Strategic Alliance Agreement

STRATEGIC ALLIANCE AGREEMENT


This Agreement dated March 24, 1999, by and between Pulp & Paper of America LLC, a New York limited liability company, or its designee ("PPA"), having its principal place of business at 135 Engineers Road, Hauppauge, New York, and Crown Paper Co., a Virginia corporation ("Crown"), having its principal place of business at 300 Lakeside Drive, Oakland, California.


R E C I T A L S


The parties hereto are parties to that certain Asset Purchase Agreement, dated as of even date herewith, by and among Crown, Crown Vantage New Hampshire Electric, Inc. and Berlin Mills Railway, Inc., as Seller and American Tissue Holdings Inc. and PPA, as Buyer (the "Asset Purchase Agreement") pursuant to which Buyer will purchase from Seller and subsequently will own and operate a pulp and paper mill located in Berlin and Gorham, New Hampshire ("B/G").


Crown has historically manufactured certain Publishing Grades (as defined in Section 1 below) of papers at B/G (as defined in Section 1 below) and at its paper mills located in Massachusetts, Michigan and New Jersey.


Following the closing of the sale and purchase transactions under the Asset Purchase Agreement (the "Closing"), Crown and PPA desire to create a strategic alliance whereby PPA will continue to manufacture those Publishing Grades that were manufactured by B/G prior to the Closing (the "B/G Publishing Grades") for a specified period to continue Crown's existing Publishing Grades business and permit Crown's other mills to commence the manufacture of the B/G Publishing Grades in an orderly manner.


PPA is willing to continue to manufacture the B/G Publishing Grades at B/G upon the terms and subject to the conditions hereinafter set forth.


Accordingly, in consideration of the foregoing recitals and the mutual covenants set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, PPA and Crown agree as follows.


1. Definitions. The following terms, as used herein, have the following meanings:


"B/G" means the pulp and paper mills located in Berlin and Gorham, New Hampshire, respectively, currently owned by Crown and proposed to be sold to PPA pursuant to the Asset Purchase Agreement.


"B/G Publishing Grades" means the Publishing Grades manufactured at B/G prior to the Closing.


"Confidential Information" has the meaning set forth in Section 12 hereof.


"Closing" means the closing of the transactions contemplated by the Asset Purchase Agreement.


"Crown" means Crown Paper Co.


"Crown Orders" has the meaning set forth in Section 5(b).


"Crown Trademarks" means Crown's trademarks, tradenames, logos and trade styles used in the sale and marketing of B/G Publishing Grades.


"Marketing Period" means the three year period ending on the third anniversary of the Closing.


"PPA" means Pulp & Paper of America LLC, or its designee.


"Publishing Grades" means all text and cover grade papers and all lightweight opaque papers, whether or not such papers carry or are sold under one of Crown's registered trademarks, listed on Schedule A annexed hereto and made a part hereof.


"Services" means the services to be rendered by Crown to PPA, as set forth in Section 2(b) of this Agreement.


2. Obligations of Crown.


(a) Subject to Section 8(b), for each 12 month period during the Marketing Period, Crown will submit purchase orders to PPA for a minimum of 20,000 tons of B/G Publishing Grades at the applicable market prices determined pursuant to Section 5(a) hereof, and to the extent PPA accepts such orders, PPA will sell to Crown and Crown will purchase from PPA a minimum of 20,000 tons of B/G Publishing Grades during the applicable 12-month period.


(b) During the Marketing Period, Crown will use its best efforts to provide the following marketing and sales services to PPA ("Services"), at Crown's sole cost and expense (including, without limitation, the sales and marketing expenses), including, without limitation:


(i) maintain and upgrade sales to Crown customers of the historic mix
of B/G Publishing Grades;


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(ii) advise PPA regarding periodic B/G Publishing Grades production
decisions regarding tonnage, distribution by grade and by type within any
grade, customer base, freight costs, and other strategic considerations;


(iii) coordinate customer shipments and assist PPA and customers with
pick up appointments, freight rates, and delivery times required consistent
with customer service responsibilities;


(iv) advise PPA of market developments, competitive activity, and
customer reports, including customer observations and feedback related to
B/G Publishing Grades quality and service;


(v) service all Crown customers consistent with normal industry
practices, including, without limitation, market development, complaint
investigation and resolution, and quality issues.


(vi) develop and implement a communication strategy for announcing new
B/G Publishing Grades focus and marketing arrangements;


(vii) establish and monitor market trials of B/G Publishing Grades,
including provision of feedback to PPA and recommendations to PPA for
further products development by PPA, if advisable;


(viii) adjust sales and marketing efforts as reasonably requested by
PPA to align with future B/G operating capacity fluctuations effected by
PPA consistent with the terms and conditions of this Agreement;


(ix) maintain personnel and expenditures sufficient to fulfill Crown's
obligations under this Agreement;


(x) provide PPA quarterly with B/G Publishing Grades anticipated sales
and consult with PPA regarding same;


(xi) maintain communications with PPA to assist PPA in coordinating
its manufacturing efforts with Crown's selling efforts with respect to B/G
Publishing Grades;


(xii) forward immediately to PPA all purchase orders for B/G
Publishing Grades provided such orders shall be subject to review and
approval by PPA;


(xiii) maintain complete and accurate books and records concerning all
orders for B/G Publishing Grades, as well as order tracking, sales and
shipments of B/G Publishing Grades and provide PPA with monthly reports
with respect thereto and permit PPA and its auditors to review such
records, from time to time;


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(xiv) advise PPA with respect to rejection or quality problems by
Crown customers as to B/G Publishing Grades to maintain strong relations
with such customers and resolve problems efficiently and with the least
possible cost to all parties; and


(xv) bear and maintain at levels sufficient to fulfill Crown's
obligations hereunder all marketing, promotional and selling expenses
relating to sales of B/G Publishing Grades to Crown customers.


(c) At the end of the Marketing Period, PPA will sell to Crown and Crown will purchase from PPA at the then current market prices all B/G Publishing Grades which (i) were manufactured by PPA during the Marketing Period, (ii) are held in inventory by PPA at the end of the Marketing Period, and (iii) are identified by, or contain, Crown Trademarks (as defined in Section 3 below). The parties will cooperate and plan production and inventory levels in order to minimize the quantity of papers subject to the foregoing sale and purchase obligation.


3. Tradenames; Marks.


Crown grants to PPA, only during the Marketing Period, a limited, non--exclusive, royalty-free license to use Crown's trademarks, tradenames, logos and trade styles used in the sale and marketing of B/G Publishing Grades (collectively, "Crown Trademarks"), which license shall be used only in furtherance of the goals and objectives of this Agreement.


4. Obligations of PPA.


(a) PPA agrees to use its best efforts to manufacture B/G Publishing Grades; to use its best efforts to have, as and when required, sufficient quality and quantities of B/G Publishing Grades to support Crown's purchase requirements; and to arrange for delivery of the B/G Publishing Grades as provided in each Crown Order (as defined below) accepted by PPA. PPA shall be responsible for the payment of manufacturing and warehousing expenses, including, but not limited to, the acquisition of all raw materials, the provision of labor by PPA's employees, and the maintenance and repair of PPA's plant, machinery and related equipment.


(b) PPA will use reasonable best efforts to support Crown's efforts to market B/G Publishing Grades to its customers.


(c) To the extent Crown incurs any costs in warehousing B/G Publishing Grades, PPA shall pay its allocable portion of such warehousing expenses with respect to such B/G Publishing Grades, to be determined on a tonnage basis. PPA will use commercially reasonable efforts to pay such warehousing expenses within ten (10) days of the date of invoice, but shall in any event pay such warehousing expenses within fifteen (15) days of the date of invoice. Freight charges to ship B/G Publishing Grades to warehouses shall be for the account of PPA.


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5. Pricing and Order Processing.


(a) PPA and Crown will determine the applicable prices of each of the B/G Publishing Grades from time-to-time, provided that in the event of any dispute between PPA and Crown respecting the price of any B/G Publishing Grade or type within such Grade, the determination of PPA shall prevail. Each order received by PPA from Crown for B/G Publishing Grades must be producible by PPA on the then existing paper machines at B/G.


(b) Crown will, from time-to-time, during the Marketing Period, order B/G Publishing Grades for the accounts of Crown customers by submitting the purchase orders of Crown customers, endorsed or otherwise identified by Crown as being an order subject to this Agreement so long as each such order (each, a "Crown Order") complies with the requirements of the second sentence of this Section 5(b). All Crown Orders for B/G Publishing Grades shall be subject to approval by PPA, in its sole discretion, provided that if PPA rejects a Crown Order based on the prices of the B/G ...