Exhibit 10.3


 


CONTINUING GUARANTY


 


CONTINUING GUARANTY (“Guaranty”)
dated as of July 28, 2008, made by and between SMURFIT-STONE CONTAINER
ENTERPRISES, INC., a Delaware corporation (“Guarantor”), and UNION BANK
OF CALIFORNIA, N.A. (“Bank”).


 


RECITALS


 


(a)                                 WHEREAS, Guarantor is a leading U.S. integrated
manufacturer of various paperboard and paper-based packaging material;


 


(b)                                WHEREAS, Guarantor has agreed to acquire 90% of the
membership interests of CALPINE CORRUGATED, LLC, a California limited liability
company formerly known as Produce Container, LLC (“Borrower”), pursuant
to a restructuring of the ownership interests of Borrower pursuant to the
Amended and Restated Operating Agreement being entered into concurrently
herewith;


 


(c)                                 WHEREAS, Borrower and Bank have entered into the Loan
and Security Agreement dated March 30, 2006, as amended by the First Amendment to Loan and
Security Agreement dated as of August 30, 2006, the Second Amendment to
Loan and Security Agreement dated as of December 10, 2007, the Third
Amendment to Loan and Security Agreement dated as of December 31, 2007,
the Fourth Amendment to Loan and Security Agreement dated as of January 31,
2008, the Fifth Amendment to Loan and Security Agreement dated as of February 29,
2008, and the Sixth Amendment to Loan and Security Agreement of even date
herewith (including all exhibits and schedules thereto, and as the same may be
subsequently amended, restated, supplemented or otherwise modified from time to
time, collectively, the “Loan Agreement”);


 


(d)                                WHEREAS, Guarantor has agreed to guarantee the
Obligations of Borrower;


 


(e)                                 WHEREAS, Guarantor has requested that Bank increase
the maximum amount of its financing to Borrower by $3,000,000, to an aggregate
principal amount not exceeding $12,000,000;


 


(f)                                   WHEREAS, Guarantor will derive substantial benefit
if the financing continues to be provided by Bank, and the maximum amount of
such financing is increased pursuant to the terms of the Sixth Amendment to
Loan and Security Agreement between Borrower and Bank of even date herewith
(the “Sixth Amendment”); and


 


(g)                                WHEREAS, it is a condition precedent, among others,
to the obligation of Bank to continue to provide and increase the maximum
amount of its financing to Borrower under the Sixth Amendment that the
Guarantor shall have executed and delivered this Guaranty to the Bank.


 


NOW, THEREFORE,
in consideration of the foregoing premises, to induce the


 

















 


Borrower
and Bank to enter into the Sixth Amendment, Guarantor and Bank hereby agree as
follows:


 


1.                                      Obligations Guaranteed.  For
consideration, the adequacy and sufficiency of which is acknowledged, Guarantor
unconditionally guaranties and promises (a) to pay to Bank on demand, in
lawful United States money, all Obligations (as such term is defined below),
and (b) to perform all undertakings of Borrower in connection with
Obligations.  “Obligations” means
all Obligations of Borrower when due and payable to Bank under the Loan
Agreement and the other Loan Documents, whether made, incurred or created previously,
concurrently or in the future, whether voluntary or involuntary and however
arising, whether incurred directly or acquired by Bank by assignment or
succession, absolute or contingent, liquidated or unliquidated, legal or
equitable, whether Borrower is liable individually or jointly with others,
whether incurred before, during or after any bankruptcy, reorganization,
insolvency, receivership or similar proceeding (“Insolvency Proceeding”),
and whether recovery thereof is or becomes barred by a statute of limitations
or is or becomes otherwise unenforceable, together with all expenses of, for
and incidental to collection, including, without limitation, reasonable
attorneys’ fees.  All capitalized terms
used and not otherwise defined herein shall have the respective meanings
ascribed to them in the Loan Agreement.


 


2.                                      Continuing
Nature/Revocation/Reinstatement.  This Guaranty (a) is in
addition to any other guaranties of the Obligations, (b) is a continuing
guaranty, and (c) covers all Obligations, including, without limitation,
those arising under successive transactions which continue or increase the
Obligations from time to time, renew all or part of the Obligations after they
have been satisfied or create new Obligations. 
Revocation by one or more signers of this Guaranty or any other
guarantors of the Obligations shall not (a) affect the obligations under
this Guaranty of a non-revoking Guarantor, (b) apply to Obligations
outstanding when Bank receives written notice of revocation, or to any extensions,
renewals, readvances, modifications, amendments or replacements of such
Obligations, or (c) apply to Obligations, arising after Bank receives such
notice of revocation that are created pursuant to a commitment existing at the
time of the revocation, whether or not there exists an unsatisfied condition to
such commitment or Bank has another defense to its performance.  All of Bank’s rights pursuant to this
Guaranty continue with respect to amounts previously paid to Bank on account of
any Obligations which are thereafter restored or returned by Bank, whether in
an Insolvency Proceeding of Borrower or for any other reason, all as though
such amounts had not been paid to Bank; and Guarantor’s liability under this
Guaranty (and all of its terms and provisions) shall be reinstated and revived,
notwithstanding any surrender or cancellation of this Guaranty.  Bank, at its sole discretion, may determine
whether any amount paid to it must be restored or returned; provided, however,
that if Bank elects to contest any claim for return or restoration, Guarantor
agrees to indemnify and hold Bank harmless from and against all costs and
expenses, including, without limitation, reasonable attorneys’ fees, expended
or incurred by Bank in connection with such contest.  If any Insolvency Proceeding is commenced by
or against Borrower or Guarantor, at Bank’s election, Guarantor’s obligations
under this Guaranty shall immediately and without notice or demand become due
and payable, whether or not then otherwise due and payable.


 

















 


3.                                      Authorization. 
Guarantor authorizes Bank, without notice and without affecting
Guarantor’s liability under this Guaranty, from time to time, whether before or
after any revocation of this Guaranty, to: (a) renew, compromise, extend,
accelerate, release, subordinate, waive, amend and restate, or otherwise amend
or change, the interest rate, time or place for payment or any other terms of
all or any part of the Obligations to the extent permitted in the Loan
Agreement; (b) accept delinquent or partial payments of the Obligations; (c) take
or not take security or other credit support for this Guaranty or for all or
any part of the Obligations, and exchange, enforce, waive, release,
subordinate, fail to enforce or perfect, sell, or otherwise dispose of any such
security or credit support; (d) apply proceeds of any such security or
credit support and direct the order or manner of its sale or enforcement as
Bank, at its sole discretion may determine; and (e) release or substitute
Borrower or any guarantor or other person or entity liable on the Obligations.


 


4.                                      Waivers.  To
the maximum extent permitted by law, Guarantor waives (a) all rights to
require Bank to proceed against Borrower, or any other guarantor, or proceed
against, enforce or exhaust any security for the Obligations or to marshal
assets or to pursue any other remedy in Bank’s power whatsoever; (b) all
defenses arising by reason of any disability or other defense of Borrower, the
cessation for any reason of the liability of Borrower, any defense that any
other indemnity, guaranty or security was to be obtained, any claim that Bank
has made Guarantor’s obligations more burdensome or more burdensome than
Borrower’s obligations, and the use of any proceeds of the Obligations other
than as intended or understood by Bank or Guarantor; (c) all presentments,
demands for performance, notices of nonperformance, protests, notices of
protest, notices of dishonor, notices of acceptance of this Guaranty and the
existence or creation of new or additional Obligations, and all other notices
or demands to which Guarantor might otherwise be entitled; (d) all rights
to file a claim in connection with the Obligations in an Insolvency Proceeding
filed by or against Borrower except as subordinate to Bank’s claim; (e) all
rights to require Bank to enforce any of its remedies; and (f) until the
Obligations are satisfied and fully and finally paid with such payment not
subject to return (i) all rights of subrogation, contribution,
indemnification or reimbursement, (ii) all rights of recourse to any
assets or property of Borrower, or to any collateral or credit support for the
Obligations except as subordinate to Bank’s rights, (iii) all rights to
participate in or benefit from any security or credit support Bank may have or acquire,
and (iv) all rights, remedies and defenses Guarantor may have or acquire
against Borrower.  Guarantor understands
that if Bank forecloses by trustee’s sale on a deed of trust securing any of
the Obligations, Guarantor would then have a defense preventing Bank from
thereafter enforcing Guarantor’s liability for the unpaid balance of the
secured Obligations.  This defense arises
because the trustee’s sale would eliminate Guarantor’s right of subrogation,
and therefore Guarantor would be unable to obtain reimbursement from
Borrower.  Guarantor specifically waives
this defense and all rights and defenses that Guarantor may have against Bank
because the Obligations are secured by real property.  This means, among other things: (A) Bank
may collect from Guarantor without first foreclosing on any real property
collateral pledged by Borrower; and (B) if Bank forecloses on any real
property collateral pledged by Borrower, then: (I) the amount of


 

















 


the Obligations may be reduced only by the price for which the
collateral is sold at the foreclosure sale, even if the collateral is worth
more than the sale price, and (II) Bank may collect from Guarantor even if
Bank, by foreclosing on the real property collateral, has destroyed any right
Guarantor may have to collect from Borrower. 
This is an unconditional and irrevocable waiver of any rights and
defenses Guarantor may have because the Obligations are secured by real
property.  These rights and defenses
include, but are not limited to, any rights or defenses based upon Section 580a,
580b, 580d or 726 of the California Code of Civil Procedure or similar laws in
other states.  In addition, Guarantor
waives all rights and defenses arising out of an election of remedies by Bank,
even though that election of remedies, such as non-judicial foreclosure with
respect to security for a secured obligation, may have destroyed Guarantor’s
rights of subrogation by the operation of Section 580d of the California
Code of Civil Procedure or otherwise.


 


5.                                      Guarantor to Keep Informed. 
Guarantor warrants having established with Borrower adequate means of
obtaining, on an ongoing basis, such information as Guarantor may require
concerning all matters bearing on the risk of nonpayment or nonperformance of
the Obligations.  Guarantor assumes sole,
continuing responsibility for obtaining such information from sources other
than from Bank.  Bank has no duty to
provide any information to Guarantor until Bank receives Guarantor’s written
request for specific information in Bank’s possession and Borrower has
authorized Bank to disclose such information to Guarantor.


 


6.                                      Intentionally Omitted.


 


7.                                      Authorization.  Where
Borrower is a corporation, partnership or other entity, Bank need not inquire
into or verify the powers of Borrower or authority of those acting or
purporting to act on behalf of Borrower, and this Guaranty shall be enforceable
with respect to any Obligations Bank grants or creates in reliance on the
purported exercise of such powers or authority.


 


8.                                      Assignments. 
Without notice to Guarantor, Bank may assign the Obligations and this
Guaranty, in whole or in part, in accordance with the terms of the Loan
Agreement and may disclose to any prospective or actual purchaser of all or
part of the Obligations any and all information Bank has or acquires concerning
Guarantor, this Guaranty and any security for this Guaranty.


 


9.                                      Counsel Fees and Costs.  The
prevailing party shall be entitled to reasonable attorneys’ fees and all other
reasonable out-of-pocket costs and expenses which it may incur in connection
with the enforcement or preservation of its rights under, or defense of, this
Guaranty or in connection with any other dispute or proceeding relating to this
Guaranty whether or not incurred in any Insolvency Proceeding, arbitration, litigation
or other proceeding.


 


10.                                Multiple Guarantors/Borrowers.  When
there is more than one Borrower named herein or when this Guaranty is executed
by more than one Guarantor, then the words “Borrower” and “Guarantor”,
respectively, shall mean all and any one or more of them,


 

















 


and their respective successors and assigns, including, without
limitation, debtors-in-possession and bankruptcy trustees; words used herein in
the singular shall be considered to have been used in the plural where the
context and construction so requires in order to refer to more than one
Borrower or Guarantor, as the case may be.


 


11.                               Integration/Severability/Amendments.  This
Guaranty is intended by Guarantor and Bank as the complete, final expression of
their agreement concerning its subject matter. 
It supersedes all prior understandings or agreements with respect
thereto and may be changed only by a writing signed by Guarantor and Bank.  No course of dealing, or parole or extrinsic
evidence shall be used to modify or supplement the express terms of this
Guaranty.  If any provision of this
Guaranty is found to be illegal, invalid or unenforceable, such provision shall
be enforced to the maximum extent permitted, but if fully unenforceable, such
provision shall be severable, and this Guaranty shall be construed as if such
provision had never been a part of this Guaranty, and the remaining provisions
shall continue in full force and effect.


 


12.                               Joint and Several.  If
more than one Guarantor signs this Guaranty, the obligations of each under this
Guaranty are joint and several, and independent of the Obligations and of the
obligations of any other person or entity. 
A separate action or actions may be brought and prosecuted against any
one or more guarantors, whether action is brought against Borrower or other
guarantors of the Obligations, and whether Borrower or others are joined in any
such action.


 


13.                               Notice.  Any
notice, including, without limitation, notice of revocation, given by any party
under this Guaranty shall be effective only upon its receipt by the other party
and only if (a) given in writing and (b) personally delivered, sent
by United States mail, postage prepaid, or sent out by facsimile transmission
(with such facsimile promptly confirmed by delivery of a copy by personal
delivery or United States mail as otherwise provided in this paragraph), and
addressed to Bank or Guarantor at their respective addresses for notices
indicated below.  Guarantor and Bank may
change the place to which notices, requests, and other communications are to be
sent to them by giving written notice of such change to the other.


 


14.                               Governing Law.  This
Guaranty shall be governed by and construed according to the laws of
California, and Guarantor submits to the nonexclusive jurisdiction of the state
or federal courts in California.


 


15.                               Patriot Act.  Bank
is subject to the Patriot Act and hereby notifies Guarantor that pursuant to
the requirements of the Patriot Act, Bank is required to obtain, verify and
record information that identifies Guarantor, which information includes the
name and address of Guarantor and other information that will allow Bank to
identify Guarantor in accordance with the Patriot Act.


 


16.                               JUDICIAL REFERENCE. 
TO THE EXTENT PERMITTED BY LAW, IN CONNECTION WITH ANY CLAIM, CAUSE OF
ACTION, PROCEEDING OR OTHER DISPUTE CONCERNING THE LOAN DOCUMENTS (EACH A
“CLAIM”), THE PARTIES TO THIS AGREEMENT EXPRESSLY, INTENTIONALLY, AND
DELIBERATELY WAIVE ANY RIGHT THAT EACH OF 
THEM MAY


 

















 


OTHERWISE HAVE TO
TRIAL BY JURY.  IN THE EVENT THAT THE
WAIVER OF JURY TRIAL SET FORTH IN THE PREVIOUS SENTENCE IS  NOT ENFORCEABLE UNDER THE LAW APPLICABLE  TO THIS AGREEMENT, THE PARTIES TO THIS
AGREEMENT AGREE THAT ANY CLAIM, INCLUDING ANY QUESTION OF LAW OR FACT RELATING
THERETO, SHALL, AT THE WRITTEN REQUEST OF ANY PARTY, BE DETERMINED BY JUDICIAL
REFERENCE PURSUANT TO THE STATE LAW APPLICABLE TO THIS AGREEMENT.  THE PARTIES SHALL SELECT A SINGLE NEUTRAL
REFEREE, WHO SHALL BE A RETIRED STATE OR FEDERAL JUDGE.  IN THE EVENT THAT THE PARTIES CANNOT AGREE
UPON A REFEREE, THE COURT SHALL APPOINT THE REFEREE.  THE REFEREE SHALL REPORT A STATEMENT OF
DECISION TO THE COURT.  NOTHING IN THIS SECTION 16 SHALL LIMIT  THE RIGHT OF ANY PARTY AT ANY TIME TO
EXERCISE SELF-HELP REMEDIES, FORECLOSE AGAINST COLLATERAL OR OBTAIN  PROVISIONAL REMEDIES.  THE PARTIES SHALL BEAR THE FEES AND EXPENSES
OF THE REFEREE EQUALLY, UNLESS THE REFEREE ORDERS OTHERWISE.  THE REFEREE SHALL ALSO DETERMINE ALL ISSUES
RELATING TO THE APPLICABILITY, INTERPRETATION, AND ENFORCEABILITY OF THIS SECTION 16.  THE PARTIES ACKNOWLEDGE THAT IF A
REFEREE  IS SELECTED TO DETERMINE THE
CLAIMS, THEN THE CLAIMS WILL NOT BE DECIDED BY A JURY.


 


17.                               Counterparts.  This
Guaranty may be executed in any number of counterparts, which shall, collectively
and separately, constitute one agreement. 
Delivery of an executed counterpart of a signature page hereto by
facsimile transmission shall be effective as delivery of a manually executed
counterpart thereof.


 


[Remainder of Page Intentionally Left Blank]


 

















 


Executed
as of the date first written above, Guarantor acknowledges having received a
copy of this Guaranty and having made each waiver contained in this Guaranty
with full knowledge and consequences.


 


 


	
  “Bank”:

  	
   

  	
  “Guarantor”:

  
	
   

  	
   

  	
   

  
	
  UNION
  BANK OF CALIFORNIA, N.A.,

  	
   

  	
  SMURFIT-STONE
  CONTAINER

  ENTERPRISES, INC.

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/
  Shawn Lipman

  	
   

  	
  By:

  	
  /s/
  Charles A. Hinrichs

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Name:

  	
  Shawn
  Lipman

  	
   

  	
  Name:

  	
  Charles
  A. Hinrichs

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Title:

  	
  Vice
  President

  	
   

  	
  Title:
  

  	
  Senior
  Vice President and Chief

  
	
   

  	
   

  	
   

  	
  Financial
  Officer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Addresses for Notices:

  	
   

  	
  Addresses
  for Notices:

  
	
   

  	
   

  	
   

  
	
  Union Bank of
  California, N.A.

  	
   

  	
  Smurfit-Stone Container
  Enterprises, Inc.

  
	
  445 South Figueroa
  Street, G13-300

  	
   

  	
  Six CityPlace Drive

  
	
  Los Angeles, California
  90071

  	
   

  	
  Creve Coeur, MO 63141

  
	
  Attn: Commercial
  Finance Division

  	
   

  	
  Attn: Charles A. Hinrichs

  
	
  Telephone No.: (213)
  236-5301

  	
   

  	
  Telephone No.: (314)
  656-5276

  
	
  Facsimile No.: (213)
  236-6089

  	
   

  	
  Facsimile No.: (314)
  787-6162

  
	
   

  	
   

  	
   

  
	
  with a copy to:

  	
   

  	
  with a copy to:

  
	
   

  	
   

  	
   

  
	
  McDermott
  Will & Emery LLP

  	
   

  	
  Winston & Strawn
  LLP

  
	
  2049 Century Park East,
  38th Floor

  	
   

  	
  35 W. Wacker Drive

  
	
  Los Angeles, CA 90067

  	
   

  	
  Chicago, IL 60601

  
	
  Attn: Gary B.
  Rosenbaum, Esq.

  	
   

  	
  Attn: Brian S. Hart

  
	
  Telephone No.: (310)
  284-6133

  	
   

  	
  Telephone No.: (312)
  668-5702

  
	
  Facsimile No.: (310)
  277-4730

  	
   

  	
  Facsimile No.: (312)
  558-5700