Document:

Exhibit 10.10

 

Execution
Copy

 

INTERCREDITOR AND COLLATERAL AGENCY AGREEMENT

 

Dated as of July 1, 2008

 

By and Among

 

BANK OF AMERICA, N.A.,

AS COLLATERAL AGENT

 

And

 

BANK OF AMERICA, N.A., AS ADMINISTRATIVE AGENT UNDER
THE CREDIT 

FACILITY AGREEMENT ON BEHALF OF THE SECURED LENDER PARTIES

And

 

THE INSTITUTIONAL INVESTORS LISTED ON SCHEDULE 1
HERETO, AS NOTEHOLDERS

 

 

WITH RESPECT TO INDEBTEDNESS ISSUED BY KAPSTONE
KRAFT PAPER CORPORATION

 

 

TABLE OF CONTENTS

 

	
  SECTION

  	
   

  	
  HEADING

  	
   

  	
  PAGE

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 1.

  	
  Definitions

  	
   

  	
  2

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Section 1.1.

  	
   

  	
  Definitions

  	
   

  	
  2

  
	
   

  	
  Section 1.2.

  	
   

  	
  Effectiveness
  of this Agreement

  	
   

  	
  7

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 2.

  	
  Relationships
  Among Secured Parties

  	
   

  	
  7

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Section 2.1.

  	
   

  	
  Equal
  and Ratable Sharing of Collateral

  	
   

  	
  7

  
	
   

  	
  Section 2.2.

  	
   

  	
  Restrictions
  on Actions

  	
   

  	
  8

  
	
   

  	
  Section 2.3.

  	
   

  	
  Representations
  and Warranties

  	
   

  	
  10

  
	
   

  	
  Section 2.4.

  	
   

  	
  Cooperation;
  Accountings

  	
   

  	
  10

  
	
   

  	
  Section 2.5.

  	
   

  	
  Termination
  Note Agreement, Credit Facility Agreement or Franchise Loan Facility
  Agreement

  	
   

  	
  10

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 3.

  	
  Appointment
  and Authorization of Collateral Agent

  	
   

  	
  10

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 4.

  	
  Agency
  Provisions

  	
   

  	
  11

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Section 4.1.

  	
   

  	
  Delegation
  of Duties

  	
   

  	
  11

  
	
   

  	
  Section 4.2.

  	
   

  	
  Exculpatory
  Provisions

  	
   

  	
  12

  
	
   

  	
  Section 4.3.

  	
   

  	
  Reliance
  by Collateral Agent

  	
   

  	
  12

  
	
   

  	
  Section 4.4.

  	
   

  	
  Knowledge
  or Notice of Default or Event of Default

  	
   

  	
  12

  
	
   

  	
  Section 4.5.

  	
   

  	
  Non-Reliance
  on Collateral Agent and Other Creditors

  	
   

  	
  13

  
	
   

  	
  Section 4.6.

  	
   

  	
  Indemnification

  	
   

  	
  13

  
	
   

  	
  Section 4.7.

  	
   

  	
  Collateral
  Agent in Its Individual Capacity

  	
   

  	
  15

  
	
   

  	
  Section 4.8.

  	
   

  	
  Successor
  Collateral Agent

  	
   

  	
  15

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 5.

  	
  Actions
  by the Collateral Agent

  	
   

  	
  16

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Section 5.1.

  	
   

  	
  Duties
  and Obligations

  	
   

  	
  16

  
	
   

  	
  Section 5.2.

  	
   

  	
  Notification
  of Default

  	
   

  	
  16

  
	
   

  	
  Section 5.3.

  	
   

  	
  Exercise
  of Remedies

  	
   

  	
  16

  
	
   

  	
  Section 5.4.

  	
   

  	
  Changes
  to Security Documents

  	
   

  	
  17

  
	
   

  	
  Section 5.5.

  	
   

  	
  Release
  of Collateral

  	
   

  	
  17

  
	
   

  	
  Section 5.6.

  	
   

  	
  Other
  Actions

  	
   

  	
  17

  
	
   

  	
  Section 5.7.

  	
   

  	
  Cooperation

  	
   

  	
  17

  
	
   

  	
  Section 5.8.

  	
   

  	
  Distribution
  of Proceeds

  	
   

  	
  18

  
	
   

  	
  Section 5.9.

  	
   

  	
  Authorized
  Investments

  	
   

  	
  19

  
	
   

  	
  Section 5.10.

  	
   

  	
  Determination
  of Amount of Senior Secured Obligations

  	
   

  	
  19

  
	
   

  	
  Section 5.11.

  	
   

  	
  Reinstatement

  	
   

  	
  20

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 6.

  	
  Bankruptcy
  Proceedings

  	
   

  	
  21

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 7.

  	
  Miscellaneous

  	
   

  	
  21

  
								

 

 

	
   

  	
  Section 7.1.

  	
   

  	
  Creditors;
  Other Collateral

  	
   

  	
  21

  
	
   

  	
  Section 7.2.

  	
   

  	
  Marshalling

  	
   

  	
  22

  
	
   

  	
  Section 7.3.

  	
   

  	
  Consents,
  Amendments, Waivers

  	
   

  	
  22

  
	
   

  	
  Section 7.4.

  	
   

  	
  Governing
  Law

  	
   

  	
  22

  
	
   

  	
  Section 7.5.

  	
   

  	
  Parties
  in Interest

  	
   

  	
  22

  
	
   

  	
  Section 7.6.

  	
   

  	
  Counterparts

  	
   

  	
  22

  
	
   

  	
  Section 7.7.

  	
   

  	
  Termination

  	
   

  	
  23

  
	
   

  	
  Section 7.8.

  	
   

  	
  Notices

  	
   

  	
  23

  

 

 

ATTACHMENTS TO INTERCREDITOR AND COLLATERAL AGENCY
AGREEMENT:

 

Schedule 1 — Information relating to the Noteholders

 

Exhibit A — List of Security Documents

 

 

INTERCREDITOR AND COLLATERAL
AGENCY AGREEMENT

 

THIS INTERCREDITOR AND
COLLATERAL AGENCY AGREEMENT dated as of July 1, 2008 (this “Agreement”), is entered
into by and among (i) Bank of America, N.A., in its capacity as Collateral Agent (as hereinafter defined), (ii) Bank
of America, N.A., in its capacity as administrative agent (the “Credit Facility Agent”) under the Credit Facility Agreement
(as hereinafter defined) on behalf of itself and each of the Secured Lender
Parties (as hereinafter defined), (iii) each of the institutional
investors listed on Schedule 1 attached hereto (together with their
respective successors and assigns, each a “Noteholder”
and collectively, the “Noteholders”),
(iv) the Company (as hereinafter defined) and (v) the Guarantors (as
hereinafter defined).

 

RECITALS:

 

A.    KapStone Kraft Paper
Corporation, a Delaware corporation (the “Company”), is
concurrently herewith entering into that certain Note Purchase Agreement dated
as of July 1, 2008 (as amended, supplemented or restated from time to
time, the “Note Agreement”) with the institutional
investors listed on Schedule 1 attached thereto, (the “Holders”) pursuant to which the Holders are
purchasing from the Company those certain 8.30% senior secured notes due 2015
in the original aggregate principal amount of $40,000,000 (as amended,
supplemented or restated from time to time, the “Private Placement Notes”).

 

B.    The Company has heretofore
entered into that certain Credit Agreement dated as of June 12, 2008 with
the Credit Facility Lenders and the Credit Facility Agent (as amended,
supplemented or restated from time to time, the “Credit
Facility Agreement”), pursuant to which the Credit Facility Lenders
may from time to time make certain extensions of credit to the Company in an
aggregate amount not to exceed $515,000,000.

 

C.    The obligations of the
Company to the Noteholders under the Note Agreement and the Private Placement
Notes and the other Note Documents, the obligations of the Company to the
Credit Facility Lenders, the Credit Facility Agent and the other Secured Lender
Parties under the Credit Facility Agreement and the other Credit Facility Loan
Documents (as hereinafter defined), and the other Senior Secured Obligations
(as hereinafter defined), if any, will be secured equally and ratably by the
Collateral (as hereinafter defined) pursuant to certain documents set forth on Exhibit A
hereto and the other Security Documents and
administered in accordance with the terms and conditions hereof and thereof.  The Noteholders, and
the Credit Facility Agent on behalf of the Secured Lender Parties desire to
appoint Bank of America, N.A. as the collateral agent (the “Collateral
Agent”)  to act on behalf of the Noteholders and the Secured Lender
Parties regarding the Collateral, all as more fully provided herein.  The parties hereto have entered into this
Agreement to, among other things, further define the rights, duties, authority
and responsibilities of the Collateral Agent and the relationship between the
Noteholders, and the Secured Lender Parties regarding their equal and ratable
interests in the Collateral.

 

 

NOW, THEREFORE, in
consideration of the premises and other good and valuable consideration, the
sufficiency and receipt of which are hereby acknowledged, the parties hereto
hereby agree as follows:

 

SECTION 1.           DEFINITIONS.

 

Section 1.1.           Definitions.  The following terms shall
have the meanings assigned to them below in this Section 1.1 or in the provisions of this Agreement referred to
below:

 

“Affiliate” means, with respect to any Person, another Person
that directly, or indirectly through one or more intermediaries, Controls or is
Controlled by or is under common Control with the Person specified.  “Control” means the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of a Person, whether through the ability to exercise voting power, by
contract or otherwise.  “Controlling”
and “Controlled”
have meanings correlative thereto.

 

“Agreement” is defined in
the preamble hereof, and shall include such agreement as amended, restated,
supplemented or otherwise modified in accordance with its terms.

 

“Bankruptcy Proceeding” shall mean,
with respect to any Person, a general assignment by such Person for the benefit
of its creditors, or the institution by or against such Person of any
proceeding seeking relief as debtor, or seeking to adjudicate such Person as
bankrupt or insolvent, or seeking reorganization, arrangement, adjustment or composition
of such Person or its debts, under any law relating to bankruptcy, insolvency,
reorganization or relief of debtors, or seeking appointment of a receiver,
trustee, custodian or other similar official for such Person or for any
substantial part of its property.

 

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

 

“Cash Equivalent
Investments” shall mean, (a) direct obligations of the
United States Government or any agencies thereof and obligations guaranteed by
the United States Government, in each case having remaining terms to maturity
of not more than 30 days; and (b) certificates of deposit, time deposits
and acceptances, having remaining terms to maturity of not more than 60 days
issued by United States banks which have a combined capital and surplus of at
least $1,000,000,000 and having an “A”  rating or better assigned thereto by Standard &
Poor’s Ratings Group, a Division of The McGraw Hill Companies, Inc. or
Moody’s Investors Service, Inc.

 

“Cash Management
Agreements” shall mean the Cash Management Agreements under and
as defined in the Credit Facility Agreement.

 

“Collateral” shall mean all
collateral under, and cash received in respect of, the Security Documents.

 

“Collateral Agent” shall be the party
identified as such in the Recitals hereof, and its successors and permitted
assigns.

 

2

 

“Commitment” means the “Commitment”
under and as defined in the Credit Facility Agreement as in effect on the date
hereof.

 

“Company Proceeds” shall have the
meaning assigned thereto in Section 2.1(c).

 

“Credit Facility Agent” shall have the
meaning assigned thereto in the Recitals hereof, and shall include its
successors and permitted assigns.

 

“Credit Facility Agreement”
shall have the meaning assigned thereto in the Recitals hereof.

 

“Credit Facility Agreement
Obligations” shall mean the “Obligations” under and as defined
in the Credit Facility Agreement as in effect on the date hereof.

 

“Credit Facility Loan
Documents” mean the “Loan Documents” under and as defined in
the Credit Facility Agreement as in effect on the date hereof.

 

“Credit Facility Lenders” shall mean the
financial institutions from time to time party to the Credit Facility Agreement
as Lenders thereunder and as defined therein and their successors and permitted
assigns.

 

“Credit Facility Notes” shall mean the
“Notes” under and as defined in the Credit Facility Agreement as in effect on
the date hereof.

 

“Creditor” shall mean any
one of the Noteholders or the Secured Lender Parties, but, in each case, only
in such capacity, and any successors and permitted assigns to the interests in the
Senior Secured Obligations owing to any such Person in such capacity.

 

“Default” shall mean any
event or condition, the occurrence of which would, with the lapse of time or
the giving of notice, or both, constitute an Event of Default.

 

“Default Notice” shall have the
meaning assigned thereto in Section 5.2.

 

“Disallowed Obligations” shall have the
meaning assigned thereto in Section 5.10(b).

 

“Enforcement Event” shall mean (a) the
commencement of a Bankruptcy Proceeding with respect to the Company or any
Subsidiary, (b) the acceleration of the obligations pursuant to the
Private Placement Notes or Private Placement Note Purchase Agreement or the
Credit Facility Agreement Obligations or (c) the exercise of any remedy by
the Collateral Agent against the Company or any Subsidiary with respect to the
Collateral.

 

“Event of Default” shall mean any
event or occurrence which would constitute an “Event of
Default” under the terms of the Note Agreement, the Credit Facility
Agreement  or any Security Document.

 

“Financing
Documents” means the Credit Facility Loan Documents and the
Note Documents.

 

3

 

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

 

“Guaranties” shall mean each of the Guaranty (as defined in the Credit Facility
Agreement and the Guaranty Agreement (as defined in the Note Agreement), as
applicable) as each is in effect on the date hereof and as each may be amended,
restated, supplemented, replaced or otherwise modified in accordance with the
terms thereof.

 

“Guarantors” shall mean the
“Guarantors” under and as defined in the Credit Facility Agreement and/or the
Note Agreement, as applicable.

 

“Hedging Agreements” shall mean the
Secured Hedge Agreements under and as defined in the Credit Facility Agreement.

 

“Indemnity Share” shall have the
meaning assigned thereto in Section 4.6.

 

“L/C Issuer” shall mean the
L/C Issuer under and as defined in the Credit Facility Agreement, and shall
include any successor thereof.

 

“Letter of Credit
Collateral Account” shall have the meaning assigned thereto in Section 5.8
hereof.

 

“Letter of Credit Exposure” shall mean, at
any time and without duplication, the sum of (a) the aggregate undrawn
portion of all uncancelled and unexpired Letters of Credit and (b) the
aggregate unpaid reimbursement obligations of the Company in respect of
drawings under any Letter of Credit.

 

“Letters of
Credit” shall mean all Letters of Credit issued under or pursuant to
the Credit Facility Agreement.

 

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

 

“Majority
Creditors” shall mean Creditors holding more than 50% of the sum of (a) the
aggregate outstanding principal amount of the indebtedness evidenced by the
Private Placement Notes and (b) Total Outstandings (as defined in the
Credit Facility Agreement).

 

“Non-Indemnifying Creditor” shall have the
meaning assigned thereto in Section 4.6.

 

“Note Agreement” shall have the
meaning assigned thereto in the Recitals hereof.

 

4

 

“Note Documents” shall mean the
Note Agreement, the Private Placement Notes and all other “Transaction
Documents” under and as defined in the Note Agreement as in effect on the date
hereof.

 

“Noteholders” shall mean the
parties identified as such in the Recitals hereof, and their successors and
permitted assigns.

 

“Notice of Default” shall mean a
notice pursuant to Section 5.2 hereof
from the Collateral Agent to the Creditors of the occurrence of an Event of
Default.

 

“Outstanding Amount” shall have the
meaning assigned thereto in the Credit Facility Agreement as in effect on the
date hereof.

 

“Person”
means any natural person, corporation, partnership, trust, limited liability
company, association, Governmental Authority or unit, or any other entity,
whether acting in an individual, fiduciary or other capacity.

 

“Preferential Amount” shall mean,
with respect to any Creditor, an amount equal to (a) the outstanding
principal amount of any Loans under the Credit Facility Agreement owed to such
Creditor, the outstanding principal amount of any Private Placement Notes held
by such Creditor, the outstanding amount of such Creditor’s Letter of Credit
Exposure and/or the outstanding amount of all obligations of the Company or any
of its Affiliates owed to such Creditor in respect of any Cash Management
Agreements on the date of the occurrence of the Sharing Date with respect to an
Enforcement Event, less (b) the outstanding principal amount of any Loans
under the Credit Facility Agreement owed to such Creditor, the outstanding
principal amount of any Private Placement Notes held by such Creditor, the
outstanding amount of such Creditor’s Letter of Credit Exposure and/or the
outstanding amount of all obligations of the Company or its Affiliates owed to
such Creditor in respect of any Cash Management Agreement on the date of such
Enforcement Event.

 

“Requisite Creditors” shall mean (a) the
Noteholders holding obligations under the Private Placement Notes, the approval
of which is required to approve any contemplated amendment or modification of,
termination or waiver of any provision of or consent to any departure from the
terms of this Agreement under the terms of the Note Agreement and (b) the
Credit Facility Lenders the approval of which is required to approve any
contemplated amendment or modification of, termination or waiver of any
provision of or consent to any departure from the terms of this Agreement under
the terms of the Credit Facility Agreement, in each case, voting as a separate
class.

 

“Returned Amount” shall have the
meaning assigned thereto in Section 5.11.

 

“Secured Lender Parties” shall mean the
Credit Facility Agent, the L/C Issuer, the Credit Facility Lenders and any
Hedge Bank (as defined in the Credit Facility Agreement) and any Cash
Management Bank (as defined in the Credit Facility Agreement).

 

“Security”
shall have the same meaning as in Section 2(1) of the
Securities Act of 1933, as amended.

 

5

 

 

 

“Security Documents” shall mean the
documents set forth on Exhibit A hereto including all agreements,
documents and instruments relating to, arising out of, or in any way connected
with any of the foregoing documents or granting to the Collateral Agent Liens
to secure the Senior Secured Obligations, whether now or hereafter executed,
each as amended or amended and restated in conjunction herewith, or as may be amended,
restated, replaced, supplemented or otherwise modified from time to time
hereafter in accordance with the terms hereof. 
Security Documents shall not include the Note Agreement, the Private
Placement Notes, the Credit Facility Notes or the Credit Facility Agreement.

 

“Senior Secured
Obligations” shall mean collectively (a) the indebtedness, obligations
and liabilities of the Company and its Affiliates (including, without
limitation, the Guarantors) to the Noteholders under the Note Documents
(including, but not limited to, all unpaid principal of, and the
Yield-Maintenance Amount, if any, and accrued and unpaid interest on, the
Private Placement Notes) and (b) the indebtedness, obligations and
liabilities of the Company and its Affiliates (including, without limitation,
the Guarantors) to the Secured Lender Parties under the Credit Facility Loan
Documents (including, but not limited to, all amounts owed in respect of
Secured Hedge Agreements or Cash Management Agreements of the Company or its
Affiliates owing to a Credit Facility Secured Creditor or any of its
Affiliates)  and any other Credit Facility
Agreement Obligation, in each case whether now existing or hereafter arising,
joint or several, direct or indirect, absolute or contingent, due or to become
due, matured or unmatured, liquidated or unliquidated, arising by contract,
operation of law or otherwise, and all obligations of the Company and their
Affiliates to the Creditors arising out of any extension, refinancing or
refunding of any of the foregoing obligations.

 

“Sharing Date” with respect
to an Enforcement Event shall mean the earliest date on or prior to the date of
such Enforcement Event (a) on which a Sharing Event occurred and (b) on
each date after which, until the date of such Enforcement Event, one or more
Sharing Events were in effect.

 

“Sharing Event” shall mean the
delivery to the Collateral Agent or the Credit Facility Agent of
written notice (which notice the Collateral Agent or the Credit
Facility Agent, as the case may be, shall promptly forward to each
Creditor or to such Creditor’s agent or representative) of, or
the actual knowledge of the Collateral Agent or the Credit Facility Agent of, (a) the
occurrence of any Specified Event of Default, or (b) any refusal by any
Secured Lender Party to make any loan under the Credit Facility Agreement or
issue any Letter of Credit requested by the Company, either when obligated to
do so under the Credit Facility Agreement or on the grounds that an
Event of Default has occurred or that a representation or warranty of
the Company is not true as of the date of the requested loan or Letter
of Credit where such loan or issuance would not cause the Company to
exceed the limitations set forth in Section 2.01 or 2.03 of the Credit
Facility Agreement, so long as such refusal continues for a period of at least
three (3) consecutive Business Days. Any Sharing Event occurring under
clause (b) shall be deemed to have ceased to be in effect at such time as
the Secured Lender Parties make loans and issue Letters of Credit under the
Credit Facility Agreement as requested by the Company.

 

“Specified Event of
Default” shall mean (a) any default in any payment of
any Senior Secured Obligation when due, (b) an Event of Default described
in Section 8.01(d) of the Credit Facility Agreement or clause (vii) of
paragraph 7A of the Note Agreement, or (c) an Event of 

 

6

 

Default
described in clause 8.01(e)(i) of the Credit Facility Agreement or clause (v) of
paragraph 7A of the Note Agreement, provided that any Specified Event of
Default which occurs under this clause (c) shall, unless otherwise agreed
by the Credit Facility Agent and the Required Holders (as defined in the Note
Agreement), be deemed to have ceased to be in effect if such Specified Event of
Default has been cured or waived (in accordance with the provisions of the
Credit Facility Agreement and/or the Note Agreement, as applicable) or if,
within 365 days of the occurrence thereof, no Enforcement Event, Sharing Event
described in clause (b) of the definition thereof, or Specified Event of
Default described in clause (a) or (b) of this definition has
occurred.

 

“Subsidiary” shall mean, as
to any Person, any corporation, association or other business entity in which
at least a majority of the outstanding voting securities shall be beneficially
owned, directly or indirectly, by such Person. 
Unless the context otherwise clearly requires, any reference to a “Subsidiary”
is a reference to a Subsidiary of the Company.

 

“Yield-Maintenance Amount”
shall have the meaning assigned thereto in the Note Agreement as in
effect on the date hereof.

 

Section 1.2.                                Effectiveness
of this Agreement.  The
effectiveness of this Agreement is conditioned upon the execution and delivery
of (a) this Agreement by the Collateral Agent, the Noteholders and the
Credit Facility Agent, (b) the Note Agreement by each of the parties
thereto and the Private Placement Notes by the Company, (c) the Credit
Facility Agreement by each of the parties thereto and (d) the Security
Documents by each of the parties thereto that are necessary for such agreements
to be legally effective.

 

SECTION 2.                                RELATIONSHIPS AMONG SECURED PARTIES.

 

Section 2.1.                                Equal
and Ratable Sharing of Collateral.

 

(a)                                  The equal and
ratable sharing of Collateral by the Creditors as provided for by this
Agreement shall not be altered or otherwise affected by any amendment,
modification, supplement, extension, renewal, restatement or refinancing of any
of the Note Agreement, the Credit Facility Agreement or the institution of any
Bankruptcy Proceeding unless expressly agreed to in writing by the Requisite
Creditors.

 

(b)                                 Notwithstanding
the order or time of attachment of, or the order, time, or manner of perfection
or the order or time of filing or recordation of any document or instrument, or
other method of perfecting any Lien which may have heretofore been, or may
hereafter be, granted to, or created in favor of, any Creditor (in its capacity
as such) in any property or assets included or intended to be included in the
Collateral, and notwithstanding any conflicting terms or conditions which may
be contained in any Financing Document or Security Document and notwithstanding
any provision of the Uniform Commercial Code (as in effect in any applicable
jurisdiction) or other applicable law, the Collateral Agent shall have a senior
priority lien on and security interest in the Collateral.  No Creditor (in its capacity as such) shall
have apart from its interest as provided herein and in the Security Documents, (i) any
Lien on or security interest in the property and assets included in the
Collateral or (ii) any Lien on or security interest in 

 

7

 

any other property or assets of the Company
or any Subsidiary, and, notwithstanding the foregoing, to the extent any
Creditor acquires any such Liens or security interests, such Creditor shall be
deemed to (and by its acceptance of this Agreement agrees to) hold those Liens
and security interests for the ratable benefit of all Creditors and such
property or assets shall be deemed a part of the Collateral.

 

(c)                                  All proceeds
received by the Collateral Agent or any Creditor upon the sale, exchange,
collection, foreclosure, or other disposition of or realization upon all or any
part of the Collateral, in each case pursuant to the exercise of remedies under
any Financing Document or any Security Document, or upon any collection or
enforcement under any guaranty of the Senior Secured Obligations in connection
with, or during the existence of, an Enforcement Event and any payment received
by the Collateral Agent or any Creditor with respect to the Senior Secured
Obligations on or after the occurrence of an Enforcement Event (together, the “Company Proceeds”), which term shall include, without
limitation, (i) the proceeds of any liquidation, foreclosure sale,
enforcement of any Lien, or other realization upon any Collateral or of any
collection or enforcement under any guaranty of the Senior Secured Obligations,
together with any other sums thereafter received by any Creditor or the
Collateral Agent as part of the Collateral (including, without limitation, all
amounts received by the Collateral Agent or any Creditor pursuant to the
exercise by it of any right of set off in respect of the Senior Secured
Obligations held by it) and (ii) the proceeds of any distributions of
Collateral received by any Creditor or the Collateral Agent in respect of any
amounts owing to it under any of the Financing Documents following any
marshaling of the assets of the Company (whether in bankruptcy, reorganization,
winding up proceedings or similar proceedings, or otherwise), or following
confirmation of any plan of arrangement or plan of reorganization of Company or
any guarantor, shall be delivered to the Collateral Agent and distributed among
the Creditors and the Collateral Agent as set forth in Section 5.8.

 

(d)                                 Subject to
clause (e) below, upon the occurrence of an Enforcement Event each
Creditor shall deliver such Creditor’s Preferential Amount, if any, to the
Collateral Agent, which shall be distributed among the Creditors and the
Collateral Agent as set forth in Section 5.8.

 

(e)                                  Notwithstanding
the provision of subsection (c) and (d) of this Section 2.1,
upon agreement between the Collateral Agent and any Creditor who is required to
deliver any Company Proceeds or Preferential Amount to the Collateral Agent
under either such subsection, such Creditor may deliver an amount of such
Company Proceeds or Preferential Amount which is net of the amount thereof
which would be distributed to such Creditor under Section 5.8, in which event
such Creditor shall be deemed to have delivered the full amount of such Company
Proceeds or Preferential Amount to the Collateral Agent and to have received
the amount thereof which would have been distributed to such Creditor under Section 5.8
for all purposes hereof.

 

Section 2.2.                                Restrictions
on Actions.  Each Creditor agrees that, so long as any Senior Secured Obligations are
outstanding, the provisions of this Agreement shall provide the exclusive
method by which any Creditor may exercise rights and remedies under the
Security 

 

8

 

Documents
or with respect to the Collateral. 
Therefore, each Creditor shall, for the mutual benefit of all Creditors,
except as permitted under this Agreement:

 

(a)                                  refrain from
taking or filing any action, judicial or otherwise, to enforce any rights or
pursue any remedy under the Security Documents, except for delivering notices
hereunder;

 

(b)                                 refrain from (1) selling
any Senior Secured Obligations to the Company or any Affiliate of the Company
or (2) accepting any guaranty of, or any other security for, the Senior
Secured Obligations from the Company or any Affiliate of the Company, except (i) the
Guaranties, including any joinders thereto pursuant to Section 6.10(a) of
the Credit Facility Agreement or paragraph 5K of the Note Agreement and (ii) any
other guaranty or security granted to the Collateral Agent for the benefit of
all Creditors; and

 

(c)                                  refrain from
exercising any rights or remedies under the Security Documents which have or
may have arisen or which may arise as a result of a Default or Event of Default
or exercising any rights of set-off against any account of the Company or any
of its Affiliates (other than in connection with ordinary course set-off rights
including, but not limited to, for the payment of account fees);

 

provided, however, that nothing
contained in subsections (a) through (c) above, shall prevent any
Creditor from exercising any remedy under its documents that does not exercise
a right under the Security Documents or with respect to the Collateral,
constitute a demand for payment under the Guaranties or constitute an exercise
of rights of set-off against an account of the Company or any of its Affiliates
(other than in connection with ordinary course set-off rights including, but
not limited to, for the payment of account fees).  For the avoidance of doubt, the Creditors
agree that this Section 2.2 shall not prohibit any of the following: (i) imposing
a default rate of interest in accordance with the Note Agreement, the Private
Placement Notes or the Credit Facility Agreement, as applicable, (ii) ceasing
to honor requests for credit extensions of any kind including the issuance,
extension or increase of Letters of Credit, (iii) ceasing to continue or
make Eurodollar Rate Loans under and as defined in the Credit Facility
Agreement, (iv) raising any defenses in any action in which it has been
made a party defendant or has been joined as a third party, except that the
Collateral Agent may direct and control any defense directly relating solely to
the Collateral or any one or more of the Security Documents but not relating to
any Creditor, which shall be governed by the provisions of this Agreement, (v) exercising
any right of setoff, recoupment or similar right; provided that, with respect to this clause (v) and
other than in connection with ordinary course set-off rights (including, but
not limited to, for the payment of account fees), such action has been
authorized in writing by the Majority Creditors and the amounts so set-off or
recouped shall constitute Collateral for purposes of this Agreement and the
Creditor shall promptly cause such amounts to be delivered to the Collateral
Agent for application pursuant to Section 5.8, (vi) accelerating the
obligations pursuant to the Private Placement Notes or Private Placement Note
Purchase Agreement or the Credit Facility Agreement Obligations in accordance
with the Note Agreement, the Private Placement Notes or the Credit Facility
Agreement, as applicable, or (vii) subject to subsection (b) above,
agreeing to new or modified covenants and other terms under, or otherwise
amending, the Note Agreement, the Private Placement Notes or the Credit
Facility Agreement, as applicable.

 

9

 

Section 2.3.                                Representations
and Warranties.

 

(a)                                  Each of the
parties hereto represents and warrants to the other parties hereto that:

 

(i)                                     the execution, delivery and
performance by such Person of this Agreement has been duly authorized by all
necessary corporate proceedings and does not and will not contravene any
provision of law, its charter or by-laws or any amendment thereof, or of any
indenture, agreement, instrument or undertaking binding upon such Person; and

 

(ii)                                  the execution, delivery and
performance by such Person of this Agreement will result in a valid and legally
binding obligation of such Person enforceable in accordance with its terms.

 

(b)                                 The Credit
Facility Agent represents and warrants to the other parties hereto that it is
authorized to execute this Agreement on behalf of itself and each other Credit
Facility Secured Creditor and the execution, delivery and performance by the
Credit Facility Agent of this Agreement will result in a valid and legally
binding obligation of each Credit Facility Secured Creditor enforceable in
accordance with its terms.

 

Section 2.4.                                Cooperation;
Accountings.  Each of the
Creditors will, upon the reasonable request of another Creditor, from time to
time execute and deliver or cause to be executed and delivered such further
instruments, and do and cause to be done such further acts as may be necessary
or proper to carry out more effectively the provisions of this Agreement.  Each of the Noteholders and the Credit
Facility Agent, on behalf of the Secured Lender Parties, agree to provide to
each other upon reasonable request a statement of all payments received in
respect of Senior Secured Obligations.

 

Section 2.5.                                Termination
of Note Agreement or Credit Facility Agreement. 
Upon payment in full to any Creditor of all Senior Secured Obligations
of such Creditor, and, in the case of the Credit Facility Lenders, the
termination of such Credit Facility Lender’s Commitment and the expiration or
cancellation of any Letter of Credit under such facility, and provided that no
Sharing Event or Enforcement Event shall be continuing at such time, such
Creditor (a “Former Creditor”) shall, subject to Section 5.11 hereof, cease to be a
party to this Agreement; provided, however, if
all or any part of any payments to any Creditor made prior to such Former
Creditor ceasing to be a party to this Agreement become a Returned Amount, then
this Agreement in respect of such Former Creditor shall be renewed as of such
date and shall thereafter continue in full force and effect to the extent of
the Senior Secured Obligations so invalidated, set aside or repaid.

 

SECTION 3.                                APPOINTMENT AND AUTHORIZATION OF COLLATERAL AGENT.

 

(a)                                  Each Creditor
and each other holder of Senior Secured Obligations by its acceptance thereof
hereby designates and appoints Bank of America, N.A. as the Collateral Agent of
such Creditor under this Agreement and the Security Documents.  The appointment made by this Section 3(a) is
given for valuable consideration and 

 

10

 

coupled with an interest and, subject to Section 4.8,
is irrevocable so long as the Senior Secured Obligations, or any part thereof,
shall remain unpaid or any Credit Facility Lender is obligated to fund its
Commitment or make or fund any advances under the Letters of Credit.

 

(b)                                 Each Creditor
and each other holder of Senior Secured Obligations by its acceptance thereof
hereby irrevocably authorizes Bank of America, N.A. as the Collateral Agent for
such Creditor to (1) execute and enter into each of the Security Documents
and all other instruments relating to said Security Documents, (2) take
action on its behalf expressly permitted to perfect, maintain and preserve the
Liens granted thereby, (3) execute instruments of release or to take such
other action necessary to release Liens upon the Collateral to the extent
authorized by this Agreement or the Financing Documents or the Requisite
Creditors, (4) act as its agent for perfection and (5) exercise such
other powers and perform such other duties as are, in each case, expressly
delegated to the Collateral Agent by the terms hereof together with such powers
as are reasonably incidental thereto.

 

(c)                                  Notwithstanding
any provision to the contrary elsewhere in this Agreement or the Security
Documents, the Collateral Agent shall not have any duties or responsibilities
except those expressly set forth herein or therein and no implied covenants,
functions, responsibilities, duties, obligations or liabilities shall be read
into the Security Documents or this Agreement or otherwise be deemed to exist
for, be undertaken by or apply to the Collateral Agent.

 

(d)                                 The
relationship between the Collateral Agent and each of the Creditors is that of
an independent contractor.  The use of
the term “Collateral Agent” is for convenience only and is used to describe, as
a form of convention, the independent contractual relationship between the
Collateral Agent and each of the Creditors. 
Nothing contained in this Agreement nor the other Security Documents shall
be construed to create an agency, trust or other fiduciary relationship between
the Collateral Agent and any of the Creditors or the Company.  As an independent contractor empowered by the
Creditors to exercise certain rights and perform certain duties and
responsibilities hereunder and under the other Security Documents, the
Collateral Agent is nevertheless a “representative” of the Creditors, as that
term is defined in Article 1 of the Uniform Commercial Code, for purposes
of actions for the benefit of the Creditors and the Collateral Agent with
respect to all Collateral.  Such actions
include the designation of the Collateral Agent as “secured party”, “mortgagee”
or the like on all financing statements and other documents and instruments,
whether recorded or otherwise, relating to the attachment, perfection, priority
or enforcement of any security interests, mortgages or deeds of trust in
collateral security intended to secure the payment or performance of any of the
Senior Secured Obligations, all for the benefit of the Creditors and the
Collateral Agent.

 

SECTION 4.                                AGENCY PROVISIONS.

 

Section 4.1.                                Delegation
of Duties.  The Collateral
Agent may exercise its powers and execute any of its duties under this
Agreement and the Security Documents by or through 

 

11

 

employees,
agents or attorneys-in-fact and shall be entitled to take and to rely on advice
of counsel concerning all matters pertaining to such powers and duties.  The Collateral Agent shall not be responsible
for the negligence or misconduct of any agents or attorneys-in-fact selected by
it with reasonable care.  The Collateral
Agent may utilize the services of such Persons as the Collateral Agent in its
sole discretion may determine, and all reasonable fees and expenses of such
Persons shall be borne by the Company (and shall constitute a Senior Secured
Obligation under the Security Documents and hereunder) and shall be subject to
the indemnity provisions of Section 4.6.

 

Section 4.2.                                Exculpatory
Provisions.  Neither the
Collateral Agent nor any of the Collateral Agent’s officers, directors,
employees, agents, attorneys-in-fact or Affiliates shall be (a) liable for
any action lawfully taken or omitted to be taken by it or such Person under or
in connection with this Agreement or any Security Document (except for its or
such Person’s own gross negligence or willful misconduct) or (b) responsible
in any manner to any of the Creditors for any recitals, statements,
representations or warranties made by the Company or any officer,
representative, agent or employee thereof contained in any Security Document or
in any certificate, report, statement or other document referred to or provided
for in, or received by, the Collateral Agent under or in connection with this
Agreement or any Security Document, or for the value, validity, effectiveness,
genuineness, enforceability or sufficiency of the Security Documents or for any
failure of the Company to perform its obligations thereunder.  The Collateral Agent shall be under no
obligation to the Creditors to ascertain or to inquire as to the observance or
performance of any of the agreements contained in, or conditions of, the
Security Documents or any of the Note Documents or the Credit Facility Loan
Documents.

 

Section 4.3.                                Reliance
by Collateral Agent.  The Collateral
Agent shall be entitled to rely, and shall be fully protected in relying, upon
any writing, resolution, notice, consent, certificate, affidavit, letter,
cablegram, telegram, telecopy, telex or teletype message, statement, order or
other document or conversation reasonably believed by it to be genuine and
correct and to have been signed, sent or made by the proper Person or Persons
and upon advice and statements of legal counsel (including, without limitation,
counsel to the Company), independent accountants and other experts selected by
the Collateral Agent.  The Collateral
Agent shall be fully justified in failing or refusing to take action under this
Agreement or any Security Document unless it shall first receive such advice or
concurrence of the Majority Creditors as is contemplated by Section 5 hereof and it shall
first be indemnified to its reasonable satisfaction by the Creditors against
any and all liability and expense which may be incurred by it by reason of
taking, continuing to take or refraining from taking any such action.  The Collateral Agent shall in all cases be
fully protected in acting, or in refraining from acting, under this Agreement
and the Security Documents in accordance with the provisions of Section 5.6  hereof and in accordance with written instructions of the
Majority Creditors pursuant to Section 5.3
hereof, and such request and any action taken or failure to act pursuant
thereto shall be binding upon all the Creditors and all future holders of the
Senior Secured Obligations.

 

Section 4.4.                                Knowledge
or Notice of Default or Event of Default. 
The Collateral Agent shall not be deemed to have knowledge or notice of
the occurrence of any Default or Event of Default unless the Collateral Agent
has received written notice from a Creditor or the Company referring to the
Note Agreement or the Credit Facility Agreement, describing such Default or
Event of Default, setting forth in reasonable detail the facts and
circumstances thereof and stating 

 

12

 

that
the Collateral Agent may rely on such notice without further inquiry; provided that the failure of any Creditor to provide such
notice shall not impair any rights of such Creditor hereunder.

 

Section 4.5.                                Non-Reliance
on Collateral Agent and Other Creditors. 
Each Creditor expressly acknowledges that except as set forth in Section 2.3(a) hereof,
neither the Collateral Agent nor any of the Collateral Agent’s officers,
directors, employees, agents, attorneys-in-fact or Affiliates has made any
representations or warranties to it. 
Each Creditor represents that it has, independently and without reliance
upon the Collateral Agent or any other Creditor, and based on such documents
and information as it has deemed appropriate, made its own appraisal of and
investigation into the business, operations, property, financial and other
condition and creditworthiness of the Company. 
Each Creditor also represents that it will, independently and without reliance
upon the Collateral Agent or any other Creditor, and based on such documents
and information as it shall deem appropriate at the time, continue to make its
own credit analysis, appraisals and decisions in taking or not taking action
under the Security Documents and this Agreement and to make such investigation
as it deems necessary to inform itself as to the business, operations,
property, financial and other condition and creditworthiness of the
Company.  The Collateral Agent shall have
no duty or responsibility to provide any Creditor with information concerning
the business, operations, property, financial or other condition, or
creditworthiness of Company that may come into the possession of the Collateral
Agent or any of its officers, directors, employees, agents, attorneys-in-fact
or affiliates; provided, however,
that the foregoing shall not alter the obligations of the Credit Facility Agent
(in its capacity as such) under the Credit Facility Agreement to deliver to the
Credit Facility Lenders certain financial information and other notices.

 

Section 4.6.                                Indemnification.

 

(a)                                  Each Creditor
agrees to indemnify the Collateral Agent and its employees, directors,
officers, agents and attorneys-in-fact in their capacity as such (to the extent
not reimbursed by the Company and without limiting the obligation of the
Company to do so), ratably according to its respective share of the sum of the
aggregate outstanding principal amount of indebtedness evidenced by the Private
Placement Notes and the aggregate Outstanding Amount under the Credit Facility
Agreement and all amounts owed in respect of Secured Hedge Agreements or Cash
Management Agreements by the Company or its Affiliates from and against any and
all liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind whatsoever which may at any
time (including, without limitation, at any time following an Event of Default
or the payment of the Senior Secured Obligations) be imposed on, incurred by or
asserted against the Collateral Agent arising out of or relating to the
Security Documents, the actions or omissions of the Collateral Agent
specifically required or permitted by this Agreement or the Security Documents
or the exercise of remedies pursuant to written instructions of the Majority
Creditors pursuant to Section 5.3
hereof; provided that no Creditor shall be
liable for the payment of any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting solely from the Collateral Agent’s gross negligence or willful
misconduct.  If any Creditor (a “Non-Indemnifying Creditor”) fails to tender payment of its
ratable share of any of such Indemnified Liabilities (its “Indemnity 

 

13

 

Share”), then the
Collateral Agent is hereby expressly granted the right thereafter to, and
shall, withhold from any distributions of Collateral otherwise payable to such
Non-Indemnifying Creditor an amount equal to its Indemnity Share remaining
unpaid at such time of receipt of such distributions and apply such amount
withheld in satisfaction of such Indemnity Share.  The Collateral Agent shall also have the
right to collect from such Non-Indemnifying Creditor, or withhold from any
distributions to otherwise be made to such Non-Indemnifying Secured Creditor,
the Collateral Agent’s reasonable costs and expenses incurred in collecting
such Non-Indemnifying Creditor’s Indemnity Share.  The agreements in this Section 4.6(a) shall
survive the payment of the Senior Secured Obligations, the resignation or
removal of the Collateral Agent and the termination of this Agreement, the
Security Documents and the Financing Documents.

 

(b)                                 The Company
agrees to indemnify the Collateral Agent its employees, directors, officers,
agents and attorneys-in-fact in their capacity as such from and against any and
all liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind whatsoever (including,
without limitation, reasonable attorneys’ fees and expenses) which may at any
time (including, without limitation, at any time following an Event of Default
or the payment of the Senior Secured Obligations) be imposed on, incurred by or
asserted against the Collateral Agent arising out of or relating to (i) the
Security Documents, (ii) the actions or omissions of the Collateral Agent
specifically required or permitted by this Agreement or the Security Documents
or the exercise of remedies pursuant to written instructions of the Majority
Creditors pursuant to Section 5.3 hereof, (iii) any actual or
prospective claim, litigation, investigation or proceeding relating to any of
the foregoing, whether based on contract, tort or any other theory, whether
brought by a third party or by the Company, and regardless of whether any
Person to be indemnified hereunder is a party thereto, in all cases, whether or
not caused by or arising, in whole or in part, out of the comparative,
contributory or sole negligence of such indemnitee and (iv) the payment,
failure to pay, or delay in payment of any taxes in respect of the granting of
security under this Agreement or the Security Documents, any stamp or other
taxes in respect of Senior Secured Obligations, or any other taxes imposed upon
or assessed against the Collateral Agent relating to or, in connection with its
services hereunder and thereunder (but excluding therefrom net income taxes and
franchise taxes in lieu of net income taxes imposed on the Collateral Agent as
a result of a present or former connection between the jurisdiction of the
governmental authority imposing such tax and the Collateral Agent (except a
connection arising solely from the Collateral Agent having executed, delivered
or performed its obligations or received a payment under, or enforced, any of
the Security Documents or any of the Financing Documents), provided
that the Company shall not be liable under this Section 4.6(b) for
any such loss, claim, damage, liability, expense or obligation incurred by the
Collateral Agent to the extent resulting from its own gross negligence or
willful misconduct.  It is the express
intention of the parties hereto that each Person to be indemnified hereunder
shall be indemnified and held harmless against any and all losses, liabilities,
claims or damages arising out of or resulting from the ordinary, sole or
contributory negligence of such Person. 
The Company shall also reimburse any Creditor upon demand for any
indemnification obligation in respect of which such Creditor shall become
liable to the Collateral Agent as contemplated by Section 4.6(a) of
this Agreement.  The indemnity rights set
forth in this Section 4.6(b) 

 

14

 

shall survive the payment of the Senior
Secured Obligations, the resignation or removal of the Collateral Agent and the
termination of this Agreement, the Security Documents and the Financing
Documents.

 

Section 4.7.                                Collateral
Agent in Its Individual Capacity.  Bank of America, N.A. and
its Affiliates may make loans to, accept deposits from and generally engage in
any kind of business with the Company and its Affiliates as though such Person
was not the Collateral Agent hereunder. 
With respect to any obligations owed to it under the Credit Facility
Agreement, Bank of America, N.A. shall have the same rights and powers under
this Agreement as any Creditor and may exercise the same as though it were not
the Collateral Agent, and the terms “Creditor” and “Creditors” shall include the Collateral Agent in its
individual capacity.

 

Section 4.8.                                Successor
Collateral Agent.

 

(a)                                  The Collateral
Agent may resign at any time upon 60 days’ written notice to the Creditors and
the Company and may be removed at any time, with or without cause, by the
Majority Creditors by written notice delivered to the Company, the Collateral
Agent and the Creditors.  After any
resignation or removal hereunder of the Collateral Agent, the provisions of
this Section 4 shall continue to inure to its benefit as to any actions
taken or omitted to be taken by it in connection with its agency hereunder
while it was the Collateral Agent under this Agreement.

 

(b)                                 Upon receiving
written notice of any such resignation or removal, a successor Collateral Agent
shall be appointed by the Majority Creditors; provided,
however, that such successor Collateral Agent shall be (1) a
bank or trust company having a combined capital and surplus of at least
$1,000,000,000, subject to supervision or examination by a Federal or state
banking authority; and (2) authorized under the laws of the jurisdiction
of its incorporation or organization to assume the functions of the Collateral
Agent.  If a successor Collateral Agent
shall not have been appointed pursuant to this Section 4.8(b) within such 60 day period after the
Collateral Agent’s resignation or upon removal of the Collateral Agent then any
Creditor or the Collateral Agent (unless the Collateral Agent is being removed)
may petition a court of competent jurisdiction for the appointment of a
successor Collateral Agent.  Such court
shall, after such notice as it may deem proper, appoint a successor Collateral
Agent meeting the qualifications specified in this Section 4.8(b).  The
Creditors hereby consent to such petition and appointment so long as such
criteria are met.

 

(c)                                  The resignation
or removal of a Collateral Agent shall take effect on the day specified in the
notice described in Section 4.8(a),
unless previously a successor Collateral Agent shall have been appointed and
shall have accepted such appointment, in which event such resignation or
removal shall take effect immediately upon the acceptance of such appointment
by such successor Collateral Agent, provided, however, that
no such resignation or removal shall be effective hereunder unless and until a
successor Collateral Agent shall have been appointed and shall have accepted
such appointment.

 

15

 

 

 

(d)           The appointment of a successor Collateral Agent pursuant
to Section 4.8(b) shall become effective upon the acceptance of the
appointment as Collateral Agent hereunder by a successor Collateral Agent.  Upon such effective appointment, the
successor Collateral Agent shall succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Collateral Agent.  Such appointment and designation shall be
full evidence of the right and authority to act as Collateral Agent hereunder and
all Collateral, power, trusts, duties, documents, rights and authority of the
previous Collateral Agent shall rest in the successor, without any further deed
or conveyance.  The predecessor
Collateral Agent shall, nevertheless, on the written request of the Majority
Creditors or successor Collateral Agent, execute and deliver any other such
instrument transferring to such successor Collateral Agent all the Collateral,
properties, rights, power, trust, duties, authority and title of such
predecessor.  The Company, to the extent
requested by the Majority Creditors or the Collateral Agent shall procure any
and all documents, conveyances or instruments and execute the same, to the
extent required, in order to reflect the transfer to the successor Collateral Agent.

 

SECTION 5.           ACTIONS BY THE COLLATERAL AGENT.

 

Section 5.1.           Duties
and Obligations.  The duties and
obligations of the Collateral Agent are only those set forth in this Agreement
and in the Security Documents.

 

Section 5.2.           Notification
of Default.  If the
Collateral Agent has been notified in writing that a Default or an Event of
Default has occurred, the Collateral Agent shall notify the Creditors and may
notify the Company of such determination. 
Any Creditor which has actual knowledge of a Default or an Event of
Default, shall deliver to the Collateral Agent a written statement to such
effect (a “Default Notice”).  Failure to deliver a Default Notice to the
Collateral Agent, however, shall not (a) constitute a waiver of such
Default or Event of Default by the Creditors or (b) impair any rights of
such Creditor hereunder.  No Default
Notice from any Creditor shall be required to be given (i) if such Event
of Default is waived or cured by amendment prior to the time a Default Notice
is delivered or (ii) if notice of such Event of Default has previously
been delivered to the Collateral Agent. 
Upon receipt of a Default Notice or a notice as required by Section 4.4 from a Creditor, the
Collateral Agent shall promptly (and in any event no later than five (5) Business
Days after receipt of such notice in the manner provided in Section 7.8 hereof) issue its “Notice
of Default” to all Creditors.  The Notice
of Default may contain a recommendation of actions by the Creditors and/or
request instructions from the Creditors as to specific matters and shall
specify a date on which responses are due.

 

Section 5.3.           Exercise of Remedies. 
Except for the preservation of Collateral (and similar actions) in
exigent circumstances to prevent the damage, destruction or perishing of the
Collateral or to the extent expressly authorized herein, the Collateral Agent
shall take only such actions and exercise only such remedies under the Security
Documents as are approved in a written notice delivered to the Collateral Agent
and signed by the Majority Creditors; provided, however,
that if, solely in connection with the initial exercise of remedies against the
Collateral, such action has not been approved by (a) Noteholders holding
more than 50% of the aggregate
outstanding principal amount of the indebtedness evidenced by the Private
Placement Notes and (b) Credit Facility Lenders holding more than 50% of the sum of (i) Total
Outstandings (as defined in the Credit Facility Agreement) and (ii) aggregate
unused Revolving Credit 

 

16

 

Commitments aggregate (as
defined in the Credit Facility Agreement), in each case, voting as a separate
class, then the Collateral Agent shall not take such action until ten (10) Business
Days have elapsed from the date of the Collateral Agent’s request for approval
(during which time the disapproving Creditors shall have the opportunity to
voice their objections and potentially alter the voting of the Majority
Creditors).

 

Section 5.4.           Changes
to Security Documents.  Any term of the
Security Documents may be amended, and the performance or observance by the
parties to a Security Document of any term of such Security Document may be
waived (either generally or in a particular instance and either retroactively
or prospectively) by the Collateral Agent only upon the written consent of the
Requisite Creditors.

 

Section 5.5.           Release
of Collateral.  Unless an Event
of Default has occurred and is continuing and the Collateral Agent shall have
received a Default Notice in connection therewith, the Collateral Agent may
(but shall not be obligated to), without the approval of the Majority Creditors
as required by Section 5.3
hereof, release any Collateral under the Security Documents which is permitted
to be sold or disposed of by the Company and its Affiliates pursuant to the
Note Agreement and the Credit Facility Agreement and execute and deliver such
releases as may be necessary to terminate of record the Collateral Agent’s
security interest in such Collateral so long as, if such sale or disposition
causes the Company to be required to make a mandatory prepayment of the loans
under the Credit Facility Agreement or an offer to prepay the Private Placement
Notes under the Note Agreement, the proceeds from such sale or disposition are
used to prepay such loans and, to the extent such offer has been accepted (or
deemed to have been accepted) under the Note Agreement, the Private Placement
Notes in accordance with the terms of the Credit Facility Agreement and the
Note Agreement.  In determining whether
any such release is permitted, the Collateral Agent may rely upon the
instructions or stipulation from the class of Majority Creditors party to such
agreement.

 

Section 5.6.           Other
Actions.  The Collateral Agent shall
have the right to take such actions, or omit to take such actions, hereunder
and under the Security Documents not inconsistent with the written instructions
of the Majority Creditors delivered pursuant to Section 5.3 hereof or the terms of this Agreement, including
actions the Collateral Agent deems necessary or appropriate to perfect or
continue the perfection of the Liens on the Collateral for the benefit of the
Creditors.  Except as otherwise provided
by applicable law, the Collateral Agent shall have no duty as to the collection
or protection of the Collateral or any income thereon, nor as to the
preservation of rights against prior parties, nor as to the preservation of
rights pertaining to the Collateral beyond those duties imposed by Section 207
of Article 9 of the Uniform Commercial Code with respect to any Collateral
in the Collateral Agent’s actual possession.

 

Section 5.7.           Cooperation.  To the extent that the
exercise of the rights, powers and remedies of the Collateral Agent in
accordance with this Agreement requires that any action be taken by any
Creditor, such Creditor shall take such reasonable action and cooperate with
the Collateral Agent to reasonably ensure that the rights, powers and remedies
of all Creditors are exercised in full.

 

17

 

Section 5.8.           Distribution
of Proceeds.  All amounts
owing with respect to the Senior Secured Obligations shall be secured pro rata
by the Collateral without distinction as to whether some Senior Secured
Obligations are then due and payable and other Senior Secured Obligations are
not then due and payable.  The Collateral
Agent shall distribute any Company Proceeds 
or Preferential Amount received by it in accordance with the provisions
of this Section 5.8.  Upon any realization
upon the Collateral and/or the receipt of any payments under any Security
Document after the occurrence of an Enforcement Event and any payments under
any Guaranty and any other guaranty of any Senior Secured Obligations, the
Creditors agree that the proceeds thereof shall be applied:

 

first, to any amounts
owing to the Collateral Agent by the Company or the Creditors pursuant to this
Agreement or the Security Documents, including, without limitation, payment of
expenses incurred by the Collateral Agent with respect to maintenance and
protection of the Collateral and of expenses incurred with respect to the sale
of or realization upon any of the Collateral or the perfection, enforcement or
protection of the rights of the Creditors (including reasonable attorneys’ fees
and expenses);

 

second, equally and
ratably to the payment of all amounts of the Senior Secured Obligations
constituting reimbursement of expenses (including attorney fees and other
expenses of other professionals) and indemnities (other than breakage costs)
required to be paid pursuant to the Note Agreement or the Credit Facility
Agreement;

 

third, equally and
ratably to the payment of all amounts of interest outstanding that constitute
Senior Secured Obligations (other than any Yield-Maintenance Amount or breakage
costs but including any periodic payments due under any Hedging Agreement
constituting a Senior Secured Obligation) and letter of credit fees and
commitment fees that constitute Senior Secured Obligations and are required to
be paid pursuant to any Financing Document according to the aggregate amounts
of such interest and fees then owing to each Creditor;

 

fourth, equally and
ratably to the payment of all outstanding amounts of principal, Letter of
Credit Exposure, the termination value of any Hedging Agreement or Cash
Management Agreement, breakage compensation, prepayment premiums and the
Yield-Maintenance Amount, if any, which constitute Senior Secured Obligations;

 

fifth, equally and
ratably to all other amounts then due to the Creditors under the Note Agreement
and the Credit Facility Agreement;

 

sixth, equally and
ratably to all Disallowed Obligations under the Note Agreement and the Credit
Facility Agreement; and

 

seventh, the balance, if
any, shall be returned to the Company or such other Persons as are entitled
thereto.

 

Any
payment pursuant to this Section 5.8 with respect to the outstanding
amount of any undrawn Letters of Credit shall be paid to the Collateral Agent
for deposit in an account (the “Letter of
Credit Collateral Account”) to be held as collateral for the Senior
Secured Obligations 

 

18

 

and disposed of as provided
herein.  On each date on which a payment
is made to a beneficiary pursuant to a draw on a Letter of Credit, the
Collateral Agent shall distribute from the Letter of Credit Collateral Account
for application to the payment of the reimbursement obligation due to the
Credit Facility Lenders with respect to such draw an amount equal to the
product of (1) the amount then on deposit in the Letter of Credit
Collateral Account, and (2) a fraction, the numerator of which is the
amount of such draw and the denominator of which is the outstanding amount of
all undrawn Letters of Credit immediately prior to such draw.  On each date on which a reduction in the
outstanding amount of undrawn Letters of Credit occurs other than on account of
a payment made to a beneficiary pursuant to a draw on a Letter of Credit, then
the Collateral Agent shall distribute from the Letter of Credit Collateral
Account an amount equal to the product of (i) the amount then on deposit
in the Letter of Credit Collateral Account, and (ii) a fraction, the
numerator of which is the amount of such reduction in the outstanding amount of
undrawn Letters of Credit and the denominator of which is the amount of all
undrawn Letters of Credit immediately prior to such reduction, which amount
shall be distributed as provided in the first paragraph of this Section 5.8.  At such time as the outstanding amount of all
undrawn Letters of Credit is reduced to zero, any amount remaining in the
Letter of Credit Collateral Account, after the distribution therefrom as
provided above, shall be distributed as provided in the first paragraph of this
Section 5.8.  All payments by the
Collateral Agent hereunder shall be made (x) if to a Noteholder, directly
to the applicable Noteholder, (y) if to any Credit Facility Secured
Creditor, to the Credit Facility Agent for the account of the applicable Credit
Facility Secured Creditor and (z) if to the Collateral Agent, directly to
the Collateral Agent.

 

The
Company and each Guarantor agrees that in the event the Company or any
Guarantor shall make any payment to any Creditor with respect to the Senior
Secured Obligations that such Creditor is required to deliver to the Collateral
Agent for distribution pursuant to this Section 5.8, then, notwithstanding
that such payment was initially delivered to such Creditor, such payment shall
discharge the Senior Secured Obligations to the extent such payment is
distributed with respect to the various Senior Secured Obligations pursuant to
the provisions of this Section 5.8.

 

Section 5.9.           Authorized
Investments.  Any and all
funds held by the Collateral Agent in its capacity as Collateral Agent, whether
pursuant to any provision of any of the Security Documents or otherwise, shall
to the extent feasible within a reasonable time be invested by the Collateral
Agent in Cash Equivalent Investments. 
Any interest earned on such funds shall be disbursed to the Creditors in
accordance with Section 5.8.  The Collateral Agent may hold any such funds
in a common interest bearing account. 
The Collateral Agent shall have no duty to place funds held pursuant to
this Section 5.9
in investments which provide a maximum return; provided,
however, that the Collateral Agent shall to the extent feasible
invest funds in Cash Equivalent Investments with reasonable promptness.  In the absence of gross negligence or willful
misconduct, the Collateral Agent shall not be responsible for any loss of any
funds invested in accordance with this Section 5.9.

 

Section 5.10.        Determination of Amount of Senior
Secured Obligations.

 

(a)           In determining the amount of the Senior Secured
Obligations owed to each Creditor and the portions thereof which are due on
account of principal, interest, fees or expenses or otherwise, the Collateral
Agent may request from each Creditor, and shall be entitled to rely upon, a
statement from each Creditor setting forth the Senior Secured 

 

19

 

Obligations owed to it in such detail as
shall permit the Collateral Agent to make the foregoing distributions.  In the event of any dispute between any
Creditors as to the Senior Secured Obligations owed to them or the amounts
thereof, the Collateral Agent shall be entitled to hold such portion of the
proceeds to be distributed as are subject to such dispute pending the
resolution by the parties or pursuant to a judicial determination.

 

(b)           If in connection with a Bankruptcy Proceeding of the
Company any portion of the Senior Secured Obligations referred to in clauses
SECOND, THIRD, FOURTH or FIFTH of Section 5.8 is determined to be
unenforceable or is disallowed (such portion to be hereinafter referred to as a
“Disallowed Obligation”), then such
Disallowed Obligation shall not be included in the calculation of amounts to be
paid pursuant to clauses SECOND, THIRD, FOURTH or FIFTH of Section 5.8 but
shall be included in clause SIXTH of Section 5.8; provided,
that in no event shall a claim pursuant to a Guaranty or any other guaranty of
a Senior Secured Obligation be included as a Disallowed Obligation unless the
Senior Secured Obligation which is guaranteed by such Guaranty or other
guaranty also constitutes a Disallowed Obligation.  In no event shall any Creditor take any
action to challenge, contest or dispute the validity, extent, enforceability or
priority of the Liens or claims of any other Creditor on the Collateral, or that
would have the effect of invalidating such liens, or support any person who
takes any such action.  Each of the
Creditors agrees that it will not take any action to challenge, contest or
dispute the validity, extent, enforceability or the secured status of any other
Creditor’s claims against the Company (other than any such claim resulting from
the breach of this Agreement), or that would have the effect of invalidating
such claim or support any person who takes any such action.  For the avoidance of doubt, a Creditor’s
claims that constitute Senior Secured Obligations shall be included in any
distribution of proceeds pursuant to Section 5.8 whether or not a Lien
held by such Creditor is invalidated or set aside.  This Section 5.10(b) is without
prejudice to the obligation of the Credit Facility Lenders to reimburse the
Credit Facility Agent for fees, expenses and other charges under the terms of
the Credit Facility Agreement irrespective of the disallowance of such fees,
expenses or charges.

 

(c)           If in connection with a Bankruptcy Proceeding of Company,
the fees and expenses of the Collateral Agent referred to in clause First of Section 5.8
are determined to be unenforceable or are disallowed, in whole or in part, each
Creditor agrees to pay its Indemnity Share of such fees and expenses.

 

Section 5.11.        Reinstatement.  If at any time the
Collateral Agent or any Creditor shall be required to restore or return, or if
such Person restores or returns in good faith settlement of pending or
threatened avoidance claims, to the Company or any Guarantor or to the
bankruptcy estate of the Company or any Guarantor any payments or distributions
theretofore applied to the Senior Secured Obligations or any portion thereof,
whether by reason of the insolvency, bankruptcy, reorganization or other
similar event in respect of the Company (a “Returned Amount”),
then, (a) the Collateral Agent (or Creditor, as applicable) shall promptly
give notice of the Returned Amount to each Creditor and (b) each of the
Creditors shall promptly transfer to the Collateral Agent (for reimbursement to
the Collateral Agent or such Creditor, as the case may be) such amounts as are
necessary such that each Creditor shall have received and retained the amount
it would have received under Section 5.8 had the Returned Amount not
previously been 

 

20

 

distributed
(its “Returned Amount Share”).  If any Creditor (a “Non-Returning
Secured Creditor”) fails to tender payment of its Returned Amount
Share, then the Collateral Agent is hereby expressly granted the right
thereafter to, and shall, withhold from any distributions otherwise payable to
such Non-Returning Secured Creditor an amount equal to its Returned Amount
Share remaining unpaid at such time of receipt of such distributions and apply
such amount withheld in satisfaction of such Returned Amount Share.  The Collateral Agent shall also have the
right to collect from such Non-Returning Secured Creditor, or withhold from any
distributions under Section 5.8 to otherwise be made to such Non-Returning
Secured Creditor, the Collateral Agent’s reasonable costs and expenses incurred
in collecting such Non-Returning Secured Creditor’s Returned Amount Share.  The agreements in this Section 5.11
shall survive the payment of the Senior Secured Obligations and the termination
of the Financing Documents or this Agreement.

 

SECTION 6.           BANKRUPTCY
PROCEEDINGS.

 

The following provisions
shall apply during any Bankruptcy Proceeding of the Company or any Affiliate of
the Company:

 

(a)           The Collateral Agent shall act on the instructions of the
Majority Creditors with respect to the administration of the Collateral in such
Bankruptcy Proceeding (including with respect to questions regarding adequate
protection and post-petition use of Collateral) and each Creditor agrees to be
bound by such instructions with respect to matters pertaining to the
Collateral; provided that no such vote by the
Majority Creditors shall treat the Noteholders or the Revolving Credit Facility
Lenders differently with respect to rights in the Collateral.

 

(b)           Each Creditor shall be free to act independently on any
issue not directly relating solely to the Collateral.  Each Creditor shall give prior notice to the
Collateral Agent of any action hereunder to the extent that such notice is
possible.  If such prior notice is not
given, such Creditor shall give prompt notice following any action taken
hereunder.

 

(c)           Any proceeds of the Collateral received by any Creditor as
a result of, or during, any Bankruptcy Proceeding will be delivered promptly to
the Collateral Agent for distribution in accordance with Section 5.8.

 

(d)           No
Creditor shall enter into any post-petition financing arrangements with the
Company or any Affiliate of the Company in any Bankruptcy Proceeding unless
authorized in writing by the Majority Creditors and unless all Creditors shall
have been given the opportunity to participate ratably in such post-petition
financing arrangements.

 

SECTION 7.           MISCELLANEOUS.

 

Section 7.1.           Creditors;
Other Collateral.  The Creditors
agree that all of the provisions of this Agreement shall apply to any and all
properties, assets and rights of the Company and their Affiliates, including,
without limitation, the Guarantors, in which the Collateral Agent at any time
acquires a security interest or Lien pursuant to the Security Documents, the
Note 

 

21

 

Agreement,
the Credit Facility Agreement including, without limitation, real property or
rights in, on or over real property, notwithstanding any provision to the
contrary in any mortgage, security agreement, pledge agreement or other
document purporting to grant or perfect any Lien in favor of the Creditors or
any of them or the Collateral Agent for the benefit of the Creditors.

 

Section 7.2.           Marshalling.  The Collateral Agent shall
not be required to marshall any present or future security for (including,
without limitation, the Collateral), or guaranties of, the Senior Secured
Obligations or any of them, or to resort to such security or guaranties in any
particular order; and all of each of such Person’s rights in respect of such
security and guaranties shall be cumulative and in addition to all other
rights, however existing or arising.  To
the extent that they lawfully may, the Creditors hereby agree that they will
not invoke any law relating to the marshalling of collateral which might cause
delay in or impede the enforcement of the Creditors’ rights under the Security
Documents or under any other instrument evidencing any of the Senior Secured
Obligations or under which any of the Senior Secured Obligations is outstanding
or by which any of the Senior Secured Obligations is secured or guaranteed.

 

Section 7.3.           Consents,
Amendments, Waivers.  All amendments,
waivers or consents of any provision of this Agreement shall be effective only
if the same shall be in writing and signed by the Requisite Creditors referred to in clause (a) of the
definition thereof,  the
Credit Facility Agent and the Collateral Agent.

 

Section 7.4.           Governing
Law.  This Agreement shall be deemed
to be a contract under seal and shall for all purposes be governed by and
construed in accordance with the laws of the State of Illinois.

 

Section 7.5.           Parties
in Interest.  All terms of
this Agreement shall be binding upon and inure to the benefit of and be
enforceable by the respective successors and assigns of the parties hereto,
including, without limitation, any future holder of the Senior Secured
Obligations; provided that no Creditor may
assign or transfer its rights hereunder or under the Security Documents without
such assignees or transferees agreeing, by executing an instrument in form and
substance reasonably acceptable to the Collateral Agent, to be bound by the
terms of this Agreement as though named herein; provided
further, (a) that with respect to the Secured Lender Parties
(other than the Credit Facility Agent), the requirements of this Section 7.5
shall be satisfied upon satisfaction of the assignment provisions set forth in
the Credit Facility Agreement and (b) that with respect to the Credit
Facility Agent, the requirements of this Section 7.5 shall be satisfied
upon the satisfaction of the resignation of the Credit Facility Agent in
accordance with the terms of the Credit Facility Agreement and appointment of a
successor thereto in accordance with the terms of the Credit Facility
Agreement.

 

Section 7.6.           Counterparts.  This Agreement and any
amendment hereof may be executed in several counterparts and by each party on a
separate counterpart, each of which when so executed and delivered shall be an
original, but all of which together shall constitute one instrument.  In proving this Agreement it shall not be
necessary to produce or account for more than one such counterpart signed by
the party against whom enforcement is sought. 
Delivery of executed counterparts of this Agreement electronically or by
telecopy shall be effective as an original and shall constitute a
representation that an original shall be delivered.

 

22

 

Section 7.7.           Termination.  Subject to Section 5.11,
upon payment in full of the Senior Secured Obligations in accordance with their
respective terms, the termination of the Commitments and the expiration or
cancellation of all undrawn Letters of Credit under the Credit Facility Loan
Documents, this Agreement shall terminate.

 

Section 7.8.           Notices.  Except as otherwise
expressly provided herein, all notices, consents and waivers and other
communications made or required to be given pursuant to this Agreement shall be
in writing and shall be delivered by hand, mailed by registered or certified
mail or prepaid overnight air courier, or by facsimile communications,
addressed as follows:

 

	
  If to the Collateral Agent, at:

  	
   

  	
  Bank of America, N.A.

  
	
   

  	
   

  	
  231
  S. LaSalle Street

  
	
   

  	
   

  	
  Mail
  Code: IL1-231-10-41

  Chicago, IL 60697

  
	
   

  	
   

  	
  Attention:
  Suzanne M. Paul

  
	
   

  	
   

  	
  Telephone:
  312-923-1640

  
	
   

  	
   

  	
  Telecopier:
  877-206-8435

  
	
   

  	
   

  	
  Electronic
  Mail: suzanne.m.paul@bankofamerica.com

  
	
   

  	
   

  	
   

  
	
  If to any Credit Facility Secured Creditor, at:

  	
   

  	
  c/o Credit Facility Agent,

  Bank of America, N.A.

  
	
   

  	
   

  	
  231
  S. LaSalle Street

  
	
   

  	
   

  	
  Mail
  Code: IL1-231-10-41

  Chicago, IL 60697

  
	
   

  	
   

  	
  Attention:
  Suzanne M. Paul

  
	
   

  	
   

  	
  Telephone:
  312-923-1640

  
	
   

  	
   

  	
  Telecopier:
  877-206-8435

  
	
   

  	
   

  	
  Electronic
  Mail: suzanne.m.paul@bankofamerica.com

  
	
   

  	
   

  	
   

  
	
  If to any Noteholder, at:

  	
   

  	
  Such address as set forth for such Noteholder on Schedule 1
  hereto

  
	
   

  	
   

  	
   

  
	
  If
  to the Company, at:

  	
   

  	
  KapStone
  Kraft Paper Corporation

  
	
   

  	
   

  	
  1101
  Skokie Blvd., STE 300

  Northbrook, IL 60062

  
	
   

  	
   

  	
  Attention:
  Andrea K. Tarbox

  
	
   

  	
   

  	
  Telephone:
  847-239-8812

  
	
   

  	
   

  	
  Telecopier:
  847-919-3833

  
	
   

  	
   

  	
  Electronic
  Mail: andrea.tarbox@kapstonepaper.com

  

 

or at such other address for
notice as the Collateral Agent, such Creditor or the Company shall last have
furnished in writing to the Person giving the notice, provided that
a notice by overnight air courier shall only be effective if delivered at a
street address designated for such purpose and 

 

23

 

a notice by facsimile
communication shall only be effective if made by confirmed transmission at a
telephone number designated for such purpose. 
Notwithstanding any provision of this Agreement to the contrary, all
notices to the Secured Lender Parties shall be delivered to the Credit Facility
Agent.   The obligation of any Credit
Facility Secured Creditor to give notice hereunder may be satisfied by the
giving of such notice by the Credit Facility Agent.

 

24

 

IN
WITNESS WHEREOF, the parties hereto have caused these presents to be duly
executed as an instrument under seal by their authorized representatives as of
the date first written above.

 

 

	
   

  	
  BANK
  OF AMERICA, N.A., as Collateral Agent

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/
  Suzanne M. Paul

  
	
   

  	
   

  	
  Name:

  	
  Suzanne
  M. Paul

  
	
   

  	
   

  	
  Title:

  	
  Vice
  President

  
	
   

  	
   

  	
   

  
	
   

  	
  BANK
  OF AMERICA, N.A., as Credit Facility Agent

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By

  	
  /s/
  Suzanne M. Paul

  
	
   

  	
   

  	
  Name:

  	
  Suzanne
  M. Paul

  
	
   

  	
   

  	
  Title:

  	
  Vice
  President

  
	
   

  	
   

  	
   

  
	
   

  	
  THE
  PRUDENTIAL INSURANCE COMPANY OF AMERICA

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By

  	
  /s/
  G. Anthony Coletta

  
	
   

  	
   

  	
  Name:

  	
  G.
  Anthony Coletta

  
	
   

  	
   

  	
  Title:

  	
  Vice
  President

  

 

25

 

 

 

 

Each of the undersigned
hereby acknowledges (a) the terms of the foregoing Agreement, (b) that
the foregoing Agreement is for the sole benefit of the Creditors and that it
has no rights or benefits under such Agreement, and (c) that the
provisions of the foregoing Agreement may be waived, amended or modified
without its consent.

 

 

	
   

  	
  KAPSTONE
  KRAFT PAPER CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/
  Roger W. Stone

  
	
   

  	
   

  	
  Name:

  	
  Roger
  W. Stone

  
	
   

  	
   

  	
  Title:

  	
  CEO

  
	
   

  	
   

  	
   

  
	
   

  	
  KAPSTONE
  PAPER AND PACKAGING

  
	
   

  	
  CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By

  	
  /s/
  Roger W. Stone

  
	
   

  	
   

  	
  Name:

  	
  Roger
  W. Stone

  
	
   

  	
   

  	
  Title:

  	
  Chairman
  and CEO

  
	
   

  	
   

  	
   

  
	
   

  	
  KAPSTONE
  CHARLESTON KRAFT LLC

  
	
   

  	
   

  	
   

  
	
   

  	
  By

  	
  /s/
  Roger W. Stone

  
	
   

  	
   

  	
  Name:

  	
  Roger
  W. Stone

  
	
   

  	
   

  	
  Title:

  	
  CEO

  

 

26

 

SCHEDULE 1

 

INFORMATION RELATING TO THE NOTEHOLDERS

 

1.                                      The Prudential Insurance Company of America

c/o
Prudential Capital Group

Two
Prudential Plaza

180
North Stetson, Suite 5600

Chicago,
IL  60601-6716

Attn:   Managing Director

Telephone:
(312) 540-4204

 

 

EXHIBIT A

 

SECURITY DOCUMENTS

 

	
  1.

  	
   

  	
  Security
  and Pledge Agreement dated July 1, 2008 between the Guarantors and the
  Collateral Agent;

  
	
   

  	
   

  	
   

  
	
  2.

  	
   

  	
  Deposit
  Account Control Agreement dated July 1, 2008 between the Company, the
  Collateral Agent and PNC Bank, National Association;

  
	
   

  	
   

  	
   

  
	
  3.

  	
   

  	
  Mortgage,
  Assignment of Leases and Rents, Security Agreement and Fixture Filing from
  the Subsidiary Guarantor to be recorded in Charleston County, SC;

  
	
   

  	
   

  	
   

  
	
  4.

  	
   

  	
  Mortgage,
  Assignment of Leases and Rents, Security Agreement and Fixture Filing from
  the Subsidiary Guarantor to be recorded in Kershaw County, SC;

  
	
   

  	
   

  	
   

  
	
  5.

  	
   

  	
  Mortgage,
  Assignment of Leases and Rents, Security Agreement and Fixture Filing from
  the Subsidiary Guarantor to be recorded in Berkeley, SC;

  
	
   

  	
   

  	
   

  
	
  6.

  	
   

  	
  Mortgage,
  Assignment of Leases and Rents, Security Agreement and Fixture Filing from
  the Subsidiary Guarantor to be recorded in Dorchester County, SC;

  
	
   

  	
   

  	
   

  
	
  7.

  	
   

  	
  Mortgage,
  Assignment of Leases and Rents, Security Agreement and Fixture Filing from
  the Subsidiary Guarantor to be recorded in Hampton County, SC;

  
	
   

  	
   

  	
   

  
	
  8.

  	
   

  	
  Mortgage,
  Assignment of Leases and Rents, Security Agreement and Fixture Filing from
  the Subsidiary Guarantor to be recorded in Newberry County, SC;

  
	
   

  	
   

  	
   

  
	
  9.

  	
   

  	
  Leasehold
  Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture
  Filing from the Subsidiary Guarantor to be recorded in Dorchester County, SC;

  
	
   

  	
   

  	
   

  
	
  10.

  	
   

  	
  Leasehold
  Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture
  Filing from the Subsidiary Guarantor to be recorded in Georgetown County, SC;

  
	
   

  	
   

  	
   

  
	
  11.

  	
   

  	
  Leasehold
  Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture
  Filing from the Subsidiary Guarantor to be recorded in Berkeley County, SC;

  
	
   

  	
   

  	
   

  
	
  12.

  	
   

  	
  Leasehold
  Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture
  Filing from the Subsidiary Guarantor to be recorded in Colleton County, SC;

  
	
   

  	
   

  	
   

  
	
  13.

  	
   

  	
  Deed
  of Trust, Assignment of Leases and Rents, Security Agreement and Fixture
  Filing from the Subsidiary Guarantor to be recorded in Halifax County, NC;

  
	
   

  	
   

  	
   

  
	
  14.

  	
   

  	
  Deed
  of Trust, Assignment of Leases and Rents, Security Agreement and Fixture
  Filing from the Subsidiary Guarantor to be recorded in Northampton County, NC
  (Aircraft property);

  

 

 

	
  15.

  	
   

  	
  Deed of Trust, Assignment
  of Leases and Rents, Security Agreement and Fixture Filing from the
  Subsidiary Guarantor to be recorded in Northampton County, NC;ex10_14.htm

    Exhibit 10.14

    

    
      
        

      

    

     

    
      November
18, 2008

      

      

      

      Mr. Ralph
Edwards

      2425
Trenton Woods Way

      Raleigh,
NC 27607

      

      Dear
Ralph:

      

      This
letter represents an offer to you to join Capital Bank (the “Bank”) as Senior
Vice President and Chief Operations Officer reporting directly to me. In this
capacity, you will have overall responsibility for the management of Capital
Bank’s Information Technology, Loan Operations, and Deposit Operations
areas.

      

      The
specifics of our offer are as follows:

      

      Starting
Date:  Your start date is on or about December 1,
2008.

      

      Base
Salary:  Your beginning base salary will be $165,000 annually
and will be subject to review each year, beginning in January, 2010, based on
your performance and market factors. Any salary increase would typically be
effective February 1st of each year.

      

      Sign-On
Bonus:  You will receive a $10,000 sign-on bonus within the
first 30 days of employment and an additional $15,000 sign-on bonus in January,
2009. Should you voluntarily terminate employment or be discharged, for cause,
within the first 12 months of your employment, you agree to reimburse the Bank
this signing bonus. Should you voluntarily terminate employment or be
discharged, for cause, within 24 months of your employment, you agree to
reimburse the Bank 50% of this signing bonus.

      

      Incentive
Plan:  You will be eligible for the Bank’s Management Incentive
Plan, beginning in January, 2009. Incentive calculations under this plan are
based on budgets and goals recommended by management and approved by the Board
of Directors. Currently, the incentive payout for your position is based 80% on
overall Bank performance and 20% on the performance of your area. The targeted
incentive is 20% of base compensation.

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      Offer
Letter – Ralph J. Edwards

      November
18, 2008

      Page 2 of
2

      

      Benefits:  You
will be eligible for the Bank’s employee benefits package. Details of this
program have been provided to you. Additionally, you will be eligible for four
weeks of vacation beginning in 2009.

      

      Background,
Credit Check and Drug Screening:  This offer is subject to
satisfactory background and credit checks and any bank regulatory requirements.
Under our Drug-Free Workplace policy, you will also be required to undergo a
drug screen within 48 hours of receiving this offer and receive satisfactory
results or the offer will be withdrawn. In addition, our policy provides for
random drug testing for our associates.

      

      Ralph, I
am excited that you will be joining Capital Bank. I am confident in your ability
to build an exceptional I.T. and Operations function at our bank. I am equally
confident as a member of the Senior Management team, you will make a significant
contribution to Capital Bank as we become the best bank ever in North Carolina
and beyond. I look forward to welcoming you to our team very
shortly.

      

      Please
indicate your acceptance of this offer by signing below and returning a copy to
me or Teresa White.

      

      Sincerely,

      

      

      /s/ B. Grant Yarber

       

      B. Grant
Yarber

      President
and Chief Executive Officer

      

      

      Accepted:

      

      /s/ Ralph J. Edwards

      _________________________________

      Ralph J.
Edwards                                     
Date

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