Document:

Exhibit 10.2

 

MSC.SOFTWARE CORPORATION

SEVERANCE COMPENSATION AGREEMENT

 

THIS AGREEMENT, effective July
6, 2005, is between MSC.Software Corporation, a Delaware corporation (the “Company”)
and John A. Mongelluzzo (the “Executive”) and replaces and supersedes,
in its entirety, that Severance Compensation Agreement between the Company and
Executive dated March 17, 2005, and such previous agreement shall be
null and void in all respects.

 

The Company’s Compensation
Committee and Board of Directors has determined that it is appropriate to
reinforce and encourage the continued attention and dedication of members of
the Company’s management to their assigned duties without distraction in
potentially disturbing circumstances arising from the possibility of a change
in control of the Company.

 

This Agreement sets forth the
severance compensation which the Company agrees it will pay to the Executive if
the Executive’s employment with the Company terminates under one of the
circumstances described herein following a Change in Control of the Company (as
defined herein).

 

1.                                       Term.  This Agreement shall terminate, except to the
extent that any obligation of the Company hereunder remains unpaid as of such
time, upon the earliest of (i) December 31st of any year after 2006,
provided that either party has given at least 60 days prior written notice to
the other party of its or his intention to terminate this Agreement under this
paragraph 1(i); (ii) the termination of the Executive’s employment with the
Company based on death, Disability (as defined in Section 3(b)), Retirement (as
defined in Section 3(c)) or Cause (as defined in Section 3(d)) or by the
Executive other than for Good Reason (as defined in Section 3(e)); and (iii)
two years from the date of a Change in Control of the Company if the Executive
has not terminated his employment for Good Reason as of such time.

 

2.                                       Change in
Control.  No compensation shall be
payable under this Agreement unless and until (a) there shall have been a
Change in Control of the Company, while the Executive is still an employee of
the Company and (b) the Executive’s employment by the Company thereafter shall
have been terminated in accordance with Section 3. For purposes of this
Agreement, a Change in Control of the Company shall be deemed to have occurred
if:

 

(i)                                     there
shall be consummated any consolidation or merger of the Company and, as a
result of such consolidation or merger (x) less than 50% of the outstanding
common shares and 50% of the voting shares of the surviving or resulting corporation
are owned, immediately after such consolidation or merger, by the owners of the
Company’s common shares immediately prior to such consolidation or merger, or
(y) any person (as such term is used in Section 13(d) and 14(d)(2) of the
Securities Exchange Act of 

 

1

 

1934, as
amended (the “Exchange Act”) shall become the beneficial owner (within the
meaning of Rule 13d-3 under the Exchange Act) of 20% or more of the surviving
or resulting corporation’s outstanding common shares; or

 

(ii)           any sale, lease,
exchange or other transfer (in one transaction or a series of related
transactions) of all, or substantially all, of the assets of the Company shall
be consummated; or

 

(iii)          the shareholders of the
Company shall approve any plan or proposal for the liquidation or dissolution
of the Company; or

 

(iv)          any person (as such term
is used in Section 13(d) and 14(d)(2) of the Exchange Act) shall become the
beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of
20% or more of the Company’s outstanding common shares; or

 

(v)           during any period of
two consecutive years, individuals who at the beginning of such period
constitute the entire Board of Directors shall cease for any reason to constitute
a majority thereof unless the election or the nomination for election by the
Company’s shareholders of each new director was approved by a vote of at least
two-thirds of the directors then still in office who were directors at the
beginning of the period.

 

3.             Termination
Following Change in Control

 

(a)                                  If
a Change in Control of the Company shall have occurred while the Executive is
still an employee of the Company, the Executive shall be entitled to the
compensation provided in Section 4 upon the subsequent termination of the
Executive’s employment with the Company by the Executive or by the Company
unless such termination is as a result of (i) the Executive’s death; (ii) the
Executive’s Disability (as defined in Section 3(b) below); (iii) the Executive’s
Retirement (as defined in Section 3(c) below); (iv) the Executive’s termination
by the Company for Cause (as defined in Section 3(d) below); or (v) the
Executive’s decision to terminate employment other than for Good Reason (as
defined in Section 3(e) below).

 

(b)                                 Disability.
If, as a result of the Executive’s incapacity due to physical or mental
illness, the Executive shall have been absent from his duties with the Company
on a full-time basis for twelve months and within 30 days after written notice
of termination is thereafter given by the Company the Executive shall not have
returned to the full-time performance of the Executive’s duties, the Company
may terminate this Agreement for “Disability.”

 

2

 

(c)                                  Retirement.  The term “Retirement” as used in this
Agreement shall mean termination by the Company or the Executive of the
Executive’s employment based on the Executive having reached age 65 or such
other age as shall have been fixed in any written arrangement regarding the
Executive’s retirement established with the Executive’s consent with respect to
the Executive.

 

(d)                                 Cause.
The Company may terminate the Executive’s employment for Cause. For purposes of
this Agreement only, the Company shall have “Cause” to terminate the Executive’s
employment hereunder only on the basis of fraud, misappropriation or
embezzlement on the part of the Executive. Notwithstanding the foregoing, the
Executive shall not be deemed to have been terminated for Cause unless and until
there shall have been delivered to the Executive a copy of a resolution duly
adopted by the affirmative vote of not less than three-quarters of the entire
membership of the Company’s Board of Directors at a meeting of the Board called
and held for the purpose (after reasonable notice to the Executive and an
opportunity for the Executive, together with the Executive’s counsel, to be
heard before the Board), finding that in the good faith opinion of the Board
the Executive was guilty of conduct set forth in the second sentence of this
Section 3(d) and specifying the particulars thereof in detail.

 

(e)                                  Good
Reason.  The Executive may terminate
the Executive’s employment for Good Reason at any time during the term of this
Agreement. For purposes of this Agreement “Good Reason” shall mean any of the
following without the Executive’s express written consent:

 

(i)                                     the
assignment to the Executive by the Company of duties inconsistent with the
Executive’s position, duties, responsibilities and status with the Company
immediately prior to a Change in Control of the Company, or a change in the
Executive’s titles or offices as in effect immediately prior to a Change in
Control of the Company, or any removal of the Executive from or any failure to
reelect the Executive to any of such positions, except in connection with the
termination of his employment for Disability, Retirement or Cause or as a
result of the Executive’s death or by the Executive other than for Good Reason;

 

(ii)                                  a
reduction by the Company in the Executive’s base salary as in effect on the
Date of Termination;

 

(iii)                               any
failure by the Company to continue in effect any benefit plan or arrangement
(including, without limitation, the Company’s retirement plan, group life
insurance plan, and medical, dental, accident and disability plans) in which
the Executive is 

 

3

 

participating
at the time of a Change in Control of the Company (or any other plans providing
the Executive with substantially similar benefits) (hereinafter referred to as “Benefit
Plans”), or the taking of any action by the Company which would adversely
affect the Executive’s participation in or materially reduce the Executive’s
benefits under any such Benefit Plan or deprive the Executive of any material
fringe benefit enjoyed by the Executive at the time of a Change in Control of
the Company;

 

(iv)                              any
failure by the Company to continue the Executive’s eligibility to participate
in annual executive bonus arrangements in which the Executive is participating
at the time of a Change in Control of the Company (or any plans or arrangements
providing him with substantially similar benefits) (hereinafter referred to as “Incentive
Plans”) or the taking of any action by the Company which would significantly
reduce the Executive’s opportunity to earn incentive compensation which is
related to performance results as compared to performance expectations
periodically determined by the Company;

 

(v)                                 a
relocation of the Company’s principal executive offices, or the Executive’s
relocation to any place other than the location at which the Executive
performed the Executive’s duties prior to a Change in Control of the Company,
except for required travel by the Executive on the Company’s business to an
extent substantially consistent with the Executive’s business travel
obligations at the time of a Change in Control of the Company;

 

(vi)          any failure by the
Company to provide the Executive with the number of paid vacation days to which
the Executive is entitled at the time of a Change in Control of the Company;

 

(vii)         any material breach by
the Company of any provision of this Agreement;

 

(viii)        any failure by the Company
to obtain the assumption in writing of this Agreement by any successor or
assign of the Company, unless consent given by Executive;

 

(ix)           any purported
termination of the Executive’s employment, which is not effected pursuant to a
Notice of Termination satisfying the requirements of Section 3(f), and for
purposes of this Agreement, no such purported termination shall be effective;
or

 

4

 

(x)            the failure of the
Company to maintain Directors’ and Officers’ Liability Insurance on terms not
materially less favorable to the Executive than the terms of the policy
presently in effect.

 

(f)                                    Notice
of Termination.  Any termination by
the Company pursuant to Section 3(b), 3(c) or 3(d) shall be communicated by a
Notice of Termination. For purposes of this Agreement, a “Notice of Termination”
shall mean a written notice which shall indicate those specific termination
provisions in this Agreement relied upon and which sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination
of the Executive’s employment under the provision so indicated. For purposes of
this Agreement, such purported termination by the Company shall not be
effective without such Notice of Termination.

 

(g)                                 Date
of Termination.  “Date of Termination”
shall mean (a) if this Agreement is terminated by the Company for Disability,
30 days Notice of Termination is given to the Executive (provided that the
Executive shall not have returned to the performance of the Executive’s duties
on a full-time basis during such 30-day period) or (b) if the Executive’s
employment is terminated by the Company for any other reason, the date on which
a Notice of Termination is given; provided that if within 30 days after any
Notice of Termination is given to the Executive by the Company the Executive
notifies the Company that a dispute exists concerning the termination, the Date
of Termination shall be the date the dispute is finally determined, whether by
mutual agreement by the parties or upon final judgment, order or decree of a
court of competent jurisdiction (the time for appeal therefrom having expired
and no appeal having been perfected.)

 

4.                                       Compensation
Under this Agreement

 

(a)                                  If
within two years after a Change in Control of the Company, a Notice of
Termination is given either by the Company to the Executive or by the Executive
to the Company, and if such termination is not by reason of the Executive’s
death, Disability or Retirement, or by the Company for Cause, or by the
Executive other than for Good Reason, the Company shall make the following
payments to the Executive:

 

(i)            the full base salary
to which the Executive is entitled through the Date of Termination;

 

(ii)           credit for unused
vacation calculated at Executive’s then current base salary rate;

 

(iii)          An amount equal to the
Executive’s current Annual Bonus Award under any Company annual incentive plan
for the fiscal year in which the Notice of Termination is given, multiplied by
the 

 

5

 

percentage
determined by dividing the number of days in the Company’s fiscal year that have
elapsed prior to the date on which the Notice of Termination is given by the
total number of days in such fiscal year. As used in this clause (iii) the
Executive’s Annual Bonus Award means the dollar amount which would have been
paid to Executive for the fiscal year in which the Notice of Termination is
given under the then current Company executive incentive compensation plan,
based on the assumption that the Target Level of performance would be reached
by the Company and the Executive.

 

(iv)                              an
amount equal to two and one-half (2.5) times the sum of the Executive’s
annualized base salary and Annual Bonus Award (as defined in clause (iii)
above) for the year in which the Notice of Termination is given, provided,
however, that the amounts to be paid to the Executive under this clause (iv)
shall be reduced by the amount payable to the Executive under clause (iii) of
this Section 4(a).

 

(b)                                 Upon
a Change in Control, all stock options granted to Executive will be immediately
vested and exerciseable.

 

(c)                                  (i)            If
any payment or distribution by the Company to or for the benefit of the
Executive, whether pursuant to the terms of this Agreement or otherwise (a “Payment”),
is subject to the excise tax imposed by Section 4999 of the Internal Revenue
Code or any interest or penalties are incurred by the Executive with respect to
such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the “Excise Tax”), the
Company shall make an additional payment (a “Gross-Up Payment”) to the
Executive in an amount such that, after payment by the Executive of all taxes
(including any interest or penalties imposed with respect to such taxes)
including, without limitation, any federal, state, or local income and employment
taxes and Excise Tax imposed upon the Gross-Up Payment, the Executive retains
an amount of the Gross-Up Payment equal to the Excise Tax imposed on the
Payment.

 

(ii)           Subject
to the provisions of paragraph 4c(iii) hereof, all determinations under this paragraph
4(c), including whether a Gross-Up Payment is required and the amount of the
Gross-Up Payment, shall be made by a certified public accounting firm
immediately before the Change in Control occurs (the “Accounting Firm”), which
shall provide detailed supporting calculations to both the Company and the
Executive within 15 business days after the Change in Control (or any other
change in ownership or 

 

6

 

effective control that triggers application of the Excise Tax) and, if
a termination for Good Reason occurs, within 15 days after the termination for
Good Reason. All fees and expenses of the Accounting Firm shall be borne solely
by the Company. The initial Gross-Up Payment determined pursuant to this paragraph

4(c)(ii) shall be paid by the Company to the Executive, or tax authority,
whichever is required, within five days after it receives the Accounting Firm’s
determination. If the Accounting Firm determines that no Excise Tax is payable
by the Executive, it shall furnish the Executive with a written opinion that
failure to report the Excise Tax on the Executive’s applicable federal tax
return will not result in the imposition of a negligence or similar penalty.
Any determination by the Accounting Firm shall be binding on the Company and
the Executive. Notwithstanding the foregoing, as a result of uncertainty in
applying Section 4999 of the Internal Revenue Code, it is possible that the
Company will not have made Gross-Up Payments that it should have made hereunder
(an “Underpayment”). If the Company exhausts its remedies pursuant to paragraph
4(c)(iii) hereof and the Executive thereafter is required to pay any Excise
Tax, the Accounting Firm shall determine the amount of the Underpayment, inform
the Company and the Executive of the Underpayment in writing, and, within five
days of receiving such written report, the Company shall pay the amount of such
Underpayment to or for the benefit of the Executive.

 

(iii)          The
Executive shall notify the Company in writing of any claim by the Internal
Revenue Service that, if successful, would require the payment by the Company
of the Gross-Up Payment. Such notification shall be given as soon as
practicable but not later than ten business days after the Executive is informed
in writing of such claim and shall apprise the Company of the nature of such
claim and the date on which such claim is required to be paid. The Executive
shall not pay such claim before the expiration of 30 days following the date on
which he gives such notice to the Company (or such shorter period ending on the
date that any payment of taxes with respect to such is due). If the Company
notifies the Executive in writing before the expiration of such 30-day period
that it desires to contest such claim, the Executive shall (1) give the Company
any information reasonably requested by the Company relating to such claim, and
(2) take such action in connection with contesting such claim as the Company
shall reasonably request in writing from time to time, including, without
limitation, accepting legal representation with respect to such claim by an
attorney selected by the Company, provided that the Company shall pay directly
all costs and expenses (including additional interest and 

 

7

 

penalties) incurred in connection with such contest and shall indemnify
and hold the Executive harmless, on an after-tax basis, for any tax, including
interest and penalties, imposed as a result of such representation and payment of
costs and expenses. The Company shall control all proceedings in connection
with such contest and may, at its sole option, either direct the Executive to
pay the tax claimed and sue for a refund or to contest the claim in any
permissible manner, and the Executive agrees to prosecute such contest to a
determination before any appropriate administrative tribunal or court, as the
Company shall determine; provided, that if the Company directs the Executive to
pay such claim and sue for a refund, the Company shall advance the amount of
such payment to the Executive, on an interest-free basis, and shall indemnify
and hold the Executive harmless, on an after-tax basis, from any tax, including
interest or penalties, imposed with respect to such advance. The Company’s
control of the contest shall be limited to issues with respect to which a
Gross-Up Payment would be payable hereunder, and the Executive shall be
entitled to settle or contest any other issue.

 

(iv)                              If, after the Executive
receives an advance by the Company pursuant to paragraph 4(c)(iii) hereof, the
Executive becomes entitled to receive a refund claimed pursuant to such
paragraph 4(c)(iii), the Executive shall (subject to the Company’s complying
with the requirements of such paragraph 4(c)(iii) promptly pay to the Company
the amount of such refund (together with any interest thereon, after taxes
applicable thereto). If, after the Executive receives an amount advanced by the
Company pursuant to paragraph

4(c)(iii) hereof, a determination is made that the Executive shall not be
entitled to any refund claimed pursuant to such paragraph 4(c)(iii), and the
Company does not notify the Executive in writing of its intent to contest such
denial of refund before the expiration of 30 days after such determination, the
Executive shall not be required to repay such advance, and the amount of such
advance shall offset, to the extent thereof, the amount of the required
Gross-Up Payment.

 

(v)                                 Any payments otherwise
required by this paragraph 4(C) shall be made regardless of whether a
termination for Good Reason occurs.

 

(d)                                 The
amounts required to be paid under Section 4(a) shall be paid by the Company to
the Executive in cash in a lump sum on the 10th day after the Date
of Termination. All payments made to the Executive pursuant to this Agreement
or any other agreement or plan of or with the Company shall be made within the
time periods described herein, however, if it is determined by the parties or
in the opinion of counsel reasonably 

 

8

 

acceptable to
the Executive and the Company, such determination to be made or opinion
provided to the Company no later than thirty (30) days after the Date of
Termination, that payment (or payments) is or reasonably may be treated as deferred
compensation within the meaning of Section 409A of the Internal Revenue Code of
1986, as amended (the “Code”), except in the case of the Executive’s death, the
payment (or payments) shall be delayed (without interest) to a date no earlier
than, and shall be paid as soon as administratively practicable after, six (6)
months after the Executive’s “separation from service,” as that term is defined
in Section 409A of the Code.

 

(e)                                  Any
payments required under this Section 4 shall be paid net of applicable federal,
state and local tax withholding.

 

(f)                                    If
the Company is required to make payments to the Executive under Section 4(a),
the Company, until the earlier of (i) two and one-half (2.5) years after the
Date of Termination or (ii) commencement of full-time employment by the
Executive with a new employer, shall maintain in full force and effect, for the
continued benefit of the Executive, medical and dental programs or arrangements
in which the Executive was entitled to participate immediately prior to the
Date of Termination, provided that continued participation by the Executive is
possible under the general terms and provisions of such plans and programs.

 

(g)                                 Except
for the payment referred to in clause (i) of Section 4(a) none of the payments
to the Executive under this Section 4 shall be counted for the purpose of
computing the Executive’s benefits under any pension, profit sharing, deferred
compensation or other employee benefit plan maintained by the Company.

 

5.                                       No
Obligation to Mitigate Damages; No Effect on Other Contractual Rights.

 

The provisions
of this Agreement, and any payment provided for hereunder, shall not reduce any
amounts otherwise payable, or in any way diminish the Executive’s existing
rights, or rights which would accrue solely as a result of the passage of time,
under any Benefit Plan, Incentive Plan or Securities Plan, employment agreement
or other contract, plan or arrangement.

 

6.                                       Successor
to the Company.

 

(a)                                  The
Company will require any successor or assign (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company, by agreement in form and substance
satisfactory to the Executive, expressly, absolutely and unconditionally to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company 

 

9

 

would be
required to perform it if such succession or assignment had not taken place.
Any failure of the Company to obtain such agreement prior to the effectiveness
of any such succession or assignment shall be a material breach of this
Agreement and shall entitle the Executive to terminate the Executive’s
employment for Good Reason. As used in this Agreement, “Company” shall mean the
Company as herein before defined and any successor or assign to its business
and/or assets as aforesaid which executes and delivers the agreement provided
for in this Section 6 or which otherwise becomes bound by all the terms and
provisions of this Agreement by operation of law. If at any time during the
term of this Agreement the Executive is employed by any corporation, a majority
of the voting securities of which is then owned by the Company, “Company” as
used in Section 3, 4, 12 and 13 hereof shall in addition include such employer.
In such event, the Company agrees that it shall pay or shall cause such
employer to pay any amounts owed to the Executive pursuant to Section 4 of this
Agreement.

 

(b)                                 This
Agreement shall inure to the benefit of and be enforceable by the Executive’s
personal and legal representatives, executors, administrators, successors,
heirs, distributees, devisees and legatees. If the Executive should die while
any amounts are still payable to him hereunder, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to the Executive’s devisee, legatee, or other designee or, if there
be no such designee, to the Executive’s estate.

 

7.                                       Non-compete.  Without the consent in writing of the Board,
Executive will not, at any time during employment with the Company and for a
period of two and one-half (2.5) years following termination of Executive’s
employment for any reason (except as stated below), engage in the management or
control of, or serve as an employee, consultant, agent, proprietor, principal,
partner, major shareholder, corporate officer or director of, any person, firm,
corporation or business (collectively, as “Competing Entity”) that directly and
substantially competes with the products and services of the Company. For
purposes of this Agreement, a Competing Entity is limited to an entity that
derives a significant amount or percentage of its total annual revenue from the
sale of virtual product development software and related services and competes
in one or more of the same geographic markets as the Company. It is agreed that
the ownership of not more than two percent (2%) of the equity securities of any
company having securities listed on an exchange or regularly traded in the
over-the-counter market shall not, of itself, be deemed inconsistent with this
Section 7.

 

8.                                       Notice.  For purposes of this Agreement, notices and
all other communications provided for in the Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by United
States certified or registered mail, return receipt requested, postage prepaid,
as follows:

 

10

 

	
  If to the
  Company:

  	
   

  	
  MSC.Software
  Corporation

  
	
   

  	
   

  	
  SVP Business
  Administration, General Counsel and Secretary

  
	
   

  	
   

  	
  2 MacArthur
  Place

  
	
   

  	
   

  	
  Santa Ana,
  CA 92707

  
	
   

  	
   

  	
   

  
	
  If to the
  Executive:

  	
   

  	
  John A.
  Mongelluzzo

  
	
   

  	
   

  	
  7875 Shawnee
  Run Road

  
	
   

  	
   

  	
  Cincinnati,
  OH 45243

  

 

or such other
address as either party may have furnished to the other in writing in
accordance herewith, except that notices of change of address shall be
effective only upon receipt.

 

9.                                       Miscellaneous.  No provisions of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by the Executive and Company. No waiver by either
party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed
by such other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time. No
agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by either party, which are
not set forth expressly in this Agreement. This Agreement shall be governed by
and construed in accordance with the laws of the State of California.

 

10.           Validity.  The invalidity or unenforceability of any
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.

 

11.           Counterparts.  This agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.

 

12.           Legal Fees and
Expenses.  The Company shall pay all
legal fees and expenses, which the Executive may incur as a result of the
Company’s contesting the validity, enforceability or the Executive’s
interpretation of, or determinations under, this Agreement.

 

13.           Confidentiality.  The Executive shall retain in confidence any
and all confidential information known to the Executive concerning the Company
and its business so long as such information is not otherwise publicly
disclosed.

 

11

 

IN WITNESS WHEREOF, the parties
have executed this Agreement as of the date first above written.

 

	
  ATTEST:

  	
   

  
	
   

  	
   

  
	
  /s/ MARGARET
  WILLIAMS

  	
   

  	
  By:

  	
  /s/ JOHN
  MONGELLUZZO

  	
   

  
	
   

  	
   

  	
  (Signature
  of Executive)

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ WILLIAM
  WEYAND

  	
   

  
	
   

  	
   

  	
  Chairman of
  the Board and

  	
   

  
	
   

  	
   

  	
  Chief
  Executive Officer

  	
   

  
					

 

12Exhibit 10.9

 

EXECUTION COPY

 

AGREEMENT
AND PLAN OF MERGER

 

 

dated
as of June 14, 2005

 

among

 

KIPB
GROUP HOLDINGS, LLC,

 

KCT
MERGER SUB, INC.,

 

 

and

 

 

CELLU
PAPER HOLDINGS, INC.

 

 

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

  	
   

  
				

 

i

 

	
  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

  	
   

  
				

 

ii

 

	
  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

 

	
  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

 

EXECUTION COPY

 

AGREEMENT
AND PLAN OF MERGER

 

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

 

RECITALS

 

WHEREAS, the respective
Boards of Directors of Parent, Merger Sub and the Company deem it advisable and
in the best interests of each corporation and their respective stockholders
that Parent acquire the Company on the terms and conditions set forth in this
Agreement;

 

WHEREAS, the
acquisition of the Company shall be effected by the terms of this Agreement
through 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 owned
subsidiary of Parent and each issued and outstanding share of capital stock of the
Company not owned by Parent, Merger Sub or the Company, other than the
Dissenting Shares (as hereinafter defined), shall be converted into the right
to 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, in
consideration of the foregoing and the respective representations, warranties,
covenants and agreements set forth in this Agreement, the parties agree as
follows:

 

ARTICLE I.

DEFINITIONS

 

The terms defined in this Article I, whenever used herein (including, without
limitation, the Exhibits and Schedules hereto), shall have the following
meanings for all purposes of this Agreement:

 

“Acquisition
Proposal” has the meaning set forth in Section 6.5(c).

 

“Action of
Divesture” has the meaning set forth in Section 8.3(b).

 

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

 

“Actual Net
Working 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 or
more intermediaries controls, is controlled by, or is under common control with
such 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).

 

“Assignment
Side Letter” means the letter, dated as of the date hereof, by
and among the Company, Parent and Merger Sub regarding Parent’s ability to
assign its interests hereunder immediately prior to the Effective Time.

 

“Business Day”
means any day other than a Saturday, Sunday or other day on which commercial
banks 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 which
would, in accordance with GAAP, be required to be accounted for as a capital
lease on the balance sheet of such Person.

 

“Certificate of
Merger” 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 Tax
Benefit” 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 and
its Subsidiaries’ cash and cash equivalents.

 

“Company Common Stock” has the
meaning set forth in Section 3.3.

 

“Company
Disclosure Schedules” means the disclosure schedules attached
hereto as Exhibit A.

 

“Company
Employee Plans” has the meaning set forth in Section 4.9(a).

 

“Company
Financial Statements” has the meaning set forth in Section 4.4(a).

 

“Company
Material Adverse Effect” has the meaning set forth in Section 4.1.

 

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

 

2

 

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

 

“Company
Stockholder Approval” has the meaning set forth in Section 4.3(a).

 

“Company
Transaction Expenses” means all fees and expenses incurred by
the Company, its Subsidiaries or any Former Company Stockholder in connection
with this Agreement and the transactions contemplated hereby; provided,
however, that, for the avoidance of doubt, Company Transaction Expenses shall
not 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 fees
incurred in connection with the transactions contemplated hereby.

 

“Company
Unaudited Financials” has the meaning set forth in Section 4.4(a).

 

“Company
Warrants” has the meaning set forth in Section 3.3(e).

 

“Confidentiality
Agreement” has the meaning set forth in Section 8.1.

 

“Consent
Materials” has the meaning set forth in Section 6.1.

 

“Constituent
Corporations” 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).

 

“Dissenting
Shares” has the meaning set forth in Section 3.4(a).

 

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

 

“Environmental
Laws” means all applicable federal, Canadian, state, provincial
or local statutes, laws, regulations, judgments and orders relating to
protection of human health or safety or the environment, including laws and
regulations relating to Releases or threatened Releases of Hazardous
Substances, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous
Substances.

 

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

 

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

 

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

 

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

 

3

 

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

 

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

 

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

 

“Estimated Tax
Benefit” has the meaning set forth in Section 3.1.

 

“Foreign
Employer Plan” has the meaning set forth in Section 4.9(e).

 

“Former Company
Stockholders” means the holders of shares of Company Common
Stock immediately prior to the Effective Time and all Optionholders and
Warrantholders set forth on Exhibit B
hereto (as such Exhibit shall be updated immediately prior to the
Effective Time).

 

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

 

“Former Company
Stockholders Indemnification Agreement” has the meaning set
forth in Section 9.2(m).

 

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

 

“Governmental
Entity” has the meaning set forth in Section 4.3(c).

 

“Guarantee”
shall mean (i) any guarantee of the payment or performance of, or any
contingent obligation in respect of, any indebtedness or other obligation of
any other Person, (ii) any other arrangement whereby credit is extended to
one obligor on the basis of any promise or undertaking of another Person (A) to
pay the indebtedness of such obligor, (B) to purchase any obligation owed
by such obligor, (C) to purchase or lease assets (other than inventory in
the ordinary course of business consistent with past practices) under
circumstances that would enable such obligor to discharge one or more of its
obligations, or (D) to maintain the capital, working capital, solvency or
general financial condition of such obligor, and (iii) any liability as a
general partner of a partnership or as a venturer in a joint venture in respect
of indebtedness or other obligations of such partnership or joint venture.

 

“Hazardous
Substances” means any petroleum or fraction thereof, chemicals,
materials or substances which are now or ever have been defined as or included
in the definition of “hazardous substances,” “hazardous wastes,” “hazardous
materials,” “extremely hazardous wastes,” “restricted hazardous wastes,” “toxic
substances,” “toxic pollutants”, or other words of similar import, under any
Environmental Law.

 

“HSR Act” has the meaning set forth
in Section 4.3(c).

 

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

 

4

 

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

 

“Indemnification
Matters Letter” has the meaning set forth in Section 11.1.

 

“Independent
Auditor” has the meaning set forth in Section 3.3(f)(iv).

 

“Intellectual
Property” 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 all
translations, adaptations, derivations, and combinations thereof and all
goodwill associated therewith; (ii) trade secrets, know-how and other
proprietary or confidential information; (iii) computer software and other
intangible property and rights (other than off-the-shelf computer software
licensed under a “shrink wrap” or similar license); and (iv) all
registrations and applications for any of the items described in (i) through
(iii).

 

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

 

“Leased
Premises” has the meaning set forth in Section 4.7(b).

 

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

 

“Material Contracts” has the
meaning set forth in Section 4.10(a).

 

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

 

“Merger
Consideration” has the meaning set forth in Section 3.1.

 

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

 

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

 

“Net
Indebtedness” means the Indebtedness immediately prior to the
Effective Time less the Company Cash immediately prior to the Effective Time.

 

“Net Working
Capital” means, as of immediately prior to the Effective Time,
the current assets of the Company and its Subsidiaries as of such time (other
than Company Cash) less the current liabilities of the Company and its
Subsidiaries as of such time (other than the current portion of any
Indebtedness that would be included within such current liabilities or any
Company Transaction Expenses to the extent taken into account in the
calculation of Merger Consideration in Section 3.1),
in each case determined in accordance with the basis of presentation and
accounting principles identified on, and subject to certain limitations set forth
in, Exhibit 3.3(f) attached
hereto.

 

5

 

“Option
Consideration” has the meaning set forth in Section 3.3(d).

 

“Optionholders”
means the Persons who hold Company Options, such Persons are listed in the second
column of Exhibit B
hereto, (as such Exhibit shall be updated immediately prior to the
Effective 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.

 

“Parent
Indemnified Parties” has the meaning set forth in Section 11.1.

 

“Parent
Material 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 Share
Merger 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, unincorporated
organization or other entity, or any Governmental Entity or quasi-governmental
body or regulatory authority.

 

“Property”
(or “Properties” when the
context 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 into
the atmosphere, soil, surface water, groundwater or property.

 

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

 

“Rollover
Shares” shall mean those shares, if any, of Company Common Stock
owned by Russell Taylor and/or Taylor Investment Partners immediately prior to
the Effective Time which are exchanged immediately prior to the Effective Time
for shares in Parent (or an Affiliate of Parent) pursuant to the terms and
conditions of an exchange agreement between Russell Taylor and/or Taylor
Investment Partners, on the one hand, and Parent (or an Affiliate of Parent),
on the other hand.

 

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

 

6

 

“Stockholder
Approval” has the meaning set forth in Section 6.1.

 

“Stockholders
Indemnified Parties” has the meaning set forth in Section 11.2.

 

“Subsidiary”
of a Person means any corporation, partnership, limited liability company or
other entity in which such Person, (a) directly or indirectly, owns or
controls fifty percent (50%) or more of the voting stock or other ownership
interests, or (b) is a general partner or participant in a joint venture
without limited liability.

 

“Superior
Proposal” has the meaning set forth in Section 6.5(c).

 

“Survival
Period” has the meaning set forth in Section 11.5.

 

“Surviving
Corporation” has the meaning set forth in Section 2.3(a).

 

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

 

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

 

“Transaction
Documents” has the meaning set forth in Section 4.3(a).

 

“2005 Audited
Financials” has the meaning set forth in Section 4.4(a).

 

“Unused Portion” has the meaning
set forth in Section 3.3(h)(iii).

 

“Warrant
Consideration” has the meaning set forth in Section 3.3(e)

 

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

 

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

 

“Working
Capital 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 and
subject 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 General
Corporation Law (the “DGCL”)
shall be duly executed and delivered by the Company and Merger Sub and
thereafter delivered to the Secretary of State of the State of Delaware for
filing on the Closing Date.

 

7

 

(b)           The Merger shall
become effective at the time of the filing of the Certificate of Merger with
the Secretary of State of the State of Delaware or at such time thereafter which
the parties hereto shall have agreed upon as is provided in the Certificate of
Merger (the “Effective Time”).

 

Section 2.2.          Closing.  Upon the terms and subject to the conditions
of this Agreement, the closing of the Merger (the ”Closing”) will take place at a time and
on 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 subject
to the conditions of this Agreement, at the Effective Time (i) Merger Sub
shall be merged with and into the Company and the separate existence of Merger
Sub shall cease (Merger Sub and the Company are sometimes referred to herein as
the “Constituent Corporations”
and the Company following consummation of the Merger is sometimes referred to
herein as the “Surviving Corporation”),
(ii) the certificate of incorporation of Merger Sub, as amended and
restated, in substantially the form attached hereto as Exhibit 2.3(a)(2), shall be the
certificate of incorporation of the Surviving Corporation, except that Article I
shall 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 the
Effective Time, in the form attached hereto as Exhibit 2.3(a)(3), shall become the bylaws of the
Surviving Corporation, except that Article I shall state that the name of
the Surviving Corporation is Cellu Paper Holdings, Inc.

 

(b)           At the Effective
Time, the effect of the Merger shall be as provided in this Agreement, the
Certificate of Merger and the applicable provisions of the DGCL.  Without limiting the generality of the
foregoing, at and after the Effective Time, the Surviving Corporation shall
possess all of the rights, privileges, powers and franchises, and be subject to
all the restrictions, disabilities and duties of each of the Constituent
Corporations.

 

Section 2.4.          Directors and Officers.  At and after the Effective Time, (i) the directors
of Merger Sub immediately prior to the Effective Time shall be the directors of
the Surviving Corporation as of the Effective Time, and (ii) the officers
of the Company immediately prior to the Effective Time shall be the officers of
the 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, the
aggregate consideration to be paid in cash by Parent for all of the outstanding
capital stock of the Company, Company Options and Company Warrants shall be an
amount 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 date
hereof, of the tax benefit to be received by Parent arising from tax

 

8

 

deductions
attributable to payments made in connection with the cancellation of the
Company Options in the Merger) (the “Estimated
Tax Benefit”) and (ii) the sum of (A) the Estimated
Net Indebtedness and (B) the amount of any Company Transaction Expenses to
the extent not actually paid prior to the Effective Time.  The result of the calculation in the
preceding sentence shall be increased by the amount, if any, by which the
Estimated 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 (such
consideration in the aggregate, as determined pursuant to this sentence and the
immediately preceding sentence, as further adjusted pursuant to the terms of
this Agreement, the “Merger Consideration”).

 

Section 3.2.          Escrow Amount.  Notwithstanding anything to the contrary
contained herein:

 

(a)           Parent shall
withhold from the Merger Consideration otherwise payable at Closing an amount of
$12,000,000 (the “Escrow Amount”).  On the Closing Date, Parent shall cause the
Escrow Amount to be delivered to an escrow agent reasonably satisfactory to
Parent and the Company (the “Escrow Agent”),
pursuant to an escrow agreement by and among Parent, the Company, the Former
Company Stockholders’ Agent and Escrow Agent (the “Escrow Agreement”) substantially in the
form annexed hereto as Exhibit 3.2(a).  Such sum shall be paid to the Escrow Agent on
the Closing Date by wire transfer of immediately available funds to the account
designated in writing by the Escrow Agent. 
The Escrow Amount will be held by the Escrow Agent as partial security
for the obligations of the Former Company Stockholders to the Parent Indemnified
Parties pursuant to the terms of Article XI
of this Agreement.  The Escrow Amount
shall be disbursed by the Escrow Agent pursuant to the terms of the Escrow
Agreement.

 

(b)           In addition to the
Escrow Amount set forth in Section 3.2(a) above, Parent shall withhold
from the Merger Consideration otherwise payable at Closing an amount of
$3,000,000 (the “Working Capital Escrow
Amount”).  On the Closing
Date, Parent shall cause the Working Capital Escrow Amount to be delivered to
the Escrow Agent pursuant to an escrow agreement by and among Parent, the
Company, 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 wire
transfer of immediately available funds to the account designated in writing by
the Escrow Agent.  The Working Capital
Escrow Amount will be held by the Escrow Agent as partial security for the
obligations, if any, of the Former Company Stockholders to Parent pursuant to
the terms of Section 3.3(f) of
this Agreement.  The Working Capital
Escrow Amount shall be disbursed by the Escrow Agent pursuant to the terms of
the Working Capital Escrow Agreement.

 

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

 

(a)           Capital Stock of Merger
Sub.  Each issued and outstanding
share of the capital stock of Merger Sub shall be converted into and become one
fully paid and

 

9

 

nonassessable
share of common stock, $0.01 par value per share, of the Company, as the
Surviving Corporation with the same rights, powers and privileges as the
capital stock of Merger Sub so converted, so that after the Effective Time
Parent shall be the holder of all of the issued and outstanding shares of the
Surviving Corporation.

 

(b)           Cancellation of Company-Owned
Stock.  Any shares of Company Common
Stock that are owned by the Company, any of its Subsidiaries or Parent immediately
prior to the Effective Time shall be canceled and retired and shall cease to
exist without any conversion thereof and no consideration shall be delivered or
deliverable therefor.

 

(c)           Capital Stock of
the Company.  At the Effective Time,
each issued and outstanding share of Company Common Stock (other than the
Rollover Shares or shares to be canceled in accordance with Section 3.3(b) and any Dissenting
Shares as defined in and to the extent provided in Section 3.4) shall, by virtue of the Merger and without
any action on the part of the holder thereof, be converted into the right to
receive, in cash, an amount equal to the result of (i) the sum of (A) the
Merger Consideration and (B) the aggregate amount of the exercise prices
payable in respect of all in-the-money Company Options (including any unvested
portion of such Company Options) and in-the-money Company Warrants, divided by (ii) the
sum of (X) the aggregate number of shares of Company Common Stock
outstanding immediately prior to the Effective Time (including any Rollover
Shares), (Y) the aggregate number of shares of Company Common Stock
issuable upon exercise of in-the-money Company Options (including any unvested
portion of such Company Options), and (Z) the aggregate number of shares
of Company Common Stock issuable upon exercise of in-the-money Company Warrants
(the “Per Share Merger Consideration”).  All such shares of Company Common Stock, when
so converted, shall no longer be outstanding and shall automatically be
canceled and retired and shall cease to exist, and each holder of a certificate
representing any such shares shall cease to have any rights with respect
thereto, except the right to receive the Per Share Merger Consideration in
consideration therefor upon the surrender of such certificate in accordance
with and subject to the applicable terms and conditions of Section 3.5, without any interest
thereon.

 

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

 

(e)           Company Warrants.  At the Effective Time, all then outstanding
warrants to purchase Company Common Stock (“Company Warrants”) which remain unexercised immediately
prior to the Effective Time will be cancelled and automatically converted into
the right to receive, upon surrender in accordance with and subject to the

 

10

 

applicable
terms and conditions of Section 3.5,
in lieu of the Company Common Stock theretofore issuable upon exercise of each
such Company Warrant, an amount in cash (without any interest thereon), if
positive, equal to the difference between (i) the Per Share Merger Consideration
multiplied by the number of shares of Company Common Stock theretofore issuable
upon exercise of such Company Warrant, reduced by (ii) the aggregate
exercise price of such Company Warrant (the “Warrant Consideration”). 
Any payment required pursuant to this Section 3.3(e) in
connection with any Company Warrants shall constitute a part of the Merger
Consideration.

 

(f)            Net Working
Capital Adjustment.

 

(i)            No later than three (3) Business Days prior to the
Closing Date, the Company shall deliver to Parent a certificate signed by an
officer of the Company setting forth the Company’s good faith determination of the
estimated Net Working Capital (“Estimated Net
Working Capital”).  The
Company shall provide Parent access to such working papers and other
information reasonably available supporting such calculation of Estimated Net
Working Capital.

 

(ii)           If Actual Net Working Capital (as defined below) is less
than the Estimated Net Working Capital, then the Merger Consideration shall be
reduced dollar-for-dollar by the amount of such shortfall.  If Actual Net Working Capital is greater than
the Estimated Net Working Capital, then the Merger Consideration shall be
increased dollar-for-dollar by the amount of such difference.

 

(iii)          Within thirty (30) days after the Closing Date, Parent
shall prepare or cause to be prepared a calculation of Net Working Capital and
deliver to the Former Company Stockholders’ Agent the calculation of Net
Working Capital and the adjustments, if any, required to be made to the Merger
Consideration pursuant to Section 3.3(f)(ii).  Parent shall provide the Former Company
Stockholders’ Agent access to such working papers and other information
reasonably available supporting such calculation of Net Working Capital.  If the calculation of the Net Working Capital
delivered to the Former Company Stockholders’ Agent is equal to or greater than
the Estimated Net Working Capital, Parent shall immediately prepare and execute
an instruction to the Escrow Agent to remit the full Working Capital Escrow
Amount to the Former Company Stockholders’ Agent to be disbursed to the Former
Company Stockholders.  If the calculation
of the Net Working Capital delivered to the Former Company Stockholders’ Agent
is less than the Estimated Net Working Capital (the difference of such amounts
being hereinafter referred to as the “Shortfall”),
Parent shall immediately prepare and execute an instruction to the Escrow Agent
to remit the difference, if positive, between (A) $3,000,0000 and (B) the
Shortfall, to the Former Company Stockholders’ Agent to be disbursed to the
Former Company Stockholders, and the balance of the Working Capital Escrow
Amount shall remain with the Escrow Agent pursuant to the terms of the Working
Capital Escrow Agreement and this Section 3.3(f).

 

(iv)          The Former Company Stockholders’ Agent will have a period
of thirty (30) days following the delivery of Parent’s calculation of Net
Working Capital to notify Parent in writing of any disagreements with such
calculation specifying in reasonable detail the nature and amount of any such
disagreement.  Any item or amount not
specifically objected to in

 

11

 

such
notification 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 Company
Stockholders’ Agent shall attempt in good faith to resolve such
disagreement.  If within thirty (30) days
after 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, on
the other hand, shall have the right to submit the determination of such matters
to an independent accountant of national standing reasonably acceptable to Parent
and the Former Company Stockholders’ Agent (the “Independent Auditor”), whose decision shall be binding on
the parties.  The cost of the Independent
Auditor and reasonable attorneys’ fees of the other party shall be paid by the
party whose aggregate estimate of the disputed amount differs most greatly from
the determination of the Independent Auditor. 
If the Former Company Stockholders are required to pay the cost of the
Independent Auditor then such costs shall be satisfied by payment solely from
the Working Capital Escrow Amount.  Notwithstanding
anything herein to the contrary, the dispute resolution mechanism contained in
this Section 3.3(f) shall
be the exclusive mechanism for resolving disputes regarding the Net Working
Capital adjustment, if any.  For purposes
of this Section 3.3(f), “Actual Net Working Capital” shall
mean 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 Merger
Consideration paid at the Closing is less than the Merger Consideration as
adjusted pursuant to this Section 3.3(f),
Parent shall remit such difference to the Paying Agent to be disbursed to the
Former Company Stockholders plus Parent shall immediately prepare and execute
an 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 Merger
Consideration paid at the Closing is greater than the Merger Consideration as
adjusted pursuant to this Section 3.3(f),
such amount shall be satisfied first by payment to Parent from the Working
Capital Escrow Amount with any shortfall to be satisfied by payment from the Former
Company Stockholders, on a several (but not joint) basis.  If after such satisfaction out of the Working
Capital Escrow Amount, if any, there is a balance remaining in the Working
Capital Escrow Amount, Parent shall immediately prepare and execute an
instruction to the Escrow Agent to remit such balance to the Paying Agent to be
disbursed to the Former Company Stockholders.

 

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

 

(g)           Net Indebtedness
Adjustment.

 

(i)            No later than three (3) Business Days prior to the
Closing Date, the Company shall deliver to Parent a certificate signed by an
officer of the Company setting forth the Company’s good faith determination of
the estimated Net Indebtedness (“Estimated
Net

 

12

 

Indebtedness”).  The Company shall provide Parent access to
such working papers and other information reasonably available supporting such
calculation of Estimated Net Indebtedness.

 

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

 

(iii)          Within thirty (30) days after the Closing Date, Parent
shall prepare or cause to be prepared a calculation of Net Indebtedness and
deliver to the Former Company Stockholders’ Agent such calculation of Net Indebtedness
and the adjustments, if any, required to be made to the Merger Consideration
pursuant to Section 3.3(g)(ii).  Parent shall provide the Former Company
Stockholders’ Agent access to such working papers and other information
reasonably available supporting such calculation of Net Indebtedness.

 

(iv)          The Former Company Stockholders’ Agent will have a period
of thirty (30) days following the delivery of Parent’s calculation of Net
Indebtedness to notify Parent in writing of any disagreements with such calculation
specifying in reasonable detail the nature and amount of any such
disagreement.  Any item or amount not
specifically objected to in such notification 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 Company Stockholders’ Agent shall attempt in good faith to
resolve such disagreement.  If within
thirty (30) days after 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, on the other hand, shall have the right to submit the
determination of such matters to an Independent Auditor, whose decision shall
be binding on the parties.  The cost of
the Independent Auditor and reasonable attorneys’ fees of the other party shall
be paid by the party whose aggregate estimate of the disputed amount differs
most greatly from the determination of the Independent Auditor.  Notwithstanding anything herein to the
contrary, the dispute resolution mechanism contained in this Section 3.3(g) shall be the
exclusive mechanism for resolving disputes regarding the Net Indebtedness
adjustment, if any.  For purposes of this
Section 3.3(g), “Actual Net Indebtedness” shall mean
the 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 adjustments
made in accordance with this Section 3.3(g),
shall be paid within five (5) Business Days of the final determination of
such adjustments by wire transfer of immediately available funds.  Any such payment shall be made to such
account or accounts as may be designated by the party entitled to such payment
at least two (2) Business Days prior to the date that such payment is to
be made.

 

13

 

(h)           Tax Benefit
Adjustment.

 

(i)            No later than 15 Business Days after both the Actual Net Working
Capital and Actual Net Indebtedness are finally determined in accordance with
Sections 3.3(f)(iv) and (g)(iv),
respectively, the Former Company Stockholders’ Agent shall prepare or cause to
be prepared a calculation of the tax benefit that may be received by Parent
arising from tax deductions attributable to payments made in connection with
the cancellation of the Company Options in the Merger (assuming for this
purpose that the Company will have sufficient income to use the entire
deduction and that the current tax rates remain in effect) (the “Closing Tax Benefit”).  Parent shall provide the Former Company
Stockholders’ Agent access to all financial and other information that it may
reasonably request to calculate the Closing Tax Benefit.  The Former Company Stockholders’ Agent shall
provide Parent access to its working papers and other information reasonably
available supporting such calculation of the Closing Tax Benefit.

 

(ii)           If the Closing Tax Benefit is more than the Estimated Tax
Benefit, then the Merger Consideration shall be increased dollar-for-dollar by
the amount of such difference and Parent shall remit such difference to the Former
Company Stockholders’ Agent to be disbursed to the Former Company Stockholders.  If the Closing Tax Benefit is less than the
Estimated Tax Benefit then the Merger Consideration shall be decreased
dollar-for-dollar by the amount of such difference and such amount shall be
satisfied by payment to Parent from the Former Company Stockholders, on a
several (but not joint) basis.

 

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

 

(iv)          The Former Company Stockholders’ Agent will have a period
of 20 Business Days following the delivery of Parent’s calculation of the Unused
Portion to notify Parent in writing of any disagreements with such calculation
specifying in reasonable detail the nature and amount of any such
disagreement.  Any item or amount not
specifically objected to in such notification 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 Company Stockholders’ Agent shall attempt in good faith to
resolve such disagreement.  If within
thirty (30) days after 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, on the other hand, shall have the right to submit the
determination of such matters to an Independent Auditor, whose decision shall
be binding on the parties.  The cost of
the Independent Auditor and

 

14

 

reasonable
attorneys’ fees of the other party shall be paid by the party whose aggregate
estimate of the disputed amount differs most greatly from the determination of
the Independent Auditor.  Notwithstanding
anything herein to the contrary, the dispute resolution mechanism contained in
this Section 3.3(h) shall
be the exclusive mechanism for resolving disputes regarding the Unused Portion,
if any.  The amount of the Unused
Portion, as finally determined pursuant to this Section 3.3(h)(iv) shall
be referred to as the “Agreed Upon Unused
Portion.”

 

(v)           The Former Company Stockholders shall pay severally and
not jointly to Parent an amount equal to the Agreed Upon Unused Portion
multiplied by the tax rate used to calculate the Closing Tax Benefit.

 

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

 

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

 

Section 3.4.          Appraisal Rights.

 

(a)           Notwithstanding any
provision of this Agreement to the contrary, any shares of Company Common Stock
held by a holder who has exercised such holder’s appraisal rights in accordance
with Section 262 of the DGCL, and who, as of the Effective Time, has not
effectively withdrawn or lost such appraisal rights (“Dissenting Shares”), shall not be
converted into or represent a right to receive the Per Share Merger
Consideration pursuant to Section 3.3(a),
but the holder of the Dissenting Shares shall only be entitled to such appraisal
rights as are granted by the DGCL.

 

(b)           Notwithstanding the
provisions of Section 3.4(a),
if any holder of shares of Company Common Stock who demands his, her or its
appraisal rights with respect to such shares shall effectively withdraw or lose
(through failure to perfect or otherwise) his, her or its rights to receive
payment for the fair market value of such shares under Section 262 of the
DGCL, then, as of the later of the Effective Time or the occurrence of such
event, such holder’s shares shall automatically be converted into and represent
only the right to receive the Per Share Merger Consideration, without any
interest thereon, as provided in Section 3.3(c) upon
surrender of the certificate or certificates representing such shares.  The Company shall give Parent prompt notice
of any demands received by the Company for appraisal of shares of Company
Common Stock, and Parent shall have the right to participate in all
negotiations and proceedings with respect to such demands.  Except with the prior written consent of
Parent, the Company shall not make any payment with respect to, or settle or
offer to settle, any such demands.

 

15

 

Section 3.5.          Payment of Merger Consideration; Exchange
of Certificates.

 

(a)           Prior to the
Effective Time, the Former Company Stockholders’ Agent shall designate, or
shall cause to be designated, a bank or trust company reasonably acceptable to Parent
to act as agent (the “Paying Agent”)
for the payment of the Merger Consideration (less the Escrow Amount, the
Working Capital Escrow Amount and the portion of the Merger Consideration
allocable to the Rollover Shares), and, at the Effective Time, Parent shall
provide to the Paying Agent, by wire transfer of immediately available funds, the
amounts necessary for the payment of the Merger Consideration (less the Escrow
Amount and the Working Capital Escrow Amount and the portion of the Merger
Consideration allocable to the Rollover Shares).  Any and all interest or income earned on
funds made available to the Paying Agent pursuant to this Agreement shall be
turned over to Parent.

 

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

 

(c)           In the event any
Certificate shall have been lost, stolen or destroyed, upon the making of an
affidavit of that fact by the Person claiming such Certificate to be lost,
stolen or destroyed, Paying Agent shall pay the applicable Per Share Merger
Consideration (less the applicable portion of the Escrow Amount and the Working
Capital 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 condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed Certificate to deliver an agreement of indemnification (but without
having to post a bond), in form reasonably satisfactory to Parent, against any
claim that may be made against Parent, the Surviving Corporation or the Paying
Agent with respect to the Certificate alleged to have been lost, stolen or
destroyed.

 

(d)           At the Effective
Time, each Optionholder shall receive from the Paying Agent the applicable Option
Consideration (less the applicable portion of the Escrow Amount and the Working
Capital Escrow Amount) into which the Company Options shall have been converted
pursuant, and subject to, the provisions of Article III
of this Agreement.

 

16

 

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

 

(f)            In the event any
Company Warrant shall have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the Person claiming such Company Warrant to be
lost, stolen or destroyed, Paying Agent shall pay the applicable Warrant
Consideration (less the applicable portion of the Escrow Amount and the Working
Capital 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 condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed Company Warrant to deliver an agreement of indemnification (but
without having to post a bond), in form reasonably satisfactory to Parent,
against any claim that may be made against Parent, the Surviving Corporation or
the Paying Agent with respect to the Warrant Certificate alleged to have been
lost, stolen or destroyed.

 

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

 

(h)           Any portion of the
Merger Consideration made available to the Paying Agent pursuant to Section 3.5(a) that remains
unclaimed six months after the Effective Time shall be returned to Parent, upon
demand, and any holder who has not surrendered Certificates or Company Warrants
for the applicable Per Share Merger Consideration or Warrant Consideration in
accordance with this Section 3.5
prior to that time shall thereafter look only to Parent for payment of such
applicable consideration, without any interest thereon.  Notwithstanding the foregoing, none of
Parent, Merger Sub, the Company, the Surviving Corporation or the Paying Agent
shall be liable to any such holder for any amounts paid to a Governmental
Entity pursuant to applicable law relating to abandoned property, escheat or
similar laws.  Any amounts remaining
unclaimed by holders two years after the Effective Time (or such earlier date,
immediately prior to such time when the amounts would otherwise escheat to or
become the property of any Governmental Entity)

 

17

 

shall become,
to the extent permitted by applicable law, the property of Parent, free and
clear of any Liens of any Person previously entitled thereto.  Any portion of the Merger Consideration made
available to the Paying Agent pursuant to Section 3.5(a) to
pay for shares of Company Common Stock for which appraisal rights have been
perfected shall be returned to Parent upon demand.

 

(i)            Each of the
Surviving Corporation, Parent and the Paying Agent shall be entitled to deduct
and withhold from the consideration otherwise payable to any Person pursuant to
this Article III such amounts
as it is required to deduct and withhold with respect to the making of such
payment under any provision of federal, state, local or foreign Tax law.  If the Surviving Corporation, Parent or the
Paying Agent so withholds amounts, such amounts shall be treated for all purposes
of this Agreement as having been paid to the holder of shares of Company Common
Stock, Company Options or Company Warrants, as the case may be, in respect of
which the Surviving Corporation, Parent or the Paying Agent made such deduction
or withholding.

 

ARTICLE IV.

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

 

The Company represents and warrants to Parent and
Merger 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 to
carry on its business as now being conducted, and is duly qualified or licensed
to do business and is in good standing as a foreign corporation in each
jurisdiction in which the nature of its business or ownership or leasing of Properties
makes such qualification or licensing necessary and where the failure to be so
qualified or licensed would reasonably be expected to result in a Company
Material Adverse Effect.  For purposes of
this Agreement, “Company Material Adverse
Effect” shall mean
a material adverse effect on the business, assets, liabilities, condition
(financial or otherwise), property or results of operations of the Company and
its Subsidiaries (taken as a whole).  Company
Material Adverse Effect shall not include any event, situation, change,
development, condition or circumstance:  (i) relating
to or resulting from the economy in general, (ii) relating to or resulting
from the industry in which the Company or any of its Subsidiaries operates and
not uniquely relating to the Company or any of its Subsidiaries, (iii) resulting
from the announcement or existence of this Agreement or the transactions
contemplated hereby, (iv) resulting from actions or omissions of the
Company or any of its Subsidiaries taken with the prior written consent of the
other party hereto or pursuant to the terms of this Agreement (including the Company
Disclosure Schedules) or the other Transaction Documents, (v) resulting
from compliance with this Agreement or the other Transaction Documents, (vi) resulting
from 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 or
emergency occurring within or outside of the United States, or (vii) in
existence as of the date hereof and actually known and understood by Parent
(including potential consequences thereof).

 

18

 

Section 4.2.          Capitalization; Subsidiaries.

 

(a)           The authorized
capital stock of the Company consists of 150,000 shares of Company Common Stock
and 65,000 shares of preferred stock of the Company, par value $0.01.  No shares of such preferred stock are issued
or outstanding.  The number of issued and
outstanding shares of Company Common Stock is as described on Schedule 4.2(a) of
the Company Disclosure Schedules.  All
such issued and outstanding shares of Company Common Stock have been, and all
shares of Company Common Stock that may be issued pursuant to outstanding
options and warrants to purchase Company Common Stock will be, when issued in
accordance with the respective terms thereof, duly authorized, validly issued
and are fully paid and nonassessable. 
Except as described in Schedule 4.2(a) of the Company
Disclosure Schedules, (a) there are no issued or outstanding shares of
capital stock of the Company, (b) no shares of capital stock of the
Company are held in treasury, (c) no preferred stock or other equity securities
of any kind of the Company are issued or outstanding, (d) there are no
other issued or outstanding securities of the Company convertible into or
exchangeable or exercisable for at any time capital stock of the Company, and (e) there
are no subscriptions, options, “phantom” stock rights, stock appreciation
rights, warrants or other rights of any kind entitling any Person to acquire or
otherwise receive from the Company any shares of capital stock or securities of
the Company convertible into or exchangeable or exercisable for at any time
capital stock of the Company (collectively, the “Company Securities”). 
Except as described in Schedule 4.2(a) of the 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 of any Company
Securities.  Except as described in Schedule 4.2(a) of
the Company Disclosure Schedules, there are no voting trusts, shareholder
agreements, commitments, undertakings, understandings, proxies or other
restrictions that directly or indirectly restrict or limit, or otherwise relate
to, the voting, sale or other disposition of any shares of Company Common Stock
or the rights of any shareholder of the Company.

 

(b)           Schedule 4.2(b) of
the Company Disclosure Schedules sets forth the names of each of the Company’s
Subsidiaries and shows for each such Subsidiary: (i) its jurisdiction of
organization and each other jurisdiction in which it is qualified to do
business; (ii) the authorized and outstanding capital stock or other
ownership interests of each Subsidiary; and (iii) the identity of and
number of shares of such capital stock or other ownership interests owned (of
record and beneficially) by each holder thereof.  Except as set forth on Schedule 4.2(b) of
the Company Disclosure Schedules, all of the outstanding capital stock or other
ownership interests of each Subsidiary are owned free and clear of any Lien and
free and clear of any other limitation or restriction (including any
restriction on the right to vote, sell or otherwise dispose of such capital
stock or other ownership interests).

 

(c)           Each of the Company’s
Subsidiaries is duly organized, validly existing and in good standing in its
jurisdiction 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 being
conducted, and is duly qualified and/or licensed to do business and is in good
standing as a foreign corporation in each jurisdiction in which the nature of
its business or ownership or leasing of Properties

 

19

 

makes such
qualification or licensing necessary and where the failure to be so qualified
or licensed could reasonably be expected to result in a Company Material Adverse
Effect.

 

(d)           Except as described
in Schedule 4.2(d) of the Company Disclosure Schedules, (a) there
are no issued or outstanding shares of capital stock or other ownership
interests of any of the Company’s Subsidiary, (b) no shares of capital
stock or other ownership interests of any of the Company’s Subsidiary are held
in treasury, (c) no preferred stock or other equity securities of any kind
of any of the Company’s Subsidiaries are authorized, issued or outstanding, (d) there
are no other issued or outstanding securities of any of the Company’s Subsidiaries
convertible into or exchangeable or exercisable for at any time capital stock or
other ownership interests of such Subsidiary and (e) there are no
subscriptions, options, “phantom” stock rights, stock appreciation rights, warrants
or other rights of any kind entitling any Person to acquire or otherwise
receive from any of the Company’s Subsidiaries any shares of capital stock or
other ownership interests or securities of the Company’s Subsidiaries
convertible into or exchangeable or exercisable for at any time capital stock or
other ownership interest of the Company’s Subsidiaries (collectively, the “Subsidiary Securities”).  Except as described in Schedule 4.2(d) of
the 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’s
Subsidiaries of any Subsidiary Securities.

 

Section 4.3.          Authority; No Conflict; Required
Filings and Consents.

 

(a)           The Company has all
requisite corporate power and authority to enter into this Agreement and all
Transaction Documents to which it is a party and to consummate the transactions
contemplated by this Agreement and such Transaction Documents.  The execution and delivery of this Agreement
and such Transaction Documents and the consummation of the transactions
contemplated by this Agreement and such Transaction Documents have been duly
authorized by all necessary corporate action on the part of the Company,
subject only to the approval of the Merger by the Company’s stockholders under
the provisions of the DGCL and the Company’s certificate of incorporation (the “Company Stockholder Approval”).  This Agreement has been, and such other
Transaction Documents to which the Company is a party have been, or to the
extent not executed as of the date hereof, will be, duly executed and delivered
by the Company.  This Agreement and each
of the Transaction Documents to which the Company is a party constitutes,
assuming the due authorization, execution and delivery by the other parties
hereto and thereto, the valid and binding obligation of the Company,
enforceable by Parent and Merger Sub against the Company in accordance with
their respective terms, except to the extent that enforceability may be limited
by applicable bankruptcy, reorganization, insolvency, moratorium or other laws
affecting the enforcement of creditors’ rights generally and by general
principles of equity, regardless of whether such enforceability is considered
in a proceeding at law or in equity.  For
purposes of this Agreement, “Transaction
Documents” means this Agreement, the Escrow Agreement, the Working
Capital Escrow Agreement, the Certificate of Merger, the Indemnification
Matters Letter and the Assignment Side Letter.

 

20

 

(b)           The execution and
delivery by the Company of this Agreement and the Transaction Documents to
which it is a party does not, and the consummation of the transactions
contemplated by this Agreement and the other Transaction Documents to which it
is a party will not, (i) conflict with, or result in any violation or
breach of any provision of the certificate of incorporation, bylaws or other organizational
documents of the Company or any Subsidiary, (ii) violate any law, rule or
regulation applicable to the Company or any Subsidiary, (iii) except as
set forth on Schedule 4.3(b)(iii) of the Company Disclosure
Schedules, conflict with or result in a breach of, or give rise to a right of
termination of, or accelerate the performance (including, without limitation,
payment of severance pay, unemployment compensation or termination pay, or
acceleration of the time or payment or vesting or an increase in the amount or
value of compensation or benefits due to any employee or former employee solely
by reason of the consummation of the transactions contemplated by this
Agreement and the other Transaction Documents) required by the terms of any
judgment, court order or consent decree, or any contract, commitment,
agreement, understanding or arrangement or Permit or constitute a default
thereunder, or (iv) result in the creation or imposition of any Lien on
any Property of the Company or any of its Subsidiaries, except in the case of
clauses (ii), (iii) and (iv) as would not reasonably be expected to
have a Company Material Adverse Effect.

 

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

 

Section 4.4.          Financial Statements; Absence of
Undisclosed Liabilities.

 

(a)           The Company has
delivered to Parent copies of (i) the Company’s consolidated audited
balance sheets as of February 28, 2004 and February 28, 2005, and the
related consolidated audited statements of operations, stockholders’ equity and
cash 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 Audited
Financials”), and (ii) the Company’s consolidated unaudited
balance sheet as of the close of business on April 21, 2005 (the “Most Recent Balance Sheet”) and the
related consolidated unaudited statements of operations and cash flow for the
period that commenced on March 1, 2005 and ended on

 

21

 

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

 

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

 

(c)           Except as set forth
in Schedule 4.4(c), neither the Company nor any of its Subsidiaries
has 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, except
those (i) liabilities reflected in the Most Recent Balance Sheet or the
2005 Audited Financials, (ii) liabilities disclosed in the Company
Disclosure Schedules, (iii) liabilities incurred in the ordinary course of
business since the date of the Most Recent Balance Sheet that would not,
individually or in the aggregate, reasonably be expected to have a Company Material
Adverse Effect, or (iv) liabilities or performance obligations arising out
of or under agreements, contracts, leases or arrangements to which the Company
or any of its Subsidiaries is a party.

 

Section 4.5.          Tax Matters.

 

(a)           For purposes of this
Section 4.5 and other
provisions of this Agreement relating to Taxes, the following definitions shall
apply:

 

(i)            The term “Tax”
or “Taxes” shall mean any
and all federal, state, local, or foreign income, gross receipts, license,
payroll, employment, excise, severance, stamp, occupation, premium, windfall
profits, 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 other
tax 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, whether
disputed or not and (b) any liability for the payment of any amounts of
the type described in clause (a) of this definition as a result of being a
member of an affiliated, consolidated, combined or unitary group for any
period, as a result of any tax sharing or tax allocation agreement, arrangement
or understanding, or as a result of being liable for another person’s taxes as
a transferee or successor, by contract or otherwise.

 

22

 

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

 

(b)        Except as set forth on Schedule 4.5(b) of
the Company Disclosure Schedules, (i) all Returns required to be filed
prior to the date hereof by the Company and/or its Subsidiaries have been duly
and timely filed in accordance with all applicable laws, rules and
regulations and all such Returns were true, correct and complete in all
material respects, (ii) all material Taxes owed by the Company and each of
its Subsidiaries (whether or not shown on any Returns) have been timely paid in
full or have been accrued on the Most Recent Balance Sheet and will be taken
into account as a current liability in Net Working Capital, (iii) the
Company and its Subsidiaries have withheld and timely paid to the appropriate
Governmental Entity all Taxes required to have been withheld and paid over
prior to the date hereof in connection with amounts paid or owing to any
employee, independent contractor, or other third party and the Company and its
Subsidiaries have complied in all material respects with all associated
reporting and record keeping requirements and (iv) there are no material
Liens on any Property of the Company or any of its Subsidiaries with respect to
Taxes, other than material Liens for Taxes not yet due and payable or for Taxes
that the Company or its Subsidiaries are contesting in good faith through
appropriate proceedings and for which an appropriate reserve has been
established on the Most Recent Balance Sheet if required by GAAP.

 

(c)         Except as set forth on
Schedule 4.5(c) of the Company Disclosure Schedules:  (i) there is no dispute, audit or
proceeding, or to the Company’s knowledge, investigation or claim, concerning
any Tax of the Company or any of its Subsidiaries pending with, or being
conducted by, a Governmental Entity or for which the Company or any of its
Subsidiaries (following the date of the Company’s acquisition of such
Subsidiary, if applicable) has been notified in writing, (ii) neither the
Company nor any of its Subsidiaries has received notice that it has not filed a
Return or paid Taxes required to be filed or paid, (iii) neither the
Company nor any of its Subsidiaries is a party to any action or proceeding for
assessment or collection of Taxes, and, to the Company’s knowledge, no such
action or proceeding is threatened against the Company or any of its
Subsidiaries, (iv) no waiver or extension of any statute of limitations or
other extension of time is in effect with respect to Taxes or Returns of the
Company or any of its Subsidiaries, (v) no claim has been made in writing to
the Company or any of its Subsidiaries (following the date of the Company’s
acquisition of such Subsidiary, if applicable) by a Governmental Entity in a jurisdiction
where the Company or any of its Subsidiaries does not file Returns that the
Company or any of its Subsidiaries is or may be subject to material taxation by
that jurisdiction, and (vi) the Company and each of its Subsidiaries has
provided or delivered to Parent true, correct and complete copies of all
Returns, examination reports, and statements of deficiencies filed, assessed
against, or agreed to by such Company or such of the Company’s Subsidiaries
since December 31, 2001.

 

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

 

23

 

(e)         Except as set forth on
Schedule 4.5(e) of the Company Disclosure Schedules, the
unpaid Taxes of the Company and its Subsidiaries (a) did not as of the
date of the Most Recent Balance Sheet exceed the liability for Taxes (excluding
any reserve for deferred Taxes established to reflect timing differences
between book and Tax income) set forth on the face of the Most Recent Balance
Sheet (rather than in any notes thereto) and (b) will not exceed that
reserve as adjusted for the passage of time through the Closing Date and taken
into account as a current liability in Net Working Capital.

 

(f)         Except as set forth on
Schedule 4.5(f) of the Company Disclosure Schedules, neither
the 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 make
any payments that would be considered “excess parachute payments” within the
meaning 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) of
the Company Disclosure Schedules, neither the Company nor any of its
Subsidiaries (following the date of the Company’s acquisition of such
Subsidiary, if applicable) has been a member of an “affiliated group” within
the meaning of Code Section 1504(a) filing a consolidated federal
income Tax Return, other than an “affiliated group” of which the Company or
Cellu Tissue Holdings, Inc. is or was the common parent.  Neither the Company nor any of its
Subsidiaries is a party to any contract, commitment, agreement, understanding
or arrangement relating to Tax sharing or Tax allocation.  Neither the Company nor any of its
Subsidiaries has any liability or obligation for the Taxes of any Person under
Treasury Regulation 1.1502-6 (or any similar provision of state, local or
foreign law), as a transferee or successor, by contract or otherwise.

 

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

 

(i)          Except as set forth
on Schedule 4.5(i) of the Company Disclosure Schedules, neither
the Company nor any of its Subsidiaries is required, or has been required (in
the case of any Subsidiary, following the date of the Company’s acquisition of
such Subsidiary, if applicable), to make any adjustment pursuant to Code Section 481(a) (or
any predecessor provision) or any similar provision of state, local or foreign
tax law by reason of any change in any accounting methods, and there is no application
pending with any Governmental Entity requesting permission for any changes in
any of its accounting methods for Tax purposes. 
To the knowledge of the Company, no Governmental Entity has proposed any
such adjustment or change in accounting method.

 

24

 

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

 

(k)         Neither the Company
nor any of its Subsidiaries will be required to include any amount in taxable
income or exclude any item of deduction or loss from taxable income for any
taxable period (or portion thereof) ending after the Closing Date as a result
of (A) any “closing agreement” as described in Code Section 7121 (or
any corresponding or similar provision of state, local or foreign income Tax
law) executed on or prior to the Closing Date, (B) any deferred
intercompany gain or excess loss account described in Treasury Regulations
under Code Section 1502 (or any corresponding or similar provision or
administrative rule of federal, state, local or foreign Income Tax law), (C) an
installment sale or open transaction disposition made on or prior to the
Closing Date, or (D) any prepaid amount received on or prior to the
Closing Date.

 

Section 4.6.          Absence of Certain Changes or
Events.  Since February 28, 2005,
except as set forth on Schedule 4.6 of the Company Disclosure
Schedules, the business of the Company and its Subsidiaries has been conducted
in the ordinary course and neither the Company nor any of its Subsidiaries has:

 

(a)           suffered any change
that has resulted, or could be reasonably expected to result, in a Company
Material Adverse Effect;

 

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

 

(c)           authorized or
proposed any amendments to its certificate of incorporation or bylaws (or other
similar governing instrument);

 

(d)           declared, set aside
or 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 ownership
interests), or split, combined or reclassified any of its capital stock (or
other ownership interests) or declared any direct or indirect redemption,
retirement, purchase or other acquisition by the Company or any of its
Subsidiaries of such capital stock (or other ownership interests);

 

(e)           issued, sold or
granted any shares of its capital stock (or other ownership interests) or
securities convertible into shares of its capital stock (or other ownership interests),
or subscriptions, rights, warrants or options to acquire, or other agreements
or commitments of any character obligating it to issue any such shares (or
other ownership interests) or other convertible securities, other than the
issuance of shares of Company Common Stock issuable upon exercise of
Company Options or Company Warrants;

 

25

 

(f)            acquired or agreed to
acquire by merging or consolidating with, or by purchasing an equity interest
in or portion of the assets of, or by any other manner, any business or any
corporation, partnership or other business organization or division;

 

(g)           other than
Indebtedness set forth on Schedule 4.23, (i) incurred or assumed any
Indebtedness in excess of $500,000, other than in the ordinary course of
business; or (ii) assumed, Guaranteed or otherwise became liable or
responsible for the obligations (directly, contingently or otherwise) of any
other Person in amounts in excess of $250,000, other than in the ordinary
course of business;

 

(h)           except in the
ordinary course of business consistent with past practices, or as may be
required by applicable law or by any applicable agreement or instrument
existing on the date hereof, (i) entered into, adopted, amended or
terminated any employment agreement or any bonus payments with any employee,
officer or director of the Company, or (ii) entered into, adopted, amended
or 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 agreed
to make any severance, termination pay or deferred compensation (or amendment
to any existing arrangement) to or increase in the compensation, bonus or other
benefit payable or to become payable by the Company or any of its Subsidiaries
to their directors, officers or employees, except, increases granted or agreed
to be made in the ordinary course of business or increases required by any
pre-existing agreement;

 

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

 

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

 

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

 

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

 

26

 

transferred to
any Person, or otherwise disposed of, any of the Properties of the Company or
any of its Subsidiaries except for the sale of inventory or obsolete equipment
in the ordinary course of business, (iii) canceled or compromised any
Indebtedness or claim (other than compromises of accounts receivable in the
ordinary course of business) in excess of $500,000, (iii) waived or
released any right of substantial value, or (iv) instituted, settled or
agreed to settle any material action, suit, proceeding, claim, arbitration or
investigation; or

 

(n)           entered into any
contract, commitment, agreement, understanding or arrangement to do any of
things referred to in clauses (a) through (m) above.

 

Section 4.7.          Property.

 

(a)           Schedule 4.7(a) of
the Company Disclosure Schedules sets forth a list of all real property owned by
the Company or its Subsidiaries (the “Owned
Premises”).  Except as set
forth on Schedule 4.7(a) of the Company Disclosure Schedules
there are no written or oral subleases, licenses, concessions, occupancy
agreements or other Contractual Obligations granting to any other Person the
right of use or occupancy of the Owned Premises and there is no Person (other
than the Company or any of its Subsidiaries) in possession of the Owned
Premises.

 

(b)           Schedule 4.7(b) of
the Company Disclosure Schedules sets forth a list of all leases, or similar
agreements relating to the Company’s or its Subsidiaries’ use or occupancy of
real 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 forth
in Schedule 4.7(c), each current use of any Owned Premise is in
compliance with all applicable laws, including applicable zoning restrictions
and ordinances, variances thereto or conditional use permits of the
jurisdictions in which the Owned Property in question is located, health and
fire codes and ordinances, and subdivision regulations, except for any such
non-compliance as would not reasonably be expected to have a Company Material
Adverse Effect.

 

(d)           Except as set forth
in Schedule 4.7(d), the buildings and other improvements on or at
the Owned Premises do not encroach on any easements or on any land not included
within the boundary lines of such Owned Premises, except for such of the
foregoing as would not reasonably be expected to (a) interfere with the
current use of the Owned Premises or (b) have a Company Material Adverse
Effect.  The current use of the Owned
Premises does not violate or conflict with any covenants, conditions or
restrictions applicable thereto, except for such of the foregoing as would not
reasonably be expected to (a) interfere with the current use of the Owned
Premises or (b) have a Company Material Adverse Effect.

 

(e)           Neither the Company
nor any of its Subsidiaries has received any notice of any pending or
threatened eminent domain, condemnation or similar proceeding affecting any of
the Owned Premises, or any decree or order relating thereto.

 

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

 

27

 

understanding
or arrangement, a valid and enforceable right to use, all of their Properties
free and clear of all mortgages, liens, security interests, pledges, charges,
claims, restrictions or encumbrances of any kind or character (“Liens”), except (i) as set forth
on Schedule 4.7(f) of the Company Disclosure Schedules, (ii) statutory
liens for current taxes not yet due and payable, (iii) statutory liens for
amounts not yet delinquent or which are being contested in good faith; (iv) such
liens and title imperfections that have not had, and are not reasonably
expected to have, a Company Material Adverse Effect; (v) statutory liens
securing 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 or
otherwise due; (vi) liens resulting from deposits made in connection with
workers’ compensation, unemployment insurance, social security and like laws;
and (vii) liens of banks and financial institutions with respect to funds
on deposit therewith or other property in possession thereof.  The Properties owned, leased or licensed by
the Company and its Subsidiaries constitute all of the material Properties used
in or necessary to conduct the business of the Company and its Subsidiaries as
it is presently conducted.

 

Section 4.8.          Intellectual Property.  Schedule 4.8 of the Company
Disclosure Schedules contains a true and complete list of the registered
trademarks, trade names, servicemarks, logos, copyrights, patents, web sites
and domain names owned or used by the Company or any of its Subsidiaries in its
business and any registrations or applications for registration thereof.  Except as set forth on Schedule 4.8
of the Company Disclosure Schedules, the Company and/or its Subsidiaries owns
or possesses adequate licenses or other valid rights to use all of the
Intellectual Property used in, or necessary for, the conduct of its business
free and clear of all Liens.  Except as
set forth on Schedule 4.8 of the Company Disclosure Schedules: (a) to
the knowledge of the Company, there is no infringement or misappropriation by
others of any right of the Company or any of its Subsidiaries with respect to
its Intellectual Property, (b) neither the Company nor any of its
Subsidiaries has or is infringing upon or misappropriating in any material
respect upon any Intellectual Property rights of any third party; (c) no
proceedings are pending or, to the knowledge of the Company, threatened, and no
claim has been received by the Company or any of its Subsidiaries alleging any
such infringement or misappropriation;  (d) neither
the Company nor any of its Subsidiaries has granted any Person any interest, as
licensee or otherwise, in or to any one or more items of the Intellectual
Property of the Company or its Subsidiaries; and (e) no third party has
notified the Company or any of its Subsidiaries in writing that it is claiming
any ownership of, or right to use, any such Intellectual Property.

 

Section 4.9.          Employee Benefit Plans.

 

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

 

28

 

change-in-control
or fringe benefit plan, programs or arrangements (whether written or unwritten,
insured or self-insured), other than schemes mandated by a government or
Foreign Employee Plan , for the benefit of or relating to any employee or
former employee, director or consultant of the Company, any Subsidiary or with
respect to which the Company or any Subsidiary has or would reasonably be
expected to have any material obligation or liability (contingent or otherwise)
(“Company Employee Plans”).

 

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

 

(c)                                  Except as set forth
on Schedule 4.9(c) of the Company Disclosure Schedules:

 

(i)                                     there has been
no “prohibited transaction,” as such term is defined in Section 406 of
ERISA and Section 4975 of the Code, with respect to any Company Employee
Plan;

 

(ii)                                  each Company
Employee Plan has been administered in material compliance with its terms and
the requirements prescribed by any and all statutes, rules and regulations
(including ERISA and the Code) applicable to such Company Employee Plan and
nothing has occurred with respect to any Company Employee Plan that has
subjected or would reasonably be expected to subject the Company or any of its
Subsidiaries to a material liability under Section 409 or Section 502
of ERISA or Chapter 43 of Subtitle D or Section 6652 of the Code;

 

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

 

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

 

29

 

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

 

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

 

(vi)                              neither the
Company nor any of its Subsidiaries nor any ERISA Affiliate is a party to, or
has made any contribution to or otherwise incurred any obligation or has any
liability (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) any
employee pension benefit plan (within the meaning of Section 3(2) of
ERISA) that is subject to Title IV of ERISA; and

 

(vii)                           other than as
required under Section 601 et seq. of ERISA, no Company employee Plan
provides benefits or coverage following retirement or other termination of
employment to any current or future retiree or terminated employee.

 

(d)                                 Each Company Employee
Plan that is a “nonqualified deferred compensation plan” (as defined under Section 409A(d)(1) of
the Code) has been operated and administered in good faith compliance with Section 409A
from the period beginning January 1, 2005 through the date hereof and has
not been materially modified since October 2, 2004.

 

(e)                                  With respect to each
scheme or arrangement mandated by a government other than the United States and
with respect to each Company Employee Plan that is subject to the laws of a
jurisdiction outside of the United States (a “Foreign
Employee Plan”) the fair market value of the assets of each
funded Foreign Employee Plan, the liability of each insurer for any Foreign
Employee Plan funded through insurance or the book reserve established for any
Foreign Employee Plan, together with any accrued contributions, is sufficient
to procure or provide for the accrued benefit obligations, as of the date of
this Agreement, with respect to all current and former participants in such
Foreign Employee Plan according to the actuarial assumptions and valuations
most recently used to determine employer contributions to such Foreign Employee
Plan and no transactions contemplated by this Agreement shall cause such assets
or insurance obligations to be less than such benefit obligations.  Each Foreign Employee Plan has been
maintained in all material respects in accordance with all applicable
requirements, and if intended to qualify for special tax treatment, meets all
requirements for such treatment.

 

Section 4.10.                             Contracts.

 

(a)                                  Except as set forth
on Schedule 4.10(a) of the Company Disclosure Schedules, as of
the date hereof:

 

(i)                                     Neither the
Company nor any of its Subsidiaries has employment agreements with its officers
or employees (other than setting forth an employment-at will 

 

30

 

relationship).  Neither the Company nor any of its
Subsidiaries has any independent contractor or similar agreement, contract or
commitment that is not terminable on sixty (60) days’ notice or less without
penalty, liability or premium.  Neither
the Company nor any of its Subsidiaries is a party to any contract, commitment,
agreement, understanding or arrangement that provides for any severance pay or
other compensation obligations which become payable by reason of, this
Agreement or the consummation of the transactions contemplated hereby.

 

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

 

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

 

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

 

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

 

(vi)                              Neither the
Company nor any of its Subsidiaries is a party to any partnership, joint
venture or other similar contract, commitment, agreement, understanding or
arrangement.

 

(vii)                           Neither the
Company 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 annual
payments by the Company and its Subsidiaries of greater than $500,000, (B) providing
for 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 60
days’ notice or less without penalty, liability or premium in excess of
$250,000.

 

(viii)                        Neither the
Company nor any of its Subsidiaries is a party to any sales, distribution or
other similar contract, commitment, agreement, understanding or arrangement for
the sale by the Company or any of its Subsidiaries of materials, supplies,
goods, services, equipment or other assets (A) providing for annual
payments to the Company and its Subsidiaries of greater than $500,000, (B) providing
for 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 not
terminable on 60 days’ notice or less without penalty, liability or premium in
excess of $250,000.

 

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

 

31

 

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

 

(xi)                                Neither the
Company nor any of its Subsidiaries is a party to any license for the use of
Intellectual Property or similar contract, commitment, agreement, understanding
or arrangement.

 

(xii)                             Neither the
Company nor any of its Subsidiaries is a party to any agency, dealer, sales
representative, marketing or similar contract, commitment, agreement,
understanding or arrangement having a term of greater than one year that is not
terminable on 60 days’ notice or less without penalty, liability or premium in
excess of $250,000.

 

(xiii)                          Neither the
Company 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 and
regulations promulgated under the Securities Act of 1933, as amended) (any of
the foregoing, a “Related Party”).

 

(xiv)                         Neither the
Company nor any of its Subsidiaries has any other material contracts or
agreements.

 

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

 

(b)                                 Except as set forth on
Schedule 4.10(b) of the Company Disclosure Schedules, all of
the Material Contracts are valid, binding, in full force and effect, and
enforceable by the Company and/or its Subsidiaries in accordance with their
respective terms, except (i) to the extent that enforceability may be
limited by applicable bankruptcy, reorganization, insolvency, moratorium or
other laws affecting the enforcement of creditors’ rights generally and by
general principles of equity, regardless of whether such enforceability is
considered in a proceeding at law or in equity and (ii) for such matters
that would not reasonably be expected to have a Company Material Adverse
Effect.

 

(c)                                  Neither the Company
nor 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 or
lapse of time or both would constitute such a default, breach or violation of,
any provision of any Material Contract that would reasonably be expected to
have a Company Material Adverse Effect. 
To the Company’s knowledge, no other party is in default under or in
breach or violation of, and, to the Company’s knowledge, no event has occurred
which with notice or lapse of time or both would constitute such a default,
breach or violation of, any provision of any Material Contract that would
reasonably 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 

 

32

 

with
all applicable laws, rules and regulations, except where such failure to
comply has not had, and would not reasonably be expected to have, a Company
Material Adverse Effect.

 

Section 4.12.                             Labor Matters.  Except as set forth on Schedule 4.12
of the Company Disclosure Schedules, the Company and each of its Subsidiaries is
in compliance with all currently applicable laws respecting employment and
employment practices, terms and conditions of employment, and wages and hours,
except where such failure to comply will not result in a Company Material
Adverse Effect.  There is no unfair labor
practice complaint against the Company or any of its Subsidiaries pending or,
to the knowledge of the Company, threatened before the National Labor Relations
Board.  There is no strike, labor
dispute, lockout, slowdown, or stoppage pending or, to the knowledge of the
Company, threatened against the Company or any of its Subsidiaries.  Except as set forth on Schedule 4.12
of the Company Disclosure Schedules, none of the employees of the Company or
any of its Subsidiaries is represented by a labor union.  To the knowledge of the Company, no union organizing
activities are taking place with respect to the business of the Company or any
of its Subsidiaries.

 

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

 

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

 

Section 4.15.                             Governmental Authorizations
and Regulations.  Except as
set forth on Schedule 4.15 of the Company Disclosure Schedules, the
Company and each of its Subsidiaries has obtained each federal, state, county,
local or foreign governmental consent, license, permit, grant, or other
authorization of a Governmental Entity (a “Permit”)
that is required for the operation of its business or the holding of any
interest in any of its Properties, and all of such Permits are in full force and
effect except where the failure to have such Permit would not reasonably be
expected to have a Company Material Adverse Effect.

 

33

 

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

 

Section 4.17.                             No Brokers.  Except as set forth on Schedule 4.17
of the Company Disclosure Schedules, neither the Company nor any of its
Subsidiaries is obligated for the payment of fees or expenses of any broker or
finder in connection with the origin, negotiation or execution of this
Agreement or the other Transaction Documents or in connection with any
transaction contemplated hereby or thereby.

 

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

 

Section 4.19.                             Related Party
Transactions.  Except as
set forth on Schedule 4.19 of the Company Disclosure Schedules, no
Related 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 set
forth on Schedule 4.19 of the Company Disclosure Schedules, there
have been no transactions or contracts (other than employment arrangements (ie.
stock options, bonuses and employments agreements) between the Company or any
of its Subsidiaries, on the one hand, and any Related Party, on the other hand.

 

34

 

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

 

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

 

Section 4.22.                             Information Supplied to the
Company’s Stockholders.  The
information and materials to be supplied by the Company to its stockholders in
connection with the Company Stockholder Approval will comply with the
requirements of the DGCL, the Company’s certificate of incorporation and bylaws
and all other applicable legal requirements.

 

Section 4.23.                             Indebtedness.  As of the date hereof, except as set forth on
Schedule 4.23 of the Company Disclosure Schedules, there is no
Indebtedness.

 

ARTICLE V.

REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB

 

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

 

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

 

35

 

Adverse Effect” shall mean a material
adverse effect on the business, assets, liabilities, condition (financial or
otherwise), property or results of operations of Parent and Merger Sub, taken
as a whole, other than any material adverse effect (i) relating to or
resulting from the economy in general, (ii) resulting from the
announcement or existence of this Agreement or the transactions contemplated
hereby, (iii) resulting from actions or omissions of Parent or Merger Sub
taken with the prior written consent of the other party hereto or consistent
with the terms of this Agreement or the other Transaction Documents, (iv) resulting
from compliance with this Agreement or the other Transaction Documents, or (v) any
change, event, development, condition or circumstance occurring as a result of
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 or emergency
occurring within or outside of the United States.

 

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

 

(a)                                  Each of Parent and
Merger Sub has all requisite corporate power and authority to enter into this
Agreement and the other Transaction Documents to which it is or will become a
party and to consummate the transactions contemplated by this Agreement and
such Transaction Documents.  The
execution and delivery of this Agreement and such Transaction Documents and the
consummation of the transactions contemplated by this Agreement and such
Transaction Documents have been duly authorized by all necessary corporate action
on the part of Parent and Merger Sub. 
This Agreement has been and such Transaction Documents have been or, to
the extent not executed as of the date hereof, will be duly executed and
delivered by Parent and Merger Sub.  This
Agreement and each of the Transaction Documents to which Parent and/or Merger
Sub is a party constitutes, and each of the Transaction Documents to which
Parent and/or Merger Sub will become a party when executed and delivered by
Parent and/or Merger Sub will constitute, assuming the due authorization,
execution and delivery by the other parties hereto and thereto, a valid and
binding obligation of Parent and/or Merger Sub, enforceable by the Company
against Parent or Merger Sub, as the case may be, in accordance with their
respective terms, except to the extent that enforceability may be limited by
applicable bankruptcy, reorganization, insolvency, moratorium or other laws
affecting the enforcement of creditors’ rights generally and by general
principles of equity, regardless of whether such enforceability is considered
in a proceeding at law or equity.

 

(b)                                 The execution and
delivery by Parent or Merger Sub of this Agreement and the Transaction
Documents to which it is or will become a party does not, and consummation of
the transactions contemplated by this Agreement or the Transaction Documents to
which it is or will become a party will not, (i) conflict with, or result
in any material violation or breach of any provision of the governing documents
of Parent and/or Merger Sub, (ii) violate any law, rule or regulation
applicable to Parent and/or Merger Sub, except as would not reasonably be
expected to have a Parent Material Adverse Effect, or (iii) conflict with
or result in a breach of, or give rise to a right of termination of, or accelerate
the performance required by the terms of any judgment, court order or consent
decree, or any material agreement to which Parent or Merger Sub is party or
constitute a 

 

36

 

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

 

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

 

Section 5.3.                                   Capital Resources.  Subject to the satisfaction of the closing
condition 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 repay
the Indebtedness as well as all associated fees, costs and expenses.

 

Section 5.4.                                   Litigation.  There is no suit, claim, action, proceeding or
arbitration pending or, to Parent’s knowledge, threatened against Parent and
Merger Sub (a) which, if adversely determined, could reasonably be expected
to adversely affect Parent’s or Merger Sub’s ability to perform hereunder, or (b) which
seeks to enjoin or obtain damages in respect of the transactions contemplated
hereby.

 

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

 

Section 5.6.                                   Parents Assets and
Liabilities.  Parent indirectly
owns all of the membership interests of Thilmany, LLC, a Delaware limited
liability company (formerly known as TIPB Acquisition, LLC (“Thilmany”), free and clear of any
Lien and free and clear of any other limitation or restriction (including any
restriction on the right to vote, sell or otherwise dispose of such membership
interests), other than (i) restrictions on transfer imposed by applicable
securities laws, (ii) as set forth in the respective limited liability
company agreements of Parent, KIPB Holdings, LLC and Thilmany, and (iii) Liens
granted to Thilmany’s senior lenders.  Thilmany
owns substantially all of the assets acquired pursuant to the Purchase
Agreement, dated as of March 14, 2005, as amended, by and between
International Paper Company and Thilmany, except for assets disposed of in the
ordinary course of business.  Parent has
no material debt, liabilities, or obligations of any nature, other than
pursuant to this Agreement and the Transaction Documents.

 

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

 

37

 

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

 

ARTICLE VI.

PRE-CLOSING COVENANTS OF THE COMPANY

 

Section 6.1.                                   Approval of Company
Stockholders.  Immediately
following the execution of this Agreement, the Company shall deliver to Parent
the following materials (collectively, the “Consent
Materials”):  (i) with
respect to each of the stockholders of the Company identified on Schedule 6.1
of the Disclosure Schedules (the “Consenting
Stockholders”), a written consent (the “Stockholder Approval”) solely in
his, her or its capacity as the holder of all of such Consenting Stockholder’s
outstanding shares of Company Common Stock, in favor of approving the Merger
under the provisions of the DGCL and the Company’s certificate of incorporation
and bylaws, and (ii) a certificate executed on behalf of the Company by
its Secretary and certifying that the Stockholder Approval has been obtained in
accordance with the DGCL and the Company’s certificate of incorporation and
bylaws.

 

Section 6.2.                                   Conduct of Business
Prior to the Effective Time.  Except (i) as expressly contemplated by
this Agreement, (ii) as described in Schedule 6.2 of the
Company Disclosure Schedules, or (iii) to the extent that Parent shall
otherwise consent in writing (such consent or declination to consent not to be
unreasonably delayed or withheld), during the period from the date hereof to
the earlier of the Effective Time and the termination of this Agreement in
accordance with its terms, the Company shall and shall cause each of its
Subsidiaries to conduct its operations in the ordinary course of business consistent
with past practices and use commercially reasonable efforts to preserve intact its
current business organizations, keep available the service of its current
officers and employees and preserve its relationships with customers,
suppliers, distributors, lessors, creditors, employees, contractors and others
having business dealings with it. 
Without limiting the generality of the foregoing, except as otherwise
expressly provided in this Agreement and except as described in Schedule 6.2
of the Company Disclosure Schedules, between the date hereof and the Effective
Time, the Company shall not and shall cause its Subsidiaries not to, without
the prior written consent (such consent or declination to consent not to be
unreasonably delayed or withheld) of Parent:

 

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

 

(b)                                 declare
or pay any dividends on or make any other distributions (whether in cash, stock
or 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) or
securities convertible into shares of its capital stock (or other interests),
or subscriptions, rights, warrants or options to acquire, or other agreements
or commitments of any character obligating it to issue any such shares (or
other ownership interests) or other convertible securities, other than the
issuance of shares of Company Common Stock issuable upon exercise of
Company Options or Company Warrants;

 

38

 

(d)                                 acquire
or agree to acquire by merging or consolidating with, or by purchasing an
equity interest in or portion of the assets of, or by any other manner, any
business or any corporation, partnership or other business organization or
division;

 

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

 

(f)                                    except
in the ordinary course of business with respect to any employee (other than any
officer or director), or as may be required by applicable law or by any
applicable agreement or instrument existing on the date hereof, (1) enter
into, adopt, amend or terminate any employment agreement or any bonus payments
with any employee, officer or director of the Company, or (2) enter into,
adopt, amend or terminate 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;

 

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

 

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

 

(i)                                     (i) enter
into any contract or agreement that would be material to the Company and its
Subsidiaries, taken as a whole, other than contracts or agreements in the
ordinary course of business; (ii) amend, modify or waive any material
right under any Material Contract other than in the ordinary course; or (iii) make
or authorize any capital expenditure in excess of $500,000 per expenditure or $5,000,000
in the aggregate, other than in accordance with the Company’s fiscal year 2006
capital 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 the
foregoing matters, nothing contained herein shall give Parent any right to
manage, control, direct or be involved in the management of the business of the
Company and its Subsidiaries prior to the Closing.

 

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

 

39

 

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

 

Section 6.4.                                   Satisfaction of Conditions
Precedent.  The Company
will and will cause each of its Subsidiaries to use its commercially reasonable
efforts to satisfy or cause to be satisfied all the conditions precedent which
are set forth in Sections 9.1 and 9.2, and the Company will and will cause
each of its Subsidiaries to use its commercially reasonable efforts to cause
the transactions contemplated by this Agreement to be consummated, and, without
limiting the generality of the foregoing, to obtain 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 reasonably required on its
part in order to effect the transactions contemplated by this Agreement.

 

Section 6.5.                                   No Solicitation.

 

(a)                                  From the date hereof
until the termination of this Agreement pursuant to Section 10.1, except to the extent required to be
disclosed in Company SEC Documents, the Company will not, and will not permit
or cause any of its Affiliates, officers, directors, employees, investment
bankers, consultants and other agents to, directly or indirectly, take any
action to solicit, initiate, encourage or facilitate the making of any
Acquisition Proposal (as defined below) or any inquiry with respect thereto or
engage in discussions or negotiations with any Person with respect thereto, or
disclose any nonpublic information relating to the Company or any of its
Subsidiaries (including this Agreement) or afford access to the Properties,
books or records of the Company or any of its Subsidiaries to, or otherwise
assist or participate in or facilitate in any other manner any effort or
attempt by any Person that has made or, to the knowledge of the Company, is
contemplating making any Acquisition Proposal. 
The Company will, and will cause the other Persons listed in the first
sentence of this Section 6.5
to, immediately cease and cause to be terminated all existing activities discussions
and negotiations, if any, that have taken place prior to the date hereof with
any parties with respect to any Acquisition Proposal.

 

(b)                                 Notwithstanding the
foregoing, nothing contained in this Section 6.5
shall prevent the Company from entering into discussions or negotiations with
any Person in connection with a bona fide Acquisition Proposal received from
such Person that the board of directors of the Company determines in good faith
could lead to a Superior Proposal (as defined below).  The
Company will notify (which notice shall be provided orally and in writing)
Parent of the receipt of any Acquisition Proposal, but in no event within
forty-eight (48) hours after receipt of an Acquisition Proposal.  If the board of directors of the Company
shall determine that an Acquisition Proposal is a Superior Proposal, the
Company shall notify Parent in writing of such determination.  In the event that the Company receives an Acquisition
Proposal and the board of directors of the Company determines in good faith
that it has a fiduciary duty to withdraw its recommendation that the stockholders
of the Company approve the Merger and the transactions contemplated hereby,
nothing herein shall restrict or prevent the board of directors from
withdrawing such recommendation.  The
provisions of this Section 6.5(b) shall
terminate upon the receipt of the requisite stockholder approval of this
Agreement and the Merger.

 

40

 

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

 

Section 6.6.                                   Cooperation with Thilmany
Acquisition Financing and Business Combination.  At the sole cost and expense of Parent and
subject to any restrictions set forth in applicable laws, the Company agrees to
provide, and shall cause its Subsidiaries and its and their representatives to
provide, on a timely basis all reasonable cooperation in connection with (a) the
combination (whether by merger, stock purchase or otherwise) of the business of
Thilmany with the businesses of the Company and the Subsidiaries, as may be
reasonably requested by Parent, and (b) the arrangement of financing for
the acquisition (whether by merger, stock purchase or otherwise) by the Company
of Thilmany and the combination (whether by merger, stock purchase or
otherwise) of the business of Thilmany with the businesses of the Company and
the Subsidiaries, as may be reasonably requested by Parent, including (i) participation
in meetings, drafting sessions, due diligence sessions and roadshow
presentations, (ii) furnishing Parent and financing sources with financial
and other pertinent information regarding the Company as may be reasonably
requested by Parent, (iii) assisting Parent and financing sources in the
preparation of (A) offering documents for debt financing (which is
expected to include a new senior secured credit facility and additional notes
of Cellu Tissue Holdings, Inc.) and (B) materials for rating agency
presentations, including a certificate of the chief financial officer of the
Company or any Subsidiary with respect to solvency matters, comfort letters of
accountants, consents of accountants for use of their reports, customary legal
opinions, surveys and title insurance, and (iv) solicitation of consents
from the holders of the existing senior secured notes of Cellu Tissue Holdings, Inc.
in connection with the financing for the acquisition and entering into
agreements with a solicitation and information agent recommended by Parent (and
reasonably acceptable to the Company); provided, however, that the Company, its
Subsidiaries and their representatives shall not be obligated to incur
additional liability with respect to such cooperation.  All such costs and expenses incurred by any
of the Company, its Subsidiaries and their representatives shall not be
included in Company Transaction Expenses. 
If the Merger is consummated, Parent shall reimburse the Former Company
Stockholders at the Effective Time for any of such costs and expenses paid by
the Company prior to the Effective Time. 
If this Agreement is terminated pursuant to Article X, Parent shall reimburse the Company upon such
termination.  The Company agrees that
Parent will have sole discretion over the terms, conditions and structure of
the debt financing referred to above.

 

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

 

41

 

ARTICLE VII.

PRE-CLOSING AND OTHER COVENANTS OF PARENT AND MERGER
SUB

 

Section 7.1.                                   Satisfaction of Conditions
Precedent.  Parent and
Merger Sub will use their commercially reasonable efforts to satisfy or cause
to 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 reasonable
efforts to cause the transactions contemplated by this Agreement to be
consummated, and, without limiting the generality of the foregoing, to obtain the
financing 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 reasonably
required on its part in order to effect the transactions contemplated by this
Agreement.  Prior to the effective time, Parent
will continue to indirectly or directly own all of the membership interests in Thilmany
and will not otherwise encumber such interests. 
Prior to the Effective Time, Parent will cause Thilmany to retain substantially
all of its assets.

 

Section 7.2.                                   Certain Employee
Benefit Matters.  Each
employee of the Company and its Subsidiaries that becomes a participant in any
employee benefit plan, program, policy or arrangement of the Surviving
Corporation or Parent, shall be given credit for all service prior to the
Effective Time with the Company and any waiting period for participation shall
be waived.

 

ARTICLE VIII.

OTHER AGREEMENTS

 

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

 

Section 8.2.                                   No Public Announcement.  Except to the extent required to be disclosed
in Company SEC Filings, until the Closing, the parties hereto shall make no
public announcement concerning this Agreement, their discussions or any other
memoranda, letters or agreements between the parties relating to the Merger; provided,
however, that (A) any of the parties, but only after reasonable
consultation with the other, may make disclosure if required under applicable
law and (B) this Section 8.2
shall not prohibit any disclosure by Parent or Merger Sub to their respective
lenders or investors.  The Company shall
use commercially reasonable efforts to reasonably consult with Parent prior to making
disclosures relating to the Merger in Company SEC filings.

 

Section 8.3.                                   Regulatory Filings;
Consents; Reasonable Efforts.

 

(a)                                  Subject to the terms
and conditions of this Agreement, the Company and Parent shall use their
respective commercially reasonable efforts to (i) make as soon as
practicable after the date hereof all necessary filings with respect to the
Merger and this Agreement and obtain required approvals and clearances with respect
thereto and supply all additional information requested in connection
therewith; (ii) make as soon as practicable after the date hereof merger
notification or other appropriate filings with federal, state or 

 

42

 

local governmental bodies or applicable foreign governmental agencies
and obtain required approvals and clearances with respect thereto, including
without limitation notices required under the Antitrust Laws (as defined below)
and supply all additional information requested in connection therewith; (iii) obtain
as 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 be
taken, all appropriate action, and do, or cause to be done, all things
necessary, proper or advisable to consummate and make effective the transactions
contemplated by this Agreement as promptly as practicable.

 

(b)                                 Each of Parent and the
Company shall use all commercially reasonable efforts to resolve such
objections, if any, as may be asserted by any Governmental Entity with respect
to the transactions contemplated by this Agreement under the HSR Act, the
Sherman Antitrust Act, as amended, the Clayton Antitrust Act, as amended, the
Federal Trade Commission Act, as amended, and any other federal, state or
foreign statutes, rules, regulations, orders or decrees that are designed to
prohibit, restrict or regulate actions having the purpose or effect of
monopolization or restraint of trade (collectively, “Antitrust Laws”).  In connection therewith, if any
administrative or judicial action or proceeding is instituted (or, to Parent’s
or the Company’s knowledge, threatened to be instituted) challenging any
transaction contemplated by this Agreement as violative of any Antitrust Law,
each of Parent and the Company shall cooperate and use all commercially reasonable
efforts to contest and resist any such action or proceeding and to have
vacated, lifted, reversed, or overturned any decree, judgment, injunction or
other order, whether temporary, preliminary or permanent (each an “Order”), that is in effect and that
prohibits, prevents, or restricts consummation of the Merger or any such other
transactions, unless by mutual agreement Parent and the Company decide that
litigation is not in their respective best interests. The parties hereto will
consult and cooperate with one another, and consider in good faith the views of
one another, in connection with any analyses, appearances, presentations,
memoranda, briefs, arguments, opinions and proposals made or submitted by or on
behalf of any party hereto in connection with proceedings under or relating to
any Antitrust Laws.  Each of Parent and the
Company shall use all commercially reasonable efforts to take such action as
may be required to cause the expiration of the waiting periods under the HSR
Act or other Antitrust Laws with respect to such transactions as promptly as
possible after the execution of this Agreement. 
Nothing contained herein shall be deemed to require Parent or any of its
Affiliates to take or agree to take any Action of Divestiture (as defined
below).  For purposes of this Agreement,
an “Action of Divestiture” means (i) the
sale, license or other disposition or holding separate (through the
establishment of a trust or otherwise) of any assets or categories of assets of
Parent or any of its Affiliates or, following the Effective Time, any assets or
categories of assets of the Surviving Corporation or any of its Subsidiaries, (ii) the
imposition of any limitation or regulation on the ability of Parent or any of
its Affiliates to operate, directly or indirectly, their business, the business
of their Subsidiaries or, following the Effective Time, the business of the
Surviving Corporation or any of its Subsidiaries or (iii) the imposition
of any limitation or regulation on Parent’s or any of its Affiliates’ ownership
or control, direct or indirect, of their Subsidiaries or, following the
Effective Time, the Surviving Corporation or any of its Subsidiaries.

 

43

 

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

 

Section 8.4.                                   Further Assurances.  Prior to and following the Closing, each
party hereto agrees to cooperate fully with the other parties and to execute
such further instruments, documents and agreements and to give such further
written assurances, as may be reasonably requested by any other party to better
evidence and reflect the transactions described herein and contemplated hereby
and to carry into effect the intents and purposes of this Agreement.

 

Section 8.5.                                   Director and Officer
Liability.  The
Surviving Corporation shall indemnify and hold harmless the present and former
officers, directors, employees and agents of the Company (collectively, “Company Indemnitees”) in respect of
acts and omissions occurring on or prior to the Effective Time to the extent
required by the Company’s certificate of incorporation and bylaws in effect on
the date hereof or under any indemnification agreement between such Person and
the Company in effect on the date hereof; provided, however, that none of the
Surviving Corporation or its Affiliates shall be required to indemnify and hold
harmless any Company Indemnitee in respect of any claim brought by a Parent
Indemnified Party against the Former Company Stockholders pursuant to the terms
of this Agreement.

 

Section 8.6.                                   East Hartford Facility.  The Former Company Stockholders shall pay, on
a several basis (but not joint), all reasonable third-party costs, fees and
expenses incurred in connection with obtaining the Environmental Land Use Restriction
at the Company’s East Hartford facility.

 

ARTICLE IX.

CONDITIONS TO MERGER

 

Section 9.1.                                   Conditions to Each Party’s
Obligation to Effect the Merger.  The respective obligations of each party to
this Agreement to effect the Merger shall be subject to the satisfaction prior
to the Closing Date of the following conditions:

 

(a)                                  Stockholder
Approval.  The Stockholder Approval
shall have been obtained in accordance with DGCL and the Company’s certificate
of incorporation and bylaws.

 

(b)                                 Approvals.  All authorizations, consents, orders or
approvals of, or declarations or filings with, or expirations of waiting
periods (and any extensions thereof) imposed by, any Governmental Entity or
third party, set forth on Schedule 9.1(b) of the Disclosure
Schedules, shall have been filed, occurred or been obtained (and shall not have
been revoked).

 

44

 

(c)                                  No Injunctions or
Restraints; Illegality.  No temporary
restraining order, preliminary or permanent injunction or other order or
judgment issued by any court of competent jurisdiction preventing or
restricting the consummation of the Merger shall have been issued; nor shall
any suit, action, or other proceeding by any Governmental Entity have been
instituted that seeks an Action of Divestiture; nor shall there be any action
taken, or any statute, law, rule, regulation or order enacted, entered,
enforced or deemed applicable to the Merger which makes the consummation of the
Merger illegal.

 

Section 9.2.                                   Additional Conditions to
Obligations of Parent and Merger Sub.  The obligations of Parent and Merger Sub to
effect the Merger are subject to the satisfaction of each of the following
conditions, any of which may be waived in writing exclusively by Parent:

 

(a)                                  Performance of
Obligations of the Company.  The
Company shall have performed in all material respects all obligations required
to be performed by it under this Agreement at or prior to the Closing Date; and
Parent shall have received a certificate signed on behalf of the Company by the
chief executive officer of the Company to such effect.

 

(b)                                 Representations and
Warranties.  The Company’s
representations and warranties in this Agreement must be true and correct in
all material  respects (except
representations which, as written, are already qualified by materiality, in
which case such representations and warranties shall be true and correct in all
respects) as of the date of this Agreement, and, except to the extent such
representations and warranties speak as of an earlier date, as of the Effective
Time as if made at the Effective Time and Parent shall have received a
certificate signed on behalf of the Company by the chief executive officer of
the Company to that effect.

 

(c)                                  Opinion of Company’s
Counsel.  Parent shall have received
an 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 the
transactions contemplated hereby.

 

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

 

(e)                                  Certificate of
Merger.  The Company shall have
executed and delivered the Certificate of Merger.

 

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

 

(g)                                 Termination of
Certain Agreements.  The agreements
listed on Schedule 9.2(g) of the Disclosure Schedules shall have
been terminated in all respects 

 

45

 

pursuant to instruments reasonably satisfactory to Parent and without
any obligations or liabilities thereunder on the part of the Company and its
Subsidiaries.

 

(h)                                 Repayment of
Pre-Closing Indebtedness.  All
Indebtedness listed on Schedule 9.2(h) of the Disclosure
Schedules shall be repayable in full at the Effective Time and the Company shall
have obtained and delivered, or caused to be obtained and delivered to Parent
upon such repayment, documentation reasonably satisfactory to Parent evidencing
such repayment and the termination of all Liens on any Properties securing such
Indebtedness.

 

(i)                                     Resignations.  Parent shall have received the written
resignations, effective as of the Effective Time, of each director of the
Company and its Subsidiaries, other than those whom Parent shall have specified
in writing at least two Business Days prior to the Closing Date.

 

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

 

(k)                                  FIRPTA Certificate.  The Company shall have delivered to Parent a
certification conforming to the requirements of Treasury Regulations 1.1445-2(c)(3) and
1.897-2(h).

 

(l)                                     General.  All corporate and other proceedings of the
Company in connection with the Merger and the other transactions contemplated
hereby and all documents incident thereto shall be reasonably satisfactory in
form and substance to Parent and its counsel, and they shall have received all
such counterpart original and certified or other copies of such documents as
they may reasonably request.

 

(m)                               Indemnification
Agreements.  Each Former Company
Stockholder shall have executed the indemnification agreement, in the form
attached hereto as Exhibit 9.2(m)
(the “Former Company Stockholders
Indemnification Agreement”).

 

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

 

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

 

(b)                                 Representations and
Warranties.  Parent and Merger Sub’s
representations and warranties in this Agreement must be true and correct in
all material  respects (except
representations which, as written, are already qualified by materiality, in
which case such representations and warranties shall be true and correct in all
respects) as of 

 

46

 

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

 

(c)                                  Merger Consideration.  Parent shall have wired the Merger Consideration
(less the Escrow Amount and the Working Capital Escrow Amount and the portion
of the Merger Consideration allocable to the Rollover Shares) to the Paying
Agent, and the Escrow Amount and the Working Capital Escrow Amount to the
Escrow Agent.

 

(d)                                 Opinion of Parent’s
Counsel.  The Company shall have
received an opinion dated the Closing Date of Ropes & Gray LLP,
counsel to Parent and Merger Sub, as to the matters set forth in the form
attached hereto as Exhibit 9.3(d).

 

(e)                                  Certificate of
Merger.  Parent and Merger Sub shall
have executed and delivered the Certificate of Merger.

 

(f)                                    Escrow Agreement.  Parent and the Escrow Agent shall have
executed and delivered the Escrow Agreement and the Working Capital Escrow
Agreement.

 

(g)                                 General.  All corporate and other proceedings of Parent
and Merger Sub in connection with the Merger and the other transactions
contemplated hereby and all documents incident thereto shall be reasonably
satisfactory in form and substance to the Company and its counsel, and they
shall have received all such counterpart original and certified or other copies
of such documents as they may reasonably request.

 

ARTICLE X.

TERMINATION AND AMENDMENT

 

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

 

(a)                                  by mutual written
consent of Parent and the Company;

 

(b)                                 by either Parent or the
Company, by giving written notice to the other party, if (i) a court of
competent jurisdiction or other Governmental Entity shall have issued a
nonappealable final order, decree or ruling having the effect of permanently
restraining, enjoining or otherwise prohibiting the Merger or (ii) there
be any statute, law, rule, regulation or order enacted, enforced or deemed
applicable to the Merger which makes the consummation of the Merger illegal;

 

(c)                                  by Parent, by giving
written notice to the Company, if the Closing shall not have occurred on or before
October 15, 2005 (or such later date as the parties may mutually agree) by
reason of the failure of any condition precedent under Section 9.1 or 9.2 (unless the failure results primarily
from a breach by Parent or Merger Sub of any representation, warranty, or
covenant of Parent or Merger Sub contained in this Agreement or Parent’s or
Merger Sub’s failure to fulfill a condition precedent to closing or other
default 

 

47

 

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

 

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

 

(e)                                  by the Company if its
Board of Directors has authorized the Company to enter into a definitive agreement
with respect to a Superior Proposal and the Company has notified Parent in
writing that it intends to enter into such an agreement.

 

Section 10.2.                             Effect of Termination.  In the event of termination of this Agreement
as provided in Section 10.1,
this Agreement shall immediately become void and there shall be no liability or
obligation on the part of Parent, the Company, Merger Sub or their respective
officers, directors, stockholders or Affiliates, except as set forth in this Section 10.2 and Sections 8.2, 10.3 and 12.6 and
further except to the extent that such termination results from the willful
breach by any such party of any of its representations, warranties or covenants
set forth in this Agreement.

 

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

 

ARTICLE XI.

INDEMNIFICATION

 

Section 11.1.                             Indemnification of Parent.  From and after the Effective Time and subject
to 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 respective
officers, directors, employees and Affiliates (collectively, the “Parent Indemnified Parties”) and hold the Parent Indemnified
Parties harmless against any loss, expense, liability or other damage,
including court costs and attorneys’ fees, to the extent of the actual amount
of such loss, expense, liability or other damage (without regard to the use of
any multiplier) (collectively “Damages”)
that the Parent Indemnified Parties have incurred by reason of (i) the inaccuracy
or breach by the Company of any representation or warranty of the Company
contained in Article IV of this
Agreement or in the certificate delivered pursuant to Section 9.2(b) of
this Agreement (in each case, as such representation or warranty would read if 

 

48

 

all
qualifications as to materiality, including each reference to the defined term “Company
Material Adverse Effect,” were deleted therefrom), or (ii) any of the
matters set forth on Schedule 4.16 of the Company Disclosure Schedules.  All such calculations of Damages shall take
into account any offset benefits or insurance proceeds received in connection
with the matter out of which such Damages shall arise net of any premium
increases directly resulting therefrom and shall take into account any refund,
credit or actual reduction in Taxes realized by the Parent Indemnified Parties
as a result of such Damages (including any such Tax benefit realized in the
taxable period in which such Damages were incurred or a taxable period
beginning after the tax period in which such Damages were incurred); provided,
that any benefit referred to above that occurs after the Parent Indemnified
Parties have recovered Damages in accordance with this Article XI shall be
promptly paid to the Former Company Stockholders’ Agent.  Each of Parent and Merger Sub shall be deemed
to have waived, on behalf of all Parent Indemnified Parties, any claim for
Damages arising under clause (i) above if, prior to the Closing, it had
actual knowledge and understanding of that misrepresentation or breach
(including potential consequences thereof). 
Notwithstanding anything herein to the contrary, (a) the Parent
Indemnified Parties shall not be entitled to seek indemnification with respect
to any Damages arising under clause (i) above unless and until the
aggregate amount of all Damages suffered by the Parent Indemnified Parties as a
result of such breach(es) exceeds in the aggregate the amount set forth as the
Deductible in Section 11.4
and then the Parent Indemnified Parties shall be entitled to indemnification
only for such aggregate amount that exceeds the Deductible; provided,
that the Deductible shall not apply to Damages incurred by reason of the
matters set forth in the letter dated as of the date hereof, between the
Company and Parent (Re: Indemnification Matters) (the “Indemnification Matters Letter”); (b) a
breach of a representation or warranty shall not be deemed to have occurred and
the Parent Indemnified Parties shall not be deemed to have incurred any Damages
under clauses (i) or (ii) above unless any Damages arising from such
breach or matter set forth on Schedule 4.16 of the Company Disclosure
Schedules, as the case may be, exceeds (together with all other claims so
substantially related as to effectively constitute one claim) $100,000;
provided, that such $100,000 threshold shall not apply to Damages incurred by
reason of the matters set forth in the Indemnification Matters Letter; (c) the
aggregate amount of all payments to which the Parent Indemnified Parties shall
be entitled to receive in satisfaction of claims for indemnification pursuant
to this Section 11.1 or Section 8.6 shall in no event exceed
the amount set forth in Section 11.4
as the Cap; (d) the Parent Indemnified Parties shall not be entitled to
seek indemnification for Damages to the extent that the items giving rise to
such Damages had been accounted for in any of the adjustments to the Merger
Consideration pursuant to Sections 3.3(f), (g) and
(h); and (e) the Parent Indemnified Parties shall not be
entitled to seek indemnification with respect to any Damages arising under
clause (ii) above unless and until (A) the aggregate amount of all
Damages suffered by the Parent Indemnified Parties under clause (ii) above
exceeds in the aggregate the amount set forth as the Schedule 4.16 Matters
Deductible in Section 11.4
and (B) the aggregate amount of all Damages suffered by Parent Indemnified
Parties under clauses (i) and (ii) above exceeds in the aggregate the
sum of the amount set forth as the Schedule 4.16 Matters Deductible and
the amount set forth as the Deductible in Section 11.4,
and, then the Parent Indemnified Parties shall be entitled to indemnification
only for such aggregate amount that exceeds the sum of the Schedule 4.16
Matters Deductible and the Deductible. 
In no event shall the Former Company Stockholders be liable for any
punitive, special or exemplary damages except to the extent actually payable by
a Parent Indemnified Party to a third party.

 

49

 

Section 11.2.                             Indemnification of Former
Company Stockholders.  From and
after the Effective Time and subject to the limitations contained in this Article XI, Parent will indemnify the
Former Company Stockholders and their respective officers, directors, employees
and Affiliates (collectively, the “Stockholders
Indemnified Parties”) and hold the Stockholders Indemnified
Parties harmless against any Damages that the Stockholders Indemnified Parties
have incurred by reason of the inaccuracy or breach by Parent or Merger Sub of
any representation or warranty of Parent or Merger Sub contained in Article V of this Agreement (all such
calculations of Damages shall take into account any offset benefits or
insurance proceeds received in connection with the matter out of which such
Damages shall arise and shall take into account any tax benefits that the Stockholders
Indemnified Parties may receive in connection therewith).  A Former Company Stockholder shall be deemed
to have waived, on behalf of all Stockholders Indemnified Parties, any claim
for Damages arising for misrepresentation or breach of warranty if, prior to
the Closing, such Former Company Stockholder had actual knowledge and
understanding of that misrepresentation or breach (including potential
consequences thereof).  Notwithstanding
anything herein to the contrary, (i) the Stockholders Indemnified Parties
shall not be entitled to seek indemnification with respect to any Damages
unless and until the aggregate amount of all Damages suffered by the
Stockholders Indemnified Parties as a result of such breach(es) exceeds in the
aggregate the amount set forth as the Deductible in Section 11.4 and then the Stockholders Indemnified
Parties shall be entitled to indemnification only for such aggregate amount
that exceeds the Deductible; and (ii) the aggregate amount of all payments
to which the Stockholders Indemnified Parties shall be entitled to receive in
satisfaction of claims for indemnification pursuant to this Section 11.2 shall in no event exceed
the amount set forth in Section 11.4
as the Cap.  In no event shall Parent be
liable for any punitive, special, consequential, exemplary or incidental
damages except to the extent actually payable by a Stockholders Indemnified
Party 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 in
this Agreement or otherwise, from and after the Effective Time, the
indemnification provisions of this Article XI
are the sole and exclusive remedies of the parties pursuant to this Agreement
or in connection with the transactions contemplated hereby.  From and after the Effective Time, to the
maximum extent permitted by law, but subject to the final sentence of this Section 11.3, the parties hereby waive
all other rights, claims, remedies or actions with respect to any matter in any
way relating to this Agreement or arising in connection herewith, whether under
any 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 final
sentence of this Section 11.3, from and after the Effective Time, no
right, claim, remedy or action shall be brought or maintained by any party, and
no recourse shall be brought or granted against any of them, by virtue of or
based upon any alleged misstatement or omission respecting an inaccuracy in or
breach of any of the representations, warranties or covenants of any of the
parties thereto set forth or contained in this Agreement.  All obligations of the Former Company
Stockholders pursuant to the terms of this Article XI
shall be satisfied first by payment from the Escrow Amount.  Notwithstanding anything to the contrary in
this Section 11.3 or
otherwise in this Agreement, (i) from and after the Effective Time, a
claim 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 of
the limitations set forth in this Agreement (including without regard to any
time or monetary limitations or any limitation on remedies), 

 

50

 

against
any Person or Persons (or, in the case of the Company, the Former Company
Stockholders) accused of committing such fraud.

 

Section 11.4.                             Deductible and Cap.  Notwithstanding anything contained herein to
the contrary, neither Parent nor the Former Company Stockholders shall have any
liability under this Article XI
unless and until the aggregate Damages for which indemnity by such party would
otherwise 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 Damages
incurred by reason of the matters set forth in the Indemnification Matters
Letter; (b) that a breach shall not be deemed to have occurred and the
Parent Indemnified Parties shall not be deemed to have incurred any Damages under
clauses (i) or (ii) of Section 11.1
unless any Damages arising from such breach or matter set forth on Schedule 4.16
of the Company Disclosure Schedules, as the case may be, exceeds (together with
all other claims for Damages so substantially related as to effectively
constitute one claim) $100,000; provided, that such $100,000 threshold shall
not apply to Damages incurred by reason of the matters set forth in the
Indemnification Matters Letter; (c) that the Former Company Stockholders
shall 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 Indemnified
Parties under clause (ii) of Section 11.1
exceeds in the aggregate $1,250,000 (the “Schedule 4.16
Matters Deductible”), and (B) the aggregate amount of all
Damages suffered by Parent Indemnified Parties under clauses (i) and (ii) of
Section 11.1 exceeds in the
aggregate the sum of the amount set forth as the Schedule 4.16 Matters
Deductible and the amount set forth as the Deductible in this Section 11.4, then the Parent
Indemnified Parties shall be entitled to indemnification only for such
aggregate amount that exceeds the sum of the Schedule 4.16 Matters
Deductible and the Deductible. 
Notwithstanding anything contained herein to the contrary, the maximum aggregate
liability 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 Indemnification
Obligations.  The
indemnification obligations set forth in this Article XI
shall terminate upon the 547th day following the Closing
Date.  Notwithstanding the preceding
sentence, (i) indemnification obligations with respect to Damages incurred by
reason of the matters set forth in the letter dated as of the date hereof,
between the Company and Parent (Re: Indemnification Matters) shall terminate as
set forth in the Indemnification Matters Letter; and (ii) indemnification
obligations 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) the
inaccuracy or breach thereof giving rise to such obligations, (y) the aggregate
amount of such Damages or an estimate thereof, in each case to the extent known
or determinable at such time, and (z) reasonable detail of the individual items
of such Damages included in the amount so stated and the date, if known, each
such item arose shall have been given to the party against whom such indemnity
may be sought prior to such time.

 

Section 11.6.                             Terms and Conditions of
Indemnification; Resolution of Conflicts.

 

(a)                                  Any party seeking
indemnification for any third-party claim must give the other party prompt
notice of the claim for Damages (i) stating the aggregate amount of the
Damages or an estimate thereof, in each case to the extent known or
determinable at such time, and (ii) specifying in reasonable detail the individual
items of such Damages 

 

51

 

included in the amount so stated, the date each such item was paid or
properly accrued or arose, and the nature of the misrepresentation, breach or
claim to which such item is related; provided, however, that the failure to
give such notice shall not relieve the indemnifying party from any obligation
hereunder except where, and then solely to the extent that, such failure
actually and materially prejudices the rights of the indemnifying party.

 

(b)                                 The respective
obligations and liabilities of the parties to indemnify pursuant to this Article XI in respect of any Damages
arising from a claim by a third party shall be subject to the following
additional terms and conditions:

 

(i)                                     The
indemnifying party shall have the right to undertake, by counsel or other
representatives of its own choosing reasonably satisfactory to the indemnified
party, the defense, compromise, and settlement of such claim.

 

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

 

(iii)                               Notwithstanding
anything in this Section 11.6
to the contrary, (A) if there is a reasonable probability that a claim may
materially and adversely affect the indemnified party other than as a result of
money damages or other money payments, the indemnified party shall have the
right, at its own cost and expense, to participate in the defense, compromise
or settlement of the claim, (B) the indemnifying party shall not, without
the indemnified party’s written consent, settle or compromise any claim or
consent to entry of any judgment which does not include as an unconditional
term thereof the giving by the claiming party or the plaintiff to the indemnified
party of a release from all liability in respect of such claim, and (C) in
the event that the indemnifying party undertakes defense of any claim, the indemnified
party by counsel or other representative of its own choosing and at its sole
cost and expense, shall have the right to consult with the indemnifying party
and its counsel or other representatives concerning such claim and the indemnifying
party and the indemnified party and their respective counsel or other
representatives shall cooperate with respect to such claim, subject to the
execution and delivery of a mutually satisfactory joint defense agreement;
provided, however, that if representation of both the indemnifying party and
the indemnified party by the same counsel would create a conflict of interest,
the reasonable costs and expenses of any separate counsel retained by the
indemnified party shall be paid by the indemnifying party.

 

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

 

52

 

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

 

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

 

(e)                                  Judgment upon any
award rendered by the arbitrators may be entered in any court having
jurisdiction.  Any such arbitration shall
be held in New York, New York under the commercial rules then in effect of
the American Arbitration Association.  The
non-prevailing party to an arbitration shall pay its own expenses, the fees of
each arbitrator, the administrative fee of the American Arbitration
Association, and the expenses, including, without limitation, the reasonable
attorneys’ fees and costs, incurred by the prevailing party to the arbitration.

 

Section 11.7.                             Former Company
Stockholders’ Agent.

 

(a)                                  In the event that the
Merger is approved by the stockholders of the Company, effective upon such
vote, and without further act of any stockholder of the Company, Charter Agent
LLC shall be appointed as agent and attorney-in-fact (the “Former Company Stockholders’ Agent”) for
each Optionholder, Warrantholder and stockholder of the Company (except such
stockholders of the Company, if any, as shall have perfected their appraisal or
dissenters’ rights under the DGCL).  The Former
Company Stockholders’ Agent shall have the authority to act for and on behalf
of the Former Company Stockholders, including, without limitation, to give and
receive notices and communications, to act on behalf of the Former Company
Stockholders with respect to any matters arising under this Agreement or the
other Transaction Documents, to authorize delivery to Parent of any funds and
property in its possession or in the Escrow Amount or the Working Capital
Escrow Amount in satisfaction of claims by Parent Indemnified Parties, to
object to such deliveries, to agree to, negotiate, enter into settlements and
compromises of, and commence, prosecute, participate in, settle, dismiss or
otherwise terminate, as applicable, lawsuits and claims, mediation and
arbitration proceedings, and to comply with orders of courts and awards of
courts, mediators and arbitrators with respect to such suits, claims or
proceedings, and to take all actions necessary or appropriate in the judgment
of the Former Company Stockholders’ Agent for the accomplishment of the
foregoing.  The Former Company
Stockholders’ Agent shall for all purposes be deemed the sole authorized agent
of the Former Company Stockholders until such time as the agency is
terminated.  Such agency may be changed
by the Former Company Stockholders from time to time upon not less than 30 days
prior written 

 

53

 

notice to Parent; provided, however, that the Former
Company Stockholders’ Agent may not be removed unless holders of a two-thirds
interest in the Merger Consideration agree to such removal and to the identity
of the substituted Former Company Stockholders’ Agent.  Any vacancy in the position of Former Company
Stockholders’ Agent may be filled by approval of the holders of a majority in
interest of the Merger Consideration.  No
bond shall be required of the Former Company Stockholders’ Agent, and the Former
Company Stockholders’ Agent shall not receive compensation for its services.
Notices or communications to or from the Former Company Stockholders’ Agent
shall constitute notice to or from each of the Former Company Stockholders
during the term of the agency.

 

(b)                                 The Former Company
Stockholders’ Agent shall not incur any liability with respect to any action
taken 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 other
professionals and for anything done, omitted or suffered by the Former Company
Stockholders’ Agent shall not be liable to anyone while acting as Former
Company Stockholders’ Agent. The Former Company Stockholders’ Agent undertakes
to perform such duties and only such duties as are specifically set forth in
this Agreement and no other covenants or obligations shall be implied under
this Agreement against the Former Company Stockholders’ Agent; provided,
however, that the foregoing shall not act as a limitation on the powers
of the Former Company Stockholders’ Agent determined by it to be reasonably
necessary to carry out the purposes of its obligations.  The Former Company Stockholders shall indemnify
the 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 administration
of their duties hereunder under this Agreement. 
The Former Company Stockholders’ Agent shall be entitled to satisfy any
such loss, liability and expense from the proceeds of the Working Capital
Escrow Amount and/or the Escrow Amount received by the Former Company
Stockholders’ Agent for distribution to the Former Company Stockholders on a
pro rata basis.

 

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

 

(d)                                 A decision, act,
consent or instruction of the Former Company Stockholders’ Agent shall
constitute a decision, act, consent or instruction of all of the Former Company
Stockholders and shall be final, binding and conclusive upon each such Former Company
Stockholder.  Parent and the Surviving
Corporation may rely upon any such decision, act, consent or instruction of the
Former Company Stockholders’ Agent as being the decision, act, consent or
instruction of every such Former Company Stockholder.

 

54

 

ARTICLE XII.

MISCELLANEOUS

 

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

 

Section 12.2.                             Notices.  All notices and other communications
hereunder shall be in writing and shall be deemed given if delivered
personally, telecopied (which is confirmed) or two Business Days after being
mailed by registered or certified mail (return receipt requested) to the
parties at the following addresses (or at such other address for a party as
shall 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

  	
   

  

 

55

 

	
  (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 to
sections, such reference shall be to a section of this Agreement unless
otherwise indicated.  The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement.  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 phrases
are used in this Agreement, they mean the actual knowledge, assuming the
knowledge that would be obtained after reasonable inquiry of Russell Taylor,
Diane Scheu, Hugo Vivero, Thomas Moore and Kevin French.

 

56

 

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

 

Section 12.5.                             Entire Agreement; No
Third-Party Beneficiaries.  This
Agreement (including the documents and the instruments referred to herein), the
Confidentiality Agreement, the other Transaction Documents, the Former Company
Stockholders Indemnification Agreement and the letter, dated as of the date
hereof, by and between Kohlberg & Company, L.L.C and Charterhouse
Equity Partners IV, L.P. (regarding their investment as stockholders in an
affiliate of Parent) (a) constitute the entire agreement and supersedes
all prior agreements and understandings, both written and oral, among the
parties with respect to the subject matter hereof, and (b) are not
intended to confer upon any Person other than the parties hereto any rights or
remedies hereunder.  Notwithstanding the
foregoing, (i) the Former Company Stockholders shall be deemed to be
third-party beneficiaries of this Agreement with respect to Articles III, VI, VII, VIII and XI; and (ii) from
and after the Effective Time, the former directors and officers of the Company
shall be deemed to be third-party beneficiaries of this Agreement with respect
to 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 the
DGCL.  With respect to all other matters
this Agreement shall be governed and construed in accordance with the laws of
the 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 parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties, except that Parent or Merger Sub may assign its
rights hereunder (a) to one or more of its lenders or (b) following
the Effective Time, to a purchaser of the Surviving Corporation or the business
of the Surviving Corporation.  Subject to
the preceding sentence, this Agreement will be binding upon, inure to the
benefit of and be enforceable by the parties and their respective successors
and assigns.

 

Section 12.8.                             Amendment.  This Agreement may be amended by the parties
hereto, at any time before or after approval of matters presented in connection
with the Merger by the stockholders of the Company, but after any such
stockholder approval, no amendment shall be made which by law requires the
further approval of stockholders without obtaining such further approval.  This Agreement may not be amended except by
an 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, the
parties hereto may, to the extent legally allowed, (a) extend the time for
the performance of any of the obligations or the other acts of the other
parties hereto, (b) waive any inaccuracies in the representations or
warranties contained herein or in any document delivered pursuant hereto and (c) waive
compliance with any of the agreements or conditions contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall
be valid only if set forth in a written instrument signed on behalf of such
party.  Any such waiver by a party of a
condition to closing of this Agreement shall also operate as a waiver and
release of any corresponding 

 

57

 

covenant
or 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 or
shall constitute a waiver of any other provision hereof (whether or not
similar) or (b) shall constitute a continuing waiver unless otherwise
expressly provided therein.  No delay or
omission on the part of any party in exercising any right, power or remedy
under this Agreement will operate as a waiver thereof.

 

Section 12.10.                       Severability.  If any provision of this Agreement is held to
be illegal, invalid or unenforceable under any present or future law or
regulation, and if the rights or obligations of any party hereto under this
Agreement will not be materially and adversely affected thereby, (a) such
provision will be fully severable, (b) this Agreement will be construed
and enforced as if such illegal, invalid or unenforceable provision had never
comprised a part hereof, (c) the remaining provisions of this Agreement
will 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) in
lieu of such illegal, invalid or unenforceable provision, there will be added
automatically as a part of this Agreement a legal, valid and enforceable
provision as similar in terms to such illegal, invalid or unenforceable
provision as may be possible.

 

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

 

[Signature Page Follows]

 

58

 

IN WITNESS WHEREOF, Parent, Merger Sub and the
Company have caused this Agreement and Plan of Merger to be signed by their
respective officers thereunto duly authorized as of the date first written
above.

 

	
   

  	
  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

  	
   

  

 

59

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