NEW MASTER PURCHASE AGREEMENT
This NEW MASTER PURCHASE AGREEMENT (this "Agreement"), dated as
of July 20, 1998, is entered into by and between Scotia Pacific Company
LLC, a Delaware limited liability company (the "Seller"), and The Pacific
Lumber Company, a Delaware corporation (the "Purchaser").
WITNESSETH:
The Seller and the Purchaser are parties to a Master Purchase
Agreement dated as of March 23, 1993, which is being terminated effective
as of the date hereof (the "Existing Master Purchase Agreement").
The Seller and the Trustee have entered into the Indenture,
pursuant to which the Seller has issued the Timber Notes; and the Seller,
the Collateral Agent and the Deed of Trust Trustee have entered into the
Deed of Trust, securing, among other things, the Seller's obligations under
the Timber Notes and the Indenture; and
This Agreement is being entered into in connection with the
issuance and sale of the Timber Notes.
NOW, THEREFORE, in consideration of the mutual agreements
contained herein and in the Operative Documents and other good and valuable
consideration, the sufficiency of which is hereby acknowledged, the Seller
and the Purchaser hereby agree as follows:
I
DEFINITIONS
1.1 For all purposes of this Agreement, unless the context
otherwise requires, all defined terms which are used but not defined herein
shall have the meaning set forth in Schedule A to the Indenture, which is
incorporated by reference as if fully set forth herein.
II
MASTER AGREEMENT
2.1 This Agreement shall govern all sales of logs from Seller to
Purchaser, including the sale of any logs covered by a log purchase
agreement entered into pursuant to the Existing Master Purchase Agreement
to the extent the logs covered thereby have not been sold thereunder prior
to the date hereof. Each sale shall be made pursuant to a Log Purchase
Agreement substantially in the form of Exhibit A hereto (each, a "Log
Purchase Agreement"). Each Log Purchase Agreement shall be consistent with
the terms and conditions of this Agreement, and all of the terms and
conditions of this Agreement shall be incorporated by reference into each
Log Purchase Agreement. References to "this Agreement" shall refer to this
New Master Purchase Agreement and each Log Purchase Agreement entered into
pursuant hereto.
2.2 If, as of any Note Payment Date, the cumulative amount of
principal on the Notes paid by the Seller (the "Amount Paid") is less than
the sum of all Minimum Principal Amortization in respect of the Notes
through such date (the "Target Level"), the Seller may, to the extent of
the greater of (A) the amount (expressed as gross revenues from the sale of
logs) necessary to reach the Target Level or (B) $500,000, sell any timber
(as logs or stumpage) which is the subject of any Log Purchase Agreement to
any third party, prior to the time that title to such log is transferred to
the Purchaser pursuant to Section 3.5. In addition, if and for so long as
the provisions of Section 4.31 of the Indenture are applicable, the Seller
may sell timber (as logs or stumpage) which is the subject of any Log
Purchase Agreement to any third party, prior to the time that title to such
log is transferred to the Purchaser pursuant to Section 3.5, to the extent
provided by Section 4.31 of the Indenture. If the Seller sells to third
parties any timber which has been felled by Purchaser pursuant to a Log
Purchase Agreement, the Purchaser shall receive a credit for the costs of
felling such timber, based upon the Purchaser's costs incurred in
connection with the felling thereof, as determined in accordance with
generally accepted accounting principles. Any stumpage or logs sold by the
Seller to a third party in compliance with this Section 2.2 shall be free
and clear of any rights or claims of the Purchaser, and the Purchaser shall
be relieved of its obligations to purchase such logs.
III
PRICE, QUANTITY AND PAYMENT TERMS
3.1 The price (the "Purchase Price") payable to the Seller by
the Purchaser for logs purchased pursuant to this Agreement shall be the
fair market value (based upon stumpage prices) for each species of timber
and category thereof as determined from time to time in good faith by the
Seller and the Purchaser. The Purchase Price shall be at least equal to
the SBE Price (as defined below). In addition, it is generally
contemplated that the Purchase Price shall be at least equal to the
Structuring Price, except as provided in this Article III.
3.2 If the Purchase Price equals or exceeds (i) the price for
such species and category thereof set forth on the Structuring Schedule
(the "Structuring Price") and (ii) the SBE Price, then such price shall be
deemed to be the fair market value of such logs. The "SBE Price", for any
species and category thereof, shall be the stumpage price for such species
and category thereof as set forth in the most recent Harvest Value Schedule
(or any successor publication) published by the California State Board of
Equalization (or any successor agency) applicable to the timber sold during
the period covered by such publication. In the event that (x) such
publication (or a successor publication) is no longer published or (y) such
publication (or a successor publication) is prepared on a basis
fundamentally different than that in effect on the date of this Agreement,
the SBE Price for any six-month period subsequent to the period covered by
the last such publication shall equal the product of (A) the last SBE Price
so published and (B) the quotient of (I) the value of the most recently
published Producer Price Index (Lumber and Wood Products Commodity Group)
(Standard Industrial Classification No. 2400) as published by the United
States Department of Labor, Bureau of Labor Statistics (or any successor
index) (the "Index"), as of the first day of such six month period, divided
by (II) the value of the Index as of the first day of the first such six
month period.
3.3 If the Purchase Price (i) is less than the Structuring Price
and (ii) equals or exceeds the SBE Price, then such price shall be deemed
to be the fair market value of such logs if the Seller shall have delivered
to the Trustee an Officer's Certificate to the effect that, after due
inquiry (consisting of consultation with an independent forestry
consultant), such price reflects the fair market value of such species and
category thereof (based upon stumpage prices).
3.4 The Purchase Price for all logs purchased by the Purchaser
during each Monthly Period shall be payable by the Purchaser not later than
11:00 a.m., New York City time, on the Monthly Deposit Date with respect to
such Monthly Period by deposit of immediately available funds to the
Collection Account on such date.
3.5 The title to all logs harvested by the Purchaser pursuant to
this Agreement shall remain in the Seller until such time as each log is
scaled. At such time, title shall pass to the Purchaser and the Purchaser
shall become obligated to make payment as provided in Section 3.4.
IV
TIMBER HARVESTING PLANS, RELATED MATTERS
4.1 All harvesting of timber hereunder shall be conducted on
Company Timber Property with respect to which a valid Timber Harvesting
Plan is in effect.
4.2 All harvesting of timber and other related activities
conducted by the Purchaser under this Agreement shall be conducted in all
material respects in accordance with all applicable Environmental Laws,
Timber Laws and General Laws, including, without limitation, those relating
to streams, waterways, wildlife habitat and endangered species, and shall
be conducted in all material respects in accordance with the terms,
provisions, restrictions and conditions of each applicable Timber
Harvesting Plan, sustained yield plan, habitat conservation plan, other
similar plan or permit and all federal, state and local laws, rules and
regulations relating to or incorporated into any Timber Harvesting Plan,
including laws relating to streams, waterways, wildlife habitat and
endangered species.
V
REPRESENTATIONS AND WARRANTIES
5.1 The Purchaser hereby represents and warrants to the Seller
as follows:
(a) The Purchaser has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Delaware, with full corporate power and authority to own its properties and
conduct its business as presently conducted, and is duly qualified to do
business as a foreign corporation and is in good standing under the laws of
each jurisdiction material to the performance of its obligations under this
Agreement.
(b) This Agreement has been duly authorized, executed and
delivered by the Purchaser and constitutes the valid and legally binding
agreement of the Purchaser enforceable against the Purchaser in accordance
with its terms, except to the extent such enforceability may be limited by
Bankruptcy Law or general principles of equity; and the Purchaser has full
corporate power and authority to enter into and perform its obligations
under this Agreement.
(c) No consent, approval, authorization or order of any
Governmental Authority is required for the execution and delivery by the
Purchaser of this Agreement.
(d) The execution, delivery and performance by the
Purchaser of this Agreement does not violate, conflict with, result in a
breach of, or constitute a default (or an event which with the giving of
notice or the lapse of time or both would be reasonably likely to
constitute a default) under the charter or by-laws of the Purchaser, or any
General Law, Timber Law or Environmental Law applicable to the Purchaser
and in effect on the date hereof, or the terms of any bond, debenture, note
or any other evidence of indebtedness or any agreement, indenture, lease or
other similar instrument to which the Purchaser is a party or by which it
or any of its properties is subject.
(e) Except as disclosed in the Offering Memorandum, there
is not pending or, to the knowledge of the Purchaser, threatened, any
action, suit, proceeding or investigation involving the Purchaser (and, to
the knowledge of the Purchaser, no basis for any such action, suit,
proceeding or investigation exists) before any Governmental Authority which
could reasonably be expected to have a material adverse effect upon this
Agreement or the ability of the Purchaser to perform its obligations
hereunder.
(f) Except as disclosed in the Offering Memorandum, during
the term of the Existing Master Purchase Agreement, Pacific Lumber complied
in all material respects with (A) the terms and conditions of each approved
Timber Harvesting Plan in connection with timber harvested by Pacific
Lumber from the Company Timber Property and (B) all other material Timber
Laws applicable to such operations, as then in effect.
VI
SCALING, RELATED MATTERS
6.1 The Purchaser shall be responsible for all scaling and
measuring of logs purchased pursuant to this Agreement. The Purchaser
shall, at its own expense, furnish one or more qualified scalers acceptable
to the Seller. Such scalers may be employees of the Purchaser.
6.2 Scaling shall be done as soon as practicable upon delivery
of logs to the Purchaser's log deck according to the Net Short Log Scribner
Scale methodology of scaling. Notwithstanding the foregoing, and subject
to Section 4.12 of the Indenture, the Purchaser may, at its option, utilize
the weight equivalency methodology of scaling. In such event, the
Purchaser shall scale in accordance with the requirements of the California
State Board of Equalization (or any successor agency) for the weight
equivalency methodology of scaling, as in effect from time to time. In
accordance therewith, the Purchaser shall scale truckloads of logs from
time to time upon request of the Seller according to the Net Short Log
Scribner Scale methodology, and shall appropriately adjust the assumptions
used in its weight equivalency methodology on an ongoing basis to reflect
the results of such scaling.
6.3 The Seller may, upon reasonable notice to the Purchaser, at
its option and cost, at any time or from time to time utilize independent
scalers from the Northern California Log Scaling and Grading Bureau (or any
successor organization) or any other recognized third party log scaling and
grading bureau to verify the scaling by the Purchaser. The Purchaser shall
cooperate fully in any such verification by the Seller. The Seller shall
utilize independent scalers for at least two consecutive Business Days in
each six month period, upon reasonable notice to the Purchaser. The
Purchaser shall appropriately adjust the results of its scaling on a
prospective basis to reflect the results of such third party scaling.
6.4 Not later than each Monthly Certificate Delivery Date, the
Purchaser shall prepare and deliver to the Seller a report (the "Monthly
Production Report") substantially in the form of Exhibit B hereto, to be
included in summary form in the Monthly Trustee Certificate.
VII
HARVESTING
7.1 The Purchaser, at its own expense, agrees to cut and remove
the timber described in each Log Purchase Agreement in a manner consistent
in all material respects with prudent business practices which, in the
reasonable judgment of the Purchaser, (i) are consistent with then current
applicable industry standards and (ii) are in compliance in all material
respects with Section 4.2 and all applicable Timber Laws, Environmental
Laws and General Laws.
7.2 Provided that the Purchaser is the Services Provider under
the New Services Agreement, the Purchaser shall be entitled, at its option
and at no additional cost to the Purchaser, (a) to harvest and retain for
its own use, any and all hardwood trees which are permitted to be harvested
pursuant to any Timber Harvesting Plan subject to a Log Purchase Agreement,
(b) to remove for its own use, any and all residual parts of trees
harvested pursuant to any Timber Harvesting Plan subject to a Log Purchase
Agreement, including, but not limited to, breaks, limbs and tops, and (c)
to remove for its own use or to sell, gravel and rock from the Company
Timber Property.
7.3 The Purchaser shall complete harvesting of any timber
covered by a Timber Harvesting Plan within the applicable time period set
forth in such Timber Harvesting Plan (inclusive of any extensions thereof).
VIII
INDEMNIFICATION; INSURANCE
8.1 The Purchaser shall be liable for, and shall indemnify,
protect, defend and hold harmless the Seller, the Trustee and the
Collateral Agent, their respective subsidiary and affiliate companies and
their respective agents, employees, managers, directors, partners,
officers, servants and representatives against, any and all claims,
demands, causes of action, expenses or liabilities (including reasonable
attorneys' fees and disbursements) of every kind and character (whether
known or unknown, fixed or contingent, liquidated or unliquidated, secured
or unsecured, choate or inchoate, accrued, absolute or otherwise), suffered
or sustained, arising from (i) the breach by the Purchaser of any of its
representations, warranties, covenants and agreements set forth in this
Agreement, (ii) actions or omissions of the Purchaser in connection with
its obligations hereunder and (iii) failure of the Purchaser to have
complied with the terms and conditions of approved Timber Harvesting Plans
in connection with Timber harvested from its property or any other Timber
Laws, Environmental Laws and General Laws applicable to such operations, as
then in effect. The Seller shall notify the Purchaser promptly of any claim
for which it may seek indemnity. The Purchaser shall have the right to
defend the claim, and the Seller shall cooperate in the defense. If the
Purchaser does not defend such claim, the Seller may have separate counsel
and the Purchaser shall pay the reasonable fees and expenses of such
counsel.
8.2 The Purchaser shall at all times maintain comprehensive
general and automobile liability insurance against claims for personal
injury, death or property damage with limits of liability of not less than
$10,000,000 per occurrence and deductibles of up to $3,000,000 per
occurrence and (ii) all such worker's compensation or similar insurance as
may be required by applicable laws, provided that the Purchaser may
self-insure any or all worker's compensation liabilities. To the extent
that any of the insurance required by this Section 8.2 ceases to be
available at commercially reasonable rates, the Purchaser may maintain
insurance coverage in accordance with the prudent standards then being
followed by other companies engaged in the same or similar lines of
business or having comparable properties.
IX
INDEPENDENT CONTRACTOR STATUS
9.1 The Purchaser shall harvest the timber and perform its other
obligations hereunder as an independent contractor. The number of
employees, the selection and retention of such employees, the hours of
labor and the compensation for services to be paid to any and all such
employees of the Purchaser shall be determined by the Purchaser. All
employees, agents, contractors and subcontractors hired by the Purchaser to
perform any obligations of the Purchaser hereunder shall not be deemed to
be the employees, agents, contractors and subcontractors of the Seller, and
all salaries and compensation payable to them shall be the exclusive
responsibility of the Purchaser.
X
MISCELLANEOUS
10.1 Term. This Agreement shall become effective upon the date
first noted above and shall continue in effect until all amounts payable
under the Timber Notes (including any Additional Timber Notes), the
Indenture and the Deed of Trust shall have been paid in full.
10.2 Termination.
(a) The Seller or the Trustee, in each case to the extent
provided in Section 4.21(a) of the Indenture, shall have the right to
terminate this Agreement if a Purchase Agreement Default has occurred and
is continuing. The Seller or the Trustee may also terminate this Agreement
upon the giving of any notice of acceleration under Section 7.2(b) of the
Indenture. The Purchaser shall promptly notify the Seller and the Trustee
in writing of any Purchase Agreement Default.
(b) In the event that this Agreement is terminated as
provided in Section 10.2(a) hereof, (i) the Seller shall in good faith seek
to enter into one or more agreements for the sale of logs or stumpage
consistent with Section 7.1(f)(6) of the Deed of Trust and (ii) the Seller
shall be relieved of all obligations to sell, and the Purchaser shall be
relieved of obligations to purchase, timber under any Log Purchase
Agreement.
(c) The provisions of Sections 8.1, 10.4 and 10.5 shall
survive the expiration or termination of this Agreement; provided, however,
that Section 8.1 shall survive only with respect to matters occurring prior
to such expiration or termination.
10.3 Amendments.
(a) This Agreement may be amended by an agreement in
writing signed by the Seller and the Purchaser in accordance with Section
4.12 of the Indenture.
(b) Promptly following the execution of any amendment to
this Agreement, the Seller will furnish to the Trustee and each Rating
Agency a true, correct and complete copy of such amendment.
10.4 No Bankruptcy Petition. The Purchaser hereby covenants and
agrees that, prior to the date which is one year and one day after the
payment in full of all outstanding Notes, it will not institute against, or
join any other Persons in instituting against, the Seller, any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceeding or other
similar proceeding under any Bankruptcy Law.
10.5 Subordination. This Agreement and all rights of the
Purchaser hereunder are junior and subordinate to the lien of the Deed of
Trust.
10.6 Notices. All notices and other communications required or
permitted hereunder shall be in writing and, unless otherwise provided in
this Agreement, shall be deemed to have been duly given when delivered in
person or by mail or when dispatched by telegram or electronic facsimile
transfer (confirmed in writing by mail simultaneously dispatched) to the
addressee at the address specified below:
If to the Purchaser:
The Pacific Lumber Company
P.O. Box 37
Scotia, California 95565
Fax: (707) 764-4269
Attention: Vice President, Finance and
Administration
If to the Seller:
Scotia Pacific Company LLC
P.O. Box 712
Scotia, California 95565
Fax: (707) 764-5001
Attention: Vice President, Finance
and Administration
If to any Rating Agency:
Standard & Poor's, a division of
The McGraw Hill Companies
26 Broadway - 10th Floor
New York, NY 10004-1010
Fax: (212) 208-8208
Attention: Asset-Backed Surveillance Group
Moody's Investors Service, Inc.
99 Church Street - 4th Floor
New York, NY 10007
Fax: (212) 553-4948
Attention: ABS Monitoring Department
or such other address as either party may from time to time designate by
like notice.
10.7 Limitations on Assignment. Neither the Purchaser nor the
Seller shall assign or transfer any of its rights or obligations under this
Agreement without the prior written consent of the other (except for the
lien of the Deed of Trust and any transfer of the rights and obligations of
the Seller hereunder by virtue of the exercise of remedies provided for in
the Deed of Trust); provided that the Purchaser shall not transfer any of
its obligations under this Agreement unless (i) no Default or Event of
Default shall have occurred and be continuing and (ii) either (A) the prior
written consent of the Majority Holders and Rating Agency Confirmation
shall have been obtained or (B) the prior written consent of the
Supermajority Holders (after prior notice of the Rating Agency Evaluation)
and Rating Agency Evaluation shall have been obtained. Notwithstanding the
foregoing, (x) nothing herein shall prohibit the Purchaser from hiring any
subcontractors or agents; provided that such hiring shall not relieve the
Purchaser of any of its obligations hereunder and (y) nothing herein shall
prohibit any assignment occurring as a result of a transaction permitted by
Section 4.2 of the New Services Agreement.
10.8 Effect of Provisions of the Other Operative Documents.
Notwithstanding any provision of the Indenture or the Deed of Trust
requiring the Seller to pay an expense or perform an obligation, the
Purchaser shall not be relieved from any of its obligations under this
Agreement to pay expenses or perform obligations as expressly provided in
this Agreement. Nothing in this Agreement shall be interpreted so as to
limit or construe any of the obligations of the Servicer under the Services
Agreement.
10.9 Governing Law. This Agreement shall be governed by the
internal laws of the State of California without regard to principles of
conflict of laws.
10.10 Counterparts. This Agreement may be executed in any
number of counterparts, each of which when so executed shall be deemed an
original but all of which together shall constitute one and the same
instrument.
10.11 Entire Agreement. This Agreement constitutes the
entire agreement of the parties with respect to the subject matter hereof.
10.12 Headings. The section headings of this Agreement are
only for the purpose of reference and shall not effect the meaning hereof.
[REST OF PAGE INTENTIONALLY LEFT BLANK.]
IN WITNESS WHEREOF, the parties hereto have executed this New Master
Agreement as of the date first above written.
PURCHASER:
THE PACIFIC LUMBER COMPANY
By: /S/ JOHN A. CAMPBELL
Name: John A. Campbell
Title: President
SELLER:
SCOTIA PACIFIC COMPANY LLC
By: /S/ GARY L. CLARK
Name: Gary L. Clark
Title: Vice President-Finance
and Administration
Exhibit A
Form of Log Purchase Agreement
Log Purchase Agreement
This Agreement is entered into between Scotia Pacific Company LLC
(the "Seller") and The Pacific Lumber Company (the "Purchaser") as of
____________, ____.
Timber Harvesting
Plan No. ______ (the "THP") _______________
Estimated Mbfe covered
by the THP _______________
Estimated Starting Date _______________
Contact person at Purchaser _______________
. Seller agrees to sell, and Purchaser agrees to purchase, the
timber covered by the THP, at prices that comply with Article III of the
New Master Purchase Agreement.
. The Seller and the Purchaser agree that the terms and
conditions of the New Master Purchase Agreement are incorporated by
reference as if fully set forth herein.
SCOTIA PACIFIC COMPANY LLC,
Seller
By:____________________________
Name:
Title:
THE PACIFIC LUMBER COMPANY,
Purchaser
By:____________________________
Name:
Title:
Exhibit B to
New Master Purchase Agreement
Form of Monthly Production Report
The undersigned, the _____________ of The Pacific Lumber Company (the
"Purchaser"), DOES HEREBY CERTIFY:
1. This Monthly Production Report is delivered pursuant to Section
6.4 of the New Master Purchase Agreement dated as of July __,
1998 between the Purchaser and Scotia Pacific Company LLC.
2. The undersigned has made such examination or investigation as is
necessary to enable him or her to express an informed opinion on
the matters referred to herein.
3. To the best of the undersigned's knowledge, the attached
calculations are in accordance with the books and records of the
Purchaser.
Delivered this ____ day of ___, _____.
______________________________
Name:
Exhibit B To New Master Purchase Agreement
Monthly
Production Report
for month of:
Purchases Purchases
Type (net scribner scale) Factor
(Mbfe)
Old Growth Redwood _____ 1.0000 Mbfe
Old Growth Douglas Fir _____ 0.723757 Mbfe
Young Growth Redwood _____ 0.751381 Mbfe
Young Growth Douglas Fir _____ 0.488950 Mbfe
Other _____ 0.309392 Mbfe
Total: Mbfe