Exhibit 10.11


 




 





KAPSTONE PAPER
AND PACKAGING CORPORATION 

KAPSTONE KRAFT PAPER CORPORATION


 


 


$40,000,000


 


 


8.30% SENIOR
SECURED NOTES DUE JULY 1, 2015


 


 










 


NOTE PURCHASE AGREEMENT


 










 


 


Dated as of July 1,
2008




 





 

















 


TABLE OF CONTENTS


(Not Part of Agreement)


 


	
   

  	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  	
   

  
	
  1.

  	
  AUTHORIZATION OF ISSUE OF NOTES

  	
   

  	
  1

  
	
   

  	
   

  	
   

  	
   

  
	
  2.

  	
  PURCHASE AND SALE OF NOTES

  	
   

  	
  1

  
	
   

  	
   

  	
   

  	
   

  
	
  3.

  	
  CONDITIONS OF CLOSING

  	
  2

  
	
   

  	
   

  	
   

  
	
   

  	
  3A.

  	
  Documents

  	
  2

  
	
   

  	
  3B.

  	
  Opinion of Purchasers’ Special Counsel

  	
  4

  
	
   

  	
  3C.

  	
  Opinion of Company’s and Guarantors’ Counsel

  	
  5

  
	
   

  	
  3D.

  	
  Representations and Warranties; No Default; Satisfaction of
  Conditions; Material Adverse Effect

  	
  5

  
	
   

  	
  3E.

  	
  Purchase Permitted By Applicable Laws; Approvals

  	
  5

  
	
   

  	
  3F.

  	
  Title Insurance, Surveys and Environmental Assessments

  	
  6

  
	
   

  	
  3G.

  	
  Certificates of Insurance

  	
  6

  
	
   

  	
  3H.

  	
  Material Adverse Change

  	
  6

  
	
   

  	
  3I.

  	
  New Credit Agreement

  	
  6

  
	
   

  	
  3J.

  	
  Termination of Existing Credit Agreement

  	
  7

  
	
   

  	
  3K.

  	
  Kraft Acquisition

  	
  7

  
	
   

  	
  3L.

  	
  Note Assignment; BONY Documents; SCANA Side Letters; Underwriting
  Agreement; Warrants; International Paper Purchase Agreement

  	
  7

  
	
   

  	
  3M.

  	
  Financial Information

  	
  8

  
	
   

  	
  3N.

  	
  Capitalization

  	
  8

  
	
   

  	
  3O.

  	
  Debt

  	
  8

  
	
   

  	
  3P.

  	
  Intercompany Subordinated Note

  	
  8

  
	
   

  	
  3Q.

  	
  Fees and Expenses

  	
  9

  
	
   

  	
  3R.

  	
  Structuring Fee

  	
  9

  
	
   

  	
  3S.

  	
  Proceedings

  	
  9

  
	
   

  	
   

  	
   

  	
   

  
	
  4.

  	
  PREPAYMENTS

  	
  9

  
	
   

  	
   

  	
   

  
	
   

  	
  4A(1).

  	
  Required Prepayments

  	
  9

  
	
   

  	
  4A(2).

  	
  Required Prepayment Pursuant to Intercreditor Agreement

  	
  9

  
	
   

  	
  4B.

  	
  Optional Prepayment With Yield-Maintenance Amount

  	
  9

  
	
   

  	
  4C.

  	
  Notice of Optional Prepayment

  	
  10

  
	
   

  	
  4D.

  	
  Partial Payments Pro Rata

  	
  10

  
	
   

  	
  4E.

  	
  Offer to Prepay Notes upon a Senior Debt Prepayment Event

  	
  10

  
	
   

  	
  4F.

  	
  No Acquisition of Notes

  	
  11

  
	
   

  	
   

  	
   

  	
   

  
	
  5.

  	
  AFFIRMATIVE COVENANTS

  	
  11

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5A.

  	
  Financial Statements

  	
  11

  
	
   

  	
  5B.

  	
  Information Required by Rule 144A

  	
  15

  
					



 


i

















 


	
   

  	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5C.

  	
  Inspection of Property

  	
  15

  
	
   

  	
  5D.

  	
  Covenant to Secure Notes Equally

  	
  15

  
	
   

  	
  5E.

  	
  Compliance with Law

  	
  15

  
	
   

  	
  5F.

  	
  Maintenance of Insurance

  	
  16

  
	
   

  	
  5G.

  	
  Maintenance of Properties

  	
  16

  
	
   

  	
  5H.

  	
  Payment of Taxes

  	
  16

  
	
   

  	
  5I.

  	
  Corporate Existence

  	
  16

  
	
   

  	
  5J.

  	
  Lines of Business

  	
  16

  
	
   

  	
  5K.

  	
  Subsequent Guarantors

  	
  17

  
	
   

  	
  5L.

  	
  Deliveries; Further Assurances

  	
  17

  
	
   

  	
  5M.

  	
  Agreement Assuming Liability on Notes

  	
  18

  
	
   

  	
  5N.

  	
  Compliance with Terms of Leaseholds

  	
  18

  
	
   

  	
  5O.

  	
  Material Contracts

  	
  18

  
	
   

  	
  5P.

  	
  Amendments to Credit Agreement or Loan Documents

  	
  18

  
	
   

  	
   

  	
   

  	
   

  
	
  6.

  	
  NEGATIVE COVENANTS

  	
  19

  
	
   

  	
   

  	
   

  
	
   

  	
  6A. Financial Covenants

  	
  19

  
	
   

  	
  6A(1). Total Leverage Ratio

  	
  19

  
	
   

  	
  6A(2).

  	
  Fixed Charge Coverage Ratio

  	
  19

  
	
   

  	
  6B.

  	
  Debt

  	
  19

  
	
   

  	
  6C.

  	
  Liens

  	
  21

  
	
   

  	
  6D.

  	
  Operating Leases

  	
  22

  
	
   

  	
  6E.

  	
  Restricted Payments

  	
  22

  
	
   

  	
  6F.

  	
  Mergers, Consolidations, Acquisitions, Sales

  	
  23

  
	
   

  	
  6G.

  	
  Modification of Organization Documents

  	
  24

  
	
   

  	
  6H.

  	
  Transactions with Affiliates

  	
  24

  
	
   

  	
  6I.

  	
  Unconditional Purchase Obligations

  	
  24

  
	
   

  	
  6J.

  	
  Inconsistent Agreements

  	
  24

  
	
   

  	
  6K.

  	
  Business Activities; Issuance of Equity

  	
  25

  
	
   

  	
  6L.

  	
  Investments

  	
  25

  
	
   

  	
  6M.

  	
  Restriction of Amendments to Certain Documents

  	
  26

  
	
   

  	
  6N.

  	
  Working Capital Facility

  	
  26

  
	
   

  	
  6O.

  	
  Accounting Changes; Fiscal Year

  	
  26

  
	
   

  	
  6P.

  	
  Prepayments, Etc. of Debt

  	
  26

  
	
   

  	
  6Q.

  	
  Amendment, Etc. of Debt

  	
  26

  
	
   

  	
  6R.

  	
  Holding Company

  	
  27

  
	
   

  	
  6S.

  	
  Limitation on Speculative Hedging

  	
  27

  
	
   

  	
  6T.

  	
  Terrorism Sanctions Regulations

  	
  27

  
	
   

  	
   

  	
   

  	
   

  
	
  7.

  	
  EVENTS OF DEFAULT

  	
  27

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7A.

  	
  Acceleration

  	
  27

  
					



 


ii

















 


	
   

  	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7B.

  	
  Rescission of Acceleration

  	
  30

  
	
   

  	
  7C.

  	
  Notice of Acceleration or Rescission

  	
  30

  
	
   

  	
  7D.

  	
  Other Remedies

  	
  31

  
	
   

  	
   

  	
   

  	
   

  
	
  8.

  	
  REPRESENTATIONS, COVENANTS AND WARRANTIES

  	
  31

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  8A(1).

  	
  Organization; Subsidiary Preferred Equity

  	
  31

  
	
   

  	
  8A(2).

  	
  Power and Authority

  	
  31

  
	
   

  	
  8A(3).

  	
  Execution and Delivery of Transaction Documents

  	
  31

  
	
   

  	
  8B.

  	
  Financial Statements

  	
  32

  
	
   

  	
  8C.

  	
  Actions Pending

  	
  32

  
	
   

  	
  8D.

  	
  Outstanding Debt

  	
  33

  
	
   

  	
  8E.

  	
  Title to Properties

  	
  33

  
	
   

  	
  8F.

  	
  Taxes

  	
  33

  
	
   

  	
  8G.

  	
  Conflicting Agreements and Other Matters

  	
  33

  
	
   

  	
  8H.

  	
  Offering of Notes

  	
  34

  
	
   

  	
  8I.

  	
  Use of Proceeds

  	
  34

  
	
   

  	
  8J.

  	
  ERISA

  	
  34

  
	
   

  	
  8K.

  	
  Governmental Consent

  	
  35

  
	
   

  	
  8L.

  	
  Compliance with Environmental and Other Laws

  	
  35

  
	
   

  	
  8M.

  	
  Regulatory Status

  	
  36

  
	
   

  	
  8N.

  	
  Permits and Other Operating Rights

  	
  36

  
	
   

  	
  8O.

  	
  Rule 144A

  	
  36

  
	
   

  	
  8P.

  	
  Absence of Financing Statements, Etc.

  	
  36

  
	
   

  	
  8Q.

  	
  Establishment of Security Interest

  	
  36

  
	
   

  	
  8R.

  	
  Foreign Assets Control Regulations, Etc.

  	
  37

  
	
   

  	
  8S.

  	
  Disclosure

  	
  37

  
	
   

  	
  8T.

  	
  Labor Matters

  	
  38

  
	
   

  	
  8U.

  	
  Related Agreements, etc.

  	
  38

  
	
   

  	
  8V.

  	
  Casualty, Etc.

  	
  39

  
	
   

  	
  8W.

  	
  Material Contracts

  	
  39

  
	
   

  	
  8X.

  	
  Kraft Acquisition Documents

  	
  39

  
	
   

  	
   

  	
   

  	
   

  
	
  9.

  	
  REPRESENTATIONS OF EACH PURCHASER

  	
  40

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  9A.

  	
  Nature of Purchase

  	
  40

  
	
   

  	
  9B.

  	
  Source of Funds

  	
  40

  
	
   

  	
   

  	
   

  	
   

  
	
  10.

  	
  DEFINITIONS; ACCOUNTING MATTERS

  	
  41

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  10A.

  	
  Yield-Maintenance Terms

  	
  41

  
	
   

  	
  10B.

  	
  Other Terms

  	
  43

  
	
   

  	
  10C.

  	
  Accounting Principles, Terms and Determinations

  	
  60

  
					



 


iii

















 


	
   

  	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  11.

  	
  MISCELLANEOUS

  	
  61

  
	
   

  	
   

  	
   

  
	
   

  	
  11A.

  	
  Note Payments

  	
  61

  
	
   

  	
  11B.

  	
  Expenses

  	
  61

  
	
   

  	
  11C.

  	
  Consent to Amendments

  	
  62

  
	
   

  	
  11D.

  	
  Form, Registration, Transfer and Exchange of Notes; Lost Notes

  	
  63

  
	
   

  	
  11E.

  	
  Persons Deemed Owners; Participations

  	
  64

  
	
   

  	
  11F.

  	
  Survival of Representations and Warranties; Entire Agreement

  	
  64

  
	
   

  	
  11G.

  	
  Successors and Assigns

  	
  64

  
	
   

  	
  11H.

  	
  Independence of Covenants

  	
  64

  
	
   

  	
  11I.

  	
  Notices

  	
  64

  
	
   

  	
  11J.

  	
  Payments Due on Non-Business Days

  	
  65

  
	
   

  	
  11K.

  	
  Satisfaction Requirement

  	
  65

  
	
   

  	
  11L.

  	
  GOVERNING LAW

  	
  65

  
	
   

  	
  11M.

  	
  SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL

  	
  65

  
	
   

  	
  11N.

  	
  Severability

  	
  66

  
	
   

  	
  11O.

  	
  Descriptive Headings; Advice of Counsel; Interpretation; Time of the
  Essence

  	
  66

  
	
   

  	
  11P.

  	
  Counterparts; Facsimile or Electronic Signatures

  	
  66

  
	
   

  	
  11Q.

  	
  Severalty of Obligations

  	
  67

  
	
   

  	
  11R.

  	
  Independent Investigation

  	
  67

  
	
   

  	
  11S.

  	
  Directly or Indirectly

  	
  67

  
	
   

  	
  11T.

  	
  Confidential Information

  	
  67

  
	
   

  	
  11U.

  	
  Transaction References

  	
  68

  
	
   

  	
  11V.

  	
  Binding Agreement

  	
  69

  
					



 


iv

















 


	
  PURCHASER SCHEDULE

  
	
   

  	
   

  	
   

  
	
  SCHEDULE 3A

  	
  —

  	
  EXCLUDED
  ESTOPPEL AND CONSENT AGREEMENTS

  
	
  SCHEDULE 3H

  	
  —

  	
  MATERIAL
  ADVERSE EFFECT

  
	
  SCHEDULE 6B(f)

  	
  —

  	
  EXISTING DEBT

  
	
  SCHEDULE 6B(g)

  	
  —

  	
  DEBT TO BE REPAID

  
	
  SCHEDULE 6C

  	
  —

  	
  EXISTING LIENS

  
	
  SCHEDULE 6I

  	
  —

  	
  UNCONDITIONAL PURCHASE OBLIGATIONS

  
	
  SCHEDULE 6L

  	
  —

  	
  INVESTMENTS

  
	
  SCHEDULE 6R

  	
  —

  	
  HOLDING COMPANY CONTRACTS

  
	
  SCHEDULE
  8A(1)

  	
  —

  	
  SUBSIDIARIES

  
	
  SCHEDUL 8C

  	
  —

  	
  ACTONS
  PENDING

  
	
  SCHEDULE 8F

  	
  —

  	
  TAXES

  
	
  SCHEDULE 8G

  	
  —

  	
  LIST OF
  AGREEMENTS RESTRICTING INDEBTEDNESS

  
	
  SCHEDULE 8K

  	
  —

  	
  FILINGS AND
  RECORDINGS

  
	
  SCHEDULE 8Q

  	
  —

  	
  INFORMATION
  REGARDING THE PARENT AND SUBSIDIARIES

  
	
  SCHEDULE 8T

  	
  —

  	
  LABOR
  MATTERS

  
	
  SCHEDULE 8V

  	
  —

  	
  CASUALTY

  
	
  SCHEDULE 8W

  	
  —

  	
  MATERIAL
  CONTRACTS

  
	
   

  	
   

  	
   

  
	
  EXHIBIT A

  	
  —

  	
  FORM OF
  NOTE

  
	
  EXHIBIT B

  	
  —

  	
  FORM OF
  DISBURSEMENT DIRECTION LETTER

  
	
  EXHIBIT C

  	
  —

  	
  FORM OF
  GUARANTY AGREEMENT

  
	
  EXHIBIT D-1

  	
  —

  	
  FORM OF
  OPINION OF COMPANY’S AND GUARANTORS’ COUNSEL

  
	
  EXHIBIT D-2

  	
  —

  	
  FORM OF
  OPINION OF COMPANY’S AND GUARANTOR’S LOCAL COUNSEL

  



 


v
















 


KAPSTONE PAPER AND PACKAGING
CORPORATION 

KAPSTONE KRAFT PAPER CORPORATION

1101 Skokie Boulevard, Suite 300

Northbrook, Illinois  60062


 


As of July 1, 2008


 


To Each of the Purchasers
Named in the

Purchaser Schedule Attached Hereto


 


Ladies and Gentlemen:


 


The undersigned, Kapstone
Kraft Paper Corporation, a Delaware corporation (the “Company”),
and Kapstone Paper and Packaging Corporation, a Delaware corporation and the
owner of all of the outstanding shares of capital stock of the Company (the “Parent”), hereby agree with the purchasers named in the
Purchaser Schedule attached hereto (herein called the “Purchasers”) as set forth below.  Reference is made to paragraph 10 hereof for
definitions of capitalized terms used herein and not otherwise defined.


 


1.             AUTHORIZATION
OF ISSUE OF NOTES.  The Company
will authorize the issue of its senior secured promissory notes (the “Notes”) in the aggregate principal amount
of $40,000,000, to be dated the date of issue thereof, to mature July 1,
2015, to bear interest on the unpaid balance thereof from the date thereof
until the principal thereof shall have become due and payable at the rate of
8.30% per annum (provided that, during any period when an Event of Default
shall be in existence, at the election of the Required Holder(s) the
outstanding principal balance of the Notes shall bear interest from and after
the date of such Event of Default and until the date such Event of Default
ceases to be in existence at the rate per annum from time to time equal to the
Default Rate) and on overdue payments at the rate per annum from time to time
equal to the Default Rate, and to be substantially in the form of Exhibit A
attached hereto.  The term “Notes” as used herein shall include each
such senior secured promissory note delivered pursuant to any provision of this
Agreement and each such senior secured promissory note delivered in
substitution or exchange for any other Note pursuant to any such provision.


 


2.             PURCHASE
AND SALE OF NOTES.  The Company
hereby agrees to sell to each Purchaser and, subject to the terms and
conditions herein set forth, each Purchaser agrees to purchase from the Company
the aggregate principal amount of Notes set forth opposite such Purchaser’s
name in the Purchaser Schedule attached hereto at 100% of such aggregate
principal amount.  The Company will
deliver to each Purchaser, at the offices of Schiff Hardin LLP at 6600 Sears
Tower, Chicago, Illinois, 60606, one or more Notes registered in such Purchaser’s
name (or, if specified in the Purchaser Schedule, in the name of the nominee(s) for
such Purchaser specified in the Purchaser Schedule), evidencing the aggregate
principal amount of Notes to be purchased by such Purchaser and in the
denomination or denominations specified with respect to such Purchaser in the
Purchaser Schedule against payment of the purchase price thereof by transfer of
immediately available funds on the date of closing, which shall be July 1,
2008 


 

















 


(herein
called the “closing” or the “date of closing”), for credit to the
account or accounts as shall be specified in a letter on the Company’s
letterhead, in substantially the form of Exhibit B attached hereto, from
the Company to the Purchasers delivered prior to the date of closing.


 


3.             CONDITIONS
OF CLOSING.  Each
Purchaser’s obligation to purchase and pay for the Notes to be purchased by
such Purchaser hereunder is subject to the satisfaction, on or before the date
of closing, of the following conditions:


 


3A.          Documents.  Such Purchaser shall have received original
counterparts or, if satisfactory to such Purchaser, certified or other copies,
of all of the following, each duly executed and delivered by the party or
parties thereto, in form and substance satisfactory to such Purchaser, dated
the date of closing unless otherwise indicated, and on the date of closing in
full force and effect with no event having occurred and being then continuing
that would constitute a default thereunder or constitute or provide the basis
for the termination thereof:


 


(i)            the Note or Notes to be
purchased by such Purchaser in the form of Exhibit A attached hereto;


 


(ii)           an Intercreditor and
Collateral Agency Agreement among the Purchasers, the Bank Agent, the
Collateral Agent, the Company and the Guarantors (herein, as the same may be
amended, modified or supplemented from time to time in accordance with the
provisions thereof, called the “Intercreditor
Agreement”);


 


(iii)          a Guaranty Agreement made by
each Guarantor in favor of the holders of the Notes in the form of Exhibit C
attached hereto (together with any other guaranty pursuant to which the Notes
are guarantied and which is entered into as contemplated hereby or by the
Intercreditor Agreement or by any other Transaction Document, as the same may
be amended, modified or supplemented from time to time in accordance with the
provisions thereof, together with all joinders thereto, the “Guaranty Agreement”);


 


(iv)          a Pledge and Security
Agreement made by the Company and each Guarantor in favor of the Collateral
Agent for the benefit of the Banks and the holders of the Notes under which the
Notes, the Company’s obligations under the Credit Agreement and such Guarantor’s
obligations under its Guaranty Agreement are secured by a security interest in
all personal property of the Company and such Guarantor, including without
limitation by a pledge of all of the capital stock of or other ownership
interests in the Company and each Subsidiary of the Company (together with any
other security agreement pursuant to which the Notes are secured and which is
entered into as contemplated hereby, by the Intercreditor Agreement or by any
other Transaction Document, as the same may be amended, modified, or
supplemented from time to time in accordance with the provisions thereof,
collectively called the “Security Agreements”
and individually called a “Security Agreement”);


 


(v)           a Mortgage or Leasehold
Mortgage made by the Company and each Guarantor, as appropriate, with respect
to each parcel of real property owned or leased by the Company or such
Guarantor which is listed on Schedule 8Q hereto in favor of the Collateral
Agent for the benefit of the Banks and the holders of the Notes under which 


 


2

















 


the
Notes, the Company’s obligations under the Credit Agreement and such Guarantor’s
obligations under its Guaranty Agreement, as applicable, are secured by a
mortgage lien in such parcel or leasehold interest, as the case may be
(together with any other mortgage pursuant to which the Notes are secured and
which is entered into as contemplated hereby, by the Intercreditor Agreement or
by any other Transaction Document, as the same may be amended, modified or
supplemented from time to time in accordance with the provisions thereof,
collectively called the “Mortgages”
and individually called a “Mortgage”);


 


(vi)          Deposit Account Control
Agreements and the Securities Account Control Agreements made by the Company
and each Guarantor to the extent required under the Security Agreement, in
favor of the Collateral Agent for the benefit of the Banks and the holders of
the Notes under which the Notes, the Company’s obligations under the Credit
Agreement and such Guarantor’s obligations under its Guaranty Agreement, as
applicable, are secured by a lien in such each deposit account and each
securities account of the Company and the Guarantors described therein;


 


(vii)         except as set forth on
Schedule 3A, estoppel and consent agreements executed by each of the lessors of
the leased real properties of the Company and each Guarantor, along with (1) a
memorandum of lease in recordable form with respect to such leasehold interest,
executed and acknowledged by the owner of the affected real property, as
lessor, or (2) evidence that the applicable lease with respect to such
leasehold interest or a memorandum thereof has been recorded in all places
necessary or desirable, in such Purchaser’s reasonable judgment, to give
constructive notice to third-party purchasers of such leasehold interest, or (3) if
such leasehold interest was acquired or subleased from the holder of a recorded
leasehold interest, the applicable assignment or sublease document, executed
and acknowledged by such holder, in each case in form sufficient to give such
constructive notice upon recordation and otherwise in form satisfactory to such
Purchaser;


 


(viii)        all chattel paper,
instruments and documents of title in which the Collateral Agent has been
granted a security interest and are then required under the Collateral
Documents to be delivered to the Collateral Agent, together with the related
transfer documents executed in blank, in each case received by the Collateral
Agent, all Uniform Commercial Code financing statements perfecting the security
interests and liens granted to the Collateral Agent, duly filed in all offices
necessary to perfect such security interests and liens or deemed by such
Purchaser to be advisable, and all such other certificates, documents,
agreements, recording and filings necessary to establish a valid and perfected
first priority lien and security interest (subject only to Liens described in
paragraph 6C) in favor of the Collateral Agent in all of the Collateral or
deemed by such Purchaser to be advisable;


 


(ix)           a Secretary’s Certificate
signed by the Secretary or an Assistant Secretary and one other officer of the
Company and each Guarantor certifying, among other things, (a) as to the
names, titles and true signatures of the officers of the Company or such
Guarantor, as the case may be, authorized to sign the Transaction Documents to
which the Company or such Guarantor, as the case may be, is a party, (b) that
attached thereto is 


 


3

















 


a
true, accurate and complete copy of the certificate of incorporation or other
formation document of the Company or such Guarantor, as the case may be,
certified by the Secretary of State of the state of organization of the Company
or such Guarantor, as the case may be, as of a recent date, (c) that
attached thereto is a true, accurate and complete copy of the by-laws,
operating agreement or other organizational document of the Company or the
Guarantor, as the case may be, which were duly adopted and are in effect as of
the date of closing and have been in effect immediately prior to and at all
times since the adoption of the resolutions referred to in clause (d), below, (d) that
attached thereto is a true, accurate and complete copy of the resolutions of
the board of directors or other managing body of the Company or such Guarantor,
as the case may be, duly adopted at a meeting or by unanimous written consent
of such board of directors or other managing body, authorizing the execution,
delivery and performance of the Transaction Documents to which the Company or
such Guarantor, as the case may be, is a party, and that such resolutions have
not been amended, modified, revoked or rescinded, are in full force and effect
and are the only resolutions of the shareholders, partners or members of the
Company or such Guarantor, as the case may be, or of such board of directors or
other managing body or any committee thereof relating to the subject matter
thereof, (e) that the Transaction Documents executed and delivered to such
Purchaser by the Company or such Guarantor, as the case may be, are in the form
approved by its board of directors or other managing body in the resolutions
referred to in clause (d), above, and (f) that no dissolution or
liquidation proceedings as to the Company or any Subsidiary have been commenced
or are contemplated;


 


(x)            a certificate of corporate
or other type of entity and tax good standing for the Company and each
Guarantor from the Secretary of State of the state of organization of the
Company and each Guarantor and of each state in which the Company or any
Guarantor is required to be qualified to transact business as a foreign
organization, in each case dated as of a recent date;


 


(xi)           Certified copies of Requests
for Information or Copies (Form UCC-11) or equivalent reports listing all
effective financing statements which name the Company, any Subsidiary or any
Guarantor (under its present name and previous names) or any Seller (to the
extent the collateral described on such financing statement includes any “Purchased
Assets” as defined in the Mead Purchase Agreement) as debtor and which are
filed in the office of the Secretary of State in any state in which the
Company, any Subsidiary or any Guarantor or any Seller is located (as
determined under the UCC), and lien and judgment search reports from the county
recorder of any county in which the Company, any Subsidiary or any Guarantor or
any Seller maintains an office or in which any assets of the Company, any
Subsidiary or any Guarantor or any Seller (to the extent such assets include
any “Purchased Assets” as defined in the Mead Purchase Agreement) are located;
and


 


(xii)          such other certificates,
documents and agreements as such Purchaser may reasonably request.


 


3B.          Opinion of
Purchasers’ Special Counsel.  Such Purchaser shall have received from
Schiff Hardin LLP, who are acting as special counsel for the Purchasers in
connection with 


 


4

















 


this
transaction, a favorable opinion satisfactory to such Purchaser as to such
matters incident to the matters herein contemplated as it may reasonably
request.


 


3C.          Opinion of
Company’s and Guarantors’ Counsel.  Such Purchaser shall have received from (i) Sonnenschein Nath & Rosenthal LLP,
special counsel for the Company and the Guarantors, a favorable opinion
satisfactory to such Purchaser and substantially in the form of Exhibit D-1
attached hereto, (ii) Ellis Lawhorne & Sims, P.A., special South
Carolina counsel to the Company and the Guarantors, a favorable opinion
satisfactory to such Purchaser and substantially in the form of Exhibit D-2
attached hereto, and (iii) Seller’s
counsel, a favorable opinion delivered in connection with the Kraft Acquisition
which opinion is either (A) addressed to such Purchaser or (B) accompanied
by a reliance letter from such counsel addressed to such Purchaser that
expressly states that such Purchaser may rely on such opinion, and each
of the Parent and the Company, by its execution hereof, hereby requests and
authorizes the counsel referenced in clauses (i) and (ii) to render
such opinions and to allow such Purchaser to rely on such opinions, and understands
and agrees that each Purchaser receiving such opinions will be relying, and is
hereby authorized to rely, on such opinions.


 


3D.          Representations
and Warranties; No Default; Satisfaction of Conditions; Material Adverse
Effect.  The representations and
warranties contained in paragraph 8 hereof and in the other Transaction
Documents shall be true on and as of the date of closing, both before and
immediately after giving effect to the issuance of the Notes on the date of
closing and the consummation of any other transactions contemplated hereby,
including the consummation of the Kraft Acquisition, and by the other
Transaction Documents; there shall exist on the date of closing no Event of
Default or Default, both before and immediately after giving effect to the
issuance of the Notes on the date of closing and the consummation of any other
transactions contemplated hereby, including the consummation of the Kraft
Acquisition, and by the other Transaction Documents; the Company and each
Guarantor shall have performed all agreements and satisfied all conditions
required under this Agreement or the other Transaction Documents to be
performed or satisfied on or before the date of closing; and the Company and
each Guarantor shall have delivered to such Purchaser an Officer’s Certificate
of the Parent, dated the date of closing, to each such effect.


 


3E.          Purchase
Permitted By Applicable Laws; Approvals.  The purchase of and payment for the Notes to
be purchased by such Purchaser on the date of closing on the terms and
conditions herein provided (including the use of the proceeds of such Notes by
the Company) shall not violate any applicable law or governmental regulation
(including, without limitation, section 5 of the Securities Act or Regulation
T, U or X of the Board of Governors of the Federal Reserve System) and shall
not subject such Purchaser to any tax, penalty, liability or other onerous
condition under or pursuant to any applicable law or governmental regulation,
and such Purchaser shall have received such certificates or other evidence as
it may request to establish compliance with this condition.  All necessary authorizations, consents,
approvals, exceptions or other actions by or notices to or filings with any
court or administrative or governmental body or other Person required in
connection with the execution, delivery and performance of this Agreement, the
Notes and the other Transaction Documents and the Mead Purchase Agreement or
the consummation of the transactions contemplated hereby or thereby shall have
been issued or made, shall be final and in full force and effect and shall be
in form and substance satisfactory 


 


5

















 


to
such Purchaser, and the Company and each Guarantor shall have delivered to such
Purchaser an Officer’s Certificate, dated the date of closing, to each such
effect.


 


3F.          Title
Insurance, Surveys and Environmental Assessments.  Such Purchaser shall have received (i) fully
paid American Land Title Association Lender’s Extended Coverage title insurance
policies or binder therefore (the “Mortgage Policies”), with endorsements and in amounts
acceptable to the Required Holders, issued, coinsured and reinsured by title
insurers acceptable to such Purchaser, insuring the Mortgages to be valid first
and subsisting Liens on the property described therein, free and clear of all
defects (including, but not limited to, mechanics’ and materialmen’s Liens) and
encumbrances, excepting only those encumbrances specifically permitted under
each respective Mortgage and other Liens permitted under the Transaction
Documents, and providing for such other affirmative insurance (including for
mechanics’ and materialmen’s Liens and for zoning of the applicable property)
and such coinsurance and direct access reinsurance as such Purchaser may deem
necessary or desirable, (ii) Express Map form surveys, for which all
necessary fees (where applicable) have been paid, and dated no more than 30
days before the day of closing, and which shall be in form sufficient to delete
any standard “survey exception” which would otherwise be contained in the
related Mortgage Policy, certified to such Purchaser and the issuer of the
Mortgage Policies in a manner satisfactory to such Purchaser by a land surveyor
duly registered and licensed in the States in which the property described in
such surveys is located and acceptable to such Purchaser, showing all buildings
and other improvements, any off-site improvements, the location of any
easements, parking spaces, rights of way, building set-back lines and other
dimensional regulations and the absence of encroachments, either by such
improvements or on to such property, and other defects, other than
encroachments and other defects acceptable to such Purchaser, (iii) engineering,
soils and other reports (including environmental audits and corresponding
reliance letters) as to the properties described in the Mortgages, from
professional firms acceptable to such Purchaser, (iv) evidence of the
insurance required by the terms of the Mortgages, and (v) evidence that
all other action that such Purchaser or the Collateral Agent may deem necessary
or desirable in order to create valid first and subsisting Liens on the
property described in the Mortgages has been taken.


 


3G.          Certificates
of Insurance.  The Company
shall have delivered from insurance carriers acceptable to such Purchaser
certificates of insurance in such forms and amounts acceptable to such
Purchaser evidencing insurance required to be maintained under paragraph 5F
hereof or under any of the Collateral Documents under insurance policies with
loss payable and additional insured clauses in favor of the Collateral Agent
and acceptable to such Purchaser.


 


3H.          Material
Adverse Change.  No material
adverse change in the business, condition (financial or otherwise), operations
or prospects of the Parent, the Company and its Subsidiaries, taken as a whole,
since December 31, 2007 shall have occurred or be threatened, as
determined by such Purchaser in its sole judgment, except as set forth on Schedule
3H hereto.


 


3I.           New Credit
Agreement.  The Credit
Agreement, providing for a $100,000,000 revolving credit facility to the
Company and for term loans to the Company in the aggregate principal amount of
$415,000,000 (or if the Term B-2 Loan (as defined in the Credit Agreement) is
funded prior to the date of closing, then $455,000,000) and having other terms
and conditions satisfactory to such Purchaser, shall have been duly executed
and delivered by the Company, the Bank Agent and the Banks, and shall be in
full force and effect.  All conditions
precedent to the 


 


6

















 


making
of the term loans and the initial revolving loan under the Credit Agreement
shall have been satisfied (except to the extent waived with the consent of such
Purchaser) and the Company shall have received the proceeds of the term loans
and the initial revolving loan thereunder. 
Such Purchaser shall have received a copy of the Credit Agreement and all
instruments, documents and agreements delivered at the closing of making of the
term loan and the initial revolving loan thereunder, certified by an Officer’s
Certificate of the Parent, dated the date of closing, as correct and complete.


 


3J.          Termination
of Existing Credit Agreement.  All obligations of the Company under the
Credit Agreement, dated January 2, 2007, between the Company, LaSalle Bank
National Association, as agent, and the lenders party thereto (as amended and
in effect on the date of closing, the “Existing Credit Agreement”),
shall have been discharged, the Existing Credit Agreement shall have been
terminated, all liens and security interests securing any of such obligations,
and all financing statements or other filings and recordings relating thereto,
shall have been terminated and released, or such Purchaser shall have received
payoff letters with respect to the release of such liens and termination of
such financing statements, and otherwise in form and substance satisfactory to
such Purchaser, and such payoff letters shall be in full force and effect, and
such Purchaser shall have received such evidence as it may reasonably request
to demonstrate the satisfaction of the foregoing.


 


3K.          Kraft
Acquisition.  The Asset
Purchase Agreement dated April 4, 2008, among the Sellers, the Parent and
Oak Acquisition LLC (the “Mead Purchase Agreement”),
shall be in form and substance satisfactory to such Purchaser, shall have been
duly executed and delivered by the parties thereto and shall be in full force
and effect.  All conditions precedent to
the Company’s obligations to acquire the “Purchased Assets” (as defined in the
Mead Purchase Agreement) thereunder (the “Kraft Acquisition”)
shall have been satisfied (except to the extent waived with the consent of such
Purchaser), and substantially concurrently with the closing of the transaction
contemplated hereby, Oak Acquisition LLC (now known as Kapstone Charleston
Kraft LLC) shall have consummated the acquisition of the assets to be acquired
thereunder.  All necessary
authorizations, consents, approvals, exceptions or other actions by or notices
to or filings with any court or administrative or governmental body or other
Person required in connection with the execution, delivery or performance of
the Mead Purchase Agreement or the consummation of the transactions
contemplated thereby shall be final and in full force and effect and shall be
in form and substance satisfactory to such Purchaser.  Such Purchaser shall have received (i) a
copy of the Mead Purchase Agreement and all instruments, documents and
agreements related thereto (the “Kraft Acquisition
Documents”), and all other Related Agreements, certified by an
Officer’s Certificate of the Parent, dated the date of closing, as correct and
complete, (ii) an Officer’s Certificate of the Parent, dated as of the
date of closing, certifying that no event or circumstance since December 31,
2007 that has had or could be reasonably expected to have, either individually
or in the aggregate, a Material Adverse Effect (as such term is defined in the
Mead Purchase Agreement) except as set forth on Schedule 3H hereto shall have
occurred or be threatened; and (iii) evidence that the sum of (a) the
aggregate purchase price of the Kraft Acquisition, (b) the amount required
to refinance the Existing Credit Agreement and (c) related fees and
expenses shall not exceed $551,000,000.


 


3L.          Note
Assignment; BONY Documents; SCANA Side Letters; Underwriting Agreement;
Warrants; International Paper Purchase Agreement.  Such Purchaser shall have 


 


7

















 


received
a copy of (i) the assignment agreement relating to the assignment of the
Cogen Notes from Teachers to the Seller (the “Note Assignment”), (ii) the acknowledgement signed by
Teachers relating to the Note Assignment, (iii) the BONY documents, (iv) the
SCANA Side Letters, (v) the Underwriting Agreement, (vi) the Warrants
and (vii) the International Paper Purchase Agreement, each on terms and
conditions satisfactory to such Purchaser, certified by an Officer’s
Certificate of the Parent, dated the date of closing, as correct and complete.


 


3M.                         Financial
Information.  Such
Purchaser shall have received:


 


(i)            the financial statements
described in paragraph 8B;


 


(ii)           projected income statements,
balance sheets and cash flow statements prepared by the Company on a Pro Forma
Basis and giving effect to the Kraft Acquisition, the issuance of the Notes
contemplated hereby and the Loans (as defined in the Credit Agreement)
contemplated by the Credit Agreement and the use of proceeds therefrom, on a
quarterly basis for the fiscal year ending December 31, 2008 and on an
annual basis for each fiscal year thereafter;


 


(iii)          a pro forma consolidated
balance sheet of the Parent and its Subsidiaries as of the date of the most
recent consolidated balance sheet delivered pursuant to clause (ii) of
this paragraph 3M, adjusted to give effect to the consummation of the Kraft
Acquisition and the issuance of the Notes contemplated hereby and the Loans (as
defined in the Credit Agreement) contemplated by the Credit Agreement as if
such transactions had occurred on such date, and which is consistent in all
material respects with the sources and uses of cash for the Kraft Acquisition
previously described to such Purchaser and the forecasts previously provided to
such Purchaser; and


 


(iv)          an officer’s certificate
prepared by the chief financial officer of the Company as to the financial
condition, solvency and related matters of the Company and its Subsidiaries,
after giving effect to the Kraft Acquisition, the issuance of the Notes and the
Loans (as defined in the Credit Agreement) to be made on the date of closing
and the other transactions contemplated by the Transaction Documents, in form
and substance reasonably satisfactory to such Purchaser.


 


3N.          Capitalization.  The pro forma capitalization and structure of
the Parent and its Subsidiaries (excluding any change in ownership of the
Parent involving a non-material shareholder) after giving effect to the Kraft
Acquisition as disclosed in the Mead Purchase Agreement shall not have been
modified in any material respect without the approval of the Required Holders.


 


3O.         Debt.  Such Purchaser shall have received evidence
that the Parent and its Subsidiaries shall have no Debt other than the Debt
evidenced by the Notes and other Debt permitted pursuant to paragraph 6B.


 


3P.          Intercompany
Subordinated Note.  Such
Purchaser shall have received a copy of the Intercompany Subordinated Note in
form and substance satisfactory to such Purchaser, certified by an Officer’s
Certificate of the Parent, dated the date of closing, as correct and complete.


 


8
















 


3Q.         Fees and
Expenses.  Without
limiting the provisions of paragraph 11B hereof, the Company shall have paid
the reasonable fees, charges and disbursements of special counsel to the
Purchaser referred to in paragraph 3B hereof.


 


3R.          Structuring
Fee.  The Company shall have paid to
such Purchaser, by wire transfer of immediately available funds, such Purchaser’s
ratable portion (in proportion to the aggregate principal amount of the Notes
to be purchased by such Purchaser) of a structuring fee in the aggregate
amount, for all Purchasers, of $300,000.00.


 


3S.          Proceedings.  All corporate and other proceedings taken or
to be taken in connection with the transactions contemplated hereby and all
documents incident thereto shall be reasonably satisfactory in substance and
form to such Purchaser, and such Purchaser shall have received all such
counterpart originals or certified or other copies of such documents as it may
reasonably request.


 


4.             PREPAYMENTS.  The Notes shall be subject to prepayment only
with respect to the required prepayments specified in paragraphs 4A and 4E, the
optional prepayments permitted by paragraph 4B, and upon acceleration pursuant
to paragraph 7A.


 


4A(1).     Required
Prepayments.  Until the
Notes shall be paid in full, the Company shall apply to the prepayment of the
Notes, without premium, the sum of $3,000,000 on July 1, 2009, $4,000,000
on July 1, 2010, and $5,000,000 on July 1 in each of the years 2011
to 2014, inclusive, and such principal amounts of the Notes, together with
interest thereon to the prepayment dates, shall become due on such prepayment
dates (provided that upon any prepayment or purchase of the Notes pursuant to
paragraph 4B, 4E or 4F the principal amount of each required prepayment of the
Notes becoming due under this paragraph 4A(1) on and after the date of
such prepayment or purchase shall be reduced in the same proportion as the
aggregate unpaid principal amount of the Notes is reduced as a result of such
prepayment or purchase).  The remaining
outstanding principal amount of the Notes, together with any accrued and unpaid
interest thereon, shall become due on July 1, 2015, the maturity date of
the Notes.


 


4A(2).     Required
Prepayment Pursuant to Intercreditor Agreement.  If any amounts are to be applied to the
principal of the Notes on any date pursuant to the terms of the Intercreditor
Agreement other than as a result of a Senior Debt Prepayment Event (prepayments
as a result of which are governed by paragraph 4E), such principal amount of
the Notes, together with interest thereon to such date and together with the
Yield-Maintenance Amount, if any, with respect to each Note, shall be due and
payable on such date.  Any partial
prepayment of the Notes pursuant to this paragraph 4A(2) shall be applied
in satisfaction of the required payments of principal thereof (including the
required payment of principal due upon the maturity thereof) in the  inverse order of their scheduled due dates.


 


4B.          Optional
Prepayment With Yield-Maintenance Amount.  The Notes shall be subject to prepayment, in
whole at any time or from time to time in part (in integral multiples of
$1,000,000 and in a minimum amount of $5,000,000 on any one occurrence), at the
option of the Company, at 100% of the principal amount so prepaid plus interest
thereon to the prepayment date and the Yield-Maintenance Amount, if any, with
respect to each Note.  Any partial
prepayment of the Notes pursuant to this paragraph 4B shall be applied in
satisfaction of required 


 


9

















 


payments
of principal thereof (including the required payment of principal due upon the
maturity thereof) on a pro rata basis in proportion to the respective amounts
thereof.


 


4C.          Notice of
Optional Prepayment.  The Company
shall give the holder of each Note irrevocable written notice of any prepayment
pursuant to paragraph 4B not less than 10 Business Days prior to the prepayment
date, specifying such prepayment date and the aggregate principal amount of the
Notes, and of the Notes held by such holder, to be prepaid on such date and
stating that such prepayment is to be made pursuant to paragraph 4B.  Notice of prepayment having been given as
aforesaid, the principal amount of the Notes specified in such notice, together
with interest thereon to the prepayment date and together with the
Yield-Maintenance Amount, if any, with respect thereto, shall become due and
payable on such prepayment date.  The
Company shall, on or before the day on which it gives written notice of any
prepayment pursuant to paragraph 4B, give telephonic notice of the principal
amount of the Notes to be prepaid and the prepayment date to each Significant
Holder which shall have designated a recipient of such notices in the Purchaser
Schedule attached hereto or by notice in writing to the Company.


 


4D.          Partial
Payments Pro Rata.  In the case
of each prepayment of less than the entire outstanding principal amount of all
Notes pursuant to paragraph 4A(1), 4A(2) or 4B, the principal amount so
prepaid shall be allocated pro rata to all Notes at the time outstanding in
proportion to the respective outstanding principal amounts thereof.


 


4E.          Offer to Prepay Notes upon a
Senior Debt Prepayment Event.


 


4E(1).     Notice of
Senior Debt Prepayment Event.  The Company
will, at least 15 days prior to any Senior Debt Prepayment Event (or, if such
prior notice is not possible, as promptly as possible), give written notice of
such Senior Debt Prepayment Event to each holder of the Notes.  Such notice shall contain and constitute an
offer to prepay the Notes as described in paragraph 4E(3) and shall be
accompanied by the certificate described in paragraph 4E(6).


 


4E(2).     Notice of
Acceptance of Offer under Paragraph 4E(1). 
If the Company shall at any time receive an acceptance to an offer to
prepay Notes under paragraph 4E(1) from some, but not all, of the holders
of the Notes, then the Company will, within two Business Days after the receipt
of such acceptance, give written notice of such acceptance to each other holder
of the Notes.


 


4E(3).     Offer to
Prepay Notes.  The offer to
prepay Notes contemplated by paragraph 4E(1) shall be an offer to prepay,
in accordance with and subject to this paragraph 4E, the Ratable Portion of the
Notes held by each holder (in this case only, “holder” in respect of any Note
registered in the name of a nominee for a disclosed beneficial owner shall mean
such beneficial owner) at the time of the occurrence of the Senior Debt
Prepayment Event.


 


4E(4).     Rejection;
Acceptance.  A holder of
Notes may accept or reject the offer to prepay made pursuant to this paragraph
4E by causing a notice of such acceptance or rejection to be delivered to the
Company prior to the prepayment date.  A
failure by a 


 


10

















 


holder
of Notes to so respond to an offer to prepay made pursuant to this paragraph 4E
shall be deemed to constitute a rejection of such offer by such holder if no
Event of Default exists at the time of such Senior Debt Prepayment Event and no
Event of Default would result therefrom, or an acceptance of such offer by such
holder if an Event of Default exists at the time of such Senior Debt Prepayment
Event or would result therefrom.


 


4E(5).     Prepayment.  Prepayment of the Notes to
be prepaid pursuant to this paragraph 4E shall be at 100% of the principal
amount of such Notes to be prepaid, together with interest on the principal
amount of such Notes to be prepaid accrued to the date of prepayment and, if an
Event of Default exists at the time of such Senior Debt Prepayment Event or
would result therefrom, the Yield-Maintenance Amount, if any, with respect
thereto.  The prepayment shall be made at
the time of occurrence of a Senior Debt Prepayment Event.


 


4E(6).     Officer’s
Certificate.  Each offer to
prepay the Notes pursuant to this paragraph 4E shall be accompanied by a
certificate, executed by a Responsible Officer of the Company and dated the
date of such offer, specifying (i) the proposed prepayment date (which
shall be the date of the Senior Debt Prepayment Event), (ii) that such
offer is made pursuant to this paragraph 4E, (iii) the Ratable Portion of
the principal amount of each Note offered to be prepaid, (iv) the interest
that would be due on the ratable Portion of each Note offered to be prepaid,
accrued to the prepayment date, (v) that the conditions of this paragraph
4E have been fulfilled, and (vi) in reasonable detail, the nature and
anticipated date of the Senior Debt Prepayment Event.


 


4F.          No
Acquisition of Notes.  The
Company shall not, and shall not permit any of its Subsidiaries or Affiliates
to, prepay or otherwise retire in whole or in part prior to their stated final
maturity (other than by prepayment pursuant to paragraph 4A or 4B, upon
acceptance of an offer to prepay pursuant to paragraph 4E or upon acceleration
of such final maturity pursuant to paragraph 7A), or purchase or otherwise
acquire, directly or indirectly, Notes held by any holder unless the Company or
such Subsidiary or Affiliate shall have offered to prepay or otherwise retire
or purchase or otherwise acquire, as the case may be, the same proportion of
the aggregate principal amount of Notes held by each other holder of Notes at
the time outstanding upon the same terms and conditions.  Any Notes so prepaid or otherwise retired or
purchased or otherwise acquired by the Company or any of its Subsidiaries or
Affiliates shall not be deemed to be outstanding for any purpose under this
Agreement.


 


5.             AFFIRMATIVE COVENANTS.


 


5A.          Financial
Statements.  Each of the
Parent and the Company  covenants that it
will deliver to each Significant Holder in duplicate:


 


(i)            as soon as practicable and
in any event within 30 days after the end of each month (other than the last
month of a quarterly period) in each fiscal year, consolidated statements of
earnings and cash flows of the Parent and its Subsidiaries for the period from
the beginning of the current fiscal year to the end of such month, and a
consolidated balance sheet of the Parent and its Subsidiaries as at the end of
such month, 


 


11

















 


setting
forth in each case in comparative form figures for the corresponding period in
the preceding fiscal year, all in reasonable detail and certified by an
authorized financial officer of the Parent as fairly presenting, in all
material respects, the financial position of the Parent and its Subsidiaries
and their results of operations and cash flows, subject to changes resulting
from year-end adjustments; provided, however, that any comparisons delivered in
accordance with this clause (i) with respect to any period preceding the
date of closing shall include a comparison with respect to the Business for
such period;


 


(ii)           as soon as practicable and
in any event within 45 days after the end of each quarterly period (other than
the last quarterly period) in each fiscal year, consolidated statements of
earnings and cash flows of the Parent and its Subsidiaries for the period from
the beginning of the current fiscal year to the end of such quarterly period,
and a consolidated balance sheet of the Parent and its Subsidiaries as at the
end of such quarterly period, setting forth in each case in comparative form
figures for the budget for such quarterly period and for the corresponding
period in the preceding fiscal year, all in reasonable detail and prepared in
accordance with generally accepted accounting principles applicable to
quarterly financial statements and certified by an authorized financial officer
of the Parent as fairly presenting, in all material respects, the financial
position of the Parent and its Subsidiaries and their results of operations and
cash flows, subject to changes resulting from year-end adjustments; provided,
however, that any comparisons delivered in accordance with this clause (ii) with
respect to any period preceding the date of closing shall include a comparison
with respect to the Business for such period;


 


(iii)          as soon as practicable and
in any event within 90 days after the end of each fiscal year, consolidating
and consolidated statements of earnings and cash flows of the Parent and its
Subsidiaries for such year, and a consolidating and consolidated balance sheet
of the Parent and its Subsidiaries as at the end of such year, setting forth in
each case in comparative form corresponding consolidated figures from the
budget for such fiscal year and from the preceding annual audit, all in
reasonable detail and prepared in accordance with generally accepted accounting
principles and, as to the consolidated statements, certified without reference
to going concern value and without qualification by independent public
accountants of recognized national standing selected by the Parent and
reasonably acceptable to the Required Holder(s), and, as to the consolidating
statements, certified by an authorized financial officer of the Parent;
provided, however, that any comparisons delivered in accordance with this
clause (iii) with respect to any period preceding the date of closing
shall include a comparison with respect to the Business for such period;


 


(iv)          promptly upon transmission
thereof, copies of all such financial statements, proxy statements, notices and
reports as it shall send to the Parent’s public stockholders generally and
copies of all registration statements (without exhibits) (other than on Form S-8)
and all reports which it files with the Securities and Exchange Commission (or
any governmental body or agency succeeding to the functions of the Securities
and Exchange Commission);


 


12

















 


(v)           promptly upon receipt
thereof, a copy of each management letter or other report submitted to the
Parent, the Company or any other Subsidiary of the Parent by independent
accountants in connection with any annual or interim audit made by them of the
books of the Parent, the Company or any other Subsidiary of the Parent;


 


(vi)          as soon as practicable, and
in any event not later than 45 days after the commencement of each fiscal year,
financial projections for the Parent and its Subsidiaries for such fiscal year
(including quarterly operating and cash flow budgets) prepared in a manner
consistent with the projections delivered by the Parent to the Purchasers prior
to the date of closing or otherwise in a manner reasonably satisfactory to the
Required Holders, accompanied by an Officer’s Certificate of the Parent on
behalf of the Parent to the effect that (a) such projections were prepared
by the Parent in good faith, (b) the Parent has a reasonable basis for the
assumptions contained in such projections and (c) such projections have
been prepared in accordance with such assumptions;


 


(vii)         promptly upon becoming aware
of any of the following, written notice describing the same and the steps being
taken by the Parent or the Subsidiary affected thereby with respect thereto:


 


(a)           any litigation,
arbitration or governmental investigation or proceeding not previously
disclosed by the Company to the holders of the Notes which has been instituted
or, to the knowledge of the Company or the Parent, is threatened against the
Parent or any Subsidiary or to which any of the properties of any thereof is
subject which might reasonably be expected to have a Material Adverse Effect;


 


(b)           the institution
of any steps by any member of the Controlled Group or any other Person to
terminate any Plan, or the failure of any ERISA Affiliate to make a required
contribution to any Plan (if such failure is sufficient to give rise to a Lien
under Section 302(f) of ERISA) or to any Multiemployer Plan, or the
taking of any action with respect to a Plan which could result in the requirement
that the Parent or any Subsidiary furnish a bond or other security to the PBGC
or such Plan, or the occurrence of any event with respect to any Plan or
Multiemployer Plan which could result in the incurrence by any ERISA Affiliate
of any material liability, fine or penalty (including any claim or demand for
withdrawal liability or partial withdrawal from any Multiemployer Plan), or any
material increase in the contingent liability of the Parent or any Subsidiary
with respect to any post-retirement welfare benefit plan or other employee
benefit plan of the Company or another ERISA Affiliate, or any notice that any
Multiemployer Plan is in reorganization, that increased contributions may be
required to avoid a reduction in plan benefits or the imposition of an excise
tax, that any such plan is or has been funded at a rate less than that required
under Section 412 of the Code, that any such plan is or may be terminated,
or that any such plan is or may become insolvent but only to the extent that
the event(s) described in this subsection individually or in the aggregate
might reasonably be expected to have a Material Adverse Effect;


 


13

















 


(c)           any
cancellation or material change in any material insurance maintained by the
Parent or any Subsidiary; or


 


(d)           any other event
(including (1) any violation of any Environmental Law or the assertion of
any Environmental Claim or (2) the enactment or effectiveness of any law, rule or
regulation) which might reasonably be expected to have a Material Adverse
Effect.


 


(viii)        promptly following receipt,
copies of any material notices (including notices of default or acceleration)
received in connection with the Related Transactions;


 


(ix)           simultaneously with the
transmission thereof, to the extent not otherwise furnished hereunder, copies
of all notices, reports, financial statements or other communications given to
the Bank Agent or the Banks under the Credit Agreement, excluding routine
borrowing requests and notices selecting interest rates applicable thereto; and


 


(x)            with reasonable promptness,
such other information as such Significant Holder may reasonably request.


 


Together with each delivery
of financial statements required by clauses (ii) and (iii) above, the
Parent will deliver to each Significant Holder an Officer’s Certificate of the
Parent demonstrating (with computations in reasonable detail) compliance by the
Parent and its Subsidiaries with the provisions of paragraphs 6A(1), 6A(2), 6B,
6D, 6E, 6F and 6L and stating that there exists no Event of Default or Default,
or, if any Event of Default or Default exists, specifying the nature and period
of existence thereof and what action the Parent and its Subsidiaries propose to
take with respect thereto.  The Parent
also covenants that immediately after any Responsible Officer obtains knowledge
of an Event of Default or Default, it will deliver to each Significant Holder
an Officer’s Certificate of the Parent specifying the nature and period of
existence thereof and what action the Parent proposes to take with respect
thereto.


 


Documents
required to be delivered pursuant to paragraphs 5A(i), (ii) (iii) and
(iv) (to the extent any such documents are included in materials otherwise
filed with the Securities and Exchange Commission) may be delivered
electronically and if so delivered, shall be deemed to have been delivered on
the date (i) on which the Parent posts such documents, or provides a link
thereto on the Parent’s website on the Internet at the website address [www.kapstonepaper.com]
to which each holder of the Notes has access; or (ii) on which such
documents are posted on the Parent’s behalf on an Internet or intranet website,
if any, to which each holder of the Notes has access (whether a commercial,
third-party website); provided that: 
(a) the Parent shall deliver paper copies of such documents to each
Significant Holder that requests the Parent to deliver such paper copies until
a written request to cease delivering paper copies is given by such Significant
Holder and (b) the Parent shall notify each holder of the Notes (by
telecopier or, if instructed by such Significant Holder, electronic mail) of
the posting of any such documents and provide to the such Significant Holder by
electronic mail, electronic versions (i.e., soft copies) of such
documents and any passwords or other requirements to access such documents on
the website where they have been posted. 
Notwithstanding anything contained herein, in every instance the Parent
shall be required to provide paper copies of the Officer’s Certificates of the 


 


14

















 


Parent
and the certificate of accountants described in the prior paragraph to each
Significant Holder.


 


5B.          Information
Required by Rule 144A.  The Company covenants that it will, upon the
request of the holder of any Note, provide such holder, and any qualified
institutional buyer designated by such holder, such financial and other
information as such holder may reasonably determine to be necessary in order to
permit compliance with the information requirements of Rule 144A under the
Securities Act in connection with the resale of Notes, except at such times as
the Company is subject to and in compliance with the reporting requirements of
section 13 or 15(d) of the Exchange Act. 
For the purpose of this paragraph 5B, the term “qualified institutional
buyer” shall have the meaning specified in Rule 144A under the Securities
Act.


 


5C.          Inspection
of Property.  Each of the
Parent and the Company covenants that it will permit any Person designated by
any Significant Holder in writing, at such Significant Holder’s expense if no
Default or Event of Default exists and at the Company’s expense if a Default or
an Event of Default exists, to visit and inspect any of the properties of the
Parent, the Company and any Subsidiary, to examine the corporate books and
financial records of the Parent, the Company and any Subsidiary and make copies
thereof or extracts therefrom and to discuss the affairs, finances and accounts
of any of such corporations with the principal officers of the Parent and the
Company and its independent public accountants, all at such reasonable times
and with reasonable notice (or at any time without notice if an Event of
Default exists) and as often as such Significant Holder may reasonably request.


 


5D.          Covenant to
Secure Notes Equally.  Each
of the Parent and the  Company covenants
that if the Parent, the Company or any other Subsidiary of the Parent shall
create or assume any Lien upon any of its property or assets, whether now owned
or hereafter acquired, other than Liens permitted by the provisions of
paragraph 6C (unless prior written consent to the creation or assumption
thereof shall have been obtained pursuant to paragraph 11C), it will make or
cause to be made effective provision whereby the Notes will be secured by such
Lien equally and ratably with any and all other Debt thereby secured so long as
any such other Debt shall be so secured; provided that the creation and
maintenance of such equal and ratable Lien shall not in any way limit or modify
the right of the holders of the Notes to enforce the provisions of paragraph
6C.


 


5E.          Compliance
with Law.  Each of the
Parent and the Company covenants that it will, and will cause each of the
Subsidiaries to, comply with all laws, ordinances or governmental rules or
regulations to which each of them is subject, including, without limitation,
environmental laws, and will obtain and maintain in full force and effect all
licenses, certificates, permits, franchises, operating rights and other
authorizations from federal, state, foreign, regional, municipal and other
local regulatory bodies or administrative agencies or governmental bodies
having jurisdiction over the Parent and its Subsidiaries or any of their respective
properties necessary to the ownership, operation or maintenance of their
respective properties or to the conduct of their respective businesses, in each
case to the extent necessary to ensure that non-compliance with such laws,
ordinances or governmental rules or regulations or failures to obtain or
maintain in full force and effect such licenses, certificates, permits,
franchises, 


 


15

















 


operating
rights and other authorizations could not reasonably be expected, individually
or in the aggregate, to have a Material Adverse Effect.


 


5F.          Maintenance
of Insurance.  Each of the
Parent and the  Company covenants that it
will, and will cause each of its Subsidiaries to, maintain, with financially
sound and reputable insurers, insurance with respect to their respective
properties and businesses against such casualties and contingencies, of such
types, on such terms and in such amounts as is customary in the case of
entities of established reputations engaged in the same or a similar business
and similarly situated.


 


5G.          Maintenance
of Properties.  Each of the
Parent and the  Company covenants that it
will, and will cause each of its Subsidiaries to, maintain and keep, or cause
to be maintained and kept, their respective properties in good repair, working
order and condition (other than ordinary wear and tear), and from time to time
make, or cause to be made, all needful and proper repairs, renewals and
replacements thereto, so that the business carried on in connection therewith
may be properly conducted at all times, provided that this paragraph 5G shall
not prevent the Parent or any of its Subsidiaries from discontinuing the
operation and the maintenance of any of its properties if such discontinuance
is desirable in the conduct of its business and such discontinuance could not
reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect.


 


5H.          Payment of
Taxes.  Each of the Parent and the
Company covenants that it will, and will cause each of its Subsidiaries to,
file all income tax or similar tax returns required to be filed in any
jurisdiction and to pay and discharge all taxes shown to be due and payable on
such returns and all other taxes, assessments, governmental charges or levies
payable by any of them, and to pay and discharge all amounts payable for work,
labor and materials, in each case to the extent such taxes, assessments,
charges, levies and amounts payable have become due and payable and before they
have become delinquent, provided that neither the Parent nor any Subsidiary of
the Parent need pay any such tax, assessment, charge, levy or amount payable if
(i) the amount, applicability or validity thereof is being actively
contested by the Parent or such Subsidiary on a timely basis in good faith and
in appropriate proceedings, and the Parent or such Subsidiary has established
adequate reserves therefor in accordance with generally accepted accounting
principles on the books of the Parent or such Subsidiary or (ii) the nonpayment
of all such taxes, assessments, charges, levies and amounts payable in the
aggregate could not reasonably be expected to have a Material Adverse Effect.


 


5I.           Corporate
Existence.  Each of the
Parent and the Company will at all times preserve and keep in full force and
effect its corporate existence.  The
Parent will at all times preserve and keep in full force and effect the
corporate existence of the Company. 
Subject to paragraphs 6F and 6G, each of the Parent and the Company will
at all times preserve and keep in full force and effect the corporate, limited
liability company or partnership, as the case may be, existence of each of the
Subsidiaries (other than the Company), unless the termination of or failure to
preserve and keep in full force and effect such corporate existence,
certificate, could not reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect.


 


5J.          Lines of
Business.  Each of the
Parent and the Company covenants that it will not, and it will not permit any
of the Subsidiaries to, engage in any business if, as a result 


 


16

















 


thereof,
the general nature of the businesses of the Parent and its Subsidiaries, taken
as a whole, would be substantially changed from the businesses of the Parent
and its Subsidiaries as conducted as of the date of closing.


 


5K.          Subsequent
Guarantors.  Each of the
Parent and the Company covenants that if at any time any Person, which is not a
Domestic Subsidiary as of the date hereof, shall become a Domestic Subsidiary,
the Parent and the Company will cause such Person to execute and deliver to the
holders of the Notes a joinder to the Guaranty Agreement substantially in the
form of the joinder attached to the Guaranty Agreement delivered at the closing
pursuant to paragraph 3A(iii) hereof, and will cause such Person to comply
with the provisions of paragraph 5L hereof. 
Each such joinder shall be accompanied by a certificate of the Secretary
or Assistant Secretary of such Person certifying such Person’s charter and
by-laws (or comparable governing documents), resolutions of the board of
directors (or comparable governing body) of such Person authorizing the
execution and delivery of such joinder to the Guaranty Agreement and documents
executed by such Person pursuant to paragraph 5L hereof and incumbency and
specimen signatures of the officers of such Person executing such
documents.  Without limiting the
generality of the foregoing, the Company shall cause Cogen JV and any other Domestic
Subsidiary acquired or formed in connection with the consummation of the Kraft
Acquisition to comply with the provisions of this paragraph 5K and the
provisions of paragraph 5L not later that 14 days after the date of closing.


 


5L.          Deliveries;
Further Assurances.  Each of the
Parent and the Company covenants to, and to cause each Subsidiary to, at its
sole expense, promptly execute and deliver, or cause to be executed and
delivered, to the holders of the Notes or the Collateral Agent, in due form for
filing or recording (the Company hereby agrees to pay the cost of filing or
recording the same (including without limitation any and all filing fees and
recording taxes)) in all public offices necessary or deemed necessary by the
Required Holder(s) or the Collateral Agent, such collateral assignments,
security agreements, pledge agreements, mortgages, leasehold mortgages,
warehouse receipts, bailee letters, consents, waivers, financing statements and
other instruments and documents, and do such other acts and things, including,
without limitation, all acts and things as the Required Holder(s) or the
Collateral Agent may from time to time reasonably request, to establish and
maintain to the satisfaction of the Required Holder(s) and the Collateral
Agent a valid and perfected first priority security interest in favor of the
Collateral Agent in all of the present and/or future Collateral free of all
other Liens whatsoever (subject only to the Liens permitted by paragraph 6C),
and to deliver to the Collateral Agent or the holders of the Notes such
certificates, documents, instruments and opinions in connection therewith as
may be reasonably requested by the Collateral Agent or the Required Holder(s),
each in form and substance reasonably satisfactory to the Collateral Agent and
the Required Holder(s).  In the event
that the Company or any Subsidiary hereafter acquires any real property or
interest in real property on which a Lien is required to be granted to the
Collateral Agent pursuant to this paragraph, then the Company shall also supply
to the Collateral Agent and the holders of the Notes, at the Company’s sole
cost and expense, a survey, environmental report, hazard insurance policy and a
mortgagee’s policy of title insurance from a title insurer reasonably acceptable
to the Required Holder(s) insuring the validity of such Lien on the real
property or interest in real property encumbered thereby, each in form and
substance reasonably satisfactory to the Collateral Agent and the Required
Holder(s).  Each of the Parent and the
Company hereby irrevocably makes, constitutes and appoints the Collateral Agent
(and all other persons 


 


17

















 


designated
by the Collateral Agent for that purpose) as the Parent’ and the Company’s true
and lawful agent and attorney-in-fact to, if the Parent or the Company, as the
case may be, fails to do so as required upon the request of the Required Holder(s) or
the Collateral Agent, sign the Parent’s or the Company’s, as the case may be,
name on any such agreements, instruments and documents referred to in the
preceding sentences and to deliver such agreements, instruments and documents
to such Persons as the Required Holder(s) or the Collateral Agent in their
sole discretion may elect.


 


5M.         Agreement
Assuming Liability on Notes.  Each of the Parent and the Company covenants
that, if at any time any Person should become liable (as co-obligor, endorser,
guarantor or surety) on any other obligation of the Parent or any Subsidiary
under the Credit Agreement or any other Loan Documents (as defined in the
Credit Agreement), the Parent and the Company will, at the same time, cause
such Person to deliver to the holders of the Notes an agreement pursuant to
which such Person becomes similarly liable on the Notes.  The delivery of such an agreement shall not
in any way limit or modify the rights of the holders of the Notes to enforce
the provisions of paragraph 6B.


 


5N.          Compliance with Terms of Leaseholds.  Each of the Parent and the
Company covenants to, and shall cause its Subsidiaries to, make all payments
and otherwise perform all obligations in respect of all leases of real property
to which the Parent, the Company or any other Subsidiary is a party, keep such
leases in full force and effect and not allow such leases to lapse or be
terminated or any rights to renew such leases to be forfeited or cancelled,
notify the holders of the Notes of any default by any party with respect to
such leases and cooperate with the holders of the Notes in all respects to cure
any such default, and cause each of its Subsidiaries to do so, except, in any
case, where the failure to do so, either individually or in the aggregate,
could not be reasonably likely to have a Material Adverse Effect.


 


5O.         Material Contracts.  Each of the Parent and the
Company covenants to, and shall cause the Subsidiaries to, perform and observe
all the terms and provisions of each Material Contract to be performed or
observed by it, maintain each such Material Contract in full force and effect (except
in connection with the termination or replacement of such Material Contracts in
the ordinary course of business), enforce each such Material Contract in
accordance with its terms, except, in any case, where the failure to do so,
either individually or in the aggregate, could not reasonably be expected to
have a Material Adverse Effect.


 


5P.          Amendments to Credit Agreement or Loan Documents.  Each of the Parent and the
Company covenants that if either the Credit Agreement or any of the other Loan
Documents (as defined in the Credit Agreement as in effect on the date of
closing) is amended after the date of closing to change (in a manner that is
more restrictive to the Parent, the Company or any of the other Subsidiaries)
any financial covenant, negative covenant or event of default as it exists on
the date of closing, or any such section or other provision of such document is
amended to include any additional financial covenants, negative covenants or
events of default that are not set forth in (or that are more restrictive than
those set forth in) this Agreement, then the Parent and the Company shall, and
shall cause each applicable Subsidiary to, offer to amend this Agreement and/or
the other Transaction Documents, as applicable (and, upon the request of the
Required Holders, the Parent and the Company shall, and shall cause 


 


18

















 


each
applicable Subsidiary to, execute appropriate amendment documents) to reflect
corresponding changes.


 


6.             NEGATIVE COVENANTS.


 


6A.          Financial
Covenants.


 


6A(1).     Total Leverage Ratio.  The Parent covenants is shall not permit the
Total Leverage Ratio as of the end of any fiscal quarter of the Parent set
forth below to be greater than the ratio corresponding to such fiscal quarter:


 


	
  Calendar Year

  	
   

  	
  March 31

  	
   

  	
  June 30

  	
   

  	
  September 30

  	
   

  	
  December 31

  	
   

  
	
  2008

  	
   

  	
  N/A

  	
   

  	
  4.00:1.00

  	
   

  	
  4.00:1.00

  	
   

  	
  3.75:1.00

  	
   

  
	
  2009

  	
   

  	
  3.50:1.00

  	
   

  	
  3.50:1.00

  	
   

  	
  3.50:1.00

  	
   

  	
  3.00:1.00

  	
   

  
	
  2010

  	
   

  	
  3.00:1.00

  	
   

  	
  3.00:1.00

  	
   

  	
  3.00:1.00

  	
   

  	
  3.00:1.00

  	
   

  
	
  2011

  	
   

  	
  3.00:1.00

  	
   

  	
  3.00:1.00

  	
   

  	
  3.00:1.00

  	
   

  	
  3.00:1.00

  	
   

  
	
  2012

  	
   

  	
  3.00:1.00

  	
   

  	
  3.00:1.00

  	
   

  	
  3.00:1.00

  	
   

  	
  3.00:1.00

  	
   

  
	
  2013

  	
   

  	
  3.00:1.00

  	
   

  	
  2.50:1.00

  	
   

  	
  2.50:1.00

  	
   

  	
  2.50:1.00

  	
   

  
	
  Thereafter

  	
   

  	
  2.50:
  1.00

  	
   

  	
  2.50:
  1.00

  	
   

  	
  2.50:
  1.00

  	
   

  	
  2.50:
  1.00

  	
   

  



 


6A(2).     Fixed
Charge Coverage Ratio.  The
Parent covenants it shall not permit the Fixed Charge Coverage Ratio as of the
end of any fiscal quarter of the Parent to be less than (i) from the date
of closing to and including the fiscal quarter ending September 30, 2011,
1.10:1.00 and (ii) commencing with the fiscal quarter ending December 31,
2011 and thereafter, 1.15:1.00.


 


6B.          Debt.  Each of the Parent and the Company covenants
that it shall not, and shall not permit any Subsidiary to, create, incur,
assume or suffer to exist any Debt, except:


 


(a)           the obligations under this
Agreement and Notes;


 


(b)           Debt secured by Liens
permitted by paragraph 6C(d), and extensions, renewals and refinancings
thereof; provided that the aggregate amount of all such Debt at any time
outstanding shall not exceed $5,000,000;


 


(c)           Debt (other than the
Intercompany Subordinated Debt) of the Company to any Guarantor or of any
Guarantor to the Company; provided that to the extent requested in
writing by the Required Holders such Debt shall be evidenced by a demand note
in form and substance reasonably satisfactory to the Required Holders and
pledged and delivered to the Collateral Agent pursuant to the Collateral
Documents as additional collateral security for the Notes, and the obligations
under such demand note shall be subordinated to the Notes in a manner
reasonably satisfactory to the Required Holders;


 


(d)           the Earn-Out Obligations;


 


(e)           Hedging Obligations incurred
for bona fide hedging purposes and not for speculation, and Debt in respect of
Cash Management Agreements;


 


19
















 


(f)            Debt outstanding on the date
hereof and listed on Schedule 6B(f) and any refinancings, refundings,
renewals or extensions thereof; provided  that (i) the amount
of such Debt is not increased at the time of such refinancing, refunding,
renewal or extension except by an amount equal to a reasonable premium or other
reasonable amount paid, and fees and expenses reasonably incurred, in
connection with such refinancing and by an amount equal to any existing
commitments unutilized thereunder and (ii) the terms relating to principal
amount, amortization, maturity, collateral (if any) and subordination (if any),
and other material terms taken as a whole, of any such refinancing, refunding,
renewing or extending Debt, and of any agreement entered into and of any instrument
issued in connection therewith, are no less favorable in any material respect
to the Parent, the Company and the other Subsidiaries or the holders of the
Notes than the terms of any agreement or instrument governing the Debt being
refinanced, refunded, renewed or extended and the interest rate applicable to
any such refinancing, refunding, renewing or extending Debt does not exceed the
then applicable market interest rate;


 


(g)           the Debt to be Repaid (which
Debt shall include the Term B-2 Loan (as defined in the Credit Agreement) if
such Term B-2 Loan is funded prior to the date of closing) set forth on
Schedule 6B(g) (so long as such Debt is repaid on the date of closing);


 


(h)           Contingent Liabilities
arising with respect to indemnification obligations in favor of (i) sellers
in connection with acquisitions or (ii) purchasers in connection with
dispositions, in each case permitted under paragraph 6F;


 


(i)            Intercompany Subordinated
Debt in an aggregate outstanding principal amount not at any time exceeding
$87,000,000 (plus accrued paid-in-kind interest);


 


(j)            Contingent Liabilities in
respect of guarantees of the Company or any Guarantor in respect of Debt or
other obligations otherwise permitted hereunder and to the extent such Debt is
required to be subordinated such Contingent Liabilities will be equally
subordinated;


 


(k)           subject to the
terms of the Intercreditor Agreement (to the extent applicable), Debt pursuant
to the Credit Agreement and the Loan Documents (as defined in the Credit
Agreement) in an aggregate outstanding principal amount not at any time
exceeding $515,000,000, and any refinancings, refundings, renewals or
extensions thereof to the extent permitted under the Intercreditor Agreement
(to the extent applicable), provided that the Term B-2 Loan (as defined in the
Credit Agreement) shall not be permitted under this clause (k) and instead
is addressed in the foregoing clause (g);


 


(l)            unsecured Debt
and Debt secured by Liens permitted under paragraph 6C(h), in addition to the
Debt listed above, collectively, in an aggregate outstanding principal amount
not at any time exceeding $20,000,000 so long as (i) no Default or Event
of Default has occurred and is continuing on the date of any such Debt is
incurred 


 


20

















 


or
would result therefrom, and (ii) after giving effect to such Debt, the
Parent and its Subsidiaries are in compliance on a pro forma basis with the
financial covenants set forth in paragraph 6A as of the last day of the most
recent fiscal quarter for which an Officer’s Certificate of the Parent has been
delivered in accordance with paragraph 5A;  and


 


(m)          other unsecured Debt, in
addition to the Debt listed above, in an aggregate outstanding principal amount
not at any time exceeding $30,000,000 so long as (i) such Debt is
subordinated to the Notes, and pursuant to documentation, on terms satisfactory
to the Required Holders, (ii) no Default or Event of Default has occurred
and is continuing on the date of any such Debt is incurred or would result
therefrom, and (iii) after giving effect to such Debt, the Parent and its
Subsidiaries are in compliance on a pro forma basis with the financial
covenants set forth in paragraph 6A as of the last day of the most recent
fiscal quarter for which an Officer’s Certificate of the Parent has been
delivered in accordance with paragraph 5A.


 


6C.          Liens.  Each of the Parent and the Company covenants
that it shall not, and shall not permit any Subsidiary to, create or permit to
exist any Lien on any of its real or personal properties, assets or rights of
whatsoever nature (whether now owned or hereafter acquired), except:


 


(a)           Liens for taxes or other
governmental charges not at the time delinquent or thereafter payable without
penalty or being contested in good faith by appropriate proceedings and, in
each case, for which it maintains adequate reserves;


 


(b)           Liens arising in the
ordinary course of business (such as (i) Liens of landlords, carriers,
warehousemen, mechanics and materialmen and other similar Liens imposed by law
and (ii) Liens in the form of deposits or pledges incurred in connection
with worker’s compensation, unemployment compensation and other types of social
security (excluding Liens arising under ERISA) or in connection with surety bonds,
bids, performance bonds and similar obligations) for sums not overdue or being
contested in good faith by appropriate proceedings and not involving any
advances or borrowed money or the deferred purchase price of property or
services and, in each case, for which it maintains adequate reserves;


 


(c)           Liens described on Schedule
6C as of the date of closing;


 


(d)           subject to the limitation
set forth in paragraph 6B(b), (i) Liens arising in connection with Capital
Leases (and attaching only to the property being leased), (ii) Liens
existing on property at the time of the acquisition thereof by the Company or
any Guarantor (and not created in contemplation of such acquisition) and (iii) Liens
that constitute purchase money security interests on any property securing debt
incurred for the purpose of financing all or any part of the cost of acquiring
such property, provided that any such Lien attaches to such property
within 60 days of the acquisition thereof and attaches solely to the property
so acquired;


 


21

















 


(e)           attachments, appeal bonds,
judgments and other similar Liens, for sums not exceeding $5,000,000 arising in
connection with court proceedings, provided the execution or other
enforcement of such Liens is effectively stayed and the claims secured thereby
are being actively contested in good faith and by appropriate proceedings;


 


(f)            easements, rights of way,
restrictions, minor defects or irregularities in title and other similar Liens
not interfering in any material respect with the ordinary conduct of the
business of the Parent, the Company or any other Subsidiary;


 


(g)           Liens in favor of the
Collateral Agent arising under the Collateral Documents, which also may secure,
subject to the terms of the Intercreditor Agreement (to the extent applicable),
the obligations under the Credit Agreement to the extent permitted under
paragraph 6B(k);


 


(h)           Liens on the property of a
Person existing at the time such Person becomes a Subsidiary of the Company in
a transaction permitted hereunder; provided, however, that any
such Lien may not extend to any other property of the Parent, the Company or
any other Subsidiary that is not a Subsidiary of such Person; provided,
further, that any such Lien was not created in anticipation of or in connection
with the transaction or series of transactions pursuant to which such Person
became a Subsidiary of the Company; and


 


(i)            the
replacement, extension or renewal of any Lien permitted by clause (c) above
upon or in the same property subject thereto arising out of the extension,
renewal or replacement of the Debt secured thereby (without increase in the
amount thereof).


 


6D.          Operating Leases.  Each of the Parent and the
Company covenants that it shall not permit the aggregate amount of all rental
payments under Operating Leases made (or scheduled to be made) by the Parent,
the Company and the other Subsidiaries (on a consolidated basis) to exceed
$5,000,000 in any fiscal year.


 


6E.          Restricted Payments.  Each of the Parent and the
Company covenants that it shall not, and shall not permit any Subsidiary to,
make any distribution to any holders of its Capital Securities, purchase or
redeem any of its Capital Securities, pay any management fees or similar fees
or expenses to any of its equityholders or any Affiliate thereof, make any
redemption, prepayment, defeasance, repurchase or any other payment in respect
of any Intercompany Subordinated Debt or set aside funds for any of the
foregoing. Notwithstanding the foregoing:


 


(a)           the Company may reimburse
Parent for out-of-pocket costs and expenses incurred by Parent on behalf of or
for the benefit of the Company, and for fees charged by Parent to the Company,
in an aggregate amount not to exceed $4,000,000 during any fiscal year;


 


22

















 


(b)           subject to the Intercompany
Subordination Agreement, the Company may make payments in kind of scheduled
interest on the Intercompany Subordinated Note at the non-default rate of
interest set forth in the Intercompany Subordinated Note;


 


(c)           any Subsidiary may pay
dividends or make other distributions to the Company or to a Domestic
Subsidiary that is a Wholly-Owned Subsidiary and a Guarantor;


 


(d)           so long as the Company files
a consolidated income tax return with Parent, the Company may make
distributions to Parent to permit Parent to pay federal and state income taxes
then due and owing; provided that the amount of such distribution shall
not be greater, nor the receipt by the Company of tax benefits less, than they
would have been had the Company not filed a consolidated return with Parent;


 


(e)           the Company may make, and
the Parent may distribute to its shareholders, the Permitted Parent Dividends
and other cash distributions to Parent from time to time so long as (i) no
Default or Event of Default has occurred and is continuing on the date of any
such distribution or would result therefrom, (ii) after giving effect to
any such distribution (and any Debt incurred to fund such distribution), the
Parent is in compliance on a pro forma basis with the financial covenants set
forth in paragraph 6A as of the last day of the most recent fiscal quarter for
which an Officer’s Certificate of the Parent has been delivered in accordance
with paragraph 5A, and (iii) after giving effect to any such distribution,
the aggregate amount of all such distributions made following the date of
closing shall not exceed Cumulative Available Excess Cash Flow as of the date
of such distribution; and


 


(f)            the Parent may satisfy its
obligations in connection with the Warrants and the Underwriting Agreement.


 


6F.          Mergers, Consolidations, Acquisitions, Sales.  Each of the Parent and the
Company covenants that it shall not, and shall not permit any Subsidiary to:


 


(a)           be a party to any merger or
consolidation, or purchase or otherwise acquire all or substantially all of the
assets or any Capital Securities of any class of, or any partnership or joint
venture interest in, any other Person other than in connection with a Permitted
Acquisition,


 


(b)           sell, transfer, convey or
lease all or any substantial part of its assets or Capital Securities
(including the sale of Capital Securities of any Subsidiary) except for the
disposition of assets no longer useful or used in connection with the Company
or a Guarantor’s business, sales of inventory in the ordinary course of
business and obsolete or worn-out equipment, or


 


(c)           sell or assign with or
without recourse any receivables,


 


23

















 


except for (i) any such
merger, consolidation, sale, transfer, conveyance, lease or assignment of or by
any Wholly-Owned Subsidiary into the Company or into any other Domestic
Subsidiary that is a Wholly-Owned Subsidiary and a Guarantor; (ii) any
such purchase or other acquisition by the Company or any Domestic Subsidiary
that is a Wholly-Owned Subsidiary and a Guarantor of the assets or Capital
Securities of any Wholly-Owned Subsidiary; (iii) sales and dispositions of
assets (including the Capital Securities of Subsidiaries) for at least fair
market value (as determined by the Board of Directors of the Parent) so long as
the net book value of all assets sold or otherwise disposed of in any fiscal
year does not exceed 10% of the net book value of the consolidated assets of
the Parent and its Subsidiaries as of the last day of the preceding fiscal
year.


 


6G.          Modification of
Organization Documents.  Each of the Parent and the Company covenants
that it shall not permit any Organizational Documents of the Parent, the
Company or any other Subsidiary to be amended or modified in any way which
could reasonably be expected to adversely affect the interests of the holders
of the Notes; and not change, or allow the Parent, the Company or any other
Subsidiary to change, its state of formation or its organizational form upon
less than 30 days’ prior notice to the holders of the Notes.


 


6H.          Transactions
with Affiliates.   Each of the
Parent and the Company covenants that it shall not, and shall not permit any
Subsidiary to, enter into, or cause, suffer or permit to exist any transaction,
arrangement or contract with any of its other Affiliates (other than the
Company, the Parent and the other Guarantors) which is on terms which are less
favorable than are obtainable from any Person which is not one of its
Affiliates; provided, that the transactions contemplated under the Intercompany
Subordinated Note shall not be deemed violative of this paragraph 6H.


 


6I.           Unconditional
Purchase Obligations.  Except as set forth on Schedule 6I, each of
the Parent and the Company covenants that it shall not, and shall not permit
any Subsidiary to, enter into or be a party to any contract for the purchase of
materials, supplies or other property or services if such contract requires
that payment be made by it regardless of whether delivery is ever made of such
materials, supplies or other property or services.


 


6J.          Inconsistent Agreements.  Each of the Parent and the
Company covenants that it shall not, and shall not permit any Subsidiary to,
enter into any agreement containing any provision which would (a) be
violated or breached by the issuance of the Notes by the Company hereunder or
by the performance by the Company or any Subsidiary of its obligations
hereunder, under the Notes or under any other Transaction Document, (b) prohibit
the Parent, the Company or any other Subsidiary from granting to the Collateral
Agent a Lien on any of its assets or (c) create or permit to exist or
become effective any encumbrance or restriction on the ability of any
Subsidiary to (i) pay dividends or make other distributions to the Company
or any other Subsidiary, or pay any Debt owed to the Company or any other
Subsidiary, (ii) make loans or advances to the Company or any Guarantor or
(iii) transfer any of its assets or properties to the Company or any
Guarantor, other than (A) customary restrictions and conditions contained
in agreements relating to the sale of all or a substantial part of the assets
of any Subsidiary pending such sale, provided that such restrictions and
conditions apply only to the Subsidiary to be sold and such sale is permitted
hereunder (B) restrictions or conditions imposed by any agreement 


 


24

















 


relating
to purchase money Debt, Capital Leases and other secured Debt permitted by this
Agreement if such restrictions or conditions apply only to the property or
assets securing such Debt and (C) customary provisions in leases and other
contracts restricting the assignment thereof.


 


6K.          Business Activities; Issuance of Equity.  Each of the Parent and the
Company covenants that it shall not, and shall not permit any Subsidiary to,
engage in any line of business other than the businesses engaged in on the date
hereof and businesses reasonably related thereto. The Company covenants that it
shall not, and each of the Parent and the Company covenants that it shall not
permit any Subsidiary (other than the Parent) to, issue any Capital Securities
other than any issuance by a Subsidiary to the Company or another Subsidiary
that is a Guarantor in accordance with paragraphs 6E and 6L.


 


6L.          Investments.  Each of the Parent and the
Company covenants that it shall not, and shall not permit any Subsidiary to,
make or permit to exist any Investment in any other Person, except the
following:


 


(a)           contributions by the Company
to the capital of any Domestic Subsidiary that is a Wholly-Owned Subsidiary, or
by any Subsidiary to the capital of any other Domestic Subsidiary that is a
Wholly-Owned Subsidiary, so long as the recipient of any such capital contribution
has guaranteed the Company’s obligations under the Notes and this Agreement and
such guaranty is secured by a pledge of all of its Capital Securities and
substantially all of its  real and
personal property, in each case in accordance with paragraph 5L;


 


(b)           Investments constituting
Debt permitted by paragraph 6B;


 


(c)           Contingent Liabilities
constituting Debt permitted by paragraph 6B or Liens permitted by paragraph 6C;


 


(d)           Cash Equivalent Investments;


 


(e)           bank deposits in the
ordinary course of business and in connection with Cash Management Agreements; provided
that any such deposit accounts shall (A) be subject to a Deposit Account
Control Agreement in favor of the Collateral Agent or other similar arrangement
satisfactory to the Required Holders or (B) not at any time exceed
$150,000;


 


(f)            Investments in securities of
Account Debtors received pursuant to any plan of reorganization or similar
arrangement upon the bankruptcy or insolvency of such account debtors;


 


(g)           Investments in Foreign Subsidiaries
in an aggregate amount not to exceed $500,000 at any one time outstanding; and


 


(h)           Investments listed on
Schedule 6L as of the date of closing;


 


25

















 


provided that (x) any
Investment which when made complies with the requirements of the definition of
the term “Cash Equivalent Investment” may
continue to be held notwithstanding that such Investment if made thereafter
would not comply with such requirements; and (y) no Investment otherwise
permitted by clause (b) or (c) shall be permitted to be made if,
immediately before or after giving effect thereto, any Default or Event of
Default exists.


 


6M.         Restriction of Amendments to Certain Documents.  Each of the Parent and the
Company covenants that it shall not, and shall not permit any Guarantor to,
amend or otherwise modify, or waive any rights under, the Related Agreements,
if, in any case, such amendment, modification or waiver could be adverse to the
interests of the holders of the Notes. Without limiting the generality of the
foregoing, the Company shall not amend the International Paper Purchase
Agreement in any manner which would accelerate the payment of the Earn-Out
Obligations and the Company shall not prepay the Earn-Out Obligations.


 


6N.          Working Capital Facility.  The Company covenants that it shall not at
any time fail to maintain in full force and effect a working capital credit
facility with aggregate commitments to provide revolving loans to the Company
of not less than $75,000,0000.


 


6O.         Accounting Changes; Fiscal Year.  Each of the Parent and the
Company covenants that it shall not, and shall not permit any Subsidiary to,
make any change in (a) accounting policies or reporting practices, except
as permitted by GAAP, or (b) its fiscal year.


 


6P.          Prepayments, Etc. of Debt.  Each of the Parent and the
Company covenants that it shall not, and shall not permit any Subsidiary to,
prepay, redeem, purchase, defease or otherwise satisfy prior to the scheduled
maturity thereof in any manner, or make any payment in violation of any
subordination terms of, any Debt, except (a) the prepayment of the Notes
in accordance with the terms of this Agreement, (b) regularly scheduled or
required repayments or redemptions of Debt set forth in Schedule 6B(f) and
refinancings and refundings of such Debt in compliance with paragraph 6B(c), (c) with
respect to the term loans outstanding under the Credit Agreement, (i) scheduled
principal amortization payments as provided in the Credit Agreement as in
effect on the closing date, provided if the Term B-2 Loan (as defined in the
Credit Agreement) has been funded prior to the date of closing, then it shall
be prepaid on the date of closing with proceeds of the Notes, (ii) mandatory
prepayments as provided in the Credit Agreement as in effect on the closing
date, and (iii) so long as no Default or Event of Default has occurred or
is continuing, optional prepayments of the Term Loans (as defined in the Credit
Agreement) in accordance with the terms of this Agreement and the Intercreditor
Agreement (to the extent applicable) and (d) repayments of the revolving
loans outstanding under the Credit Agreement.


 


6Q.         Amendment, Etc. of Debt.  Each of the Parent and the
Company covenants that it shall not, and shall not permit any Subsidiary to,
amend, modify or change in any manner any term or condition of (a) any
Debt set forth in Schedule 6B, except for (i) any refinancing, refunding,
renewal or extension thereof permitted by paragraph 6B(c), (ii) in
connection with Contingent Liabilities arising with respect to indemnification
obligations, any modification or amendment that does not increase the amount or
accelerate the time of payment of any such Debt 


 


26

















 


and
(iii) any other amendment or modification if, taken as a whole, such
amendment or modification would not (w) be adverse in any material respect
to the Parent, the Company and the other Subsidiaries, (x) shorten the
final maturity or average life to maturity, (y) require any payment to be made
sooner than originally scheduled or (z) increase the interest rate
applicable thereto or (b) the Credit Agreement, except to the extent
permitted under the Intercreditor Agreement (to the extent applicable) and in
accordance with paragraph 6P hereof.


 


6R.          Holding Company.  The Parent covenants that it
shall not engage in any business or activity other than (a) the ownership
of all outstanding Capital Securities of the Company, (b) maintaining its
corporate existence, (c) formation and ownership of direct or indirect
Subsidiaries, (d) the issuance of Equity Interests (subject to compliance
with the applicable terms of this Agreement), (e) participating in tax,
accounting and other administrative activities as the parent of the
consolidated group of companies, including the Company and the other Guarantors
(including execution and delivery of contracts and agreements in the ordinary
course of business in connection therewith), (f) the execution and
delivery of the Transaction Documents and Loan Documents (as defined in the
Credit Agreement) to which it is a party and the performance of its obligations
thereunder, (g) fulfilling its obligations as an issuer of publicly traded
securities and an entity subject to (i) regulation by the SEC and (ii) applicable
securities laws and NASDAQ rules, (h) acting as the lender under the
Intercompany Subordinated Note, (i) the performance of its obligations
under the applicable contracts set forth on Schedule 6R, (j) the
performance of its obligations under the Warrants and the Underwriting
Agreement, (k) guarantees of obligations of the Company and the other
Guarantors in the ordinary course of business and (l) activities
incidental to the businesses or activities described in clauses (a) through
(l) of this paragraph 6Q.


 


6S.          Limitation on Speculative
Hedging.  Each of the
Parent and Company covenants that it will not, and will not permit any Subsidiary to, at any time enter into any obligations under
any swap, hedging or similar transactions except to the extent entered into in
the ordinary course of business to hedge or limit currency exchange rate,
interest rate, commodity price or other price exposures from its line of
business and not entered into for speculative purposes.


 


6T.          Terrorism Sanctions Regulations.  Each of the Parent and the
Company covenants that it will not and will not permit any Subsidiary to (a) become
a Person described or designated in the Specially Designated Nationals and
Blocked Persons List of the Office of Foreign Assets Control or in Section 1
of the Anti-Terrorism Order or (b) engage in any dealings or transactions
with any such Person.


 


7.             EVENTS OF DEFAULT.


 


7A.          Acceleration.  If any of the following events shall occur
and be continuing for any reason whatsoever (and whether such occurrence shall
be voluntary or involuntary or come about or be effected by operation of law or
otherwise):


 


(i)            the Company defaults in the
payment of any principal of or Yield-Maintenance Amount payable with respect to
any Note when the same shall become due, either by the terms thereof or
otherwise as herein provided; or


 


27
















 


(ii)           the Company defaults in the payment of any interest on any
Note for more than 3 days after the date due; or


 


(iii)          except for Contingent Liabilities arising with respect to
indemnification obligations of the Parent, the Company or any other Subsidiary
being contested in good faith by appropriate proceedings and for which the
Parent, the Company or such other Subsidiary maintains adequate reserves, any
default or other event shall occur under the terms applicable to (i) Debt
under the Credit Agreement or any of the other Loan Documents (as defined in
the Credit Agreement) or (ii) any other Debt of the Parent, the Company or
any other Subsidiary in an aggregate amount (for all such Debt so affected and
including undrawn committed or available amounts and amounts owing to all
creditors under any combined or syndicated credit arrangement) exceeding
$5,000,000 and, in either case, such default or event shall (a) consist of
the failure to pay such Debt when due, whether by acceleration or otherwise, or
(b) accelerate the maturity of such Debt or permit the holder or holders
thereof, or any trustee or agent for such holder or holders, to cause such Debt
to become due and payable (or require the Parent, the Company or any other
Subsidiary to purchase or redeem such Debt or post cash collateral in respect
thereof) prior to its expressed maturity;


 


(iv)          any representation or warranty made by the Company, the
Parent or any other Guarantor herein or in any other Transaction Document or by
the Company, the Parent or any other Guarantor or any of its respective
officers in any writing furnished in connection with or pursuant to this
Agreement or any other Transaction Document shall be false or misleading in any
material respect on the date as of which made; or


 


(v)           the Company fails to perform or observe any agreement
contained in paragraph 4E or the Parent or the Company fails to perform or
observe any agreement contained in paragraph 5C, 5E, 5H or 6; or


 


(vi)          (a) the Parent or the Company fails to perform or
observe any agreement contained in paragraph 5A(i), (ii), (iii), (v) or (vi) or
the penultimate paragraph of paragraph 5A and such failure shall not be
remedied within 5 days after the earlier of the date any Responsible Officer
obtains actual knowledge thereof or any notice thereof is given to the Parent
or the Company by any Significant Holder, (b) the Parent or the Company
fails to perform or observe any other agreement, term or condition contained
herein and such failure shall not be remedied within 30 days after the earlier
of the date any Responsible Officer obtains actual knowledge thereof or any
notice thereof is given to the Parent or the Company by any Significant Holder,
or (c) the Company or any Guarantor fails to perform or observe any
agreement contained in any other Transaction Document and such failure shall
not be remedied within the grace period, if any, provided therefor in such
Transaction Document; or


 


(vii)         the Parent, the Company or any other Subsidiary becomes
insolvent or generally fails to pay, or admits in writing its inability or
refusal to pay, debts as they become due; or the Parent, the Company or any
other Subsidiary applies for, consents to, or the Parent, the Company or any
other Subsidiary acquiesces in the appointment of a trustee, receiver or other
custodian for such Person or any property thereof, or makes a 


 


28

















 


general
assignment for the benefit of creditors; or, in the absence of such
application, consent or acquiescence, a trustee, receiver or other custodian is
appointed for the Parent, the Company or any other Subsidiary or for a
substantial part of the property of any thereof and is not discharged within 60
days; or any bankruptcy, reorganization, debt arrangement, or other case or
proceeding under any bankruptcy or insolvency law, or any dissolution or
liquidation proceeding, is commenced in respect of the Parent, the Company or
any other Subsidiary, and if such case or proceeding is not commenced by such
Person, it is consented to or acquiesced in by such Person, or remains for 60
days undismissed; or the Parent, the Company or any other Subsidiary takes any
action to authorize, or in furtherance of, any of the foregoing; or


 


(viii)        one or more judgments or orders for the
payment of money (not paid or fully covered by insurance maintained in
accordance with the requirements of this Agreement and as to which the relevant
insurance company has acknowledged coverage) aggregating in excess of
$5,000,000 shall be rendered against any or all of the Parent, the Company or
any other Subsidiary and either (a) enforcement proceedings shall have
been commenced by any creditor upon any such judgments or orders or (b) there
shall be any period of thirty (30) consecutive days during which a stay of
enforcement of any such judgments or orders, by reason of a pending appeal,
bond or otherwise, shall not be in effect; or


 


(ix)           (i) any Person institutes steps to terminate a Plan
if as a result of such termination the Parent, the Company or any ERISA
Affiliate could be required to make a contribution to such Plan, or could incur
a liability or obligation to such Pension Plan, in excess of $5,000,000; (ii) a
contribution failure occurs with respect to any Pension Plan sufficient to give
rise to a Lien under Section 302(f) of ERISA; (iii) the Unfunded
Liability exceeds twenty percent of the Total Plan Liability, or (iv) there
shall occur any withdrawal or partial withdrawal from a Multiemployer Plan and
the withdrawal liability (without unaccrued interest) to Multiemployer Plans as
a result of such withdrawal (including any outstanding withdrawal liability
that the Parent, the Company or any ERISA Affiliate have incurred on the date
of such withdrawal) exceeds $5,000,000; or


 


(x)            any Guaranty Agreement or any Collateral Document shall
cease to be in full force and effect, or the Company or any Guarantor shall
contest or deny the validity or enforceability of, or deny that it has any
liability or obligations under, any Guaranty Agreement or any Collateral
Document, or the Collateral Agent does not have or ceases to have a valid first
priority perfected security interest (subject only to Liens permitted by
paragraph 6C) in any material part of the Collateral for the benefit of the
holders of the Notes; or


 


(xi)           an “Event of Default”, as defined in the Credit Agreement,
has occurred;


 


(xii)          the “Maturity Date” with respect to the “Revolving Credit
Facility” or the “Term A Loan” (each as defined in the Credit Agreement), has
occurred before June 12, 2013 or the “Maturity Date” with respect to the “Term
B Loan” (each as defined in the Credit Agreement), has occurred before June 12,
2015; or


 


29

















 


(xiii)                          a Change of
Control has occurred; or


 


(xiv)        any subordination provision in the Intercompany Subordination
Agreement shall cease to be in full force and effect, or the Parent, the
Company or any other Subsidiary shall contest in any manner the validity,
binding nature or enforceability of any such provision;


 


then (a) if such event
is an Event of Default specified in clause (i) or (ii) of this
paragraph 7A, any holder of any Note (other than the Company or any of its
Subsidiaries or Affiliates) may at its option, by notice in writing to the
Company, declare all of the Notes held by such holder to be, and all of the
Notes held by such holder shall thereupon be and become, immediately due and
payable at par together with interest accrued thereon, without presentment,
demand, protest or other notice of any kind, all of which are hereby waived by
the Company, (b) if such event is an Event of Default specified in clause (vii) of
this paragraph 7A with respect to the Company, all of the Notes at the time
outstanding shall automatically become immediately due and payable together
with interest accrued thereon and together with the Yield-Maintenance Amount,
if any, with respect to each Note, without presentment, demand, protest or
notice of any kind, all of which are hereby waived by the Company, and (c) if
such event is not an Event of Default specified in clause (vii) of this
paragraph 7A with respect to the Company, the Required Holder(s) may at
its or their option, by notice in writing to the Company, declare all of the
Notes to be, and all of the Notes shall thereupon be and become, immediately
due and payable together with interest accrued thereon and together with the
Yield-Maintenance Amount, if any, with respect to each Note, without
presentment, demand, protest or other notice of any kind, all of which are
hereby waived by the Company.  The
Company acknowledges, and the parties hereto agree, that each holder of a Note
has the right to maintain its investment in the Notes free from repayment by
the Company (except as herein specifically provided for) and without the
occurrence of an Event of Default and that the provision for payment of
Yield-Maintenance Amount by the Company in the event the Notes are prepaid or
are accelerated as a result of an Event of Default is intended to provide
compensation for the deprivation of such right under such circumstances.


 


7B.          Rescission of Acceleration.  At any time after any or all of the Notes
shall have been declared immediately due and payable pursuant to paragraph 7A,
the Required Holder(s) may, by notice in writing to the Company, rescind
and annul such declaration and its consequences if (i) the Company shall
have paid all overdue interest on the Notes, the principal of and
Yield-Maintenance Amount, if any, payable with respect to any Notes which have
become due otherwise than by reason of such declaration, and interest on such
overdue interest and overdue principal and Yield-Maintenance Amount at the
Default Rate, (ii) the Company shall not have paid any amounts which have
become due solely by reason of such declaration, (iii) all Events of
Default and Defaults, other than non-payment of amounts which have become due
solely by reason of such declaration, shall have been cured or waived pursuant
to paragraph 11C, and (iv) no judgment or decree shall have been entered
for the payment of any amounts due pursuant to the Notes or this
Agreement.  No such rescission or
annulment shall extend to or affect any subsequent Event of Default or Default
or impair any right arising therefrom.


 


7C.          Notice of Acceleration or Rescission.  Whenever any Note shall be declared
immediately due and payable pursuant to paragraph 7A or any such declaration
shall be 


 


30

















 


rescinded
and annulled pursuant to paragraph 7B, the Company shall forthwith give written
notice thereof to the holder of each Note at the time outstanding.


 


7D.          Other Remedies.  If any Event of Default or Default shall
occur and be continuing, the holder of any Note may proceed to protect and
enforce its rights under this Agreement, the other Transaction Documents and
such Note by exercising such remedies as are available to such holder in
respect thereof under applicable law, either by suit in equity or by action at
law, or both, whether for specific performance of any covenant or other agreement
contained in this Agreement or the other Transaction Documents or in aid of the
exercise of any power granted in this Agreement or any Transaction
Document.  No remedy conferred in this
Agreement or the other Transaction Documents upon the holder of any Note or the
Collateral Agent is intended to be exclusive of any other remedy, and each and
every such remedy shall be cumulative and shall be in addition to every other
remedy conferred herein or now or hereafter existing at law or in equity or by
statute or otherwise.


 


8.             REPRESENTATIONS, COVENANTS AND WARRANTIES.  Each of the Parent and the Company
represents, covenants and warrants as follows, both immediately before and
after giving effect to the Kraft Acquisition:


 


8A(1).     Organization; Subsidiary Preferred Equity.  Each of the Parent and the Company is a
corporation duly organized and existing in good standing under the laws of the
State of Delaware and each Subsidiary other than the Company is duly organized
and existing in good standing under the laws of the jurisdiction in which it is
organized.  The Parent, the Company and
each of the other Subsidiaries have duly qualified or been duly licensed, and
are authorized to do business and are in good standing, in each jurisdiction in
which the ownership of their respective properties or the nature of their
respective businesses makes such qualification or licensing necessary and in
which the failure to be so qualified or licensed could be reasonably likely to
have a Material Adverse Effect.  The
Parent owns all of the outstanding shares of capital stock of the Company free
and clear of any Liens other than Liens permitted by paragraph 6C(g).  Schedule 8A(1) hereto sets forth, as of
the date hereof, a correct list of each Subsidiary, its jurisdiction of incorporation
and its ownership.  No Subsidiary has any
outstanding shares of any class of capital stock or other equity interests
which has priority over any other class of capital stock or other equity
interests of such Subsidiary as to dividends or distributions or in liquidation
except as may be owned beneficially and of record by the Company or a
Wholly-Owned Subsidiary.  Except as set
forth on Schedule 8A(1), there are no 
options for, rights to acquire, agreements to issue, or securities
exercisable for or convertible into shares of the Company’s capital stock or
the equity interests of any other Subsidiary.


 


8A(2).     Power and Authority.  The Parent, the Company and each other
Subsidiary has all requisite corporate, limited liability company or
partnership, as the case may be, power to own or hold under lease and operate
their respective properties which it purports to own or hold under lease and to
conduct its business as currently conducted and as currently proposed to be
conducted.


 


8A(3).     Execution and Delivery of Transaction
Documents.  The Parent,
the Company and each other Subsidiary has all requisite corporate, limited
liability company or partnership, as the case may be, power to execute, deliver
and perform its obligations under this Agreement, the 


 


31

















 


Notes
and the other Transaction Documents to which it is a party.  The execution, delivery and performance of
this Agreement, the Notes and the other Transaction Documents has been duly
authorized by all requisite corporate, limited liability company or
partnership, as the case may be, action, and this Agreement, the Notes and the
other Transaction Documents have been duly executed and delivered by authorized
officers of the Parent, the Company and each other Subsidiary which is a party
thereto and are valid obligations of the Parent, the Company and each such
other Subsidiary, legally binding upon and enforceable against the Parent, the
Company and each such other Subsidiary in accordance with their terms, except
as such enforceability may be limited by (i) bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement of creditors’
rights generally and (ii) general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law).


 


8B.          Financial Statements.   The Parent and the Company have furnished
each Purchaser with the following financial statements, identified by a
principal financial officer of the Parent: 
(i) a consolidated balance sheet of the Parent and its Subsidiaries
as at December 31 in each of the years 2005 to 2007, inclusive, and
consolidated statements of income, stockholders’ equity and cash flows of the
Parent and its Subsidiaries for each such year, all reported on by
PricewaterhouseCoopers LLP; (ii) a consolidated balance sheet of the
Business as at December 31 in each of the years 2005 to 2007, inclusive,
and consolidated statements of income, stockholders’ equity and cash flows of
the Seller and its Subsidiaries for each such year, all reported on by
PricewaterhouseCoopers LLP; and (iii) unaudited consolidated balance sheet
of the Parent and its Subsidiaries as at March 31, 2008 and consolidated
statements of income or operations and cash flows for the three-month period
ended on each such date, prepared by the Parent.  Such financial statements (including any
related schedules and/or notes) are true and correct in all material respects
(subject, as to interim statements, to changes resulting from audits and year-end
adjustments), have been prepared in accordance with generally accepted
accounting principles consistently followed throughout the periods involved and
show all liabilities, direct and contingent, of the Parent and its Subsidiaries
and the Seller and its Subsidiaries, as applicable, required to be shown in
accordance with such principles.  The
balance sheets fairly present the condition of the Parent and its Subsidiaries
and the Seller and its Subsidiaries, as applicable, as at the dates thereof,
and the statements of income, stockholders’ equity and cash flows fairly
present the results of the operations of the Parent and its Subsidiaries and
the Seller and its Subsidiaries, as applicable, and their respective cash flows
for the periods indicated.  Since December 31,
2007, neither the Parent nor any Subsidiary of the Parent has paid or declared
any dividend on any shares of its capital stock or made any other distribution
on account of any shares of its capital stock (other than dividends or
distributions payable solely to the Parent or a Wholly-Owned Subsidiary of the
Parent) or redeemed, purchased, retired or otherwise acquired any shares of its
capital stock or any warrants, rights or options to acquire, or securities
convertible into or exchangeable for, any shares of its capital stock (other
than from the Parent or a Wholly-Owned Subsidiary of the Parent).  There has been no material adverse change in
the business, property or assets, condition (financial or otherwise),
operations or prospects of the Parent, the Company and the other Subsidiaries
taken as a whole or Seller and its Subsidiaries, taken as a whole, in either
case since December 31, 2007, except as set forth on Schedule 3H.


 


8C.          Actions Pending.  There is no action, suit, investigation or proceeding
pending or, to the knowledge of the Parent or the Company, threatened against
the Parent, the Company 


 


32

















 


or
any of the other Subsidiaries, or any properties or rights of the Parent or any
of its Subsidiaries, by or before any court, arbitrator or administrative or
governmental body which, individually or in the aggregate, could reasonably be
expected to result in any Material Adverse Effect, except as set forth on
Schedule 8C.


 


8D.          Outstanding Debt.  Neither the Parent, nor the Company nor any
other Subsidiaries has outstanding any Debt except as permitted by paragraph
6B.  There exists no material default
under the provisions of any instrument evidencing such Debt or of any agreement
relating thereto.


 


8E.          Title to Properties.  The Parent, the Company and each of the other
Subsidiaries has good and marketable title to its respective real properties
(other than properties which it leases) and good title to all of its other
respective properties and assets, including the properties and assets reflected
in the balance sheet of the Parent as at December 31, 2007 referred to in
paragraph 8B (other than properties and assets disposed of in the ordinary
course of business), and after giving effect to the Kraft Acquisition, the “Purchased
Assets” (as defined in the Mead Purchase Agreement) reflected in the balance
sheet of the Seller as at December 31, 2007, subject to no Lien of any
kind except Liens permitted by paragraph 6C. 
All leases necessary in any material respect for the conduct of the
respective businesses of the Parent and its Subsidiaries are valid and
subsisting and are in full force and effect.


 


8F.          Taxes.  Except as set forth on Schedule 8F, the
Parent and the Company has, and each of the other Subsidiaries has, filed all
federal, state and other income tax returns which, to the knowledge of the
officers of the Parent and its Subsidiaries, are required to be filed, and each
has paid all taxes as shown on such returns and on all assessments received by
it to the extent that such taxes have become due, except such taxes as are
being actively contested in good faith by appropriate proceedings for which
adequate reserves have been established in accordance with generally accepted
accounting principles.


 


8G.          Conflicting Agreements and Other
Matters.  Neither the
Parent, nor the Company nor any of the other Subsidiaries is a party to any
contract or agreement or subject to any charter, by-law, limited liability
company operating agreement, partnership agreement, or other corporate, limited
liability company or partnership restriction which could reasonably be expected
to have a Material Adverse Effect. 
Neither the execution nor delivery of this Agreement, the Notes or the
other Transaction Documents, nor the offering, issuance and sale of the Notes,
nor fulfillment of nor compliance with the terms and provisions hereof and of
the Notes and the other Transaction Documents will conflict with, or result in
a breach of the terms, conditions or provisions of, or constitute a default
under, or result in any violation of, or result in the creation of any Lien
(other than Liens created pursuant to the Collateral Documents) upon any of the
properties or assets of the Parent, the Company or any of the other Subsidiaries
pursuant to, the charter, limited liability company operating agreement,
partnership agreement, by-laws, limited liability company operating agreement
or partnership agreement of the Parent, the Company or any of the other
Subsidiaries, any award of any arbitrator or, assuming, solely with respect to
the Existing Credit Agreement, the satisfaction of the condition contained in
paragraph 3J,  any agreement (including any
agreement with stockholders, members or partners), instrument, order, judgment,
decree, statute, law, rule or regulation to which the Parent, the Company
or any of the other Subsidiaries is subject. 
Neither the Parent, nor the Company nor 


 


33

















 


any
of the other Subsidiaries is a party to, or otherwise subject to any provision
contained in, any instrument evidencing Debt of the Parent, the Company or such
other Subsidiary, any agreement relating thereto or any other contract or
agreement (including its charter, by-laws, limited liability company operating
agreement or partnership agreement) which limits the amount of, or otherwise
imposes restrictions on the incurring of, Debt of the Company of the type to be
evidenced by the Notes or Debt of any Guarantor of the type to be evidenced by
the Guaranty Agreement except as set forth in the agreements listed on Schedule
8G.


 


8H.          Offering of Notes.  Neither the Company nor any agent acting on
its behalf has, directly or indirectly, offered the Notes, any Guaranty
Agreement or any similar security of the Company or any Guarantor for sale to,
or solicited any offers to buy the Notes, any Guaranty Agreement or any similar
security of the Company or any Guarantor from, or otherwise approached or
negotiated with respect thereto with, any Person other than Institutional
Investors, and neither the Company, any Guarantor nor any agent acting on its
behalf has taken or will take any action which would subject the issuance or
sale of the Notes or the execution and delivery of the Guaranty Agreements to
the provisions of section 5 of the Securities Act or to the provisions of any
securities or Blue Sky law of any applicable jurisdiction.


 


8I.           Use of Proceeds.  Neither the Parent, nor the Company nor any
other Subsidiary owns or has any present intention of acquiring any “margin
stock” as defined in Regulation U (12 CFR Part 221) of the Board of
Governors of the Federal Reserve System (herein called “margin stock”).  The proceeds of sale of the Notes will be
used first, if the Term B-2 Loan (as defined in the Credit Agreement) has been
funded prior to the date of closing, to repay the such Term B-2 Loan, and
second to finance the Kraft Acquisition and for general corporate
purposes.  None of such proceeds will be
used, directly or indirectly, for the purpose, whether immediate, incidental or
ultimate, of purchasing or carrying any margin stock or for the purpose of
maintaining, reducing or retiring any Debt which was originally incurred to
purchase or carry any stock that is currently a margin stock or for any other
purpose which might constitute the sale or purchase of any Notes a “purpose
credit” within the meaning of such Regulation U.  Neither the Parent nor the Company is engaged
principally, or as one of its important activities, in the business of
extending credit for the purpose of purchasing or carrying margin stock.  Neither the Company nor any agent acting on
its behalf has taken or will take any action which might cause this Agreement,
any of the other Transaction Documents or any Note to violate Regulation T,
Regulation U or any other regulation of the Board of Governors of the
Federal Reserve System or to violate the Exchange Act, in each case as in
effect now or as the same may hereafter be in effect.


 


8J.          ERISA.


 


(a)           The Unfunded Liability of all Plans does not in the
aggregate exceed the greater of (i) twenty percent of the Total Plan
Liability for all such Plans and (ii) $5,000,000.  Each Plan complies in all material respects
with all applicable requirements of law and regulations. No contribution failure
under Section 412 of the Code, Section 302 of ERISA or the terms of
any Plan has occurred with respect to any Plan, sufficient to give rise to a
Lien under Section 302(f) of ERISA, or otherwise to have a Material
Adverse Effect.  There are no pending or,
to the knowledge of the Company, threatened, claims, actions, investigations or
lawsuits against any Plan, any fiduciary of any Plan, or the Company or any
ERISA Affiliate with respect to a Plan or 


 


34

















 


a
Multiemployer Plan which could reasonably be expected to have a Material
Adverse Effect.  Neither the Company nor
any ERISA Affiliate has engaged in any prohibited transaction (as defined in Section 4975
of the Code or Section 406 of ERISA) in connection with any Plan or
Multiemployer Plan which could reasonably be expected to have a Material
Adverse Effect. Within the past five years, neither the Company nor any ERISA
Affiliate engaged in a transaction which resulted in a Plan with an Unfunded
Liability being transferred out of the Company and its ERISA Affiliates, which
could reasonably be expected to have a Material Adverse Effect.  No Termination Event has occurred or is
reasonably expected to occur with respect to any Plan, which could reasonably
be expected to have a Material Adverse Effect.


 


(b)           All contributions (if any) have been made to any
Multiemployer Plan that are required to be made by the Company or any ERISA
Affiliate under the terms of the plan or of any collective bargaining agreement
or by applicable law; neither the Company nor any ERISA Affiliate has withdrawn
or partially withdrawn from any Multiemployer Plan, incurred any material
withdrawal liability with respect to any such plan or received notice of any
material claim or demand for withdrawal liability or partial withdrawal
liability from any such plan, and no condition has occurred which, if
continued, could result in a withdrawal or partial withdrawal from any such
plan; and neither the Company nor any ERISA Affiliate has received any notice
that any Multiemployer Plan is in reorganization, that increased contributions
may be required to avoid a reduction in plan benefits or the imposition of any
excise tax, that any such plan is or has been funded at a rate less than that
required under Section 412 of the Code, that any such plan is or may be
terminated, or that any such plan is or may become insolvent.


 


8K.          Governmental Consent.  Neither the nature of the Parent, of the
Company or of any other Subsidiary, nor any of their respective businesses or
properties, nor any relationship between the Parent, the Company or any other
Subsidiary and any other Person, nor any circumstance in connection with the
offering, issuance, sale or delivery of the Notes is such as to require any
authorization, consent, approval, exemption or other action by or notice to or
filing with any court or administrative or governmental body (other than
routine filings after the date of closing with the Securities and Exchange
Commission and/or state Blue Sky authorities and other than the filings and
recordings necessary to perfect the Liens in the Collateral intended to be
created by the Collateral Documents described on Schedule 8K hereto and any
other consent or approval that has been obtained and is in full force and
effect and copies of which have been provided to the Purchasers prior to the
date of closing) in connection with the execution and delivery of this
Agreement or the other Transaction Documents, the offering, issuance, sale or
delivery of the Notes or fulfillment of or compliance with the terms and
provisions hereof, thereof or of the Notes.


 


8L.          Compliance with Environmental and
Other Laws.  The Parent,
the Company and the other Subsidiaries and all of their respective properties
and facilities have complied at all times and in all respects with all federal,
state, local, foreign and regional statutes, laws, ordinances and judicial or
administrative orders, judgments, rulings and regulations, including, without
limitation, those  relating to protection
of the environment except, in any such case, where failure to comply,
individually or in the aggregate, could not reasonably be expected to  result in a Material Adverse Effect.


 


35

















 


8M.         Regulatory Status.  Neither the Parent, nor the Company nor any
of the other Subsidiaries is (i) an “investment company” or a company “controlled”
by an “investment company” within the meaning of the Investment Company Act of
1940, as amended, or an “investment adviser” within the meaning of the
Investment Advisers Act of 1940, as amended, (ii) a “holding company” or a
“subsidiary company” or an “affiliate” of a “holding company” or of a “subsidiary
company” of a “holding company”, within the meaning of the Public Utility Holding
Company Act of 2005, or (iii) a “public utility” within the meaning of the
Federal Power Act, as amended.


 


8N.          Permits and Other Operating Rights.  The Parent, the Company and each other
Subsidiary has all such valid and sufficient certificates of convenience and
necessity, franchises, licenses, permits, operating rights and other
authorizations from federal, state, foreign, regional, municipal and other
local regulatory bodies or administrative agencies or other governmental bodies
having jurisdiction over the Parent, the Company or any other Subsidiary or any
of its properties, as are necessary for the ownership, operation and
maintenance of its businesses and properties, as presently conducted and as
proposed to be conducted while the Notes are outstanding, subject to exceptions
and deficiencies which, individually or in the aggregate, could not reasonably
be expected to have a Material Adverse Effect, and such certificates of
convenience and necessity, franchises, licenses, permits, operating rights and
other authorizations from federal, state, foreign, regional, municipal and
other local regulatory bodies or administrative agencies or other governmental
bodies having jurisdiction over the Parent, the Company, any other Subsidiary
or any of its properties are free from restrictions or conditions which,
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect, and neither the Parent, nor the Company nor any other
Subsidiary is in violation of any thereof in any material respect.


 


8O.         Rule 144A.  The Notes are not of the same class as
securities of the Company, if any, listed on a national securities exchange,
registered under Section 6 of the Exchange Act or quoted in a U.S.
automated inter-dealer quotation system.


 


8P.          Absence of Financing Statements, Etc.  Except with respect to the Liens permitted by
paragraph 6C hereof, there is no financing statement, security agreement,
chattel mortgage, real estate mortgage or other document filed or recorded with
any filing records, registry or other public office, that purports to cover,
affect or give notice of any present or possible future Lien on, or security
interest in, any assets or property of the Parent, the Company or any other
Subsidiary or any rights relating thereto.


 


8Q.         Establishment of Security Interest.  Schedule 8Q hereto sets forth as of the date
of closing a complete and accurate list of (i) the name, jurisdiction of
organization and organizational identification number of the Parent, the
Company and each of its other Subsidiaries, (ii) if the Parent, the
Company or any other Subsidiary is not a “registered organization” (as defined
in the UCC) organized under that law of a “State” (as defined in the UCC), the
location of its place of business (if it has only one place of business) or its
chief executive office (if it has more than one place of business), (iii) all
real property owned or leased by the Parent, the Company or any of the other
Subsidiaries, and (iv) all registered patents, trademarks, trade names,
service marks, services names or copyrights owned or licensed by the Parent,
the Company or any of the other Subsidiaries. 
As of the date hereof, all filings, 


 


36

















 


assignments,
pledges and deposits of documents or instruments have been made, and all other
actions have been taken, that are necessary or advisable under applicable law
and are required to be made or taken on or prior to the date of closing under
the provisions of this Agreement and the other Transaction Documents to create
and perfect a security interest in the Collateral in favor of the Collateral
Agent to secure the Notes, the Company’s obligations under the Credit Agreement
and each Guarantor’s obligations under its Guaranty Agreement, subject to no
Liens other than Liens permitted under paragraph 6C.  The Collateral and the Collateral Agent’s
rights with respect to the Collateral are not subject to any setoff, claims,
withholdings or other defenses (except any such setoff, claim or defense which
could not, individually or in the aggregate, materially impair the rights of
the Collateral Agent with respect to the Collateral).  The Parent, the Company or another Subsidiary
is the owner of the Collateral described in the Collateral Documents free from
any Lien, security interest, encumbrance and any other claim or demand, except
for Liens permitted under paragraph 6C.


 


8R.                            Foreign
Assets Control Regulations, Etc.


 


(i)            Neither the sale of the Notes by the Company hereunder
nor its use of the proceeds thereof will violate the Trading with the Enemy
Act, as amended, or any of the foreign assets control regulations of the United
States Treasury Department (31 CFR, Subtitle B, Chapter V, as
amended) or any enabling legislation or executive order relating thereto.


 


(ii)           Neither the Parent, nor the Company nor any other
Subsidiary (i) is a Person described or designated in the Specially
Designated Nationals and Blocked Persons List of the Office of Foreign Assets
Control or in Section 1 of the Anti-Terrorism Order or (ii) engages
in any dealings or transactions with any such Person.  The Company and its Subsidiaries are in
compliance, in all material respects, with the USA Patriot Act.


 


(iii)          No part of the proceeds from the sale of the Notes
hereunder will be used, directly or indirectly, for any payments to any
governmental official or employee, political party, official of a political
party, candidate for political office, or anyone else acting in an official
capacity, in order to obtain, retain or direct business or obtain any improper
advantage, in violation of the United States Foreign Corrupt Practices Act of
1977, as amended, assuming in all cases that such Act applies to the Company.


 


8S.          Disclosure.  Neither this Agreement, any other Transaction
Document nor any other document, certificate or statement furnished to any
Purchaser by or on behalf of the Parent, the Company or any Subsidiary in
connection herewith or therewith contains any untrue statement of a material
fact or omits to state a material fact necessary in order to make the
statements contained herein and therein not misleading.  There is no fact or facts  peculiar to the Parent, the Company or any of
the other Subsidiaries which materially adversely affects or in the future may
(so far as the Parent or the Company can now reasonably foresee), individually
or in the aggregate, reasonably be expected to materially adversely affect the
business, property or assets, or financial condition of the Parent, the Company
or any of the other Subsidiaries and which has not been set forth in this
Agreement or in the other documents, certificates and statements furnished to
each Purchaser by or on behalf of the Parent prior to the date hereof in
connection with the transactions contemplated hereby.  Any financial projections delivered to 


 


37

















 


any
Purchaser on or prior to the date hereof are reasonable based on the
assumptions stated therein and the best information available to the officers
of the Company.


 


8T.                              Labor
Matters.  Except as
set forth on Schedule 8T, neither the Parent, nor the Company nor any other
Subsidiary is subject to any labor or collective bargaining agreement. There
are no existing or threatened strikes, lockouts or other labor disputes
involving the Parent, the Company or any other Subsidiary that singly or in the
aggregate could reasonably be expected to have a Material Adverse Effect. Hours
worked by and payment made to employees of the Parent, the Company and the
other Subsidiaries are not in material violation of the Fair Labor Standards
Act or any other applicable law, rule or regulation dealing with such
matters.


 


8U.                              Related Agreements, etc.


 


(a)           The Company has heretofore furnished
the Purchasers a true and correct copy of the Related Agreements;


 


(b)           The Parent, the Company and each
other Subsidiary and, to the Company’s knowledge, each other party to the
Related Agreements, has duly taken all necessary corporate, partnership or
other organizational action to authorize the execution, delivery and
performance of the Related Agreements and the consummation of transactions
contemplated thereby;


 


(c)           The Related Transactions will comply
in all material respects with all applicable legal requirements, and all
necessary governmental, regulatory, creditor, shareholder, partner and other
material consents, approvals and exemptions required to be obtained by the
Parent, the Company and the other Subsidiaries and, to the Parent’s and the
Company’s knowledge, each other party to the Related Agreements in connection
with the Related Transactions will be, prior to consummation of the Related
Transactions, duly obtained and will be in full force and effect. As of the
date of the Related Agreements, all applicable waiting periods with respect to
the Related Transactions will have expired without any action being taken by
any competent governmental authority which restrains, prevents or imposes
material adverse conditions upon the consummation of the Related Transactions;


 


(d)           The execution and delivery of the
Related Agreements did not, and the consummation of the Related Transactions
will not, violate any statute or regulation of the United States (including any
securities law) or of any state or other applicable jurisdiction, or any order,
judgment or decree of any court or governmental body binding on the Parent, the
Company or any other Subsidiary or, to the Parent’s and the Company’s
knowledge, any other party to the Related Agreements, or result in a breach of,
or constitute a default under, any material agreement, indenture, instrument or
other document, or any judgment, order or decree, to which the Parent, the
Company or any other Subsidiary is a party or by which the Parent, the Company
or any other Subsidiary is bound or, to the Parent’s or the Company’s
knowledge, to which any other party to the Related Agreements is a party or by
which any such party is bound; and


 


38
















 


(e)                                  No statement or
representation made in the Related Agreements by the Parent, the Company or any
other Subsidiary or, to the Parent’s or the Company’s knowledge, any other
Person, contains any untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary in order to make the
statements made therein, in light of the circumstances under which they are
made, not misleading.


 


8V.                             Casualty, Etc. 
Except as set forth on Schedule 8V, neither the businesses nor the
properties of the Parent, the Company or any other Subsidiary are affected by
any fire, explosion, accident, strike, lockout or other labor dispute, drought,
storm, hail, earthquake, embargo, act of God or of the public enemy or other
casualty (whether or not covered by insurance) that, either individually or in
the aggregate, could reasonably be expected to have a Material Adverse Effect.


 


8W.                         Material Contracts. 
Schedule 8W lists, as of the date of closing, each Material Contract to
which the Parent, the Company or any other Subsidiary is a party, by which
either of them or their respective properties is bound or to which either of
them is subject.  As of the date of
closing, except as set forth on Schedule 8W, (a) each Material Contract is
in full force and effect and is enforceable by the Parent, the Company and each
other Subsidiary party thereto in accordance with its terms, except as
enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws, statutes or rules of general application
affecting the enforcement of creditor’s rights or general principles of equity,
and (b) neither the Parent, nor the Company nor any other Subsidiary, nor,
to the knowledge of the Parent, the Company and the other Subsidiaries, any
other party thereto, is in breach of or default under any Material Contract in
any material respect or has given notice of termination or cancellation of any
Material Contract.


 


8X.                             Kraft Acquisition Documents. 
With respect to each of the Kraft Acquisition Documents, (i) all
representations made by the Parent, the Company or any other Subsidiary in the
Kraft Acquisition Documents are complete, true and correct in all material
respects as of the date of closing; (ii) the execution and delivery by the
Parent, the Company or any other Subsidiary of the Kraft Acquisition Documents
and the consummation of the transactions therein contemplated or the compliance
with the provisions thereof will not violate any law, rule, regulation, order,
writ, judgment, injunction, decree or award binding on the Parent, the Company
or such other Subsidiary or any of the provisions of the organizational
documents of the Parent, the Company or any other Subsidiary or any of the
provisions of any indenture, agreement, document, instrument or undertaking to
which the Parent, the Company or any other Subsidiary is a party or subject, or
by which the Parent, the Company or any other Subsidiary or any property of the
Parent, the Company or any other Subsidiary is bound, or conflict with or
constitute a default thereunder or result in the creation or imposition of any
Lien pursuant to the terms of any such indenture, agreement, document,
instrument or undertaking, except to the extent such violation, conflict or
default would not reasonably be likely to result in a Material Adverse Effect; (iii) no
material order, consent, approval, license, authorization or validation of, or
filing, recording or registration with, or exemption by, any governmental,
regulatory, administrative or public body or authority, or any subdivision
thereof, or any other Person is required to authorize, or is required in
connection with, the execution, delivery or performance of, or the legality,
validity, binding effect or enforceability of, any of the Kraft Acquisition


 


39

















 


Documents except those which have already been obtained or given; and (iv) upon
the effectiveness of this Agreement, all conditions to effectiveness of the
Mead Purchase Agreement have been satisfied.


 


9.                                      REPRESENTATIONS
OF EACH PURCHASER.  Each Purchaser
represents as follows:


 


9A.                             Nature
of Purchase.  Such Purchaser is not
acquiring the Notes to be purchased by it hereunder with a view to or for sale
in connection with any distribution thereof within the meaning of the
Securities Act, provided that the disposition of such Purchaser’s property
shall at all times be and remain within its control.


 


9B.                             Source
of Funds.  At least one of the
following statements is an accurate representation as to each source of funds
(a “Source”) to be used by such
Purchaser to pay the purchase price of the Notes to be purchased by such
Purchaser hereunder:


 


(i)                                     the
Source is an “insurance company general account” (as that term is defined in
the United States Department of Labor’s Prohibited Transaction Exemption (“PTE”) 95-60) in respect of which the
reserves and liabilities (as defined by the annual statement for life insurance
companies approved by the National Association of Insurance Commissioners (the “NAIC Annual Statement”)) for the general
account contract(s) held by or on behalf of any employee benefit plan
together with the amount of the reserves and liabilities for the general
account contract(s) held by or on behalf of any other employee benefit plans
maintained by the same employer (or affiliate thereof as defined in PTE 95-60)
or by the same employee organization in the general account do not exceed 10%
of the total reserves and liabilities of the general account (exclusive of
separate account liabilities) plus surplus as set forth in the NAIC Annual
Statement filed with such Purchaser’s state of domicile; or


 


(ii)                                  the
Source is a separate account that is maintained solely in connection with such
Purchaser’s fixed contractual obligations under which the amounts payable, or
credited, to any employee benefit plan (or its related trust) that has any
interest in such separate account (or to any participant or beneficiary of such
plan (including any annuitant)) are not affected in any manner by the investment
performance of the separate account; or


 


(iii)                               the
Source is either (a) an insurance company pooled separate account, within
the meaning of PTE 90-1, or (b) a bank collective investment fund, within
the meaning of the PTE 91-38 and, except as disclosed by such Purchaser to the
Company in writing pursuant to this clause (iii), no employee benefit plan or
group of plans maintained by the same employer or employee organization
beneficially owns more than 10% of all assets allocated to such pooled separate
account or collective investment fund; or


 


(iv)                              the
Source constitutes assets of an “investment fund” (within the meaning of Part V
of PTE 84-14 (the “QPAM Exemption”))
managed by a “qualified professional asset manager” or “QPAM” (within the
meaning of Part V of the QPAM


 


40

















 


Exemption), no employee benefit plan’s assets that are included in such
investment fund, when combined with the assets of all other employee benefit
plans established or maintained by the same employer or by an affiliate (within
the meaning of Section V(c)(1) of the QPAM Exemption) of such
employer or by the same employee organization and managed by such QPAM, exceed
20% of the total client assets managed by such QPAM, the conditions of Part I(c) and
(g) of the QPAM Exemption are satisfied, neither the QPAM nor a person
controlling or controlled by the QPAM (applying the definition of “control” in Section V(e) of
the QPAM Exemption) owns a 5% or more interest in the Company and (a) the
identity of such QPAM and (b) the names of all employee benefit plans
whose assets are included in such investment fund have been disclosed to the
Company in writing pursuant to this clause (iv); or


 


(v)                                 the
Source constitutes assets of a “plan(s)” (within the meaning of Section IV
of PTE 96-23 (the “INHAM Exemption”))
managed by an “in-house asset manager” or “INHAM” (within the meaning of Part IV
of the INHAM Exemption), the conditions of Part I(a), (g) and (h) of
the INHAM Exemption are satisfied, neither the INHAM nor a person controlling
or controlled by the INHAM (applying the definition of “control” in Section IV(h) of
the INHAM Exemption) owns a 5% or more interest in the Company and (a) the
identity of such INHAM and (b) the name(s) of the employee benefit
plan(s) whose assets constitute the Source have been disclosed to the
Company in writing pursuant to this clause (v); or


 


(vi)                              the
Source is a governmental plan; or


 


(vii)                           the
Source is one or more employee benefit plans, or a separate account or trust
fund comprised of one or more employee benefit plans, each of which has been
identified to the Company in writing pursuant to this clause (vii); or


 


(viii)                        the Source
does not include assets of any employee benefit plan, other than a plan exempt
from the coverage of ERISA.


 


As used in
this paragraph 9B, the terms “employee
benefit plan”, “governmental plan”,
and “separate account” shall have
the respective meanings assigned to such terms in Section 3 of ERISA.


 


10.                               DEFINITIONS;
ACCOUNTING MATTERS.  For the purpose
of this Agreement, the terms defined in paragraphs 10A and 10B (or within the
text of any other paragraph) shall have the respective meanings specified
therein and all accounting matters shall be subject to determination as
provided in paragraph 10C.


 


10A.                      Yield-Maintenance
Terms.


 


“Called
Principal” shall mean, with respect to any Note, the
principal of such Note that is to be prepaid pursuant to paragraph 4A(2), 4B or
4E or is declared to be or otherwise becomes due and payable pursuant to paragraph
7A, as the context requires.


 


“Discounted
Value” shall mean, with respect to the Called
Principal of any Note, the amount obtained by discounting all Remaining
Scheduled Payments with respect to such


 


41

















 


Called Principal from their respective scheduled due dates to the
Settlement Date with respect to such Called Principal, in accordance with
accepted financial practice and at a discount factor (as converted to reflect
the periodic basis on which interest on such Note is payable, if interest is
payable other than on a semi-annual basis) equal to the Reinvestment Yield with
respect to such Called Principal.


 


“Reinvestment
Yield” shall mean, with respect to the Called
Principal of any Note, 0.50% over the yield to maturity implied by (i) the
yields reported as of 10:00 a.m. (New York City local time) on the
Business Day next preceding the Settlement Date with respect to such Called
Principal for the most recent actively traded on the run U.S. Treasury securities
having a maturity equal to the Remaining Average Life of such Called Principal
as of such Settlement Date on the display designated as “Page PX1” on
Bloomberg Financial Markets (or such other display as may replace Page PX1
on Bloomberg Financial Markets or, if Bloomberg Financial Markets shall cease
to report such yields or shall cease to be Prudential Capital Group’s customary
source of information for calculating yield-maintenance amounts on privately
placed notes, then such source as is then Prudential Capital Group’s customary
source of such information), or (ii) if such yields shall not be reported
as of such time or the yields reported as of such time shall not be
ascertainable (including by way of interpolation), the Treasury Constant
Maturity Series yields reported, for the latest day for which such yields
shall have been so reported as of the Business Day next preceding the
Settlement Date with respect to such Called Principal, in Federal Reserve
Statistical Release H.15 (or any comparable successor publication) for U.S.
Treasury securities having a constant maturity equal to the Remaining Average
Life of such Called Principal as of such Settlement Date.  In the case of each determination under
clause (i) or (ii) of the preceding sentence, such implied yield
shall be determined, if necessary, by (a) converting U.S. Treasury bill
quotations to bond equivalent yields in accordance with accepted financial
practice and (b) interpolating linearly between (1) the applicable
U.S. Treasury security with the maturity closest to and greater than such
Remaining Average Life and (2) the applicable U.S. Treasury security with
the maturity closest to and less than such Remaining Average Life.  The Reinvestment Yield shall be rounded to
that number of decimal places as appears in the coupon of the applicable Note.


 


“Remaining
Average Life” shall mean, with respect to the Called
Principal of any Note, the number of years (calculated to the nearest
one-twelfth year) obtained by dividing (i) such Called Principal into (ii) the
sum of the products obtained by multiplying (a) each Remaining Scheduled
Payment of such Called Principal (but not of interest thereon) by (b) the
number of years (calculated to the nearest one-twelfth year) which will elapse
between the Settlement Date with respect to such Called Principal and the
scheduled due date of such Remaining Scheduled Payment.


 


“Remaining
Scheduled Payments” shall mean, with respect to the
Called Principal of any Note, all payments of such Called Principal and
interest thereon that would be due on or after the Settlement Date with respect
to such Called Principal if no payment of such Called Principal were made prior
to its scheduled due date.


 


“Settlement Date”
shall mean, with respect to the Called Principal of any Note, the date on which
such Called Principal is to be prepaid pursuant to paragraph 4A(2), 4B or 4E


 


42

















 


or is declared to be or otherwise becomes due and payable pursuant to
paragraph 7A, as the context requires.


 


“Yield-Maintenance Amount”
shall mean, with respect to any Note, an amount equal to the excess, if any, of
the Discounted Value of the Called Principal of such Note over the sum of (i) such
Called Principal plus (ii) interest accrued thereon as of (including
interest due on) the Settlement Date with respect to such Called
Principal.  The Yield-Maintenance Amount
shall in no event be less than zero.


 


10B.                      Other Terms.


 


“Account Debtor” has the meaning set
forth in the Security Agreement.


 


“Account or Accounts” has the meaning
set forth in the UCC.


 


“Acquisition” shall mean any transaction
or series of related transactions for the purpose of or resulting, directly or
indirectly, in (a) the acquisition of all or substantially all of the
assets of a Person, or of all or substantially all of any business or division
of a Person, (b) the acquisition of in excess of 50% of the Capital
Securities of any Person, or otherwise causing any Person to become a
Subsidiary, or (c) a merger or consolidation or any other combination with
another Person (other than a Person that is already a Subsidiary).


 


“Adjusted Working Capital” shall mean
the remainder of: (a) (i) the consolidated current assets of the
Company and its Subsidiaries minus (ii) the amount of cash and cash
equivalents included in such consolidated current assets; minus (b) (i)
consolidated current liabilities of the Company and its Subsidiaries minus
(ii) the amount of short-term Debt (including current maturities of
long-term Debt) of the Company and its Subsidiaries included in such
consolidated current liabilities.


 


“Affiliate”
shall mean (i) with respect to any Person, any other Person directly or
indirectly controlling, controlled by, or under direct or indirect common
control with, such first Person, and (ii) with respect to Prudential,
shall include any managed account, investment fund or other vehicle for which
Prudential or any Affiliate of Prudential then acts as investment advisor or
portfolio manager.  A Person shall be
deemed to control a corporation or other entity if such Person possesses,
directly or indirectly, the power to direct or cause the direction of the
management and policies of such corporation or entity, whether through the
ownership of voting securities, by contract or otherwise.


 


“Anti-Terrorism
Order” means Executive Order No. 13,224 of September 24,
2001, Blocking Property and Prohibiting Transactions with Persons Who Commit,
Threaten to Commit or Support Terrorism, 66 U.S. Fed. Reg. 49, 079 (2001), as
amended.


 


“Asset Disposition” shall mean the sale, lease, assignment or
other transfer for value (each, a “Disposition”)
by the Parent, the Company or any other Subsidiary to any Person (other than
the Company or a Guarantor) of any asset or right of the Parent, the Company or
such other Subsidiary (including, the loss, destruction or damage of any
portion thereof or any actual or threatened (in writing to the Parent, the
Company or any other Subsidiary) condemnation,


 


43

















 


confiscation, requisition,
seizure or taking thereof) other than (a) the sale or lease of inventory
in the ordinary course of business and (b) other Dispositions in any
fiscal year the Net Proceeds of which do not in the aggregate exceed
$5,000,000.


 


“Bank
Agent” shall mean Bank of America, N.A., as agent for
the Banks under the Credit Agreement, and its successors and assigns in that
capacity.


 


“Banks”
shall mean the institutions from time to time party to the Credit Agreement as
lenders, and their respective successors and assigns.


 


“BONY Documents”
shall mean (a) Acknowledgment of Assignment of Indebtedness and Related
Liens dated contemporaneously with the date of closing, executed by The Bank of
New York and addressed to the Seller, Cogen South L.L.C. and Oak Acquisition,
LLC, (b) Assignment of Mortgage and Assignment of Rents and Assignment and
Security Agreement dated contemporaneously with the date of closing, executed
by The Bank of New York for the benefit of Oak Acquisition, LLC, (c) the
Resignation of Agent/Appointment of New Agent letter dated contemporaneously
with the date of closing, executed by The Bank of New York and addressed to the
Seller, Cogen South L.L.C. and Oak Acquisition, LLC, and (d) the Letter
Agreement relating to the assignment of Collateral from the Bank of New York to
Oak Acquisition, LLC.


 


“Business” has the meaning given such
term in the Mead Purchase Agreement.


 


“Business
Day” shall mean any day other than a Saturday, a
Sunday or a day on which commercial banks in New York City are required or
authorized to be closed.


 


“Capital Expenditures”
shall mean all expenditures which, in accordance with GAAP, would be required
to be capitalized and shown on the consolidated balance sheet of the Parent,
including expenditures in respect of Capital Leases, but excluding any such
expenditures for which the Company has been reimbursed by the Seller pursuant
to the Kraft Acquisition Documents and expenditures made in connection with the
replacement, substitution or restoration of assets to the extent financed (a) from
insurance proceeds (or other similar recoveries) paid on account of the loss of
or damage to the assets being replaced or restored or (b) with awards of
compensation arising from the taking by eminent domain or condemnation of the
assets being replaced.


 


“Capital Securities” shall mean, with respect to any Person,
all shares, interests, participations or other equivalents (however designated,
whether voting or non-voting) of such Person’s capital, whether now outstanding
or issued or acquired after the date of closing, including common shares,
preferred shares, membership interests in a limited liability company, limited
or general partnership interests in a partnership, interests in a trust,
interests in other unincorporated organizations, warrants, options or other
rights for the purchase or acquisition from such Person of shares of capital
stock of (or other ownership or profit interests in) such Person or warrants,
rights or options for the purchase or acquisition from such Person of such shares
(or such other interests) or any other equivalent of such ownership interest.


 


44

















 


“Capital
Lease” shall mean, with respect to any Person, any
lease of (or other agreement conveying the right to use) any real or personal
property by such Person that, in conformity with GAAP, is accounted for as a
capital lease on the balance sheet of such Person.


 


“Cash Equivalent Investment” shall mean, at any time, (a) any
evidence of Debt, maturing not more than one year after such time, issued or
guaranteed by the United States Government or any agency thereof, (b) commercial
paper, maturing not more than one year from the date of issue, or corporate
demand notes, in each case rated at least A-l by S&P or P-l by Moody’s, (c) any
certificate of deposit, time deposit or banker’s acceptance, maturing not more
than one year after such time, or any overnight federal funds transaction that
is issued or sold by a commercial banking institution that is a member of the
Federal Reserve System and has a combined capital and surplus and undivided
profits of not less than $500,000,000, (d) any repurchase agreement
entered into with any commercial banking institution of the nature referred to
in clause (c) which (i) is secured by a fully perfected security
interest in any obligation of the type described in any of clauses (a) through
(c) above and (ii) has a market value at the time such
repurchase agreement is entered into of not less than 100% of the repurchase
obligation of such commercial banking institution thereunder and (e) money
market accounts or mutual funds which invest exclusively in assets satisfying
the foregoing requirements, and (f) other short term liquid investments
approved in writing by the Required Holders.


 


“Cash Management Agreement”
shall mean any agreement to provide cash management services, including
treasury, depository, overdraft, credit or debit card, credit card processing,
purchase card, ACH transactions, electronic funds transfer and other cash
management arrangements.


 


“Change of
Control” shall mean the occurrence of any of the following events: (a) any
“person” or “group” (as such terms are used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, but excluding any employee benefit plan of
such person or its subsidiaries, and any person or entity acting in its
capacity as trustee, agent or other fiduciary or administrator of any such
plan) becomes the “beneficial owner” (as defined in Rules 13d-3 and 13d-5
under the Securities Exchange Act of 1934, except that a person or group shall
be deemed to have “beneficial ownership” of all Capital Securities that such
person or group has the right to acquire, whether such right is exercisable
immediately or only after the passage of time (such right, an “option right”)),
directly or indirectly, of more than 35% of the Capital Securities of the
Parent entitled to vote for members of the board of directors or equivalent
governing body of the Parent on a fully diluted basis (and taking into account
all such securities that such person or group has the right to acquire pursuant
to any option right); provided that the acquisition by any one or more
Exempt Persons (as defined below) (acting singly or in concert) of the “beneficial
ownership” of 35% or more of the Capital Securities of the Parent entitled to
vote for members of the board of directors or equivalent governing body of the
Parent on a fully diluted basis (and taking into account all such securities
that such person or group has the right to acquire pursuant to any option
right) shall not be a Change of Control; (b) a majority of the members of
the Board of Directors of the Parent shall cease to be Continuing Members (as
defined below); (c) the Parent shall cease to own and control 100% of each
class of the outstanding Capital Securities of the Company; (d) the
Company shall cease to, directly or indirectly, own and control 100% of each
class of the outstanding Capital Securities of each Subsidiary (other than the
Company); or (e) all of Roger W. Stone (or a replacement reasonably
satisfactory to the Required Holders),


 


45

















 


Matthew Kaplan (or a replacement reasonably satisfactory to the
Required Holders) and Timothy Keneally (or a replacement reasonably
satisfactory to the Required Holders) shall cease at any time to be employed
full time by the Parent  in a position
at least equivalent to their current respective positions; provided, however,
such an event under this clause (e) shall not constitute a Change of
Control for up to 135 days if the Parent is diligently working to replace such
Person(s) with a reasonably qualified candidate (or candidates) to perform
the same or similar duties as such Person(s). 
For purposes of the foregoing, (x) “Continuing Member”
shall mean a member of the Board of Directors of Parent who either (i) was
a member of Parent’s Board of Directors on the day before the date of closing
and has been such continuously thereafter or (ii) became a member of such
Board of Directors after the day before the date of closing and whose election
or nomination for election by the stockholders of Parent was approved by a vote
of the majority of the Continuing Members then members of Parent’s Board of
Directors and (y) “Exempt Person”
shall mean each member of the class consisting of:  (i) Roger Stone, (ii) Matthew
Kaplan and (iii) so long as voting control is retained by such Person, any spouse, lineal descendant, parent or sibling
of such Person, or any trust or similar estate planning entity controlled by
such Person or whose beneficiaries or owners are solely comprised of such
Person’s spouse, lineal descendant, parent or sibling.


 


“closing”
or “date of closing” shall have
the meaning given in paragraph 2 hereof.


 


“Code”
shall mean the Internal Revenue Code of 1986, as amended.


 


“Cogen Junior Notes” shall mean the
subordinated promissory note from Cogen JV to the Company dated October 22,
2001 in the original principal amount of $9,500,000 and the subordinated
promissory note from Cogen JV to the Company dated December 31, 2004 in
the original principal amount of $57,500,000.


 


“Cogen JV” shall mean Cogen South LLC, a
Delaware limited liability company.


 


“Cogen Loan Agreement” shall mean that
certain Amended and Restated Construction and Term Loan Agreement of Cogen JV
dated as of December 15, 1996, as amended or assigned, and all documents
executed in connection therewith.


 


“Cogen Notes” shall mean the Cogen
Senior Notes and the Cogen Junior Notes.


 


“Cogen Senior Notes” shall mean all
indebtedness outstanding under the Cogen Loan Agreement, including those
certain Replacement Promissory Notes dated as of December 31, 1998
executed by Cogen JV in favor of the Company in the principal amounts of
$50,000,000 and $8,039,721.92, respectively.


 


“Collateral”
shall mean all of the “Collateral” and
“Mortgaged Property” referred to in the
Collateral Documents and all of the other property that is or is intended under
the terms of the Collateral Documents to be subject to Liens in favor of the
Collateral Agent for the benefit of the Banks and the holders of the Notes.


 


46

















 


“Collateral
Agent” shall mean Bank of America, N.A., in its
capacity as collateral agent under the Intercreditor Agreement, and its
successor and assigns in that capacity.


 


“Collateral
Documents” shall mean the Security Agreements, the
Mortgages, the Deposit Account Control Agreements, the Securities Account
Control Agreements, the estoppel and consent agreements, and any other
agreement, document or instrument in effect on the date of closing or executed
by the Parent or any Subsidiary after the date of closing under which the
Parent or such Subsidiary has granted a lien upon or security interest in any
property or assets to the Collateral Agent to secure all or any part of the
obligations of the Company under this Agreement or the Notes or of any
Guarantor under any Guaranty Agreement, and all financing statements,
certificates, documents and instruments relating thereto or executed or provided
in connection therewith, each as amended, restated, supplemented or otherwise
modified from time to time.


 


“Consolidated
Net Income” shall mean, with respect to the Parent and its
Subsidiaries for any period, the net income (or loss) of the Parent and its
Subsidiaries for such period, excluding any gains from Asset
Dispositions, any extraordinary gains and any gains from discontinued
operations.


 


“Contingent Liability” shall mean, with respect to any
Person, each obligation and liability of such Person and all such obligations
and liabilities of such Person incurred pursuant to any agreement, undertaking
or arrangement by which such Person: (a) guarantees, endorses or otherwise
becomes or is contingently liable upon (by direct or indirect agreement,
contingent or otherwise, to provide funds for payment, to supply funds to, or
otherwise to invest in, a debtor, or otherwise to assure a creditor against
loss) the indebtedness, dividend, obligation or other liability of any other
Person in any manner (other than by endorsement of instruments in the course of
collection), including any indebtedness, dividend or other obligation which may
be issued or incurred at some future time; (b) guarantees the payment of
dividends or other distributions upon the Capital Securities of any other
Person; (c) undertakes or agrees (whether contingently or otherwise): (i) to
purchase, repurchase, or otherwise acquire any indebtedness, obligation or
liability of any other Person or any property or assets constituting security
therefor, (ii) to advance or provide funds for the payment or discharge of
any indebtedness, obligation or liability of any other Person (whether in the
form of loans, advances, stock purchases, capital contributions or otherwise),
or to maintain solvency, assets, level of income, working capital or other
financial condition of any other Person, or (iii) to make payment to any
other Person other than for value received; (d) agrees to lease property
or to purchase securities, property or services from such other Person with the
purpose or intent of assuring the owner of such indebtedness or obligation of
the ability of such other Person to make payment of the indebtedness or
obligation; (e) induces the issuance of any letter of credit for the
benefit of such other Person; or (f) undertakes or agrees otherwise to
assure a creditor against loss. The amount of any Contingent Liability which is
in the form of a guaranty of Debt shall (subject to the limitation set forth
below and any other limitation set forth herein) be deemed to be the
outstanding principal amount (or maximum permitted principal amount, if larger)
of the indebtedness, obligation or other liability guaranteed or supported
thereby.  The amount of any Contingent
Liability which is not in the form of a guaranty of Debt shall be equal to the
reasonably anticipated maximum amount of such Contingent Liability as
determined by such Person in good faith.


 


47

















 


“Credit
Agreement” shall mean the “Credit Agreement”, dated as
of June 12, 2008, between the Parent, the Company, the Bank Agent and the
Banks, as amended, restated, supplemented or otherwise modified from time to
time.


 


“Cumulative Available Excess Cash Flow”
shall mean, as of any date of determination, the sum of Available Excess Cash
Flow (as defined below) for each of the fiscal years ended prior to such date
of determination for which audited financial statements of the Parent and its
Subsidiaries have been delivered to each Significant Holder in accordance with
paragraph 5A(iii) (commencing with the 2008 fiscal year). “Available Excess Cash Flow” shall mean (a) with respect
to the 2008 fiscal year, 50% of Excess Cash Flow for the period commencing the
date of closing through the end of such fiscal year, (b) with respect to
the 2009 fiscal year, 50% of Excess Cash Flow for such fiscal year and (c) with
respect to the 2010 fiscal year and each fiscal year thereafter, (i) if as
of such date of determination the Total Leverage Ratio is greater than or equal
to 2.0:1.0, 50% of Excess Cash Flow for such fiscal year and (ii) if as of
such date of determination the Total Leverage Ratio is less than 2.0:1.0, 100%
of Excess Cash Flow for such fiscal year.


 


“Debt” of any Person shall mean, without duplication, (a) all
indebtedness of such Person for borrowed money, whether or not evidenced by
bonds, debentures, notes or similar instruments, (b) all obligations of
such Person as lessee under Capital Leases which have been or should be
recorded as liabilities on a balance sheet of such Person in accordance with
GAAP, (c) all obligations of such Person to pay the deferred purchase
price of property or services (excluding trade accounts payable in the ordinary
course of business but including the Earn-Out Obligations), (d) all
indebtedness secured by a Lien on the property of such Person, whether or not
such indebtedness shall have been assumed by such Person; provided that
if such Person has not assumed or otherwise become liable for such
indebtedness, such indebtedness shall be measured at the fair market value of
such property securing such indebtedness at the time of determination, (e) all
obligations, contingent or otherwise, with respect to the face amount of all
letters of credit (whether or not drawn), bankers’ acceptances and similar
obligations issued for the account of such Person (including the Letters of
Credit), (f) all Hedging Obligations of such Person, (g) all
Contingent Liabilities of such Person, (h) all Debt of any partnership of
which such Person is a general partner, (i) the principal portion of all obligations of such Person under Synthetic
Lease Obligations and other Off-Balance Sheet Liabilities (excluding Operating
Leases to the extent they would otherwise be included) and (j) any
Capital Securities or other equity instrument, whether or not mandatorily
redeemable, that under GAAP is characterized as debt, whether pursuant to
financial accounting standards board issuance No. 150 or otherwise.


 


“Debt to be Repaid” shall mean Debt
listed on Schedule 6B(g).


 


“Debtor
Relief Laws” shall mean the Bankruptcy Code of the United States,
and all other liquidation, conservatorship, bankruptcy, assignment for the
benefit of creditors, moratorium, rearrangement, receivership, insolvency,
reorganization, or similar debtor relief Laws of the United States or other
applicable jurisdictions from time to time in effect and affecting the rights
of creditors generally.


 


“Default”
shall mean any of the events specified in paragraph 7A, whether or not any
requirement for such event to become an Event of Default has been satisfied.


 


48
















 


“Default
Rate” shall mean a rate per annum from time to time
equal to the greater of (i) 10.30% or (ii) 2.00% over the rate of
interest publicly announced by JPMorgan Chase Bank from time to time as its “prime
rate.”


 


“Deposit Account Control Agreement” shall mean an agreement,
among the Company or a Guarantor, a depository institution, and the Collateral
Agent, which agreement is in a form acceptable to the Collateral Agent and
which provides the Collateral Agent with “control” (as such term is used in Article 9
of the Uniform Commercial Code) over the deposit account(s) described therein,
as the same may be amended, modified, extended, restated, replaced, or
supplemented from time to time.


 


“Domestic
Subsidiary” shall mean any Subsidiary that is organized under the
laws of any political subdivision of the United States.


 


“Earn-Out Obligations” shall mean the Company’s payment
obligations under Sections 1.11 and 1.12 of the International Paper Purchase
Agreement.


 


“EBITDA”
shall mean, for any period, Consolidated Net Income for such period plus,
to the extent deducted in determining such Consolidated Net Income for such
period (without duplication), (a) Interest Expense, (b) income tax
expense, (c) depreciation and amortization, (d) extraordinary losses
(or less gains), net of related tax effects, (e) other non-cash charges or
losses (or less gains or income) for which no cash outlay (or cash receipt) is
foreseeable, (f) “cold mill” maintenance outage costs in an aggregate
amount of up to $7,500,000 for the term of this Agreement (it being understood
that such add-back shall only be permitted in connection with one such outage
until all of the Notes have been repaid in full) but only to the extent that (i) the
aggregate amount of such costs for such period exceeds the actual expense
allocable to such outage during such period and (ii) any such resulting
add-back is applied to reduce EBITDA in the future periods to which such
expenses actually relate on a dollar for dollar basis and (g) expenses and
fees incurred to consummate the transactions contemplated by the Transaction
Documents in an aggregate amount for all periods not exceeding $13,500,000. For
purposes of calculating the Total Leverage Ratio and the Fixed Charge Coverage
Ratio, (i) EBITDA shall be deemed to be:  $38,877,600  for the fiscal quarter ending September 30, 2007,  $39,298,700  for the fiscal
quarter ending December 31, 2007 and  $33,475,400  for the fiscal quarter ending March 31, 2008 and (ii) EBITDA
for the period from April 1, 2008 to the date of closing shall be
determined in a manner consistent with clause (i) above.


 


“Environmental Claims” shall mean all claims, however
asserted, by any governmental, regulatory or judicial authority or other Person
alleging potential liability or responsibility for violation of any
Environmental Law, or for release or injury to the environment.


 


“Environmental Laws” shall mean all present or future
federal, state or local laws, statutes, common law duties, rules, regulations,
ordinances and codes, together with all administrative or judicial orders,
consent agreements, directed duties, requests, licenses, authorizations and
permits of, and agreements with, any Governmental Authority, in each case
relating to any matter arising out of or relating to public health and safety,
or pollution or protection of the environment or workplace, including any of
the foregoing relating to the


 


49

















 


presence, use,
production, generation, handling, transport, treatment, storage, disposal,
distribution, discharge, emission, release, threatened release, control or
cleanup of any Hazardous Substance.


 


“Environmental Liability” shall mean any
liability, contingent or otherwise (including any liability for damages, costs
of environmental remediation, fines, penalties or indemnities), of the Parent,
the Company or any of their respective Subsidiaries directly or indirectly
resulting from or based upon (a) violation of any Environmental Law, (b) the
generation, use, handling, transportation, storage, treatment or disposal of
any Hazardous Substances, (c) exposure to any Hazardous Substances, (d) the
release or threatened release of any Hazardous Substances into the environment
or (e) any contract, agreement or other consensual arrangement pursuant to
which liability is assumed or imposed with respect to any of the foregoing.


 


“ERISA”
shall mean the Employee Retirement Income Security Act of 1974, as amended.


 


“ERISA
Affiliate” shall mean any corporation which is a
member of the same controlled group of corporations as the Parent or the
Company within the meaning of section 414(b) of the Code, or any trade or
business which is under common control with the Company within the meaning of
section 414(c) of the Code.


 


“Event of Default”
shall mean any of the events specified in paragraph 7A, provided that there has
been satisfied any requirement in connection with such event for the giving of
notice, or the lapse of time, or the happening of any further condition, event
or act.


 


“Excess Cash Flow” shall
mean, for any period, (a) EBITDA for such period, minus (b) scheduled
repayments of principal of the Term Loans (as defined in the Credit Agreement)
made during such period, minus (c) voluntary prepayments of the
Term Loans (as defined in the Credit Agreement) during such period, minus
(d) scheduled or voluntary prepayments of the Notes during such period, minus
(e) cash payments made in such period with respect to Capital Expenditures
(to the extent such cash payments are unfinanced), minus (f) all income
taxes paid in cash by the Company and the Guarantors during such period, minus
(g) cash Interest Expense of the Company and the Guarantors during such
period, minus (h) any cash losses (and plus any cash gains)
from extraordinary items to the extent excluded from the calculation of EBITDA,
minus (i) any increase in Adjusted Working Capital for such period.


 


“Exchange
Act” shall mean the Securities Exchange Act of 1934,
as amended.


 


“Existing
Credit Agreement” shall have the same meaning given in
paragraph 3J hereof


 


“Extraordinary
Receipt” shall mean any cash received by or paid to or for the
account of any Person not in the ordinary course of business, including tax
refunds, pension plan reversions, proceeds of insurance (other than proceeds of
business interruption insurance to the extent such proceeds constitute
compensation for lost earnings), condemnation awards (and payments in lieu
thereof), indemnity payments and any purchase price adjustments.


 


50

















 


“FILOT Lease” shall mean, collectively, (i) the lease
agreement to be entered into on or before the date of closing between
Charleston County, South Carolina and KapStone Charleston Kraft LLC and (ii) the
lease agreement to be entered into on or before the date of closing between
Charleston County, South Carolina and Cogen South LLC.


 


“Fixed Charge Coverage Ratio” shall
mean, as of the last day of any fiscal quarter, for the period of four
consecutive fiscal quarters ending in such date, the ratio of (a) the
total for such period of (i) EBITDA minus (ii) the sum of
income taxes paid in cash by the Parent and its Subsidiaries minus (iii) cash
dividends paid during such period minus (iv) all unfinanced Capital
Expenditures to (b) the sum for such period of (i) cash
Interest Expense plus (ii) required payments of principal of Funded
Debt (including the Notes and the Term Loans (as defined in the Credit
Agreement) but excluding the Revolving Credit Loans (as defined in the Credit
Agreement) and the Intercompany Subordinated Debt); provided, with
respect to each of clauses (a)(ii), (a)(iii), (a)(iv), (b)(i) and (b)(ii) above,
for any fiscal quarter ending during the first three full fiscal quarters
following the date of closing, the relevant amount shall be determined not by
taking the actual amount for such four consecutive fiscal quarter period but
instead by dividing (x) the actual amount of such item from the date of
closing to such fiscal quarter end by (y) the number of days from (and
including) the date of closing to (and including) such fiscal quarter end and
multiplying the quotient by 365.


 


“Foreign Subsidiary” shall mean any
Subsidiary that is not a Domestic Subsidiary.


 


“Funded
Debt” shall mean, as to any Person, all Debt for borrowed money of
such Person that matures more than one year from the date of its creation (or
is renewable or extendible, at the option of such Person, to a date more than
one year from such date).


 


“Governmental
Authority” shall mean the government of the United States or any other
nation, or of any political subdivision thereof, whether state or local, and
any agency, authority, instrumentality, regulatory body, court, central bank or
other entity exercising executive, legislative, judicial, taxing, regulatory or
administrative powers or functions of or pertaining to government (including
any supra-national bodies such as the European Union or the European Central
Bank).


 


“Hedging Obligation” shall mean, with respect to any Person,
any liability of such Person under any Swap Contract.


 


“Guarantor”
shall mean the Parent and each Domestic Subsidiary of the Company in existence
as of the date of closing and each other Person which may from time to time
execute a Guaranty Agreement.


 


“Guaranty
Agreement” and “Guaranty
Agreements” shall have the same meaning given in paragraph 3A (iii) hereof.


 


“including”
shall mean, unless the context clearly requires otherwise, “including without
limitation”, whether or not so stated.


 


51

















 


“Institutional
Investor” shall mean any insurance company,
commercial, investment or merchant bank, finance company, mutual fund,
registered money or asset manager, savings and loan association, credit union,
registered investment advisor, pension fund, investment company, licensed
broker or dealer, “qualified institutional buyer” (as such term is defined
under Rule 144A promulgated under the Securities Act) or “accredited
investor” (as such term is defined in Regulation D promulgated under the
Securities Act).


 


“Intercompany Subordinated Debt” shall mean unsecured Debt of
the Company to Parent in respect of the loan made by Parent to the Company
pursuant to the Intercompany Subordinated Note.


 


“Intercompany Subordinated Note” shall mean that certain
Subordinated Promissory Note dated as of the date of closing by the Company in
favor of Parent.


 


“Intercompany Subordination Agreement” shall mean that
certain Subordination and Intercreditor Agreement dated as of the date hereof
by and among Parent, Company, the Bank Agent and the holders of the Notes, as
amended, restated or otherwise modified from time to time pursuant to the terms
thereof.


 


“Intercreditor
Agreement” shall have the meaning given in paragraph
3A(ii) hereof.


 


“Interest Expense” shall mean for any period the consolidated
interest expense of the Parent and its Subsidiaries for such period (including
all imputed interest on Capital Leases).


 


“International Paper Purchase Agreement” shall mean that
certain Purchase Agreement dated as of June 23, 2006 among the Parent, the
Company and International Paper Company, as amended from time to time.


 


“Investment”
shall mean, with respect to any Person, any investment in another Person,
whether by acquisition of any Debt or Capital Security, by making any loan or
advance, by becoming obligated with respect to a Contingent Liability in
respect of obligations of such other Person (other than travel and similar
advances to employees in the ordinary course of business) or by making an
Acquisition.


 


“Kraft Acquisition” shall have the
meaning given  in paragraph 3K.


 


“Kraft Acquisition Documents” shall have
the meaning given  in paragraph 3K.


 


“Lien”
shall mean, with respect to any Person, any interest granted by such Person in
any real or personal property, asset or other right owned or being purchased or
acquired by such Person (including an interest in respect of a Capital Lease)
which secures payment or performance of any obligation and shall include any
mortgage, lien, encumbrance, title retention lien, charge or other security
interest of any kind, whether arising by contract, as a matter of law, by
judicial process or otherwise.


 


52

















 


“Material
Adverse Effect” shall mean (a) a material adverse
change in, or a material adverse effect upon, the financial condition,
operations, assets, business or properties of the Company and the Guarantors
taken as a whole, (b) a material impairment of the ability of the Company
or any Guarantor to perform any of its respective obligations under this
Agreement the Notes or any other Transaction Document or (c) a material
adverse effect upon any substantial portion of the collateral under the
Collateral Documents or upon the legality, validity, binding effect or
enforceability against the Company or any Guarantor of any Transaction
Document.


 


“Material Contract” shall mean, with
respect to any Person, (a) each contract or other agreement, written or
oral, to which such Person is a party involving aggregate consideration payable
to or by such Person of $10,000,000 or more and (b) any other contract,
agreement, permit or license, written or oral, to which such Person is a party
as to which the breach, nonperformance, cancellation or failure to renew by any
party thereto could reasonably be expected to have a Material Adverse Effect.


 


“Mead
Purchase Agreement” shall have the meaning given in
paragraph 3K hereof.


 


“Moody’s”
shall mean Moody’s Investors Service, Inc. and any successor thereto.


 


“Mortgage”
and “Mortgages” shall have the
meaning given in paragraph 3A(v) hereof.


 


“Multiemployer
Plan” shall mean any Plan which is a “multiemployer
plan” (as such term is defined in section 4001(a)(3) of ERISA).


 


“Net Cash
Proceeds” shall mean:


 


(a)                                  with respect to any
Asset Disposition, the aggregate cash proceeds (including cash proceeds
received pursuant to policies of insurance or by way of deferred payment of
principal pursuant to a note, installment receivable or otherwise, but only as
and when received) received by the Company or any Guarantor pursuant to such Asset
Disposition net of (i) the direct costs relating to such sale, transfer or
other disposition (including sales commissions and legal, accounting and
investment banking fees), (ii) taxes paid or reasonably estimated by the
Company to be payable as a result thereof (after taking into account any
available tax credits or deductions and any tax sharing arrangements) and (iii) amounts
required to be applied to the repayment of any Debt secured by a Lien on the
asset subject to such Asset Disposition (other than the Senior Debt);


 


(b)                                 with respect to any
issuance or exercise of Capital Securities (including, without limitation, the
Warrants), the aggregate cash proceeds received by the Company or any Guarantor
pursuant to such issuance or exercise, net of the direct costs relating to such
issuance or exercise (including sales and underwriters’ commissions); and


 


53

















 


(c)                                  with respect to any
issuance of Debt, the aggregate cash proceeds received by the Parent, the Company
or any other Subsidiary pursuant to such issuance, net of the direct costs of
such issuance (including up-front, underwriters’ and placement fees).


 


“Notes”
shall have the meaning given in paragraph 1 hereof.


 


“Off-Balance Sheet Liabilities” shall mean, with respect to
any Person as of any date of determination thereof, without duplication and to
the extent not included as a liability on the consolidated balance sheet of
such Person and its Subsidiaries in accordance with GAAP: (a) with respect
to any asset securitization or similar transaction (including any accounts
receivable purchase facility) (i) the unrecovered investment of purchasers
or transferees of assets so transferred and (ii) any other payment,
recourse, repurchase, hold harmless, indemnity or similar obligation of such
Person or any of its Subsidiaries in respect of assets transferred or payments
made in respect thereof, other than limited recourse provisions that are
customary for transactions of such type and that neither (x) have the
effect of limiting the loss or credit risk of such purchasers or transferees
with respect to payment or performance by the obligors of the assets so
transferred nor (y) impair the characterization of the transaction as a
true sale under applicable Laws (including Debtor Relief Laws); or (b) the
monetary obligations under any financing lease (excluding any operating lease)
or so-called “synthetic,” tax retention or off-balance sheet lease transaction
which, upon the application of any Debtor Relief Law to such Person or any of
its Subsidiaries, would be characterized as indebtedness; or (c) the
monetary obligations under any sale and leaseback transaction which does not
create a liability on the consolidated balance sheet of such Person and its
Subsidiaries; or (d) any other monetary obligation arising with respect to
any other transaction which (i) upon the application of any Debtor Relief
Law to such Person or any of its Subsidiaries, would be characterized as
indebtedness or (ii) is the functional equivalent of or takes the place of
borrowing but which does not constitute a liability on the consolidated balance
sheet of such Person and its Subsidiaries (for purposes of this clause (d), any
transaction structured to provide tax deductibility as interest expense of any
dividend, coupon or other periodic payment will be deemed to be the functional
equivalent of  a borrowing).


 


“Officer’s Certificate”
shall mean a certificate signed in the name of the Parent or the Company, as
applicable, by its President, one of its Vice Presidents or its Treasurer.


 


“Operating Lease” shall mean any lease of (or other agreement
conveying the right to use) any real or personal property by the Company or any
Guarantor, as lessee, other than any Capital Lease and obligations in respect
of the FILOT Lease.


 


“Organization
Documents” shall mean, (a) with respect to any corporation, the
certificate or articles of incorporation and the bylaws (or equivalent or
comparable constitutive documents with respect to any non-U.S. jurisdiction); (b) with
respect to any limited liability company, the certificate or articles of
formation or organization and operating agreement; and (c) with respect to
any partnership, joint venture, trust or other form of business entity, the
partnership, joint venture or other applicable agreement of formation or
organization and any agreement, instrument, filing or notice with respect
thereto filed in connection with its formation or organization with the
applicable Governmental Authority in the jurisdiction of its formation or


 


54

















 


organization and, if applicable, any certificate or articles of
formation or organization of such entity.


 


“PBGC”
shall mean the Pension Benefit Guaranty Corporation, or any successor or replacement
entity thereto under ERISA.


 


“Person”
shall mean and include an individual, a partnership, a joint venture, a
corporation, a trust, a limited liability company, an unincorporated
organization and a government or any department or agency thereof.


 


“Permitted Acquisition” shall mean any Proposed Acquisition
which is either (a) approved in writing by the Required Holders or (b) which
satisfies each of the following conditions:


 


(i)                                     Other
than Debt permitted under paragraph 6B, neither the Parent, nor the Company nor
any other Subsidiary shall incur or assume any Debt or other liabilities in
connection with such Proposed Acquisition except for ordinary course trade
payables and accrued expenses. No earn-out or similar payment obligations shall
be incurred in connection with such Proposed Acquisition unless approved in
writing by the Required Holders ;


 


(ii)                                  Before
and after giving effect to such Proposed Acquisition, no Default or Event of
Default shall have occurred and be continuing;


 


(iii)                               The
aggregate amount payable in connection with, and other consideration for (in
each case, including all transaction costs and all Debt, liabilities and
Contingent Liabilities incurred or assumed in connection therewith or otherwise
reflected in a consolidated balance sheet of the Parent and such acquired
Person) such Proposed Acquisition and all other Permitted Acquisitions under
clause (b) of this definition shall not exceed $60,000,000;


 


(iv)                              After
giving effect to such Proposed Acquisition, the Parent shall be in compliance
on a pro forma basis with the financial covenants set forth in paragraph 6A,
recomputed for the most recent fiscal quarter for which financial statements
have been delivered;


 


(v)                                 Upon
consummation of such Proposed Acquisition, the Collateral Agent shall have a
perfected first priority Lien upon all assets acquired in connection therewith,
subject only to Permitted Liens;


 


(vi)                              Not
less than twenty (20) Business Days prior to consummating such Proposed
Acquisition, the Company shall deliver to the holders of the Notes an
acquisition summary with respect to such Proposed Acquisition, such summary to
include (A) a reasonably detailed description of the business to be
acquired (including financial information) and operating results (including
financial statements in form and substance reasonably satisfactory to the
Required Holders), (B) the terms and conditions, including economic terms,
of the Proposed Acquisition, and (C) pro forma financial projections for


 


55

















 


the Parent and
its Subsidiaries for the four fiscal quarters following the date of such
Proposed Acquisition, together with a calculation of the Parent’s compliance on
a Pro Forma Basis with the financial covenants set forth in paragraph 6A for
such period, in each case in form and substance reasonably satisfactory to the
Required Holders;


 


(vii)                           The
holders of the Notes shall have been furnished with copies of the Company’s
business, legal and environmental due diligence with respect to the proposed
business and assets to be acquired, with results reasonably satisfactory to the
Required Holders; and


 


(viii)                        Prior
to consummating such Proposed Acquisition, the Company shall provide the
holders of the Notes with all acquisition documents relating thereto and such
other information (including officer’s certificates and opinions of counsel) as
the Required Holders shall reasonably request in order to confirm that the
conditions set forth herein have been satisfied.


 


“Permitted Lien” shall mean a Lien
expressly permitted hereunder pursuant to paragraph 6C.


 


“Permitted Parent Dividends”
shall mean the dividend the Company is permitted to pay to the Parent in an
aggregate amount not to exceed (a) (i) from the date of closing
through the fiscal year ending December 31, 2009, 50% of Cumulative
Available Excess Cash Flow and (ii) thereafter, 100% of Cumulative
Available Excess Cash Flow plus (b) an aggregate amount of up to $500,000
in connection with the redemption of the Warrants pursuant to the terms thereof
and in connection with the obligations of the Parent pursuant to the
Underwriting Agreement, if applicable.


 


“Plan”
shall mean any “employee pension benefit plan” (as such term is defined in
section 3 of ERISA) which is or has been established or maintained, or to which
contributions are or have been made, by the Company or any ERISA Affiliate.


 


“Pro Forma Basis” shall mean, with respect to any
determination for any period and any Pro Forma Transaction, that such
determination shall be made by giving pro forma effect to each such Pro Forma
Transaction, as if each such Pro Forma Transaction had been consummated on the
first day of such period.


 


“Pro Forma Transaction” shall mean any transaction
consummated as part of any Permitted Acquisition, together with each other
transaction relating thereto and consummated in connection therewith, including
any incurrence or repayment of Debt.


 


“Proposed Acquisition” shall mean (a) any proposed
acquisition that is consensual and approved by the board of directors of such
Proposed Acquisition Target, of all or substantially all of the assets or
Capital Securities of any Proposed Acquisition Target by the Company or any
Subsidiary of the Company or (b) any proposed merger of any Proposed
Acquisition Target with or into the Company or any Subsidiary of the Company
(and, in the case of a merger with the Company, with the Company being the
surviving corporation).


 


56

















 


“Proposed Acquisition Target” shall mean any Person or any
brand, line of business, division, branch, operating division or other unit
operation of any Person.


 


“Proposed
Prepayment Date” shall have the meaning given in
paragraph 4E(4) hereof.


 


“Prudential”
shall mean The Prudential Insurance Company of America.


 


“Purchasers”
shall have the meaning given in the introductory paragraph hereof.


 


“Ratable Portion”
shall mean, as of any date of determination, with respect to the Notes of any
holder of the Notes that has accepted an offer to prepay the Notes upon a Senior
Debt Prepayment Event pursuant to paragraph 4E, an amount equal to the product
of (a) the Net Cash Proceeds required under the Credit Agreement to be
applied to the prepayment of any Senior Debt in connection with such Senior
Debt Prepayment Event multiplied by (b) a fraction, the numerator of which
is (x) the then aggregate outstanding principal amount of the Notes held
by such holder (y) the denominator of which is the then aggregate
outstanding principal amount of all Senior Debt to which such Net Cash Proceeds
are so required to be applied.


 


“Related Agreements” shall mean the Kraft Acquisition
Documents and all agreements and instruments entered into or delivered in
connection therewith, including without limitation all supply agreements and
transitional services agreements with Seller.


 


“Related Transactions” shall mean the transactions
contemplated by the Related Agreements.


 


“Reportable Event” shall mean
a reportable event as defined in Section 4043 of ERISA and the regulations
issued thereunder as to which the PBGC has not waived the notification
requirement of Section 4043(a), or the failure of a Plan to meet the
minimum funding standards of Section 412 of the Code (without regard to
whether the Plan is a plan described in Section 4021(a)(2) of ERISA) or
under Section 302 of ERISA.


 


“Required
Holder(s)” shall mean the holder or holders of more
than 50% of the aggregate principal amount of the Notes from time to time
outstanding.


 


“Responsible
Officer” shall mean the chief executive officer, chief
operating officer, chief financial officer or chief accounting officer of the
Company or any Guarantor or any other officer of the Parent or the Company or
any Guarantor involved principally in its financial administration or its
controllership function.


 


“S&P”
shall mean Standard & Poor’s Ratings Services, a division of The
McGraw-Hill Companies, Inc., and any successor thereto.


 


“SCANA Side Letters” shall mean those
certain letter agreements dated as of April 3, 2008 and April 4,
2008, among MeadWestvaco Corporation, MeadWestvaco South Carolina LLC, SCANA
Corporation, South Carolina Electric and Gas Company, Cogen South L.L.C., the
Parent and Oak Acquisition LLC.


 


57
















 


“Securities
Account Control Agreements” shall have the meaning
given in the Security Agreement.


 


“Securities
Act” shall mean the Securities Act of 1933, as
amended.


 


“Security
Agreement” and “Security
Agreements” shall have the meaning given in paragraph 3A(iv) hereof.


 


“Seller” shall mean a collective
reference to MeadWestvaco Corporation and MeadWestvaco South Carolina LLC.


 


“Senior Debt” shall mean the Notes and
the “Loans” (as defined in the Credit Agreement).


 


“Senior
Debt Prepayment Event” shall mean any event giving
rise to the requirement to make a prepayment of Senior Debt pursuant to Section 2.05(b)(i),
(ii), (iii), (iv), (v) or (vi) of the Credit Agreement as in effect
on the date of closing.


 


“Significant
Holder” shall mean (i) each Purchaser, so long as
such Purchaser or any of its Affiliates shall hold (or be committed under this
Agreement to purchase) any Note, or (ii) any other Person which, together
with its Affiliates, is the holder of at least 5% of the aggregate principal
amount of the Notes from time to time outstanding.


 


“Subsidiary”
of a Person means a corporation, partnership, joint venture, limited liability
company or other business entity of which a majority of the shares of
securities or other interests having ordinary voting power for the election of
directors or other governing body (other than securities or interests having
such power only by reason of the happening of a contingency) are at the time
beneficially owned, or the management of which is otherwise controlled, directly,
or indirectly through one or more intermediaries, or both, by such Person.  Unless otherwise specified, all references
herein to a “Subsidiary” or to “Subsidiaries” shall refer to a Subsidiary or
Subsidiaries of the Parent.  For the
avoidance of doubt, any reference to a “Subsidiary” of the Parent shall include
the Company.


 


“Swap
Contract” shall mean (a) any and all rate swap transactions,
basis swaps, credit derivative transactions, forward rate transactions,
commodity swaps, commodity options, forward commodity contracts, equity or
equity index swaps or options, bond or bond price or bond index swaps or
options or forward bond or forward bond price or forward bond index
transactions, interest rate options, forward foreign exchange transactions, cap
transactions, floor transactions, collar transactions, currency swap
transactions, cross-currency rate swap transactions, currency options, spot
contracts, or any other similar transactions or any combination of any of the
foregoing (including any options to enter into any of the foregoing), whether
or not any such transaction is governed by or subject to any master agreement,
and (b) any and all transactions of any kind, and the related
confirmations, which are subject to the terms and conditions of, or governed
by, any form of master agreement published by the International Swaps and
Derivatives Association, Inc., any International Foreign Exchange Master
Agreement, or any other master agreement (any such master agreement, together
with any related schedules,


 


58

















 


a “Master
Agreement”), including any such obligations or liabilities under any
Master Agreement.


 


“Synthetic Lease Obligation” shall mean
the monetary obligation of a Person under (a) a so-called synthetic,
off-balance sheet or tax retention lease, or (b) an agreement for the use
or possession of property creating obligations that do not appear on the
balance sheet of such Person but which, upon the insolvency or bankruptcy of
such Person, would be characterized as the indebtedness of such Person (without
regard to accounting treatment).  In no
event shall any Operating Lease or any FILOT Lease be construed as a Synthetic
Lease Obligation.


 


“Teachers” shall mean Teachers Insurance
and Annuity Association of America.


 


“Termination
Event” shall mean, with respect to a Plan that is
subject to Title IV of ERISA, (a) a Reportable Event, (b) the
withdrawal of the Company or any ERISA Affiliate from such Plan during a plan
year in which the Company or any ERISA Affiliate was a “substantial employer”
as defined in Section 4001(a)(2) of ERISA or was deemed such under Section 4068(f) of
ERISA, (c) the termination of such Plan, the filing of a notice of intent
to terminate the Plan or the treatment of an amendment of such Plan as a
termination under Section 4041 of ERISA, (d) the institution by the
PBGC of proceedings to terminate such Plan or (e) any event or condition
that might constitute grounds under Section 4042 of ERISA for the
termination of, or appointment of a trustee to administer, such Plan.


 


“Total Debt” shall mean all Debt of the Parent  and its Subsidiaries, determined on a consolidated basis,
excluding (a) contingent obligations in respect of Contingent Liabilities
(except to the extent constituting Contingent Liabilities in respect of Debt of
a Person other than the Company or any Guarantor or in respect of Letters of
Credit (as defined in the Credit Agreement)), (b) Hedging Obligations, (c) Debt
of the Parent  to Subsidiaries and Debt of
Subsidiaries to the Parent or to other Subsidiaries and (d) the Earn-Out
Obligations.


 


“Total
Leverage Ratio” shall mean, as of the last day of any fiscal
quarter, the ratio of (a) Total Debt as of such day to (b) EBITDA for
the period of four consecutive fiscal quarters ending on such day.


 


“Total
Plan Liability” shall mean, at any time, the present
value of all vested and unvested accrued benefits under all Pension Plans,
determined as of the then most recent valuation date for each Plan, using PBGC
actuarial assumptions for single employer plan terminations.


 


“Transaction
Documents” shall mean this Agreement, the Notes, the
Intercreditor Agreement, the Guaranty Agreements, the Collateral Documents, the
Intercompany Note Subordination Agreement and the other agreements, documents,
certificates and instruments now or hereafter executed or delivered by the
Company or any Subsidiary or Affiliate in connection with this Agreement.


 


“Transferee”
shall mean any direct or indirect transferee of all or any part of any Note
purchased by any Purchaser under this Agreement.


 


59

















 


“UCC”
shall mean the Uniform Commercial Code as in effect in the State of Illinois; provided
that, if perfection or the effect of perfection or non-perfection or the
priority of any security interest in any Collateral is governed by the Uniform
Commercial Code as in effect in a jurisdiction other than the State of
Illinois, “UCC” shall mean the Uniform Commercial Code as in effect from
time to time in such other jurisdiction for purposes of the provisions hereof
relating to such perfection, effect of perfection or non-perfection or
priority.


 


“Underwriting Agreement” shall mean the
Underwriting Agreement dated on or about August 15, 2005 between Stone
Arcade Acquisition Corporation, Morgan Joseph & Co., Inc., as
Representative, and the other Underwriters identified therein, as in effect on
the date of closing.


 


“Unfunded Liability” shall
mean the amount (if any) by which the present value of all vested and unvested
accrued benefits under all Plans exceeds the fair market value of all assets
allocable to those benefits, all determined as of the then most recent
valuation date for each Plan, using PBGC actuarial assumptions for single
employer plan terminations.


 


“USA
Patriot Act” shall mean United States Public Law
107-56, Uniting and Strengthening America by Providing Appropriate Tools
Required to Intercept and Obstruct Terrorism (USA PATRIOT ACT) Act of 2001, as
amended from time to time, and the rules and regulations promulgated
thereunder from time to time in effect.


 


“Warrants” shall mean those certain
warrants to purchase 40,000,000 shares of common stock of the Parent at an
exercise price of $5.00 per share dated on or about August 15, 2005.


 


“Wholly-Owned Subsidiary” shall mean any
Subsidiary of the Company all of the outstanding capital stock or other equity
interests of every class of which is owned by the Company or another
Wholly-Owned Subsidiary of the Company.


 


10C.                      Accounting
Principles, Terms and Determinations. 
All references in this Agreement to “generally accepted accounting
principles” or “GAAP” shall be deemed to refer to generally accepted accounting
principles in effect in the United States at the time of application thereof.
Unless otherwise specified herein, all accounting terms used herein shall be
interpreted, all determinations with respect to accounting matters hereunder
shall be made, and all unaudited financial statements and certificates and
reports as to financial matters required to be furnished hereunder shall be
prepared, in accordance with generally accepted accounting principles, applied
on a basis consistent with the most recent audited consolidated financial
statements of the Company and its Subsidiaries delivered pursuant to clause (ii) of
paragraph 5A or, if no such statements have been so delivered, the most recent
audited financial statements referred to in clause (i) of paragraph
8B.  Notwithstanding the foregoing, if at
any time any change in GAAP or in accounting practices as permitted under
paragraph 6N hereof would affect the computation of any financial ratio or
requirement set forth in any Transaction Document, and either the Company or
the Required Holders shall so request, the holders of the Notes and the Company
shall negotiate in good faith to amend such ratio or requirement to preserve
the original intent thereof in light of such change in GAAP or accounting
practices (subject to the approval of the Required Holders); provided
that, until so amended, (i) such ratio or requirement shall continue


 


60

















 


to be computed in accordance with GAAP or past accounting practices
prior to such change therein and (ii) the Company shall provide to the
holders of the Notes financial statements and other documents required under
this Agreement or as reasonably requested hereunder setting forth a
reconciliation between calculations of such ratio or requirement made before
and after giving effect to such change in GAAP or accounting practices, as
appropriate.  Any reference herein to any
specific citation, section or form of law, statute, rule or regulation
shall refer to such new, replacement or analogous citation, section or form
should such citation, section or form be modified, amended or replaced.  All references herein to consolidated
financial statements of the Parent and its Subsidiaries or to the determination
of any amount for the Parent and its Subsidiaries on a consolidated basis or
any similar reference shall, in each case, be deemed to include each variable
interest entity that the Parent is required to consolidate pursuant to FASB
Interpretation No. 46 – Consolidation of Variable Interest Entities: an
interpretation of ARB No. 51 (January 2003) as if such variable
interest entity were a Subsidiary as defined herein.


 


11.                               MISCELLANEOUS.


 


11A.                      Note
Payments.  The Company agrees that,
so long as any Purchaser shall hold any Note, it will make payments of
principal of, interest on and any Yield-Maintenance Amount payable with respect
to such Note, which comply with the terms of this Agreement, by wire transfer
of immediately available funds for credit (not later than 12:00 noon, New York
City time, on the date due) to such Purchaser’s account or accounts as
specified in the Purchaser Schedule attached hereto, or such other account or
accounts in the United States as such Purchaser may from time to time designate
in writing, notwithstanding any contrary provision herein or in any Note with
respect to the place of payment.  Each
Purchaser agrees that, before disposing of any Note, such Purchaser will make a
notation thereon (or on a schedule attached thereto) of all principal payments
previously made thereon and of the date to which interest thereon has been
paid.  The Company agrees to afford the
benefits of this paragraph 11A to any Transferee which shall have made the same
agreement as each Purchaser has made in this paragraph 11A.  No holder shall be required to present or
surrender any Note or make any notation thereon, except that upon the written
request of the Company made concurrently with or reasonably promptly after the
payment or prepayment in full of any Note, the applicable holder shall
surrender such Note for cancellation, reasonably promptly after such request,
to the Company at its principal office.


 


11B.                      Expenses.  Whether or not the transactions contemplated
hereby shall be consummated, the Company shall pay, and save each Purchaser and
any Transferee harmless against liability for the payment of, all out-of-pocket
expenses arising in connection with such transactions, including:


 


(i)                                     (a) all
stamp and documentary taxes and similar charges, (b) costs of obtaining a
private placement number from Standard and Poor’s Ratings Group for the Notes
and (c) fees and expenses of brokers, agents, dealers, investment banks or
other intermediaries or placement agents, in each case as a result of the
execution and delivery of this Agreement or the other Transaction Documents or
the issuance of the Notes;


 


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(ii)                                  document
production and duplication charges and the reasonable fees and expenses of any
special counsel engaged by such Purchaser or such Transferee in connection with
(a) this Agreement, any of the other Transaction Documents and the transactions
contemplated hereby or thereby and (b) any subsequent proposed waiver,
amendment or modification of, or proposed consent under, this Agreement or any
other Transaction Document, whether or not such proposed waiver, amendment,
modification or consent shall be effected or granted;


 


(iii)                               the
costs and expenses, including attorneys’ and financial advisory fees, incurred
by such Purchaser or such Transferee in enforcing (or determining whether or
how to enforce or cause the Collateral Agent to enforce) any rights under this
Agreement, the Notes or any other Transaction Document (including, without
limitation, to protect, collect, lease, sell, take possession of, release or
liquidate any of the Collateral) or in responding to any subpoena or other legal
process or informal investigative demand issued in connection with this
Agreement or any other Transaction Document or the transactions contemplated
hereby or thereby or by reason of your or such Transferee’s having acquired any
Note, including without limitation costs and expenses incurred in any workout,
restructuring or renegotiation proceeding or bankruptcy case;


 


(iv)                              all
costs and expenses, including without limitation reasonable attorneys’ fees,
preparing, recording and filing all financing statements, instruments and other
documents to create, perfect and fully preserve and protect the Liens granted
in the Collateral Documents and the rights of the holders of the Notes or of
the Collateral Agent for the benefit of the holders of the Notes; and


 


(v)                                 any
judgment, liability, claim, order, decree, cost, fee, expense, action or
obligation resulting from the consummation of the transactions contemplated
hereby, including the use of the proceeds of the Notes by the Company, except
to the extent resulting from the gross negligence or willful misconduct of the
holders of the Notes.


 


The Company
also will promptly pay or reimburse each Purchaser or holder of a Note (upon
demand, in accordance with each such Purchaser’s or holder’s written
instruction) for all fees and costs paid or payable by such Purchaser or holder
to the Securities Valuation Office of the National Association of Insurance
Commissioners in connection with the initial filing of this Agreement and all
related documents and financial information, and all subsequent annual and
interim filings of documents and financial information related to this
Agreement, with such Securities Valuation Office or any successor organization
acceding to the authority thereof.


 


The
obligations of the Company under this paragraph 11B shall survive the transfer
of any Note or portion thereof or interest therein by any Purchaser or
Transferee and the payment of any Note.


 


11C.                      Consent to
Amendments.  This Agreement may be
amended, and the Parent and Company may take any action herein prohibited, or
omit to perform any act herein required to be performed by it, if the Parent
and the Company shall obtain the written consent to such amendment, action or
omission to act, of the Required Holder(s) except that, without the written
consent of the holder or holders of all Notes at the time outstanding, no
amendment to this


 


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Agreement shall change the maturity of any Note, or change the
principal of, or the rate, method of computation  or time of payment of interest on or any
Yield-Maintenance Amount payable with respect to any Note, or affect the time,
amount or allocation of any  prepayments,
or change the proportion of the principal amount of the Notes required with
respect to any consent, amendment, waiver or declaration.  Each holder of any Note at the time or
thereafter outstanding shall be bound by any consent authorized by this
paragraph 11C, whether or not such Note shall have been marked to indicate such
consent, but any Notes issued thereafter may bear a notation referring to any
such consent.  No course of dealing
between the Company and the holder of any Note nor any delay in exercising any
rights hereunder or under any Note shall operate as a waiver of any rights of
any holder of any Note.  Without limiting
the generality of the foregoing, no negotiations or discussions in which any
holder of any Note may engage regarding any possible amendments, consents or
waivers with respect to this Agreement or any other Transaction Document shall
constitute a waiver of any Default or Event of Default, any term of this
Agreement or any other Transaction Documents or any rights of any such holder
under this Agreement or any other Transaction Document.  As used herein and in the Notes, the term “this
Agreement” and references thereto shall mean this Agreement as it may from time
to time be amended or supplemented.


 


11D.                      Form,
Registration, Transfer and Exchange of Notes; Lost Notes.  The Notes are issuable as registered notes
without coupons in denominations of at least $100,000, except as may be
necessary to (i) reflect any principal amount not evenly divisible by
$100,000 or (ii) enable the registration of transfer by a holder of its
entire holding of Notes; provided, however, that no such minimum denomination
shall apply to Notes issued upon transfer by any holder of the Notes to
Prudential or any of Prudential’s Affiliates or to any other entity or group of
Affiliates with respect to which the Notes so issued or transferred shall be
managed by a single entity.  The Company
shall keep at its principal office a register in which the Company shall
provide for the registration of Notes and of transfers of Notes.  Upon surrender for registration of transfer
of any Note at the principal office of the Company, the Company shall, at its
expense, execute and deliver one or more new Notes of like tenor and of a like
aggregate principal amount, registered in the name of such transferee or
transferees.  At the option of the holder
of any Note, such Note may be exchanged for other Notes of like tenor and of
any authorized denominations, of a like aggregate principal amount, upon
surrender of the Note to be exchanged at the principal office of the
Company.  Whenever any Notes are so
surrendered for exchange, the Company shall, at its expense, execute and
deliver the Notes which the holder making the exchange is entitled to
receive.  Every Note surrendered for
registration of transfer or exchange shall be duly endorsed, or be accompanied
by a written instrument of transfer duly executed, by the holder of such Note
or such holder’s attorney duly authorized in writing.  Any Note or Notes issued in exchange for any
Note or upon transfer thereof shall carry the rights to unpaid interest and
interest to accrue which were carried by the Note so exchanged or transferred,
so that neither gain nor loss of interest shall result from any such transfer
or exchange.  Upon receipt of written
notice from the holder of any Note of the loss, theft, destruction or mutilation
of such Note and, in the case of any such loss, theft or destruction, upon
receipt of such holder’s unsecured indemnity agreement, or in the case of any
such mutilation upon surrender and cancellation of such Note, the Company will
make and deliver a new Note, of like tenor, in lieu of the lost, stolen,
destroyed or mutilated Note.


 


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11E.                        Persons
Deemed Owners; Participations.  Prior
to due presentment for registration of transfer, the Company may treat the
Person in whose name any Note is registered as the owner and holder of such
Note for the purpose of receiving payment of principal of, interest on and any
Yield-Maintenance Amount payable with respect to such Note and for all other
purposes whatsoever, whether or not such Note shall be overdue, and the Company
shall not be affected by notice to the contrary.  Subject to the preceding sentence, the holder
of any Note may from time to time grant participations in such Note to any
Person on such terms and conditions as may be determined by such holder in its
sole and absolute discretion, but the Company shall be entitled to deal
directly with such holder notwithstanding the sale of any such participation.


 


11F.                        Survival
of Representations and Warranties; Entire Agreement.  All representations and warranties contained
herein or in any other Transaction Documents or made in writing by or on behalf
of the Company or any Guarantor in connection herewith or therewith shall
survive the execution and delivery of this Agreement, the other Transaction
Documents and the Notes, the transfer by any Purchaser of any Note or portion
thereof or interest therein and the payment of any Note, and may be relied upon
by any Transferee, regardless of any investigation made at any time by or on
behalf of any Purchaser or any Transferee. 
Subject to the preceding sentence, this Agreement, the other Transaction
Documents and the Notes embody the entire agreement and understanding between
the Purchasers, the Parent and the Company with respect to the subject matter
hereof and supersede all prior agreements and understandings relating to such
subject matter.


 


11G.                      Successors
and Assigns.  All covenants and other
agreements in this Agreement by or on behalf of any of the parties hereto shall
bind and inure to the benefit of the respective successors and assigns of the
parties hereto (including, without limitation, any Transferee) whether so
expressed or not.


 


11H.                      Independence
of Covenants.  All covenants
hereunder and in the other Transaction Documents shall be given independent
effect so that if a particular action or condition is prohibited by any one of
such covenants, the fact that it would be permitted by an exception to, or
otherwise be in compliance within the limitations of,  another covenant shall not (i) avoid the
occurrence of a Default or Event of Default if such action is taken or such
condition exists or (ii) in any way prejudice an attempt by the holder of
any Note to prohibit through equitable action or otherwise the taking of any
action by the Parent or any Subsidiary which would result in a Default or Event
of Default.


 


11I.                           Notices.  All written communications provided for
hereunder shall be sent by first class mail or nationwide overnight delivery
service (with charges prepaid) and (i) if to any Purchaser, addressed to
such Purchaser at the address specified for such communications in the
Purchaser Schedule attached hereto, or at such other address as such Purchaser
shall have specified to the Company in writing, (ii) if to any other
holder of any Note, addressed to such other holder at such address as such
other holder shall have specified to the Company in writing or, if any such
other holder shall not have so specified an address to the Company, then
addressed to such other holder in care of the last holder of such Note which
shall have so specified an address to the Company, and (iii) if to the
Parent or the Company, addressed to it at 1101 Skokie Boulevard, Suite 300,
Northbrook, Illinois, 60062, Attention: Andrea K. Tarbox, or


 


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at such other address as the Company shall have specified to the holder
of each Note in writing; provided, however, that any such communication to the
Company may also, at the option of the holder of any Note, be delivered by any
other means either to the Company at its address specified above or to any
officer of the Company.


 


11J.                        Payments
Due on Non-Business Days.  Anything
in this Agreement or the Notes to the contrary notwithstanding, any payment of
principal of, interest on or Yield-Maintenance Amount payable with respect to
any Note that is due on a date other than a Business Day shall be made on the
next succeeding Business Day without including the additional days elapsed in
the computation of the interest payable on such next succeeding Business Day.


 


11K.                      Satisfaction
Requirement.  If any agreement,
certificate or other writing, or any action taken or to be taken, is by the
terms of this Agreement required to be satisfactory to any Purchaser, to any
holder of a Note or to the Required Holder(s), the determination of such
satisfaction shall be made by such Purchaser, such holder or the Required
Holder(s), as the case may be, in the sole and exclusive judgment (exercised in
good faith) of the Person or Persons making such determination.


 


11L.                       GOVERNING
LAW.  THIS AGREEMENT SHALL BE CONSTRUED
AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE
GOVERNED BY, THE LAW OF THE STATE OF ILLINOIS (EXCLUDING ANY CONFLICTS OF LAW
RULES WHICH WOULD OTHERWISE CAUSE THIS AGREEMENT TO BE CONSTRUED OR ENFORCED IN
ACCORDANCE WITH, OR THE RIGHTS OF THE PARTIES TO BE GOVERNED BY, THE LAWS OF
ANY OTHER JURISDICTION).


 


11M.                    SUBMISSION TO
JURISDICTION; WAIVER OF JURY TRIAL.  ANY
LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT, THE NOTES OR THE
OTHER TRANSACTION DOCUMENTS MAY BE BROUGHT IN THE COURTS OF THE STATE OF
ILLINOIS IN COOK COUNTY, ILLINOIS, OR OF THE UNITED STATES FOR THE NORTHERN
DISTRICT OF ILLINOIS AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF
THE PARENT AND THE COMPANY HEREBY IRREVOCABLY ACCEPTS, UNCONDITIONALLY, THE
JURISDICTION OF THE AFORESAID COURTS WITH RESPECT TO ANY SUCH ACTION OR
PROCEEDING.  EACH OF THE PARENT AND THE
COMPANY FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF
THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF
COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO IT AT ITS
ADDRESS PROVIDED IN PARAGRAPH 11I OR TO CT CORPORATION SYSTEM AT 208 SOUTH
LASALLE STREET, CHICAGO, ILLINOIS  60604,
SUCH SERVICE TO BECOME EFFECTIVE UPON RECEIPT. 
EACH OF THE PARENT AND THE COMPANY AGREES THAT A FINAL JUDGMENT IN ANY
SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN ANY OTHER
JURISDICTION BY SUIT ON SUCH JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY
LAW.  NOTHING HEREIN SHALL AFFECT THE
RIGHT OF ANY HOLDER OF A NOTE TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY
LAW OR TO


 


65

















 


COMMENCE LEGAL PROCEEDINGS OR OTHERWISE
PROCEED AGAINST THE PARENT AND/OR THE COMPANY IN ANY OTHER JURISDICTION.  EACH OF THE PARENT AND THE COMPANY HEREBY
IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
LAYING OF VENUE OF ANY OF THE AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF
OR IN CONNECTION WITH THIS AGREEMENT OR THE OTHER TRANSACTION DOCUMENTS BROUGHT
IN ANY OF THE AFORESAID COURTS AND HEREBY FURTHER IRREVOCABLY WAIVES AND AGREES
NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR PROCEEDING
BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.  TO THE EXTENT THAT THE PARENT OR THE COMPANY
HAS OR MAY HEREAFTER ACQUIRE IMMUNITY FROM JURISDICTION OF ANY COURT OR
FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OF NOTICE, ATTACHMENT PRIOR TO
JUDGMENT, ATTACHMENT IN AID OF EXECUTION, EXECUTION OR OTHERWISE WITH RESPECT
TO ITSELF OR ITS PROPERTY), EACH OF THE PARENT AND THE COMPANY HEREBY
IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS
AGREEMENT OR THE OTHER TRANSACTION DOCUMENTS. 
EACH OF THE PARENT AND THE COMPANY AND EACH PURCHASER HEREBY IRREVOCABLY
WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT
OF OR RELATING TO THIS AGREEMENT, THE OTHER TRANSACTION DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED THEREBY.


 


11N.                      Severability.  Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.


 


11O.                     Descriptive
Headings; Advice of Counsel; Interpretation; Time of the Essence.  The descriptive headings of the several
paragraphs of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement. 
Each party to this Agreement represents to the other parties to this
Agreement that such party has been represented by counsel in connection with
this Agreement and the other Transaction Documents, that such party has
discussed this Agreement and the other Transaction Documents with its counsel
and that any and all issues with respect to this Agreement and the other
Transaction Documents have been resolved as set forth herein and therein.  No provision of this Agreement or any other
Transaction Document shall be construed against or interpreted to the disadvantage
of any party hereto by any court or other governmental or judicial authority by
reason of such party having or being deemed to have structured, drafted or
dictated such provision.  Time is of the
essence in the performance of this Agreement and the other Transaction
Documents.


 


11P.                       Counterparts;
Facsimile or Electronic Signatures. 
This Agreement may be executed in any number of counterparts (or
counterpart signature pages), each of which counterparts shall be an original
but all of which together shall constitute one instrument.  Delivery of an executed counterpart of a
signature page to this Agreement by facsimile or


 


66

















 


electronic transmission shall be effective as delivery of a manually
executed counterpart of this Agreement.


 


11Q.                     Severalty of
Obligations.  The sales of Notes to
the Purchasers are to be several sales, and the obligations of the Purchasers
under this Agreement are several obligations. 
No failure by any Purchaser to perform its obligations under this
Agreement shall relieve any other Purchaser or the Company of any of its
obligations hereunder, and no Purchaser shall be responsible for the
obligations of, or any action taken or omitted by, any other Purchaser
hereunder.


 


11R.                      Independent
Investigation.  Each Purchaser
represents to and agrees with each other Purchaser that it has made its own
independent investigation of the condition (financial and otherwise), prospects
and affairs of the Parent and its Subsidiaries in connection with its purchase
of the Notes hereunder and has made and shall continue to make its own
appraisal of the creditworthiness of the Company.  No holder of Notes shall have any duties or
responsibility to any other holder of Notes, either initially or on a continuing
basis, to make any such investigation or appraisal or to provide any credit or
other information with respect thereto. 
No holder of Notes is acting as agent or in any other fiduciary capacity
on behalf of any other holder of Notes.


 


11S.                       Directly or
Indirectly.  Where any provision in
this Agreement refers to actions to be taken by any Person, or which such
Person is prohibited from taking, such provision shall be applicable whether
the action in question is taken directly or indirectly by such Person.


 


11T.                       Confidential Information.  For the purposes of this paragraph 11T, “Confidential
Information” means information delivered to any Purchaser by or on behalf of
the Parent or any Subsidiary in connection with the transactions contemplated
by or otherwise pursuant to this Agreement that is proprietary in nature and
that was clearly marked or labeled or otherwise adequately identified when
received by such Purchaser as being confidential information of the Parent or
such Subsidiary, provided that such term does not include information that (a) was
publicly known or otherwise known to such Purchaser prior to the time of such
disclosure, (b) subsequently becomes publicly known through no act or
omission by such Purchaser or any person acting on such Purchaser’s behalf, (c) otherwise
becomes known to such Purchaser other than through disclosure by the Parent or
any Subsidiary or (d) constitutes financial statements delivered to such
Purchaser under paragraph 5A that are otherwise publicly available,
provided that financial statements posted to a website to satisfy the delivery
requirements of paragraph 5A shall not be deemed to be publicly available
unless such financial statements, on such website or otherwise, are publicly
available.  Each Purchaser will maintain
the confidentiality of such Confidential Information in accordance with
procedures adopted by such Purchaser in good faith to protect confidential
information of third parties delivered to such Purchaser, provided that such
Purchaser may deliver or disclose Confidential Information to (i) its
directors, officers, employees, attorneys, trustees and affiliates (to the
extent such disclosure reasonably relates to the administration of such
Purchasers’ investments), (ii) its financial advisors, agents and other
professional advisors who agree to hold confidential the Confidential
Information substantially in accordance with the terms of this paragraph
11T, (iii) any other holder of any securities of the Company or the Parent
(if such holder has agreed in writing prior to its receipt of such Confidential
Information to be bound by the provisions of


 


67

















 


this paragraph 11T), (iv) any Institutional Investor to which
it sells or offers to sell any securities of the Company or the Parent or any
part thereof or any participation therein (if such Person has agreed in writing
prior to its receipt of such Confidential Information to be bound by the
provisions of this paragraph 11T), (v) any Person from which it
offers to purchase any security of the Company or the Parent (if such Person
has agreed in writing prior to its receipt of such Confidential Information to
be bound by the provisions of this paragraph 11T), (vi) any federal
or state regulatory authority having jurisdiction over such Purchaser, (vii) the
National Association of Insurance Commissioners or the Securities Valuation
Office or, in each case, any similar organization, or any nationally recognized
rating agency that requires access to information about such Purchaser’s
investment portfolio, or (viii) any other Person to which such delivery or
disclosure may be necessary or appropriate (w) to effect compliance with
any law, rule, regulation or order applicable to such Purchaser, (x) in
response to any subpoena or other legal process, (y) in connection with
any litigation to which such Purchaser is a party or (z) if an Event of
Default has occurred and is continuing, to the extent such Purchaser may
reasonably determine such delivery and disclosure to be necessary or
appropriate in the enforcement or for the protection of the rights and remedies
under such Purchaser’s Notes, this Agreement or any other Transaction
Document.  Each holder of a Note, by its
acceptance of a Note, will be deemed to have agreed to be bound by and to be
entitled to the benefits of this paragraph 11T as though it were a party
to this Agreement.  On reasonable request
by the Company in connection with the delivery to any holder of a Note of information
required to be delivered to such holder under this Agreement or requested by
such holder (other than a holder that is a party to this Agreement or its
nominee), such holder will enter into an agreement with the Company embodying
the provisions of this paragraph 11T.


 


11U.                       Transaction
References.  Each of the Parent and
the Company agrees that Prudential Financial Management, Inc. or any of
its Affiliates may (a) refer to its role in originating the purchase of
the Notes from the Company, as well as the identity of the Parent and the
Company and the aggregate principal amount and issue date of the Notes, on its
internet site or in marketing materials, press releases, published “tombstone”
announcements or any other print or electronic medium and (b) display the
Parent’s and/or the Company’s corporate logo in conjunction with any such
reference.


 


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11V.       Binding Agreement.  When this Agreement is executed and delivered
by the Company, the Parent and each of the Purchasers it shall become a binding
agreement between the Company, the Parent and each of the Purchasers.


 


	
   

  	
  Very truly yours,

  
	
   

  	
   

  
	
   

  	
  KAPSTONE PAPER AND PACKAGING

  
	
   

  	
  CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/
  Roger W. Stone

  
	
   

  	
   

  	
  Name:

  	
  Roger W. Stone

  
	
   

  	
   

  	
  Title:

  	
  Chairman of the Board and CEO

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  KAPSTONE KRAFT PAPER CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/
  Roger W. Stone

  
	
   

  	
   

  	
  Name:

  	
  Roger W. Stone

  
	
   

  	
   

  	
  Title:

  	
  Chief Executive Officer

  
					



 


69

















 


The foregoing Agreement is

hereby accepted as of the

date first above written.


 


THE PRUDENTIAL INSURANCE COMPANY


  OF AMERICA


 


 


	
  By:

  	
  G. Anthony Coletta

  	
   

  
	
   

  	
  Vice President