Paperboard Supply Agreement (117K)
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PAPERBOARD SUPPLY AGREEMENT
This PAPERBOARD SUPPLY AGREEMENT (this "Agreement") is entered into
effective the 14th day of May, 1998, by and among REPUBLIC PAPERBOARD COMPANY, a
Kansas corporation (hereinafter referred to as "Republic"), REPUBLIC GROUP
INCORPORATED, a Delaware corporation ("Republic Parent"), and JAMES HARDIE
GYPSUM, INC., a Nevada corporation (hereinafter referred to as "Hardie");
WITNESSETH:
WHEREAS, Republic is proposing to develop a new paperboard mill (the
"Project Gazelle Mill") to produce recycled gypsum-grade paperboard;
WHEREAS, potential providers of financing for the Project Gazelle Mill have
indicated that they will require Republic to have in place long-term agreements
for the sale of a substantial portion of the output of the Project Gazelle Mill
as a condition to providing such financing;
WHEREAS, Hardie desires to ensure that it will have an assured supply of
paperboard on a long-term basis, and Republic desires to have Hardie as a
customer on such basis;
WHEREAS, Republic has offered to Hardie, pursuant to Hardie's request,
selling prices and pricing formulas designed to meet pricing proposals offered
by other current and potential suppliers competing for Hardie's business;
WHEREAS, Hardie and Republic have entered into that certain letter of
intent dated April 8, 1998 in which they expressed their intent to enter into,
and outlined their rights and obligations with respect to, a long-term supply
agreement for recycled gypsum-grade paperboard;
WHEREAS, Hardie and Republic desire to formalize the terms of such
agreement; and
WHEREAS, Republic Parent expects to derive substantial benefit from its
subsidiary's entry into such an agreement, and Hardie requires that Republic
Parent execute and deliver any such agreement as a condition to its execution
and delivery thereof;
NOW, THEREFORE, in consideration of the foregoing, and in consideration of
the mutual covenants hereinafter contained, and of other good and valuable
consideration, the receipt and sufficiency which are hereby acknowledged, the
parties hereto agree as follows:
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1. PURCHASE AND SALE OF PRODUCTS. Subject to the terms and conditions of
this Agreement, Republic agrees to sell to Hardie, and Hardie agrees to purchase
from Republic, at the Selling Price (as hereinafter defined), a portion of
Hardie's recycled gypsum-grade paperboard requirements (including Creamface,
Grayback, Green-Lined, Brown Sheathing, Shaftwall Liner Green and Veneer Plaster
Base paperboard) which is more specifically identified on Exhibit A attached
hereto. (Any paperboard products sold or agreed to be sold by Republic to Hardie
hereunder are referred to herein as "Products".) Products consisting of
Creamface, Grayback, Green-Lined and Brown Sheathing paperboard will be produced
at the Project Gazelle Mill, except to the extent expressly permitted hereby to
be produced at another of Republic's recycled paperboard mills or as otherwise
agreed by the parties. Products consisting of Shaftwall Liner Green and Veneer
Plaster Base paperboard may be produced at Republic's recycled paperboard mills
other than the Project Gazelle Mill, unless otherwise agreed by the parties.
2. PRICE AND ADJUSTMENTS.
(a) The Selling Price for a particular order shall be computed by a
formula whereby an initial base price (the "Base Price") is
adjusted as set forth in this paragraph 2 quarterly (other than
the adjustments set forth in subparagraphs (c), (d) and (e) of
this paragraph 2, which will be made annually), or at such other
times or on such other schedule as agreed by the parties, for
changes in the cost of certain key grades of paper stock. In each
case, the selling price shall be F.O.B. the carrier at the
Project Gazelle Mill or when expressly contemplated by this
Agreement or when otherwise agreed by the parties at another of
Republic's paperboard mills (the "Shipping Mill"). In the event
that Republic ships an order from a Shipping Mill other than the
Project Gazelle Mill, Republic shall equalize Hardie's freight
costs so that Hardie's freight cost is no higher or lower than it
would have been had the order been shipped from the Project
Gazelle Mill.
(b) The initial Base Prices for the Products shall be as set forth on
Exhibit B attached hereto.
(c) As of January 1, 2001, the initial Base Prices of recycled
gypsum-grade paperboard will be adjusted upward or downward, as
the case may be, for purchases made during calendar year 2001, by
an amount per MSF computed as (i) the sum of (A)(x) the
difference between the actual average cost during the six (6)
months ended November 30, 2000, of purchased electricity per
kilowatt hour ("KWH") and the initial projected average base cost
of purchased electricity of $*** per KWH, multiplied by (y) the
actual total KWH used during such six-month period and (B)(x) the
difference between the actual average cost during such six-month
period of purchased natural gas, which includes transportation
costs and line shrinkage costs, per million British thermal units
("MMBTU") and the initial projected average base cost of
purchased natural gas, which includes transportation costs and
line shrinkage costs, of $*** per MMBTU, multiplied by (y) the
actual total MMBTU's used during such six-month period, divided
by (ii) the actual gross thousand square feet ("MSF") of
paperboard produced during such six-month period. The same
adjustments will be made to be effective each January 1,
thereafter, based on the actual costs and quantities during the
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twelve-month period ending on November 30 of the preceding year.
Hardie shall have the right to review and audit the underlying
information and calculations that form the basis for any change
in price based upon this subparagraph.
(d) As of January 1, 2002 and each January 1 thereafter, each of the
initial Base Prices will be increased or decreased, as the case
may be, by an amount equal to the sum of (i) $*** per MSF
multiplied by the percentage increase or decrease in the ***
Index ***, from September 1997 to the September immediately
preceding the effective date of the adjustment, which index is
published by the United States Department of Labor, Bureau of
Labor Statistics and (ii) $*** per MSF multiplied by the
percentage increase or decrease in the*** Index *** from
September 1997 to the September immediately preceding the
effective date of the adjustment, which index is published by the
United States Department of Labor, Bureau of Labor Statistics.
(e) As of January 1, 2002 and each January 1 thereafter, the average
basis weight pounds per MSF of each grade of the Products
purchased by Hardie during the preceding twelve (12) months shall
be calculated. For each one-half pound that the average basis
weight for a grade of the Products is less than the average basis
weight set forth in Exhibit C for such grade, the initial Base
Price for such grade shall be reduced by $*** per MSF. This
provision shall apply to reductions of basis weight down to a
basis weight of *** pounds per MSF. Republic and Hardie will
cooperate with each other in seeking to achieve reductions in the
basis weights of the Products. Republic and Hardie each, insofar
as their own operations are involved, will diligently pursue
methods of achieving, and use commercially reasonable efforts to
achieve, reductions in basis weights of the Products, targeting
an ultimate basis weight of *** pounds per MSF by the fifth
anniversary of the Commercial Production Date. The parties will
not be deemed to have succeeded in reducing the basis weight of
the Products, and Hardie shall be under no obligation to purchase
such lower basis weight Products under this Agreement, unless,
all things considered, it is economically feasible for Hardie to
utilize such lower basis weight Products in Hardie's
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