**Exhibit 10.9**

 

**EXECUTION COPY**

 

**AGREEMENTAND PLAN OF MERGER**

 

 

**datedas of June 14, 2005**

 

**among**

 

**KIPBGROUP HOLDINGS, LLC,**

 

**KCTMERGER SUB, INC.,**

 

 

**and**

 

 

**CELLUPAPER HOLDINGS, INC.**

 

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**TABLE OF CONTENTS**

 
| ARTICLE I.   | DEFINITIONS                                                |   |
|-------------------|------------------------------------------------------------|--------|
|              |                                                       |   |
| ARTICLE II.  | THE  MERGER                                                |   |
|              |                                                       |   |
| Section 2.1. | Effective  Time of the Merger                              |   |
|              |                                                       |   |
| Section 2.2. | Closing                                                    |   |
|              |                                                       |   |
| Section 2.3. | Effects  of the Merger                                     |   |
|              |                                                       |   |
| Section 2.4. | Directors  and Officers                                    |   |
|              |                                                       |   |
| ARTICLE III. | CONVERSION  OF SECURITIES                                  |   |
|              |                                                       |   |
| Section 3.1. | Merger  Consideration                                      |   |
|              |                                                       |   |
| Section 3.2. | Escrow  Amount                                             |   |
|              |                                                       |   |
| Section 3.3. | Conversion  of Capital Stock                               |   |
|              |                                                       |   |
| Section 3.4. | Appraisal  Rights                                          |   |
|              |                                                       |   |
| Section 3.5. | Payment  of Merger Consideration; Exchange of Certificates |   |
|              |                                                       |   |
| ARTICLE IV.  | REPRESENTATIONS  AND WARRANTIES OF THE COMPANY             |   |
|              |                                                       |   |
| Section 4.1. | Organization  of Company                                   |   |
|              |                                                       |   |
| Section 4.2. | Capitalization;  Subsidiaries                              |   |
|              |                                                       |   |
| Section 4.3. | Authority;  No Conflict; Required Filings and Consents     |   |
|              |                                                       |   |
| Section 4.4. | Financial  Statements; Absence of Undisclosed Liabilities  |   |
|              |                                                       |   |
| Section 4.5. | Tax  Matters                                               |   |
|              |                                                       |   |
| Section 4.6. | Absence  of Certain Changes or Events                      |   |
|              |                                                       |   |
| Section 4.7. | Property                                                   |   |
|              |                                                       |   |
| Section 4.8. | Intellectual  Property                                     |   |
|              |                                                       |   |
| Section 4.9. | Employee  Benefit Plans                                    |   |
|                   |                                                            |        |  |

 

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| Section 4.10. | Contracts                                                |   |
|--------------------|----------------------------------------------------------|--------|
|               |                                                     |   |
| Section 4.11. | Compliance With Law                                      |   |
|               |                                                     |   |
| Section 4.12. | Labor Matters                                            |   |
|               |                                                     |   |
| Section 4.13. | Insurance                                                |   |
|               |                                                     |   |
| Section 4.14. | Litigation                                               |   |
|               |                                                     |   |
| Section 4.15. | Governmental Authorizations and Regulations              |   |
|               |                                                     |   |
| Section 4.16. | Compliance with Environmental Requirements               |   |
|               |                                                     |   |
| Section 4.17. | No Brokers                                               |   |
|               |                                                     |   |
| Section 4.18. | Inventories                                              |   |
|               |                                                     |   |
| Section 4.19. | Related Party Transactions                               |   |
|               |                                                     |   |
| Section 4.20. | Customers and Vendors                                    |   |
|               |                                                     |   |
| Section 4.21. | Company SEC Documents                                    |   |
|               |                                                     |   |
| Section 4.22. | Information Supplied to the Company’s Stockholders  |   |
|               |                                                     |   |
| Section 4.23. | Indebtedness                                             |   |
|               |                                                     |   |
| ARTICLE V.    | REPRESENTATIONS AND WARRANTIES OF PARENT  AND MERGER SUB |   |
|               |                                                     |   |
| Section 5.1.  | Organization of Parent and Merger Sub                    |   |
|               |                                                     |   |
| Section 5.2.  | Authority; No Conflict; Required Filings and Consents    |   |
|               |                                                     |   |
| Section 5.3.  | Capital Resources                                        |   |
|               |                                                     |   |
| Section 5.4.  | Litigation                                               |   |
|               |                                                     |   |
| Section 5.5.  | No Brokers                                               |   |
|               |                                                     |   |
| Section 5.6.  | Parents Assets and Liabilities                           |   |
|               |                                                     |   |
| Section 5.7.  | Ownership  of Merger Sub                                 |   |
|               |                                                     |   |
| ARTICLE VI.   | PRE-CLOSING COVENANTS OF THE COMPANY                     |   |
|               |                                                     |   |
| Section 6.1.  | Approval of Company Stockholders                         |   |
|               |                                                     |   |
| Section 6.2.  | Conduct of Business Prior to the Effective Time          |   |
|                    |                                                          |        |  |

 

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| Section 6.3.  | Access to Information                                                     |   |
|--------------------|---------------------------------------------------------------------------|--------|
|               |                                                                      |   |
| Section 6.4.  | Satisfaction of Conditions Precedent                                      |   |
|               |                                                                      |   |
| Section 6.5.  | No Solicitation                                                           |   |
|               |                                                                      |   |
| Section 6.6.  | Cooperation with Thilmany Acquisition Financing and Business  Combination |   |
|               |                                                                      |   |
| Section 6.7.  | Information                                                               |   |
|               |                                                                      |   |
| ARTICLE VII.  | PRE-CLOSING AND OTHER COVENANTS OF PARENT  AND MERGER SUB                 |   |
|               |                                                                      |   |
| Section 7.1.  | Satisfaction of Conditions Precedent                                      |   |
|               |                                                                      |   |
| Section 7.2.  | Certain Employee Benefit Matters                                          |   |
|               |                                                                      |   |
| ARTICLE VIII. | OTHER AGREEMENTS                                                          |   |
|               |                                                                      |   |
| Section 8.1.  | Confidentiality                                                           |   |
|               |                                                                      |   |
| Section 8.2.  | No Public Announcement                                                    |   |
|               |                                                                      |   |
| Section 8.3.  | Regulatory Filings; Consents; Reasonable Efforts                          |   |
|               |                                                                      |   |
| Section 8.4.  | Further Assurances                                                        |   |
|               |                                                                      |   |
| Section 8.5.  | Director and Officer Liability                                            |   |
|               |                                                                      |   |
| Section 8.6.  | East Hartford Facility                                                    |   |
|               |                                                                      |   |
| ARTICLE IX.   | CONDITIONS TO MERGER                                                      |   |
|               |                                                                      |   |
| Section 9.1.  | Conditions to Each Party’s Obligation to Effect the Merger           |   |
|               |                                                                      |   |
| Section 9.2.  | Additional Conditions to Obligations of Parent and Merger Sub             |   |
|               |                                                                      |   |
| Section 9.3.  | Additional Conditions to Obligations of the Company                       |   |
|               |                                                                      |   |
| ARTICLE X.    | TERMINATION AND AMENDMENT                                                 |   |
|               |                                                                      |   |
| Section 10.1. | Termination                                                               |   |
|               |                                                                      |   |
| Section 10.2. | Effect of Termination                                                     |   |
|               |                                                                      |   |
| Section 10.3. | Fees and Expenses                                                         |   |
|                    |                                                                           |        |  |

 

iii

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| ARTICLE XI.    | INDEMNIFICATION                                                  |   |
|---------------------|------------------------------------------------------------------|--------|
|                |                                                             |   |
| Section 11.1.  | Indemnification of Parent                                        |   |
|                |                                                             |   |
| Section 11.2.  | Indemnification of Former Company  Stockholders                  |   |
|                |                                                             |   |
| Section 11.3.  | Exclusive Remedies                                               |   |
|                |                                                             |   |
| Section 11.4.  | Deductible and Cap                                               |   |
|                |                                                             |   |
| Section 11.5.  | Survival of Indemnification Obligations                          |   |
|                |                                                             |   |
| Section 11.6.  | Terms and Conditions of Indemnification; Resolution of Conflicts |   |
|                |                                                             |   |
| Section 11.7.  | Former Company Stockholders’ Agent                          |   |
|                |                                                             |   |
| ARTICLE XII.   | MISCELLANEOUS                                                    |   |
|                |                                                             |   |
| Section 12.1.  | Survival of Representations and Covenants                        |   |
|                |                                                             |   |
| Section 12.2.  | Notices                                                          |   |
|                |                                                             |   |
| Section 12.3.  | Interpretation                                                   |   |
|                |                                                             |   |
| Section 12.4.  | Counterparts                                                     |   |
|                |                                                             |   |
| Section 12.5.  | Entire Agreement; No Third-Party Beneficiaries                   |   |
|                |                                                             |   |
| Section 12.6.  | Governing Law                                                    |   |
|                |                                                             |   |
| Section 12.7.  | Assignment                                                       |   |
|                |                                                             |   |
| Section 12.8.  | Amendment                                                        |   |
|                |                                                             |   |
| Section 12.9.  | Extension; Waiver                                                |   |
|                |                                                             |   |
| Section 12.10. | Severability                                                     |   |
|                |                                                             |   |
| Section 12.11. | Waiver of Jury Trial                                             |   |
|                     |                                                                  |        |  |

 

iv

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**EXECUTION COPY**

 

**AGREEMENTAND PLAN OF MERGER**

** **

THIS AGREEMENT AND PLAN OF MERGER, dated as of June 14,2005 (this “**Agreement**”), isentered into by and among KIPB Group Holdings, LLC, a Delaware limitedliability company (“**Parent**”),KCT Merger Sub, Inc., a Delaware corporation (“**Merger Sub**”), and Cellu Paper Holdings, Inc.,a Delaware corporation (the “**Company**”).

 

**RECITALS**

** **

**WHEREAS**, the respectiveBoards of Directors of Parent, Merger Sub and the Company deem it advisable andin the best interests of each corporation and their respective stockholdersthat Parent acquire the Company on the terms and conditions set forth in thisAgreement;

 

**WHEREAS**, theacquisition of the Company shall be effected by the terms of this Agreementthrough a transaction in which Merger Sub will merge (the “**Merger**”) with and into the Company,with the Company being the surviving corporation.  The Company will become a wholly ownedsubsidiary of Parent and each issued and outstanding share of capital stock of theCompany not owned by Parent, Merger Sub or the Company, other than theDissenting Shares (as hereinafter defined), shall be converted into the rightto receive the Per Share Merger Consideration (as hereinafter defined);

 

**WHEREAS**, the Company,Parent, and Merger Sub desire to make certain representations, warranties,covenants and agreements pursuant to this Agreement;

 

**NOW, THEREFORE**, inconsideration of the foregoing and the respective representations, warranties,covenants and agreements set forth in this Agreement, the parties agree asfollows:

 

# ARTICLE I.DEFINITIONS

#  

The terms defined in this **Article I**, whenever used herein (including, withoutlimitation, the Exhibits and Schedules hereto), shall have the followingmeanings for all purposes of this Agreement:

 

“**AcquisitionProposal**” has the meaning set forth in **Section 6.5(c)**.

 

“**Action ofDivesture**” has the meaning set forth in **Section 8.3(b)**.

 

“**Actual NetIndebtedness**” has the meaning set forth in **Section 3.3(g)(iv)**.

 

“**Actual NetWorking Capital**” has the meaning set forth in **Section 3.3(f)(iv)**.

 

“**Affiliate**”of a Person means any other Person that directly or indirectly through one ormore intermediaries controls, is controlled by, or is under common control withsuch Person.

 

----

 

**“Agreed Upon Unused Portion”**has the meaning set forth in **Section 3.3(h)(iv)**.

 

“**Agreement**”has the meaning set forth in the caption.

 

“**Antitrust Laws**”has the meaning set forth in **Section 8.3(b)**.

 

“**AssignmentSide Letter**” means the letter, dated as of the date hereof, byand among the Company, Parent and Merger Sub regarding Parent’s ability toassign its interests hereunder immediately prior to the Effective Time.

 

“**Business Day**”means any day other than a Saturday, Sunday or other day on which commercialbanks in New York City are required or authorized by law to be closed.

 

“**Cap**”has the meaning set forth in **Section 11.4**.

 

“**Capital Lease**”of any Person means any lease of any property by such Person as lessee whichwould, in accordance with GAAP, be required to be accounted for as a capitallease on the balance sheet of such Person.

 

“**Certificate ofMerger**” has the meaning set forth in **Section 2.1(a)**.

 

“**Certificates**”has the meaning set forth in **Section 3.5(b)**.

 

“**Closing**”has the meaning set forth in **Section 2.2**.

 

“**Closing Date**”has the meaning set forth in **Section 2.2**.

 

“**Closing TaxBenefit**” has the meaning set forth in **Section 3.3(h)(i)**.

 

“**Code**”means the United States Internal Revenue Code of 1986, as amended.

 

“**Company**”has the meaning set forth in the caption.

 

“**Company Cash**”means, as of immediately prior to the Effective Time, all of the Company’s andits Subsidiaries’ cash and cash equivalents.

 

**“Company Common Stock**” has themeaning set forth in **Section 3.3**.

 

“**CompanyDisclosure Schedules**” means the disclosure schedules attachedhereto as **Exhibit A**.

 

“**CompanyEmployee Plans”** has the meaning set forth in **Section 4.9(a)**.

 

“**CompanyFinancial Statements**” has the meaning set forth in **Section 4.4(a)**.

 

“**CompanyMaterial Adverse Effect”** has the meaning set forth in **Section 4.1**.

 

“**Company Options**”has the meaning set forth in **Section 3.3(d)**.

 

2

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“**Company SECDocuments**” means any and all annual reports on Form 10-K,quarterly reports on Form 10-Q, current reports on Form 8-K, andother reports, statements, schedules and registration statements of the Companyand its Subsidiaries filed with the Securities Exchange Commission.

 

“**CompanyStockholder Approval”** has the meaning set forth in **Section 4.3(a)**.

 

“**CompanyTransaction Expenses**” means all fees and expenses incurred bythe Company, its Subsidiaries or any Former Company Stockholder in connectionwith this Agreement and the transactions contemplated hereby; provided,however, that, for the avoidance of doubt, Company Transaction Expenses shallnot include (a) any filing fees payable under the HSR Act or (b) 50%of all excise, sales, use, value added, registration stamp, recording,documentary, conveyancing, transfer and similar Taxes, levies, charges and feesincurred in connection with the transactions contemplated hereby.

 

“**CompanyUnaudited Financials**” has the meaning set forth in **Section 4.4(a)**.

 

“**CompanyWarrants**” has the meaning set forth in **Section 3.3(e)**.

 

“**ConfidentialityAgreement**” has the meaning set forth in **Section 8.1**.

 

“**ConsentMaterials”** has the meaning set forth in **Section 6.1**.

 

“**ConstituentCorporations**” has the meaning set forth in **Section 2.3(a)**.

 

“**Damages**”has the meaning set forth in **Section 11.1**.

 

“**Deductible**”has the meaning set forth in **Section 11.4**.

 

“**DGCL”**has the meaning set forth in **Section 2.1(a)**.

 

“**DissentingShares**” has the meaning set forth in **Section 3.4(a)**.

 

“**Effective Time**”has the meaning set forth in **Section 2.1(b)**.

 

“**EnvironmentalLaws**” means all applicable federal, Canadian, state, provincialor local statutes, laws, regulations, judgments and orders relating toprotection of human health or safety or the environment, including laws andregulations relating to Releases or threatened Releases of HazardousSubstances, or otherwise relating to the manufacture, processing, distribution,use, treatment, storage, disposal, transport or handling of HazardousSubstances.

 

“**ERISA**”has the meaning set forth in **Section 4.9(a)**.

 

“**ERISAAffiliate**” has the meaning set forth in **Section 4.9(a)**.

 

“**Escrow Agent**”has the meaning set forth in **Section 3.2(a)**.

 

“**EscrowAgreement**” has the meaning set forth in **Section 3.2(a)**.

 

3

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“**Escrow Amount**”has the meaning set forth in **Section 3.2(a)**.

 

“**Estimated NetIndebtedness**” has the meaning set forth in **Section 3.3(g)(i)**.

 

“**Estimated NetWorking Capital**” has the meaning set forth in **Section 3.3(f)(i)**.

 

“**Estimated TaxBenefit**” has the meaning set forth in **Section 3.1**.

 

“**ForeignEmployer Plan**” has the meaning set forth in **Section 4.9(e)**.

 

“**Former CompanyStockholders**” means the holders of shares of Company CommonStock immediately prior to the Effective Time and all Optionholders andWarrantholders set forth on **Exhibit B**hereto (as such Exhibit shall be updated immediately prior to theEffective Time).

 

“**Former CompanyStockholders’ Agent**” has the meaning set forth in **Section 11.7(a)**.

 

“**Former CompanyStockholders Indemnification Agreement**” has the meaning setforth in **Section 9.2(m)**.

 

“**GAAP**”means generally accepted accounting principles in effect in the United States,applied on a consistent basis.

 

“**GovernmentalEntity**” has the meaning set forth in **Section 4.3(c)**.

 

“**Guarantee**”shall mean (i) any guarantee of the payment or performance of, or anycontingent obligation in respect of, any indebtedness or other obligation ofany other Person, (ii) any other arrangement whereby credit is extended toone obligor on the basis of any promise or undertaking of another Person (A) topay the indebtedness of such obligor, (B) to purchase any obligation owedby such obligor, (C) to purchase or lease assets (other than inventory inthe ordinary course of business consistent with past practices) undercircumstances that would enable such obligor to discharge one or more of itsobligations, or (D) to maintain the capital, working capital, solvency orgeneral financial condition of such obligor, and (iii) any liability as ageneral partner of a partnership or as a venturer in a joint venture in respectof indebtedness or other obligations of such partnership or joint venture.

 

“**HazardousSubstances**” means any petroleum or fraction thereof, chemicals,materials or substances which are now or ever have been defined as or includedin the definition of “hazardous substances,” “hazardous wastes,” “hazardousmaterials,” “extremely hazardous wastes,” “restricted hazardous wastes,” “toxicsubstances,” “toxic pollutants”, or other words of similar import, under anyEnvironmental Law.

 

“**HSR****Act**” has the meaning set forthin **Section 4.3(c)**.

 

“**Indebtedness**”means all of the Company’s and its Subsidiaries’ obligations (including allobligations in respect of principal, accrued interest, penalties, fees andpremiums) (i) for borrowed money, (ii) evidenced by notes, bonds,debentures or similar instruments, (iii) under Capital Leases, (iv) forthe deferred purchase price of property, goods or services heretofore

 

4

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actually received by the Company or its Subsidiaries(excluding operating leases, accrued expenses, accounts payable and CompanyTransaction Expenses); (v) any disbursements made pursuant to letters ofcredit and bankers’ acceptances to the beneficiaries thereof and not includedin clause (i) above, (vi) for actual obligations relating to interestrate protection and interest rate swap agreements, and (vii) in the natureof Guarantees of the obligations described in clauses (i) through (vi) aboveof any other Person.

 

“**IndemnificationMatters Letter**” has the meaning set forth in **Section 11.1**.

 

“**IndependentAuditor**” has the meaning set forth in **Section 3.3(f)(iv)**.

 

“**IntellectualProperty**” means all proprietary rights of every kind and nature,including: (i) all trade and product names, foreign letters patent,patents, patent applications, unpatented proprietary developmental records,trademarks, service marks, trade dress, logos and copyrights, together with alltranslations, adaptations, derivations, and combinations thereof and allgoodwill associated therewith; (ii) trade secrets, know-how and otherproprietary or confidential information; (iii) computer software and otherintangible property and rights (other than off-the-shelf computer softwarelicensed under a “shrink wrap” or similar license); and (iv) allregistrations and applications for any of the items described in (i) through(iii).

 

“**Leases**”has the meaning set forth in **Section 4.7(b)**.

 

“**LeasedPremises**” has the meaning set forth in **Section 4.7(b)**.

 

“**Liens**”has the meaning set forth in **Section 4.7(f)**.

 

**“Material Contracts**” has themeaning set forth in **Section 4.10(a)**.

 

“**Merger**”has the meaning set forth in the recitals.

 

“**MergerConsideration**” has the meaning set forth in **Section 3.1**.

 

“**Merger Sub**”has the meaning set forth in the caption.

 

“**Most RecentBalance Sheet**” has the meaning set forth in **Section 4.4(a)**.

 

“**NetIndebtedness**” means the Indebtedness immediately prior to theEffective Time less the Company Cash immediately prior to the Effective Time.

 

“**Net WorkingCapital**” means, as of immediately prior to the Effective Time,the current assets of the Company and its Subsidiaries as of such time (otherthan Company Cash) less the current liabilities of the Company and itsSubsidiaries as of such time (other than the current portion of anyIndebtedness that would be included within such current liabilities or anyCompany Transaction Expenses to the extent taken into account in thecalculation of Merger Consideration in **Section 3.1**),in each case determined in accordance with the basis of presentation andaccounting principles identified on, and subject to certain limitations set forthin, **Exhibit 3.3(f) **attachedhereto.

 

5

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“**OptionConsideration”** has the meaning set forth in **Section 3.3(d)**.

 

“**Optionholders**”means the Persons who hold Company Options, such Persons are listed in the secondcolumn of **Exhibit B**hereto, (as such Exhibit shall be updated immediately prior to theEffective Time).

 

“**Order**”has the meaning set forth in **Section 8.3(b)**.

 

“**Owned Premises**”has the meaning set forth in **Section 4.7(a)**.

 

“**Parent**”has the meaning set forth in the caption.

 

“**ParentIndemnified Parties**” has the meaning set forth in **Section 11.1**.

 

“**ParentMaterial Adverse Effect**” has the meaning set forth in **Section 5.1**.

 

“**Paying Agent**”has the meaning set forth in **Section 3.5(a)**.

 

“**Permit**”has the meaning set forth in **Section 4.15**.

 

“**Per ShareMerger Consideration**” has the meaning set forth in **Section 3.3(c)**.

 

“**Person**”means an individual, corporation, partnership, limited liability company, firm,joint venture, association, joint stock company, trust, unincorporatedorganization or other entity, or any Governmental Entity or quasi-governmentalbody or regulatory authority.

 

“**Property**”(or “**Properties**” when thecontext requires) means any Real Property and any personal or mixed property,whether tangible or intangible.

 

“**Real Property**”means any real property presently or formerly owned, used, leased, occupied,managed or operated by the Company or its Subsidiaries, as the case may be.

 

“**Related Party**”has the meaning set forth in Section 4.10(a)(xiii).

 

“**Release**”means any release, spill, emission, emptying, leaking, injection, deposit,disposal, discharge, dispersal, leaching, pumping, pouring, or migration intothe atmosphere, soil, surface water, groundwater or property.

 

“**Returns**”has the meaning set forth in **Section 4.5(a)(ii)**.

 

“**RolloverShares**” shall mean those shares, if any, of Company Common Stockowned by Russell Taylor and/or Taylor Investment Partners immediately prior tothe Effective Time which are exchanged immediately prior to the Effective Timefor shares in Parent (or an Affiliate of Parent) pursuant to the terms andconditions of an exchange agreement between Russell Taylor and/or TaylorInvestment Partners, on the one hand, and Parent (or an Affiliate of Parent),on the other hand.

 

“**Schedule 4.16Matters Deductible”** has the meaning set forth in **Section 11.4**.

 

6

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“**StockholderApproval”** has the meaning set forth in **Section 6.1**.

 

“**StockholdersIndemnified Parties**” has the meaning set forth in **Section 11.2**.

 

“**Subsidiary**”of a Person means any corporation, partnership, limited liability company orother entity in which such Person, (a) directly or indirectly, owns orcontrols fifty percent (50%) or more of the voting stock or other ownershipinterests, or (b) is a general partner or participant in a joint venturewithout limited liability.

 

“**SuperiorProposal**” has the meaning set forth in **Section 6.5(c)**.

 

“**SurvivalPeriod**” has the meaning set forth in **Section 11.5**.

 

“**SurvivingCorporation**” has the meaning set forth in **Section 2.3(a)**.

 

“**Tax**”or “**Taxes**” has the meaningset forth in **Section 4.5(a)(i)**.

 

“**Thilmany”**has the meaning set forth in **Section 5.6**.

 

“**TransactionDocuments”**has the meaning set forth in **Section 4.3(a)**.

 

“**2005 AuditedFinancials**” has the meaning set forth in **Section 4.4(a)**.

 

**“Unused Portion”**has the meaningset forth in **Section 3.3(h)(iii)**.

 

“**WarrantConsideration”** has the meaning set forth in **Section 3.3(e)**

 

“**Warrantholders**”means the Persons who own Company Warrants, such Persons are listed in the thirdcolumn of **Exhibit B**hereto (as such Exhibit shall be updated immediately prior to theEffective Time).

 

“**WorkingCapital Escrow Agreement**” has the meaning set forth in **Section 3.2(b)**.

 

“**WorkingCapital Escrow Amount**” has the meaning set forth in **Section 3.2(b).**

 

# ARTICLE II.THE MERGER

#  

## Section 2.1.          Effective Time of the Merger.

##  

### (a)           Upon the terms andsubject to the conditions set forth in this Agreement, a certificate of merger(the “**Certificate of Merger**”)meeting the requirements of Section 251 of the Delaware GeneralCorporation Law (the “**DGCL**”)shall be duly executed and delivered by the Company and Merger Sub andthereafter delivered to the Secretary of State of the State of Delaware forfiling on the Closing Date.

 

7

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### (b)           The Merger shallbecome effective at the time of the filing of the Certificate of Merger withthe Secretary of State of the State of Delaware or at such time thereafter whichthe parties hereto shall have agreed upon as is provided in the Certificate ofMerger (the “**Effective Time**”).

###  

## Section 2.2.          Closing.  Upon the terms and subject to the conditionsof this Agreement, the closing of the Merger (the ”**Closing**”) will take place at a time andon a date (the “**Closing Date**”)to be specified by Parent and the Company, at the offices of Ropes &Gray LLP, 45 Rockefeller Plaza, New York, New York 10111, or such other time,date and place as the parties shall agree.

##  

## Section 2.3.          Effects of the Merger.

##  

### (a)           Upon the terms and subjectto the conditions of this Agreement, at the Effective Time (i) Merger Subshall be merged with and into the Company and the separate existence of MergerSub shall cease (Merger Sub and the Company are sometimes referred to herein asthe “**Constituent Corporations**”and the Company following consummation of the Merger is sometimes referred toherein as the “**Surviving Corporation**”),(ii) the certificate of incorporation of Merger Sub, as amended andrestated, in substantially the form attached hereto as **Exhibit 2.3(a)(2)**, shall be thecertificate of incorporation of the Surviving Corporation, except that Article Ishall state that the name of the Surviving Corporation is Cellu Paper Holdings, Inc.,and (iii) the bylaws of Merger Sub as in effect immediately prior to theEffective Time, in the form attached hereto as **Exhibit 2.3(a)(3)**, shall become the bylaws of theSurviving Corporation, except that Article I shall state that the name ofthe Surviving Corporation is Cellu Paper Holdings, Inc.

###  

### (b)           At the EffectiveTime, the effect of the Merger shall be as provided in this Agreement, theCertificate of Merger and the applicable provisions of the DGCL.  Without limiting the generality of theforegoing, at and after the Effective Time, the Surviving Corporation shallpossess all of the rights, privileges, powers and franchises, and be subject toall the restrictions, disabilities and duties of each of the ConstituentCorporations.

###  

## Section 2.4.          Directors and Officers.  At and after the Effective Time, (i) the directorsof Merger Sub immediately prior to the Effective Time shall be the directors ofthe Surviving Corporation as of the Effective Time, and (ii) the officersof the Company immediately prior to the Effective Time shall be the officers ofthe Surviving Corporation as of the Effective Time.

##  

# ARTICLE III.CONVERSION OF SECURITIES

#  

## Section 3.1.          Merger Consideration.  Subject to adjustment as set forth in **Section 3.3(f) **below, theaggregate consideration to be paid in cash by Parent for all of the outstandingcapital stock of the Company, Company Options and Company Warrants shall be anamount equal to the difference between (i) the sum of (A) $276,000,000,(B) $1,005,028 (representing the good faith estimate, as of the datehereof, of the tax benefit to be received by Parent arising from tax

 

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## deductionsattributable to payments made in connection with the cancellation of theCompany Options in the Merger) (the **“EstimatedTax Benefit”**) and (ii) the sum of (A) the EstimatedNet Indebtedness and (B) the amount of any Company Transaction Expenses tothe extent not actually paid prior to the Effective Time.  The result of the calculation in thepreceding sentence shall be increased by the amount, if any, by which theEstimated Net Working Capital exceeds $30,462,049 or decreased by the amount,if any, by which $30,462,049 exceeds the Estimated Net Working Capital (suchconsideration in the aggregate, as determined pursuant to this sentence and theimmediately preceding sentence, as further adjusted pursuant to the terms ofthis Agreement, the “**Merger Consideration**”).

##  

## Section 3.2.          Escrow Amount.  Notwithstanding anything to the contrarycontained herein:

##  

### (a)           Parent shallwithhold from the Merger Consideration otherwise payable at Closing an amount of$12,000,000 (the “**Escrow Amount**”).  On the Closing Date, Parent shall cause theEscrow Amount to be delivered to an escrow agent reasonably satisfactory toParent and the Company (the “**Escrow Agent**”),pursuant to an escrow agreement by and among Parent, the Company, the FormerCompany Stockholders’ Agent and Escrow Agent (the “**Escrow Agreement**”) substantially in theform annexed hereto as **Exhibit 3.2(a)**.  Such sum shall be paid to the Escrow Agent onthe Closing Date by wire transfer of immediately available funds to the accountdesignated in writing by the Escrow Agent. The Escrow Amount will be held by the Escrow Agent as partial securityfor the obligations of the Former Company Stockholders to the Parent IndemnifiedParties pursuant to the terms of **Article XI**of this Agreement.  The Escrow Amountshall be disbursed by the Escrow Agent pursuant to the terms of the EscrowAgreement.

###  

### (b)           In addition to theEscrow Amount set forth in Section 3.2(a) above, Parent shall withholdfrom the Merger Consideration otherwise payable at Closing an amount of$3,000,000 (the “**Working Capital EscrowAmount**”).  On the ClosingDate, Parent shall cause the Working Capital Escrow Amount to be delivered tothe Escrow Agent pursuant to an escrow agreement by and among Parent, theCompany, the Former Company Stockholders’ Agent and the Escrow Agent (the “**Working Capital Escrow Agreement**”)substantially in the form annexed hereto as **Exhibit 3.2(b)**. Such sum shall be paid to the Escrow Agent on the Closing Date by wiretransfer of immediately available funds to the account designated in writing bythe Escrow Agent.  The Working CapitalEscrow Amount will be held by the Escrow Agent as partial security for theobligations, if any, of the Former Company Stockholders to Parent pursuant tothe terms of **Section 3.3(f) **ofthis Agreement.  The Working CapitalEscrow Amount shall be disbursed by the Escrow Agent pursuant to the terms ofthe Working Capital Escrow Agreement.

###  

## Section 3.3.          Conversion of Capital Stock.  At the Effective Time, by virtue of theMerger and without any action on the part of the holders of any shares of commonstock of the Company, par value $0.01 per share (“**Company Common Stock**”), or shares of capital stock ofMerger Sub:

##  

### (a)           Capital Stock of MergerSub.  Each issued and outstandingshare of the capital stock of Merger Sub shall be converted into and become onefully paid and

 

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### nonassessableshare of common stock, $0.01 par value per share, of the Company, as theSurviving Corporation with the same rights, powers and privileges as thecapital stock of Merger Sub so converted, so that after the Effective TimeParent shall be the holder of all of the issued and outstanding shares of theSurviving Corporation.

###  

### (b)           Cancellation of Company-OwnedStock.  Any shares of Company CommonStock that are owned by the Company, any of its Subsidiaries or Parent immediatelyprior to the Effective Time shall be canceled and retired and shall cease toexist without any conversion thereof and no consideration shall be delivered ordeliverable therefor.

###  

### (c)           Capital Stock ofthe Company.  At the Effective Time,each issued and outstanding share of Company Common Stock (other than theRollover Shares or shares to be canceled in accordance with **Section 3.3(b) **and any DissentingShares as defined in and to the extent provided in **Section 3.4**) shall, by virtue of the Merger and withoutany action on the part of the holder thereof, be converted into the right toreceive, in cash, an amount equal to the result of (i) the sum of (A) theMerger Consideration and (B) the aggregate amount of the exercise pricespayable in respect of all in-the-money Company Options (including any unvestedportion of such Company Options) and in-the-money Company Warrants, divided by (ii) thesum of (X) the aggregate number of shares of Company Common Stockoutstanding immediately prior to the Effective Time (including any RolloverShares), (Y) the aggregate number of shares of Company Common Stockissuable upon exercise of in-the-money Company Options (including any unvestedportion of such Company Options), and (Z) the aggregate number of sharesof Company Common Stock issuable upon exercise of in-the-money Company Warrants(the “**Per Share Merger Consideration**”).  All such shares of Company Common Stock, whenso converted, shall no longer be outstanding and shall automatically becanceled and retired and shall cease to exist, and each holder of a certificaterepresenting any such shares shall cease to have any rights with respectthereto, except the right to receive the Per Share Merger Consideration inconsideration therefor upon the surrender of such certificate in accordancewith and subject to the applicable terms and conditions of **Section 3.5**, without any interestthereon.

###  

### (d)           Company Options.  At the Effective Time, all then outstandingoptions to purchase Company Common Stock, whether vested or unvested (“**Company Options**”), will be cancelled andautomatically converted into the right to receive, subject to the applicableterms and conditions of **Section 3.5**,an amount in cash (without any interest thereon), if positive, equal to thedifference between (1) the Per Share Merger Consideration multiplied bythe number of shares of Company Common Stock theretofore issuable upon exerciseof such Company Option, reduced by (2) the aggregate exercise price ofsuch Company Option for such shares, subject to applicable withholdings (the “**Option Consideration**”).  Any payment required pursuant to this **Section 3.3(d) **in connection withany Company Options shall constitute a part of the Merger Consideration.

###  

### (e)           Company Warrants.  At the Effective Time, all then outstandingwarrants to purchase Company Common Stock (“**Company Warrants**”) which remain unexercised immediatelyprior to the Effective Time will be cancelled and automatically converted intothe right to receive, upon surrender in accordance with and subject to the

 

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### applicableterms and conditions of **Section 3.5**,in lieu of the Company Common Stock theretofore issuable upon exercise of eachsuch Company Warrant, an amount in cash (without any interest thereon), ifpositive, equal to the difference between (i) the Per Share Merger Considerationmultiplied by the number of shares of Company Common Stock theretofore issuableupon exercise of such Company Warrant, reduced by (ii) the aggregateexercise price of such Company Warrant (the “**Warrant Consideration**”). Any payment required pursuant to this **Section 3.3(e) **inconnection with any Company Warrants shall constitute a part of the MergerConsideration.

###  

### (f)            Net WorkingCapital Adjustment.

###  

#### (i)            No later than three (3) Business Days prior to theClosing Date, the Company shall deliver to Parent a certificate signed by anofficer of the Company setting forth the Company’s good faith determination of theestimated Net Working Capital (“**Estimated NetWorking Capital**”).  TheCompany shall provide Parent access to such working papers and otherinformation reasonably available supporting such calculation of Estimated NetWorking Capital.

####  

#### (ii)           If Actual Net Working Capital (as defined below) is lessthan the Estimated Net Working Capital, then the Merger Consideration shall bereduced dollar-for-dollar by the amount of such shortfall.  If Actual Net Working Capital is greater thanthe Estimated Net Working Capital, then the Merger Consideration shall beincreased dollar-for-dollar by the amount of such difference.

####  

#### (iii)          Within thirty (30) days after the Closing Date, Parentshall prepare or cause to be prepared a calculation of Net Working Capital anddeliver to the Former Company Stockholders’ Agent the calculation of NetWorking Capital and the adjustments, if any, required to be made to the MergerConsideration pursuant to **Section 3.3(f)(ii)**.  Parent shall provide the Former CompanyStockholders’ Agent access to such working papers and other informationreasonably available supporting such calculation of Net Working Capital.  If the calculation of the Net Working Capitaldelivered to the Former Company Stockholders’ Agent is equal to or greater thanthe Estimated Net Working Capital, Parent shall immediately prepare and executean instruction to the Escrow Agent to remit the full Working Capital EscrowAmount to the Former Company Stockholders’ Agent to be disbursed to the FormerCompany Stockholders.  If the calculationof the Net Working Capital delivered to the Former Company Stockholders’ Agentis less than the Estimated Net Working Capital (the difference of such amountsbeing hereinafter referred to as the **“Shortfall”**),Parent shall immediately prepare and execute an instruction to the Escrow Agentto remit the difference, if positive, between (A) $3,000,0000 and (B) theShortfall, to the Former Company Stockholders’ Agent to be disbursed to theFormer Company Stockholders, and the balance of the Working Capital EscrowAmount shall remain with the Escrow Agent pursuant to the terms of the WorkingCapital Escrow Agreement and this Section 3.3(f).

####  

#### (iv)          The Former Company Stockholders’ Agent will have a periodof thirty (30) days following the delivery of Parent’s calculation of NetWorking Capital to notify Parent in writing of any disagreements with suchcalculation specifying in reasonable detail the nature and amount of any suchdisagreement.  Any item or amount notspecifically objected to in

 

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#### suchnotification shall be binding and conclusive on the parties.  In the event the Former Company Stockholders’Agent timely notifies Parent of any disagreement, Parent and the Former CompanyStockholders’ Agent shall attempt in good faith to resolve suchdisagreement.  If within thirty (30) daysafter delivery to Parent of the notification by the Former Company Stockholders’Agent of a disagreement, the parties are unable to resolve such disagreement,either the Former Company Stockholders’ Agent, on the one hand, or Parent, onthe other hand, shall have the right to submit the determination of such mattersto an independent accountant of national standing reasonably acceptable to Parentand the Former Company Stockholders’ Agent (the “**Independent Auditor**”), whose decision shall be binding onthe parties.  The cost of the IndependentAuditor and reasonable attorneys’ fees of the other party shall be paid by theparty whose aggregate estimate of the disputed amount differs most greatly fromthe determination of the Independent Auditor. If the Former Company Stockholders are required to pay the cost of theIndependent Auditor then such costs shall be satisfied by payment solely fromthe Working Capital Escrow Amount.  Notwithstandinganything herein to the contrary, the dispute resolution mechanism contained inthis **Section 3.3(f) **shallbe the exclusive mechanism for resolving disputes regarding the Net WorkingCapital adjustment, if any.  For purposesof this **Section 3.3(f)**, **“Actual Net Working Capital” s**hallmean the Net Working Capital as finally determined in accordance with this **Section 3.3(f)(iv)**.

####  

#### (v)           If it is finally determined pursuant to **Section 3.3(f)(iv) **that the MergerConsideration paid at the Closing is less than the Merger Consideration asadjusted pursuant to this **Section 3.3(f)**,Parent shall remit such difference to the Paying Agent to be disbursed to theFormer Company Stockholders plus Parent shall immediately prepare and executean instruction to the Escrow Agent to remit the Working Capital Escrow Amount,if any, to the Paying Agent to be disbursed to the Former Company Stockholders.

####  

#### (vi)          If it is finally determined pursuant to **Section 3.3(f)(iv) **that the MergerConsideration paid at the Closing is greater than the Merger Consideration asadjusted pursuant to this **Section 3.3(f)**,such amount shall be satisfied first by payment to Parent from the WorkingCapital Escrow Amount with any shortfall to be satisfied by payment from the FormerCompany Stockholders, on a several (but not joint) basis.  If after such satisfaction out of the WorkingCapital Escrow Amount, if any, there is a balance remaining in the WorkingCapital Escrow Amount, Parent shall immediately prepare and execute aninstruction to the Escrow Agent to remit such balance to the Paying Agent to bedisbursed to the Former Company Stockholders.

####  

#### (vii)         Any cash payment to be made as a result of adjustments madein accordance with this **Section 3.3(f)**,shall be paid within five (5) Business Days of the final determination ofsuch adjustments by wire transfer of immediately available funds.  Any such payment shall be made to such accountor accounts as may be designated by the party entitled to such payment at leasttwo (2) Business Days prior to the date that such payment is to be made.

####  

### (g)           Net IndebtednessAdjustment.

###  

#### (i)            No later than three (3) Business Days prior to theClosing Date, the Company shall deliver to Parent a certificate signed by anofficer of the Company setting forth the Company’s good faith determination ofthe estimated Net Indebtedness (“**EstimatedNet**

 

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#### **Indebtedness**”).  The Company shall provide Parent access tosuch working papers and other information reasonably available supporting suchcalculation of Estimated Net Indebtedness.

####  

#### (ii)           If Actual Net Indebtedness (as defined below) is greaterthan the Estimated Net Indebtedness, then the Merger Consideration shall bereduced dollar-for-dollar by the amount of such difference and such amountshall be satisfied by payment to Parent from the Former Company Stockholders,on a several (but not joint) basis.  IfActual Net Indebtedness is less than the Estimated Net Indebtedness, then theMerger Consideration shall be increased dollar-for-dollar by the amount of suchshortfall and Parent shall remit such difference to the Former CompanyStockholders’ Agent to be disbursed to the Former Company Stockholders.

####  

#### (iii)          Within thirty (30) days after the Closing Date, Parentshall prepare or cause to be prepared a calculation of Net Indebtedness anddeliver to the Former Company Stockholders’ Agent such calculation of Net Indebtednessand the adjustments, if any, required to be made to the Merger Considerationpursuant to **Section 3.3(g)(ii)**.  Parent shall provide the Former CompanyStockholders’ Agent access to such working papers and other informationreasonably available supporting such calculation of Net Indebtedness.

####  

#### (iv)          The Former Company Stockholders’ Agent will have a periodof thirty (30) days following the delivery of Parent’s calculation of NetIndebtedness to notify Parent in writing of any disagreements with such calculationspecifying in reasonable detail the nature and amount of any suchdisagreement.  Any item or amount notspecifically objected to in such notification shall be binding and conclusiveon the parties.  In the event the FormerCompany Stockholders’ Agent timely notifies Parent of any disagreement, Parentand the Former Company Stockholders’ Agent shall attempt in good faith toresolve such disagreement.  If withinthirty (30) days after delivery to Parent of the notification by the FormerCompany Stockholders’ Agent of a disagreement, the parties are unable toresolve such disagreement, either the Former Company Stockholders’ Agent, onthe one hand, or Parent, on the other hand, shall have the right to submit thedetermination of such matters to an Independent Auditor, whose decision shallbe binding on the parties.  The cost ofthe Independent Auditor and reasonable attorneys’ fees of the other party shallbe paid by the party whose aggregate estimate of the disputed amount differsmost greatly from the determination of the Independent Auditor.  Notwithstanding anything herein to thecontrary, the dispute resolution mechanism contained in this **Section 3.3(g) **shall be theexclusive mechanism for resolving disputes regarding the Net Indebtednessadjustment, if any.  For purposes of this**Section 3.3(g)**, **“Actual Net Indebtedness” s**hall meanthe Net Indebtedness as finally determined in accordance with this **Section 3.3(g)(iv)**.

####  

#### (v)           Any cash payment to be made as a result of adjustmentsmade in accordance with this **Section 3.3(g)**,shall be paid within five (5) Business Days of the final determination ofsuch adjustments by wire transfer of immediately available funds.  Any such payment shall be made to suchaccount or accounts as may be designated by the party entitled to such paymentat least two (2) Business Days prior to the date that such payment is tobe made.

 

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### (h)           Tax BenefitAdjustment.

 

#### (i)            No later than 15 Business Days after both the Actual Net WorkingCapital and Actual Net Indebtedness are finally determined in accordance withSections **3.3(f)(iv) and (g)(iv)**,respectively, the Former Company Stockholders’ Agent shall prepare or cause tobe prepared a calculation of the tax benefit that may be received by Parentarising from tax deductions attributable to payments made in connection withthe cancellation of the Company Options in the Merger (assuming for thispurpose that the Company will have sufficient income to use the entirededuction and that the current tax rates remain in effect) (the **“Closing Tax Benefit”**).  Parent shall provide the Former CompanyStockholders’ Agent access to all financial and other information that it mayreasonably request to calculate the Closing Tax Benefit.  The Former Company Stockholders’ Agent shallprovide Parent access to its working papers and other information reasonablyavailable supporting such calculation of the Closing Tax Benefit.

####  

#### (ii)           If the Closing Tax Benefit is more than the Estimated TaxBenefit, then the Merger Consideration shall be increased dollar-for-dollar bythe amount of such difference and Parent shall remit such difference to the FormerCompany Stockholders’ Agent to be disbursed to the Former Company Stockholders.  If the Closing Tax Benefit is less than theEstimated Tax Benefit then the Merger Consideration shall be decreaseddollar-for-dollar by the amount of such difference and such amount shall besatisfied by payment to Parent from the Former Company Stockholders, on aseveral (but not joint) basis.

####  

#### (iii)          Following the Closing, Parent shall cause the Company orthe common parent of any affiliated group of which the Company may be a memberto use its commercially reasonable efforts to fully realize the entire amountof the Closing Tax Benefit as promptly as possible and in compliance withapplicable law, including filing IRS Form 1139 and any comparable stateand local tax forms for the Company’s tax year that will end on the ClosingDate, filing refund claims for prior tax years or reducing future estimated taxpayments and future tax payments based on actual tax liability.  If, after the second anniversary of theClosing Date, the Company or the common parent of any affiliated group of whichthe Company may be a member is unable to fully utilize all of the deductionsthat form the basis of the Closing Tax Benefit (the **“Unused Portion”**), Parent shall provide the FormerCompany Stockholders’ Agent with a good faith estimate of the Unused Portionand access to such working papers and other information, including prior taxreturns, reasonably available to support such calculation of the UnusedPortion.

####  

#### (iv)          The Former Company Stockholders’ Agent will have a periodof 20 Business Days following the delivery of Parent’s calculation of the UnusedPortion to notify Parent in writing of any disagreements with such calculationspecifying in reasonable detail the nature and amount of any suchdisagreement.  Any item or amount notspecifically objected to in such notification shall be binding and conclusiveon the parties.  In the event the FormerCompany Stockholders’ Agent timely notifies Parent of any disagreement, Parentand the Former Company Stockholders’ Agent shall attempt in good faith toresolve such disagreement.  If withinthirty (30) days after delivery to Parent of the notification by the FormerCompany Stockholders’ Agent of a disagreement, the parties are unable toresolve such disagreement, either the Former Company Stockholders’ Agent, onthe one hand, or Parent, on the other hand, shall have the right to submit thedetermination of such matters to an Independent Auditor, whose decision shallbe binding on the parties.  The cost ofthe Independent Auditor and

 

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#### reasonableattorneys’ fees of the other party shall be paid by the party whose aggregateestimate of the disputed amount differs most greatly from the determination ofthe Independent Auditor.  Notwithstandinganything herein to the contrary, the dispute resolution mechanism contained inthis **Section 3.3(h) **shallbe the exclusive mechanism for resolving disputes regarding the Unused Portion,if any.  The amount of the UnusedPortion, as finally determined pursuant to this Section 3.3(h)(iv) shallbe referred to as the **“Agreed Upon UnusedPortion.”**

####  

#### (v)           The Former Company Stockholders shall pay severally andnot jointly to Parent an amount equal to the Agreed Upon Unused Portionmultiplied by the tax rate used to calculate the Closing Tax Benefit.

####  

#### (vi)          If, following the payment made by the Former CompanyStockholders to Parent pursuant to Section 3.3(h)(v), the Company utilizesany of the Agreed Upon Unused Portion, then Parent shall pay the amount of thetax benefit derived from such utilization to the Former Company Stockholders’ Agentto be disbursed to the Former Company Stockholders.

####  

#### (vii)         Any cash payments to be made as a result of this Section 3.3(h) shallbe paid within five (5) Business Days of the final determination of suchamounts by wire transfer of immediately available funds.  Any such payment shall be made to suchaccount or accounts as may be designated by the party entitled to such paymentat least two (2) Business Days prior to the date that such payment is tobe made.

####  

## Section 3.4.          Appraisal Rights.

##  

### (a)           Notwithstanding anyprovision of this Agreement to the contrary, any shares of Company Common Stockheld by a holder who has exercised such holder’s appraisal rights in accordancewith Section 262 of the DGCL, and who, as of the Effective Time, has noteffectively withdrawn or lost such appraisal rights (“**Dissenting Shares**”), shall not beconverted into or represent a right to receive the Per Share MergerConsideration pursuant to **Section 3.3(a)**,but the holder of the Dissenting Shares shall only be entitled to such appraisalrights as are granted by the DGCL.

###  

### (b)           Notwithstanding theprovisions of **Section 3.4(a)**,if any holder of shares of Company Common Stock who demands his, her or itsappraisal rights with respect to such shares shall effectively withdraw or lose(through failure to perfect or otherwise) his, her or its rights to receivepayment for the fair market value of such shares under Section 262 of theDGCL, then, as of the later of the Effective Time or the occurrence of suchevent, such holder’s shares shall automatically be converted into and representonly the right to receive the Per Share Merger Consideration, without anyinterest thereon, as provided in **Section 3.3(c) **uponsurrender of the certificate or certificates representing such shares.  The Company shall give Parent prompt noticeof any demands received by the Company for appraisal of shares of CompanyCommon Stock, and Parent shall have the right to participate in allnegotiations and proceedings with respect to such demands.  Except with the prior written consent ofParent, the Company shall not make any payment with respect to, or settle oroffer to settle, any such demands.

 

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## Section 3.5.          Payment of Merger Consideration; Exchangeof Certificates.

##  

### (a)           Prior to theEffective Time, the Former Company Stockholders’ Agent shall designate, orshall cause to be designated, a bank or trust company reasonably acceptable to Parentto act as agent (the “**Paying Agent**”)for the payment of the Merger Consideration (less the Escrow Amount, theWorking Capital Escrow Amount and the portion of the Merger Considerationallocable to the Rollover Shares), and, at the Effective Time, Parent shallprovide to the Paying Agent, by wire transfer of immediately available funds, theamounts necessary for the payment of the Merger Consideration (less the EscrowAmount and the Working Capital Escrow Amount and the portion of the MergerConsideration allocable to the Rollover Shares).  Any and all interest or income earned onfunds made available to the Paying Agent pursuant to this Agreement shall beturned over to Parent.

###  

### (b)           From and after theEffective Time, each holder of a certificate or certificates (“**Certificates**”) which represented sharesof Company Common Stock outstanding immediately prior to the Effective Timeshall surrender each Certificate to the Paying Agent, and receive promptly inexchange therefor the applicable Per Share Merger Consideration (less the applicableportion of the Escrow Amount and the Working Capital Escrow Amount) into whichthe Company Common Stock evidenced by the Certificates so surrendered shallhave been converted pursuant, and subject to, the provisions of **Article III** of this Agreement.  The surrender of Certificates shall beaccompanied by duly completed and executed letters of transmittal in suchcustomary form as may reasonably be agreed to by the Company and Parent.  Until surrendered, each outstandingCertificate shall be deemed for all corporate purposes from and after theEffective Time to evidence the right to receive the Per Share MergerConsideration but shall, subject to applicable appraisal rights under the DGCLand **Section 3.4** of thisAgreement, have no other rights.  Fromand after the Effective Time, there shall be no further registration oftransfers on the records of the Company of shares of Company Common Stockoutstanding immediately prior to the Effective Time.

###  

### (c)           In the event anyCertificate shall have been lost, stolen or destroyed, upon the making of anaffidavit of that fact by the Person claiming such Certificate to be lost,stolen or destroyed, Paying Agent shall pay the applicable Per Share MergerConsideration (less the applicable portion of the Escrow Amount and the WorkingCapital Escrow Amount) in exchange therefor pursuant to the provisions of **Article III** of this Agreement;provided, however, that Parent may, in its sole discretion and as a conditionprecedent to the issuance thereof, require the owner of such lost, stolen ordestroyed Certificate to deliver an agreement of indemnification (but withouthaving to post a bond), in form reasonably satisfactory to Parent, against anyclaim that may be made against Parent, the Surviving Corporation or the PayingAgent with respect to the Certificate alleged to have been lost, stolen ordestroyed.

###  

### (d)           At the EffectiveTime, each Optionholder shall receive from the Paying Agent the applicable OptionConsideration (less the applicable portion of the Escrow Amount and the WorkingCapital Escrow Amount) into which the Company Options shall have been convertedpursuant, and subject to, the provisions of **Article III**of this Agreement.

 

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### (e)           From and after theEffective Time, each Warrantholder shall surrender each Company Warrant to thePaying Agent, and receive promptly in exchange therefor the applicable Warrant Consideration(less the applicable Escrow Amount and the Working Capital Escrow Amount) intowhich the Company Warrant so surrendered shall have been converted pursuant,and subject to, the provisions of **Article III**of this Agreement.  The surrender of CompanyWarrants shall be accompanied by duly completed and executed letters oftransmittal in such customary form as may reasonably be agreed to by theCompany and Parent.  Until surrendered,each outstanding Company Warrant shall be deemed for all corporate purposesfrom and after the Effective Time to evidence the right to receive theapplicable Warrant Consideration but shall have no other rights.  From and after the Effective Time, thereshall be no further registration of transfers on the records of the Company of theCompany Warrants outstanding immediately prior to the Effective Time.

###  

### (f)            In the event anyCompany Warrant shall have been lost, stolen or destroyed, upon the making ofan affidavit of that fact by the Person claiming such Company Warrant to belost, stolen or destroyed, Paying Agent shall pay the applicable WarrantConsideration (less the applicable portion of the Escrow Amount and the WorkingCapital Escrow Amount) in exchange therefor pursuant to the provisions of **Article III** of this Agreement;provided, however, that Parent may, in its sole discretion and as a conditionprecedent to the issuance thereof, require the owner of such lost, stolen ordestroyed Company Warrant to deliver an agreement of indemnification (butwithout having to post a bond), in form reasonably satisfactory to Parent,against any claim that may be made against Parent, the Surviving Corporation orthe Paying Agent with respect to the Warrant Certificate alleged to have beenlost, stolen or destroyed.

###  

### (g)           If any portion ofthe Per Share Merger Consideration or Warrant Consideration is to be paid to aPerson (other than the Escrow Agent) other than the Person in whose name theapplicable Certificate or Company Warrant, as the case may be, is registered,it shall be a condition to such payment that the Certificate or Company Warrantso surrendered shall be properly endorsed or otherwise be in proper form fortransfer and that the Person requesting such payment shall pay to the PayingAgent any transfer or other Taxes required as a result of such payment to aPerson other than the registered holder of such Certificate or Company Warrantor establish to the satisfaction of the Paying Agent that such Tax has beenpaid or is not payable.

###  

### (h)           Any portion of theMerger Consideration made available to the Paying Agent pursuant to **Section 3.5(a) **that remainsunclaimed six months after the Effective Time shall be returned to Parent, upondemand, and any holder who has not surrendered Certificates or Company Warrantsfor the applicable Per Share Merger Consideration or Warrant Consideration inaccordance with this **Section 3.5**prior to that time shall thereafter look only to Parent for payment of suchapplicable consideration, without any interest thereon.  Notwithstanding the foregoing, none ofParent, Merger Sub, the Company, the Surviving Corporation or the Paying Agentshall be liable to any such holder for any amounts paid to a GovernmentalEntity pursuant to applicable law relating to abandoned property, escheat orsimilar laws.  Any amounts remainingunclaimed by holders two years after the Effective Time (or such earlier date,immediately prior to such time when the amounts would otherwise escheat to orbecome the property of any Governmental Entity)

 

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### shall become,to the extent permitted by applicable law, the property of Parent, free andclear of any Liens of any Person previously entitled thereto.  Any portion of the Merger Consideration madeavailable to the Paying Agent pursuant to **Section 3.5(a) **topay for shares of Company Common Stock for which appraisal rights have beenperfected shall be returned to Parent upon demand.

###  

### (i)            Each of theSurviving Corporation, Parent and the Paying Agent shall be entitled to deductand withhold from the consideration otherwise payable to any Person pursuant tothis **Article III**such amountsas it is required to deduct and withhold with respect to the making of suchpayment under any provision of federal, state, local or foreign Tax law.  If the Surviving Corporation, Parent or thePaying Agent so withholds amounts, such amounts shall be treated for all purposesof this Agreement as having been paid to the holder of shares of Company CommonStock, Company Options or Company Warrants, as the case may be, in respect ofwhich the Surviving Corporation, Parent or the Paying Agent made such deductionor withholding.

###  

# ARTICLE IV.REPRESENTATIONS AND WARRANTIES OF THE COMPANY

#  

The Company represents and warrants to Parent andMerger Sub as follows:

 

## Section 4.1.          Organization of Company.  The Company is a corporation duly organized,validly existing and in good standing under the laws of the State of Delaware,has all requisite corporate power to own, lease and operate its property and tocarry on its business as now being conducted, and is duly qualified or licensedto do business and is in good standing as a foreign corporation in eachjurisdiction in which the nature of its business or ownership or leasing of Propertiesmakes such qualification or licensing necessary and where the failure to be soqualified or licensed would reasonably be expected to result in a CompanyMaterial Adverse Effect.  For purposes ofthis Agreement, “**Company Material AdverseEffect**”****shall meana material adverse effect on the business, assets, liabilities, condition(financial or otherwise), property or results of operations of the Company andits Subsidiaries (taken as a whole).  CompanyMaterial Adverse Effect shall not include any event, situation, change,development, condition or circumstance:  (i) relatingto or resulting from the economy in general, (ii) relating to or resultingfrom the industry in which the Company or any of its Subsidiaries operates andnot uniquely relating to the Company or any of its Subsidiaries, (iii) resultingfrom the announcement or existence of this Agreement or the transactionscontemplated hereby, (iv) resulting from actions or omissions of theCompany or any of its Subsidiaries taken with the prior written consent of theother party hereto or pursuant to the terms of this Agreement (including the CompanyDisclosure Schedules) or the other Transaction Documents, (v) resultingfrom compliance with this Agreement or the other Transaction Documents, (vi) resultingfrom any worldwide, national or local conditions or circumstances (political,economic, financial, regulatory or otherwise), including, without limitation,an outbreak or escalation or war, armed hostilities, acts of terrorism,political instability or other national or international calamity, crisis oremergency occurring within or outside of the United States, or (vii) inexistence as of the date hereof and actually known and understood by Parent(including potential consequences thereof).

 

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## Section 4.2.          Capitalization; Subsidiaries.

##  

### (a)           The authorizedcapital stock of the Company consists of 150,000 shares of Company Common Stockand 65,000 shares of preferred stock of the Company, par value $0.01.  No shares of such preferred stock are issuedor outstanding.  The number of issued andoutstanding shares of Company Common Stock is as described on Schedule 4.2(a) ofthe Company Disclosure Schedules.  Allsuch issued and outstanding shares of Company Common Stock have been, and allshares of Company Common Stock that may be issued pursuant to outstandingoptions and warrants to purchase Company Common Stock will be, when issued inaccordance with the respective terms thereof, duly authorized, validly issuedand are fully paid and nonassessable. Except as described in Schedule 4.2(a) of the CompanyDisclosure Schedules, (a) there are no issued or outstanding shares ofcapital stock of the Company, (b) no shares of capital stock of theCompany are held in treasury, (c) no preferred stock or other equity securitiesof any kind of the Company are issued or outstanding, (d) there are noother issued or outstanding securities of the Company convertible into orexchangeable or exercisable for at any time capital stock of the Company, and (e) thereare no subscriptions, options, “phantom” stock rights, stock appreciationrights, warrants or other rights of any kind entitling any Person to acquire orotherwise receive from the Company any shares of capital stock or securities ofthe Company convertible into or exchangeable or exercisable for at any timecapital stock of the Company (collectively, the “**Company Securities**”). Except as described in Schedule 4.2(a) of the CompanyDisclosure Schedules, there are no contracts, commitments, agreements,understandings or arrangements of any kind relating to the grant, issuance,repurchase, redemption or other acquisition by the Company of any CompanySecurities.  Except as described in Schedule 4.2(a) ofthe Company Disclosure Schedules, there are no voting trusts, shareholderagreements, commitments, undertakings, understandings, proxies or otherrestrictions that directly or indirectly restrict or limit, or otherwise relateto, the voting, sale or other disposition of any shares of Company Common Stockor the rights of any shareholder of the Company.

###  

### (b)           Schedule 4.2(b) ofthe Company Disclosure Schedules sets forth the names of each of the Company’sSubsidiaries and shows for each such Subsidiary: (i) its jurisdiction oforganization and each other jurisdiction in which it is qualified to dobusiness; (ii) the authorized and outstanding capital stock or otherownership interests of each Subsidiary; and (iii) the identity of andnumber of shares of such capital stock or other ownership interests owned (ofrecord and beneficially) by each holder thereof.  Except as set forth on Schedule 4.2(b) ofthe Company Disclosure Schedules, all of the outstanding capital stock or otherownership interests of each Subsidiary are owned free and clear of any Lien andfree and clear of any other limitation or restriction (including anyrestriction on the right to vote, sell or otherwise dispose of such capitalstock or other ownership interests).

###  

### (c)           Each of the Company’sSubsidiaries is duly organized, validly existing and in good standing in itsjurisdiction of organization, with all requisite corporate, partnership,membership or limited liability company power, as the case may be, to own,lease and operate its Property and to carry on its business as now beingconducted, and is duly qualified and/or licensed to do business and is in goodstanding as a foreign corporation in each jurisdiction in which the nature ofits business or ownership or leasing of Properties

 

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### makes suchqualification or licensing necessary and where the failure to be so qualifiedor licensed could reasonably be expected to result in a Company Material AdverseEffect.

###  

### (d)           Except as describedin Schedule 4.2(d) of the Company Disclosure Schedules, (a) thereare no issued or outstanding shares of capital stock or other ownershipinterests of any of the Company’s Subsidiary, (b) no shares of capitalstock or other ownership interests of any of the Company’s Subsidiary are heldin treasury, (c) no preferred stock or other equity securities of any kindof any of the Company’s Subsidiaries are authorized, issued or outstanding, (d) thereare no other issued or outstanding securities of any of the Company’s Subsidiariesconvertible into or exchangeable or exercisable for at any time capital stock orother ownership interests of such Subsidiary and (e) there are nosubscriptions, options, “phantom” stock rights, stock appreciation rights, warrantsor other rights of any kind entitling any Person to acquire or otherwisereceive from any of the Company’s Subsidiaries any shares of capital stock orother ownership interests or securities of the Company’s Subsidiariesconvertible into or exchangeable or exercisable for at any time capital stock orother ownership interest of the Company’s Subsidiaries (collectively, the “**Subsidiary Securities**”).  Except as described in Schedule 4.2(d) ofthe Company Disclosure Schedules, there are no contracts, commitments,agreements, understandings or arrangements of any kind relating to the grant,issuance, repurchase, redemption or other acquisition by the Company’sSubsidiaries of any Subsidiary Securities.

###  

## Section 4.3.          Authority; No Conflict; RequiredFilings and Consents.

##  

### (a)           The Company has allrequisite corporate power and authority to enter into this Agreement and allTransaction Documents to which it is a party and to consummate the transactionscontemplated by this Agreement and such Transaction Documents.  The execution and delivery of this Agreementand such Transaction Documents and the consummation of the transactionscontemplated by this Agreement and such Transaction Documents have been dulyauthorized by all necessary corporate action on the part of the Company,subject only to the approval of the Merger by the Company’s stockholders underthe provisions of the DGCL and the Company’s certificate of incorporation (the “**Company Stockholder Approval**”).  This Agreement has been, and such otherTransaction Documents to which the Company is a party have been, or to theextent not executed as of the date hereof, will be, duly executed and deliveredby the Company.  This Agreement and eachof the Transaction Documents to which the Company is a party constitutes,assuming the due authorization, execution and delivery by the other partieshereto and thereto, the valid and binding obligation of the Company,enforceable by Parent and Merger Sub against the Company in accordance withtheir respective terms, except to the extent that enforceability may be limitedby applicable bankruptcy, reorganization, insolvency, moratorium or other lawsaffecting the enforcement of creditors’ rights generally and by generalprinciples of equity, regardless of whether such enforceability is consideredin a proceeding at law or in equity.  Forpurposes of this Agreement, “**TransactionDocuments**” means this Agreement, the Escrow Agreement, the WorkingCapital Escrow Agreement, the Certificate of Merger, the IndemnificationMatters Letter and the Assignment Side Letter.

 

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### (b)           The execution anddelivery by the Company of this Agreement and the Transaction Documents towhich it is a party does not, and the consummation of the transactionscontemplated by this Agreement and the other Transaction Documents to which itis a party will not, (i) conflict with, or result in any violation orbreach of any provision of the certificate of incorporation, bylaws or other organizationaldocuments of the Company or any Subsidiary, (ii) violate any law, rule orregulation applicable to the Company or any Subsidiary, (iii) except asset forth on Schedule 4.3(b)(iii) of the Company DisclosureSchedules, conflict with or result in a breach of, or give rise to a right oftermination of, or accelerate the performance (including, without limitation,payment of severance pay, unemployment compensation or termination pay, oracceleration of the time or payment or vesting or an increase in the amount orvalue of compensation or benefits due to any employee or former employee solelyby reason of the consummation of the transactions contemplated by thisAgreement and the other Transaction Documents) required by the terms of anyjudgment, court order or consent decree, or any contract, commitment,agreement, understanding or arrangement or Permit or constitute a defaultthereunder, or (iv) result in the creation or imposition of any Lien onany Property of the Company or any of its Subsidiaries, except in the case ofclauses (ii), (iii) and (iv) as would not reasonably be expected tohave a Company Material Adverse Effect.

###  

### (c)           None of theexecution and delivery by the Company of this Agreement or of any otherTransaction Document to which the Company is a party or the consummation of thetransactions contemplated by this Agreement or such other Transaction Documentwill require any consent, approval, order or authorization of, or registration,declaration or filing with, any court, administrative agency or commission orother governmental authority or instrumentality (“**Governmental Entity**”), except for (i) the filing ofthe Certificate of Merger with the Delaware Secretary of State, (ii) suchconsents, approvals, orders, authorizations, registrations, declarations andfilings as may be required under applicable federal and state securities laws, (iii) suchfilings as may be required under the Hart-Scott-Rodino Antitrust ImprovementsAct, as amended (the “**HSR Act**”),(iv) such other consents, authorizations, filings, approvals andregistrations which are listed on Schedule 4.3(c) of theCompany Disclosure Schedules, and (v) those where the failure to obtain ormake, as applicable, such consent, approval, order or authorization of, orregistration, declaration or filing would not reasonably be expected to have aCompany Material Adverse Effect.

###  

## Section 4.4.          Financial Statements; Absence ofUndisclosed Liabilities.

##  

### (a)           The Company hasdelivered to Parent copies of (i) the Company’s consolidated auditedbalance sheets as of February 28, 2004 and February 28, 2005, and therelated consolidated audited statements of operations, stockholders’ equity andcash flows for the years ended February 28, 2004 (the **“2004 Audited Financials”)**and February 28,2005 (the **“2005 Audited Financials”)**,respectively (the 2004 Audited Financials and the 2005 Audited Financials,collectively, the **“Company AuditedFinancials”**), and (ii) the Company’s consolidated unauditedbalance sheet as of the close of business on April 21, 2005 (the **“Most Recent Balance Sheet”**) and therelated consolidated unaudited statements of operations and cash flow for theperiod that commenced on March 1, 2005 and ended on

 

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### April 21,2005 (the **“Company Unaudited Financials”**,and together with the Company Audited Financials, the “**Company Financial Statements**”).

###  

### (b)           The CompanyFinancial Statements are in accordance with the books and records of theCompany and its Subsidiaries and present fairly in all material respects,subject to, in the case of the Company Unaudited Financials, normal year-endadjustments (the effect of which would not, individually or in the aggregate,reasonably be expected to have a Company Material Adverse Effect), the financialposition, results of operations and cash flows of the Company and itsSubsidiaries as of their historical dates and for the periods indicated.  The Company Financial Statements have beenprepared in accordance with GAAP applied on a basis consistent with priorperiods, subject to, in the case of the Company Unaudited Financials, normalyear-end adjustments (the effect of which would not, individually or in theaggregate, reasonably be expected to have a Company Material Adverse Effect),and the absence of footnotes.

###  

### (c)           Except as set forthin Schedule 4.4(c), neither the Company nor any of its Subsidiarieshas any material debt, liability, or obligation of any nature, whether accrued,absolute, contingent, or otherwise, and whether due or to become due, that would,in accordance with GAAP be required to be disclosed on a balance sheet, exceptthose (i) liabilities reflected in the Most Recent Balance Sheet or the2005 Audited Financials, (ii) liabilities disclosed in the CompanyDisclosure Schedules, (iii) liabilities incurred in the ordinary course ofbusiness since the date of the Most Recent Balance Sheet that would not,individually or in the aggregate, reasonably be expected to have a Company MaterialAdverse Effect, or (iv) liabilities or performance obligations arising outof or under agreements, contracts, leases or arrangements to which the Companyor any of its Subsidiaries is a party.

###  

## Section 4.5.          Tax Matters.

##  

### (a)           For purposes of this**Section 4.5** and otherprovisions of this Agreement relating to Taxes, the following definitions shallapply:

###  

#### (i)            The term “**Tax**”or “**Taxes**” shall mean anyand all federal, state, local, or foreign income, gross receipts, license,payroll, employment, excise, severance, stamp, occupation, premium, windfallprofits, environmental, customs duties, capital stock, franchise, profits,withholding, social security (or similar, including FICA), unemployment,disability, real property, personal property, sales, use, transfer,registration, value added, alternative or add-on minimum, estimated, or othertax of any kind or any charge of any kind in the nature of (or similar to)taxes whatsoever, including any interest, penalty, or addition thereto, whetherdisputed or not and (b) any liability for the payment of any amounts ofthe type described in clause (a) of this definition as a result of being amember of an affiliated, consolidated, combined or unitary group for anyperiod, as a result of any tax sharing or tax allocation agreement, arrangementor understanding, or as a result of being liable for another person’s taxes asa transferee or successor, by contract or otherwise.

 

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#### (ii)           The term “**Returns**”shall mean any return, declaration, claim for refund, information return,report or statement relating to Taxes (including any schedule orattachment thereto and any amendment thereof).

####  

### (b)        Except as set forth on Schedule 4.5(b) ofthe Company Disclosure Schedules, (i) all Returns required to be filedprior to the date hereof by the Company and/or its Subsidiaries have been dulyand timely filed in accordance with all applicable laws, rules andregulations and all such Returns were true, correct and complete in allmaterial respects, (ii) all material Taxes owed by the Company and each ofits Subsidiaries (whether or not shown on any Returns) have been timely paid infull or have been accrued on the Most Recent Balance Sheet and will be takeninto account as a current liability in Net Working Capital, (iii) theCompany and its Subsidiaries have withheld and timely paid to the appropriateGovernmental Entity all Taxes required to have been withheld and paid overprior to the date hereof in connection with amounts paid or owing to anyemployee, independent contractor, or other third party and the Company and itsSubsidiaries have complied in all material respects with all associatedreporting and record keeping requirements and (iv) there are no materialLiens on any Property of the Company or any of its Subsidiaries with respect toTaxes, other than material Liens for Taxes not yet due and payable or for Taxesthat the Company or its Subsidiaries are contesting in good faith throughappropriate proceedings and for which an appropriate reserve has beenestablished on the Most Recent Balance Sheet if required by GAAP.

###  

### (c)         Except as set forth onSchedule 4.5(c) of the Company Disclosure Schedules:  (i) there is no dispute, audit orproceeding, or to the Company’s knowledge, investigation or claim, concerningany Tax of the Company or any of its Subsidiaries pending with, or beingconducted by, a Governmental Entity or for which the Company or any of itsSubsidiaries (following the date of the Company’s acquisition of suchSubsidiary, if applicable) has been notified in writing, (ii) neither theCompany nor any of its Subsidiaries has received notice that it has not filed aReturn or paid Taxes required to be filed or paid, (iii) neither theCompany nor any of its Subsidiaries is a party to any action or proceeding forassessment or collection of Taxes, and, to the Company’s knowledge, no suchaction or proceeding is threatened against the Company or any of itsSubsidiaries, (iv) no waiver or extension of any statute of limitations orother extension of time is in effect with respect to Taxes or Returns of theCompany or any of its Subsidiaries, (v) no claim has been made in writing tothe Company or any of its Subsidiaries (following the date of the Company’sacquisition of such Subsidiary, if applicable) by a Governmental Entity in a jurisdictionwhere the Company or any of its Subsidiaries does not file Returns that theCompany or any of its Subsidiaries is or may be subject to material taxation bythat jurisdiction, and (vi) the Company and each of its Subsidiaries hasprovided or delivered to Parent true, correct and complete copies of allReturns, examination reports, and statements of deficiencies filed, assessedagainst, or agreed to by such Company or such of the Company’s Subsidiariessince December 31, 2001.

###  

### (d)        Except as set forth on Schedule 4.5(d) ofthe Company Disclosure Schedules, neither the Company nor any of itsSubsidiaries is a party to any tax sharing agreement and neither the Companynor any of its Subsidiaries has executed any power of attorney with respect toany Tax other than powers of attorney that are no longer in force.

 

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### (e)         Except as set forth onSchedule 4.5(e) of the Company Disclosure Schedules, theunpaid Taxes of the Company and its Subsidiaries (a) did not as of thedate of the Most Recent Balance Sheet exceed the liability for Taxes (excludingany reserve for deferred Taxes established to reflect timing differencesbetween book and Tax income) set forth on the face of the Most Recent BalanceSheet (rather than in any notes thereto) and (b) will not exceed thatreserve as adjusted for the passage of time through the Closing Date and takeninto account as a current liability in Net Working Capital.

###  

### (f)         Except as set forth onSchedule 4.5(f) of the Company Disclosure Schedules, neitherthe Company nor any of its Subsidiaries is a party to any agreement, contract,arrangement or plan that would, as a result of the Merger, require it to makeany payments that would be considered “excess parachute payments” within themeaning of Code Section 280G (or any corresponding provisions of state,local or foreign Tax law).

###  

### (g)        Except as set forth on Schedule 4.5(g) ofthe Company Disclosure Schedules, neither the Company nor any of itsSubsidiaries (following the date of the Company’s acquisition of suchSubsidiary, if applicable) has been a member of an “affiliated group” withinthe meaning of Code Section 1504(a) filing a consolidated federalincome Tax Return, other than an “affiliated group” of which the Company orCellu Tissue Holdings, Inc. is or was the common parent.  Neither the Company nor any of itsSubsidiaries is a party to any contract, commitment, agreement, understandingor arrangement relating to Tax sharing or Tax allocation.  Neither the Company nor any of itsSubsidiaries has any liability or obligation for the Taxes of any Person underTreasury Regulation 1.1502-6 (or any similar provision of state, local orforeign law), as a transferee or successor, by contract or otherwise.

###  

### (h)        Except as set forth on Schedule 4.5(h) ofthe Company Disclosure Schedules, neither the Company nor any of itsSubsidiaries has been a “distributing corporation” or a “controlled corporation”in connection with a distribution that the parties involved treated asdescribed in Code Section 355 (a) within the past two years or (b) wherethe distribution is part of a “plan” or “series of transactions” (within themeaning of Code Section 355(e)) of which any of the transactionscontemplated by this Agreement is a part. Neither the Company nor any of its Subsidiaries (following the date ofthe Company’s acquisition of such Subsidiary, if applicable) has, within thepast five years, been a party to any other transaction that was reported as areorganization within the meaning of Code Section 368.

###  

### (i)          Except as set forthon Schedule 4.5(i) of the Company Disclosure Schedules, neitherthe Company nor any of its Subsidiaries is required, or has been required (inthe case of any Subsidiary, following the date of the Company’s acquisition ofsuch Subsidiary, if applicable), to make any adjustment pursuant to Code Section 481(a) (orany predecessor provision) or any similar provision of state, local or foreigntax law by reason of any change in any accounting methods, and there is no applicationpending with any Governmental Entity requesting permission for any changes inany of its accounting methods for Tax purposes. To the knowledge of the Company, no Governmental Entity has proposed anysuch adjustment or change in accounting method.

 

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### (j)          Except as set forthon Schedule 4.5(j) of the Company Disclosure Schedules, neither theCompany nor any of its Subsidiaries (following the date of the Company’sacquisition of such Subsidiary, if applicable) has participated in anyreportable transaction within the meaning of Treasury Regulation Section 1.6011-4or in any tax shelter within the meaning of Sections 6111 or 6662 of the Code.

###  

### (k)         Neither the Companynor any of its Subsidiaries will be required to include any amount in taxableincome or exclude any item of deduction or loss from taxable income for anytaxable period (or portion thereof) ending after the Closing Date as a resultof (A) any “closing agreement” as described in Code Section 7121 (orany corresponding or similar provision of state, local or foreign income Taxlaw) executed on or prior to the Closing Date, (B) any deferredintercompany gain or excess loss account described in Treasury Regulationsunder Code Section 1502 (or any corresponding or similar provision oradministrative rule of federal, state, local or foreign Income Tax law), (C) aninstallment sale or open transaction disposition made on or prior to theClosing Date, or (D) any prepaid amount received on or prior to theClosing Date.

###  

## Section 4.6.          Absence of Certain Changes orEvents.  Since February 28, 2005,except as set forth on Schedule 4.6 of the Company DisclosureSchedules, the business of the Company and its Subsidiaries has been conductedin the ordinary course and neither the Company nor any of its Subsidiaries has:

##  

### (a)           suffered any changethat has resulted, or could be reasonably expected to result, in a CompanyMaterial Adverse Effect;

###  

### (b)           suffered any damage,destruction or loss, whether covered by insurance or not, that has resulted, orcould be reasonably expected to result, in a Company Material Adverse Effect;

###  

### (c)           authorized orproposed any amendments to its certificate of incorporation or bylaws (or othersimilar governing instrument);

###  

### (d)           declared, set asideor paid any dividends on or made any other distributions (whether in cash,stock or property) on or in respect of any of its capital stock (or other ownershipinterests), or split, combined or reclassified any of its capital stock (orother ownership interests) or declared any direct or indirect redemption,retirement, purchase or other acquisition by the Company or any of itsSubsidiaries of such capital stock (or other ownership interests);

###  

### (e)           issued, sold orgranted any shares of its capital stock (or other ownership interests) orsecurities convertible into shares of its capital stock (or other ownership interests),or subscriptions, rights, warrants or options to acquire, or other agreementsor commitments of any character obligating it to issue any such shares (orother ownership interests) or other convertible securities, other than theissuance of shares of Company Common Stock issuable upon exercise ofCompany Options or Company Warrants;

 

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### (f)            acquired or agreed toacquire by merging or consolidating with, or by purchasing an equity interestin or portion of the assets of, or by any other manner, any business or anycorporation, partnership or other business organization or division;

###  

### (g)           other thanIndebtedness set forth on Schedule 4.23, (i) incurred or assumed anyIndebtedness in excess of $500,000, other than in the ordinary course ofbusiness; or (ii) assumed, Guaranteed or otherwise became liable orresponsible for the obligations (directly, contingently or otherwise) of anyother Person in amounts in excess of $250,000, other than in the ordinarycourse of business;

###  

### (h)           except in theordinary course of business consistent with past practices, or as may berequired by applicable law or by any applicable agreement or instrumentexisting on the date hereof, (i) entered into, adopted, amended orterminated any employment agreement or any bonus payments with any employee,officer or director of the Company, or (ii) entered into, adopted, amendedor terminated any pension, retirement, health, life, or disability insurance,severance, profit sharing, bonus, compensation, termination, stock option,stock appreciation right, restricted stock, employee benefit plan, agreement,trust, fund or other arrangement for the benefit or welfare of any director,officer or employee in any manner;

###  

### (i)            granted or agreedto make any severance, termination pay or deferred compensation (or amendmentto any existing arrangement) to or increase in the compensation, bonus or otherbenefit payable or to become payable by the Company or any of its Subsidiariesto their directors, officers or employees, except, increases granted or agreedto be made in the ordinary course of business or increases required by anypre-existing agreement;

###  

### (j)            (i) enteredinto any contract or agreement material to the Company and its Subsidiaries,taken as a whole, other than contracts or agreements in the ordinary course ofbusiness; (ii) amended, modified or waived any material right under anyMaterial Contract; or (iii) paid or authorized any capital expenditure inexcess of $500,000 per expenditure or $5,000,000 in the aggregate, other thanin accordance with the Company’s fiscal year 2006 capital expenditures budgetas approved by the Company’s board;

###  

### (k)           (i) made any materialchange in the accounting methods or practices it follows, (ii) revalued inany material respect any Property, including writing down the value ofinventory or writing off notes or accounts receivable other than in theordinary course of business or (iii) made any change in any Tax electionor method of Tax accounting;

###  

### (l)            made any loan,advance or capital contribution to or investment in any Person in excess of $250,000other than loans, advances or capital contributions to or investments in itswholly owned Subsidiaries in the ordinary course of business;

###  

### (m)          (i) purchased,acquired or leased any material assets other than in the ordinary course ofbusiness or in accordance with the Company’s fiscal year 2006 capitalexpenditures budget as approved by the Company’s board, (ii) sold, leased,licensed,

 

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### transferred toany Person, or otherwise disposed of, any of the Properties of the Company orany of its Subsidiaries except for the sale of inventory or obsolete equipmentin the ordinary course of business, (iii) canceled or compromised anyIndebtedness or claim (other than compromises of accounts receivable in theordinary course of business) in excess of $500,000, (iii) waived orreleased any right of substantial value, or (iv) instituted, settled oragreed to settle any material action, suit, proceeding, claim, arbitration orinvestigation; or

###  

### (n)           entered into anycontract, commitment, agreement, understanding or arrangement to do any ofthings referred to in clauses (a) through (m) above.

###  

## Section 4.7.          Property.

##  

### (a)           Schedule 4.7(a) ofthe Company Disclosure Schedules sets forth a list of all real property owned bythe Company or its Subsidiaries (the “**OwnedPremises**”).  Except as setforth on Schedule 4.7(a) of the Company Disclosure Schedulesthere are no written or oral subleases, licenses, concessions, occupancyagreements or other Contractual Obligations granting to any other Person theright of use or occupancy of the Owned Premises and there is no Person (otherthan the Company or any of its Subsidiaries) in possession of the OwnedPremises.

###  

### (b)           Schedule 4.7(b) ofthe Company Disclosure Schedules sets forth a list of all leases, or similaragreements relating to the Company’s or its Subsidiaries’ use or occupancy ofreal estate owned by a third party (“**Leases**”),true and correct copies of which have previously been furnished to Parent (the “**Leased Premises**”).

###  

### (c)           Except as set forthin Schedule 4.7(c), each current use of any Owned Premise is incompliance with all applicable laws, including applicable zoning restrictionsand ordinances, variances thereto or conditional use permits of thejurisdictions in which the Owned Property in question is located, health andfire codes and ordinances, and subdivision regulations, except for any suchnon-compliance as would not reasonably be expected to have a Company MaterialAdverse Effect.

###  

### (d)           Except as set forthin Schedule 4.7(d), the buildings and other improvements on or atthe Owned Premises do not encroach on any easements or on any land not includedwithin the boundary lines of such Owned Premises, except for such of theforegoing as would not reasonably be expected to (a) interfere with thecurrent use of the Owned Premises or (b) have a Company Material AdverseEffect.  The current use of the OwnedPremises does not violate or conflict with any covenants, conditions orrestrictions applicable thereto, except for such of the foregoing as would notreasonably be expected to (a) interfere with the current use of the OwnedPremises or (b) have a Company Material Adverse Effect.

###  

### (e)           Neither the Companynor any of its Subsidiaries has received any notice of any pending orthreatened eminent domain, condemnation or similar proceeding affecting any ofthe Owned Premises, or any decree or order relating thereto.

###  

### (f)            The Company andeach of its Subsidiaries has good and valid title to, or in the case ofProperty held by lease or any other contract, commitment, agreement,

 

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### understandingor arrangement, a valid and enforceable right to use, all of their Propertiesfree and clear of all mortgages, liens, security interests, pledges, charges,claims, restrictions or encumbrances of any kind or character (“**Liens**”), except (i) as set forthon Schedule 4.7(f) of the Company Disclosure Schedules, (ii) statutoryliens for current taxes not yet due and payable, (iii) statutory liens foramounts not yet delinquent or which are being contested in good faith; (iv) suchliens and title imperfections that have not had, and are not reasonablyexpected to have, a Company Material Adverse Effect; (v) statutory lienssecuring the claims or demands of materialmen, mechanics, carriers,warehousemen, landlords, and other like persons for labor, materials, supplies,or rentals, if any, to the extent that payment thereof is not in arrears orotherwise due; (vi) liens resulting from deposits made in connection withworkers’ compensation, unemployment insurance, social security and like laws;and (vii) liens of banks and financial institutions with respect to fundson deposit therewith or other property in possession thereof.  The Properties owned, leased or licensed bythe Company and its Subsidiaries constitute all of the material Properties usedin or necessary to conduct the business of the Company and its Subsidiaries asit is presently conducted.

###  

## Section 4.8.          Intellectual Property.  Schedule 4.8 of the CompanyDisclosure Schedules contains a true and complete list of the registeredtrademarks, trade names, servicemarks, logos, copyrights, patents, web sitesand domain names owned or used by the Company or any of its Subsidiaries in itsbusiness and any registrations or applications for registration thereof.  Except as set forth on Schedule 4.8of the Company Disclosure Schedules, the Company and/or its Subsidiaries ownsor possesses adequate licenses or other valid rights to use all of theIntellectual Property used in, or necessary for, the conduct of its businessfree and clear of all Liens.  Except asset forth on Schedule 4.8 of the Company Disclosure Schedules: (a) tothe knowledge of the Company, there is no infringement or misappropriation byothers of any right of the Company or any of its Subsidiaries with respect toits Intellectual Property, (b) neither the Company nor any of itsSubsidiaries has or is infringing upon or misappropriating in any materialrespect upon any Intellectual Property rights of any third party; (c) noproceedings are pending or, to the knowledge of the Company, threatened, and noclaim has been received by the Company or any of its Subsidiaries alleging anysuch infringement or misappropriation;  (d) neitherthe Company nor any of its Subsidiaries has granted any Person any interest, aslicensee or otherwise, in or to any one or more items of the IntellectualProperty of the Company or its Subsidiaries; and (e) no third party hasnotified the Company or any of its Subsidiaries in writing that it is claimingany ownership of, or right to use, any such Intellectual Property.

##  

## Section 4.9.          Employee Benefit Plans.

##  

### (a)           Schedule 4.9(a) ofthe Company Disclosure Schedules lists, with respect to the Company, itsSubsidiaries and any trade or business (whether or not incorporated and whetheror not maintained for the benefit of employees located within or without theUnited States) which is treated as a single employer with the Company or any ofits Subsidiaries (an “**ERISA Affiliate**”)within the meaning of Section 414(b), (c), (m) or (o) of the Code, (i) eachemployee benefit plan (as defined in Section 3(3) of the EmployeeRetirement Income Security Act of 1974, as amended (“**ERISA**”)) (ii) each stock option,stock purchase, phantom stock, stock appreciation right, supplementalretirement, medical, dental, disability or life insurance plans, programs orarrangements, and (iii) each bonus, pension, profit sharing, savings,deferred compensation or incentive plans, severance,

 

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###  

### change-in-controlor fringe benefit plan, programs or arrangements (whether written or unwritten,insured or self-insured), other than schemes mandated by a government orForeign Employee Plan , for the benefit of or relating to any employee orformer employee, director or consultant of the Company, any Subsidiary or withrespect to which the Company or any Subsidiary has or would reasonably beexpected to have any material obligation or liability (contingent or otherwise)(“**Company Employee Plans**”).

###  

### (b)                                 The Company hasdelivered to Parent a copy of each of the Company Employee Plans (including theplan document together with all amendments and, where applicable, any trustagreements and insurance policies, summary plan descriptions and employeehandbooks) and has, with respect to each Company Employee Plan which is subjectto ERISA reporting requirements, provided copies of the most recent Form 5500reports filed, with schedules attached. Except as set forth on Schedule 4.9(b) of the CompanyDisclosure Schedule, any Company Employee Plan intended to be qualified under Section 401(a) ofthe Code has obtained from the Internal Revenue Service a favorabledetermination letter as to its qualified status under the Code.  There is no fact or circumstance that existsthat would reasonably be expected to cause the Internal Revenue Service torevoke such letter, except such defects as may be corrected under Rev. Proc.2003-44 (or any successor ruling or guidance) without material liability to theCompany or to the Company and its Subsidiaries, taken as a whole.

###  

### (c)                                  Except as set forthon Schedule 4.9(c) of the Company Disclosure Schedules:

###  

#### (i)                                     there has beenno “prohibited transaction,” as such term is defined in Section 406 ofERISA and Section 4975 of the Code, with respect to any Company EmployeePlan;

####  

#### (ii)                                  each CompanyEmployee Plan has been administered in material compliance with its terms andthe requirements prescribed by any and all statutes, rules and regulations(including ERISA and the Code) applicable to such Company Employee Plan andnothing has occurred with respect to any Company Employee Plan that hassubjected or would reasonably be expected to subject the Company or any of itsSubsidiaries to a material liability under Section 409 or Section 502of ERISA or Chapter 43 of Subtitle D or Section 6652 of the Code;

####  

#### (iii)                               allcontributions and premium payments required to be made by the Company or any ofits Subsidiaries or any ERISA Affiliate to any Company Employee Plan have beenmade on or before their due dates, and to the extent that contributions,premium payments (including retrospective or retroactive premiums) or benefitspayments are not yet due, all liabilities relating to each Company EmployeePlan have been appropriately accrued in accordance with GAAP;

####  

#### (iv)                              with respect toeach Company Employee Plan, no “reportable event” within the meaning of Section 4043of ERISA (excluding any such event for which the thirty (30) day noticerequirement has been waived under the regulations to Section 4043 of 

 

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#### ERISA)nor any event described in Section 4062, 4063, 4064, 4069 or 4041 of ERISAhas occurred;

####  

#### (v)                                 there are noexisting (or to the knowledge of the Company, threatened) lawsuits, claims or othercontroversies relating to a Company Employee Plan, other than routine claimsfor information or benefits in the normal course and no Company Employee Planis or within the last three years has been the subject of an examination by agovernmental authority or a participant who submitted a written filing in agovernment sponsored amnesty, voluntary compliance or similar program;

####  

#### (vi)                              neither theCompany nor any of its Subsidiaries nor any ERISA Affiliate is a party to, orhas made any contribution to or otherwise incurred any obligation or has anyliability (including by reason of an under funding) with respect to (a) any“multi-employer plan” as defined in Section 3(37) of ERISA, or (b) anyemployee pension benefit plan (within the meaning of Section 3(2) ofERISA) that is subject to Title IV of ERISA; and

####  

#### (vii)                           other than asrequired under Section 601 et seq. of ERISA, no Company employee Planprovides benefits or coverage following retirement or other termination ofemployment to any current or future retiree or terminated employee.

####  

### (d)                                 Each Company EmployeePlan that is a “nonqualified deferred compensation plan” (as defined under Section 409A(d)(1) ofthe Code) has been operated and administered in good faith compliance with Section 409Afrom the period beginning January 1, 2005 through the date hereof and hasnot been materially modified since October 2, 2004.

###  

### (e)                                  With respect to eachscheme or arrangement mandated by a government other than the United States andwith respect to each Company Employee Plan that is subject to the laws of ajurisdiction outside of the United States (a **“ForeignEmployee Plan”**) the fair market value of the assets of eachfunded Foreign Employee Plan, the liability of each insurer for any ForeignEmployee Plan funded through insurance or the book reserve established for anyForeign Employee Plan, together with any accrued contributions, is sufficientto procure or provide for the accrued benefit obligations, as of the date ofthis Agreement, with respect to all current and former participants in suchForeign Employee Plan according to the actuarial assumptions and valuationsmost recently used to determine employer contributions to such Foreign EmployeePlan and no transactions contemplated by this Agreement shall cause such assetsor insurance obligations to be less than such benefit obligations.  Each Foreign Employee Plan has beenmaintained in all material respects in accordance with all applicablerequirements, and if intended to qualify for special tax treatment, meets allrequirements for such treatment.

###  

## Section 4.10.                             Contracts.

##  

### (a)                                  Except as set forthon Schedule 4.10(a) of the Company Disclosure Schedules, as ofthe date hereof:

###  

#### (i)                                     Neither theCompany nor any of its Subsidiaries has employment agreements with its officersor employees (other than setting forth an employment-at will 

 

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#### relationship).  Neither the Company nor any of itsSubsidiaries has any independent contractor or similar agreement, contract orcommitment that is not terminable on sixty (60) days’ notice or less withoutpenalty, liability or premium.  Neitherthe Company nor any of its Subsidiaries is a party to any contract, commitment,agreement, understanding or arrangement that provides for any severance pay orother compensation obligations which become payable by reason of, thisAgreement or the consummation of the transactions contemplated hereby.

####  

#### (ii)                                  Neither theCompany nor any of its Subsidiaries has any collective bargaining or union agreements,with respect to its employees.

####  

#### (iii)                               Neither theCompany nor any of its Subsidiaries is restricted by agreement from competingwith any Person or from carrying on its business anywhere in the world.

####  

#### (iv)                              Neither theCompany nor any of its Subsidiaries has Guaranteed any obligations of other Personsor made any agreements to acquire or Guarantee any obligations of other Persons.

####  

#### (v)                                 Neither theCompany nor any of its Subsidiaries has any outstanding loan or advance inexcess of $100,000 to any Person; nor is it party to any contract or agreementrelating to Indebtedness which would permit the borrowing by the Company or anyof its Subsidiaries of any sum in excess of $1,000,000.

####  

#### (vi)                              Neither theCompany nor any of its Subsidiaries is a party to any partnership, jointventure or other similar contract, commitment, agreement, understanding orarrangement.

####  

#### (vii)                           Neither theCompany nor any of its Subsidiaries is a party to any contract, commitment,agreement, understanding or arrangement for the purchase of materials,supplies, goods, services, equipment or assets (A) providing for annualpayments by the Company and its Subsidiaries of greater than $500,000, (B) providingfor aggregate payments by the Company and its Subsidiaries of greater than $2,500,000,or (C) having a term of greater than one year that is not terminable on 60days’ notice or less without penalty, liability or premium in excess of$250,000.

####  

#### (viii)                        Neither theCompany nor any of its Subsidiaries is a party to any sales, distribution orother similar contract, commitment, agreement, understanding or arrangement forthe sale by the Company or any of its Subsidiaries of materials, supplies,goods, services, equipment or other assets (A) providing for annualpayments to the Company and its Subsidiaries of greater than $500,000, (B) providingfor aggregate payments to the Company and its Subsidiaries of greater than$2,500,000, or (C) having a term of greater than one year that is notterminable on 60 days’ notice or less without penalty, liability or premium inexcess of $250,000.

####  

#### (ix)                                Neither theCompany nor any of its Subsidiaries is a party to any lease for personalproperty (A) providing for annual rentals of greater than $500,000 or (B) havinga term of greater than one year that is not terminable on 60 days’ notice orless without penalty, liability or premium in excess of $250,000.

 

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#### (x)                                   Neither theCompany nor any of its Subsidiaries is a party to any contract, commitment,agreement, understanding or arrangement relating to the acquisition ordisposition of any business (whether by merger, sale of stock, sale of assetsor otherwise).

####  

#### (xi)                                Neither theCompany nor any of its Subsidiaries is a party to any license for the use ofIntellectual Property or similar contract, commitment, agreement, understandingor arrangement.

####  

#### (xii)                             Neither theCompany nor any of its Subsidiaries is a party to any agency, dealer, salesrepresentative, marketing or similar contract, commitment, agreement,understanding or arrangement having a term of greater than one year that is notterminable on 60 days’ notice or less without penalty, liability or premium inexcess of $250,000.

####  

#### (xiii)                          Neither theCompany nor any of its Subsidiaries is a party to any contract, commitment,agreement, understanding or arrangement with any current or former stockholder,officer or director of the Company or any of its Subsidiaries, or any “affiliate”or “associate” of such persons (as such terms are defined in the rules andregulations promulgated under the Securities Act of 1933, as amended) (any ofthe foregoing, a “**Related Party**”).

####  

#### (xiv)                         Neither theCompany nor any of its Subsidiaries has any other material contracts oragreements.

####  

The agreements, documentsand instruments set forth on Schedule 4.10(a) of the CompanyDisclosure Schedules are referred to herein as “**Material Contracts**”. True and correct copies of each document or instrument listed on Schedule 4.10(a) ofthe Company Disclosure Schedules have been provided to Parent.

 

### (b)                                 Except as set forth onSchedule 4.10(b) of the Company Disclosure Schedules, all ofthe Material Contracts are valid, binding, in full force and effect, andenforceable by the Company and/or its Subsidiaries in accordance with theirrespective terms, except (i) to the extent that enforceability may belimited by applicable bankruptcy, reorganization, insolvency, moratorium orother laws affecting the enforcement of creditors’ rights generally and bygeneral principles of equity, regardless of whether such enforceability isconsidered in a proceeding at law or in equity and (ii) for such mattersthat would not reasonably be expected to have a Company Material AdverseEffect.

###  

### (c)                                  Neither the Companynor any of its Subsidiaries is in default under or in breach or violation of,and, to the Company’s knowledge, no event has occurred which with notice orlapse of time or both would constitute such a default, breach or violation of,any provision of any Material Contract that would reasonably be expected tohave a Company Material Adverse Effect. To the Company’s knowledge, no other party is in default under or inbreach or violation of, and, to the Company’s knowledge, no event has occurredwhich with notice or lapse of time or both would constitute such a default,breach or violation of, any provision of any Material Contract that wouldreasonably be expected to have a Company Material Adverse Effect.

###  

## Section 4.11.                             Compliance With Law.  Except as set forth in Schedule 4.11,the Company and each of its Subsidiaries is, and has been since February 28,2004, in compliance 

 

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## withall applicable laws, rules and regulations, except where such failure tocomply has not had, and would not reasonably be expected to have, a CompanyMaterial Adverse Effect.

##  

## Section 4.12.                             Labor Matters.  Except as set forth on Schedule 4.12of the Company Disclosure Schedules, the Company and each of its Subsidiaries isin compliance with all currently applicable laws respecting employment andemployment practices, terms and conditions of employment, and wages and hours,except where such failure to comply will not result in a Company MaterialAdverse Effect.  There is no unfair laborpractice complaint against the Company or any of its Subsidiaries pending or,to the knowledge of the Company, threatened before the National Labor RelationsBoard.  There is no strike, labordispute, lockout, slowdown, or stoppage pending or, to the knowledge of theCompany, threatened against the Company or any of its Subsidiaries.  Except as set forth on Schedule 4.12of the Company Disclosure Schedules, none of the employees of the Company orany of its Subsidiaries is represented by a labor union.  To the knowledge of the Company, no union organizingactivities are taking place with respect to the business of the Company or anyof its Subsidiaries.

##  

## Section 4.13.                             Insurance.  Schedule 4.13 of the CompanyDisclosure Schedules contains a list of the policies of fire, liability andother forms of insurance currently held by the Company and/or its Subsidiaries.  To the knowledge of the Company, except asset forth in Schedule 4.13, there is no claim pending under any ofsuch policies, other than health insurance policies, as to which coverage hasbeen questioned, denied or disputed by the underwriters of such policies.  All premiums payable under all such policieshave been timely paid and the Company and the Subsidiaries are in compliance inall material respects with the terms and conditions of such policies.  Except as set forth on Schedule 4.13of the Company Disclosure Schedules, the Company has no knowledge of anythreatened termination of any of such policies.

##  

## Section 4.14.                             Litigation.  Except as set forth on Schedule 4.14of the Company Disclosure Schedules, there is no action, suit,proceeding, claim, arbitration or, to the Company’s knowledge, investigationpending before any governmental body, agency, arbitrator, court or tribunal,foreign or domestic, or, to the knowledge of the Company, threatened against theCompany or any of its Subsidiaries or any Properties or any of their respectiveofficers or directors (in their capacities as such) that (A) if adverselydetermined, would reasonably be expected to have a Company Material AdverseEffect, (B) if adversely determined, could reasonably be expected toadversely affect the Company’s ability to perform hereunder, or (C) whichseeks to enjoin or obtain damages in respect of the transactions contemplatedhereby.  There is no judgment, decree ororder against the Company or any of its Subsidiaries, or, to the knowledge of theCompany, any of the directors or officers of the Company or any of itsSubsidiaries (in their capacities as such) that would reasonably be expected tohave a Company Material Adverse Effect.

##  

## Section 4.15.                             Governmental Authorizationsand Regulations.  Except asset forth on Schedule 4.15 of the Company Disclosure Schedules, theCompany and each of its Subsidiaries has obtained each federal, state, county,local or foreign governmental consent, license, permit, grant, or otherauthorization of a Governmental Entity (a “**Permit**”)that is required for the operation of its business or the holding of anyinterest in any of its Properties, and all of such Permits are in full force andeffect except where the failure to have such Permit would not reasonably beexpected to have a Company Material Adverse Effect.

 

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## Section 4.16.                             Compliance withEnvironmental Requirements.  Except as set forth on Schedule 4.16of the Company Disclosure Schedules, (i) the Company and each of itsSubsidiaries has obtained all material Permits applicable to the Company andeach of its Subsidiaries and relating to pollution or protection of theenvironment, including laws relating to emissions, discharges or releases ofpollutants, contaminants, or hazardous or toxic materials, substances, orwastes into air, surface water, groundwater, or land, or otherwise relating tothe manufacture, processing, distribution, use, treatment, storage, disposal,transport, or handling of pollutants, contaminants or hazardous or toxicmaterials, substances, or wastes, (ii) the Company and each of itsSubsidiaries is in compliance with all terms and conditions of all such Permits,except where failure to comply would not reasonably be expected to have aCompany Material Adverse Effect, and (iii) there are no conditions,circumstances, activities, practices, incidents, or actions known to theCompany which could reasonably be expected to form the basis of any claim,action, suit, proceeding, hearing, or investigation of, by, against or relatingto the Company or any of its Subsidiaries, based on or related to themanufacture, processing, distribution, use, treatment, storage, disposal,transport, or handling, or the emission, discharge, release or threatenedrelease into the environment, of any pollutant, contaminant, or hazardous ortoxic substance, material or waste, which, if adversely determined, would reasonablybe expected to have a Company Material Adverse Effect.  There has been no Release or threatenedRelease of a Hazardous Substance on, upon, into or from any site currentlyowned, leased or otherwise used by the Company or any Subsidiary or, to Company’sknowledge, any site previously owned, leased or otherwise used by the Companyor any Subsidiary, except as would not have a Company Material Adverse Effect.

##  

## Section 4.17.                             No Brokers.  Except as set forth on Schedule 4.17of the Company Disclosure Schedules, neither the Company nor any of itsSubsidiaries is obligated for the payment of fees or expenses of any broker orfinder in connection with the origin, negotiation or execution of thisAgreement or the other Transaction Documents or in connection with anytransaction contemplated hereby or thereby.

##  

## Section 4.18.                             Inventories.  Except as set forth on Schedule 4.18of the Company Disclosure Schedules, all of the inventories recorded on theMost Recent Balance Sheet consisted of, and all inventories of the Company andits Subsidiaries immediately prior to the Closing will consist of, items usableand saleable for the purposes acquired or created in the ordinary course ofbusiness, net of applicable allowances for obsolete, excessive or damagedinventories.  Since the date of the MostRecent Balance Sheet, the inventories of the Company and its Subsidiaries havebeen maintained in the ordinary course of business consistent with pastpractices and no inventory has been sold or disposed of except through sales inthe ordinary course consistent with past practices.

##  

## Section 4.19.                             Related PartyTransactions.  Except asset forth on Schedule 4.19 of the Company Disclosure Schedules, noRelated Party has served as a consultant, competitor, customer, licensee,distributor, supplier or vendor of the Company or any of its Subsidiaries.  Since February 28, 2004, except as setforth on Schedule 4.19 of the Company Disclosure Schedules, therehave been no transactions or contracts (other than employment arrangements (ie.stock options, bonuses and employments agreements) between the Company or anyof its Subsidiaries, on the one hand, and any Related Party, on the other hand.

 

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## Section 4.20.                             Customers and Vendors.  Except as set forth on Schedule 4.20of the Company Disclosure Schedules, since February 28, 2005, (a) nocustomer with purchases from the Company and its Subsidiaries of more than $2,500,000in either of the last two fiscal years has given a senior executive officer ofthe Company or any of its Subsidiaries notice that such customer (or group ofcustomers) will significantly reduce or terminate the amount of productspurchased from the Company and its Subsidiaries and (b) no significantvendor (or group of vendors which in the aggregate is significant) of theCompany and its Subsidiaries has given a senior executive officer of theCompany or any of its Subsidiaries notice that such vendor (or group ofvendors) will cease to supply or significantly adversely change its price orterms to the Company and its Subsidiaries of any products or services.

##  

## Section 4.21.                             Company SEC Documents.  As of its filing date, (a) each CompanySEC Document complied as to form in all material respects with the applicablerequirements of the Securities Act of 1933, as amended (the “**1933 Act**”), and the Securities Exchange Actof 1934, as amended (the “**1934 Act**”),as the case may be, and (b) each Company SEC Document filed pursuant tothe 1934 Act did not as of the filing date thereof, and each such Company SECDocument filed subsequent to the date hereof will not as of the filing datethereof, contain any untrue statement of a material fact or omit to state anymaterial fact necessary in order to make the statements made therein, in lightof the circumstances under which they were made, not misleading.  Each Company SEC Document that is aregistration statement, as amended or supplemented, if applicable, filedpursuant to the 1933 Act, as of the date such registration statement oramendment became effective, did not contain any untrue statement of a materialfact or omit to state any material fact necessary in order to make thestatements made therein, in light of the circumstances under which they weremade, not misleading.

##  

## Section 4.22.                             Information Supplied to theCompany’s Stockholders.  Theinformation and materials to be supplied by the Company to its stockholders inconnection with the Company Stockholder Approval will comply with therequirements of the DGCL, the Company’s certificate of incorporation and bylawsand all other applicable legal requirements.

##  

## Section 4.23.                             Indebtedness.  As of the date hereof, except as set forth onSchedule 4.23 of the Company Disclosure Schedules, there is noIndebtedness.

##  

# ARTICLE V.REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB

#  

Parent and Merger Subjointly and severally represent and warrant to the Company as follows:

 

## Section 5.1.                                   Organization of Parent andMerger Sub.  Parent is alimited liability company and Merger Sub is a corporation, and each is duly organized,validly existing and in good standing under the laws of its respectivejurisdiction of formation and has all requisite corporate power to own, leaseand operate its property and to carry on its business as now being conductedand is duly qualified or licensed to do business and is in good standing ineach jurisdiction in which the failure to be so qualified or licensed would reasonablybe expected to have a Parent Material Adverse Effect.  For purposes of this Agreement, “**Parent Material**

 

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## **Adverse Effect**” shall mean a materialadverse effect on the business, assets, liabilities, condition (financial orotherwise), property or results of operations of Parent and Merger Sub, takenas a whole, other than any material adverse effect (i) relating to orresulting from the economy in general, (ii) resulting from theannouncement or existence of this Agreement or the transactions contemplatedhereby, (iii) resulting from actions or omissions of Parent or Merger Subtaken with the prior written consent of the other party hereto or consistentwith the terms of this Agreement or the other Transaction Documents, (iv) resultingfrom compliance with this Agreement or the other Transaction Documents, or (v) anychange, event, development, condition or circumstance occurring as a result ofworldwide, national or local conditions or circumstances (political, economic,financial, regulatory or otherwise), including, without limitation, an outbreakor escalation or war, armed hostilities, acts of terrorism, politicalinstability or other national or international calamity, crisis or emergencyoccurring within or outside of the United States.

##  

## Section 5.2.                                   Authority; No Conflict;Required Filings and Consents.

##  

### (a)                                  Each of Parent andMerger Sub has all requisite corporate power and authority to enter into thisAgreement and the other Transaction Documents to which it is or will become aparty and to consummate the transactions contemplated by this Agreement andsuch Transaction Documents.  Theexecution and delivery of this Agreement and such Transaction Documents and theconsummation of the transactions contemplated by this Agreement and suchTransaction Documents have been duly authorized by all necessary corporate actionon the part of Parent and Merger Sub. This Agreement has been and such Transaction Documents have been or, tothe extent not executed as of the date hereof, will be duly executed anddelivered by Parent and Merger Sub.  ThisAgreement and each of the Transaction Documents to which Parent and/or MergerSub is a party constitutes, and each of the Transaction Documents to whichParent and/or Merger Sub will become a party when executed and delivered byParent and/or Merger Sub will constitute, assuming the due authorization,execution and delivery by the other parties hereto and thereto, a valid andbinding obligation of Parent and/or Merger Sub, enforceable by the Companyagainst Parent or Merger Sub, as the case may be, in accordance with theirrespective terms, except to the extent that enforceability may be limited byapplicable bankruptcy, reorganization, insolvency, moratorium or other lawsaffecting the enforcement of creditors’ rights generally and by generalprinciples of equity, regardless of whether such enforceability is consideredin a proceeding at law or equity.

###  

### (b)                                 The execution anddelivery by Parent or Merger Sub of this Agreement and the TransactionDocuments to which it is or will become a party does not, and consummation ofthe transactions contemplated by this Agreement or the Transaction Documents towhich it is or will become a party will not, (i) conflict with, or resultin any material violation or breach of any provision of the governing documentsof Parent and/or Merger Sub, (ii) violate any law, rule or regulationapplicable to Parent and/or Merger Sub, except as would not reasonably beexpected to have a Parent Material Adverse Effect, or (iii) conflict withor result in a breach of, or give rise to a right of termination of, or acceleratethe performance required by the terms of any judgment, court order or consentdecree, or any material agreement to which Parent or Merger Sub is party orconstitute a 

 

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### default thereunder, except in each case as would not reasonably beexpected to have a Parent Material Adverse Effect.

###  

### (c)                                  None of the executionand delivery of this Agreement by Parent or Merger Sub or the other TransactionDocuments to which Parent and/or Merger Sub is a party or the consummation ofthe transactions contemplated hereby or thereby will require any consent,approval, order or authorization of, or registration, declaration or filingwith, any Governmental Entity, except for (i) the filing of theCertificate of Merger with the Delaware Secretary of State,****(ii) such consents, approvals,orders, authorizations, registrations, declarations and filings as may berequired under applicable federal and state securities laws and the laws of anyforeign country, (iii) such filings as may be required under the HSR Act, and(iv) those where the failure to obtain or make, as applicable, suchconsent, approval, order or authorization of, or registration, declaration orfiling would not reasonably be expected to have a Parent Material AdverseEffect.

###  

## Section 5.3.                                   Capital Resources.  Subject to the satisfaction of the closingcondition set forth in **Section 9.2(f)**,Parent and Merger Sub will have prior to the Effective Time sufficient cash available,lines of credit or other resources to pay the Merger Consideration and to repaythe Indebtedness as well as all associated fees, costs and expenses.

##  

## Section 5.4.                                   Litigation.  There is no suit, claim, action, proceeding orarbitration pending or, to Parent’s knowledge, threatened against Parent andMerger Sub (a) which, if adversely determined, could reasonably be expectedto adversely affect Parent’s or Merger Sub’s ability to perform hereunder, or (b) whichseeks to enjoin or obtain damages in respect of the transactions contemplatedhereby.

##  

## Section 5.5.                                   No Brokers.  Neither Parent nor Merger Sub is obligatedfor the payment of fees or expenses of any broker or finder in connection withthe origin, negotiation or execution of this Agreement or the other TransactionDocuments or in connection with any transaction contemplated hereby or thereby.

##  

## Section 5.6.                                   Parents Assets andLiabilities.  Parent indirectlyowns all of the membership interests of Thilmany, LLC, a Delaware limitedliability company (formerly known as TIPB Acquisition, LLC (**“Thilmany”**), free and clear of anyLien and free and clear of any other limitation or restriction (including anyrestriction on the right to vote, sell or otherwise dispose of such membershipinterests), other than (i) restrictions on transfer imposed by applicablesecurities laws, (ii) as set forth in the respective limited liabilitycompany agreements of Parent, KIPB Holdings, LLC and Thilmany, and (iii) Liensgranted to Thilmany’s senior lenders.  Thilmanyowns substantially all of the assets acquired pursuant to the PurchaseAgreement, dated as of March 14, 2005, as amended, by and betweenInternational Paper Company and Thilmany, except for assets disposed of in theordinary course of business.  Parent hasno material debt, liabilities, or obligations of any nature, other thanpursuant to this Agreement and the Transaction Documents.

##  

## Section 5.7.                                   Ownership ofMerger Sub.  Parent isthe record owner of all of the capital stock of Merger Sub free and clear ofany Lien and free and clear of any other limitation or 

 

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## restriction(including any restriction on the right to vote, sell or otherwise dispose ofsuch capital stock).

##  

# ARTICLE VI.PRE-CLOSING COVENANTS OF THE COMPANY

#  

## Section 6.1.                                   Approval of CompanyStockholders.  Immediatelyfollowing the execution of this Agreement, the Company shall deliver to Parentthe following materials (collectively, the **“ConsentMaterials”)**:  (i) withrespect to each of the stockholders of the Company identified on Schedule 6.1of the Disclosure Schedules (the **“ConsentingStockholders”**), a written consent (the **“Stockholder Approval”**) solely inhis, her or its capacity as the holder of all of such Consenting Stockholder’soutstanding shares of Company Common Stock, in favor of approving the Mergerunder the provisions of the DGCL and the Company’s certificate of incorporationand bylaws, and (ii) a certificate executed on behalf of the Company byits Secretary and certifying that the Stockholder Approval has been obtained inaccordance with the DGCL and the Company’s certificate of incorporation andbylaws.

##  

## Section 6.2.                                   Conduct of BusinessPrior to the Effective Time.  Except (i) as expressly contemplated bythis Agreement, (ii) as described in Schedule 6.2 of theCompany Disclosure Schedules, or (iii) to the extent that Parent shallotherwise consent in writing (such consent or declination to consent not to beunreasonably delayed or withheld), during the period from the date hereof tothe earlier of the Effective Time and the termination of this Agreement inaccordance with its terms, the Company shall and shall cause each of itsSubsidiaries to conduct its operations in the ordinary course of business consistentwith past practices and use commercially reasonable efforts to preserve intact itscurrent business organizations, keep available the service of its currentofficers and employees and preserve its relationships with customers,suppliers, distributors, lessors, creditors, employees, contractors and othershaving business dealings with it. Without limiting the generality of the foregoing, except as otherwiseexpressly provided in this Agreement and except as described in Schedule 6.2of the Company Disclosure Schedules, between the date hereof and the EffectiveTime, the Company shall not and shall cause its Subsidiaries not to, withoutthe prior written consent (such consent or declination to consent not to beunreasonably delayed or withheld) of Parent:

##  

(a)                                  authorizeor propose any amendments to its certificate of incorporation or bylaws (orother similar governing instrument);

 

(b)                                 declareor pay any dividends on or make any other distributions (whether in cash, stockor property) in respect of any of its capital stock (or other ownership interests),or split, combine or reclassify any of its capital stock (or other ownership interests);

 

(c)                                  issue,sell or grant any shares of its capital stock (or other ownership interests) orsecurities convertible into shares of its capital stock (or other interests),or subscriptions, rights, warrants or options to acquire, or other agreementsor commitments of any character obligating it to issue any such shares (orother ownership interests) or other convertible securities, other than theissuance of shares of Company Common Stock issuable upon exercise ofCompany Options or Company Warrants;

 

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(d)                                 acquireor agree to acquire by merging or consolidating with, or by purchasing anequity interest in or portion of the assets of, or by any other manner, anybusiness or any corporation, partnership or other business organization ordivision;

 

(e)                                  otherthan Indebtedness existing on the date hereof, (1) incur or assume anyIndebtedness in excess of $500,000, other than in the ordinary course ofbusiness consistent with past practices; or (2) assume, Guarantee orotherwise become liable or responsible for (directly, contingently orotherwise) the obligations of any other Person in amounts in excess of$250,000, other than in the ordinary course of business consistent with pastpractices;

 

(f)                                    exceptin the ordinary course of business with respect to any employee (other than anyofficer or director), or as may be required by applicable law or by anyapplicable agreement or instrument existing on the date hereof, (1) enterinto, adopt, amend or terminate any employment agreement or any bonus paymentswith any employee, officer or director of the Company, or (2) enter into,adopt, amend or terminate any pension, retirement, health, life, or disabilityinsurance, severance, profit sharing, bonus compensation, termination, stockoption, stock appreciation right, restricted stock, employee benefit plan,agreement, trust, fund or other arrangement for the benefit or welfare of anydirector, officer or employee in any manner;

 

(g)                                 (i) exceptas permitted by clause (i)(iii) below, purchase, acquire or lease anymaterial assets other than in the ordinary course of business; or (ii) sell,lease, license, transfer or otherwise dispose of any material Properties otherthan in the ordinary course of business.

 

(h)                                 exceptas may be required as a result of a change in law or in GAAP, make or changeany Tax election or change any of the accounting or Tax principles, practicesor methods used by it;

 

(i)                                     (i) enterinto any contract or agreement that would be material to the Company and itsSubsidiaries, taken as a whole, other than contracts or agreements in theordinary course of business; (ii) amend, modify or waive any materialright under any Material Contract other than in the ordinary course; or (iii) makeor authorize any capital expenditure in excess of $500,000 per expenditure or $5,000,000in the aggregate, other than in accordance with the Company’s fiscal year 2006capital expenditures budget as approved by the Company’s board; or

 

(j)                                     agree,commit to do, or otherwise take any of the actions described in **Sections 6.2(a) **through **6.2(i)**.

 

Other than the right to consent or withhold consent with respect to theforegoing matters, nothing contained herein shall give Parent any right tomanage, control, direct or be involved in the management of the business of theCompany and its Subsidiaries prior to the Closing.

 

## Section 6.3.                                   Access to Information.  Until the Closing, the Company shall andshall cause its Subsidiaries to allow Parent and its agents, advisors, lendersand representatives 

 

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## reasonableaccess during normal business hours upon reasonable notice to the books,records, representatives, officers, employees, agents, Properties and officesof the Company and its Subsidiaries.  Allsuch access shall be subject to the terms of the Confidentiality Agreement.

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## Section 6.4.                                   Satisfaction of ConditionsPrecedent.  The Companywill and will cause each of its Subsidiaries to use its commercially reasonableefforts to satisfy or cause to be satisfied all the conditions precedent whichare set forth in **Sections 9.1**and **9.2**, and the Company will and will causeeach of its Subsidiaries to use its commercially reasonable efforts to causethe transactions contemplated by this Agreement to be consummated, and, withoutlimiting the generality of the foregoing, to obtain all consents andauthorizations of third parties and to make all filings with, and give allnotices to, third parties which may be necessary or reasonably required on itspart in order to effect the transactions contemplated by this Agreement.

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## Section 6.5.                                   No Solicitation.

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### (a)                                  From the date hereofuntil the termination of this Agreement pursuant to **Section 10.1**, except to the extent required to bedisclosed in Company SEC Documents, the Company will not, and will not permitor cause any of its Affiliates, officers, directors, employees, investmentbankers, consultants and other agents to, directly or indirectly, take anyaction to solicit, initiate, encourage or facilitate the making of anyAcquisition Proposal (as defined below) or any inquiry with respect thereto orengage in discussions or negotiations with any Person with respect thereto, ordisclose any nonpublic information relating to the Company or any of itsSubsidiaries (including this Agreement) or afford access to the Properties,books or records of the Company or any of its Subsidiaries to, or otherwiseassist or participate in or facilitate in any other manner any effort orattempt by any Person that has made or, to the knowledge of the Company, iscontemplating making any Acquisition Proposal. The Company will, and will cause the other Persons listed in the firstsentence of this**Section 6.5**to, immediately cease and cause to be terminated all existing activities discussionsand negotiations, if any, that have taken place prior to the date hereof withany parties with respect to any Acquisition Proposal.

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### (b)                                 Notwithstanding theforegoing, nothing contained in this **Section 6.5**shall prevent the Company from entering into discussions or negotiations withany Person in connection with a bona fide Acquisition Proposal received fromsuch Person that the board of directors of the Company determines in good faithcould lead to a Superior Proposal (as defined below). ** **TheCompany will notify (which notice shall be provided orally and in writing)Parent of the receipt of any Acquisition Proposal, but in no event withinforty-eight (48) hours after receipt of an Acquisition Proposal.  If the board of directors of the Companyshall determine that an Acquisition Proposal is a Superior Proposal, theCompany shall notify Parent in writing of such determination.  In the event that the Company receives an AcquisitionProposal and the board of directors of the Company determines in good faiththat it has a fiduciary duty to withdraw its recommendation that the stockholdersof the Company approve the Merger and the transactions contemplated hereby,nothing herein shall restrict or prevent the board of directors fromwithdrawing such recommendation.  Theprovisions of this **Section 6.5(b) **shallterminate upon the receipt of the requisite stockholder approval of thisAgreement and the Merger.

 

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### (c)                                  For purposes of thisAgreement, “**Acquisition Proposal**”means any bona fide offer or proposal for, or any indication of interest in, amerger or other business combination involving the Company, the acquisition ofa majority of the equity in, or all or substantially all of the assets of, theCompany, in one transaction or series of related transactions, in each caseother than the transactions contemplated by this Agreement.  For purposes of this Agreement, “**Superior Proposal**” means any bona fideAcquisition Proposal on terms that the board of directors of the Companydetermines in its good faith judgment are more favorable to the Company’sstockholders than this Agreement and the Merger taken as a whole.

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## Section 6.6.                                   Cooperation with ThilmanyAcquisition Financing and Business Combination.  At the sole cost and expense of Parent andsubject to any restrictions set forth in applicable laws, the Company agrees toprovide, and shall cause its Subsidiaries and its and their representatives toprovide, on a timely basis all reasonable cooperation in connection with (a) thecombination (whether by merger, stock purchase or otherwise) of the business ofThilmany with the businesses of the Company and the Subsidiaries, as may bereasonably requested by Parent, and (b) the arrangement of financing forthe acquisition (whether by merger, stock purchase or otherwise) by the Companyof Thilmany and the combination (whether by merger, stock purchase orotherwise) of the business of Thilmany with the businesses of the Company andthe Subsidiaries, as may be reasonably requested by Parent, including (i) participationin meetings, drafting sessions, due diligence sessions and roadshowpresentations, (ii) furnishing Parent and financing sources with financialand other pertinent information regarding the Company as may be reasonablyrequested by Parent, (iii) assisting Parent and financing sources in thepreparation of (A) offering documents for debt financing (which isexpected to include a new senior secured credit facility and additional notesof Cellu Tissue Holdings, Inc.) and (B) materials for rating agencypresentations, including a certificate of the chief financial officer of theCompany or any Subsidiary with respect to solvency matters, comfort letters ofaccountants, consents of accountants for use of their reports, customary legalopinions, surveys and title insurance, and (iv) solicitation of consentsfrom the holders of the existing senior secured notes of Cellu Tissue Holdings, Inc.in connection with the financing for the acquisition and entering intoagreements with a solicitation and information agent recommended by Parent (andreasonably acceptable to the Company); provided, however, that the Company, itsSubsidiaries and their representatives shall not be obligated to incuradditional liability with respect to such cooperation.  All such costs and expenses incurred by anyof the Company, its Subsidiaries and their representatives shall not beincluded in Company Transaction Expenses. If the Merger is consummated, Parent shall reimburse the Former CompanyStockholders at the Effective Time for any of such costs and expenses paid bythe Company prior to the Effective Time. If this Agreement is terminated pursuant to **Article X**, Parent shall reimburse the Company upon suchtermination.  The Company agrees thatParent will have sole discretion over the terms, conditions and structure ofthe debt financing referred to above.

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## Section 6.7.                                   Information .  Between the date hereof and the EffectiveTime, the Company shall, and shall cause its Subsidiaries to, promptly provideto Parent all communications, known to the Company, relating to unionizingefforts or elections at any of its facilities, including, without limitation,any notices of unfair labor practices and any and all communications toemployees of the Company with respect to such unionizing efforts or elections.

 

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# ARTICLE VII.PRE-CLOSING AND OTHER COVENANTS OF PARENT AND MERGERSUB

#  

## Section 7.1.                                   Satisfaction of ConditionsPrecedent.  Parent andMerger Sub will use their commercially reasonable efforts to satisfy or causeto be satisfied all the conditions precedent that are set forth in **Sections 9.1** and **9.3**, and Parent and Merger Sub will use their commercially reasonableefforts to cause the transactions contemplated by this Agreement to beconsummated, and, without limiting the generality of the foregoing, to obtain thefinancing referred to in **Section 9.2(f)**,all consents and authorizations of third parties and to make all filings with,and give all notices to, third parties which may be necessary or reasonablyrequired on its part in order to effect the transactions contemplated by thisAgreement.  Prior to the effective time, Parentwill continue to indirectly or directly own all of the membership interests in Thilmanyand will not otherwise encumber such interests. Prior to the Effective Time, Parent will cause Thilmany to retain substantiallyall of its assets.

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## Section 7.2.                                   Certain EmployeeBenefit Matters.  Eachemployee of the Company and its Subsidiaries that becomes a participant in anyemployee benefit plan, program, policy or arrangement of the SurvivingCorporation or Parent, shall be given credit for all service prior to theEffective Time with the Company and any waiting period for participation shallbe waived.

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# ARTICLE VIII.OTHER AGREEMENTS

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## Section 8.1.                                   Confidentiality.  Each party acknowledges that Parent and theCompany have previously executed a Non-Disclosure Agreement (the “**Confidentiality Agreement**”), whichagreement shall continue in full force and effect in accordance with its terms.

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## Section 8.2.                                   No Public Announcement.  Except to the extent required to be disclosedin Company SEC Filings, until the Closing, the parties hereto shall make nopublic announcement concerning this Agreement, their discussions or any othermemoranda, letters or agreements between the parties relating to the Merger; provided,however, that (A) any of the parties, but only after reasonableconsultation with the other, may make disclosure if required under applicablelaw and (B) this **Section 8.2**shall not prohibit any disclosure by Parent or Merger Sub to their respectivelenders or investors.  The Company shalluse commercially reasonable efforts to reasonably consult with Parent prior to makingdisclosures relating to the Merger in Company SEC filings.

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## Section 8.3.                                   Regulatory Filings;Consents; Reasonable Efforts.

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### (a)                                  Subject to the termsand conditions of this Agreement, the Company and Parent shall use theirrespective commercially reasonable efforts to (i) make as soon aspracticable after the date hereof all necessary filings with respect to theMerger and this Agreement and obtain required approvals and clearances with respectthereto and supply all additional information requested in connectiontherewith; (ii) make as soon as practicable after the date hereof mergernotification or other appropriate filings with federal, state or 

 

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### local governmental bodies or applicable foreign governmental agenciesand obtain required approvals and clearances with respect thereto, includingwithout limitation notices required under the Antitrust Laws (as defined below)and supply all additional information requested in connection therewith; (iii) obtainas soon as practicable after the date hereof all consents, waivers, approvals,authorizations and orders required in connection with the authorization,execution and delivery of this Agreement and the consummation of the Merger,including those required under the HSR Act; and (iv) take, or cause to betaken, all appropriate action, and do, or cause to be done, all thingsnecessary, proper or advisable to consummate and make effective the transactionscontemplated by this Agreement as promptly as practicable.

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### (b)                                 Each of Parent and theCompany shall use all commercially reasonable efforts to resolve suchobjections, if any, as may be asserted by any Governmental Entity with respectto the transactions contemplated by this Agreement under the HSR Act, theSherman Antitrust Act, as amended, the Clayton Antitrust Act, as amended, theFederal Trade Commission Act, as amended, and any other federal, state orforeign statutes, rules, regulations, orders or decrees that are designed toprohibit, restrict or regulate actions having the purpose or effect ofmonopolization or restraint of trade (collectively, “**Antitrust Laws**”).  In connection therewith, if anyadministrative or judicial action or proceeding is instituted (or, to Parent’sor the Company’s knowledge, threatened to be instituted) challenging anytransaction contemplated by this Agreement as violative of any Antitrust Law,each of Parent and the Company shall cooperate and use all commercially reasonableefforts to contest and resist any such action or proceeding and to havevacated, lifted, reversed, or overturned any decree, judgment, injunction orother order, whether temporary, preliminary or permanent (each an “**Order**”), that is in effect and thatprohibits, prevents, or restricts consummation of the Merger or any such othertransactions, unless by mutual agreement Parent and the Company decide thatlitigation is not in their respective best interests. The parties hereto willconsult and cooperate with one another, and consider in good faith the views ofone another, in connection with any analyses, appearances, presentations,memoranda, briefs, arguments, opinions and proposals made or submitted by or onbehalf of any party hereto in connection with proceedings under or relating toany Antitrust Laws.  Each of Parent and theCompany shall use all commercially reasonable efforts to take such action asmay be required to cause the expiration of the waiting periods under the HSRAct or other Antitrust Laws with respect to such transactions as promptly aspossible after the execution of this Agreement. Nothing contained herein shall be deemed to require Parent or any of itsAffiliates to take or agree to take any Action of Divestiture (as definedbelow).  For purposes of this Agreement,an “**Action of Divestiture**” means (i) thesale, license or other disposition or holding separate (through theestablishment of a trust or otherwise) of any assets or categories of assets ofParent or any of its Affiliates or, following the Effective Time, any assets orcategories of assets of the Surviving Corporation or any of its Subsidiaries, (ii) theimposition of any limitation or regulation on the ability of Parent or any ofits Affiliates to operate, directly or indirectly, their business, the businessof their Subsidiaries or, following the Effective Time, the business of theSurviving Corporation or any of its Subsidiaries or (iii) the impositionof any limitation or regulation on Parent’s or any of its Affiliates’ ownershipor control, direct or indirect, of their Subsidiaries or, following theEffective Time, the Surviving Corporation or any of its Subsidiaries.

 

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### (c)                                  From the date of thisAgreement until the earlier of the Effective Time or the termination of thisAgreement, each party shall promptly notify the other party of any pending or,to the knowledge of such party, threatened action, proceeding or investigationby any Governmental Entity or any other Person (i) challenging or seekingmaterial damages in connection with this Agreement or the transactionscontemplated hereunder or (ii) seeking to restrain or prohibit theconsummation of the Merger or the transactions contemplated hereunder orotherwise require an Action of Divestiture.

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## Section 8.4.                                   Further Assurances.  Prior to and following the Closing, eachparty hereto agrees to cooperate fully with the other parties and to executesuch further instruments, documents and agreements and to give such furtherwritten assurances, as may be reasonably requested by any other party to betterevidence and reflect the transactions described herein and contemplated herebyand to carry into effect the intents and purposes of this Agreement.

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## Section 8.5.                                   Director and OfficerLiability.  TheSurviving Corporation shall indemnify and hold harmless the present and formerofficers, directors, employees and agents of the Company (collectively, “**Company Indemnitees**”) in respect ofacts and omissions occurring on or prior to the Effective Time to the extentrequired by the Company’s certificate of incorporation and bylaws in effect onthe date hereof or under any indemnification agreement between such Person andthe Company in effect on the date hereof; provided, however, that none of theSurviving Corporation or its Affiliates shall be required to indemnify and holdharmless any Company Indemnitee in respect of any claim brought by a ParentIndemnified Party against the Former Company Stockholders pursuant to the termsof this Agreement.

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## Section 8.6.                                   East Hartford Facility.  The Former Company Stockholders shall pay, ona several basis (but not joint), all reasonable third-party costs, fees andexpenses incurred in connection with obtaining the Environmental Land Use Restrictionat the Company’s East Hartford facility.

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# ARTICLE IX.CONDITIONS TO MERGER

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## Section 9.1.                                   Conditions to Each Party’sObligation to Effect the Merger.  The respective obligations of each party tothis Agreement to effect the Merger shall be subject to the satisfaction priorto the Closing Date of the following conditions:

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### (a)                                  StockholderApproval.  The Stockholder Approvalshall have been obtained in accordance with DGCL and the Company’s certificateof incorporation and bylaws.

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### (b)                                 Approvals.  All authorizations, consents, orders orapprovals of, or declarations or filings with, or expirations of waitingperiods (and any extensions thereof) imposed by, any Governmental Entity orthird party, set forth on Schedule 9.1(b) of the DisclosureSchedules, shall have been filed, occurred or been obtained (and shall not havebeen revoked).

 

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### (c)                                  No Injunctions orRestraints; Illegality.  No temporaryrestraining order, preliminary or permanent injunction or other order orjudgment issued by any court of competent jurisdiction preventing orrestricting the consummation of the Merger shall have been issued; nor shallany suit, action, or other proceeding by any Governmental Entity have beeninstituted that seeks an Action of Divestiture; nor shall there be any actiontaken, or any statute, law, rule, regulation or order enacted, entered,enforced or deemed applicable to the Merger which makes the consummation of theMerger illegal.

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## Section 9.2.                                   Additional Conditions toObligations of Parent and Merger Sub.  The obligations of Parent and Merger Sub toeffect the Merger are subject to the satisfaction of each of the followingconditions, any of which may be waived in writing exclusively by Parent:

##  

### (a)                                  Performance ofObligations of the Company.  TheCompany shall have performed in all material respects all obligations requiredto be performed by it under this Agreement at or prior to the Closing Date; andParent shall have received a certificate signed on behalf of the Company by thechief executive officer of the Company to such effect.

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### (b)                                 Representations andWarranties.  The Company’srepresentations and warranties in this Agreement must be true and correct inall material  respects (exceptrepresentations which, as written, are already qualified by materiality, inwhich case such representations and warranties shall be true and correct in allrespects) as of the date of this Agreement, and, except to the extent suchrepresentations and warranties speak as of an earlier date, as of the EffectiveTime as if made at the Effective Time and Parent shall have received acertificate signed on behalf of the Company by the chief executive officer ofthe Company to that effect.

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### (c)                                  Opinion of Company’sCounsel.  Parent shall have receivedan opinion dated the Closing Date of Proskauer Rose LLP, counsel to the Company,as to the matters set forth in the form attached hereto as **Exhibit 9.2(c)**.  Such opinion shall, at the request of Parent,be confirmed to any Person providing financing in connection with thetransactions contemplated hereby.

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### (d)                                 Escrow Agreement.  Former Company Stockholders’ Agent, theEscrow Agent and the Company shall have executed and delivered the EscrowAgreement and the Working Capital Escrow Agreement.

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### (e)                                  Certificate ofMerger.  The Company shall haveexecuted and delivered the Certificate of Merger.

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### (f)                                    Financing.Parent and Merger Sub shall have obtained, on terms and conditions reasonablysatisfactory to them, debt financing and the proceeds thereof in amounts(together with the equity to be provided by Parent) sufficient, to fund thetransaction contemplated by this Agreement.

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### (g)                                 Termination ofCertain Agreements.  The agreementslisted on Schedule 9.2(g) of the Disclosure Schedules shall havebeen terminated in all respects 

 

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### pursuant to instruments reasonably satisfactory to Parent and withoutany obligations or liabilities thereunder on the part of the Company and itsSubsidiaries.

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### (h)                                 Repayment ofPre-Closing Indebtedness.  AllIndebtedness listed on Schedule 9.2(h) of the DisclosureSchedules shall be repayable in full at the Effective Time and the Company shallhave obtained and delivered, or caused to be obtained and delivered to Parentupon such repayment, documentation reasonably satisfactory to Parent evidencingsuch repayment and the termination of all Liens on any Properties securing suchIndebtedness.

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### (i)                                     Resignations.  Parent shall have received the writtenresignations, effective as of the Effective Time, of each director of theCompany and its Subsidiaries, other than those whom Parent shall have specifiedin writing at least two Business Days prior to the Closing Date.

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### (j)                                     DissentingShares.  Holders of no more than 10%of the Company Common Stock shall have exercised any appraisal or dissenters’rights pursuant to the DGCL.

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### (k)                                  FIRPTA Certificate.  The Company shall have delivered to Parent acertification conforming to the requirements of Treasury Regulations 1.1445-2(c)(3) and1.897-2(h).

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### (l)                                     General.  All corporate and other proceedings of theCompany in connection with the Merger and the other transactions contemplatedhereby and all documents incident thereto shall be reasonably satisfactory inform and substance to Parent and its counsel, and they shall have received allsuch counterpart original and certified or other copies of such documents asthey may reasonably request.

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### (m)                               IndemnificationAgreements.  Each Former CompanyStockholder shall have executed the indemnification agreement, in the formattached hereto as **Exhibit 9.2(m)**(the **“Former Company StockholdersIndemnification Agreement”**).

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## Section 9.3.                                   Additional Conditions toObligations of the Company.  The obligation of the Company to effect theMerger is subject to the satisfaction of each of the following conditions, anyof which may be waived, in writing, exclusively by the Company:

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### (a)                                  Performance ofObligations of Parent and Merger Sub. Parent and Merger Sub shall have performed in all material respects allobligations required to be performed by them under this Agreement at or priorto the Closing Date; and the Company shall have received a certificate signedon behalf of Parent by the chief executive officer of Parent to such effect.

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### (b)                                 Representations andWarranties.  Parent and Merger Sub’srepresentations and warranties in this Agreement must be true and correct inall material  respects (exceptrepresentations which, as written, are already qualified by materiality, inwhich case such representations and warranties shall be true and correct in allrespects) as of 

 

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### the date of this Agreement, and, except to the extent suchrepresentations and warranties speak as of an earlier date, as of the EffectiveTime as if made at the Effective Time.

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### (c)                                  Merger Consideration.  Parent shall have wired the Merger Consideration(less the Escrow Amount and the Working Capital Escrow Amount and the portionof the Merger Consideration allocable to the Rollover Shares) to the PayingAgent, and the Escrow Amount and the Working Capital Escrow Amount to theEscrow Agent.

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### (d)                                 Opinion of Parent’sCounsel.  The Company shall havereceived an opinion dated the Closing Date of Ropes & Gray LLP,counsel to Parent and Merger Sub, as to the matters set forth in the formattached hereto as **Exhibit 9.3(d)**.

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### (e)                                  Certificate ofMerger.  Parent and Merger Sub shallhave executed and delivered the Certificate of Merger.

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### (f)                                    Escrow Agreement.  Parent and the Escrow Agent shall haveexecuted and delivered the Escrow Agreement and the Working Capital EscrowAgreement.

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### (g)                                 General.  All corporate and other proceedings of Parentand Merger Sub in connection with the Merger and the other transactionscontemplated hereby and all documents incident thereto shall be reasonablysatisfactory in form and substance to the Company and its counsel, and theyshall have received all such counterpart original and certified or other copiesof such documents as they may reasonably request.

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# ARTICLE X.TERMINATION AND AMENDMENT

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## Section 10.1.                             Termination.  This Agreement may be terminated at any timeprior to the Effective Time:

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### (a)                                  by mutual writtenconsent of Parent and the Company;

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### (b)                                 by either Parent or theCompany, by giving written notice to the other party, if (i) a court ofcompetent jurisdiction or other Governmental Entity shall have issued anonappealable final order, decree or ruling having the effect of permanentlyrestraining, enjoining or otherwise prohibiting the Merger or (ii) therebe any statute, law, rule, regulation or order enacted, enforced or deemedapplicable to the Merger which makes the consummation of the Merger illegal;

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### (c)                                  by Parent, by givingwritten notice to the Company, if the Closing shall not have occurred on or beforeOctober 15, 2005 (or such later date as the parties may mutually agree) byreason of the failure of any condition precedent under **Section 9.1** or **9.2** (unless the failure results primarilyfrom a breach by Parent or Merger Sub of any representation, warranty, orcovenant of Parent or Merger Sub contained in this Agreement or Parent’s orMerger Sub’s failure to fulfill a condition precedent to closing or otherdefault 

 

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### or acts or omissions to act by Parent or Merger Sub that has the effectof delaying the Closing Date);

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### (d)                                 by the Company, bygiving written notice to Parent, if the Closing shall not have occurred on orbefore October 15, 2005 (or such later date as the parties may mutuallyagree) by reason of the failure of any condition precedent under **Section 9.1**or **9.3** (unless the failure results primarilyfrom a breach by the Company of any representation, warranty, or covenant of theCompany contained in this Agreement or the Company’s failure to fulfill acondition precedent to closing or other default or acts or omissions to act by theCompany that has the effect of delaying the Closing Date); and

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### (e)                                  by the Company if itsBoard of Directors has authorized the Company to enter into a definitive agreementwith respect to a Superior Proposal and the Company has notified Parent inwriting that it intends to enter into such an agreement.

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## Section 10.2.                             Effect of Termination.  In the event of termination of this Agreementas provided in **Section 10.1**,this Agreement shall immediately become void and there shall be no liability orobligation on the part of Parent, the Company, Merger Sub or their respectiveofficers, directors, stockholders or Affiliates, except as set forth in this **Section 10.2** and **Sections 8.2, 10.3 and 12.6** andfurther except to the extent that such termination results from the willfulbreach by any such party of any of its representations, warranties or covenantsset forth in this Agreement.

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## Section 10.3.                             Fees and Expenses.  Except as set forth in this **Section 10.3**and subject to (i) theprovision regarding the Company Transaction Expenses in **Section 3.1**and (ii) theprovision regarding the reimbursement by Parent in **Section 6.6**, all fees and expenses incurred in connectionwith this Agreement and the transactions contemplated hereby shall be paid bythe party incurring such fees and expenses, whether or not the Merger isconsummated (it being understood that if the transaction is consummated,Company Transaction Expenses not actually paid prior to the Effective Time willadjust the Merger Consideration in accordance with Section 3.1).  In addition, Parent shall be required to pay filingfees payable under the HSR Act.

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# ARTICLE XI.INDEMNIFICATION

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## Section 11.1.                             Indemnification of Parent.  From and after the Effective Time and subjectto the limitations contained in this **Article XI**,the Former Company Stockholders will indemnify, on a several (and not joint)basis, Parent, Merger Sub, the Surviving Corporation and their respectiveofficers, directors, employees and Affiliates (collectively, the “**Parent****Indemnified Parties**”) and hold the Parent IndemnifiedParties harmless against any loss, expense, liability or other damage,including court costs and attorneys’ fees, to the extent of the actual amountof such loss, expense, liability or other damage (without regard to the use ofany multiplier) (collectively “**Damages**”)that the Parent Indemnified Parties have incurred by reason of (i) the inaccuracyor breach by the Company of any representation or warranty of the Companycontained in **Article IV**of thisAgreement or in the certificate delivered pursuant to Section 9.2(b) ofthis Agreement (in each case, as such representation or warranty would read if 

 

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## allqualifications as to materiality, including each reference to the defined term “CompanyMaterial Adverse Effect,” were deleted therefrom), or (ii) any of thematters set forth on Schedule 4.16 of the Company Disclosure Schedules.  All such calculations of Damages shall takeinto account any offset benefits or insurance proceeds received in connectionwith the matter out of which such Damages shall arise net of any premiumincreases directly resulting therefrom and shall take into account any refund,credit or actual reduction in Taxes realized by the Parent Indemnified Partiesas a result of such Damages (including any such Tax benefit realized in thetaxable period in which such Damages were incurred or a taxable periodbeginning after the tax period in which such Damages were incurred); provided,that any benefit referred to above that occurs after the Parent IndemnifiedParties have recovered Damages in accordance with this Article XI shall bepromptly paid to the Former Company Stockholders’ Agent.  Each of Parent and Merger Sub shall be deemedto have waived, on behalf of all Parent Indemnified Parties, any claim forDamages arising under clause (i) above if, prior to the Closing, it hadactual knowledge and understanding of that misrepresentation or breach(including potential consequences thereof). Notwithstanding anything herein to the contrary, (a) the ParentIndemnified Parties shall not be entitled to seek indemnification with respectto any Damages arising under clause (i) above unless and until theaggregate amount of all Damages suffered by the Parent Indemnified Parties as aresult of such breach(es) exceeds in the aggregate the amount set forth as theDeductible in **Section 11.4**and then the Parent Indemnified Parties shall be entitled to indemnificationonly for such aggregate amount that exceeds the Deductible; provided,that the Deductible shall not apply to Damages incurred by reason of thematters set forth in the letter dated as of the date hereof, between theCompany and Parent (Re: Indemnification Matters) (the **“Indemnification Matters Letter”**); (b) abreach of a representation or warranty shall not be deemed to have occurred andthe Parent Indemnified Parties shall not be deemed to have incurred any Damagesunder clauses (i) or (ii) above unless any Damages arising from suchbreach or matter set forth on Schedule 4.16 of the Company DisclosureSchedules, as the case may be, exceeds (together with all other claims sosubstantially related as to effectively constitute one claim) $100,000;provided, that such $100,000 threshold shall not apply to Damages incurred byreason of the matters set forth in the Indemnification Matters Letter; (c) theaggregate amount of all payments to which the Parent Indemnified Parties shallbe entitled to receive in satisfaction of claims for indemnification pursuantto this **Section 11.1** or **Section 8.6**shall in no event exceedthe amount set forth in **Section 11.4**as the Cap; (d) the Parent Indemnified Parties shall not be entitled toseek indemnification for Damages to the extent that the items giving rise tosuch Damages had been accounted for in any of the adjustments to the MergerConsideration pursuant to **Sections 3.3(f), (g) and(h)**; and (e) the Parent Indemnified Parties shall not beentitled to seek indemnification with respect to any Damages arising underclause (ii) above unless and until (A) the aggregate amount of allDamages suffered by the Parent Indemnified Parties under clause (ii) aboveexceeds in the aggregate the amount set forth as the Schedule 4.16 MattersDeductible in **Section 11.4**and (B) the aggregate amount of all Damages suffered by Parent IndemnifiedParties under clauses (i) and (ii) above exceeds in the aggregate thesum of the amount set forth as the Schedule 4.16 Matters Deductible andthe amount set forth as the Deductible in **Section 11.4**,and, then the Parent Indemnified Parties shall be entitled to indemnificationonly for such aggregate amount that exceeds the sum of the Schedule 4.16Matters Deductible and the Deductible. In no event shall the Former Company Stockholders be liable for anypunitive, special or exemplary damages except to the extent actually payable bya Parent Indemnified Party to a third party.

 

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## Section 11.2.                             Indemnification of FormerCompany Stockholders.  From andafter the Effective Time and subject to the limitations contained in this **Article XI**, Parent will indemnify theFormer Company Stockholders and their respective officers, directors, employeesand Affiliates (collectively, the “**StockholdersIndemnified Parties**”) and hold the Stockholders IndemnifiedParties harmless against any Damages that the Stockholders Indemnified Partieshave incurred by reason of the inaccuracy or breach by Parent or Merger Sub ofany representation or warranty of Parent or Merger Sub contained in **Article V**of this Agreement (all suchcalculations of Damages shall take into account any offset benefits orinsurance proceeds received in connection with the matter out of which suchDamages shall arise and shall take into account any tax benefits that the StockholdersIndemnified Parties may receive in connection therewith).  A Former Company Stockholder shall be deemedto have waived, on behalf of all Stockholders Indemnified Parties, any claimfor Damages arising for misrepresentation or breach of warranty if, prior tothe Closing, such Former Company Stockholder had actual knowledge andunderstanding of that misrepresentation or breach (including potentialconsequences thereof).  Notwithstandinganything herein to the contrary, (i) the Stockholders Indemnified Partiesshall not be entitled to seek indemnification with respect to any Damagesunless and until the aggregate amount of all Damages suffered by theStockholders Indemnified Parties as a result of such breach(es) exceeds in theaggregate the amount set forth as the Deductible in **Section 11.4** and then the Stockholders IndemnifiedParties shall be entitled to indemnification only for such aggregate amountthat exceeds the Deductible; and (ii) the aggregate amount of all paymentsto which the Stockholders Indemnified Parties shall be entitled to receive insatisfaction of claims for indemnification pursuant to this **Section 11.2** shall in no event exceedthe amount set forth in **Section 11.4**as the Cap.  In no event shall Parent beliable for any punitive, special, consequential, exemplary or incidentaldamages except to the extent actually payable by a Stockholders IndemnifiedParty to a third party.

##  

## Section 11.3.                             Exclusive Remedies.  Subject to the final sentence of this Section 11.3,the parties agree that notwithstanding anything to the contrary set forth inthis Agreement or otherwise, from and after the Effective Time, theindemnification provisions of this **Article XI**are the sole and exclusive remedies of the parties pursuant to this Agreementor in connection with the transactions contemplated hereby.  From and after the Effective Time, to themaximum extent permitted by law, but subject to the final sentence of this **Section 11.3**, the parties hereby waiveall other rights, claims, remedies or actions with respect to any matter in anyway relating to this Agreement or arising in connection herewith, whether underany foreign, federal, state, provincial or local laws, statutes, ordinances,rules, regulations, requirements or orders at common law or otherwise.  Except as provided in this **Article XI**, subject to the finalsentence of this Section 11.3, from and after the Effective Time, noright, claim, remedy or action shall be brought or maintained by any party, andno recourse shall be brought or granted against any of them, by virtue of orbased upon any alleged misstatement or omission respecting an inaccuracy in orbreach of any of the representations, warranties or covenants of any of theparties thereto set forth or contained in this Agreement.  All obligations of the Former CompanyStockholders pursuant to the terms of this **Article XI**shall be satisfied first by payment from the Escrow Amount.  Notwithstanding anything to the contrary inthis **Section 11.3** orotherwise in this Agreement, (i) from and after the Effective Time, aclaim may be brought based upon a breach of the covenants set forth in **Sections 3.3(f), 3.3(g), 3.3(h), 8.5 or 8.6**,and (ii) a claim based upon fraud may be brought, without regard to any ofthe limitations set forth in this Agreement (including without regard to anytime or monetary limitations or any limitation on remedies), 

 

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## againstany Person or Persons (or, in the case of the Company, the Former CompanyStockholders) accused of committing such fraud.

##  

## Section 11.4.                             Deductible and Cap.  Notwithstanding anything contained herein tothe contrary, neither Parent nor the Former Company Stockholders shall have anyliability under this **Article XI**unless and until the aggregate Damages for which indemnity by such party wouldotherwise be due under **Article XI**exceeds $2,760,000 (the “**Deductible**”),in which case such indemnifying party shall only be responsible for the excess;provided, that: (a) the Deductible shall not apply to Damagesincurred by reason of the matters set forth in the Indemnification MattersLetter; (b) that a breach shall not be deemed to have occurred and theParent Indemnified Parties shall not be deemed to have incurred any Damages underclauses (i) or (ii) of **Section 11.1**unless any Damages arising from such breach or matter set forth on Schedule 4.16of the Company Disclosure Schedules, as the case may be, exceeds (together withall other claims for Damages so substantially related as to effectivelyconstitute one claim) $100,000; provided, that such $100,000 threshold shallnot apply to Damages incurred by reason of the matters set forth in theIndemnification Matters Letter; (c) that the Former Company Stockholdersshall not have any liability with respect to any Damages arising under clause (ii) of**Section 11.1** unless and until(A) the aggregate amount of all Damages suffered by the Parent IndemnifiedParties under clause (ii) of **Section 11.1**exceeds in the aggregate $1,250,000 (the **“Schedule 4.16Matters Deductible”**), and (B) the aggregate amount of allDamages suffered by Parent Indemnified Parties under clauses (i) and (ii) of**Section 11.1** exceeds in theaggregate the sum of the amount set forth as the Schedule 4.16 MattersDeductible and the amount set forth as the Deductible in this **Section 11.4**, then the ParentIndemnified Parties shall be entitled to indemnification only for suchaggregate amount that exceeds the sum of the Schedule 4.16 MattersDeductible and the Deductible. Notwithstanding anything contained herein to the contrary, the maximum aggregateliability of Parent or the Former Company Stockholders, as the case may be,under this **Article XI** or **Section 8.6**shall not exceed $25,000,000(the “**Cap**”).

##  

## Section 11.5.                             Survival of IndemnificationObligations.  Theindemnification obligations set forth in this **Article XI**shall terminate upon the 547th day following the ClosingDate.  Notwithstanding the precedingsentence, (i) indemnification obligations with respect to Damages incurred byreason of the matters set forth in the letter dated as of the date hereof,between the Company and Parent (Re: Indemnification Matters) shall terminate asset forth in the Indemnification Matters Letter; and (ii) indemnificationobligations set forth in this **Article XI**shall survive the time at which they would otherwise terminate pursuant to this**Section 11.5**, if notice of (x) theinaccuracy or breach thereof giving rise to such obligations, (y) the aggregateamount of such Damages or an estimate thereof, in each case to the extent knownor determinable at such time, and (z) reasonable detail of the individual itemsof such Damages included in the amount so stated and the date, if known, eachsuch item arose shall have been given to the party against whom such indemnitymay be sought prior to such time.

##  

## Section 11.6.                             Terms and Conditions ofIndemnification; Resolution of Conflicts.

##  

### (a)                                  Any party seekingindemnification for any third-party claim must give the other party promptnotice of the claim for Damages (i) stating the aggregate amount of theDamages or an estimate thereof, in each case to the extent known ordeterminable at such time, and (ii) specifying in reasonable detail the individualitems of such Damages 

 

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### included in the amount so stated, the date each such item was paid orproperly accrued or arose, and the nature of the misrepresentation, breach orclaim to which such item is related; provided, however, that the failure togive such notice shall not relieve the indemnifying party from any obligationhereunder except where, and then solely to the extent that, such failureactually and materially prejudices the rights of the indemnifying party.

###  

### (b)                                 The respectiveobligations and liabilities of the parties to indemnify pursuant to this **Article XI** in respect of any Damagesarising from a claim by a third party shall be subject to the followingadditional terms and conditions:

###  

#### (i)                                     Theindemnifying party shall have the right to undertake, by counsel or otherrepresentatives of its own choosing reasonably satisfactory to the indemnifiedparty, the defense, compromise, and settlement of such claim.

####  

#### (ii)                                  In the eventthat the indemnifying party shall elect not to undertake such defense, orwithin thirty (30) days after notice of any such claim from the indemnifiedparty shall fail to defend, the indemnified party (upon further written noticeto the indemnifying party) shall have the right to undertake the defense,compromise or settlement of such claim, by counsel or other representatives ofits own choosing, on behalf of and for the account and risk of the indemnifyingparty.

####  

#### (iii)                               Notwithstandinganything in this **Section 11.6**to the contrary, (A) if there is a reasonable probability that a claim maymaterially and adversely affect the indemnified party other than as a result ofmoney damages or other money payments, the indemnified party shall have theright, at its own cost and expense, to participate in the defense, compromiseor settlement of the claim, (B) the indemnifying party shall not, withoutthe indemnified party’s written consent, settle or compromise any claim orconsent to entry of any judgment which does not include as an unconditionalterm thereof the giving by the claiming party or the plaintiff to the indemnifiedparty of a release from all liability in respect of such claim, and (C) inthe event that the indemnifying party undertakes defense of any claim, the indemnifiedparty by counsel or other representative of its own choosing and at its solecost and expense, shall have the right to consult with the indemnifying partyand its counsel or other representatives concerning such claim and the indemnifyingparty and the indemnified party and their respective counsel or otherrepresentatives shall cooperate with respect to such claim, subject to theexecution and delivery of a mutually satisfactory joint defense agreement;provided, however, that if representation of both the indemnifying party andthe indemnified party by the same counsel would create a conflict of interest,the reasonable costs and expenses of any separate counsel retained by theindemnified party shall be paid by the indemnifying party.

####  

### (c)                                  If the Former CompanyStockholders’ Agent or Parent shall object in writing to any claim or claims bya Parent Indemnified Party or Stockholders Indemnified Party, as the case maybe, Parent or Former Company Stockholders’ Agent, as the case may be, shallhave thirty (30) days from the receipt of such objection to respond in awritten statement to the objection.  Ifafter such thirty (30) day period there remains a dispute as to any claims, theFormer Company Stockholders’ Agent and Parent shall attempt in good faith 

 

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### for thirty (30) days to agree upon the rights of the respective partieswith respect to each of such claims.

###  

### (d)                                 If no such agreementcan be reached after good faith negotiation, either Parent or the FormerCompany Stockholders’ Agent may, by written notice to the other, demandarbitration of the matter unless the amount of the damage or loss at issue is inpending litigation with a third party, in which event arbitration shall not becommenced until such amount is ascertained or both parties agree toarbitration; and in either such event the matter shall be settled byarbitration conducted by three arbitrators. Within fifteen (15) days after such written notice is sent, Parent (onthe one hand) and the Former Company Stockholders’ Agent (on the other hand)shall each select one arbitrator, and the two arbitrators so selected shallselect a third arbitrator.  The decisionof the arbitrators as to the validity and amount of any made claim shall be solelydecided in accordance with the provisions of this **Article XI** and shall be binding and conclusive upon theparties to this Agreement.

###  

### (e)                                  Judgment upon anyaward rendered by the arbitrators may be entered in any court havingjurisdiction.  Any such arbitration shallbe held in New York, New York under the commercial rules then in effect ofthe American Arbitration Association.  Thenon-prevailing party to an arbitration shall pay its own expenses, the fees ofeach arbitrator, the administrative fee of the American ArbitrationAssociation, and the expenses, including, without limitation, the reasonableattorneys’ fees and costs, incurred by the prevailing party to the arbitration.

###  

## Section 11.7.                             Former CompanyStockholders’ Agent.

##  

### (a)                                  In the event that theMerger is approved by the stockholders of the Company, effective upon suchvote, and without further act of any stockholder of the Company, Charter AgentLLC shall be appointed as agent and attorney-in-fact (the “**Former Company Stockholders’ Agent**”) foreach Optionholder, Warrantholder and stockholder of the Company (except suchstockholders of the Company, if any, as shall have perfected their appraisal ordissenters’ rights under the DGCL).  The FormerCompany Stockholders’ Agent shall have the authority to act for and on behalfof the Former Company Stockholders, including, without limitation, to give andreceive notices and communications, to act on behalf of the Former CompanyStockholders with respect to any matters arising under this Agreement or theother Transaction Documents, to authorize delivery to Parent of any funds andproperty in its possession or in the Escrow Amount or the Working CapitalEscrow Amount in satisfaction of claims by Parent Indemnified Parties, toobject to such deliveries, to agree to, negotiate, enter into settlements andcompromises of, and commence, prosecute, participate in, settle, dismiss orotherwise terminate, as applicable, lawsuits and claims, mediation andarbitration proceedings, and to comply with orders of courts and awards ofcourts, mediators and arbitrators with respect to such suits, claims orproceedings, and to take all actions necessary or appropriate in the judgmentof the Former Company Stockholders’ Agent for the accomplishment of theforegoing.  The Former CompanyStockholders’ Agent shall for all purposes be deemed the sole authorized agentof the Former Company Stockholders until such time as the agency isterminated.  Such agency may be changedby the Former Company Stockholders from time to time upon not less than 30 daysprior written 

 

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### notice to Parent; provided, however, that the FormerCompany Stockholders’ Agent may not be removed unless holders of a two-thirdsinterest in the Merger Consideration agree to such removal and to the identityof the substituted Former Company Stockholders’ Agent.  Any vacancy in the position of Former CompanyStockholders’ Agent may be filled by approval of the holders of a majority ininterest of the Merger Consideration.  Nobond shall be required of the Former Company Stockholders’ Agent, and the FormerCompany Stockholders’ Agent shall not receive compensation for its services.Notices or communications to or from the Former Company Stockholders’ Agentshall constitute notice to or from each of the Former Company Stockholdersduring the term of the agency.

###  

### (b)                                 The Former CompanyStockholders’ Agent shall not incur any liability with respect to any actiontaken or suffered by it or omitted hereunder as Former Company Stockholders’Agent while acting in its capacity as Former Company Stockholders’ Agent.  The Former Company Stockholders’ Agent may,in all questions arising hereunder, rely on the advice of counsel and otherprofessionals and for anything done, omitted or suffered by the Former CompanyStockholders’ Agent shall not be liable to anyone while acting as FormerCompany Stockholders’ Agent. The Former Company Stockholders’ Agent undertakesto perform such duties and only such duties as are specifically set forth inthis Agreement and no other covenants or obligations shall be implied underthis Agreement against the Former Company Stockholders’ Agent; provided,however, that the foregoing shall not act as a limitation on the powersof the Former Company Stockholders’ Agent determined by it to be reasonablynecessary to carry out the purposes of its obligations.  The Former Company Stockholders shall indemnifythe Former Company Stockholders’ Agent and hold it harmless against any loss,liability or expense incurred on the part of the Former Company Stockholders’Agent and arising out of or in connection with the acceptance or administrationof their duties hereunder under this Agreement. The Former Company Stockholders’ Agent shall be entitled to satisfy anysuch loss, liability and expense from the proceeds of the Working CapitalEscrow Amount and/or the Escrow Amount received by the Former CompanyStockholders’ Agent for distribution to the Former Company Stockholders on apro rata basis.

###  

### (c)                                  The Former CompanyStockholders’ Agent shall have reasonable access to information about theCompany and Parent and the reasonable assistance of the Surviving Corporation’sand Parent’s officers and employees for purposes of performing its duties andexercising its rights hereunder, provided that the Former Company Stockholders’Agent shall treat confidentially and not disclose any nonpublic informationfrom or about the Surviving Corporation or Parent to anyone (except on a needto know basis to individuals who agree to treat such informationconfidentially).

###  

### (d)                                 A decision, act,consent or instruction of the Former Company Stockholders’ Agent shallconstitute a decision, act, consent or instruction of all of the Former CompanyStockholders and shall be final, binding and conclusive upon each such Former CompanyStockholder.  Parent and the SurvivingCorporation may rely upon any such decision, act, consent or instruction of theFormer Company Stockholders’ Agent as being the decision, act, consent orinstruction of every such Former Company Stockholder.

 

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# ARTICLE XII.MISCELLANEOUS

#  

## Section 12.1.                             Survival of Representationsand Covenants.  Subject tothe Indemnification Matters Letter, all representations and warranties of theCompany contained in this Agreement or in the certificate delivered pursuant to**Section 9.2(b) **of thisAgreement shall survive Closing until the 547th day following theClosing Date.  All representations andwarranties of Parent and Merger Sub contained in this Agreement shall survive Closinguntil the 547th day following the Closing Date.  All covenants and agreements set forth inthis Agreement that are to be performed following the Closing Date shallsurvive the Closing and continue in full force and effect until such covenantsand agreements are performed in accordance with the terms of this Agreement.

##  

## Section 12.2.                             Notices.  All notices and other communicationshereunder shall be in writing and shall be deemed given if deliveredpersonally, telecopied (which is confirmed) or two Business Days after beingmailed by registered or certified mail (return receipt requested) to theparties at the following addresses (or at such other address for a party asshall be specified by like notice):

##  

| (a)    | if  to Parent or Merger Sub:         |                        |
|--------|--------------------------------------|-----------------------------|
|   |                                 |                        |
|   | Kohlberg &  Company, L.L.C. |                        |
|   | 111  Radio Circle                    |                        |
|   | Mt.  Kisco, New York 10549           |                        |
|   | Attention:                           | Gordon  Woodward            |   |
|   | Fax  No:                             | (914) 244-3985         |   |
|   | Tel.  No:                            | (914) 241-7430         |   |
|   |                                 |                        |
|   | with  a copy to:                     |                        |
|   |                                 |                        |
|   | Ropes &  Gray L.L.P.        |                        |
|   | One  International Place             |                        |
|   | Boston,  Massachusetts 02110         |                        |
|   | Attention:                           | Daniel  S. Evans, Esq. |   |
|   | Fax  No:                             | (617) 951-7050         |   |
|   | Tel.  No:                            | (617) 951-7315         |   |

 

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| (b)    | if  to the Company, prior to the Closing, to:           |                         |
|--------|---------------------------------------------------------|------------------------------|
|   |                                                    |                         |
|   | Cellu  Paper Holdings, Inc.                        |                         |
|   | 3440  Francis Road                                      |                         |
|   | Suite C                                            |                         |
|   | Alpharetta,  Georgia 30004                              |                         |
|   | Attention:                                              | Russell  C. Taylor           |   |
|   | Fax  No:                                                | (678) 393-2657          |   |
|   | Tel.  No:                                               | (678) 393-2148          |   |
|   |                                                    |                         |   |
|   | with  a copy to:                                        |                         |
|   |                                                    |                         |
|   | Proskauer  Rose LLP                                     |                         |
|   | 1585  Broadway                                          |                         |
|   | New  York, New York 10036                               |                         |
|   | Attention:                                              | Stephen  W. Rubin, Esq. |   |
|   | Fax  No:                                                | 212-969-2900                 |   |
|   | Tel.  No:                                               | 212-969-3000                 |   |
|   |                                                    |                         |   |
| (c)    | if  to the Former Company Stockholders’ Agent, to: |                         |
|   |                                                    |                         |
|   | Charter  Agent LLC                                      |                         |
|   | c/o  Charterhouse Group, Inc.                      |                         |
|   | 535  Madison Avenue                                     |                         |
|   | New  York, New York 10022                               |                         |
|   | Attention:                                              | William  Landuyt             |   |
|   | Fax  No:                                                | 212-750-9704                 |   |
|   | Tel.  No:                                               | 212-584-3216                 |   |
|   |                                                    |                         |   |
|   | with  a copy to:                                        |                         |
|   |                                                    |                         |
|   | Proskauer  Rose LLP                                     |                         |
|   | 1585  Broadway                                          |                         |
|   | New  York, New York 10036                               |                         |
|   | Attention:                                              | Stephen  W. Rubin, Esq. |   |
|   | Fax  No:                                                | 212-969-2900                 |   |
|   | Tel.  No:                                               | 212-969-3000                 |   |

 

## Section 12.3.                             Interpretation.  When a reference is made in this Agreement tosections, such reference shall be to a section of this Agreement unlessotherwise indicated.  The table ofcontents and headings contained in this Agreement are for reference purposesonly and shall not affect in any way the meaning or interpretation of thisAgreement.  Whenever the words “**include**,” “**includes**” or “**including**”are used in this Agreement they shall be deemed to be followed by the words “**without limitation**.”  Whenever the words “**to the knowledge of the Company**” or “**known to the Company**” or similar phrasesare used in this Agreement, they mean the actual knowledge, assuming theknowledge that would be obtained after reasonable inquiry of Russell Taylor,Diane Scheu, Hugo Vivero, Thomas Moore and Kevin French.

 

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## Section 12.4.                             Counterparts.  This Agreement may be executed in two or morecounterparts, all of which shall be considered one and the same agreement andshall become effective when two or more counterparts have been signed by eachof the parties and delivered to the other parties, it being understood that allparties need not sign the same counterpart.

##  

## Section 12.5.                             Entire Agreement; NoThird-Party Beneficiaries.  ThisAgreement (including the documents and the instruments referred to herein), theConfidentiality Agreement, the other Transaction Documents, the Former CompanyStockholders Indemnification Agreement and the letter, dated as of the datehereof, by and between Kohlberg & Company, L.L.C and CharterhouseEquity Partners IV, L.P. (regarding their investment as stockholders in anaffiliate of Parent) (a) constitute the entire agreement and supersedesall prior agreements and understandings, both written and oral, among theparties with respect to the subject matter hereof, and (b) are notintended to confer upon any Person other than the parties hereto any rights orremedies hereunder.  Notwithstanding theforegoing, (i) the Former Company Stockholders shall be deemed to bethird-party beneficiaries of this Agreement with respect to **Articles III, VI, VII, VIII and XI**; and (ii) fromand after the Effective Time, the former directors and officers of the Companyshall be deemed to be third-party beneficiaries of this Agreement with respectto Section 8.5.

##  

## Section 12.6.                             Governing Law.  With respect to matters of corporate law,this Agreement shall be governed and construed in accordance with theDGCL.  With respect to all other mattersthis Agreement shall be governed and construed in accordance with the laws ofthe State of New York without regard to any applicable conflicts of law.

##  

## Section 12.7.                             Assignment.  Neither this Agreement nor any of the rights,interests or obligations hereunder shall be assigned by any of the partieshereto (whether by operation of law or otherwise) without the prior writtenconsent of the other parties, except that Parent or Merger Sub may assign itsrights hereunder (a) to one or more of its lenders or (b) followingthe Effective Time, to a purchaser of the Surviving Corporation or the businessof the Surviving Corporation.  Subject tothe preceding sentence, this Agreement will be binding upon, inure to thebenefit of and be enforceable by the parties and their respective successorsand assigns.

##  

## Section 12.8.                             Amendment.  This Agreement may be amended by the partieshereto, at any time before or after approval of matters presented in connectionwith the Merger by the stockholders of the Company, but after any suchstockholder approval, no amendment shall be made which by law requires thefurther approval of stockholders without obtaining such further approval.  This Agreement may not be amended except byan instrument in writing signed on behalf of each of the parties hereto.

##  

## Section 12.9.                             Extension; Waiver.  At any time prior to the Effective Time, theparties hereto may, to the extent legally allowed, (a) extend the time forthe performance of any of the obligations or the other acts of the otherparties hereto, (b) waive any inaccuracies in the representations orwarranties contained herein or in any document delivered pursuant hereto and (c) waivecompliance with any of the agreements or conditions contained herein. Anyagreement on the part of a party hereto to any such extension or waiver shallbe valid only if set forth in a written instrument signed on behalf of suchparty.  Any such waiver by a party of acondition to closing of this Agreement shall also operate as a waiver andrelease of any corresponding 

 

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## covenantor agreement relating to the same subject matter set forth in **Articles VI**through **VIII** of this Agreement.  No waiver of any provision of this Agreement (a) shall,except as set forth in the immediately preceding sentence, be deemed to orshall constitute a waiver of any other provision hereof (whether or notsimilar) or (b) shall constitute a continuing waiver unless otherwiseexpressly provided therein.  No delay oromission on the part of any party in exercising any right, power or remedyunder this Agreement will operate as a waiver thereof.

##  

## Section 12.10.                       Severability.  If any provision of this Agreement is held tobe illegal, invalid or unenforceable under any present or future law orregulation, and if the rights or obligations of any party hereto under thisAgreement will not be materially and adversely affected thereby, (a) suchprovision will be fully severable, (b) this Agreement will be construedand enforced as if such illegal, invalid or unenforceable provision had nevercomprised a part hereof, (c) the remaining provisions of this Agreementwill remain in full force and effect and will not be affected by the illegal,invalid or unenforceable provision or by its severance from this Agreement and (d) inlieu of such illegal, invalid or unenforceable provision, there will be addedautomatically as a part of this Agreement a legal, valid and enforceableprovision as similar in terms to such illegal, invalid or unenforceableprovision as may be possible.

##  

## Section 12.11.                       Waiver of Jury Trial.  TO THE EXTENT NOT PROHIBITED BY APPLICABLELAW WHICH CANNOT BE WAIVED, EACH OF THE PARTIES HERETO HEREBY WAIVES, ANDCOVENANTS THAT IT SHALL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OROTHERWISE) ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY ISSUE ORACTION, CLAIM, CAUSE OF ACTION OR SUIT (IN CONTRACT, TORT OR OTHERWISE),INQUIRY, PROCEEDING OR INVESTIGATION ARISING OUT OF OR BASED UPON THISAGREEMENT OR THE SUBJECT MATTER HEREOF OR IN ANY WAY CONNECTED WITH OR RELATEDOR INCIDENTAL TO THE TRANSACTIONS CONTEMPLATED HEREBY, IN EACH CASE WHETHER NOWEXISTING OR HEREAFTER ARISING.  ANY PARTYHERETO MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS **SECTION 12.11** WITH ANY COURT ASWRITTEN EVIDENCE OF THE CONSENT OF EACH SUCH PARTY TO THE WAIVER OF ITS RIGHTTO TRIAL BY JURY.

##  

*[Signature Page Follows]*

 

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IN WITNESS WHEREOF, Parent, Merger Sub and theCompany have caused this Agreement and Plan of Merger to be signed by theirrespective officers thereunto duly authorized as of the date first writtenabove.

 
|       | **KIPB GROUP HOLDINGS, LLC**   |
|------------|--------------------------------|
|       |                           |
|       |                           |
| ** ** | **By:**                        | **/s/ Gordon  Woodward** | ** ** |
| ** ** | ** **                     | **Name:  Gordon Woodward** | ** ** |
| ** ** | ** **                     | **Title:  Vice President** | ** ** |
| ** ** | ** **                     | ** ** | ** ** |
|       | **KCT MERGER SUB, INC.**       |
|       |                           |
|       |                           |
| ** ** | **By:**                        | **/s/ Gordon  Woodward** | ** ** |
| ** ** | ** **                     | **Name:  Gordon Woodward** | ** ** |
| ** ** | ** **                     | **Title:  President** | ** ** |
| ** ** | ** **                     | ** ** | ** ** |
|       | **CELLU PAPER HOLDINGS, INC.** |
|       |                           |
|       |                           |
| ** ** | **By:**                        | **/s/  Russell C. Taylor** | ** ** |
| ** ** | ** **                     | **Name:** | **Russell C.  Taylor** | ** ** |
| ** ** | ** **                     | **Title:** | **CEO/President** | ** ** |

 

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