or commitments described in clause (n) above, such agreements or other
commitments which may be terminated by the Company or any of its Subsidiaries at
any time upon notice of twelve months or less and at a cost of less than
$200,000 and (iii) in the case of agreements, contracts or commitments described
in clause (n) above, such agreements or other commitments as are not material to
the continued conduct of the business of the Company or any of its Subsidiaries
as conducted on the date hereof and as will not result in future annual
expenditures or receipts by the Company or any of its Subsidiaries at any time
of $200,000 or more. Except as set forth in Section 3.15 of the Disclosure
Schedule, each agreement, contract, lease, license, commitment or instrument of
the Company or any of its Subsidiaries listed in the Disclosure Schedule hereto
(collectively, the "Contracts") is valid, binding and in full force and effect
and is enforceable by the Company or the relevant Subsidiary in accordance with
its terms. Except as set forth in Section 3.15 of the Disclosure Schedule,
Seller, its affiliates, the Company and its Subsidiaries have performed in all
material respects all obligations required to be performed by them to date under
the material
34
<PAGE>
Contracts and they are not (with or without the lapse of time or the giving of
notice, or both) in breach or default in any material respect thereunder and, to
the knowledge of Seller, no other party to any of the material Contracts is
(with or without the lapse of time or the giving of notice, or both) in breach
or default in any material respect thereunder.
3.16 Compliance with Laws. Except as set forth in Section 3.16 of
--------------------
the Disclosure Schedule, each of the Company and its Subsidiaries is, and, to
the knowledge of Seller, has been during the two-year period ending on the date
hereof, in compliance in all material respects with all applicable laws,
statutes, ordinances, rules, regulations and orders (collectively, referred to
in this Section 3.16 as "laws") of all Governmental Entities, except for (a)
ERISA and other laws applicable to the Plans, which are addressed in Section
3.13 hereof; (b) laws regarding the payment of Taxes, which are addressed in
Section 3.14 hereof; (c) laws regarding employment and employment practices,
which are addressed in Section 3.18 hereof; and (d) environmental laws, which
are addressed in Section 3.19 hereof. Except as set forth in Section 3.16 of
the Disclosure Schedule, the Company and its Subsidiaries possess all material
permits, certificates, licenses, approvals, governmental franchises and other
authorizations required under applicable laws (other than those referred to in
clauses (a)-(d) above) in connection with the conduct of their respective
businesses as conducted on the date hereof and the ownership of their respective
assets and properties, and all such material permits, certificates, licenses,
approvals, governmental franchises and other authorizations are validly held and
in full force and effect and the Company or the relevant Subsidiary has complied
in all material respects with the terms and conditions thereof. Section 3.16 of
the Disclosure Schedule lists all material permits, certificates, licenses,
approvals and governmental franchises granted to Seller by Governmental Entities
which are necessary for the conduct of the business of the Company and its
Subsidiaries as now conducted. Such material permits, certificates, licenses,
approvals and other authorizations will not be subject to suspension, revocation
or termination as a result of the execution and delivery of this Agreement or
any of the Ancillary Agreements or the consummation of the transactions
contemplated hereby and thereby. Except as
35
<PAGE>
set forth in Section 3.16 of the Disclosure Schedule, none of Seller, the
Company or any of the Subsidiaries of the Company has received any written
communication during the past two years from a Governmental Entity that alleges
that the Company or any of its Subsidiaries is not in compliance in any material
respect with any applicable laws (other than those referred to in clauses (a)-
(d) above). All such material permits, certificates, licenses, approvals,
governmental franchises and other authorizations which are held in the name of
any employee, officer, director, stockholder, agent or otherwise on behalf of
the Company or any Subsidiary shall be deemed included under this warranty.
3.17 Insurance. Seller and the Company maintain policies of fire and
---------
casualty, liability and other forms of insurance in such amounts, with such
deductibles and retained amounts, and against such risks and losses, as are, in
the reasonable judgment of the Company, reasonable for the conduct of the
business as conducted on the date hereof and the assets of the Company. Section
3.17 of the Disclosure Schedule sets forth a list of such insurance policies as
are in full force and effect as of the date of this Agreement, which policies
Seller shall, or shall cause the Company to, maintain in full force and effect
during the period from the date of this Agreement through the Closing Date.
3.18 Labor Matters. Except as set forth in Section 3.18 of the
-------------
Disclosure Schedule, (a) each of the Company and its Subsidiaries is and, to the
knowledge of Seller, has been during the two-year period ending on the date
hereof, in compliance in all material respects with all applicable laws
regarding employment and employment practices, (b) there are no unfair labor
practice charges or complaints against the Company or its Subsidiaries brought
before the National Labor Relations Board nor is there any material grievance
nor any material arbitration proceeding arising out of or under collective
bargaining agreements with respect to the business of the Company or its
Subsidiaries, nor, to the knowledge of Seller, is any such charge, complaint,
grievance or proceeding threatened, (c) there is no, and during the past two
years there has not been any, labor strike, material slowdown or work stoppage
pending or, to the knowledge of Seller, threatened against the Company or its
Subsidiaries and (d) there is no charge or complaint pending or, to the
36
<PAGE>
knowledge of Seller, threatened against the Company or its Subsidiaries before
the Equal Employment Opportunity Commission or any similar state, local or
foreign agency responsible for the prevention of unlawful employment practices.
Neither the Company nor any Subsidiary has received written notice of the intent
of any federal, state, local or foreign agency responsible for the enforcement
of employment laws to conduct an investigation of or relating to the Company or
its Subsidiaries, and no such investigation is in progress.
3.19 Environmental. With respect to paragraphs (a)-(f) below, except
-------------
as set forth in Section 3.19 of the Disclosure Schedule:
(a) The Company and its Subsidiaries are in compliance in all
material respects with all Environmental Laws (as hereinafter defined), which
compliance includes, but is not limited to, the possession by the Company and
its Subsidiaries of all material permits and governmental authorizations
required under Environmental Laws ("Environmental Permits"), and compliance with
the terms and conditions thereof. Neither the Company nor any of its
Subsidiaries has received any oral or written communication from any
Governmental Entity that alleges that the Company or a Subsidiary thereof is not
in such compliance.
(b) There are no material Environmental Claims (as hereinafter
defined) pending or, to the knowledge of Seller, threatened against the Company
or any of its Subsidiaries.
(c) To the best knowledge of Seller after due inquiry, there have
been no releases or threatened releases (as those terms are defined under
Environmental Law) of Hazardous Substances on, from or adjacent to any real
property currently or formerly owned or operated by the Company or any its
Subsidiaries which have given rise, or could reasonably be expected to give
rise, to material liability to the Company or any of its Subsidiaries under
Environmental Law.
(d) Seller is in compliance in all material respects with its
National Pollutant Discharge Elimination System permit and the requirements of
law regarding
37
<PAGE>
the disposal of solid waste at the Mobile, Alabama facility.
(e) Neither the Company nor any of its Subsidiaries has been named a
potentially responsible party at any site included on the federal National
Priorities List (as that term is defined under Environmental Law) or any site
listed for investigation or remediation under any analogous state law.
(f) To the best knowledge of Seller, all material Environmental
Permits are freely transferable to the Company under the circumstances presented
by the current transactions.
(g) As used in this Agreement:
(i) the term "Environmental Claim" means any claim, action,
investigation, injunction, decree, order, outstanding judgment, suit,
proceeding, lien or written notice by any person or entity alleging actual or
potential liability (including actual or potential liability for investigatory
costs, clean-up costs, governmental response and oversight costs, natural
resource damages, personal injuries, or penalties) arising out of, based on, or
resulting from (a) the presence, or release into the environment, of any
Hazardous Substance (as hereinafter defined) at any location, whether or not
owned or operated by the Company or any of its Subsidiaries or (b) circumstances
forming the basis of any violation, or alleged violation, of any Environmental
Law.
(ii) the term "Environmental Laws" means all applicable federal,
state, local and foreign laws and regulations in effect as of the Closing Date,
relating to pollution or protection of the environment (including, without
limitation, ambient air, surface water, ground water, land surface or subsurface
strata), including, without limitation, laws and regulations relating to (A)
occupational safety and health to the extent it relates to exposure to Hazardous
Substances, (B) emissions, discharges, releases or threatened releases of
Hazardous Substances, or (C) otherwise relating to exposure to or the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Substances.
38
<PAGE>
(iii) the term "Hazardous Substances" means (A) pollutants,
contaminants, hazardous wastes, toxic substances and hazardous substances, as
those terms are defined under the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. 9601 et seq., the Resource
-------
Conservation and Recovery Act, 42 U.S.C. 6901 et seq., the Clean Air Act, 42
-------
U.S.C. 7401 et seq., the Clean Water Act, 33 U.S.C. 1251 et seq., the Toxic
------- -------
Substances Control Act, 15 U.S.C. 2601 et seq., the Occupational Safety and
-- ----
Health Act, 29 U.S.C. 651 et seq., the Emergency Planning and Community Right-
-- ----
to-Know Act, 42 U.S.C. 11001 et seq., the Safe Drinking Water Act, 42 U.S.C.
-- ----
300(f) et seq., the Hazardous Materials Transportation Act, 49 U.S.C. 1801 et
-- ---- --
seq., including any amendments thereto and any regulations promulgated
- ----
thereunder, (B) oil and petroleum products, (C) asbestos and asbestos containing
materials and (D) polychlorinated biphenyls ("PCBs") or PCB-containing
materials.
3.20 Entire Business. Except as set forth in Section 3.20 of the
---------------
Disclosure Schedule, the assets, properties and rights owned, leased by or
licensed to the Company and its Subsidiaries and reflected in the Financial
Statements, including, without limitation, the Personal Property, the Real
Property and the Intellectual Property, together with the Scott Leased Assets
and the rights and obligations of the Company under the Ancillary Agreements,
constitute all of the tangible and intangible property used in or necessary to
the conduct of the business of the Company and its Subsidiaries in substantially
the manner conducted on the date hereof and the rights of the Company and its
Subsidiaries therein are, and immediately after the Closing will be, sufficient
for the continued conduct of the business of the Company and its Subsidiaries
after the Closing in substantially the same manner as conducted prior to the
Closing.
3.21 Brokers. Except for Goldman, Sachs & Co., Salomon Brothers Inc
-------
and Chase Manhattan Bank, N.A., no broker, finder or financial advisor or other
person is entitled to any brokerage fees, commissions, finders' fees or
financial advisory fees in connection with the transactions contemplated hereby
or by the Ancillary Agreements by reason of any action taken by Seller, the
Company or any Subsidiary of the Company or any of their respective directors,
officers, employees, representatives or agents. Such fees and expenses of
Goldman,
39
<PAGE>
Sachs & Co., Salomon Brothers Inc and Chase Manhattan Bank, N.A. shall be borne
by Seller.
3.22 Accounts; Safe Deposit Boxes; Powers of Attorney; Officers and
--------------------------------------------------------------
Directors. Section 3.22 of the Disclosure Schedule sets forth (i) a true and
- ---------
correct list of all bank and savings accounts, certificates of deposit and safe
deposit boxes of, or utilized by, the Company and its Subsidiaries and those
persons authorized to sign thereon, (ii) true and correct copies of all
corporate borrowing, depository and transfer resolutions and those persons
entitled to act thereunder and (iii) a true and correct list of all officers and
directors of the Company and its Subsidiaries.
3.23 Corporate Name. The Company and its Subsidiaries (i) have the
--------------
exclusive right to use their respective names as the name of a corporation in
any jurisdiction in which the Company or any of its Subsidiaries do business and
(ii) have not received any notice of conflict during the past two years with
respect to the rights of others regarding the corporate names of the Company or
any of its Subsidiaries. To the knowledge of Seller, no person is presently
authorized by Seller, the Company or any of its Subsidiaries to use the name of
the Company or any of its Subsidiaries.
3.24 Effect of Transaction. No creditor, customer or other person,
---------------------
in each case, having a business or financial relationship material to the
Company or any of its Subsidiaries has informed Seller, the Company or any such
Subsidiary in writing that such person intends to discontinue or otherwise alter
such business or financial relationship in any material adverse respect because
of the purchase and sale of the Shares, the entering into of the Ancillary
Agreements or the consummation of any other transaction contemplated hereby or
thereby.
3.25 Suppliers. Except as described in the Ancillary Agreements and
---------
Section 3.25 of the Disclosure Schedule, neither the Company nor any of its
Subsidiaries purchases supplies (including raw materials or inventory) from
Seller or any of its affiliates (other than the Company or any of its
Subsidiaries) or pursuant to supply arrangements established or maintained by or
through Seller or any of its affiliates (other than the Company or any of its
Subsidiaries), and any such supply arrange-
40
<PAGE>
ments so described in Schedule 3.25, except as described therein, are not,
individually or in the aggregate, material to the business of the Company and
its Subsidiaries as conducted on the date of this Agreement.
3.26 Customers; Distributors. The Company and its Subsidiaries
-----------------------
distribute their products exclusively through distribution arrangements
established and maintained by the Company and its Subsidiaries.
3.27 Transactions with Affiliates. Except as contemplated by this
----------------------------
Agreement or in the Ancillary Agreements or as set forth in Section 3.27 of the
Disclosure Schedule (i) none of the Contracts between the Company or any of its
Subsidiaries, on the one hand, and Seller or any of its affiliates (other than
the Company or any of its Subsidiaries), on the other hand ("Affiliate
Contracts"), will continue in effect subsequent to the Closing, and (ii) the
Affiliate Contracts that will not continue in effect subsequent to the Closing
are not material, individually or in the aggregate, to the business of the
Company or any of its Subsidiaries as conducted on the date of this Agreement.
IV. REPRESENTATIONS AND WARRANTIES OF SAPPI AND BUYER.
-------------------------------------------------
Each of Sappi and Buyer (each as to itself only) hereby represent and
warrant to Seller as follows:
4.1 Organization; Authority. Sappi is a corporation duly organized,
-----------------------
validly existing and in good standing under the laws of South Africa. Buyer is
a corporation duly organized, validly existing and in good standing under the
laws of the Commonwealth of Pennsylvania. Each of Sappi and Buyer has all
requisite corporate power and corporate authority to enter into this Agreement,
to perform their respective obligations hereunder and, in the case of Buyer, to
consummate the transactions contemplated hereby. The execution, delivery and
performance by each of Sappi and Buyer of this Agreement, and the consummation
of the transactions contemplated hereby, have been duly authorized by all
necessary corporate action on the part of Sappi or Buyer, as the case may be.
This Agreement has been duly executed and delivered by each of Sappi and Buyer
and constitutes a legal, valid and binding obligation of Sappi or Buyer, as the
41
<PAGE>
case may be, enforceable against Sappi or Buyer, as the case may be, in
accordance with its terms, subject in each case to Sappi's receipt of approval
of the South African Reserve Bank.
4.2 No Violation; Consents and Approvals. The execution and delivery
------------------------------------
by Sappi and Buyer of this Agreement, and the consummation of the transactions
contemplated hereby and compliance with the terms hereof will not (with or
without notice or lapse of time, or both), conflict with, or result in any
violation of or default under, or give rise to a right of termination,
cancellation or acceleration of any obligation or to loss of a material benefit
under, or to increased, additional, accelerated or guaranteed rights or
entitlements of any person under, or result in the creation of any Lien upon any
of the properties or assets of Buyer under, (a) any provision of the Articles of
Incorporation or By-laws or similar organizational documents of Sappi or Buyer,
(b), subject to the consents and approvals set forth in the last sentence of
this Section 4.2, any judgment, order or decree, or statute, law, ordinance,
rule or regulation applicable to Sappi or Buyer or the property or assets of
Sappi or Buyer or (c), with respect to Buyer only, any material note, bond,
mortgage, indenture, license, agreement, lease or other instrument or obligation
to which Buyer is a party or by which Buyer or its assets may be bound, other
than any such items as to which requisite waivers or consents have been obtained
or which, individually or in the aggregate, could not materially impair Buyer's
ability to consummate the transactions contemplated hereby and thereby. No
consent, approval, order or authorization of, or registration, declaration or
filing with, any Governmental Entity is required to be obtained or made by or
with respect to Sappi or Buyer or their respective affiliates in connection with
the execution and delivery of this Agreement or such of the Ancillary Agreements
to which Sappi or Buyer is a party, or the consummation by Sappi or Buyer of the
transactions contemplated hereby and thereby, other than, in each case, (i)
compliance with and filings under the HSR Act, foreign laws regulating
competition and Section 721 of Title VII of the Defense Production Act of 1950,
as amended, and the regulations promulgated thereunder, (ii) compliance with and
filings under Federal and state environmental statutes and (iii) approval of the
South African Reserve Bank and stockholders of Sappi.
42
<PAGE>
4.3 Litigation. (a) There are no claims, actions, suits,
----------
investigations or proceedings pending or, to the knowledge of Sappi or Buyer,
threatened against or affecting Sappi or Buyer or their respective assets, at
law or in equity, by or before any Governmental Entity, or by or on behalf of
any third party, which, if adversely determined, would reasonably be expected to
adversely affect the ability of Sappi or Buyer to consummate the transactions
contemplated by this Agreement and the Ancillary Agreements, and (b) there are
no outstanding judgments, decrees or orders of any court or Governmental Entity,
affecting Sappi or Buyer or their respective assets, which would reasonably be
expected to adversely affect the ability of Sappi or Buyer to consummate the
transactions contemplated by this Agreement and the Ancillary Agreements.
4.4 Financing. On the date of this Agreement, Buyer expects to
---------
finance payment of the Initial Purchase Price on the Closing Date and to pay all
related fees and expenses (together, the "Financing") as described in Section
4.4 of the Disclosure Schedule. Buyer has provided Seller with correct and
complete copies of the commitments and other documents referred to in Section
4.4 of the Disclosure Schedule.
4.5 Acquisition of the Shares for Investment; Securities Act. Buyer
--------------------------------------------------------
is acquiring the Shares for investment purposes only and not with any present
intention of distributing or selling the Shares in violation of federal, state
or other United States securities laws; provided, however, that the right of
-------- -------
Buyer to dispose of its property and assets as and when it deems appropriate
shall not be limited by the foregoing. Buyer agrees that it will not sell,
transfer, offer for sale, pledge, hypothecate or otherwise dispose of the Shares
in violation of any federal, state or other United States securities laws.
4.6 Investigation by Sappi and Buyer. Each of Sappi and Buyer
--------------------------------
acknowledges that it has conducted an independent review and analysis of the
business, assets, financial condition and prospects of the Company and
acknowledges that Seller has provided Sappi and Buyer with access to the
properties, premises and records of the Company for this purpose. Each of Sappi
and Buyer (a) acknowledges that it shall not be entitled to rely on
43
<PAGE>
any representation or warranty, either express or implied, previously made by
Seller, the Company or any of their respective agents, representatives,
employees or affiliates as to the accuracy or completeness of any of the
information provided or made available to Sappi or Buyer or their respective
agents or representatives, and (b) agrees that neither Seller nor the Company or
any of their respective agents, representatives, employees or affiliates has or
shall have any liability or responsibility whatsoever to Sappi or Buyer or any
of their respective agents or representatives on any basis (including, without
limitation, in contract or tort, under federal or state securities laws, or
otherwise but excluding fraud) based upon any information provided or made
available, or statements made, to Sappi or Buyer or their respective agents or
representatives prior to the date hereof, in each case, except as and to the
extent expressly set forth herein and subject to the limitations and
restrictions contained herein.
4.7 Brokers. Except for S.G. Warburg & Co., Inc., no broker, finder
-------
or financial advisor or other person is entitled to any brokerage fees,
commissions, finders' fees or financial advisory fees in connection with the
transactions contemplated hereby or by the Ancillary Agreements by reason of any
action taken by Sappi or Buyer or any of their respective directors, officers,
employees, representatives or agents. Such fees and expenses of S.G. Warburg &
Co., Inc. shall be borne by Buyer.
V. COVENANTS OF THE PARTIES.
------------------------
5.1 Conduct of the Company's Business. Except as contemplated by the
---------------------------------
terms of this Agreement or the Ancillary Agreements, or as set forth in Section
5.1 of the Disclosure Schedule, during the period from the date hereof to the
Closing Date, Seller will cause the Company and its Subsidiaries to conduct
their respective businesses and operations only in the ordinary course
consistent with past practice and, to the extent consistent therewith, to use
reasonable efforts to preserve their respective current relationships with
employees, customers, suppliers, distributors, lenders, creditors and others
having business or financial dealings with them and immediately notify Buyer of
any event or occurrence
44
<PAGE>
material to, or not in the ordinary course of business of, the Company and its
Subsidiaries. Without limiting the generality of the foregoing, except as
expressly contemplated by this Agreement or the Ancillary Agreements (including
all actions necessary or appropriate to effect the separation of the Mobile
facility contemplated hereby), or as set forth in Section 5.1 of the Disclosure
Schedule, during the period from the date of this Agreement to the Closing Date,
without the prior written consent of Buyer, Seller will not permit the Company
or any of the Company's Subsidiaries to:
(a) create, incur, assume, prepay or guarantee any indebtedness for
borrowed money (including obligations in respect of capital leases), other than
capital leases entered into in the ordinary course of business;
(b) split, combine or reclassify any shares of its capital stock,
declare, set aside or pay any dividend or other distribution in respect of its
capital stock, or redeem, purchase or otherwise acquire for value any shares of
its capital stock;
(c) issue, sell or deliver any shares of its capital stock or any
securities convertible into or exchangeable for any shares of its capital stock,
or grant or enter into any options, warrants, rights, agreements or commitments
with respect to the issuance of its capital stock, or amend any terms of any
such securities or agreements;
(d) increase the rate of compensation of, or pay or agree to pay any
benefit to, its directors, officers or employees, except as may be required by
any existing plan, including, without limitation, any Benefit Plan, agreement or
arrangement, and except in the ordinary course of business with respect to
employees who are not officers or directors of the Company or any of its
Subsidiaries and whose employment and compensation arrangements are not of the
type required to be disclosed pursuant to Section 3.15(a);
(e) enter into, adopt or amend in any material respect any Benefit
Plan, or any collective bargaining, employment or severance agreement, in each
case as it affects Continuing Employees, except as required by law;
45
<PAGE>
(f) sell, lease, transfer, or otherwise dispose of any properties or
assets, real, personal or mixed other than in the ordinary course of business
consistent with past practice; provided that in no event shall the aggregate
--------
value of properties and assets (other than inventory) disposed of in the
ordinary course of business exceed $1,000,000;
(g) acquire or agree to acquire by merging or consolidating with, or
by purchasing the stock or a substantial portion of the assets of, or by any
other manner, any business or any corporation, partnership, association or other
business organization or division thereof or otherwise acquire or agree to
acquire any assets (other than inventory in the ordinary course of business of
the Company and its Subsidiaries and other than as permitted by clause (i)
below) for consideration having a fair value in excess of $100,000 for any
single transaction or series of related transactions or $500,000 in the
aggregate;
(h) enter into, renew, modify, amend, terminate or permit to lapse
any material lease of Real Property;
(i) make or incur any capital expenditure that is not currently
approved in writing or budgeted and, in either case, disclosed to Buyer prior to
the date hereof and which, individually, is in excess of $100,000 or make or
incur any such expenditures which, in the aggregate, are in excess of $500,000,
other than such as are required by emergency conditions;
(j) permit, allow or suffer any of its material assets to become
subjected to any Liens which would have been required to be set forth in Section
3.9 or 3.10 of the Disclosure Schedule if existing on the date of this
Agreement;
(k) cancel any material indebtedness (individually or in the
aggregate) or waive any material claims or rights of substantial value;
(l) amend its Articles of Incorporation or By-laws;
46
<PAGE>
(m) make any change in any method of accounting or accounting
practice or policy other than those required by United States generally accepted
accounting principles;
(n) violate any material law, regulation, permit, license or
authorization relating to its business or affecting its properties or assets;
(o) conduct any business with, or receive any assets from, Seller or
any of its affiliates other than in the ordinary course of business or in order
to effect the transactions contemplated hereby;
(p) take any action that would, or that would reasonably be expected
to, result in any of the conditions set forth in Section 8.1 not being satisfied
at Closing; or
(q) agree, whether in writing or otherwise, to do any of the
foregoing or not to take any action required by this Agreement.
5.2 Access to Information Prior to the Closing; Confidentiality;
------------------------------------------------------------
Cooperation.
- -----------
(a) During the period from the date of this Agreement through the
Closing Date, Seller will, and will cause the Company and its Subsidiaries to,
give Buyer, Holdings, their respective shareholders, investors and lenders and
the respective authorized employees, accountants, counsel and other
representatives of any of the foregoing (such entities and representatives other
than Buyer being referred to as "Buyer Representatives") reasonable access
during regular business hours to all plants, offices, personnel (including the
persons responsible for the preparation of Returns), warehouses, facilities,
books and records of or relating to the Company or its Subsidiaries as they may
reasonably request; provided, however, (i) that Buyer and Buyer Representatives
-------- -------
shall take such action as is deemed necessary in the reasonable judgment of
Seller and the Company to schedule such access and visits through a designated
officer of the Company and in such a way as to avoid unreasonably disrupting the
normal business of the Company and its Subsidiaries, (ii) the Company and its
Subsidiaries shall not be required to take any action which would constitute
47
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a waiver of the attorney-client or other privilege, (iii) the Company and its
Subsidiaries need not supply Buyer with any information which, in the reasonable
judgment of Seller or the Company, the Company or any of its Subsidiaries is
under a legal obligation not to supply and (iv) Buyer shall not be permitted to
perform environmental sampling or testing except pursuant to the prior written
consent of Seller. Seller shall, and shall cause the Company and its
Subsidiaries to, cause their respective employees, accountants, counsel and
other representatives to reasonably cooperate with Buyer and Buyer
Representatives (at Buyer's expense) in carrying out the transactions
contemplated in this Agreement and in delivering all documents and instruments
deemed reasonably necessary by Buyer or Buyer Representatives (including
providing standard accountants' "comfort" letters and otherwise cooperating and
assisting in satisfying the conditions to the Financing and assisting with the
syndication or marketing thereof), provided, however, that Buyer shall indemnify
-------- -------
and hold harmless Seller from any and all liabilities, obligations or damages to
Seller by reason of any actions taken or statements made pursuant to this
sentence by any such employee, accountant, counsel or other representative in
connection with the provisions of this Section.
(b) Buyer will hold and will cause the Buyer Representatives to hold
any information which it or they receive in connection with the activities and
transactions contemplated by this Agreement and the Ancillary Agreements in
strict confidence in accordance with and subject to the terms of the
Confidentiality Agreement dated as of June 21, 1994 between Sappi and Seller
(the "Confidentiality Agreement"); provided, however, that, notwithstanding
-------- -------
anything to the contrary herein or in the Confidentiality Agreement, Buyer shall
be permitted to use and disclose such information (other than proprietary
information of Seller or the Company) to the extent it reasonably deems
necessary or appropriate in order to consummate the transactions contemplated by
this Agreement (including in connection with making any filing or obtaining any
consent or approval and in connection with arranging or consummating the
Financing). Effective upon, and only upon, the Closing, the Confidentiality
Agreement shall terminate with respect to information relating solely to the
Company and its Subsidiaries; provided, however, that Buyer acknowledges that
-------- -------
any and
48
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all other information provided to it by Seller or Seller's representatives
concerning Seller shall remain subject to the terms and conditions of the
Confidentiality Agreement after the Closing Date.
(c) After the Closing and for a transitional period of six months
thereafter, upon the reasonable request of Buyer, Seller shall, and shall cause
its officers and employees to, cooperate with and assist Holdings, the Company
and Buyer to ensure an orderly transition of the ownership and operation of the
Continuing Business and to minimize any disruption to the Continuing Business
that might result from the transactions contemplated hereby, answer inquiries
and supply information, whether written or oral, relating to the business or
operations of the Company and its Subsidiaries (including legal, accounting,
environmental, pension and benefits, government affairs and other information).
All out-of-pocket expenses incurred in connection herewith shall be borne by
Buyer. Seller acknowledges and agrees that Buyer is relying on Seller to
provide such assistance and cooperation as part of the transactions contemplated
by this Agreement and the consideration paid hereunder.
5.3 Reasonable Efforts. Subject to the terms and conditions of this
------------------
Agreement, each of the parties hereto will use all reasonable efforts to take,
or cause to be taken, all actions, and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate the transactions contemplated by this Agreement and the Ancillary
Agreements at the earliest practicable date.
5.4 Consents. Without limiting the generality of Section 5.3 hereof
--------
and subject to Section 8.3 hereof, each of the parties hereto will use all
reasonable efforts to obtain all licenses, permits, authorizations, consents and
approvals of all third parties and governmental authorities necessary in
connection with the consummation of the transactions contemplated by this
Agreement and the Ancillary Agreements prior to the Closing; provided, however,
-------- -------
that, any provision hereof to the contrary notwithstanding, none of Seller, the
Company or Buyer shall have any obligation to pay any fee to any third party for
the purpose of obtaining any consent or approval or any costs and expenses of
any third party
49
<PAGE>
resulting from the process of obtaining such consent or approval. Each of the
parties hereto will make or cause to be made all filings and submissions under
laws and regulations applicable to it as may be required for the consummation of
the transactions contemplated by this Agreement and the Ancillary Agreements.
Buyer and Seller will coordinate and cooperate with each other in exchanging
such information and assistance as any of the parties hereto may reasonably
request in connection with the foregoing.
5.5 Antitrust Notification. Subject to Article IX hereof, Buyer and
----------------------
Seller will use their respective best efforts to obtain all authorizations or
waivers required under the HSR Act to consummate the transactions contemplated
hereby and by the Ancillary Agreements, including, without limitation, making
all filings with the Antitrust Division of the Department of Justice ("DOJ") and
the Federal Trade Commission ("FTC") required in connection therewith (the
initial filing to occur no later than ten business days following the execution
and delivery of this Agreement) and responding as promptly as practicable to all
inquiries received from the DOJ or FTC for additional information or
documentation. Each of Buyer and Seller shall furnish to the other such
necessary information and reasonable assistance as the other may request in
connection with its preparation of any filing or submission which is necessary
under the HSR Act. Seller and Buyer shall keep each other apprised of the
status of any communications with, and any inquiries or requests for additional
information from, the FTC and the DOJ. For purposes of this Section 5.5, the
"best efforts" of Buyer shall not require Buyer to agree to any prohibition,
limitation or other requirement of the type set forth in clauses (B), (C) and
(D) of Section 8.1(f).
5.6 Public Announcements. Seller, Sappi and Buyer shall not, and
--------------------
Seller shall cause the Company not to, issue any public report, statement or
press release or otherwise make any public statement with respect to this
Agreement and the transactions contemplated hereby, from the date hereof through
the Closing Date, without prior consultation with and approval of the other
party (which approval shall not be unreasonably withheld or delayed), except as
may be required by law or securities exchange regulations applicable to any such
party, in which case such party shall advise the other party and
50
<PAGE>
discuss the contents of the disclosure before issuing any such report, statement
or press release. In addition, neither Sappi, Buyer nor Seller shall, and
Seller shall use its reasonable efforts to cause the Company not to, make any
general communication to suppliers, lenders, creditors, distributors, employees,
customers or others having business or financial relationships with the Company
or any of its Subsidiaries pertaining to this Agreement and the transactions
contemplated hereby, without the prior written approval of the other party
(which approval will not be unreasonably withheld or delayed).
5.7 Supplemental Disclosure. (a) Seller shall from time to time
-----------------------
prior to the Closing promptly supplement or amend the Disclosure Schedule with
respect to (a) any matter that existed as of the date of this Agreement and
should have been set forth or described in the Disclosure Schedule and (b) any
matter hereafter arising which, if existing as of the date of this Agreement,
would have been required to be set forth or described in the Disclosure
Schedule; provided, however, that, with respect to clause (a) above, any such
-------- -------
supplemental or amended disclosure shall not be deemed to have been disclosed as
of the date of this Agreement unless expressly consented to in writing by Buyer;
provided further, however that, with respect to clause (b) above, any such
- -------- ------- -------
supplement or amended disclosure shall, for purposes of this Agreement and the
Ancillary Agreements (other than for the purposes of determining whether the
conditions set forth in Article VIII are satisfied), be deemed to have been
disclosed as of the date of this Agreement, provided that any such supplement or
amended disclosure is disclosed in writing to Buyer at least five business days
before the Closing Date; provided, however, that in the event that Seller
-------- -------
becomes aware of any such event less than five business days prior to the
Closing Date, Seller shall only be required to promptly disclose to Buyer any
such supplement or amendment and Buyer shall have the right to postpone the
Closing Date for up to three business days following such disclosure in order to
evaluate such information.
(b) Seller shall promptly notify Buyer of, and furnish Buyer any
information it may reasonably request with respect to, the occurrence, to
Seller's knowledge, of any event or condition or the existence, to Seller's
51
<PAGE>
knowledge, of any fact that would cause any of the conditions to Buyer's
obligation to consummate the purchase and sale of the Shares not to be
fulfilled.
5.8 Confidentiality. Seller shall keep confidential, and cause its
---------------
affiliates and its and their officers, directors, employees and advisors to keep
confidential, all information relating to the Company and its Subsidiaries and
their businesses, except as required by law or administrative process and except
for information which is available to the public on the Closing Date, or
thereafter becomes available to the public other than as a result of a breach of
this Section 5.8. The covenant set forth in this Section 5.8 shall terminate
three years after the Closing Date.
5.9 Insurance. As of the Closing, Seller shall assign to Buyer and
---------
to the Company and its Subsidiaries any and all assignable rights which Seller
may have under insurance policies covering claims relating to the business,
assets or properties of the Company and its Subsidiaries for the period on or
prior to the Closing Date.
5.10 Assignment of Confidentiality Agreements. On the Closing Date,
----------------------------------------
Seller shall assign to Buyer and the Company its rights under all
confidentiality agreements entered into by such persons with any person in
connection with the proposed sale of the Company to the extent such rights
relate to the Company and its Subsidiaries. Seller shall use its reasonable
efforts to cause copies of such confidentiality agreements to be provided to
Buyer on the Closing Date.
5.11 Certain Licenses and Permits. Seller covenants that all
----------------------------
licenses, permits and authorizations which are held in the name of Seller or any
of its affiliates (other than the Company and its Subsidiaries) or any employee,
officer, director, stockholder or agent of Seller or any of its affiliates
(including the Company and its Subsidiaries) or otherwise on behalf of the
Company or any of its Subsidiaries shall be duly and validly transferred, to the
extent transferable, to the Company or such Subsidiary without consideration
prior to the Closing and that the warranties, representations, covenants and
conditions contained in this Agreement
52
<PAGE>
shall apply to the same as if held by the Company or such Subsidiary as of the
date hereof.
5.12 Records. (a) On the Closing Date or as soon as practicable
-------
thereafter, Seller shall deliver or cause to be delivered to Buyer all original
agreements, documents, books, records and files, including records and files
stored on computer disks or tapes or any other storage medium (collectively,
"Records"), if any, in the possession of the Seller relating to the business and
operations of the Company and its Subsidiaries to the extent not then in the
possession of the Company and its Subsidiaries, subject to the following
exceptions:
(i) Buyer recognizes that certain Records may contain incidental
information relating to the Company and its Subsidiaries or may relate primarily
to Subsidiaries or divisions of Seller other than the Company and its
Subsidiaries, and that Seller may retain such Records and shall provide copies
of the relevant portions thereof to Buyer; and
(ii) Seller may retain all Records prepared in connection with the
sale of the Shares, including bids received from other parties and analyses
relating to the Company and its Subsidiaries.
(b) Except for books and records relating to Taxes, which are
addressed by Section 6.1(d)(v), following the Closing, Buyer shall permit Seller
and its authorized representatives, during normal business hours and upon
reasonable notice, to have reasonable access to, and examine and make copies of,
all books, records and personnel of the Company which relate to transactions or
events occurring prior to the Closing ("Pre-Closing Transactions") or
transactions or events occurring subsequent to the Closing which are related to
or arise out of Pre-Closing Transactions, to the extent such Pre-Closing
Transactions relate to liabilities retained by Seller pursuant to this Agreement
or as necessary to comply with applicable financial reporting obligations.
Buyer agrees that it shall retain all such books and records for a period of
seven years following the Closing, or for such longer period following the
Closing as may be required by law.
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5.13 Entire Business. Subject to Section 8.3, on or prior to the
---------------
Closing, Seller shall assign or transfer or otherwise cause to be assigned or
transferred, to the Company (on terms reasonably satisfactory to Buyer) all the
right, title and interest of Seller (or Seller's Subsidiaries and affiliates,
other than the Company) in and to all assets that Seller (or Seller's
Subsidiaries and affiliates, other than the Company) owns or leases or licenses
from third parties, and which are used in or necessary to the conduct of the
business of the Company and its Subsidiaries as conducted on the date hereof
(collectively, "Scott Assets") (including (i) the Scott Leased Assets, (ii) the
assets listed in Section 3.9(c) of the Disclosure Schedule, (iii) the
Intellectual Property listed in Schedule 3.11(a) of the Disclosure Schedule as
being owned by any person other than the Company or any of its Subsidiaries and
(iv) all real property and interest in real property identified in Section
3.10(a) of the Disclosure Schedule which does not constitute Real Property).
Notwithstanding the foregoing but subject to Section 8.1(m), Seller shall not be
obligated to assign, transfer, sublease or sublicense, or cause such assignment,
transfer, sublease or sublicense to the Company of any of Seller's right, title
and interest, whether legal or equitable, in and to any Scott Leased Assets
without first having obtained all necessary consents and approvals, if any, or a
waiver thereof, required from any third party with respect to such assignment,
transfer, sublease or sublicense of such Scott Leased Asset; provided, however,
-------- -------
Seller shall (i) comply with Section 2.1 and (ii) give Buyer written notice at
least five business days prior to the Closing Date of any Scott Leased Asset
that has not been, and will not be at or prior to Closing, assigned,
transferred, subleased or sublicensed to the Company.
5.14 Additional Real Property. Seller, Buyer and the Company will
------------------------
negotiate promptly and in good faith regarding the conveyance of additional Real
Property to the Company at the Mobile mill site; provided that Sappi and Buyer
agree that neither the completion of negotiations and identification of any
additional Real Property, nor the transfer of any additional Real Property,
shall be a condition to the consummation of this Agreement.
54
<PAGE>
VI. ADDITIONAL AGREEMENTS.
---------------------
6.1 Tax Matters.
-----------
(a) Certain Definitions. As used in this Agreement:
-------------------
(i) "Buyer Group" means Buyer's affiliated group, within the meaning
of Section 1504(a) of the Code, of which Buyer is the common parent or any of
Buyer's foreign subsidiaries.
(ii) "Election" means the election to be made by Buyer and Seller
pursuant to Section 338(h)(10) of the Code or any comparable election under
state or local law (including any elections under provisions comparable to
Section 338(g) of the Code that are required as a prerequisite to making an
election under Section 338(h)(10) of the Code or any comparable provision of
state or local law), as described in Section 6.1(b) hereof.
(iii) "Pre-Closing Period" means that portion of any Straddle Period
which ends on the Closing Date.
(iv) "Seller Group" means Seller's affiliated group, within the
meaning of Section 1504(a) of the Code, of which Seller is the common parent or
any of Seller's foreign subsidiaries.
(v) "Straddle Period" means any taxable period that includes (but
does not end on) the Closing Date.
(vi) "Tax Benefit" means (A) a loss, deduction or credit for any Tax
purpose or (B) a carry forward or carry back of a loss, deduction or credit for
any Tax purpose.
(b) Section 338(h)(10) Election.
---------------------------
(i) With respect to the purchase by Buyer of the Shares pursuant to
this Agreement, (A) Seller and Buyer shall jointly make the Election, (B) Seller
and Buyer shall, as promptly as practicable following the Closing Date,
cooperate with each other to take all actions necessary and appropriate
(including filing such forms, returns, elections, schedules and other documents
as may be required) to effect and preserve a timely
55
<PAGE>
Election in accordance with the provisions of Treasury Regulation Section
1.338(h)(10)-1 (and any comparable provisions of state or local Tax law) or any
successor provisions and (C) Seller and Buyer shall report the purchase by Buyer
of the Shares pursuant to this Agreement consistent with the Election and shall
take no position inconsistent therewith in any Tax Return, any proceeding before
any Taxing Authority or otherwise.
(ii) In connection with the Election, Buyer and Seller shall agree to
the determination of the "Aggregate Deemed Sales Price" (as defined under
applicable Treasury Regulations) of the Shares and the allocation of such
"Aggregate Deemed Sales Price" among the assets of the Company. The
determination of the amount of the "Aggregate Deemed Sales Price" and the
allocation thereof shall be proposed by Buyer in consultation with Seller in
accordance with Section 338(b) of the Code and applicable Treasury Regulations.
Each of Seller and Buyer shall (A) be bound by such determination and such
allocation for purposes of determining any Taxes, (B) prepare and file, and
cause its affiliates to prepare and file, its Returns on a basis consistent with
such determination of the "Aggregate Deemed Sales Price" and such allocation and
(C) take no position, and cause its affiliates to take no position, inconsistent
with such determination and such allocation on any applicable Return in any
proceeding before any Taxing Authority or otherwise. In the event that any such
determination or allocation is disputed by any Taxing Authority, the party
receiving notice of the dispute shall promptly notify the other party hereto
concerning resolution of the dispute.
(c) Transfer and Similar Taxes. Notwithstanding any other provisions
--------------------------
of this Agreement to the contrary, all sales, use, transfer, gains, stamp,
duties, recording and similar Taxes (collectively, "Transfer Taxes") incurred in
connection with the transactions contemplated by this Agreement and the
Ancillary Agreements shall be borne one-half by Buyer and one-half by Seller,
provided, however, that all Transfer Taxes relating to Seller's transfer of any
- -------- -------
assets to the Company shall be borne and paid solely by Seller, and Seller shall
accurately file all necessary Returns and other documentation with respect to
Transfer Taxes and timely pay all such Transfer Taxes. Buyer shall review any
such Return prior to filing and shall pay to Seller, subject to the proviso
56
<PAGE>
in the preceding sentence, one-half of the Transfer Tax shown to be due on the
Return within five business days after such Return is given to Buyer. If
required by applicable law, Buyer will join in the execution of any such Return.
(d) Return Filings, Refunds and Credits.
-----------------------------------
(i) Seller shall prepare, or cause to be prepared, and file, or cause
to be filed, on a timely basis (in each case, at its sole cost and expense) all
Returns with respect to the Company for taxable periods ending on or prior to
the Closing Date (the "Prior Period Returns"). Except as provided in Section
6.1(c) hereof, Seller shall pay, or cause to be paid, all Taxes with respect to
the Company shown to be due on the Prior Period Returns.
(ii) Buyer shall prepare, or cause to be prepared, and shall file, or
cause to be filed, on a timely basis (in each case, at its sole cost and
expense) all Returns with respect to the Company for the Straddle Period (the
"Straddle Period Returns"). Buyer shall pay, or cause to be paid, subject to
Buyer's right to indemnification pursuant to Section 10.3 hereof, all Taxes
shown to be due on such Returns; provided, however, that any estimated Tax
-------- -------
payments shown to be due on such Returns shall be paid one-half by Buyer and
one-half by Seller.
(iii) Buyer shall provide Seller with copies of any Straddle Period
Returns at least twenty business days prior to the due date thereof (giving
effect to any extensions thereto), accompanied by a statement calculating in
reasonable detail Seller's indemnification obligation for the Straddle Period
pursuant to Section 10.3 hereof (the "Indemnification Statement"). Seller shall
have the right to review such Straddle Period Returns and Indemnification
Statement prior to the filing of such Straddle Period Returns. If Seller agrees
to the Indemnification Statement amount, Seller shall pay to Buyer an amount
equal to the Taxes shown on the Indemnification Statement not later than three
business days before the due date (including any extensions thereof) for payment
of Taxes with respect to such Straddle Period Return. If Seller disputes the
amount calculated in the Indemnification Statement, Seller and Buyer shall
consult and resolve in good faith any issues arising as a result of the
57
<PAGE>
review of such Straddle Period Return and Indemnification Statement. If the
parties are unable to resolve any dispute within 15 business days after Seller's
receipt of such Straddle Period Return and Indemnification Statement then Seller
shall submit the dispute to the Independent Accountants, whose expense shall be
borne equally by Seller and Buyer, and such dispute shall be resolved by the
Independent Accountants, which shall resolve any issue in dispute as promptly as
practicable. If the Independent Accountants are unable to make a determination
with respect to any disputed issue prior to the due date (including any
extensions) for the filing of the Straddle Period Return in question, (A) Buyer
shall file, or shall cause to be filed, such Straddle Period Return without such
determination having been made and (B) Seller shall pay to Buyer, not later than
three days before the due date (including any extensions thereof) for the
payment of Taxes with respect to such Straddle Period Return, the amount of
Seller's indemnification obligation as set forth on the Indemnification
Statement. Upon delivery to Seller and Buyer by the Independent Accountants of
its determination, appropriate adjustments shall be made to the amount paid by
Seller in accordance with the immediately preceding sentence in order to reflect
the decision of the Independent Accountants. The determination by the
Independent Accountants shall be final, conclusive and binding on the parties.
(iv) Seller and Buyer shall reasonably cooperate, and shall cause
their respective affiliates, officers, employees, agents, auditors and
representatives reasonably to cooperate, in preparing and filing all Returns
(including amended returns and claims for refund), including making available to
each other all existing records necessary in connection with such Returns and in
resolving disputes and audits with respect to Taxes. Buyer and Seller recognize
that Seller will need access, from time to time, after the Closing Date, to
certain accounting and tax records and information held by the Company to the
extent such records and information pertain to events occurring prior to the
Closing Date; therefore, Buyer agrees that from and after the Closing Date Buyer
shall, and shall cause the Company to allow Seller and its agents and
representatives (and agents and representatives of its affiliates) upon
reasonable notice to inspect, review and make copies of such records as Seller
reasonably may deem necessary or appropriate from
58
<PAGE>
time to time, such activities to be conducted during normal business hours that
are reasonably acceptable to Buyer and at Seller's cost and expense.
(v) For a period of three years from the Closing Date, Buyer shall in
good faith, and shall cause the Company in good faith to, maintain the business
records and files of the Company relating to material Taxes, that Seller has
identified in writing and that exist on the Closing Date, and Buyer shall not,
and shall cause the Company not to, willfully and knowingly dispose of or
destroy any such business records and files of the Company during such period
without first offering to turn over possession thereof to Seller by written
notice to Seller at least thirty days prior to the proposed date of such
disposition or destruction.
(vi) Subject to Section 6.1(h), any refunds and credits of Taxes of
the Company with respect to (A) any taxable period ending on or before the
Closing Date that are not attributable to any item of credit, loss or deduction
or expense generated in a period ending after the Closing, shall be for the
account of Seller, and if received or utilized by Buyer or the Company, shall be
paid, net of any expense or Tax cost to Buyer (other than a Tax cost that is
indemnified) to Seller within 20 business days after Buyer or the Company
receives such refund or utilizes such credit, (B) any taxable period beginning
after the Closing Date shall be for the account of Buyer, and if received or
utilized by Seller or any of its affiliates shall be paid, net of any Tax cost
to Seller (other than a Tax cost that is indemnified), by Seller to Buyer within
20 business days after Seller or any of its affiliates receives such refund or
utilizes such credit and (C) except as provided in the next sentence, any
Straddle Period shall be apportioned between Seller and Buyer as if such taxable
period ended on and included the Closing Date. In the case of a refund or
credit attributable to any real property, personal property and intangible
property Taxes, the refund or credit of such Taxes of the Company for the Pre-
Closing Period shall be deemed to be the amount of such refund or credit for the
Straddle Period multiplied by a fraction the numerator of which is the number of
days in the Straddle Period ending on the Closing Date and the denominator of
which is the number of days in the Straddle Period.
59
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(e) Termination of Tax Sharing Agreements. On or prior to the
-------------------------------------
Closing Date, any agreement, arrangement or practice with respect to Taxes to
which the Company or any Subsidiary is a party shall be terminated (other than
agreements, arrangements or practices solely between or among the Company and
its Subsidiaries), all obligations thereunder shall be settled, and no
additional payments shall be made under any provisions thereof after the Closing
Date.
(f) Carrybacks. To the maximum extent allowed by law, Buyer must
----------
carry back any Tax Benefit which is attributable to the Company for any taxable
period ending on or before the Closing Date or for the Pre-Closing Period
relating to Seller or the Seller Group unless Buyer requests and obtains the
written consent of Seller to do otherwise. Seller shall have the sole
discretion to accept or reject any such request by Buyer.
(g) Elections. Buyer shall not, and shall cause the Company not to,
---------
make, amend or revoke any Tax election if such action would adversely affect any
member of the Seller Group with respect to any taxable period ending on or
before the Closing Date or for the Pre-Closing Period or any Tax refund with
respect thereto.
(h) Timing Adjustments. (i) If an audit or other examination of any
------------------
Return prepared in connection with income taxes ("Income Tax Return") of Seller
or the Company for taxable periods ending on or before the Closing Date shall
result (by final settlement or other final disposition) in any adjustment the
effect of which is to increase deductions, losses or tax credits or decrease
income, gains or recapture of tax credits ("Changes") reflected on the Income
Tax Returns of Buyer or the Company for taxable periods commencing on or after
the Closing Date, Seller will notify Buyer and provide Buyer with all necessary
information so that it can reflect on the Income Tax Returns of Buyer or the
Company any appropriate Changes. If as a result of such Changes, Buyer enjoys a
net Tax Benefit from an increase in deductions, losses or tax credits and/or a
decrease in the income, gains or recapture of tax credits (after taking into
account the deferral of, or decrease in, deductions, losses or tax credits, or
acceleration of, or increase in, income, gain or recapture of tax credits
suffered by Buyer as a result of such Changes) (collectively, the
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"Buyer Benefits") with respect to Income Tax Returns for any taxable period
commencing after the Closing Date, Buyer shall promptly make payments to Seller
as and when Buyer realizes such Buyer Benefits. Buyer shall cause such Buyer
Benefits to be claimed on the appropriate Income Tax Returns of Buyer or the
Company if, in the sole judgment of Buyer, such claim will not adversely affect
Buyer, the Company, its Subsidiaries or any of their respective affiliates. For
purposes of this Section 6.1(h)(i), the amount of Buyer Benefits paid to Seller
shall include the amount of interest actually received by Buyer or the Company,
if any.
(ii) If an audit or other examination of any Income Tax Return of
Buyer or the Company for taxable periods ending after the Closing Date shall
result (by final settlement or other final disposition) in any Changes reflected
on the Income Tax Returns of Seller, any Affiliated Group, the Company or its
Subsidiaries for taxable periods ending on or before the Closing Date, Buyer
will notify Seller and provide Seller with all necessary information so that it
can reflect on the Income Tax Returns of Seller, an Affiliated Group or the
Company any appropriate Changes. If, as a result of such Changes, Seller or any
of its affiliates enjoys a net Tax Benefit from an increase in deductions,
losses or tax credits and/or a decrease in the income, gains or recapture of tax
credits (after taking into account the deferral of, or decrease in, deductions,
losses or tax credits, or acceleration of, or increase in, income, gain or
recapture of tax credits suffered by Seller as a result of such Changes)
(collectively, the "Seller Benefits") with respect to Income Tax Returns for any
taxable period commencing after the Closing Date, Seller shall promptly make
payments to Buyer as and when Seller realizes such Seller Benefits. Seller
shall cause such Seller Benefits to be claimed on the appropriate Income Tax
Returns of Seller or the Company if, in the sole judgment of Seller, such claim
will not adversely affect Seller or its affiliates. For purposes of this
Section 6.1(h)(ii), the amount of Seller Benefits paid to Buyer shall include
the amount of interest actually received by Seller or its affiliates, if any.
(i) Reporting. Seller shall, and shall cause its affiliates to, take
---------
the position on every Return and with every Taxing Authority that the sale of
the Shares
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by Seller pursuant to this Agreement is not subject to any net income tax
imposed by the State of New York or the State of Ohio.
6.2 Company Employees; Employee Contracts and
-----------------------------------------
Benefits.
- --------
(a) Certain Definitions.
-------------------
As used in this Agreement:
(i) "Warren Pension Plans" means the S.D. Warren Company Central
Mills Employees' Retirement Plan Agreement and S.D. Warren Cumberland Mills
Hourly Employees' Retirement Plan;
(ii) "Scott Pension Plans" means the Scott Paper Company Retirement
Plan for Salaried Employees, the Scott Paper Company Retirement Plan for Hourly
Employees and the Scott Paper Company Retirement Plan for Hourly Employees (Non-
Contributory);
(iii) "Continuing Employee" means each person actively employed by
Seller or by the Company (including, in the case of an employee of the Company,
a person on a leave of absence) as of the Closing Date who becomes an employee
of the Company, Buyer or any Subsidiary or affiliate thereof on or, with the
consent of Buyer, within thirty days after the Closing Date; as used in this
Section 6.2(a)(iii), a person shall not be considered actively employed if such
person (a) is on layoff or, in the case of an employee of the Seller, on any
leave of absence, unless such individual returns to active employment with the
Company within thirty days after the Closing Date, (b) is receiving severance
payments after termination, (c) has been notified on or prior to the Closing
Date that his employment with the Company has been or will be terminated on or
before the thirtieth day after the Closing Date, or (d) has notified the Company
on or prior to the Closing Date that he will be terminating his employment with
the Company on or before the thirtieth day after the Closing Date.
(b) Assumption of Liabilities of, and Transfer of Assets from,
----------------------------------------------------------
Pension Plans and Warren Pension Plans.
- --------------------------------------
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After the date of this Agreement and before the Closing Date, Seller
shall take all actions (or shall cause the Company to take all actions)
necessary or appropriate to create one or more (as determined by Buyer, subject
to any applicable legal requirements) defined benefit pension plans (together,
"Buyer's Pension Plans") and related trust or trusts intended to qualify and be
tax-exempt under Section 401(a) and Section 501(a) of the Code, and sufficient
to satisfy all benefits protected under Section 411(d)(6) of the Code, for the
benefit of the Continuing Employees and to permit the transfer of assets and
liabilities pursuant to the requirements of Section 414(l) of the Code. Prior
to Closing, and subject to Section 6.2(f) hereof, (i) Buyer's Pension Plans
shall assume all liabilities for accrued benefits, including, without
limitation, all ancillary benefits, under the Scott Pension Plans and the Warren
Pension Plans in respect of all Continuing Employees, and the Scott Pension
Plans and the Warren Pension Plans shall be relieved of all liabilities for such
benefits, and (ii) Seller shall direct the trustee of the Scott Pension Plans
and the Warren Pension Plans to transfer, in one or more steps, from the Master
Trust in which such plans participate (the "Scott Master Trust") to a trust
under Buyer's Pension Plans that is not part of the Scott Master Trust, assets
selected by Seller and reasonably acceptable to Buyer equal to an amount
initially determined by Towers Perrin ("Seller's Actuary") to be equal to the
amount of assets which must be transferred as of the date as of which the
transfer occurs (the "Pension Transfer Date") solely on account of benefits for
Continuing Employees as determined in accordance with Section 414(l) of the Code
and the regulations thereunder. On the Closing Date, Seller shall contribute
(in such proportion as Seller and Buyer shall agree) to Buyer's Pension Plans an
amount in cash equal to $15.0 million increased (or decreased) by the amount, if
any, by which the value of the assets in Buyer's Pension Plans as of the Pension
Transfer Date is less than (or greater than) the value that the assets in
Buyer's Pension Plans would have had on such date if (A) $74.2 million had been
transferred to Buyer's Pension Plans on June 30, 1994, and (B) the investment
results applicable to such amount thereafter had been the same as if such amount
had been invested in the Scott Master Trust; provided, however, that to the
extent that Seller will be unable to claim a current Federal income tax
deduction on its 1994 consoli-
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dated income tax return for the amount to be contributed, such amount shall not
be contributed to Buyer's Pension Plans but instead shall be paid by Seller
directly to Buyer or the Company, at Buyer's direction, at Closing. If the
amount of such transfer, contribution or payment cannot be determined with
certainty by the Closing Date, the amount transferred, contributed or paid on or
before the Closing Date shall be an amount agreed by Seller and Buyer to be
substantially all of a reasonable estimate of such transfer, contribution or
payment, with the remainder to be transferred, contributed or paid as promptly
as possible thereafter with interest thereon from the Pension Transfer Date to
the date of the transfer, contribution or payment at the rate equal to the yield
on 90-day U.S. Treasury bills on the Pension Transfer Date. Between the Pension
Transfer Date and the Closing Date, Seller shall consult in good faith with
Buyer on the investment of assets in Buyer's Pension Plans. The determinations
hereunder shall be initially made by Seller's Actuary but shall be subject to
the approval of an actuary selected by Buyer, which approval shall not be
unreasonably withheld. As of the Closing Date, Buyer shall, or shall cause the
Company to, assume and become the sponsor of Buyer's Pension Plans and on and
after the Closing Date, the Company shall indemnify and hold Seller harmless for
all liabilities for all accrued benefits, including, without limitation, all
ancillary benefits, assumed by Buyer's Pension Plans and each of Seller, the
Scott Pension Plans and the Warren Pension Plans shall be relieved of all
liabilities for such benefits. Buyer and Seller shall provide each other with
such records and information as may be necessary or appropriate to carry out
their respective obligations under this Section or for the purposes of
administration of Buyer's Pension Plan, and each shall cooperate in the filing
of documents required by the transfer of assets and liabilities described
herein.
(c) Defined Contribution Plans.
--------------------------
As soon as practicable after the Closing Date, Buyer shall have
established (or shall have caused the Company to establish) one or more (as
determined by Buyer, subject to any applicable legal requirements) qualified
defined contribution savings or thrift plans ("Buyer's Thrift Plan") and a
related trust or trusts thereunder intended to qualify and be tax-exempt under
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Section 401(a) and Section 501(a), respectively, of the Code. Buyer's Thrift
Plan shall contain provisions: (i) allowing for the trust-to-trust transfer of
all assets held for the benefit of Continuing Employees under Seller's Salaried
Investment Plan or Seller's Hourly Investment Plan (together, "Seller's Thrift
Plan") into Buyer's Thrift Plan, including, without limitation, the transfer in
kind of common shares, no par value, of Seller and the transfer of plan loans to
participants, (ii) allowing Continuing Employees to elect to receive their
assets from Buyer's Thrift Plan under the optional forms of benefit provided
under Seller's Thrift Plan and (iii) recognizing for all purposes under Buyer's
Thrift Plan all service that was recognized under Seller's Thrift Plan as if it
were service rendered to Buyer. At the Closing, in accordance with the terms of
Seller's Thrift Plan, the Company shall cease being a participating company in
Seller's Thrift Plan and both employer and employee contributions to such plans
shall cease at the Closing Date for all Continuing Employees. Upon receipt by
Seller of written evidence of the adoption of Buyer's Thrift Plan and the trust
thereunder by Buyer and either (A) the receipt by Seller of a copy of a
favorable determination letter issued by the Internal Revenue Service with
respect to Buyer's Thrift Plan or (B) an opinion, reasonably satisfactory to
Seller's counsel, of Buyer's counsel to the effect that the terms of Buyer's
Thrift Plan and its related trust qualify under Section 401(a) and Section
501(a) of the Code, Seller shall direct the trustee of Seller's Thrift Plan to
transfer to the trustee of Buyer's Thrift Plan assets selected by Seller and
acceptable to Buyer equal to the account balances under Seller's Thrift Plan as
of the date of transfer in respect of Continuing Employees participating in
Seller's Thrift Plan. Upon such transfer, Buyer's Thrift Plan shall assume, and
the Company shall indemnify and hold Seller harmless for, all liabilities for
all accrued benefits under Seller's Thrift Plan in respect of all Continuing
Employees and each of Seller and Seller's Thrift Plan shall be relieved of all
liabilities for such accrued benefits. Buyer and Seller shall cooperate in the
filing of documents required by the transfer of assets and liabilities described
herein.
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(d) Other Benefits.
--------------
On and after the Closing Date, Buyer shall (i) permit Continuing
Employees to participate immediately in Buyer's medical and dental benefit
plan(s) (or in new medical and dental plan(s) created by the Company), with a
waiver of pre-existing condition restrictions, with respect to all claims
incurred after Closing, and provide such Continuing Employees and their
beneficiaries credit for any deductibles and copayments incurred under Seller's
medical and dental benefit plans during the current plan year before the Closing
Date, (ii) recognize for all purposes under Buyer's severance pay plan or plans
(or new severance plan(s) created by the Company) the service of Continuing
Employees with Seller or the Company before the Closing Date, and provide to
Continuing Employees the same benefits for such period as it provides to its own
similarly situated employees, and (iii) permit Continuing Employees to take
vacation during 1994 to the extent of any unused vacation entitlement under
Seller's vacation plans, or reimburse such Continuing Employees for the loss
thereof at the rate of pay not less than that in effect at Closing. As of the
Closing Date, in accordance with the terms of Seller's welfare plans, the
Company shall cease to be a participating company in such plans. Neither Buyer
nor the Company shall be responsible for (i) any long-term disability benefits
provided under any plan of the Seller, the Company or any of its Subsidiaries
including any claims resulting from disabilities incurred but not reported as of
the Closing Date, (ii) any benefits provided to persons who do not become
Continuing Employees, or (iii) any expenses incurred under Seller's welfare
plans. Seller shall be responsible for any award granted prior to the Closing
Date of stock appreciation rights, stock options, restricted stock or
performance shares or units, or other incentive compensation to any employee of
the Company or any of its Subsidiaries or to any employee of the Seller who
becomes a Continuing Employee. Buyer shall not assume, and neither Buyer nor
the Company shall have, any liability with respect to Items 11-21 listed in
Section 3.13(a) of the Disclosure Schedule.
(e) Right to Change Benefits.
------------------------
Notwithstanding the above, but subject to (f) below, the Company shall
have the right, in the good
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faith exercise of its managerial discretion, to make changes or cause changes in
compensation, benefits (including retiree medical, pension, thrift plan or other
benefits), other terms of employment and to terminate the employment of any
employee.
(f) Collectively Bargained Benefits.
-------------------------------
Notwithstanding anything herein to the contrary, the Company shall
provide benefits to Continuing Employees to the extent required by applicable
collective bargaining agreements in effect on the Closing Date, except to the
extent modified in the collective bargaining process.
6.3 Financing Arrangements.
----------------------
(a) Financings to be Terminated by Seller
-------------------------------------
Before Closing Date.
- -------------------
Seller shall cause the financing arrangements listed in Section
6.3(a)of the Disclosure Schedule to be terminated before the Closing Date.
(b) Tax-Exempt Bond Financings.
--------------------------
(i) Section 6.3(b) of the Disclosure Schedule lists all of the tax-
exempt debt financings outstanding with respect to the property comprising the
Continuing Business on the date hereof and the principal financing documents
pertaining thereto binding upon Seller or the Company. Seller represents and
warrants to Buyer that no transaction contemplated by this Agreement or the
Ancillary Agreements, and covenants that from the date hereof, it will take no
action and will cause its affiliates to take no action that will adversely
affect the tax-exempt status of, or result in a taxable event pursuant to
Section 1001 of the Code to holders of, the debt financings set forth in Section
6.3(b) of the Disclosure Schedule.
(ii) With respect to the Michigan Strategic Fund Adjustable Tender
Solid Waste Disposal Revenue Bonds (S.D. Warren Company Project) due 2002 (the
"Muskegon Solid Waste Bonds"), at the Closing Buyer shall (i) in cooperation
with Seller, use reasonable efforts to cause Seller to be released from its
guarantee of the Muskegon
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Solid Waste Bonds and (ii) cause a replacement letter of credit to be
substituted for the existing letter of credit of The Sumitomo Bank Limited, New
York Branch.
(iii) With respect to all other tax-exempt bond financings set forth
in Section 6.3(b) of the Disclosure Schedule (and with respect to the Muskegon
Solid Waste Bonds, if Seller is not released from its guarantee thereof pursuant
to paragraph (ii) above), at the Closing the Company shall assume all Seller's
obligations under the applicable financing documents. As security for the
foregoing, Buyer shall obtain at its own expense and cause to be delivered to
Seller, for each such bond financing, an irrevocable standby letter of credit
for the benefit of Seller from a bank with total assets of not less than $20
billion and a long-term senior debt rating or long-term deposit rating by
Moody's Investors Service, Inc. of A3 or better and a long-term senior debt
rating or long-term deposit rating by Standard & Poor's Ratings Group of A- or
better, in form and substance reasonably satisfactory to Seller. Without
limiting the foregoing, each such letter of credit either (i) shall have a term
ending no sooner than 120 days after the scheduled maturity or earlier
redemption in full of the applicable bonds or (ii) shall be automatically
renewable for periods of not less than one year (except that the final
expiration date shall not be later than the date specified in clause (i)) unless
at least fifteen days' notice of non-renewal is given to Seller and shall permit
a draw by Seller upon receipt of such notice of non-renewal. Subject to Section
6.3(g), each such letter of credit shall from time to time have a stated amount
determined by Seller of not more than the sum of: the then outstanding
principal of the related bonds plus the premium, if any, payable on such bonds
upon optional redemption thereof (or, if such bonds are not presently subject to
optional redemption, on the first optional redemption date), plus one year's
interest on such bonds plus, if such bonds are not then subject to optional
redemption, an amount equal to interest that will accrue on such bonds until the
first date such bonds are subject to optional redemption. Such letter of credit
shall permit a drawing of the full amount by Seller if (i) Seller is called upon
to make any payment thereon (whether or not the bonds are accelerated) unless
the Company is contesting the applicability of such obligation diligently by
appropriate proceedings instituted in good faith (other
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<PAGE>
than if the bonds are accelerated or in the case of a failure to make a
scheduled payment), or (ii) the Company or Buyer (A) commences a voluntary case
seeking relief with respect to itself or its debts under any bankruptcy,
insolvency or similar law, or seeks the appointment of a trustee, receiver or
similar official of it or any substantial part of its property, (B) makes a
general assignment for the benefit of creditors, (C) fails generally to pay its
debts as they become due, or (D) takes any corporate action to authorize any of
the foregoing, or (iii) an involuntary case is commenced against the Company or
Buyer seeking liquidation, reorganization or other relief with respect to it or
its debts under any bankruptcy, insolvency or similar law or seeking the
appointment of a trustee, receiver or similar official of it or any substantial
part of its property. If Seller makes a drawing under any such letter of
credit, Seller shall cause the applicable bonds to be redeemed or defeased or
utilize the proceeds of the drawing to pay the principal of and interest on such
bonds as it comes due. In the latter case, Seller shall (i) hold Buyer and the
Company harmless with respect to obligations to make payments of principal and
interest on the bonds to the extent of the drawing, and (ii) hold any excess of
such drawings over the payments of principal and interest on the bonds (and any
earnings on such excess) in a segregated account as cash collateral solely to
secure payments of principal, interest and premium (if any) on the bonds. When
such bonds have been paid in full, redeemed or defeased, Seller will return to
Buyer all funds drawn on the letter of credit in excess of those applied to the
payment, redemption and/or defeasance of such bonds and payment of fees, costs
and other expenses incurred by Seller in connection therewith (it being agreed
that Buyer shall have the right to grant a security interest in its right to
such excess). Any draw on a letter of credit shall automatically reduce Buyer's
liability to Seller on the relevant underlying obligation by a corresponding
amount.
(c) Cross Border Leases.
-------------------
Section 6.3(c) of the Disclosure Schedule lists certain cross border
lease arrangements under which the Company leases equipment used in the
Continuing Business from the owner and Seller guarantees the Company's
obligations and has an option to purchase the leased equipment. At the Closing
Seller shall assign its rights
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under the respective purchase option agreements to the Company and the Company
shall assume Seller's obligations under such purchase option agreements and the
respective guaranty agreements and, if Seller causes all necessary consents to
be obtained, Seller shall be released from all such obligations.
(d) Safe Harbor Leases.
------------------
Section 6.3(d) of the Disclosure Schedule sets forth the parties, the
signing date and the capacities of the parties with respect to each safe harbor
lease (each a "Safe Harbor Lease") that affects the assets or business of the
Continuing Business entered into between Seller and certain lessors under the
provisions of Section 168(f)(8) of the Internal Revenue Code of 1954, as amended
and as such Section was in effect prior to the date of enactment of the Tax
Equity and Fiscal Responsibility Act of 1982. At the Closing, the Company shall
acquire the assets set forth on Section 6.3(d) of the Disclosure Schedule that
are subject to a Safe Harbor Lease and, subject to the indemnification provided
in Section 10.4(iii), shall assume all obligations of Seller under the related
Safe Harbor Lease that are required to be assumed under Treasury Regulation
Section 5c.168(f)(8)-8(b)(3).
(e) Mobile Taxable Bonds.
--------------------
Section 6.3(e) of the Disclosure Schedule lists certain industrial
development bonds which are not exempt from federal income tax issued to a
Subsidiary of Seller to finance equipment at the portion of the Mobile, Alabama
mill used in the Continuing Business. Such equipment is leased by Seller from
The Industrial Development Board of the City of Mobile, Alabama. At or before
Closing, Seller shall (i) sublease such equipment to the Company for a rental of
$1.00 pursuant to a sublease in form and substance reasonably satisfactory to
Buyer and (ii) assign to the Company Seller's option to purchase such equipment
on termination of the lease. Under the terms of the sublease, the Company will
perform all of the non-payment obligations of Seller under its lease with The
Industrial Development Board of the City of Mobile, Alabama insofar as such
obligations relate to such equipment.
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(f) Westbrook Biomass Cogeneration Facility Financing.
-------------------------------------------------
Section 6.3(f) of the Disclosure Schedule sets forth a list of
financing documents to which Seller is a party relating to the financing of the
biomass cogeneration facility at the Company's Westbrook mill. At the Closing,
the Company shall assume (a) all of Seller's obligations under the following
documents listed in Section 6.3(f) of the Disclosure Schedule: the Power Sales
Agreement, the Operating Agreement, the Ground Lease Agreement, the Facilities
Agreement, the Tax Indemnification Agreement and the Feedwater Equipment Lease
and (b) Seller's obligations under the related Indenture and Security Agreement
dated December 15, 1986 (the "Indenture") insofar as such obligations relate to
the possession and maintenance of the Westbrook Facility (as defined in the
Indenture), including, without limitation, the obligation (i) to keep the
Westbrook Facility free of liens (other than permitted liens, as defined in the
Indenture) and (ii) to certify at the times specified therein its compliance
with all of the provisions of the Indenture so assumed. As security for the
foregoing, Buyer shall obtain at its own expense and cause to be delivered to
Seller an irrevocable standby letter of credit for the benefit of Seller from a
bank with total assets of not less than $20 billion and a long-term senior debt
rating or long-term deposit rating by Moody's Investors Service, Inc. of A3 or
better and a long-term senior debt rating or long-term deposit rating by
Standard & Poor's Ratings Group of A- or better, in form and substance
reasonably satisfactory to Seller. Without limiting the foregoing, such letter
of credit shall have a term ending no sooner than one year after the Closing and
shall be automatically renewable thereafter for periods of not less than one
year (except that the final expiration date shall not be later than 120 days
after the scheduled termination date, as extended by any optional renewals, of
the Power Sales Agreement and the Feedwater Equipment Lease) unless at least
fifteen days' notice of non-renewal is given to Seller and shall permit a draw
by Seller upon receipt of such a notice of non-renewal. Subject to Section
6.3(g), such letter of credit shall from time to time have a stated amount
determined by Seller of not more than the value of payments to be made after
such time under the Power Sales Agreement and the Feedwater Equipment Lease and
may
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reduce by amounts payable thereunder for which Seller has obtained a release
from GE Capital Corporation. Such letter of credit shall permit a drawing of
the full amount by Seller if (i) Seller is called upon to make any payment or
notice is given of failure to perform any other obligation and any applicable
cure period for such failure lapses and provides a right to accelerate any
payment under the documents assumed (whether or not the payments under the Power
Sales Agreement or the Feedwater Equipment Lease are accelerated) unless the
Company is contesting the applicability of such obligation diligently by
appropriate proceedings instituted in good faith (other than if such payments
are accelerated or in the case of a failure to make a scheduled payment) or (ii)
the Company or Buyer (A) commences a voluntary case seeking relief with respect
to itself or its debts under any bankruptcy, insolvency or similar law, or seeks
the appointment of a trustee, receiver or similar official of it or any
substantial part of its property, (B) makes a general assignment for the benefit
of creditors, (C) fails generally to pay its debts as they become due, or (D)
takes any corporate action to authorize any of the foregoing, or (iii) an
involuntary case is commenced against the Company or Buyer seeking liquidation,
reorganization or other relief with respect to it or its debts under any
bankruptcy, insolvency or similar law or seeking the appointment of a trustee,
receiver or similar official of it or any substantial part of its property. If
Seller makes a drawing under any such letter of credit, Seller shall utilize the
proceeds of the drawing to make payments when due under the Power Sales
Agreement and the Feedwater Equipment Lease, shall hold the Company harmless
from the obligation to make such payments to the extent of the drawing, and
shall hold any excess of such drawings over such payments (and any earnings on
such excess) in a segregated account as cash collateral solely to secure
payments when due under the Power Sales Agreement and the Feedwater Equipment
Lease. One hundred twenty days following the termination of the Power Sales
Agreement and the Feedwater Equipment Lease, Seller will return to Buyer all
funds drawn on the letter of credit in excess of those applied to the payments
due under the Power Sales Agreement and the Feedwater Equipment Lease and
payment of fees, costs and other expenses incurred by Seller in connection
therewith (it being agreed that Buyer shall have the right to grant a security
interest in its right to such excess). Any draw on a letter of
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credit shall automatically reduce Buyer's liability to Seller on the relevant
underlying obligation by a corresponding amount.
(g) Letters of Credit.
-----------------
Notwithstanding anything contained in this Section 6.3 to the
contrary, Seller shall provide Buyer with a schedule, no later than ten business
days prior to the Closing Date, setting forth the amount of each letter of
credit to be obtained by Buyer pursuant to this Section 6.3; provided however,
-------- -------
that the aggregate amount of all letters of credit outstanding at any one time
issued pursuant to this Section 6.3 shall not exceed $220 million, less amounts
drawn under any such letters of credit.
(h) Further Assurances.
------------------
At and after Closing, Seller, the Company and Buyer shall cooperate in
executing, delivering and filing with the appropriate authorities all documents
and filings necessary or appropriate to effect this Section 6.3.
6.4 No Solicitation. During the period from the date hereof through
---------------
the earlier to occur of (i) the Closing Date and (ii) the termination of this
Agreement in accordance with Section 9.1, Seller will not, nor will Seller
permit its respective officers, directors, representatives, subsidiaries
(including, without limitation, the Company and its Subsidiaries), affiliates or
associates (as such terms are defined in the Exchange Act) to, directly or
indirectly, (a) initiate contact with, solicit, encourage or respond to any
inquiries or proposals by, (b) enter into any discussions, negotiations,
agreements, arrangements or understandings with, (c) disclose, directly or
indirectly, any non-public information concerning the Company's or its
Subsidiaries' business or properties to, except as may be required by law or
securities exchange regulations or to facilitate consummation of the Ancillary
Agreements (provided that no such disclosure shall be made to facilitate
consummation of the Ancillary Agreements unless the party receiving such
information enters into a confidentiality agreement with the Company that is no
less protective than the Confidentiality Agreement), or (d) afford any access to
the Company's or its Subsidiaries' properties, books and
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records to, any person or entity in connection with any possible proposal for
any merger or similar transaction involving the Company or its Subsidiaries or
the acquisition of all or any substantial portion of the Shares, other capital
stock of the Company, or the assets or business of the Company or its
Subsidiaries. In the event that Seller, the Company, any Subsidiary of the
Company or any other affiliate of Seller receives a written proposal relating to
any such transaction, Seller shall promptly notify Buyer of such proposal.
6.5 Financing. Buyer shall use its reasonable efforts to secure the
---------
Financing and to enter into such other agreements as may be required to secure
the Financing. Without limiting Section 8.1(k) hereof, in the event any portion
of the Financing described in Section 4.4 of the Disclosure Schedule becomes
unavailable, Buyer shall use its reasonable efforts to secure alternate
Financing subject to conditions not materially less favorable to Buyer than such
as are set forth in or contemplated by the documents described in Section 4.4 of
the Disclosure Schedule.
6.6 Covenant Not to Compete.
-----------------------
(a) In consideration of the benefits of this Agreement to Seller and
in order to induce Buyer to enter into this Agreement, Seller hereby covenants
and agrees that from and after the Closing and until the fifth anniversary of
the Closing Date, Seller and its affiliates will not (i) engage, directly or
indirectly, in the Warren Business (as hereinafter defined) anywhere in the
world, including (A) selling Warren Products (as hereinafter defined) (other
than as a distributor of such goods); (B) soliciting any customer or prospective
customer of the Company or any of its Subsidiaries to purchase any Warren
Products from anyone other than the Company and its Subsidiaries; and (C)
assisting any person in any way to do, or attempt to do, anything prohibited by
(A) or (B) above; or (ii) perform any action, activity or course of conduct
which is substantially detrimental to the Company's and its Subsidiaries'
business or business reputation, including (A) soliciting, recruiting or hiring
(with respect to hiring, within two years after the Closing Date and with
respect to soliciting or recruiting, general media efforts shall not be
prohibited) any employees of the Company or any of its
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Subsidiaries or persons who have worked for the Company or any of its
Subsidiaries (but only such employees and persons who were at or above the level
of a person reporting directly to a mill manager or other manager of an
equivalent or higher level in the Company) and (B) soliciting or encouraging any
employee of the Company or any of its Subsidiaries to leave the employment of
the Company or such Subsidiary; provided, however, that, in the case of clause
-------- -------
(i) above, Seller and its affiliates shall not be prohibited from owning in the
aggregate less than five percent of any publicly listed class of securities of a
corporation engaged in any of such businesses or activities; and provided
--------
further, that Seller's Mexican affiliate shall be permitted to continue to
engage in its current flat grades business; and provided further that in the
-------- -------
case of clause (i) above, Seller shall not be prohibited from acquiring an
entity outside of the United States that is engaged in the Warren Business only
outside of the United States so long as less than 25% of the assets and less
than 25% of the revenues of such entity are derived from or relate to the Warren
Business.
(b) As used in this Agreement, "Warren Business" means the
manufacture or sale of coated and uncoated printing and publishing paper,
pressure sensitive base papers and components thereof and flat and embossed
release papers (collectively, "Warren Products").
(c) Seller acknowledges and agrees that if Seller or any one or more
of its affiliates breaches any provision of this Section 6.6, any remedy at law
would be inadequate and that Buyer, in addition to seeking monetary damages in
connection with any such breach, shall be entitled to specific performance,
injunctive and other equitable relief in accordance with Section 12.11 hereof to
prevent or restrain a breach of this Section 6.6 or to enforce the provisions
hereof.
(d) Seller and Buyer intend that the provisions of this Section 6.6
be enforced to the fullest extent permissible under the laws applied in each
jurisdiction in which enforcement is sought. If any provision of this Section
6.6 shall be held by a court of competent jurisdiction to be invalid or
unenforceable, this Section 6.6 shall be amended to revise the scope of such
provision to make it enforceable, if possible, or to
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delete such provision, such revision or deletion to apply only with respect to
the operation of the Covenant in the jurisdiction of such court.
6.7 Termination of Certain Commitments. At or prior to the Closing,
----------------------------------
Seller shall, or shall cause the Company to, terminate such of the agreements
and commitments as are listed in Section 6.7 of the Disclosure Schedule.
6.8 Certain Agreements. Prior to the Closing, Buyer and Seller shall
------------------
cooperate with the Company and use their reasonable efforts to, collectively
bargain with parties to the agreements listed, and in the manner set forth, in
Section 6.8 of the Disclosure Schedule to amend or otherwise modify such
agreements in order to, at the Closing, (a) include the Company as a party to
each such agreement and (b) set forth the respective rights and obligations of
each of Seller and the Company and all other parties thereto, under each such
agreement.
6.9 Worker's Compensation. Prior to Closing, Buyer shall use
---------------------
reasonable efforts to fulfill the necessary requirements of each State in which
the Company operates with respect to workers' compensation insurance, including,
without limitation, posting surety bonds or purchasing insurance policies.
Buyer shall use its reasonable efforts after the Closing to obtain a release of
Seller from any and all obligations of the Company with respect to worker's
compensation insurance.
6.10 Provision of Notices of Default. Buyer and the Company shall
-------------------------------
provide to Seller promptly upon receipt, any notice of default under any
obligation for borrowed money of Buyer or the Company in excess of $50,000,000.
VII. CONDITIONS TO OBLIGATIONS OF SELLER.
-----------------------------------
7.1 Conditions. The obligations of Seller to consummate the
----------
transactions contemplated by this Agreement are subject to the fulfillment at or
prior to the
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Closing of each of the following conditions (any or all of which may be waived
in whole or in part by Seller):
(a) Representations and Warranties. The representations and
------------------------------
warranties of Buyer in this Agreement qualified as to materiality shall be true,
complete and accurate in all respects, and those not so qualified shall be true,
complete and accurate in all material respects, as of the date when made and at
and as of the Closing Date as though such representations and warranties were
made at and as of the Closing Date, except for changes permitted by the terms of
this Agreement.
(b) Performance. Buyer shall have, in all material respects,
-----------
performed and complied with all agreements, obligations, covenants and
conditions required by this Agreement to be so performed or complied with by
Buyer at or prior to the Closing.
(c) Officer's Certificate. Buyer shall have delivered to Seller a
---------------------
certificate, dated as of the Closing Date, executed by an officer of Buyer,
certifying the fulfillment of the conditions specified in Subsections 7.1(a) and
7.1(b) hereof.
(d) Opinion of Counsel. Buyer shall have delivered to Seller an
------------------
opinion of legal counsel to Buyer, dated the Closing Date, in form and substance
reasonably satisfactory to Seller.
(e) No Injunction or Statute. No statute, rule, regulation,
------------------------
executive order, decree, temporary restraining order, preliminary or permanent
injunction or other order enacted, entered, promulgated, enforced or issued by
any Governmental Entity or other legal restraint or prohibition preventing
consummation of the transactions contemplated by this Agreement or the Ancillary
Agreements, or the assignment, transfer, sublease or sublicense of the Scott
Leased Assets shall be in effect on the Closing Date.
(f) No Proceeding. There shall not be pending or threatened by any
-------------
Governmental Entity any suit, action or proceeding (or by any other person any
suit, action or proceeding which has a reasonable likelihood of success),
challenging or seeking to restrain or prohibit the purchase and sale of the
Shares or any of the other trans-
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actions contemplated by this Agreement or the Ancillary Agreements or seeking to
obtain from Seller in connection with the purchase and sale of the Shares any
damages that are material in relation to Seller and its Subsidiaries taken as a
whole.
(g) Expiration or Termination of HSR Periods. All waiting periods
----------------------------------------
applicable to the transactions contemplated by this Agreement or the Ancillary
Agreements under the HSR Act shall have expired or been terminated.
(h) Ancillary Agreements. All parties to each of the Ancillary
--------------------
Agreements (other than Seller, the Company and MESC) shall have executed and
delivered such agreements to Seller.
VIII. CONDITIONS TO OBLIGATIONS OF BUYER.
----------------------------------
8.1 Conditions. The obligations of Buyer to consummate the
----------
transactions contemplated by this Agreement are subject to the fulfillment at or
prior to the Closing of each of the following conditions (any or all of which
may be waived in whole or in part by Buyer):
(a) Representations and Warranties. The representations and
------------------------------
warranties of Seller in this Agreement qualified as to materiality shall be
true, complete and accurate in all respects, and those not so qualified shall be
true, complete and accurate in all material respects, as of the date when made
and at and as of the Closing Date as though such representations and warranties
were made at and as of the Closing Date, except for changes permitted by the
terms of this Agreement.
(b) Performance. Seller shall have, in all material respects,
-----------
performed and complied with all agreements, obligations, covenants and
conditions required by this Agreement to be so performed or complied with by
Seller at or prior to the Closing.
(c) Officer's Certificate. Seller shall have delivered to Buyer a
---------------------
certificate, dated as of the Closing Date, executed by an officer of Seller,
certifying the fulfillment of the conditions specified in Subsections 8.1(a) and
8.1(b) hereof.
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(d) Opinion of Counsel. Seller shall have delivered to Buyer an
------------------
opinion of legal counsel to Seller, dated the Closing Date, in form and
substance reasonably satisfactory to Buyer.
(e) No Injunction or Statute. No statute, rule, regulation,
------------------------
executive order, decree, temporary restraining order, preliminary or permanent
injunction or other order enacted, entered, promulgated, enforced or issued by
any Governmental Entity or other legal restraint or prohibition preventing
consummation of the transactions contemplated by this Agreement and the
Ancillary Agreements, or the assignment, transfer sublease or sublicense of the
Scott Leased Assets shall be in effect on the Closing Date.
(f) No Proceeding. There shall not be pending or threatened by any
-------------
Governmental Entity any suit, action or proceeding (or by any other person any
suit, action or proceeding which has a reasonable likelihood of success), (A)
challenging or seeking to restrain or prohibit the purchase and sale of the
Shares or any of the other transactions contemplated by this Agreement or the
Ancillary Agreements or seeking to obtain from Buyer or any of its Subsidiaries
in connection with the purchase and sale of the Shares any damages that are
material in relation to Buyer and its Subsidiaries taken as a whole, (B) seeking
to prohibit or limit the ownership or operation by Sappi, Holdings, Buyer, the
Company or any of their respective Subsidiaries of any material portion of the
business or assets of Sappi, Holdings, Buyer, the Company or any of their
respective Subsidiaries, or to compel Sappi, Holdings, Buyer, the Company or any
of their respective Subsidiaries to dispose of or hold separate any material
portion of the business or assets of Sappi, Holdings, Buyer, the Company or any
of their respective Subsidiaries, in each case as a result of the purchase and
sale of the Shares or any of the other transactions contemplated by this
Agreement or the Ancillary Agreements, (C) seeking to impose limitations on the
ability of Sappi, Holdings or Buyer to acquire or hold, or exercise full rights
of ownership of, the Shares (or limitations on the ability of Sappi to acquire
or hold, or exercise full rights of ownership of, the capital stock of
Holdings), including the right to vote the Shares (or such capital stock) on all
matters properly presented to the stockholders of the Company (or Hold-
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<PAGE>
ings) or (D) seeking to prohibit Sappi, Holdings or Buyer or any of their
respective affiliates from effectively controlling in any material respect the
business or operations of the Company or any of its Subsidiaries.
(g) Expiration or Termination of HSR Periods. All waiting periods
----------------------------------------
applicable to the transactions contemplated by this Agreement or the Ancillary
Agreements under the HSR Act shall have expired or been terminated.
(h) Ancillary Agreements. All parties to each of the Ancillary
--------------------
Agreements (other than Buyer) shall have executed and delivered such agreements
to Seller and the Company and Buyer shall be reasonably satisfied that all
parties to the Ancillary Agreements will be able to perform in all material
respects their respective obligations thereunder.
(i) Consents and Approvals; Permits. (i) Seller, the Company and
-------------------------------
the Subsidiaries of the Company shall have obtained such (A) consents and
approvals, or waivers thereof, of third parties, including, without limitation,
those of governmental regulatory entities and owners of Scott Leased Assets, and
(B) permits, in each case, as are reasonably required to consummate the
transactions contemplated hereby and to permit the Company to continue to
conduct the business of the Company and its Subsidiaries in substantially the
manner it is conducted on the date hereof.
(ii) This Agreement and the transactions contemplated hereby shall
have been approved by (A) the holders of the requisite number of shares of
Common Stock of Sappi, pursuant to the applicable rules of the Johannesburg and
London Stock Exchanges and (B) the South African Reserve Bank.
(j) Material Adverse Change. There shall not have occurred any
-----------------------
Material Adverse Effect during the period from the date of the June Balance
Sheet through the Closing.
(k) Financing. Buyer shall have obtained, pursuant to the Financing,
---------
the funds necessary to pay the Initial Purchase Price.
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(l) Financial Statements. Buyer shall have received from Seller, at
--------------------
least fifteen business days prior to the Closing Date, (i) the Financial
Statements and (ii) the Selected Financial Data.
(m) Transfer of Scott Assets. (i) Seller shall have assigned or
------------------------
transferred or otherwise caused to be assigned or transferred, to the Company
(on terms satisfactory to Buyer) all the right, title and interest of Seller (or
Seller's Subsidiaries and affiliates, other than the Company) in and to the
Scott Assets.
(ii) Seller shall have (A) conveyed to the Company by special
warranty deed and in accordance with local zoning and subdivision laws, all of
the land and improvements described in Item 1(a) Section 3.10(a) of the
Disclosure Schedule (such land and improvements being substantially the same
land and improvements as shown on the plat set forth herein as Section 3.10(g)
of the Disclosure Schedule) and such land and improvements shall be taxed and
assessed as a separate and distinct tax lot, and have access to a publicly
dedicated road either directly or pursuant to a recorded unsubordinated
easement), and (B) entered into subleases with the Company which encumber a
portion or all of the land described in Item 1(b) of Section 3.10(a) of the
Disclosure Schedule.
(n) On the Closing Date and immediately following the Closing, the
Company shall have no less than $75 million of cash. "Cash" for purposes of
this provision shall mean immediately available funds on deposit at a commercial
bank located in the United States net of any cash overdrafts, negative cash
balances and written checks.
8.2 Alternative Satisfaction of Condition.
-------------------------------------
(a) Notwithstanding Section 8.1(a) of this Agreement, (i) if the
condition set forth therein could not be satisfied but for this Section 8.2 and
the failure of such condition relates to matters that will result in losses,
diminution in value (including the fair market value of the Shares),
liabilities, damages or expenses to Buyer (including such as are suffered or
incurred indirectly as an adverse effect on the business, properties, condition
(financial or otherwise) or prospects of the Company) in an aggregate amount on
a pre-tax basis (the
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<PAGE>
"Section 8.1 Amount") less than or equal to the amount of the Basket (as
hereinafter defined), then the condition set forth in Section 8.1(a) hereof
shall be deemed satisfied and the Basket shall be reduced by such aggregate
amount for purposes of Section 10.5 hereof; and (ii) if the Section 8.1 Amount
is greater than the Basket and less than an amount equal to three percent of the
Initial Purchase Price (the "Maximum Threshold"), the condition set forth in
Section 8.1(a) hereof shall be deemed satisfied and the Initial Purchase Price
shall be reduced by such Section 8.1 Amount (and the Basket shall be reduced to
zero for purposes of Section 10.5 hereof). If the Section 8.1 Amount is equal
to or greater than the Maximum Threshold, the condition set forth Section 8.1(a)
shall not be deemed satisfied.
(b) If Buyer determines that there is a failure or a prospective
failure of the condition set forth in Section 8.1(a) hereof as aforesaid, Buyer
shall promptly submit to Seller a written statement setting forth in reasonable
detail the facts and circumstances surrounding such failure or prospective
failure of condition and Buyer's estimate (to the extent ascertainable) of the
Section 8.1 Amount. Seller shall have five business days to notify Buyer
whether it agrees or disagrees with all or any portion of the facts and
circumstances set forth in such notice. Failure of Seller to disagree within
such five business day period shall be deemed to constitute Seller's agreement
with such statement and the estimate of the Section 8.1 Amount, and the Closing
shall occur on the basis set forth in Section 8.2(a) (subject to the other
provisions of this Agreement). If Seller notifies Buyer within such five
business day period of its disagreement with the facts and circumstances set
forth in Buyer's notice, the parties shall negotiate in good faith to determine
the Section 8.1 Amount, if any. Any dispute as to the Section 8.1 Amount may be
submitted by either party for resolution by, and shall be resolved by, Morgan
Stanley & Co. Incorporated, or if such firm is unable or unwilling to act, such
other independent, nationally recognized investment banking firm which has not
provided services to either Buyer or its affiliates or Seller or its affiliates
during the one-year period immediately preceding the date hereof (the
"Independent Bankers"), and the determination of the Independent Bankers shall
be made as promptly as practicable and shall be final, conclusive and binding
upon the parties.
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The fees and expenses of the Independent Bankers regarding the determination of
the Section 8.1 Amount shall be borne equally by Buyer and Seller. If there is
a dispute as to whether the Section 8.1 Amount exceeds the Basket, and such
dispute is not resolved prior to the Closing Date, the Section 8.1 Amount in
dispute shall be paid at Closing by Buyer to a mutually acceptable escrow agent
pursuant to an escrow agreement containing customary terms (and in form and
substance reasonably satisfactory to Buyer and Seller) and such escrowed funds
shall be released to Seller or Buyer, as the case may be, in accordance with the
determination of the Independent Bankers; provided, however, that if there is a
-------- -------
dispute as to whether the Section 8.1 Amount exceeds the Maximum Threshold, the
Closing shall not occur until such dispute is resolved in accordance with the
procedures set forth above.
8.3 Benefit of Assignment.
---------------------
(a) Notwithstanding any provision of this Agreement to the contrary
but without limiting Section 8.1(m) or 10.4, with respect to each Scott Leased
Asset, Seller shall not be obligated to assign or transfer, or cause such
assignment or transfer to Buyer of any of Seller's right, title and interest,
whether legal or equitable, in and to such Scott Leased Asset without first
having obtained all necessary consents and approvals, if any, or a waiver
thereof, required with respect to such assignment or transfer of such Scott
Leased Asset. For a period of six months after the Closing Date, Seller shall
use reasonable efforts (which shall not require Seller to incur any financial
obligation to any party), and Buyer shall cooperate with Seller to obtain the
consents and approvals, if any, or a waiver thereof, referred to in this Section
8.3(a).
(b) To the extent that such consents and approvals, if any, or a
waiver thereof, are not obtained by Seller, Seller shall use its reasonable
efforts, and Buyer shall cooperate with Seller, to establish arrangements that
are reasonably satisfactory and lawful as to Seller and Buyer, and which result
in Buyer being able to enjoy the benefits and Seller being protected from the
obligations under or relating to each such Scott Leased Asset from and after the
Closing Date.
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<PAGE>
(c) If Seller obtains consents to assign or transfer any Scott Leased
Asset after the Closing, each such Scott Leased Asset shall be deemed to be
assigned or transferred to Buyer promptly after Seller obtains such consent, and
the obligations under such Scott Leased Asset shall be deemed assumed for all
purposes by Buyer, effective as of Buyer's receipt of notice given by Seller of
such consent. Any agreement which Seller and Buyer have theretofore entered
into or agreed upon in respect of such Scott Leased Asset shall be terminated
with respect to such Scott Leased Asset effective as of the date that such
notice is given to Buyer; provided, however, that in no event shall the
-------- -------
termination of such agreement relieve either Seller or Buyer of its respective
obligations under such agreement that are attributable to periods of time
occurring prior to such termination.
(d) Notwithstanding any provision hereof to the contrary, Seller
makes no representation or warranty to Buyer with respect to whether any
consent, approval or waiver with respect to the assignment or transfer of a
Scott Leased Asset shall be obtainable.
IX. TERMINATION, AMENDMENT AND WAIVER.
---------------------------------
9.1 Termination. This Agreement may be terminated and the
-----------
transactions contemplated hereby and by the Ancillary Agreements may be
abandoned:
(a) at any time, by mutual written agreement of Seller and Buyer;
(b) at any time after the 180th day following the date of this
Agreement (the "Termination Date"), by either Seller or Buyer upon five business
days' prior written notice to the other party, if the Closing shall not have
occurred for any reason other than a breach of this Agreement by the terminating
party;
(c) by Buyer if, in its good faith opinion, compliance with any
request for additional information made by the FTC or the DOJ pursuant to the
HSR Act would be unduly burdensome or expensive; provided that prior to such
--------
termination Buyer shall have exercised reasonable efforts to negotiate an
arrangement acceptable to it with the FTC or the DOJ for satisfying such
request;
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<PAGE>
(d) (i) by Seller if any condition set forth in Section 7.1 was not,
or cannot reasonably be, satisfied in all material respects on or prior to the
Termination Date and shall not have been waived by Seller or (ii) by Buyer if
any condition set forth in Section 8.1 (subject to the provisions of Section
8.2) was not, or cannot reasonably be, satisfied in all material respects on or
prior to the Termination Date and shall not have been waived by Buyer, unless
the failure of such condition is the result of a material breach of this
Agreement by the party seeking termination; or
(e) by Buyer or Seller if any court of competent jurisdiction or any
Governmental Entity shall have issued an order, decree or ruling or taken any
other action permanently enjoining, restraining or otherwise prohibiting the
purchase of Shares pursuant to this Agreement and such order, decree, ruling or
other action shall have become final and non-appealable.
9.2 Procedure and Effect of Termination. In the event of the
-----------------------------------
termination of this Agreement and the abandonment of the transactions
contemplated hereby and by the Ancillary Agreements pursuant to Section 9.1(b)
hereof, this Agreement shall terminate and the transactions contemplated hereby
and thereby shall be abandoned without further action by Seller or Buyer. If
this Agreement is terminated pursuant to Section 9.1(a) or (b) hereof:
(a) Buyer shall return all documents, work papers and other materials
(and all copies thereof) obtained from Seller or the Company relating to the
transactions contemplated hereby and by the Ancillary Agreements, whether so
obtained before or after the execution hereof, to the party furnishing the same,
and all confidential information received by Buyer with respect to the Company
shall be treated in accordance with Section 5.2 hereof and the Confidentiality
Agreement referred to in such Section;
(b) At the option of Seller, all filings, applications and other
submissions made pursuant to Sections 5.3, 5.4 and 5.5 hereof shall, to the
extent practicable, be withdrawn from the agency or other person to which made;
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<PAGE>
(c) If this Agreement is terminated and the transactions contemplated
hereby are abandoned as described in this Section 9.2, this Agreement shall
become null and void and of no further force or effect, except for the
obligations provided for in Sections 3.21, 4.7, 5.6, 9.2 and 10.1 hereof, the
confidentiality provision contained in Section 5.2 hereof and the
Confidentiality Agreement referred to in such Section shall survive any such
termination of this Agreement; and
(d) Such termination shall not be deemed to release and shall not
relieve either party hereto from any liability for any wilful or grossly
negligent breach or violation by such party of any of its representations,
warranties, covenants or agreements contained in this Agreement or to impair the
right of either party to compel specific performance by the other party of its
obligations under this Agreement.
9.3 Amendment, Modification and Waiver. This Agreement may be
----------------------------------
amended, modified or supplemented at any time but only by written agreement of
the parties hereto. Any failure of Seller or Buyer to comply with any term or
provision of this Agreement may be waived by the other party at any time;
provided that any such waiver shall be valid only if set forth in an instrument
- --------
in writing signed by or on behalf of such other party, and such waiver shall not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure to comply.
X. FEES AND EXPENSES: SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION.
----------------------------------------------------------------
10.1 Fees and Expenses. Whether or not the transactions contemplated
-----------------
hereby and by the Ancillary Agreements are consummated pursuant hereto and
thereto, each of Seller and Buyer shall pay all fees and expenses incurred by it
or on its behalf and Seller shall cause the Company to pay all fees and expenses
incurred by or on behalf of the Company or any of its Subsidiaries in connection
with or in anticipation of this Agreement and the Ancillary Agreements, and the
consummation of the transactions contemplated hereby and thereby; provided,
--------
however, that if the Closing occurs, the Company may pay all or any portion of
- -------
the fees and expenses incurred by Buyer. Without limiting the generality of the
foregoing,
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<PAGE>
prior to the Closing, the Company shall have requested final invoices from its
accountants, attorneys and other similar professionals reflecting all fees and
expenses payable by the Company or any of its Subsidiaries with respect to
services rendered to the Company or any of its Subsidiaries in connection with
the transactions contemplated by this Agreement. Prior to the Closing, the
Company shall have paid in full the agreed amount of such invoices. To the
extent that such final invoices do not reflect fully the services and fees of
such persons rendered on or prior to the Closing, such persons may supplement
within 30 days after the Closing, their respective final invoices, and the
amount thereof shall, for the purposes of Section 1.6 hereof, be included (to
the extent not theretofore included) as a Liability on the Closing Date Balance
Sheet.
10.2 Survival of Representations. The representations and warranties
---------------------------
in this Agreement and in any certificate delivered pursuant hereto shall survive
the Closing solely for purposes of Article X and shall terminate two years after
the Closing Date; provided, however, that (i) representations and warranties
-------- -------
under Section 3.14 hereof shall terminate sixty days after the related statute
of limitations (giving effect to any extensions thereto) has expired with
respect to the relevant Tax; (ii) representations and warranties under Sections
3.1, 3.2, 3.4, 3.5, 3.9(a), 3.21 and 4.7 hereof shall survive until sixty days
after any applicable statute of limitation (or indefinitely if no statute of
limitations is applicable); (iii) representations and warranties under Section
3.13 hereof shall terminate six years after the Closing Date; and (iv)
representations and warranties under Section 3.19 hereof shall terminate four
years after the Closing Date.
10.3 Tax Indemnification.
-------------------
(a) Notwithstanding anything in this Agreement to the contrary, Buyer
shall indemnify, defend and hold harmless Seller, its affiliates and their
respective officers, directors, agents, employees, stockholders and
representatives ("Seller Indemnified Parties"), at any time after the Closing,
from and against any liability for Taxes of the Company for any taxable period
ending after the Closing Date (except to the extent such taxable period began
before the Closing Date, in which case
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<PAGE>
Buyer's indemnity will cover only that portion of any such Taxes that is not
attributable to the Pre-Closing Period). Notwithstanding the foregoing, Buyer
shall indemnify, defend and hold harmless Seller and its affiliates from and
against any liability for Taxes of the Company attributable to activities or
actions taken by the Buyer after the Closing outside of the ordinary course of
business (including, but not limited to, any Taxes resulting from the Financing
and the Merger contemplated hereby) other than Taxes arising from the Election
or, if state or local law does not recognize an election comparable to an
election under 338(h)(10) of the Code, from any election under state or local
law that is comparable to the election under Section 338(g) of the Code. Buyer
shall indemnify Seller for any net income Tax, on a marginal basis, that is
imposed by the State of New York or the State of Ohio upon Seller with respect
to the sale of the Shares as a result of such State's not recognizing an
election comparable to an election under 338(h)(10) of the Code; provided,
--------
however, that Buyer's indemnity obligation with respect to Taxes imposed by each
- -------
such State shall not exceed the aggregate amount of indemnity payments received
by Buyer from Seller pursuant to Section 10.3(b)(iii)(B) hereof with respect to
such State. Buyer shall indemnify Seller for all liabilities for reasonable
legal, accounting, appraisal, consulting or similar fees and expenses relating
to any item contained in this Section 10.3(a).
(b) Notwithstanding anything in this Agreement or any Ancillary
Agreement to the contrary, Seller shall indemnify, defend and hold harmless
Buyer, its affiliates (including the Company and its Subsidiaries) and their
respective officers, directors, agents, employees, stockholders and
representatives ("Buyer Indemnified Parties") at any time after the Closing,
from and against any liability for (i) any Taxes of Seller, the Company, its
Subsidiaries, any of their respective affiliates and any member of any
Affiliated Group for all taxable periods ending on or before the Closing Date,
and for the Pre-Closing Period, (ii) all liability (including, without
limitation, liability for Taxes of Seller or the Seller Group arising pursuant
to Treasury Regulation Section 1.1502-6(a) or otherwise) for Taxes of Seller or
any other person (other than the Company or its Subsidiaries) and (iii) (A) all
liability for Taxes relating to the Election and (B) if state or local law does
not recognize
88
<PAGE>
an election comparable to an election under Section 338(h)(10) of the Code, all
liability for Taxes relating to any election under state or local law that is
comparable to the election under Section 338(g) of the Code. Seller shall
indemnify Buyer for all liabilities for reasonable legal, accounting, appraisal,
consulting or similar fees and expenses relating to any item contained on this
Section 10.3(b).
(c) In the case of any Straddle Period, except as provided in
subparagraph (d) below, the liability for Taxes of the Company and its
Subsidiaries for the Pre-Closing Period (other than Transfer Taxes) shall be
computed as if such taxable period ended on and included the Closing Date.
(d) In the case of any real property, personal property and
intangible property Taxes for the Straddle Period (other than Transfer Taxes)
the liability for such Taxes of the Company and its Subsidiaries for the Pre-
Closing Period shall be deemed to be the amount of such Taxes for the Straddle
Period multiplied by a fraction the numerator of which is the number of days in
the Straddle Period ending on the Closing Date and the denominator of which is
the number of days in the Straddle Period.
(e) If a claim for Taxes shall be made by any Taxing Authority in
writing, which, if successful, might result in an indemnity payment pursuant to
this Section 10.3, the party seeking indemnification (the "Tax Indemnified
Party") shall promptly notify the other party (the "Tax Indemnifying Party") in
writing of such claim (a "Tax Claim"), and in reasonable detail to apprise the
Tax Indemnifying Party of the nature of the Tax Claim, and provide copies of all
correspondence and documents received by it from the relevant Taxing Authority.
Failure to give prompt notice of a Tax Claim hereunder shall not affect the Tax
Indemnifying Party's obligation under this Section 10.3, except to the extent
that the Tax Indemnifying Party is materially prejudiced by such failure to give
prompt notice.
(f) With respect to any Tax Claim which might result in an indemnity
payment to Buyer pursuant to Section 10.3(b) (including, without limitation,
Taxes of the Company for a Straddle Period), if Seller acknowledg-
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<PAGE>
es in writing its obligation to indemnify the Buyer Indemnified Parties
therefor, then Seller shall control all proceedings taken in connection with
such Tax Claim and, without limiting the foregoing, may, after consultation with
Buyer, in its sole discretion and at its sole expense pursue or forego any and
all administrative appeals, proceedings, hearings and conferences with any
Taxing Authority with respect thereto, and may, in its sole discretion, either
pay the Tax claimed and sue for a refund where applicable law permits such
refund suits or contest such Tax Claim. Buyer shall not under any circumstances
settle or otherwise compromise any Tax Claim referred to in the preceding
sentence without Seller's prior written consent. In connection with any
proceeding taken in connection with such Tax Claim, (i) Seller shall keep Buyer
informed of all material developments and events relating to such Tax Claim if
involving a material liability for Taxes and (ii) Buyer shall have the right, at
its sole expense, to participate in (but not control) any such proceedings.
Buyer shall cooperate with Seller in contesting such Tax Claim (without charge
to Seller, except that Seller shall bear all reasonable third-party expenses
incurred by Buyer), which cooperation shall include, without limitation, the
retention and the provision to Seller of records and information which are
reasonably relevant to such Tax Claim, and making employees available to Seller
to provide additional information or explanation of any material provided
hereunder or to testify at proceedings relating to such Tax Claim, provided,
--------
however, that no charges shall be incurred by Seller for the services of such
- -------
employees (except that Seller shall bear all reasonable third-party expenses
incurred by Buyer) and provided, further, (i) that Seller and its
-------- -------
representatives shall take such action as is deemed necessary in the reasonable
judgment of Buyer and the Company to schedule such access and visits through a
designated officer of the Company and in such a way as to avoid disrupting the
normal business of the Company, (ii) the Company shall not be required to take
any action which would constitute a waiver of the attorney-client or other
privilege and (iii) the Company need not supply Seller with any information
which, in the reasonable judgment of Buyer or the Company, the Company is under
a legal obligation not to supply.
(g) With respect to any Tax Claim not described in Section 10.3(f)
which might result in an
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indemnity payment to Seller pursuant to Section 10.3(a), Buyer shall control all
proceedings in accordance with provisions that are parallel to those in Section
10.3(f).
(h) Except as set forth in Section 6.1(d)(iii), any indemnity payment
payable by Seller to Buyer or by Buyer to Seller pursuant to this Section 10.3
shall be paid within thirty days after the Tax Indemnified Party's written
request therefor (or, if later, ten days prior to the date such Tax is required
to be paid), provided that such request shall be accompanied by a copy of the
applicable Return or a final audit determination and a statement reflecting the
calculation of the amount for which the Tax Indemnifying Party is liable.
Within thirty days following the receipt of a request for any indemnity payment
hereunder, together with a computation by the Tax Indemnified Party of the
indemnity amount payable hereunder, the Tax Indemnifying Party shall pay such
amount in immediately available funds in the manner designated by the Tax
Indemnified Party to the Tax Indemnified Party and may in good faith request in
writing the Independent Accountants to determine, at the Tax Indemnifying
Party's expense, whether such computation and amount are correct. After each
party has had the opportunity to consult with, and present evidence and
arguments to, the Independent Accountants, upon receipt thereof, the Tax
Indemnified Party shall deliver to the Tax Indemnifying Party a statement from
the Independent Accountants setting forth the determination by the Independent
Accountants of such computation and the amount payable hereunder as an
indemnity. The determination by the Independent Accountants in conformity with
the provisions of this Agreement shall be final, conclusive and binding on the
parties hereto, subject to review only by a court of competent jurisdiction.
Within five business days after delivery to the Tax Indemnifying Party of the
statement of determination by the Independent Accountants of such amount, the
Tax Indemnified Party shall pay, in immediately available funds to the Tax
Indemnifying Party in the manner designated by the Tax Indemnified Party, the
difference between (i) the amount paid to the Tax Indemnified Party by the Tax
Indemnifying Party pursuant to the second sentence of this Section 10.3(h) and
(ii) the determination of the Independent Accountants pursuant to the third
sentence of this Section 10.3(h).
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(i) Any provision in this Agreement to the contrary notwithstanding,
the liability of any party hereto to indemnify any other party hereto pursuant
to Section 10.3 hereof in respect of Tax Claims shall be limited to Tax Claims
as to which the Tax Indemnified Party has given the Tax Indemnifying Party
written notice, setting forth therein in reasonable detail the basis for such
Tax Claim, on or prior to the later of (A) the day and date on which the
applicable statute of limitations relating to the Taxes at issue expires (after
giving effect to extensions thereof) or (B) thirty days after the Tax
Indemnified Party receives written notice from the relevant Taxing Authority of
the Tax Claim.
10.4 Seller's Agreement to Indemnify. Upon the terms and subject to
-------------------------------
conditions of this Article X, Seller shall indemnify, defend and hold harmless
Buyer Indemnified Parties, at any time after the Closing, from and against all
demands, claims, actions or causes of action, assessments, losses, damages,
diminution in value, liabilities, costs and expenses, including, without
limitation, interest, penalties and reasonable attorneys' fees and expenses
(collectively, "Damages") asserted against, resulting to, imposed upon or
suffered or incurred by Buyer Indemnified Parties by reason of or arising from
(i) a breach of any representation or warranty of Seller contained in or made
pursuant to this Agreement (other than those contained in Section 3.14 hereof)
or the Asset Agreement or any facts or circumstances constituting such a breach;
(ii) other than such for which indemnification is provided in Section 10.3, non-
fulfillment of any agreement or covenant of Seller contained in or made pursuant
to this Agreement or the Asset Agreement or any facts or circumstances
constituting such non-fulfillment; (iii) Seller's transfer of any asset subject
to a Safe Harbor Lease or assignment of any Safe Harbor Lease, including any
termination payments resulting from any such transfer or assignment; (iv) the
grant, issuance, cancellation, termination or settlement of any stock
appreciation rights, stock options, restricted stock, performance shares or
units or other incentive compensation granted to employees of the Company or any
of its Subsidiaries or to any employee of Seller who becomes a Continuing
Employee prior to the Closing Date; (v) any judgment or settlement and any
related legal fees and expenses arising out of the litigation referred to in
Section 10.4 of the Disclosure
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Schedule; or (vi) Seller's failure to transfer any of the Scott Assets at or
prior to Closing or to obtain any required consent to the transfer of any Scott
Leased Assets, subject to the provisions of Section 8.3(b) hereof (collectively,
"Buyer Claims").
The amount of any Damages for which indemnification is provided under
this Section 10.4, or Taxes or Expenses for which indemnification is provided
under Section 10.3(b), to a Buyer Indemnified Party shall be (i) increased to
take account of any net Tax cost incurred by such Buyer Indemnified Party
arising from the receipt or accrual of indemnity payments hereunder (grossed up
for any such increase) and (ii) reduced to take account of any Tax benefit
realized by such Buyer Indemnified Party as a result of the deductibility of
such Damages, Taxes or Expenses (or payments with respect thereto). Any
indemnification payment hereunder shall initially be made without regard to this
paragraph and shall be increased or reduced to reflect any such net Tax cost
(including gross-up) or net Tax benefit only after such Buyer Indemnified Party
has actually realized such cost or benefit. For purposes of this Agreement, a
Buyer Indemnified Party shall be deemed to have "actually realized" a net Tax
cost or a net Tax benefit to the extent that, and at such time as, the amount of
Taxes payable by such Buyer Indemnified Party is increased above or reduced
below, as the case may be, the amount of Taxes that such Buyer Indemnified Party
would be required to pay but for the receipt of the indemnity payment or the
incurrence or payment of such Damages.
10.5 Seller's Limitation of Liability. Any provision in this
--------------------------------
Agreement to the contrary notwithstanding, the liability of Seller to indemnify
Buyer Indemnified Parties pursuant to Section 10.4(i) hereof against any Damages
sustained by reason of any Buyer Claim with respect to the breach of a
representation or warranty shall be limited to Buyer Claims as to which a Buyer
Indemnified Party has given Seller written notice, setting forth therein in
reasonable detail the basis for such Buyer Claim, on or prior to the termination
of such representation or warranty pursuant to Section 10.2 hereof; provided,
--------
however, that the provisions for indemnification contained in Section 10.4(i)
- -------
(other than with respect to Sections 3.2 and 3.21) shall be effective only with
respect to any Buyer Claim (or group of similar
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Buyer Claims) for Damages which exceeds $50,000 and only after the aggregate
amount of all such Buyer Claims for which Seller is liable under this Agreement
exceeds an amount equal to the product of (y) the Initial Purchase Price
multiplied by (z) .0125 (the "Basket"), and only to the extent of such excess,
and in no event shall the aggregate amount of all Buyer Claims for which Seller
is liable pursuant to such Section 10.4(i) (other than with respect to Sections
3.2 and 3.21) exceed an amount equal to the product of (a) the Initial Purchase
Price multiplied by (b).25.
10.6 Buyer's Agreement to Indemnify. Upon the terms and subject to
------------------------------
conditions of this Article X, Buyer shall indemnify, defend and hold harmless
Seller Indemnified Parties, at any time after the Closing, from and against all
Damages asserted against, resulting to, imposed upon or incurred by Seller
Indemnified Parties by reason of or arising from (i) a breach of any
representation or warranty of Buyer contained in or made pursuant to this
Agreement or the Asset Agreement or any facts or circumstances constituting such
a breach; (ii) other than such for which indemnification is provided in Section
10.3, non-fulfillment of any agreement or covenant of Buyer or, after the
Closing, the Company contained in or made pursuant to this Agreement or the
Asset Agreement, including, without limitation, those set forth in Sections 6.2
and 6.3 hereof with respect to the assumption by Buyer, Buyer's Pension Plan,
Buyer's Thrift Plan or the Company of pension plan or financing arrangement
obligations, respectively, or any facts or circumstances constituting such non-
fulfillment; or (iii) any obligation or liability of the Company or the
Continuing Business prior to the Closing Date that has been set forth in the
Disclosure Schedule (other than matters for which the Seller has agreed to
indemnify the Buyer pursuant to Section 10.3, 10.4 or 10.8 hereof)
(collectively, "Seller Claims").
The amount of any Damages for which indemnification is provided under
this Section 10.6, or Taxes or Expenses for which indemnification is provided
under Section 10.3(a), to a Seller Indemnified Party shall be (i) increased to
take account of any net Tax cost incurred by such Seller Indemnified Party
arising from the receipt or accrual of indemnity payments hereunder (grossed up
for any such increase) and (ii) reduced to
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take account of any Tax Benefit realized by such Seller Indemnified Party as a
result of the deductibility of such Damages or Taxes (or payments with respect
thereto). Any indemnification payment hereunder shall initially be made without
regard to this paragraph and shall be increased or reduced to reflect any such
net Tax cost (including gross-up) or net Tax benefit only after such Seller
Indemnified Party has actually realized such cost or benefit. For purposes of
this Agreement, a Seller Indemnified Party shall be deemed to have "actually
realized" a net Tax cost or a net Tax benefit to the extent that, and at such
time as, the amount of Taxes payable by such Seller Indemnified Party is
increased above or reduced below, as the case may be, the amount of Taxes that
such Seller Indemnified Party would be required to pay but for the receipt of
the indemnity payment or the incurrence or payment of such Damages.
10.7 Buyer's Limitation of Liability. Any provision in this
-------------------------------
Agreement to the contrary notwithstanding, the liability of Buyer to indemnify
Seller Indemnified Parties pursuant to Section 10.6(i) hereof against any
Damages sustained by reason of any Seller Claim with respect to the breach of a
representation or warranty shall be limited to Seller Claims as to which a
Seller Indemnified Party has given Buyer written notice thereof, setting forth
therein in reasonable detail the basis for such Seller Claim, on or prior to the
termination of such representation or warranty pursuant Section 10.2 hereof;
provided, however, that the provisions for indemnification contained in Section
- -------- -------
10.6(i) (other than with respect to Section 4.7) shall be effective only with
respect to any Seller Claim (or group of similar Seller Claims) for Damages
which exceeds $50,000 and only after the aggregate amount of all such Seller
Claims for which Buyer is liable under this Agreement exceeds an amount equal to
the Basket and only to the extent of such excess, and in no event shall the
aggregate amount of all Seller Claims for which Buyer is liable pursuant to such
Section 10.6(i) (other than with respect to Section 4.7) exceed an amount equal
to the product of (a) the Initial Purchase Price multiplied by (b) .25; provided
--------
further, however, that after the Closing Date, in no event shall the aggregate
- ------- -------
amount of all Seller Claims for which Buyer is liable pursuant to Section
10.6(i) (other than with respect to Section 4.7) exceed an amount equal to $50
million.
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10.8 Environmental Indemnification.
-----------------------------
(a) Buyer Indemnification of Seller. Except as provided in paragraph
-------------------------------
10.4 and in subparagraphs 10.8 (b) and (c), Buyer shall indemnify, defend and
hold harmless Seller Indemnified Parties from and against Damages asserted
against, resulting to, imposed upon or incurred by Seller Indemnified Parties by
reason of or resulting from any Environmental Claim related to the Company.
(b) Seller Indemnification of Buyer. (i) Seller shall indemnify,
-------------------------------
defend and hold harmless Buyer Indemnified Parties from and against Damages
asserted against, resulting to, imposed upon or incurred by Buyer Indemnified
Parties by reason of:
(A) cleanup of Hazardous Substances disposed of or discharged prior
to the Closing Date at any site other than the Real Property or sites adjacent
to the Real Property to which such Hazardous Substances have migrated from the
Real Property if such Hazardous Substances were generated, used, stored,
treated, transported or released by or on behalf of Seller, the Company or any
of its Subsidiaries prior to the Closing Date, including such sites identified
on Section 10.8 of the Disclosure Schedule.
(B) such other Environmental Claims listed on Schedule 10.8.
(ii) Seller will undertake the complete administration, management, and cleanup
of the sites and matters described in paragraphs 10.8(b)(i) (A) and (B) on
behalf of itself and Buyer Indemnified Parties; provided, however, that Seller
will administer, manage and remediate all conditions giving rise to such Claims
so as not to interfere unreasonably with the Company's ongoing operations after
the Closing Date. Buyer Indemnified Parties shall appoint Seller their
attorney-in-fact to take actions required to be taken in connection with the
administration, management and remediation of all conditions giving rise to such
Environmental Claims and shall take such further actions as are necessary to
give effect to the provisions of this Section 10.8.
(c) Environmental Claims Arising from Joint Operations in Mobile,
-------------------------------------------------------------
Alabama. Buyer shall indemnify,
- -------
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defend and hold harmless Seller Indemnified Parties and Seller shall indemnify,
defend and hold harmless Buyer Indemnified Parties from and against all Damages
asserted against, resulting to, imposed upon, or incurred by reason of or
resulting from any Environmental Claims arising out of the operation of the
facilities in Mobile, Alabama in accordance with the indemnification provisions
of the separate agreements governing Seller's provision of water and effluent
treatment services ("Water and Effluent Agreement"), the provision of energy to
Buyer ("Energy Services Agreement"), and, to the extent necessary, the
allocation of environmental liabilities at the Mobile facility between Buyer and
Seller ("Mobile Environmental Agreement"). In the event of a conflict between
the terms of this paragraph 10.8 of this Agreement and the terms of such
separate agreement, the more specific provision shall govern.
10.9 Conditions of Indemnification With Respect to Third-Party
---------------------------------------------------------
Claims. The obligations and liabilities of Seller and Buyer with respect to
Buyer Claims and Seller Claims, respectively, which arise or result from claims
for Damages made by third parties (other than claims relating to Taxes) ("Third-
Party Claims") shall be subject to the following terms and conditions:
(i) (A) The indemnified party will give the indemnifying party
prompt notice of any such Third-Party Claim; provided, however, that failure to
-------- -------
give such notification shall not affect the indemnification provided hereunder
except to the extent the indemnifying party shall have been actually prejudiced
as a result of such failure (except that the indemnifying party shall not be
liable for any expenses incurred by the indemnified party during the period in
which the indemnified party failed to give such notice); and (B) the
indemnifying party shall have the right, after it acknowledges in writing to the
indemnified party its obligation to indemnify the indemnified party hereunder,
to undertake the defense thereof by counsel chosen by it; provided that (1) such
--------
counsel is not reasonably objected to by the indemnified party and (2) if the
indemnifying party assumes such defense, the indemnified party shall have the
right to participate in the defense thereof and to employ counsel (not
reasonably objected to by the indemnifying party), at its own expense, separate
from the counsel employed by the indemnifying party, it being
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understood that the indemnifying party shall control such defense;
(ii) Until the indemnifying party acknowledges in writing its
obligation hereunder with respect to, and assumes the defense of, a Third-Party
Claim, the indemnified party shall (upon further notice to the indemnifying
party) have the right to undertake the defense, compromise or settlement of such
Third-Party Claim on behalf of and for the account and risk of the indemnifying
party subject to the right of the indemnifying party to assume the defense of
such Third-Party Claim at any time prior to settlement, compromise or final
determination thereof (subject to subclause (B) of clause (i) above); and
(iii) Any provision in this Article X to the contrary
notwithstanding, (A) if, in the good faith judgment of the indemnified party,
there is a reasonable probability that a Third-Party Claim may materially and
adversely affect the indemnified party other than as a result of money damages
or other money payments, the indemnified party shall have the right, at the cost
and expense of the indemnifying party, to defend, compromise or settle such
Third-Party Claim; provided, however, that if such Third-Party Claim is settled
-------- -------
without the indemnifying party's consent (which consent shall not be
unreasonably withheld), the indemnified party shall be deemed to have waived all
rights hereunder against the indemnifying party for money damages arising out of
such Third-Party Claim; and (B) if the indemnifying party acknowledges in
writing liability for a Third-Party Claim, the indemnified party will agree to
any settlement, compromise or discharge of such Third-Party Claim that the
indemnifying party may recommend and that by its terms obligates the
indemnifying party to pay the full amount of the liability in connection with
such Third-Party Claim and releases the indemnified party completely in
connection with such Third-Party Claim and that would not, in the good faith
judgment of the indemnified party, otherwise adversely affect the indemnified
party; provided, however, that the indemnified party may refuse to agree to any
-------- -------
such settlement, compromise or discharge if the indemnified party agrees that
the indemnifying party's indemnification obligation with respect to such Third-
Party Claim shall not exceed the amount that would be required to be paid by or
on behalf of the indemnify-
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ing party in connection with such settlement, compromise or discharge.
10.10 Other Claims. In the event any indemnified party should have a
------------
claim against any indemnifying party under Section 10.4, 10.6 or 10.8 hereof
that does not involve a Third-Party Claim being asserted against or sought to be
collected from such indemnified party, the indemnified party shall deliver
notice of such claim with reasonable promptness to the indemnifying party. The
failure by any indemnified party so to notify the indemnifying party shall not
relieve the indemnifying party from any liability which it may have to such
indemnified party under Section 10.4, 10.6 or 10.8 hereof, except to the extent
that the indemnifying party demonstrates that it has been materially prejudiced
by such failure. If the indemnifying party does not notify the indemnified
party within 10 calendar days following its receipt of such notice that the
indemnifying party disputes its liability to the indemnified party under Section
10.4, 10.6 or 10.8 hereof, such claim specified by the indemnified party in such
notice shall be conclusively deemed a liability of the indemnifying party under
Section 10.4, 10.6 or 10.8 hereof and the indemnifying party shall pay the
amount of such liability to the indemnified party on demand or, in the case of
any notice in which the amount of the claim (or any portion thereof) is
estimated, on such later date when the amount of such claim (or such portion
thereof) becomes finally determined. If the indemnifying party has timely
disputed its liability with respect to such claim, as provided above, the
indemnifying party and the indemnified party shall proceed in good faith to
negotiate a resolution of such dispute and, if not resolved through
negotiations, such dispute shall be resolved by litigation in an appropriate
court of competent jurisdiction, subject to Article XI.
10.11 Sole Remedy. Buyer and Seller acknowledge and agree that, if
-----------
the Closing occurs, their sole and exclusive remedy following the Closing with
respect to any and all claims, including, without limitation, Buyer Claims and
Seller Claims (whether Third-Party Claims or otherwise), relating to the subject
matter of this Agreement shall be pursuant to the provisions set forth in this
Article X.
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XI. DISPUTE RESOLUTION.
------------------
11.1 General. In the event of any claim (including any counterclaim
-------
or cross-claim) by Seller or Buyer arising after the Closing (whether relating
to facts, events or circumstances occurring or existing prior to or at the
Closing or otherwise) and relating to or arising out of any provision of this
Agreement, the party making such claim shall give written notice to the other of
the fact that a claim has arisen pursuant hereto and that such party is
submitting such claim for determination pursuant to the dispute resolution
procedures set forth in this Article XI; provided, however, that if the party
-------- -------
making such claim seeks an order, injunction or other relief other than money
damages, such party may, at its sole option, bring such claim (and any or all
other claims, whether or not related, being made by such party at the same time,
regardless of the remedies sought) in a court of competent jurisdiction in
accordance with Section 12.9. Any such notice submitting a claim to the dispute
resolution procedures set forth in this Article XI shall include (a) a
reasonably detailed statement of the facts, events, circumstances, evidence and
arguments underlying such claim and (b) proposed arrangements for a meeting to
attempt to settle the claim to be held within sixty days of receipt of such
notice. Within thirty days after such notice is received, the other party
hereto shall submit to the party giving such notice a written summary responding
to such statement of facts, events, circumstances, evidence and arguments
contained in the notice and an acceptance of or proposed alternative to the
meeting arrangements set forth in the initial notice.
11.2 Meeting of Executive Officers. The chief executive officers (or
-----------------------------
any other executive officer or officers directly reporting to, and duly
designated by, such chief executive officers) of each of the parties shall meet
at a time and place mutually acceptable to such parties to attempt to settle in
good faith any claim submitted for determination pursuant to this Article XI;
provided, however, that such meeting shall be held at the principal offices of
- -------- -------
the party receiving the notice of dispute unless otherwise agreed; and provided
--------
further, that any such meeting shall be held within sixty days after the initial
- -------
written notice of claim is given pursuant to Section 11.1 hereof. Each party
shall bear its
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<PAGE>
own costs and expenses with respect to preparation for, attendance at and
participation in such meeting. If any claim submitted for determination
pursuant to this Article XI cannot be resolved in such meeting, such claim,
subject to the provisions of Section 10.11 hereof, may be resolved by litigation
in an appropriate court of competent jurisdiction.
XII. MISCELLANEOUS.
-------------
12.1 Further Assurances. From time to time after the Closing Date,
------------------
at the request of the other party hereto and at the expense of the party so
requesting, Seller and Buyer shall execute and deliver to such requesting party
such documents and take such other action as such requesting party may
reasonably request in order to consummate the transactions contemplated hereby
and by the Ancillary Agreements.
12.2 Notices. All notices, requests, demands, waivers and
-------
communications required or permitted to be given under this Agreement shall be
in writing (which shall include notice by telecopy or like transmission) and
shall be deemed given (i) on the day delivered (or if that day is not a day on
which commercial banks are open for business in the city specified in the
address for notice provided by the recipient (a "Local Business Day"), or if
delivered after the close of business on a Local Business Day, on the first
following day that is a Local Business Day) when (x) delivered personally
against receipt or (y) sent by overnight courier, (ii) on the day when
transmittal confirmation is received if sent by telecopy (or if that day is not
a Local Business Day, or if after the close of business on a Local Business Day,
on the first following day that is a Local Business Day) and (iii) on the third
Local Business Day after mailed (if the recipient's address for notice is in the
same country as the place of mailing, otherwise, on the seventh Local Business
Day after mailed) by certified or registered first-class mail (airmail, if
overseas) to the parties at the following addresses (or to such other
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addresses as a party may have specified by notice given to the other parties
hereto pursuant to this provision):
(a) If to Buyer, to:
SDW Acquisition Corporation
In care of
Sappi Limited
48 Ameshoff Street
2001 Braamfontein
Republic of South Africa
Telecopy: (011) 339-8297
Attention: Eugene van As
with a copy to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Telecopy: (212) 474-3700
Attention: Philip A. Gelston, Esq.
(b) If to Seller, to:
Scott Paper Company
Scott Plaza
Philadelphia, Pennsylvania 19113-1585
Telecopy: (610) 522-5271
Attention: John P. Murtagh, Esq.
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
One Rodney Square
Wilmington, Delaware 19801
Telecopy: (302) 651-3001
Attention: Robert B. Pincus, Esq.
12.3 Entire Agreement. This Agreement, the Ancillary Agreements, the
----------------
Disclosure Schedule and the exhibits, schedules and other documents referred to
herein which form a part hereof (including, without limitation, the
Confidentiality Agreement referred to in Section 5.2(b) hereof) contain the
entire understanding of the parties hereto with respect to the subject matter
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hereof. This Agreement supersedes all prior agreements and understandings, oral
and written, with respect to its subject matter.
12.4 Severability. Should any provision of this Agreement for any
------------
reason be declared invalid or unenforceable, such decision shall not affect the
validity or enforceability of any of the other provisions of this Agreement,
which other provisions shall remain in full force and effect and the application
of such invalid or unenforceable provision to persons or circumstances other
than those as to which it is held invalid or unenforceable shall be valid and be
enforced to the fullest extent permitted by law.
12.5 Binding Effect; Assignment. This Agreement and all of the
--------------------------
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective heirs, executors, successors and permitted assigns,
but except as contemplated herein, neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned, directly or indirectly, by
Seller or Buyer without the prior written consent of the other party hereto;
provided, however, that (i) the rights and obligations of Buyer may be assigned
- -------- -------
by operation of law to the Company pursuant to a merger of Buyer with and into
the Company, (ii) Buyer may freely assign all or any part of its rights under
this Agreement to Sappi or any majority-owned subsidiary of Sappi and (iii)
Buyer may freely assign all or any part of its indemnification claims and its
rights under the representations and warranties of Seller in connection with the
Financing, provided that no such assignment shall limit or affect Buyer's
obligations hereunder and; provided, further, that the rights and obligations of
-------- -------
Seller may be assigned to any of its wholly-owned subsidiaries, which at the
time of such assignment owns the Shares provided that no such assignment shall
limit or affect Seller's obligations hereunder.
12.6 No Third-Party Beneficiaries. This Agreement is not intended
----------------------------
and shall not be deemed to confer upon or give any person except the parties
hereto and their respective successors and permitted assigns any remedy, claim,
liability, reimbursement, cause of action or other right under or by reason of
this Agreement (except as set forth in Article X with respect to Buyer
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Indemnified Parties and Seller Indemnified Parties and except that any rights or
remedies of Buyer under this Agreement may be exercised by Holdings or,
following the proposed merger of Buyer with and into the Company, the Company).
12.7 Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
12.8 Interpretation. The article and section headings contained in
--------------
this Agreement are solely for the purpose of reference, are not part of the
agreement of the parties and shall not in any way affect the meaning or
interpretation of this Agreement. As used in this Agreement, the term
"including" shall mean including without limitation, the "knowledge" of Seller
shall be deemed to include the knowledge of the Company and its Subsidiaries
and, unless the context otherwise requires, the word "or" is not exclusive. As
used in this Agreement, the term "person" shall mean and include an individual,
a partnership, a joint venture, a corporation, a trust, an unincorporated
organization and a government or any department or agency thereof. As used in
this Agreement, the term "affiliate" shall have the meaning set forth in Rule
12b-2 of the General Rules and Regulations under the Exchange Act. All
references in this Agreement to "dollars" or "$" shall mean United States
dollars.
12.9 Forum; Service of Process. Any legal suit, action or proceeding
-------------------------
brought by Seller or Buyer, or any of their respective affiliates, arising out
of or based upon this Agreement shall be instituted in (a) the United States
District Court for the Southern District of New York, or if such suit, action or
proceeding may not be brought in such court for jurisdictional reasons, (b) the
Supreme Court of the State of New York, New York County (collectively, the
"Courts"), and each of Seller and Buyer (on its behalf and on behalf of such
affiliates) waives any objection which it may now or hereafter have to the
laying of venue of any such proceeding, and irrevocably submits to the exclusive
jurisdiction of the Courts in any such suit, action or proceeding. Each of
Sappi and Buyer has appointed CT Corporation System as its authorized agent (the
"Authorized Agent") upon which process may be served in any action based on this
Agree-
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ment which may be instituted in the Courts, by Seller and each of Buyer and
Seller expressly accepts the jurisdiction of any such Court in respect of such
action. Such appointment shall be irrevocable. Sappi and Buyer represent and
warrant that the Authorized Agent has agreed to act as said agent for service
of process, and each of Sappi and Buyer agree to take any and all action,
including, without limitation, the filing of any and all documents and
instruments, which may be necessary to continue such appointment in full force
and effect. Service of process upon the Authorized Agent and written notice of
such service to Buyer shall be deemed, in every respect, effective service of
process upon Buyer. Notwithstanding any provision hereof to the contrary, any
action based on this Agreement may be instituted by Seller in any competent
court in the country of the Republic of South Africa. Each of the parties
hereto hereby irrevocably waives all right to a trial by jury in any suit,
action or proceeding (including any counterclaim) arising out of or based upon
this Agreement.
12.10 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of New York, without regard
to the principles of conflicts of law thereof (to the extent that the
application of the laws of another jurisdiction would be required thereby).
12.11 Attorney Fees. A party in breach of this Agreement shall, on
-------------
demand, indemnify and hold harmless the other party for and against all
reasonable out-of-pocket expenses, including legal fees, incurred by such other
party by reason of the enforcement and protection of its rights under this
Agreement. The payment of such expenses is in addition to any other relief to
which such other party may be entitled.
12.12 Specific Performance. Each party hereto acknowledges that
--------------------
money damages would be both incalculable and an insufficient remedy for any
breach of this Agreement by such party and that any such breach would cause the
other party hereto irreparable harm. Accordingly, each party hereto also agrees
that, in the event of any breach or threatened breach of the provisions of this
Agreement by such party, the other party hereto shall be entitled to equitable
relief without the requirement of posting a bond or other security, including
105
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in the form of injunctions and orders for specific performance, in addition to
all other remedies available to such other parties at law or in equity.
12.13 Sappi Obligation. Subject to and effective only upon its
----------------
receipt of the approval of the South African Reserve Bank, Sappi agrees to cause
Buyer to comply with Buyer's obligations hereunder until the Closing Date. As
of and effective automatically upon the Closing, Sappi shall be released from
all obligations under this Agreement. Sappi agrees to use its reasonable
efforts to obtain the requisite approval of the South African Reserve Bank as
promptly as possible.
12.14 Defined Terms.
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"affiliate" shall have the meaning ascribed to such term in Section
12.8 hereof.
"Affiliate Contracts" shall have the meaning ascribed to such term in
Section 3.28 hereof.
"Affiliated Group" shall have the meaning ascribed to such term in
Section 3.14(b) hereof.
"Aggregate Deemed Sales Price" shall have the meaning ascribed to such
term in Section 6.1(b)(ii) hereof.
"Agreement" shall have the meaning ascribed to such term in the
Preamble hereof.
"Ancillary Agreements" shall have the meaning ascribed to such term in
Section 2.2 hereof.
"Asset Agreement" shall have the meaning ascribed to such term in
Section 2.2(h) hereof.
"Assets" shall have the meaning ascribed to such term in Section
1.6(a)(i) hereof.
"Audited Financial Statements" shall have the meaning ascribed to such
term in Section 8.1(l) hereof.
"Base Net Assets" shall have the meaning ascribed to such term in
Section 1.6(a)(v).
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"Basket" shall have the meaning ascribed to such term in Section 10.5
hereof.
"Benefit Plans" shall have the meaning ascribed to such term in
Section 3.13(a) hereof.
"Buyer" shall have the meaning ascribed to such term in the Preamble
hereof.
"Buyer Authorized Agent" shall have the meaning ascribed to such term
in Section 12.9 hereof.
"Buyer Benefits" shall have the meaning ascribed to such term in
Section 6.1(h) hereof.
"Buyer Claims" shall have the meaning ascribed to such term in Section
10.4 hereof.
"Buyer Group" shall have the meaning ascribed to such term in Section
6.1(a)(i) hereof.
"Buyer Indemnified Parties" shall have the meaning ascribed to such
term in Section 10.3(b).
"Buyer Representatives" shall have the meaning ascribed to such term
in Section 5.2(a) hereof.
"Buyer's Pension Plan" shall have the meaning ascribed to such term in
Section 6.2(c) hereof.
"Buyer's Thrift Plan" shall have the meaning ascribed to such term in
Section 6.2(d) hereof.
"Changes" shall have the meaning ascribed to such term in Section
6.1(h) hereof.
"Closing" shall have the meaning ascribed to such term in Section 1.3
hereof.
"Closing Date" shall have the meaning ascribed to such term in Section
1.3 hereof.
"Closing Date Balance Sheet" shall have the meaning ascribed to such
term in Section 1.6(a)(vi) hereof.
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"Closing Net Assets" shall have the meaning ascribed to such term in
Section 1.6(a)(viii) hereof.
"Closing Statement" shall have the meaning ascribed to such term in
Section 1.6(a)(ix) hereof.
"Code" shall have the meaning ascribed to such term in Section 3.13(b)
hereof.
"Commitments" shall have the meaning ascribed to such term in Section
4.4 hereof.
"Commonly Controlled Entity" shall have the meaning ascribed to such
term in Section 3.13(a) hereof.
"Company" shall have the meaning ascribed to such term in the
Background section hereof.
"Company Pension Plan" shall have the meaning ascribed to such term in
Section 3.13(c) hereof.
"Confidentiality Agreement" shall have the meaning ascribed to such
term in Section 5.2(b) hereof.
"Continuing Business" shall have the meaning ascribed to such term in
the Background section hereof.
"Continuing Employee" shall have the meaning ascribed to such term in
Section 6.2(a)(iii) hereof.
"Contracts" shall have the meaning ascribed to such term in Section
3.15 hereof.
"Covenant" shall have the meaning ascribed to such term in Section 1.1
hereof.
"Damages" shall have the meaning ascribed to such term in Section 10.4
hereof.
"Defined Benefit Plan" shall have the meaning ascribed to such term in
Section 3.13(f) hereof.
"Disagreement Notice" shall have the meaning ascribed to such term in
Section 1.6(d) hereof.
"Disclosure Schedule" shall have the meaning ascribed to such term in
Section 1.6(a)(iv) hereof.
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"DOJ" shall have the meaning ascribed to such term in Section 5.5
hereof.
"Election" shall have the meaning ascribed to such term in Section
6.1(a)(ii) hereof.
"Environmental Claim" shall have the meaning ascribed to such term in
Section 3.19(g)(i) hereof.
"Environmental Laws" shall have the meaning ascribed to such term in
Section 3.19(g)(ii) hereof.
"Environmental Permits" shall have the meaning ascribed to such term
in Section 3.19(a) hereof.
"ERISA" shall have the meaning ascribed to such term in Section
3.13(a) hereof.
"Exchange Act" shall have the meaning ascribed to such term in Section
3.6 hereof.
"Expenses" shall have the meaning ascribed to such term in Section
10.3(b) hereof.
"FAS 112" shall have the meaning ascribed to such term in Section
3.13(n) hereof.
"Financial Statements" shall have the meaning ascribed to such term in
Section 3.7(b) hereof.
"Financing" shall have the meaning ascribed to such term in Section
4.4 hereof.
"FTC" shall have the meaning ascribed to such term in Section 5.5
hereof.
"GAAP" shall have the meaning ascribed to such term in Section
1.6(a)(ix) hereof.
"Governmental Entity" shall have the meaning ascribed to such term in
Section 3.6 hereof.
"Hazardous Substances" shall have the meaning ascribed to such term in
Section 3.19(h)(iii) hereof.
"Holdings" shall have the meaning ascribed to such term in the
Background section hereof.
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"HSR Act" shall have the meaning ascribed to such term in Section 3.6
hereof.
"Income Tax Return" shall have the meaning ascribed to such term in
Section 6.1(h) hereof.
"Indenture" shall have the meaning ascribed to such term in Section
6.3(f) hereof.
"Independent Accountants" shall have the meaning ascribed to such term
in Section 1.6(e) hereof.
"Independent Bankers" shall have the meaning ascribed to such term in
Section 8.2(b) hereof.
"Initial Purchase Price" shall have the meaning ascribed to such term
in Section 1.2 hereof.
"Intellectual Property" shall have the meaning ascribed to such term
in Section 3.11(a) hereof.
"Liabilities" shall have the meaning ascribed to such term in Section
1.6(a)(ii) hereof.
"License Agreement" shall have the meaning ascribed to such term in
Section 2.2(g) hereof.
"Liens" shall have the meaning ascribed to such term in Section 1.1
hereof.
"Local Business Day" shall have the meaning ascribed to such term in
Section 12.2 hereof.
"Master Trust" shall have the meaning ascribed to such term in Section
6.2(b) hereof.
"Material Adverse Effect" shall have the meaning ascribed to such term
in Section 3.3 hereof.
"Maximum Threshold" shall have the meaning ascribed to such term in
Section 8.2(a) hereof.
"MESC" shall have the meaning ascribed to such term in Section 2.2(b)
hereof.
"MESC Sale" shall have the meaning ascribed to such term in Section
2.2(b) hereof.
110
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"Mill Sites" shall have the meaning ascribed to such term in Section
3.10(b) hereof.
"Mill Sites Permitted Liens" shall have the meaning ascribed to such
term in Section 3.10(c)(i)-(v) hereof.
"Mobile Energy Agreement" shall have the meaning ascribed to such term
in Section 2.2(b) hereof.
"Mobile Operating Agreement" shall have the meaning ascribed to such
term in Section 2.2(e) hereof.
"Mobile Pulp Agreement" shall have the meaning ascribed to such term
in Section 2.2(a) hereof.
"Mobile Shared Facilities Agreement" shall have the meaning ascribed
to such term in Section 2.2(d) hereof.
"Mobile Utilities Agreement" shall have the meaning ascribed to such
term in Section 2.2(c) hereof.
"Muskegon Solid Waste Bonds" shall have the meaning ascribed to such
term in Section 6.3(b)(ii) hereof.
"Net Assets" shall have the meaning ascribed to such term in Section
1.6(a)(iii) hereof.
"PCBs" shall have the meaning ascribed to such term in Section
3.19(g)(iii) hereof.
"Pension Plan" shall have the meaning ascribed to such term in Section
3.13(a) hereof.
"Permitted Goods and Services" shall have the meaning ascribed to such
term in Section 6.6(a) hereof.
"Permitted Liens" shall have the meaning ascribed to such term in
Section 3.9(a) hereof.
"person" shall have the meaning ascribed to such term in Section 12.8
hereof.
"Personal Property" shall have the meaning ascribed to such term in
Section 3.9(a) hereof.
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"Pre-Closing Period" shall have the meaning ascribed to such term in
Section 6.1(a)(iii) hereof.
"Presumpscot" shall have the meaning ascribed to such term in Section
3.5A hereof.
"Prime Rate" shall have the meaning ascribed to such term in Section
1.6(g) hereof.
"Prior Period Returns" shall have the meaning ascribed to such term in
Section 6.1(e)(i) hereof.
"Purchase Price" shall have the meaning ascribed to such term in
Section 1.6(g) hereof.
"Real Property" shall have the meaning ascribed to such term in
Section 3.10(a) hereof.
"Records" shall have the meaning ascribed to such term in Section 5.12
hereof.
"Report" shall have the meaning ascribed to such term in Section
1.6(e) hereof.
"Return" or "Returns" shall have the meaning ascribed to such term in
Section 3.14(a) hereof.
"Safe Harbor Lease" shall have the meaning ascribed to such term in
Section 6.3(d) hereof.
"Sappi" shall have the meaning ascribed to such term in the Preamble
hereof.
"Scott Assets" shall have the meaning ascribed to such term in Section
5.13 hereof.
"Scott Leased Assets" shall have the meaning ascribed to such term in
Section 2.1 hereof.
"Scott Pension Plans" shall have the meaning ascribed to such term in
Section 6.2(a)(ii) hereof.
"Section 8.1 Amount" shall have the meaning ascribed to such term in
Section 8.2(a) hereof.
"Selected Financial Data" shall have the meaning ascribed to such term
in Section 3.7(b) hereof.
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"Seller" shall have the meaning ascribed to such term in the Preamble
hereof.
"Seller Benefits" shall have the meaning ascribed to such term in
Section 6.1(h)(ii) hereof.
"Seller Claims" shall have the meaning ascribed to such term in
Section 10.6 hereof.
"Seller Group" shall have the meaning ascribed to such term in Section
6.1(a)(iv) hereof.
"Seller Indemnified Parties" shall have the meaning ascribed to such
term in Section 10.3(a) hereof.
"Seller's Actuary" shall have the meaning ascribed to such term in
Section 6.2(c) hereof.
"Seller's Disclosure Document" shall have the meaning ascribed to such
term in Section 3.24 hereof.
"Seller's Thrift Plan" shall have the meaning ascribed to such term in
Section 6.2(d) hereof.
"Shares" shall have the meaning ascribed to such term in the
Background section hereof.
"Skylark" shall have the meaning ascribed to such term in Section 3.5A
hereof.
"Straddle Period" shall have the meaning ascribed to such term in
Section 6.1(a)(v) hereof.
"Straddle Period Returns" shall have the meaning ascribed to such term
in Section 6.1(e)(ii) hereof.
"Subsidiary" shall have the meaning ascribed to such term in Section
2.1 hereof.
"Subsidiary Shares" shall have the meaning ascribed to such term in
Section 3.5A hereof.
"Tax" or "Taxes" shall have the meaning ascribed to such term in
Section 3.14(a) hereof.
"Tax Benefit" shall have the meaning ascribed to such term in Section
6.1(a)(vi) hereof.
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"Tax Claim" shall have the meaning ascribed to such term in Section
10.3(e) hereof.
"Tax Indemnified Party" shall have the meaning ascribed to such term
in Section 10.3(e) hereof.
"Tax Indemnifying Party" shall have the meaning ascribed to such term
in Section 10.3(e) hereof.
"Taxing Authority" shall have the meaning ascribed to such term in
Section 3.14(a) hereof.
"Termination Date" shall have the meaning ascribed to such term in
Section 9.1(b) hereof.
"Third-Party Claims" shall have the meaning ascribed to such term in
Section 10.8 hereof.
"Timberlands" shall have the meaning ascribed to such term in Section
3.10(d) hereof.
"Timberlands Permitted Liens" shall have the meaning ascribed to such
term in Section 3.10(e)(i)-(xi) hereof.
"Transfer Taxes" shall have the meaning ascribed to such term in
Section 6.1(c) hereof.
"Transition Agreement" shall have the meaning ascribed to such term in
Section 2.2(f) hereof.
"Valuation Date" shall have the meaning ascribed to such term in
Section 6.2(b) hereof.
"Warren Business" shall have the meaning ascribed to such term in
Section 6.6(b) hereof.
"Warren Pension Plans" shall have the meaning ascribed to such term in
Section 6.2(a)(i) hereof.
"Warren Pension Plans Asset Value" shall have the meaning ascribed to
such term in Section 6.2(b) hereof.
"Warren Products" shall have the meaning ascribed to such term in
Section 6.6(b) hereof.
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"Welfare Plan" shall have the meaning ascribed to such term in Section
3.13(a) hereof.
"Winslow Agreement" shall have the meaning ascribed to such term in
Section 2.2(i) hereof.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have executed this Stock Purchase
Agreement as of the day and year first above written.
SCOTT PAPER COMPANY
By:/s/ Russell A. Kersh
__________________________________
Name: Russell A. Kersh
Title: Senior Vice President
Finance & Administration
SAPPI LIMITED
(Only with respect to Article IV, Section 5.6 and 12.13)
By:/s/ Eugene van As
__________________________________
Name: Eugene van As
Title: Executive Chairman
SDW ACQUISITION CORPORATION
By:/s/ Eugene van As
__________________________________
Name: Eugene van As
Title: President
116
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Exhibit 2.2
December 19, 1994
SUPPLEMENTAL AGREEMENT
TO STOCK PURCHASE AGREEMENT DATED AS OF
OCTOBER 8, 1994, BY AND AMONG SCOTT PAPER COMPANY,
SAPPI LIMITED AND SDW ACQUISITION CORPORATION
Dear Sirs:
Reference is made herein to the Stock Purchase Agreement dated as of
October 8, 1994 (the "Purchase Agreement"), by and among Scott Paper Company
("Seller"), Sappi Limited and SDW Acquisition Corporation ("Buyer"). Capitalized
terms used herein but not defined herein are used as defined in the Purchase
Agreement. The parties hereto desire to amend, modify and supplement the
Purchase Agreement and to confirm certain understandings with respect thereto.
The parties hereby agree as follows:
1. Seller and Buyer hereby (i) reaffirm their respective obligations under
Section 5.14 of the Purchase Agreement to negotiate in good faith regarding the
conveyance of additional Real Property to the Company at the Mobile mill site,
and (ii) agree that each of them shall continue to negotiate in good faith after
the Closing Date with the other party with respect to such conveyance of
additional Real Property until the earlier of one year after the Closing Date
and the determination by both Seller and Buyer that such matter has been
resolved.
2. The parties hereto agree that (i) Seller will be transferring to the
Company, at or prior to the Closing, all Seller's right, title and interest in
and to the loans and equity advances identified on Exhibit A hereto and that, to
the extent so transferred, the amounts of such loans and advances shall be
reflected as Assets for the purpose of determining Closing Net Assets and (ii)
the Company will be assuming, at or prior to the Closing, Seller's obligations
to make the mortgage subsidy and cost of living adjustment payments identified
on Exhibit A hereto and that the amount of such mortgage subsidy payments and
cost of living adjustment payments shall not be reflected as Liabilities for the
purpose of determining Closing Net Assets.
<PAGE>
2
3. With respect to Section 6.2(iii) of the Purchase Agreement, the
parties hereto agree and understand that, notwithstanding the definition of
"Continuing Employee" contained within such Section, for all purposes of the
Purchase Agreement, (i) the term "Continuing Employee" shall include each person
whose name is set forth in Section 1 of Exhibit B and shall not include each
person whose name is set forth in Section 2 of Exhibit B and (ii) the employment
status of Harold E. Wilson will be treated as set forth in Exhibit C hereto.
4. Reference is made to Section 1.7 of the Purchase Agreement which
provides that the transactions contemplated by the Asset Agreement shall be
deemed to occur immediately after the consummation of the other transactions
contemplated by the Purchase Agreement. Notwithstanding said Section 1.7, the
parties hereto agree and understand that the effect of the transactions
contemplated by the Asset Agreement shall be reflected on the Closing Date
Balance Sheet and in Closing Net Assets as though such transactions occurred at
the time of the Closing.
5. From and after the Closing Date, Seller shall indemnify and hold
harmless Buyer Indemnified Parties from and against all Damages (including,
without limitation, any fine or forfeiture imposed by the Federal Energy
Regulatory Commission ("FERC") or the Federal Communications Commission ("FCC"),
any additional costs associated with obtaining electric power to replace power
currently generated by the Saccarappa Hydroelectric Project, FERC Project No.
2897, as well as any costs associated with the decommissioning and/or removal of
such hydroelectric project) suffered or incurred by Buyer Indemnified Parties as
a result of:
(a) the failure of FERC to grant the Company's November 22, 1994
request for extension of time for the Company to file the Lake Level
Management Plan for Sebago Lake required by the FERC's August 4, 1994
"Order on Complaints" in Project No. 2984, S.D. Warren Co., 68 FERC
paragraph 61,213 (1994); or
(b) FERC's (i) refusal to accept for filing, (ii) rejection or (iii)
denial of the Company's Application for New License for the Saccarappa
Hydroelectric Project, FERC Project No. 2897 (if such application is filed)
based solely upon or solely as a result of Seller's filing its Notice of
Intent to File a New application after the deadline set forth in
<PAGE>
3
Section 15(b)(1) of the Federal Power Act, 16 U.S.C. (S) 808(b)(1), and
Section 16.6(c) of the FERC's regulations, 18 C.F.R. (S) 16.6(c) (1994);
(c) the failure of the FCC to grant all authorizations necessary for
the Company to operate after the Closing Date the facilities in the Private
Land Mobile Radio Services associated with the following stations and/or
the frequencies associated with such stations: KA84728, KD27000, KEH669,
KVI937, WNQU340, WNWT925, WNXJ239, WNXY358, WPDC301, KB21324, KCB403,
KFA957, KXW875, KZZ653, WNVK646, WPBU996, KD42090, KRN269, WNMV593, WNIW779
and WNSK419.
Buyer shall use reasonable efforts to (i) support the Seller's intervention and
active participation in any proceedings before the FERC for the purpose of
addressing the matters set forth in clauses 5(a) and (b) above and (ii) mitigate
any Damages for which Seller may be liable hereunder.
6. The proviso to the first paragraph of Section 1.3 of the Purchase
Agreement is hereby amended to read in its entirety as follows:
"provided, however, that the parties hereto intend that such Closing
-------- -------
shall be deemed to be effective, and the transactions contemplated by this
Agreement and the Ancillary Agreements shall be deemed to occur at 7:01
a.m. on the date on which the Closing actually occurs (the 'Closing
Date')."
7. Section 1.2 of the Purchase Agreement is hereby amended to read in
its entirety as follows:
"1.2. Consideration. Upon the terms and subject to the conditions of
-------------
this Agreement, in consideration of the aforesaid sale, conveyance,
assignment, transfer and delivery of the Shares (which represent ownership
of the Continuing Business), and grant of the Covenant, at the Closing,
Buyer shall pay to Seller, in cash, an amount (the "Initial Purchase
Price") equal to (i) One Billion Six Hundred Million Dollars
($1,600,000,000) less (ii) the sum of (x) the amount of any indebtedness of
the Company for borrowed money outstanding (including all capitalized lease
obligations) on the Closing Date (which amount will not be less than $118
million)
<PAGE>
and (y) the purchase price to be paid under the Asset Agreement."
8. Buyer hereby acknowledges receipt of the supplemental and amended
Disclosure Schedule (the "Supplemental Disclosure Schedule") of Seller
delivered pursuant to Section 5.7(a) of the Purchase Agreement and attached
hereto as Exhibit D-1. Pursuant to the provisions of Section 5.7(a) of the
Purchase Agreement, Buyer agrees that all matters disclosed in the Supplemental
Disclosure Schedule shall be deemed to have been disclosed as of the date of the
Purchase Agreement as contemplated by the first proviso to Section 5.7(a) of the
Purchase Agreement, except as set forth in Exhibit D-2 hereto.
9. Seller hereby represents and warrants to Buyer that (i) the Company's
Mobile senior level management were consulted with respect to, and given the
opportunity to provide input on, the specifications, allocations, usages and
volumes incorporated in Exhibits 2.2(a)-(e) to the Purchase Agreement and (ii)
Seller believes such specifications, allocations, usages and volumes, as well as
the specifications, allocations, usages and volumes incorporated in the
Ancillary Agreements (and all exhibits, schedules and attachments thereto)
described in Sections 2.2(a)-(e) to the Stock Purchase Agreement, to be
reasonable. Seller agrees that the foregoing representation and warranty shall
constitute a representation and warranty of Seller made pursuant to the Purchase
Agreement for purposes of Section 10.4 thereof.
10. Reference is made to the General Assignment and Assumption Agreement
(the "Assignment") dated as of December 20, 1994, to be entered into by Seller,
Scott Continental N.V. and the Company. Seller represents and warrants to the
Buyer that the Patents and Trademarks (as such terms are defined in the
Assignment) owned by Seller and Scott Continental N.V. and set forth on the
Disclosure Schedule and the Supplemental Disclosure Schedule as attached to the
Assignment constitute all the Patents and Trademarks used in or necessary to the
Continuing Business and not used in the business of Seller and its Subsidiaries
(other than the Continuing Business). Seller agrees that such representation and
warranty shall constitute a representation and warranty of Seller made pursuant
to the Purchase Agreement for purposes of Section 10.4 thereof, except that the
indemnity obligations of Seller in respect of any breach of such representation
and warranty shall not
<PAGE>
5
be subject to the limitations set forth in Section 10.5 of the Purchase
Agreement.
Except as expressly set forth herein, the Purchase Agreement shall remain
in full force and effect in accordance with its terms.
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York, without regard to the conflicts of law principles
thereof (to the extent that the application of the laws of another jurisdiction
would be required thereby). This Agreement shall be binding upon and inure to
the benefit of the parties thereto and their respective successors and
permitted assigns (including the Company following the merger of Buyer with and
into the Company).
This Agreement may be executed in one or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
If you are in agreement with the foregoing, please sign the form of
acceptance on the enclosed counterpart of this letter and return the same to the
undersigned, whereupon this letter shall become a binding agreement between you
and the undersigned.
Very truly yours,
SDW ACQUISITION CORPORATION,
by /s/ William E. Hewitt
-------------------------------
Name:
Title:
<PAGE>
6
The foregoing agreement is
hereby accepted and agreed
to on December 19, 1994:
SCOTT PAPER COMPANY,
by /s/ John P. Murtagh
-------------------------
Name: John P. Murtagh
Title: Senior Vice President
SAPPI LIMITED,
by /s/ William E. Hewitt
-------------------------
Name:
Title:
