Exhibit 10.4


 


ASSET PURCHASE AGREEMENT


 


AMONG


 


NEENAH
PAPER COMPANY OF CANADA


 


As
Seller


 


and


 


NORTHERN
PULP NOVA SCOTIA CORPORATION


 


As
Purchaser


 


MADE AS
OF


 


June 24,
2008


 




 





PICTOU
PULP MILL AND WOODLANDS OPERATIONS




 





 

















 


TABLE OF CONTENTS


 


	
  Article 1 – INTERPRETATION

  	
  1

  
	
   

  	
   

  
	
   

  	
  1.1

  	
  Definitions

  	
  1

  
	
   

  	
  1.2

  	
  Headings

  	
  10

  
	
   

  	
  1.3

  	
  Extended Meanings

  	
  10

  
	
   

  	
  1.4

  	
  Statutory References

  	
  10

  
	
   

  	
  1.5

  	
  Accounting Principles

  	
  10

  
	
   

  	
  1.6

  	
  Currency, Prices and Values

  	
  10

  
	
   

  	
  1.7

  	
  Schedules

  	
  10

  
	
   

  	
   

  	
   

  	
   

  
	
  Article 2 – SALE AND PURCHASE

  	
  12

  
	
   

  	
   

  
	
   

  	
  2.1

  	
  Assets to be Sold and Purchased

  	
  12

  
	
   

  	
  2.2

  	
  Retained Assets

  	
  14

  
	
   

  	
  2.3

  	
  Liabilities of Seller Assumed by Purchaser

  	
  15

  
	
   

  	
  2.4

  	
  Retained Liabilities

  	
  16

  
	
   

  	
  2.5

  	
  Non-Assignable Contracts or Licenses/Shared Contracts

  	
  17

  
	
   

  	
  2.6

  	
  Purchase Price

  	
  19

  
	
   

  	
  2.7

  	
  Purchase Price Adjustment

  	
  19

  
	
   

  	
  2.8

  	
  Allocation of Purchase Price; Taxes

  	
  23

  
	
   

  	
  2.9

  	
  Section 167 Elections

  	
  23

  
	
   

  	
  2.10

  	
  Section 85 Elections

  	
  23

  
	
   

  	
  2.11

  	
  Instruments of Conveyance and Assumption

  	
  24

  
	
   

  	
   

  	
   

  	
   

  
	
  Article 3 – REPRESENTATIONS AND WARRANTIES

  	
  24

  
	
   

  	
   

  
	
   

  	
  3.1

  	
  Seller’s Representations and Warranties

  	
  24

  
	
   

  	
  3.2

  	
  Survival of Seller’s Representations, Warranties and
  Covenants

  	
  40

  
	
   

  	
  3.3

  	
  Purchaser’s Representations and Warranties

  	
  41

  
	
   

  	
  3.4

  	
  Survival of Purchaser’s Representations, Warranties and
  Covenants

  	
  43

  
	
   

  	
   

  	
   

  	
   

  
	
  Article 4 – COVENANTS

  	
  43

  
	
   

  	
   

  
	
   

  	
  4.1

  	
  Governmental Filings

  	
  43

  
	
   

  	
  4.2

  	
  Expenses

  	
  43

  
	
   

  	
  4.3

  	
  Indemnification for Brokerage Commissions

  	
  43

  
	
   

  	
  4.4

  	
  Access to Records

  	
  44

  
	
   

  	
  4.5

  	
  Affiliation with Seller

  	
  44

  
	
   

  	
  4.6

  	
  Further Assurances

  	
  44

  
	
   

  	
  4.7

  	
  Mail and Money Received After Closing

  	
  45

  
	
   

  	
  4.8

  	
  Delivery of Books and Records

  	
  45

  
	
   

  	
  4.9

  	
  Use of Seller’s Trade Name

  	
  45

  
	
   

  	
   

  	
   

  	
   

  
	
  Article 5 – EMPLOYMENT AND BENEFIT PLAN ARRANGEMENTS

  	
  45

  
	
   

  	
   

  
	
   

  	
  5.1

  	
  Employees

  	
  45

  



 

















 


	
   

  	
  5.2

  	
  Pension and Retirement Plans and Benefit Plans

  	
  46

  
	
   

  	
   

  	
   

  	
   

  
	
  Article 6 – CLOSING ARRANGEMENTS

  	
  46

  
	
   

  	
   

  
	
   

  	
  6.1

  	
  Closing

  	
  46

  
	
   

  	
   

  	
   

  	
   

  
	
  Article 7 – GENERAL

  	
  47

  
	
   

  	
   

  
	
   

  	
  7.1

  	
  Time of the Essence

  	
  47

  
	
   

  	
  7.2

  	
  Public Announcements

  	
  47

  
	
   

  	
  7.3

  	
  Benefit of the Agreement

  	
  47

  
	
   

  	
  7.4

  	
  Third Party Beneficiaries

  	
  47

  
	
   

  	
  7.5

  	
  Entire Agreement

  	
  47

  
	
   

  	
  7.6

  	
  Amendments and Waivers

  	
  47

  
	
   

  	
  7.7

  	
  Assignment

  	
  48

  
	
   

  	
  7.8

  	
  Notices

  	
  48

  
	
   

  	
  7.9

  	
  Remedies Cumulative

  	
  49

  
	
   

  	
  7.10

  	
  Governing Law

  	
  49

  
	
   

  	
  7.11

  	
  Attornment

  	
  49

  
	
   

  	
  7.12

  	
  Counterparts

  	
  49

  



 

















 


ASSET PURCHASE AGREEMENT


 


THIS AGREEMENT is made as of June       ,
2008, between NEENAH PAPER COMPANY OF CANADA, an unlimited company incorporated
under the laws of Nova Scotia (“Seller”) and
NORTHERN PULP NOVA SCOTIA CORPORATION, an unlimited company incorporated under
the laws of Nova Scotia (“Purchaser”).


 


PRELIMINARY STATEMENT


 


Seller desires to
sell, on a going concern basis, substantially all of the assets and properties
owned by Seller, other than the Retained Assets (as defined herein), which are
used exclusively by or in connection with (i) the business conducted by
Seller at and only with respect to its Pictou County, Nova Scotia pulp mill
(the “Pictou Pulp Mill” or the “Pulp Business”) and (ii) the business conducted by
Seller in respect of its timberland properties in Nova Scotia (specifically
excluding the Woodlands (as defined herein)), including the Debert Nursery (as
defined herein) (the “Woodlands Business”,
and collectively with the Pulp Business, the “Purchased
Businesses”), and Purchaser desires to purchase the Purchased
Businesses and assume substantially all of the related liabilities, other than
the Retained Liabilities (as defined herein), for the consideration set forth
below, subject to the terms and conditions of this Agreement.


 


NOW
THEREFORE, in consideration of the premises and the covenants
and agreements herein contained, the parties hereto agree as follows:


 


ARTICLE 1 – INTERPRETATION


 


1.1                               Definitions


 


In this
Agreement, unless something in the subject matter or context is inconsistent
therewith, the following terms shall have the respective meanings set out below
and grammatical variations of such terms shall have corresponding meanings:


 


“Affiliate” means, with respect to any
Person, any other Person directly or indirectly controlling, controlled by or
under common control with, such Person, and for these purposes “control” is the
power whether by contract or ownership of equity interests or otherwise to
select a majority of the board of directors or other supervisory management
authority of an Entity, whether directly or indirectly through a chain of
Entities that are “controlled” within the foregoing meaning; provided, however,
that for purposes of this Agreement, Seller and Purchaser shall be deemed not
to be Affiliates of each other;


 


“Agreement” means this asset purchase
agreement including the Preliminary Statement and Schedules to this agreement,
as amended, supplemented or restated from time to time;


 


“Ancillary Agreements” means any written
agreement to which Seller is or becomes a party in connection with the
execution and delivery by Seller of, and as contemplated in any of, this
Agreement, the Finance Purchase Agreement or the Share Purchase Agreement;


 


1

















 


“Applicable Law” means any applicable
domestic or foreign, federal, provincial or local law, including any statute or
subordinate legislation or treaty and any applicable rule, regulation,
ordinance, requirement, order, Permit, judgment, injunction, award or decree or
other binding requirement of a Governmental Authority having the force of law;


 


“Assets” has the meaning set out in Section 2.1;


 


“Assumed Contracts” has the meaning set
forth in Section 2.1(f);


 


“Assumed Liabilities” has the meaning
set forth in Section 2.3;


 


“Benefit Plans”  means
all plans, arrangements, agreements, programs, policies, practices or
undertakings, whether oral or written, formal or informal, funded or unfunded,
insured or uninsured, registered or unregistered, to which Seller is a party or
bound or in which the Employees participate or under which Seller has, or will
have, any liability or contingent liability or pursuant to which payments are
made or benefits are provided, or an entitlement to payments or benefits may
arise with respect to any of the Employees, Former Employees, Retired
Employees, directors or officers, individuals working on contract with Seller
or other individuals providing services to Seller of a kind normally provided
by employees (or any spouses, dependants, survivors or beneficiaries of any
such Persons), in each case relating to the Purchased Businesses, including the
Pension and Retirement Plans but excluding Statutory Plans, Multi-Employer
Plans and stock-based compensation plans;


 


“Boat Harbour Documents” has the meaning
set out in Section 2.3(b);


 


“Business Day” means a day other than a
Saturday, Sunday or statutory holiday in New York, New York, Atlanta, Georgia
or Halifax, Nova Scotia;


 


“Capital Projects” means the planned
capital expenditures program associated with the annual maintenance down for
the Pictou Mill scheduled to occur in April and May 2008, as set
forth on Schedule 1.1(f);


 


“Canso” means Canso Chemicals Limited, a
corporation incorporated under the laws of the Province of Nova Scotia;


 


“Closing” means the closing of the
transactions contemplated hereby;


 


“Closing Date” means the date hereof;


 


“Collective Agreement” has the meaning
set out in Section 3.1(l)(i);


 


“Contract” means any agreement,
indenture, contract, lease, deed of trust, licence, option, instrument or other
commitment, whether written or oral;


 


“Debert Nursery” means the Debert
Nursery office, storage buildings, greenhouses and seed orchards located at 381
Plains Road, Debert, Colchester County, Nova Scotia;


 


“Deeds and Assignments” has the meaning
set out in Section 2.11(a)(iv);


 


2

















 


“Distribution Agreement” means the
Distribution Agreement dated as of November 30, 2004 between
Kimberly-Clark Corporation and NPI;


 


“Down” means the annual maintenance down
at the Pictou Mill scheduled to occur in April and May 2008 as
described in Schedule 1.1(g);


 


“Effluent Treatment System” means all or
any portion of any system that transports, mixes, stabilizes, treats (actively
or passively), conveys or discharges the effluent from the Pictou Pulp Mill,
including (i) the under river pipeline, settling ponds, aerated
stabilization basin and Boat Harbour and (ii) all man-made and natural
drainage systems and appurtenances that connect or are otherwise related to
such systems;


 


“Employees” means all individuals who
immediately prior to the Time of Closing are employed by, or engaged on
contract to provide employment services, or sales or other agents or
representatives of Seller in connection with the Pulp Business or the Woodlands
Business, whether on a regular full-time, part-time, casual or temporary basis
(including surge hires) in those operations being sold to Purchaser, including
any Inactive Employees, but excluding any employees of Seller in respect of the
Terrace Bay, Ontario pulp mill or any other business or operation of Seller
who, immediately prior to the Time of Closing, are not employed by Seller in
connection with either of the Purchased Businesses;


 


“Entity” means a Person other than an
individual;


 


“Environmental Law” means any Applicable
Law or rule of common law in existence on the date of this Agreement or
the Closing Date relating to the environment, the protection of the natural
environment, human health or both, including those pertaining to (i) reporting,
licensing, permitting, investigating, remediating and cleaning up any Release
of Hazardous Substances or (ii) the manufacture, processing, distribution,
use, treatment, storage, disposal, transport and handling of Hazardous
Substances (provided that only for the purposes of the definition of “Environmental
Liabilities” below, “Environmental Law” shall include changes to such
Environmental Laws after the Closing Date);


 


“Environmental Liabilities” means all
liabilities, obligations, claims, damages, responsibilities, costs and expenses
(including legal costs, engineering, consulting and laboratory fees and
expenses, capital expenditures, fines, penalties, financial responsibility for
cleanup costs, corrective action, removal, remedial actions and response
actions, and any other compliance, corrective, investigative or remedial
measures required by any Environmental Law or as a result of any third party
claims, judgments or settlements) existing on, or incurred or arising from and
after, the Closing Date as a result of or in connection with:


 


(a)                                  the
violation of any Environmental Law resulting from or in connection with the
operation, use or ownership of the Assets (A) on or before the Closing
Date, by Seller or, to the extent of Seller’s obligations on a several basis
under the Distribution Agreement in respect of the Assets, by the predecessor
owner thereof, or (B) after the Closing Date, by Purchaser; or


 


(b)                                 any
order, written claim or demand, action, citation, fine or other proceeding by
any Governmental Authority or by any non-governmental third party, actual, 


 


3

















 


pending or
threatened, pursuant to any Environmental Law with respect to or in connection
with:


 


(i)    the operation, use or
ownership of the Assets (A) on or before the Closing Date by Seller or, to
the extent of Seller’s obligations on a several basis under the Distribution
Agreement in respect of the Assets, by the predecessor owner thereof, or (B) after
the Closing Date, by Purchaser;


 


(ii)   the ownership or operation
of the Real Property or the facilities or activities thereon or thereabout (A) on
or before the Closing Date by Seller or, to the extent of Seller’s obligations
on a several basis under the Distribution Agreement in respect of the Real
Property, by the predecessor owner thereof, or (B) after the Closing Date,
by Purchaser; or


 


(iii)  the installation, use,
operation or closure of, or in any way related to, any Effluent Treatment
System, or any part thereof, including any receiving water of the Effluent
Treatment System (A) on or before the Closing Date by Seller or, to the
extent of Seller’s obligations on a several basis under the Distribution
Agreement in respect of the Effluent Treatment System, by the predecessor owner
thereof, or (B) after the Closing Date, by Purchaser;


 


“ETA” has the meaning set out in Section 2.9;


 


“Excluded Forest Licenses” has the
meaning set out in Section 3.1(s)(ii);


 


“Finance Purchase Agreement” means the
asset purchase agreement dated as of the date hereof between Seller and Azure
Mountain Capital Financial Corporation;


 


“Financial Statements” means the Year
End Financial Statements and the Interim Financial Statements;


 


“Forest Licenses” has the meaning set
out in Section 3.1(s)(i);


 


“Former Employees” has the same extended
and comprehensive meaning as “Employees”
except that it refers to those individuals previously employed or engaged on
contract by Seller but not employed or engaged on contract by Seller at the
Time of Closing, excluding any former employees of the Terrace Bay, Ontario
pulp mill or any other business or operation of Seller;


 


“GAAP” has the meaning set out in Section 1.5;


 


“Governmental Authority” means any
domestic or foreign, federal, provincial, municipal, local or other
governmental, quasi-governmental, legislative, executive, judicial or
administrative body or person having jurisdiction in the relevant
circumstances, including any governmental ministry, agency, branch, department,
commission, board, tribunal, bureau or arbitrator;


 


“Hazardous Substance” means any
substance or material that is prohibited, controlled or regulated by any
Governmental Authority pursuant to Environmental Laws including pollutants, 


 


4

















 


contaminants, dangerous goods or substances, controlled products, toxic
or hazardous substances or materials or hazardous wastes, all as defined in or
pursuant to any Environmental Law;


 


“Inactive Employee” means an Employee
who, immediately prior to the Time of Closing, is: (i) receiving WCB
disability benefits, (ii) on leave or off work due to disability, whether
paid or unpaid, including any such Employee who is receiving weekly indemnity,
short-term or long-term disability wage replacement payments, or (iii) on
strike, lock-out, lay-off or leave of absence, including pregnancy and parental
leave;


 


“Instruments of Assumption” has the
meaning set out in Section 2.11(b)(ii);


 


“Intellectual Property” means trade or
brand names, business names, trade-marks (including logos), trade-mark
registrations and applications, service marks, service mark registrations and
applications, copyrights, copyright registrations and applications, issued patents
and pending applications and other patent rights, industrial design
registrations, pending applications and other industrial design rights, trade
secrets, proprietary information and know-how, equipment and parts lists and
descriptions, instruction manuals, inventions, inventors’ notes, research data,
blue prints, drawings and designs, formulae, processes, technology and other
intellectual property, together with all rights under licences, registered user
agreements, technology transfer agreements and other agreements or instruments
relating to any of the foregoing, in each case relating to either of the
Purchased Businesses and not comprising a Retained Asset as of the Closing Date
or the date hereof and expressly excludes “Neenah Paper Company of Canada”, “NPCC”,
“Neenah Paper”, “NP”, “NPI” and any variations thereof;


 


“Interim Financial Statements” means the
financial statements of the Purchased Businesses as of and for the periods
ended January 31, 2008, February 29, 2008 and March 31, 2008
presented in accordance with GAAP with the exception of the exclusion of the
statement of cash flows, the statement of equity and the notes thereto and the
exclusion from the income statement of pulp and currency hedging, miscellaneous
transaction charges and corporate overhead allocations, a copy of which is
annexed hereto as Schedule 1.1(a);


 


“Inventory” has the meaning set out in Section 2.1(d)(i);


 


“Issued Shares” has the meaning set out
in Section 2.6(b);


 


“ITA” has the meaning set out in Section 2.10;


 


“K-C Global” means Kimberly-Clark Global
Sales, Inc. and its successors and assigns;


 


“knowledge”, with respect to Seller,
means the actual knowledge, after due enquiry, of any of the Persons listed on
Schedule 1.1(b);


 


“Landlord Real Property Leases” has the
meaning set out in Section 3.1(i)(ii);


 


“Leased Real Property” means the land,
buildings and other improvements covered by the Tenant Real Property Leases;


 


5

















 


“lien or other encumbrance” or “Encumbrance” means any lien, pledge, hypothec, mortgage,
security interest of any nature, adverse claim, reservation, easement, title
retention agreement, claim, lease, charge, option, right of first refusal,
easement, servitude, transfer restriction under any shareholder or similar
agreement, encumbrance or any other restriction or limitation whatsoever, or
any Contract to create any of the foregoing;


 


“Losses” means all fines, losses,
liabilities, damages, deficiencies, costs or expenses (including interest,
legal fees and disbursements of legal counsel) arising directly or indirectly
as a consequence of such matter;


 


“Material Adverse Change” and “Material Adverse Effect” mean any event, change or effect
that, when taken individually or together with all other adverse effects, will
or is reasonably likely to have a materially adverse effect on the business,
affairs, capitalization, assets, liabilities, results of operations, condition
(financial or otherwise) or prospects of the Pulp Business or the Woodlands
Business, in each case taken as a whole; provided, however, that effects or
changes relating to:


 


(a)                                  changes
in general political and economic conditions and changes affecting generally
the industries and markets in which the Pulp Business or the Woodlands Business
is conducted that, in any of the foregoing cases, do not affect the Pulp
Business or the Woodlands Business, in each case taken as a whole, in a
disproportionate manner relative to other participants in the same industry as
the Pulp Business or the Woodlands Business;


 


(b)                                 the
effect of any changes in applicable laws, regulations or accounting rules; and


 


(c)                                  the
fact of the pendency of the transactions contemplated by this Agreement and the
identity of Purchaser;


 


are not Material Adverse Changes or Material Adverse Effects and are
not to be taken into account in determining whether a Material Adverse Change
or a Material Adverse Effect has occurred;


 


“Mill Accounts Receivables” means the
trade receivables of the Pulp Business as reflected in Seller’s general ledger
accounts numbers 000-0321 and 000-0321-100;


 


“Mill Inventories” means the hardwood
pulp inventory and the softwood pulp inventory of the Pulp Business as
reflected in Seller’s general ledger accounts numbers 000-0631 and 000-0633,
respectively;


 


“MOU” has the meaning set out in Section 2.3(b);


 


“Multi-Employer Plans” means plans,
arrangements, agreements, programs, policies, practices or undertakings whether
funded or unfunded, insured or uninsured, registered or unregistered, to which
Seller is a party or bound or in which the Employees participate or under which
Seller has, or will have, any liability or contingent liability, or pursuant to
which payments are made, or benefits are provided to, or an entitlement to
payments or benefits may arise with respect to any of its Employees, Former
Employees or Retired Employees (or any spouses, dependants, 


 


6

















 


survivors or beneficiaries of any such Persons) and to which Seller is
required to contribute and which are not maintained or administered by Seller
or any of its Affiliates;


 


“Non-Assigned Contract” has the meaning
set out in Section 2.5(b);


 


“Nova Scotia Forest Acts” means the Crown Lands Act (Nova Scotia), the Forests Act
(Nova Scotia) and the Scott Maritimes Limited
Agreement (1965) Act (Nova Scotia) in effect on the date hereof and
all amendments and supplements thereto and all regulations and rules made
pursuant thereto and all policy statements, guidelines, orders and decisions
relating thereto;


 


“NPI” means Neenah Paper, Inc., a
corporation incorporated under the laws of Delaware;


 


“OPEBs” means every benefit plan,
program, agreement or arrangement maintained or contributed to or provided by
Seller for the benefit of any Retired Employee or their respective dependents
or beneficiaries other than Pension Plans or the SERP;


 


“Owned Real Property” has the meaning
set out in Section 3.1(h)(i);


 


“Pension and Retirement Plans” means,
collectively, the Pension Plans, the OPEBs and the SERP;


 


“Pension Plans” means the Neenah Paper
Canada Nova Scotia Hourly Pension Plan and the Neenah Paper Canada Nova Scotia
Salaried Pension Plan;


 


“Permits” means all permits, consents,
waivers, licences, certificates, approvals, authorizations, registrations,
franchises, rights, privileges and exemptions or any item with a similar effect
as the foregoing issued or granted by any Governmental Authority, other than
the Forest Licenses;


 


“Permitted Encumbrances” means:


 


(a)                                  the
reservations in any original grants from the Crown of any Real Property or
interest therein which do not materially detract from the value of the Real
Property concerned or materially impair its use in the operation of the
Purchased Businesses;


 


(b)                                 undetermined
or inchoate liens, charges and privileges incidental to current construction or
current operations and statutory liens, charges, adverse claims, security
interests or encumbrances of any nature whatsoever claimed or held by any
Governmental Authority which have not at the time been filed or registered
against the title to an Asset or served upon Seller pursuant to law or which
relate to obligations not due or delinquent;


 


(c)                                  liens
for taxes, assessments and governmental charges that are due but are being
contested in good faith and diligently by appropriate proceedings and for the
payment of which adequate provision has been made in the Interim Financial
Statements;


 


7

















 


(d)                                 servitudes,
easements, restrictions, rights-of-way and other similar rights in the Real
Property or any interest therein, provided the same are not of such nature as
to materially adversely affect the use or value of the property subject
thereto;


 


(e)                                  security
given in the ordinary course of the Purchased Businesses to any public utility,
municipality or Governmental Authority or to any statutory or public authority
in connection with the operations of the Purchased Businesses, other than
security for borrowed money;


 


(f)                                    carriers’,
mechanics’, warehousemen’s, suppliers’, repairers’, storers’ or similar
possessory liens or encumbrances arising in the ordinary course of business of
the Purchased Businesses in respect of Assumed Liabilities; and


 


(g)                                 the
Encumbrances described in Schedule 1.1(c);


 


“Person” means any individual,
corporation, company, unlimited company, limited liability company,
partnership, firm, joint venture, association, joint-stock company, trust,
unincorporated organization, Governmental Authority or other legal or business
entity however designated or constituted;


 


“Pictou Pulp Mill” has the meaning set
out in the Preliminary Statement;


 


“PLFN” means the Pictou Landing First
Nation;


 


“Project Wahoo Data Site” means the
online data site for Project Wahoo hosted by Merrill Corporation’s DataSite
that contains due diligence materials made available by Seller relating to the
Pulp Business;


 


“Pulp Business” has the meaning set out
in the Preliminary Statement;


 


“Purchase Price” has the meaning set out
in Section 2.6;


 


“Purchased Businesses” has the meaning
set out in the Preliminary Statement;


 


“Purchaser” has the meaning set out on Page 1;


 


“Purchaser Required Consents” means the
consents and approvals listed in Schedule 1.1(d);


 


“Real Property” means collectively the
Owned Real Property and the Leased Real Property;


 


“Real Property Leases” means the Tenant
Real Property Leases and the Landlord Real Property Leases;


 


“Release” means any release or discharge
of any Hazardous Substance into the environment including any discharge, spray
injection, inoculation, abandonment, deposit, spillage, leakage, seepage,
pouring, emission, emptying, throwing, dumping, placing, exhausting, escape,
leach, migration, dispersal, dispensing or disposal;


 


“Retained Assets” has the meaning set
out in Section 2.2;


 


8

















 


“Retained Liabilities” has the meaning
set out in Section 2.4;


 


“Retained Litigation” has the meaning
set out in Section 2.2(i);


 


“Retired Employee” means any Employee
who retires at (or who was retired before) the Time of Closing or who has by
that time confirmed to Seller, orally or in writing, that he or she intends to
retire;


 


“Seller” has the meaning set out on Page 1;


 


“SERP” means the Supplemental Retirement
Benefit Plan for Neenah Paper Company of Canada, as applicable to the Employees
or Retired Employees;


 


“Share Purchase Agreement” means the
amended and restated share purchase agreement dated the date hereof between,
among others, Seller, Northern Pulp NS LP and Azure Mountain Capital Financial
LP;


 


“Shared Contract” has the meaning set
out in Section 2.5(c);


 


“Statutory Plans” means statutory
benefit plans that Seller is required to participate in or comply with,
including the Canada and Québec Pension Plans and plans administered pursuant
to applicable health tax, workers’ compensation insurance and employment
insurance legislation;


 


“Taxes” means any federal, provincial,
local or foreign, income, capital, branch, goods and services, value added,
harmonized sales, gross receipts, property, sales, use, license, excise,
franchise, employment, payroll, withholding, alternative or add-on minimum, ad valorem, or excise tax, or any other tax, custom, duty,
governmental fee or other like assessment or charge of any kind whatsoever,
together with any interest or penalty, imposed by any Governmental Authority;
provided, however, that in no event shall Taxes be deemed to include any
transfer tax or capital gains tax payable in connection with the purchase and
sale of the Assets;


 


“Tenant Real Property Leases” has the
meaning set out in Section 3.1(i)(i);


 


“Time of Closing” means 10:00 a.m.
in Nova Scotia on the Closing Date, with an effective Time of Closing for
accounting purposes of 12:01 a.m. in Nova Scotia on the Closing Date;


 


“WCB” means the Workers Compensation
Board (Nova Scotia);


 


“Woodlands” has the meaning set out in Section 2.2(g);


 


“Woodlands Business” has the meaning set
out in the Preliminary Statement;


 


“Working Capital” means the current
working capital assets of Seller relating to the Purchased Businesses other
than the Mill Accounts Receivables, the Mill Inventories and cash and cash
equivalents; and


 


“Year End Financial Statements” means
the financial statements of the Purchased Businesses as of and for the years
ended December 31, 2005, 2006 and 2007 presented in accordance with 


 


9

















 


GAAP with the exception of the exclusion of the statement of cash
flows, the statement of equity and notes thereto and the exclusion from the
income statement of pulp and currency hedging, miscellaneous transaction
charges and corporate overhead allocations, a copy of which is annexed hereto
as Schedule 1.1(e).


 


1.2                               Headings


 


The division of
this Agreement into articles and sections and the insertion of a table of
contents and headings are for convenience of reference only and are not to
affect the construction or interpretation of this Agreement.  The terms “hereof”, “hereunder” and similar
expressions refer to this Agreement and not to any particular Article, Section or
other portion hereof.  Unless something
in the subject matter or context is inconsistent therewith, references herein
to Articles and Sections are to Articles and Sections of this Agreement.


 


1.3                               Extended
Meanings


 


In this Agreement
words importing the singular number only include the plural and vice versa and words importing any gender include all
genders.  Unless something in the subject
matter or context is inconsistent therewith, the term “including” means “including
without limiting the generality of the foregoing”.


 


1.4                               Statutory
References


 


Unless something
in the subject matter or context is inconsistent therewith and except with
respect to Environmental Laws, each reference to any statute refers to that
statute and to the regulations made under that statute, as now enacted or as
the same may from time to time be amended, re-enacted or replaced.


 


1.5                               Accounting
Principles


 


Wherever in this
Agreement reference is made to a calculation to be made or an action to be
taken in accordance with generally accepted accounting principles, such
reference will be deemed to be to the generally accepted accounting principles
in the United States from time to time (“GAAP”),
applicable as at the date on which such calculation or action is made or taken
or required to be made or taken.


 


1.6                               Currency,
Prices and Values


 


All references to
currency, prices and values (monetary, accounting, financial or otherwise)
herein are to lawful currency of Canada unless otherwise specified.


 


1.7                               Schedules


 


(a)                                  The following
Schedules are attached to and form part of this Agreement*:


 


	
  Schedule

  	
   

  	
   

  	
  Contents

  
	
   

  	
   

  	
   

  	
   

  
	
  Schedule 1.1(a)

  	
   

  	
  -

  	
  Interim
  Financial Statements

  
	
  Schedule 1.1(b)

  	
   

  	
  -

  	
  Knowledge of
  Certain Persons

  



 


10
















 


	
  Schedule

  	
   

  	
   

  	
  Contents

  
	
   

  	
   

  	
   

  	
   

  
	
  Schedule 1.1(c)

  	
   

  	
  -

  	
  List of
  Permitted Encumbrances

  
	
  Schedule 1.1(d)

  	
   

  	
  -

  	
  List of
  Purchaser Required Consents

  
	
  Schedule 1.1(e)

  	
   

  	
  -

  	
  Year End
  Financial Statements

  
	
  Schedule 1.1(f)

  	
   

  	
  -

  	
  List of Capital
  Projects

  
	
  Schedule 1.1(g)

  	
   

  	
  -

  	
  Description of
  Annual Maintenance Down

  
	
  Schedule
  2.1(d)(ii)

  	
   

  	
  -

  	
  Part A:
  List of Machinery, Equipment and Furniture; 

  
	
   

  	
   

  	
   

  	
  Part B:
  List of Owned and Leased Vehicles

  
	
  Schedule 2.1(f)

  	
   

  	
  -

  	
  List of Assumed
  Contracts

  
	
  Schedule 2.1(k)

  	
   

  	
  -

  	
  List of Permits
  and Certificates of Approval

  
	
  Schedule 2.1(m)

  	
   

  	
  -

  	
  List of
  Trademarks, Patents, Industrial Designs, 

  
	
   

  	
   

  	
   

  	
  Licenses and
  Agreements

  
	
  Schedule 2.2(d)

  	
   

  	
  -

  	
  List of
  Retained Contracts

  
	
  Schedule 2.2(g)

  	
   

  	
  -

  	
  Woodlands
  Parcel Identification Numbers

  
	
  Schedule 2.2(i)

  	
   

  	
  -

  	
  Retained
  Litigation

  
	
  Schedule 2.3(b)

  	
   

  	
  -

  	
  List of Boat
  Harbour Documents

  
	
  Schedule 2.4(b)

  	
   

  	
  -

  	
  List of
  Retained Liabilities in respect of Employees, 

  
	
   

  	
   

  	
   

  	
  Former
  Employees and Retired Employees

  
	
  Schedule 2.5(b)

  	
   

  	
  -

  	
  List of
  Non-Assigned Contracts

  
	
  Schedule 2.8

  	
   

  	
  -

  	
  Allocation of
  Purchase Price

  
	
  Schedule 2.10

  	
   

  	
  -

  	
  Section 85(1) Tax
  Election Amounts

  
	
  Schedule 3.1(c)

  	
   

  	
  -

  	
  Ordinary
  Course; No Material Adverse Change

  
	
  Schedule 3.1(d)

  	
   

  	
  -

  	
  Compliance with
  Laws; Permits

  
	
  Schedule
  3.1(d)(iii)

  	
   

  	
  -

  	
  List of
  Material Permits

  
	
  Schedule 3.1(f)

  	
   

  	
  -

  	
  Actions and
  Proceedings

  
	
  Schedule 3.1(g)

  	
   

  	
  -

  	
  List of
  Consents, Approvals, Actions, Filings and Notices

  
	
  Schedule
  3.1(h)(i)

  	
   

  	
  -

  	
  Legal
  Description of Owned Real Property

  
	
  Schedule
  3.1(i)(i)

  	
   

  	
  -

  	
  List of Tenant
  Real Property Leases

  
	
  Schedule
  3.1(i)(ii)

  	
   

  	
  -

  	
  List of
  Landlord Real Property Leases

  
	
  Schedule
  3.1(i)(iii)

  	
   

  	
  -

  	
  Compliance with
  Real Property Leases

  
	
  Schedule 3.1(l)

  	
   

  	
  -

  	
  List of
  Collective Agreements

  
	
  Schedule
  3.1(l)(v)

  	
   

  	
  -

  	
  List of
  Employment Contracts ($100,000 or more)

  
	
  Schedule
  3.1(l)(vii)

  	
   

  	
  -

  	
  Changes in
  Workers Compensation Rating Assessment

  
	
  Schedule
  3.1(m)(i)

  	
   

  	
  -

  	
  List of Benefit
  Plans

  
	
  Schedule
  3.1(m)(ii)

  	
   

  	
  -

  	
  List of Actions
  and Claims under Benefit Plans

  
	
  Schedule
  3.1(m)(v)

  	
   

  	
  -

  	
  Pension Plan
  Wind-up Amounts (Distribution of Assets Pending)

  
	
  Schedule
  3.1(m)(ix)

  	
   

  	
  -

  	
  List of OPEBs
  under Benefit Plans

  
	
  Schedule
  3.1(m)(xiii)

  	
   

  	
  -

  	
  List of
  Amendments and Proposed Amendments to Benefit Plans

  
	
  Schedule 3.1(o)

  	
   

  	
  -

  	
  Location of
  Assets

  
	
  Schedule 3.1(p)

  	
   

  	
  -

  	
  Operations -
  Exceptions

  
	
  Schedule 3.1(q)

  	
   

  	
  -

  	
  Contracts -
  Exceptions

  
	
  Schedule
  3.1(s)(i)

  	
   

  	
  -

  	
  List of Forest
  Licenses

  
	
  Schedule
  3.1(s)(ii)

  	
   

  	
  -

  	
  List of
  Excluded Forest Licenses

  



 


11

















 


	
  Schedule

  	
   

  	
   

  	
  Contents

  
	
   

  	
   

  	
   

  	
   

  
	
  Schedule 3.1(u)

  	
   

  	
  -

  	
  Insurance
  Policies

  
	
  Schedule 3.1(v)

  	
   

  	
  -

  	
  Other Boat
  Harbour and Effluent Treatment System Documents

  
	
  Schedule
  3.1(aa)(i)

  	
   

  	
  -

  	
  Changes in
  Customer Relationships

  
	
  Schedule
  3.1(bb)(i)

  	
   

  	
  -

  	
  Compliance with
  Environmental Laws

  
	
  Schedule
  3.1(bb)(ii)

  	
   

  	
  -

  	
  List of
  Environmental Permits

  
	
  Schedule
  3.1(bb)(iv)

  	
   

  	
  -

  	
  Hazardous
  Substances

  
	
  Schedule
  3.1(bb)(v)

  	
   

  	
  -

  	
  Written Notices
  of Non-Compliance with Environmental Laws

  



 






* The schedules listed above have been omitted in accordance with Item
601(b)(2) of Regulation S-K. The Company hereby undertakes to furnish
to the Securities and Exchange Commission a copy of any omitted exhibits or
schedules upon supplemental request.


 


(b)           Any matter disclosed on any
of the Schedules hereto shall be deemed to be disclosed on each other Schedule
hereto relating to such matters.


 


ARTICLE 2 – SALE AND PURCHASE


 


2.1          Assets to be Sold and
Purchased


 


Seller hereby
sells, assigns, transfers, conveys and delivers to Purchaser, as of the Time of
Closing, all of the properties, assets and other claims, rights and interests
of Seller and its Affiliates relating to the Purchased Businesses, other than
the Retained Assets, including:


 


(a)           all
of the property and assets owned or used by Seller in connection with or
otherwise relating to the Purchased Businesses on the Closing Date, whether
real or personal, tangible or intangible, of every kind and description
wheresoever situate, as a going concern (subject to transactions and
adjustments in the ordinary course of business, consistent with past practice,
from the date of this Agreement to the Closing Date);


 


(b)           all
of the Owned Real Property;


 


(c)           the
shares of Canso owned by Seller;


 


(d)           all
of Seller’s tangible personal property relating primarily to the Purchased
Businesses on the Closing Date, including:


 


(i)    inventories of the Purchased
Businesses consisting of raw materials, work-in-process, chemicals, maintenance
and finishing supplies, packaging materials, stores, spare parts and similar
items of inventory and, in respect 


 


12

















 


of the Woodlands
Business (but not the Pulp Business), the other current working capital assets
of Seller relating thereto (including finished goods inventories and all
accounts receivable, book debts and other debts due or accruing due to Seller
in connection with the Woodlands Business) (collectively, the “Inventory”); and


 


(ii)   machinery, equipment,
furniture, fixtures, furnishings, parts, tooling molds, dies, jigs or patterns
and other fixed assets, including the machinery, equipment and furniture
described in Part A of Schedule 2.1(d)(ii) and all trucks, cars and
other vehicles (whether owned or leased) described in Part B of
Schedule 2.1(d)(ii);


 


(e)           the
Working Capital;


 


(f)            subject
to Section 2.5, all of Seller’s rights, title and interest under all
agreements, Contracts or commitments to which Seller is entitled in connection
with the Purchased Businesses, including all unfilled purchase orders received
by, and all forward commitments for supplies or materials made to, Seller in
the usual and ordinary course of business for the Purchased Businesses, all
consultant Contracts or commitments relating to the Collective Agreement, and
the Benefit Plans (but excluding any stock-based compensation plans), in each
case whether written or oral (collectively, the “Assumed
Contracts”), including those described in Schedule 2.1(f);


 


(g)           all
books and records (other than accounting, tax or similar records required for
Seller’s tax audit purposes, copies of which will be provided to Purchaser) of
Seller relating primarily to the Purchased Businesses, including all files,
documents, sales and other records, customer and supplier lists, price lists,
advertising materials, manufacturing data, production records, inventory
records, computer files and programs, operating data, environmental studies and
plans (including such studies and plans relating to the Pictou Pulp Mill, the
Effluent Treatment System and Boat Harbour), maintenance records, personnel
records, WCB files and all other employee or employment records, specifically
including those relevant to the administration or wind-up of the Pension and
Retirement Plans or Benefit Plans, insurance records, forest management
planning records and associated computer records, and operational manuals
(subject to the right of Seller to make copies of such books and records to the
extent they relate to any business of Seller not being acquired by Purchaser
hereunder or which Seller requires for purposes of complying with Applicable
Law and to have future reasonable access to said books and records to the
extent reasonably necessary);


 


(h)           all
rights of Seller under or pursuant to all warranties, representations and
guarantees made by suppliers, manufacturers and contractors in connection with
the Assets;


 


(i)            subject
to Section 2.5, all of Seller’s right, title and interest under the Real
Property Leases;


 


13

















 


(j)            subject to Section 2.5,
all of Seller’s right, title and interest under the Forest Licenses, other than
the Excluded Forest Licenses;


 


(k)           subject to Section 2.5,
all Permits and certificates of approval relating to the Purchased Businesses
listed in Schedule 2.1(k);


 


(l)            the goodwill of
the Purchased Businesses, including the right of Purchaser to represent itself
as carrying on the Purchased Businesses in continuation of and in succession to
Seller, but excluding any right to use the name “Neenah Paper”, “Neenah Paper
Company of Canada”, “NP” and “NPCC” and any variants thereof except as
contemplated in Section 4.9 or as otherwise agreed to by the parties in
writing; and


 


(m)          the trademarks,
patents and patent licence agreements described in Schedule 2.1(m) and any
trade secrets, know-how or other Intellectual Property used primarily in the
Purchased Businesses, but excluding any right to use the name “Neenah Paper”, “Neenah
Paper Company of Canada”, “NP” and “NPCC” and any variants thereof except as
contemplated in Section 4.9 or as otherwise agreed to by the parties in
writing.


 


All of the
foregoing assets and properties being sold, assigned, transferred, conveyed and
delivered to Purchaser hereunder (other than the Retained Assets) are
hereinafter referred to as the “Assets”.


 


2.2          Retained Assets


 


Anything in Section 2.1
to the contrary notwithstanding, there shall be excluded from the Assets being
sold, assigned, transferred and conveyed to Purchaser hereunder and not
included within the meaning of the term “Assets” (such excluded assets being
referred to as the “Retained Assets”):


 


(a)           all
rights of Seller under this Agreement, the Finance Purchase Agreement, the Share
Purchase Agreement and the Ancillary Agreements;


 


(b)           all
rights of Seller to refunds, rebates or credits of any Taxes relating to the
Purchased Businesses for all periods (or partial periods) ending on or prior to
the Closing Date, all refunds or returns of any overpayment or erroneous
payment of Taxes by Seller prior to the Closing Date and all prepayments of
Taxes by Seller for any period, whether ending prior to, on or after the
Closing Date;


 


(c)           any
insurance policies in respect of the Assets and prepayments in respect thereof,
and all rights to refunds, rebates or credits under such policies;


 


(d)           the
Contracts listed in Schedule 2.2(d) and all rights of Seller thereunder;


 


(e)           all
minute books and stock ledgers of Seller;


 


(f)            all
indebtedness to Seller of any Affiliate of Seller;


 


14

















 


(g)           Seller’s
right, title and interest in the timberlands owned by Seller in Nova Scotia,
including those that have the parcel identification numbers and descriptions set
out on Schedule 2.2(g) (the “Woodlands”);


 


(h)           the
Mill Accounts Receivables, the Mill Inventories and cash and cash equivalents
of the Purchased Businesses;


 


(i)            proceeds
of any litigation in respect of the Pictou Pulp Mill or the functioning, use or
condition of the Assets prior to the Closing Date described in Schedule 2.2(i) (the
“Retained Litigation”); and


 


(j)            except
for the shares of Canso, the shares in the capital of or other equity or
proprietary interests in any Person.


 


2.3          Liabilities of Seller
Assumed by Purchaser


 


Purchaser hereby
assumes, as of the Time of Closing, and agrees to hereafter perform or satisfy
all liabilities and other obligations of Seller arising in respect of the
operations of the Purchased Businesses or from the functioning, use and
condition of the Assets before, on or after the Closing Date, other than those
which constitute Retained Liabilities under this Agreement, including:


 


(a)           all
liabilities and obligations of Seller under the Assumed Contracts, the Real
Property Leases, the Permitted Encumbrances, the transferable Permits and the
Forest Licenses, other than the Excluded Forest Licenses;


 


(b)           all
Environmental Liabilities of Seller, including those arising under the
Memorandum of Understanding dated September 27, 2001, between the PLFN and
Kimberly-Clark Inc., as amended and assigned to Seller (the “MOU”), the Lease Agreement, the License Agreement, the
Indemnity Agreement and the Water Supply Agreement in connection with the
Memorandum of Understanding dated December 1, 1995 between Her Majesty The
Queen in Right of the Province of Nova Scotia and Scott Maritimes Limited
(predecessor-in-interest of Seller), and the other material letters and
agreements relating to any of the foregoing documents listed in Schedule 2.3(b) (collectively,
the “Boat Harbour Documents”);


 


(c)           any
liability or obligation with respect to Taxes applicable to the Assets for any
period (or partial period) beginning at or after the Closing Date;


 


(d)           the
employment and Benefit Plan obligations and liabilities for the Employees of
Seller and the Pension and Retirement Plans related obligations and liabilities
of the Retired Employees and the Former Employees of Seller as set out in
Sections 5.1 and 5.2(b); and


 


(e)           any
and all obligations and liabilities of Seller, NPI and their Affiliates arising
from and after the Time of Closing under that certain Amended and Restated Pulp



 


15

















 


Supply Agreement
dated as of November 30, 2004 by and between NPI and K-C Global.


 


All of the
foregoing liabilities and obligations of Seller being assumed by Purchaser
hereunder are hereinafter referred to as the “Assumed
Liabilities”.


 


2.4          Retained Liabilities


 


Notwithstanding
anything to the contrary contained herein, Purchaser shall not hereby assume,
or in any way be liable or responsible for, and Seller shall perform or
satisfy:


 


(a)           any
liability or obligation with respect to Taxes applicable to the Assets or the
Purchased Businesses for any period (or partial period) ending prior to the
Closing Date, whether or not due and payable prior to or after such time;


 


(b)           all
liabilities and obligations of Seller to pay any amount to any Employee, Former
Employee, Retired Employee or any other Person in connection with the sale of
the Terrace Bay, Ontario pulp mill business or the sale or proposed sale
of the Woodlands as described in Schedule 2.4(b);


 


(c)           the
liabilities referred to in Section 5.2(a) as Retained Liabilities;


 


(d)           any
liability or obligation of Seller under the MOU to transfer any real property
to or for the benefit of the PLFN;


 


(e)           any
liability or obligation of Seller for any amounts or costs paid or payable,
including any Benefit Plan costs resulting from an order of a Governmental
Authority, as a result of the termination of an employee of either of the
Purchased Businesses by Seller during the period beginning on or after the date
of the Share Purchase Agreement and ending immediately prior to the Closing;


 


(f)            all
liabilities and obligations relating to the Retained Litigation; and


 


(g)           any
liability or obligation of Seller:


 


(i)      based upon or
arising under this Agreement, the Finance Purchase Agreement, the Share
Purchase Agreement or the Ancillary Agreements;


 


(ii)     relating to or
arising under or in respect of the Retained Assets, Seller’s operations and
businesses (including its Terrace Bay, Ontario pulp mill business) not
comprising part of the Purchased Businesses; and


 


(iii)    with respect to any lien or
other encumbrance in respect of any of the Assets other than Permitted
Encumbrances.


 


All of the
foregoing liabilities and obligations of Seller not being assumed by Purchaser
hereunder are hereinafter sometimes collectively referred to as the “Retained Liabilities”.


 


16

















 


2.5          Non-Assignable
Contracts or Licenses/Shared Contracts


 


(a)           To
the extent that:


 


(i)      assignment
hereunder by Seller to Purchaser of any Real Property Lease, Assumed Contract,
Permit or Forest License (but only to the extent such Forest License is not
issued by or entered into with a Governmental Authority whose consent to
assignment is required by Applicable Law) or


 


(ii)     transfer
hereunder of books and records,


 


is not permitted or is not permitted
without the consent of a third party, this Agreement shall not be deemed to
constitute an undertaking to assign or transfer the same, as applicable, if
such consent has not been given, is not hereafter given or if such an
undertaking otherwise would constitute a breach of or cause a loss of benefits
thereunder.  From and after the Closing,
Seller shall use all commercially reasonable efforts (other than the payment of
money or the deposit of funds by Seller on behalf of Purchaser) to obtain any
and all such third party consents, and Purchaser shall reasonably cooperate
with Seller in such efforts.


 


(b)           To
the extent that Seller has been unable to obtain any required third party
consent in respect of a Real Property Lease, Assumed Contract, Permit or Forest
License (but only to the extent such Forest License is not issued by or entered
into with a Governmental Authority whose consent to assignment is required by
Applicable Law) as contemplated by Section 2.5(a) (each such Real
Property Lease, Assumed Contract, Permit or Forest License is referred to as a “Non-Assigned Contract”), Seller shall continue to be bound
by any such Non-Assigned Contract.  In
such event, to the maximum extent permitted by Applicable Law and the terms of
the Non-Assigned Contract, from and after the Closing:


 


(i)      Seller
shall make the benefit of such Non-Assigned Contract available to Purchaser
with the intent that Purchaser will be in the same economic position as if such
Non-Assigned Contract had been transferred to it, including holding any such
Non-Assigned Contract in trust for Purchaser or acting as agent for Purchaser
or entering into back to back arrangements with Purchaser in respect of such
Non-Assigned Contract; and


 


(ii)     the
assignment provisions contemplated in this Agreement shall operate to the
extent permitted by Applicable Law and the applicable Non-Assigned Contract to
create a subcontract, sublease or sublicense with Purchaser whereby Purchaser
will perform each relevant Non-Assigned Contract and be entitled to receive all
related benefits, in accordance with its terms. 
To the extent such subcontract, sublease or sublicense is created:


 


(A)          Purchaser
shall pay, perform and discharge fully all obligations of Seller under any such
Non-Assigned Contract from and after the Closing Date and shall indemnify
Seller against any Losses 


 


17

















 


incurred by
Seller arising from Purchaser’s failure to pay, perform and discharge fully
such obligations;


 


(B)           Seller
shall, without further consideration therefor, pay and remit to Purchaser
promptly any monies, rights and other consideration received by it in respect
of the performance of such Non-Assigned Contract; and


 


(C)           Seller
shall exercise or exploit its rights and options under all such Non-Assigned
Contracts only as directed by Purchaser and at Purchaser’s expense and shall
indemnify Purchaser against any Losses incurred by Purchaser arising from
Seller’s failure to act in accordance with such directions.


 


(c)           With
respect to liabilities pursuant to, arising under or relating to any Contract
which is not intended to be assigned to Purchaser but under which Purchaser
receives a benefit (a “Shared Contract”),
such liabilities shall be allocated between Seller, on the one hand, and
Purchaser on the other hand, as follows:


 


(i)      first,
if a liability cannot be so allocated in respect of a benefit received by one
party, the party receiving such benefit shall be responsible for such
liability; and


 


(ii)     second,
if a liability cannot be so allocated under Section 2.5(c)(i), such
liability shall be allocated between the parties based on the relative
proportions of total benefit received (over the term of the Shared Contract,
measured as of the date of the allocation) under the relevant Shared
Contract.  Notwithstanding the foregoing,
each party shall be responsible for any and all liabilities arising out of or
resulting from its breach of the relevant Shared Contract.


 


If Seller, on the one hand, or Purchaser,
on the other hand, receives any benefit or payment under any Shared Contract
that was intended for the other party, the party receiving such benefit or
payment will use commercially reasonable efforts to promptly deliver, transfer
or otherwise afford such benefit or payment to the other party.


 


(d)           Seller
shall not amend, modify or terminate any Non-Assigned Contract without
Purchaser’s prior written consent.  If
and when any third party consent contemplated by Section 2.5(a) shall
be obtained or any such Non-Assigned Contract shall otherwise become
assignable, Seller shall promptly assign all of its rights and obligations
thereunder or in connection therewith to Purchaser without payment of further
consideration therefor, and Purchaser shall assume such rights and obligations.


 


(e)           To
the extent any Permit or Forest License is not assignable, either by its terms
or as a matter of law, Purchaser shall prepare and submit, and Seller shall use
all reasonable efforts to cooperate with and assist Purchaser in preparing and 


 


18

















 


submitting, any information,
applications or filings required in connection with the reissuance to Purchaser
of any such Permit.


 


(f)            The
provisions of this Section 2.5 shall apply to Affiliates of Seller in the
same manner as to Seller.


 


2.6          Purchase Price


 


Subject to the
adjustments contemplated in Sections 2.7 and 2.8, the aggregate purchase price
(the “Purchase Price”) payable by Purchaser
to Seller for the Assets shall be $75,894,503, which shall be satisfied as
follows:


 


(a)           Purchaser
hereby assumes the Assumed Liabilities in accordance with Section 2.3;


 


(b)           the
issuance by Purchaser to Seller of 57,474,073 no par value common shares of
Purchaser (the “Issued Shares”) represented by
share certificate no. 3
registered in the name of Seller, the receipt of which is hereby acknowledged
by Seller; and


 


(c)           all
purchase price adjustments pursuant to Section 2.7 shall be satisfied by
the payment of cash as specified in Section 2.7.


 


2.7          Purchase Price
Adjustment


 


(a)


 


(i)      The
Purchase Price shall be adjusted as set forth in this Section 2.7,
provided that if the difference between the Net Working Capital Deficiency and
the Final Net Working Capital is equal to or less than $250,000, no adjustment
will be made, and adjustments will only be made in respect of the amount of the
difference that is greater than $250,000.


 


(ii)     For
purposes of this Section 2.7:


 


(A)          net
working capital (“Net Working Capital”)
shall be the difference between (x) the value of the Working Capital
purchased pursuant to Section 2.1(e), and (y) the aggregate value of
the Assumed Liabilities which are current liabilities for balance sheet
purposes excluding liabilities that are Down Costs;


 


(B)           “Down Non-Capital Costs” are costs of the Down (exclusive of
the costs of the Capital Projects) incurred prior to the Closing Date;


 


(C)           the
Down Non-Capital Costs that have been paid by Seller prior to the Closing Date
are “Paid Down Non-Capital Costs”;


 


19

















 


(D)          the
costs of the Capital Projects incurred prior to the Closing Date are “Down Capital Costs”;


 


(E)           the
Down Capital Costs that have been paid by Seller prior to the Closing Date are “Paid Down Capital Costs”; and


 


(F)           the
sum of Down Capital Costs and Down Non-Capital Costs is “Down Costs”.


 


(b)           Immediately following the
Closing, Seller shall provide to Purchaser the following estimates, each of
which will have been made no earlier than three Business Days prior to the
Closing Date, and each of which shall represent Seller’s reasonable and good
faith estimate as at the time the estimate is made:


 


(i)      an
estimate of the Down Non-Capital Costs (the “Down
Non-Capital Costs Estimate”), which costs are estimated for this
paragraph to be $8,846,092, and an estimate of the Paid Down Non-Capital Costs
(the “Paid Down Non-Capital Costs Estimate”);


 


(ii)     an
estimate of the Down Capital Costs (the “Down Capital Costs
Estimate”) and an estimate of the Paid Down Capital Costs (the “Paid Down Capital Costs Estimate”); and


 


(iii)  an
estimate of the Net Working Capital (the “Estimated Working Capital”).


 


(c)           The Purchase Price shall be
adjusted by the amount that is equal to (x) the product of the Down
Non-Capital Costs Estimate multiplied by 50% minus (y) the Paid Down
Non-Capital Costs Estimate, and:


 


(i)      if
the result is a positive number (the “Purchase Price Down
Non-Capital Costs Reduction Amount”), Seller shall on the Closing
Date remit to Purchaser the Purchase Price Down Non-Capital Costs Reduction
Amount in immediately available funds; and


 


(ii)     if
the result is a negative number (the “Purchase Price Down
Non-Capital Costs Increase Amount”), Purchaser shall on the Closing
Date remit to Seller the Purchase Price Down Non-Capital Costs Increase Amount
in immediately available funds.


 


(d)           The Purchase Price shall be
increased by the amount of the Paid Down Capital Costs Estimate, and Purchaser
shall on the Closing Date pay to Seller in immediately available funds the
amount of the Paid Down Capital Costs Estimate.


 


(e)


 


(i)      If
the Estimated Working Capital is a working capital deficiency that is greater
than $(1,894,000) (the “Net Working Capital
Deficiency”), the 


 


20

















 


Purchase Price
shall be decreased by an amount (the “Purchase Price Net Working
Capital Reduction Amount”) equal to (x) the Estimated Working
Capital minus (y) the Net Working Capital Deficiency, and Seller shall pay
the Purchase Price Net Working Capital Reduction Amount to Purchaser in
immediately available funds on the Closing Date.


 


(ii)     If
the Estimated Working Capital is not a deficiency or is a deficiency that is
smaller than the Net Working Capital Deficiency, the Purchase Price shall be
increased by an amount (the “Purchase Price Net Working
Capital Increase Amount”) equal to (x) the Estimated Working
Capital minus (y) the Net Working Capital Deficiency, and Purchaser shall
issue to Seller a non-interest bearing promissory note in the amount of the
Purchase Price Net Working Capital Increase Amount, which note shall be payable
in immediately available funds on the Closing Date.


 


(f)            Not later than 30 calendar
days following the Closing Date, Purchaser shall deliver to Seller a
calculation of the Net Working Capital of Purchaser as of the Closing Date,
which shall exclude all liabilities that are Down Costs (the “Final Net Working Capital”), prepared in accordance with
GAAP applied in a manner consistent with Seller’s historic practices, together
with calculations of the final determination of the actual Down Capital Costs,
Paid Down Capital Costs, Down Non-Capital Costs and Paid Down Non-Capital
Costs.


 


(i)    If the Final Net Working
Capital is a working capital deficiency that is more than $250,000 greater than
the Estimated Working Capital, the Purchase Price shall be decreased by an
amount (the “Purchase Price Reduction Amount”)
equal to (x) the Final Net Working Capital minus (y) the Estimated
Working Capital minus (z) $250,000, and Seller shall on the Final
Determination Date pay to Purchaser in immediately available funds the Purchase
Price Reduction Amount.  For greater
certainty, the $250,000 amount referred to in this Section 2.7(f)(i) is
intended by the parties to function as a deductible against amounts otherwise
payable.


 


(ii)   If the Final Net Working
Capital is not a deficiency or is a deficiency that is more than $250,000
smaller than the Estimated Working Capital, the Purchase Price shall be
increased by an amount (the “Purchase Price Increase
Amount”) equal to (x) the Final Net Working Capital minus (y) the
Estimated Working Capital minus (z) $250,000, and Purchaser shall pay to
Seller in immediately available funds on or before the Final Determination Date
the Purchase Price Increase Amount.  For
greater certainty, the $250,000 amount referred to in this Section 2.7(f)(ii) is
intended by the parties to function as a deductible against amounts otherwise
payable.


 


(iii)  If the Down Non-Capital
Costs exceed $8,846,092, Seller shall remit 50% of such excess to
Purchaser.  If the Down Non-Capital Costs
are less than $8,846,092, Purchaser shall remit 50% of such difference to
Seller.


 


21

















 


(iv)  If
the Paid Down Non-Capital Costs finally determined are greater than the Paid
Down Non-Capital Costs Estimate, Purchaser shall on the Final Determination
Date remit the difference to Seller, and if the Paid Down Non-Capital Costs
finally determined are less than the Paid Down Non-Capital Costs Estimate,
Seller shall on the Final Determination Date remit the difference to Purchaser
and the Purchase Price shall be adjusted accordingly.


 


(v)   If
the Paid Down Capital Costs finally determined are greater than the Paid Down
Capital Costs Estimate, Purchaser shall on the Final Determination Date remit
the difference to Seller and if the Paid Down Capital Costs finally determined
are less than the Paid Down Capital Costs Estimate, Seller shall on the Final
Determination Date remit the difference to Purchaser and the Purchase Price
shall be adjusted accordingly.


 


(vi)  For
the purposes of this Section 2.7, “Final Determination Date”
means the date that is two Business Days after the Final Net Working Capital
calculation is either deemed under Section 2.7(g) to be approved
unless the calculation is disputed in accordance with Section 2.7(g), in
which case Final Determination Date means within two Business Days of the date
that the Final Net Working Capital is finally determined pursuant to Section 2.7(g)(ii).


 


(g)           Seller shall have a period
of five calendar days from the date it receives the Final Net Working Capital
calculation, the final Down Non-Capital Costs calculation and the final Down
Capital Costs calculation in which to review the same.  For the purpose of such review, Purchaser
agrees to cause its auditors to permit Seller and its authorized
representatives to examine all working papers, schedules and other
documentation used or prepared by Seller’s auditors.  If no objection to the final calculations is
given by Seller to Purchaser within such five-day period, the calculations
shall be deemed to have been approved as of the last day of such five-day
period.


 


(i)    If
Seller objects to any of the calculations within such five-day period by giving
notice to Purchaser setting out in reasonable detail the nature of such
objection, the parties agree to attempt to resolve the matters in dispute
within 10 days from the date Seller gives such notice to Purchaser.  If all matters in dispute are resolved by the
parties, the relevant calculation shall be modified to the extent required to
give effect to such resolution and shall be deemed to have been approved as of
the date of such resolution.


 


(ii)   If the parties cannot
resolve all matters in dispute within such 10-day period, all unresolved
matters shall be submitted to the Canadian national office of Ernst &
Young (the “Arbitrator”) for resolution, and
the Arbitrator shall be given access to all materials and information
reasonably requested by it for such purpose. 
The rules and procedures to be followed in the arbitration
proceedings shall be determined by the 


 


22

















 


Arbitrator in its
discretion.  The Arbitrator’s
determination of all such matters shall be final and binding on both parties
and shall not be subject to appeal by either party.  The fees and expenses of the Arbitrator shall
be borne equally by the parties unless the Arbitrator determines that the
overall position taken by one of the parties was unreasonable and without
material merit, in which case the Arbitrator may require such party to pay all
of the costs of the arbitration.  The
final calculations shall be modified to the extent required to give effect to
the Arbitrator’s determination and shall be deemed to have been approved as of
the date of such determination.


 


2.8          Allocation of
Purchase Price; Taxes


 


(a)           The
Purchase Price will be allocated in accordance with Schedule 2.8, which
Schedule shall be modified as appropriate to reflect the adjustments to the
Purchase Price contemplated in Sections 2.7 and 2.8.


 


(b)           Seller
and Purchaser, in filing their respective income tax returns, will use the
allocations of the Purchase Price as set forth in Schedule 2.8.


 


(c)           Purchaser
and Seller shall file all applicable transfer tax forms and declarations in
connection with the transactions contemplated hereby.  All Taxes applicable to the Assets for
periods beginning before and ending after the Closing Date, and any other
charges which are appropriate subjects for proration, shall be prorated on a
daily basis as of 12:01 a.m. (Nova Scotia time) on the Closing Date
between Seller and Purchaser; provided, however, that all 2008 property, ad valorem or similar Taxes shall be allocated to Seller for
the period (or partial periods) ending on the Closing Date based on a daily
proration of the most recent (as of the Closing Date) ascertainable property, ad valorem or similar Taxes to be prorated.  Any amount of 2008 property, ad valorem or similar Taxes not allocated to Seller shall be
allocated to Purchaser.  Any refund of
2008 property, ad valorem or similar Taxes (net
of costs incurred to recover same) shall be prorated between Seller and
Purchaser in the same proportion.


 


2.9          Section 167
Elections


 


Seller and
Purchaser shall jointly make such election or elections, in prescribed form and
containing the prescribed information, to have subsection 167(1.1) of the Excise Tax Act (Canada) (the “ETA”)
apply to the sale and purchase of the relevant Assets thereunder so that no Tax
is payable in respect of such sale and purchase under Part IX of the
ETA.  Purchaser shall file each such
election in the manner provided and within the time prescribed by the ETA.


 


2.10        Section 85
Elections


 


Seller and
Purchaser shall jointly elect under subsection 85(1) of the Income Tax Act (Canada) (the “ITA”),
in prescribed form and within the time provided in subsection 85(6) of the
ITA, that Seller’s proceeds of disposition and Purchaser’s cost of each asset
transferred be such 


 


23

















 


amounts as are
set out in Schedule 2.10, which Schedule shall be modified as appropriate to reflect
the adjustments to the Purchase Price contemplated in Sections 2.7 and 2.8.


 


2.11        Instruments of
Conveyance and Assumption


 


(a)           In
order to effectuate the sale, assignment, transfer and conveyance of the
Assets, Seller has, or has caused its Affiliates to, execute and deliver to
Purchaser at the Time of Closing:


 


(i)      one
or more deeds or other instruments of conveyance conveying the right, title and
interest of Seller in and to the Real Property;


 


(ii)     transfers
and assignments to Purchaser of the transferable Permits and the Forest
Licenses, and in the case of the Forest Licenses and Permits (including Crown
leases, land use permits or licenses of occupation) which may be incapable of
transfer or assignment, Seller shall surrender the same to the Crown (in order
to permit Purchaser’s application for similar entitlements) and provide proof
of said surrender to Purchaser;


 


(iii)    one
or more bills of sale; and


 


(iv)    such
other instruments of conveyance and other documents as Purchaser has reasonably
deemed necessary or appropriate to vest in, or confirm to, Purchaser title to
all of the Assets as contemplated by this Agreement (collectively with clauses (i) -
(iii) above, the “Deeds and Assignments”).


 


(b)           In
order to effectuate the assumption of the Assumed Liabilities, Purchaser has
executed and delivered to Seller at the Time of Closing:


 


(i)      one
or more instruments of assumption; and


 


(ii)     such
other documents as Seller has reasonably deemed necessary or appropriate to
confirm Purchaser’s assumption of the Assumed Liabilities (collectively, with
clause (i) above, the “Instruments of Assumption”).


 


ARTICLE 3 – REPRESENTATIONS AND WARRANTIES


 


3.1          Seller’s
Representations and Warranties


 


Seller represents
and warrants to Purchaser as follows and acknowledges that Purchaser is relying
on such representations and warranties in connection with its consummation of
the transactions contemplated hereby:


 


(a)           Due
Incorporation and Authority


 


Seller is an
unlimited company duly incorporated, validly existing and in good standing with
respect to filing its annual returns under the laws of the Province of Nova
Scotia and has all 


 


24

















 


requisite
corporate power and capacity to own, lease and operate its assets, properties
and business and to carry on its business as currently conducted.


 


(b)           Authority
to Execute and Perform Agreement


 


Seller has all
requisite corporate power and capacity to enter into, execute and deliver this
Agreement and to perform its obligations hereunder.  This Agreement, the Ancillary Agreements and
the other documents and agreements being delivered by Seller and its Affiliates
hereunder or thereunder have been duly authorized, executed and delivered by
each such party, and (assuming the due authorization, execution and delivery of
this Agreement and the Ancillary Agreements and the documents and agreements to
be delivered by Seller or its Affiliates hereunder or thereunder by the other
parties thereto and the validity and binding effect hereof and thereof on such
other parties) are valid and binding obligations of Seller or its Affiliates,
as applicable, enforceable against such entities in accordance with their
terms.


 


(c)           No
Material Adverse Change


 


Except as set
forth on Schedule 3.1(c), since December 31, 2007 the Purchased Businesses
have been carried on in the usual and ordinary course, there has been no
Material Adverse Change, and Seller has no knowledge of any such change which
is threatened; nor to the knowledge of Seller has there been any material
damage, destruction or loss to any of the Assets.


 


(d)           Compliance
with Laws; Permits


 


(i)      Except
as set forth on Schedule 3.1(d), there are no current material violations of
any Applicable Law relating to the Purchased Businesses or the Assets.


 


(ii)     Except
as set forth on Schedule 3.1(d):


 


(A)          all
Permits are valid, subsisting and in good standing and Seller is not in default
or breach of any Permit that is material to the Pulp Business or the Woodlands
Business; and


 


(B)           there
are no proceedings pending or other circumstances outside the ordinary course
of business, which could reasonably be expected to result in the revocation,
cancellation, limitation, amendment or suspension of any Permit that is
material to the Pulp Business or the Woodlands Business; and


 


(iii)    the
Permits listed in Schedule 3.1(d)(iii) include all of the Permits that are
material to each of the Pulp Business and the Woodlands Business for purposes
of carrying on such businesses as they are currently carried on or owning or
leasing the Assets.


 


25

















 


(e)           No
Breach


 


Except for the
Purchaser Required Consents, each of which will have been obtained on the
Closing Date, the execution, delivery and performance by Seller and its
Affiliates of this Agreement, the Ancillary Agreements and the other agreements
and documents required to be delivered hereunder or thereunder to which they
are parties, and the consummation by Seller and its Affiliates of the
transactions contemplated hereby and thereby, will not:


 


(i)      violate
or result in the breach of any provision of the constating documents of Seller
or such Affiliates or any resolution of the board of directors (or any
committee thereof) or shareholders of Seller or such Affiliates;


 


(ii)     violate,
result in the breach of, or default (or an event which, with notice or lapse of
time or both, would constitute a default) under, any Real Property Lease,
material Assumed Contract, Permit that is material to the Pulp Business or the
Woodlands Business, Collective Agreement or Forest License;


 


(iii)    result
in the creation or imposition of any lien or other encumbrance upon the Assets
or any of them (other than any liens or encumbrances created by Purchaser); or


 


(iv)    violate
any Applicable Law in Canada applicable to Seller or such Affiliates, the
Purchased Businesses or the Assets or any of them.


 


(f)            Actions
and Proceedings


 


Except as set
forth on Schedule 3.1(f):


 


(i)      there
are no outstanding orders, judgments, injunctions, awards or decrees of any court,
arbitrator or other Governmental Authority against Seller or any of its
Affiliates in respect of any of the Assets or the Purchased Businesses; and


 


(ii)     there
are no actions, litigation or suits or legal, administrative or arbitral
proceedings pending or, to the knowledge of Seller, threatened against or
affecting Seller or any of its Affiliates in respect of any of the Assets, the
Pulp Business or the Woodlands Business, at law or in equity or before any
federal, provincial, municipal or other Governmental Authority, domestic or
foreign, which could reasonably be expected to have a Material Adverse Effect
on the Pulp Business, the Woodlands Business or the Assets.


 


(g)           Consents
and Approvals


 


The execution and
delivery by Seller of this Agreement and the execution and delivery by Seller
or its Affiliates of the Ancillary Agreements and the other agreements and
documents required to be delivered hereunder or thereunder to which each of
them is a party, and the 


 


26
















 


performance by Seller or its Affiliates of their respective obligations
hereunder and thereunder, do not require Seller or its Affiliates to obtain any
consent, approval or action of, or make any filing with or give any notice to,
any Governmental Authority or any other Person, except for those consents,
approvals, actions, filings and notices described in Schedule 3.1(g) which
are required under any Real Property Lease, Assumed Contract, Permit,
Collective Agreement or Forest License other than those comprising the
Non-Assigned Contracts, each of which material consent, approval, action,
filing and notice has been obtained, made or given, as applicable.


 


(h)                                 Owned
Real Property


 


(i)             Owned
Real Property


 


Schedule 3.1(h)(i) contains a legal
description of all of the real property used in connection with the Purchased
Businesses (specifically excluding any and all timberland real property owned
by Seller) and owned by Seller in the Province of Nova Scotia (the “Owned Real Property”).


 


Seller has the exclusive right to possess,
use and occupy, and at the Time of Closing Seller will have good and marketable
title in fee simple to, all the Owned Real Property, free and clear of all
Encumbrances, easements or other restrictions of any kind other than Permitted
Encumbrances.


 


(ii)          The Owned Real
Property, the current uses thereof and the conduct of the Purchased Businesses
comply in all material respects with all regulations, statutes, enactments,
laws and by-laws, including those dealing with zoning, parking, access, loading
facilities, landscaped areas, building construction, fire and public health and
safety and Environmental Laws.


 


(iii)       Except as may be
contemplated by the Capital Projects, no alteration, repair, improvement or
other work has been ordered, directed or requested in writing to be done or
performed to or in respect of the Owned Real Property or to any of the
plumbing, heating, elevating, water, drainage or electrical systems, fixtures
or works by any municipal, provincial or other competent Governmental
Authority, which alteration, repair, improvement or other work has not been
completed, and Seller knows of no written notification having been given to it
of any such outstanding work being ordered, directed or requested, other than
those which have been complied with.


 


(iv)      As of the Time of
Closing, the Permitted Encumbrances will constitute all of the material
Encumbrances, agreements, indentures and other matters which affect the Owned
Real Property.


 


(i)                                     Leased
Real Property


 


Seller is not a
party to any lease or agreement to lease in respect of any real property,
whether as lessor or lessee, other than the Real Property Leases.


 


27

















 


(i)             Tenant Real
Property Leases


 


Schedule 3.1(i)(i) sets forth a true
and complete list of all leases, subleases, licenses and other similar real
estate agreements other than the Forest Licenses under which Seller uses or
occupies or has the right to use or occupy, now or in the future, any real
property in connection with the Purchased Businesses, and all amendments and
modifications thereto (the “Tenant Real Property
Leases”).  Seller has the
exclusive right to occupy and use the real property to which the Tenant Real
Property Leases relate, subject to the terms and conditions of such Tenant Real
Property Leases.


 


(ii)          Landlord Real
Property Leases


 


Schedule 3.1(i)(ii) sets forth a true
and complete list of all leases, subleases, licenses and other similar
agreements other than the Forest Licenses under which Seller has granted rights
of possession, use, occupancy or enjoyment of any Owned Real Property or Leased
Real Property to any other Person in connection with the Purchased Businesses
and all amendments and modifications thereto (the “Landlord
Real Property Leases”).


 


(iii)       Compliance with
Real Property Leases


 


Except as set forth in Schedule
3.1(i)(iii), neither Seller nor to Seller’s knowledge any other party to any
Real Property Lease, is in default in any material respect under the Real
Property Leases and no written claim of any default thereunder has been
received or delivered by Seller which has not been cured and all rent and other
sums and charges currently due from Seller under each of the Tenant Real
Property Leases have been paid.  Except
as set forth in Schedule 3.1(i)(iii), the Real Property Leases have not been
amended and are in full force and effect.


 


(iv)      The Leased Real
Property, the current uses thereof and the conduct of the Purchased Businesses
comply in all material respects with all regulations, statutes, enactments,
laws and by-laws, including those dealing with zoning, parking, access, loading
facilities, landscaped areas, building construction, fire and public health and
safety and Environmental Laws.


 


(v)         As of the Time of
Closing, the Permitted Encumbrances and the Real Property Leases will
constitute all of the material Encumbrances, agreements, indentures and other
matters which affect the Leased Real Property.


 


28

















 


(j)                                     Expropriation


 


No part of the
Assets has been taken or expropriated by any Governmental Authority, nor, to
Seller’s knowledge, are there any proposals to give any notice of or to
commence any proceedings for expropriation or taking.


 


(k)                                  Title
to Tangible Assets


 


As of the Time of
Closing, Seller will have title to all of the owned tangible Assets (other than
the Real Property, title to which is described in Section 3.1(h)), free
and clear of any lien or other encumbrance except for Permitted Encumbrances.


 


(l)                                     Employees


 


(i)                           Seller
is not bound by or a party to any collective bargaining agreement relating to
the Purchased Businesses nor has Seller made any material commitments to any
labour union or employee association with respect to any future agreements
except the collective agreements and related documents, letters of
understanding and letters of intent incorporated into and forming part thereof,
each of which is listed in Schedule 3.1(l) (collectively, the “Collective Agreement”).


 


(ii)                        Except
for performance reviews and salary adjustments or other changes in the ordinary
course of business, as required by Applicable Law or the Collective Agreement
and consistent with Seller’s past practices, there have been no material
changes in the terms and conditions of employment of any Employees of the
Purchased Businesses.


 


(iii)                   Seller
has not experienced any work slowdowns, stoppages or strikes (legal or
otherwise) since December 1, 2004.


 


(iv)                    Seller has
provided to Purchaser complete and accurate lists of the Employees as of May 8,
2008, specifying the length of hire for full-time Employees, job title or
classification and rate of salary or hourly pay for each such Employee and a
list of Inactive Employees stating whether such Inactive Employee is on
short-term or long-term disability (if applicable).


 


(v)                       Other
than as set out in Schedule 3.1(l)(v), Seller has not entered into any
employment or consulting Contract or other Contract with any officer, Employee
or consultant providing for annual compensation (including salary or hourly
pay) of $100,000 or more.


 


(vi)                    Seller has
provided to Purchaser a complete and accurate list of the Former Employees who
terminated employment on or after December 1, 2004.  As of the Time of Closing, none of such
Former Employees has any entitlements under the Benefit Plans.  Seller has provided to Purchaser a complete
and accurate list of the Retired Employees who have 


 


29

















 


entitlements under the
Benefit Plans as of the Time of Closing, in each case specifying their
entitlements under such Benefit Plans.


 


(vii)               Seller
is currently in rate group 2711 (Pulp Industry) for the Employees of the
Purchased Businesses other than the Debert Nursery and rate group 0162
(Greenhouse Production Tree Industry Workers) for the Employees of the Debert
Nursery for workers’ compensation purposes and during the past five years there
has been no change in the rating assessment applicable to rate group 2711 or
rate group 0162 under Applicable Laws, except as described in Schedule
3.1(l)(vii).  Seller’s workers’
compensation accounts are in good standing.


 


(viii)            All
accruals for unpaid vacation pay, premiums and contributions for Statutory
Plans, accrued wages, salaries and commissions and Benefit Plan payments have
been reflected in the books and records of Seller.


 


(ix)                    Except
as set out in Schedule 3.1(f), Seller is in compliance with all Applicable Laws
relating to employment, and there are no complaints, claims, charges, levies,
assessments or penalties outstanding or, to Seller’s knowledge, anticipated,
nor are there any orders, decisions or convictions currently registered or
outstanding by any tribunal or agency against or in respect of Seller under any
Applicable Laws relating to employment.


 


(m)                               Benefit
Plans


 


(i)                         Schedule
3.1(m)(i) identifies each Benefit Plan.


 


(ii)                      Except
as set forth on Schedule 3.1(m)(ii) and Schedule 3.1(f), there are no
actions, suits, claims (other than routine claims for payment
of benefits in the ordinary course), trials, demands, investigations,
grievances, arbitrations or other proceedings pending or threatened in respect
of any of the Benefit Plans or their assets, and to Seller’s knowledge there
exists no state of facts which after notice or lapse of time or both could
reasonably be expected to give rise to any such action, suit, claim, trial,
demand, investigation, grievance, arbitration or other proceeding.


 


(iii)                   Current
and
complete copies of all written Benefit Plans as amended to date or where oral,
written summaries of the terms thereof, and all currently available booklets
and communications concerning the Benefit Plans that have been provided to
Employees, Retired Employees or Former Employees or other Persons entitled to
benefits under the Benefit Plans have been delivered or made available to
Purchaser together with current and complete copies of all documents relating
to the Benefit Plans, including, as applicable, all trust agreements, funding
agreements, insurance contracts and policies, investment management agreements,
financial statements, actuarial valuations, subscription and participation
agreements and any administration contracts.


 


30

















 


(iv)                    All of the
Benefit Plans are and have been established, registered, amended, invested and
administered, in all material respects in accordance with all Applicable Laws,
regulations, orders, or other legislative, administrative or judicial
proclamations applicable to the Benefit Plans and in accordance with the
Collective Agreement, with the terms of such Benefit Plans and the terms of
agreements, written or oral, between Seller and its Employees, Retired
Employees or Former Employees who continue to have any entitlement under any of
the Benefit Plans as of the Time of Closing.


 


(v)                       No
step has been
taken, no event has occurred and no condition or circumstance exists that has
resulted in or could be reasonably expected to result in any Benefit Plan being
ordered or required to be terminated or wound up in whole or in part or having
its registration under Applicable Laws refused or revoked, or being placed
under the administration of any trustee or receiver or Governmental Authority
or being required to pay any material amount of Taxes, fees, penalties or
levies under Applicable Laws.  Where any
Pension Plan has been partially or fully terminated or wound up, all assets,
including any surplus, attributable to such partial or full termination or
wind-up has been fully distributed in accordance with all Applicable Laws or
where such distribution of assets is pending, the amount of surplus
attributable to such partial or full termination or wind-up together with the
date as of which such amount is determined is disclosed in Schedule 3.1(m)(v).


 


(vi)                    Each Benefit Plan
(other than a Pension Plan) that is subject to insurance or funding
requirements is fully insured or funded in accordance with the
applicable plan or policy and in good standing with Governmental Authorities
and no notice of under funding, non-compliance, failure to be in good standing
or otherwise has been received by Seller from any such Governmental
Authorities.  Each Pension Plan is funded
(both on a going concern and solvency basis) in accordance with the assumptions
disclosed in the most recent actuarial reports filed with the Governmental
Authorities and all contributions required pursuant to such reports have been
made, or will be made, for the period up to the Closing Date, and no notice of
under funding, non-compliance, failure to be in good standing or otherwise has
been received by Seller from any such Governmental Authorities.


 


(vii)                 No insurance policy
or any other Contract or agreement affecting any Benefit Plan requires or
permits a retroactive increase in premiums or payments due thereunder, or
requires additional premiums or payments on termination of the Benefit Plan or
any insurance policy, Contract or agreement relating thereto.


 


(viii)              No employment, severance or
termination agreement, other compensation arrangement or Benefit Plan provides
for payment of any amount or 


 


31

















 


benefit, the increase of an
amount or benefit, forgiveness of indebtedness, the acceleration of
contributions or funding, the payment of a contingent benefit or the
acceleration of the payment or vesting of a benefit by reason of the execution
of this Agreement or the consummation of the transactions contemplated by this
Agreement.


 


(ix)                    The
only OPEBs under any of the Benefit Plans are set out in
Schedule 3.1(m)(ix).


 


(x)                       All
liabilities of Seller (whether accrued, absolute, contingent or otherwise)
related to the Benefit Plans have been reported in accordance with GAAP in the
Financial Statements or otherwise disclosed in the most recent actuarial
valuation reports for the Pension and Retirement Plans.  No changes have occurred or are expected to
occur to any Benefit Plan that would materially affect the most recent
actuarial report prepared in respect of the applicable Benefit Plan.


 


(xi)                    All
employer or employee payments, contributions or premiums required to be
remitted or paid in respect of each Benefit Plan, the Collective Agreement, or
by Applicable Laws have been made in a timely fashion in accordance with
Applicable Laws, the Collective Agreement and the terms of the Benefit Plans.


 


(xii)      There have been no
improper withdrawals, applications or transfers of assets from any Benefit Plan
or the trusts or other funding media relating thereto that remain outstanding
and unremedied, and neither Seller nor to Seller’s knowledge any of its agents
is or since December 1, 2004 has been in breach of any fiduciary
obligation with respect to the funding or administration of the Benefit Plans.


 


(xiii)     Other than as set out
in Schedule 3.1(m)(xiii), since December 1, 2004, no material amendments
have been made to any Benefit Plan and no commitments to improve or amend or
create any Benefit Plan has been made, or promised by Seller, nor has any
intention or commitment to do any of the foregoing been communicated to any
Employee, Former Employee or Retired Employee.


 


(xiv)    Seller does not
contribute to or participate in a Multi-Employer Plan.


 


(xv)                There
is no Entity other than Seller participating in the Benefit Plans.


 


(xvi)    All Employee, Retired
Employee and Former Employee data reasonably necessary to administer each
Benefit Plan is in the possession of Seller or its agents and is in a form
which is sufficient for the proper administration of the Benefit Plan in
accordance with its term and all Applicable Laws and such data is complete and
correct in all material respects.


 


32

















 


(n)                                 Taxes


 


(i)                           Seller
has duly filed on a timely basis all tax returns required to be filed by it,
has duly, completely and correctly reported all revenue and other amounts and
information required to be reported thereon in all material respects and has
paid or remitted (in the case of goods and services tax, harmonized sales tax
or other sales tax) all Taxes which are due and payable, and all assessments,
reassessments, governmental charges, penalties, interest and fines due and
payable by it.  Seller has made adequate
provision for Taxes payable for the current period and any previous period for
which tax returns are not yet required to be filed.  There are no actions, suits, proceedings,
investigations or claims pending or, to the knowledge of Seller, threatened
against Seller in respect of Taxes, governmental charges or assessments, nor
are any material matters under discussion with any Governmental Authority
relating to Taxes, governmental charges or assessments asserted by any such
authority.  Seller has withheld from each
payment made to any of its past or present employees, officers or directors,
and to any non-resident of Canada, the amount of all Taxes and other deductions
required to be withheld therefrom, and has paid the same to the proper Tax or
other receiving officers within the time required under any applicable
legislation.


 


(ii)                        Seller
is a registrant for purposes of the ETA whose registration number is
856512272RT0002.


 


(iii)                     Seller is not a
non-resident of Canada for the purposes of the ITA.


 


(o)                                 Location
of Assets


 


With the
exception of inventory in transit and with the exception of certain equipment
such as personal computers and vehicles that may be under the physical control
of certain of Seller’s Employees, all the tangible assets of the Purchased
Businesses comprising the Assets are situate at the locations set out in
Schedule 3.1(o).


 


(p)                                 Operations


 


Except as disclosed on Schedule 3.1(p), since December 31,
2007, each of the Pulp Business and the Woodlands Business has been carried on
only in the ordinary and normal course consistent with past practice and there
has not been:


 


(i)                         any
Material Adverse Change;


 


(ii)                      any
material damage, destruction or loss (whether or not covered by insurance)
affecting the Assets;


 


(iii)                   any
obligation or liability (whether absolute, accrued, contingent or otherwise,
and whether due or to become due) incurred by Seller in connection with the
Pulp Business or the Woodlands Business other than 


 


33

















 


in the ordinary and normal
course of the Pulp Business or the Woodlands Business and consistent with past
practice;


 


(iv)                  any
payment, discharge or satisfaction of any Encumbrance, liability or obligation
of Seller in relation to the Pulp Business, the Woodlands Business or the
Assets (whether absolute, accrued, contingent or otherwise, and whether due or
to become due) other than payment of accounts payable and tax liabilities
incurred in the ordinary and normal course of business consistent with past
practice;


 


(v)                     any
strikes, work stoppages or work slowdowns adversely affecting the Pulp
Business, the Woodlands Business or the Assets;


 


(vi)                  any
licence, sale, assignment, transfer, disposition, pledge, mortgage or granting
of a security interest or other Encumbrance on or over any Assets, other than
sales of inventory to customers in the ordinary and normal course of the Pulp
Business or the Woodlands Business;


 


(vii)     any write-down of the
value of any inventory or any write-off as uncollectible of any accounts or
notes receivable or any portion thereof relating to the Pulp Business or the
Woodlands Business in amounts exceeding $500,000 in each instance or $1,000,000
in the aggregate (excluding any write-down or write-off associated with the
MacTara Limited accounts and notes receivable, the material details of which
Seller has provided to Purchaser);


 


(viii)    any cancellation of any
debts or claims owing to, or any amendment, termination or waiver of any rights
of value to, the Pulp Business or the Woodlands Business in amounts exceeding
$500,000 in each instance or $1,000,000 in the aggregate (excluding any
cancellation of debts or satisfaction of claims associated with the MacTara
Limited accounts and notes receivable, the material details of which Seller has
provided to Purchaser);


 


(ix)       except as contemplated
in the Collective Agreement and except for salary adjustments or other changes
in the ordinary course of business (as required by law or the Collective
Agreements or consistent with Seller’s past practices), (A) any general
increase in the compensation of Employees (including any increase pursuant to
any Benefit Plan or commitment), or any increase in any such compensation or
bonus payable to any officer, Employee, consultant or agent of Seller, or the
making of any loan to, or engagement in any transaction with, any Employee,
officer or director of Seller in relation to the Pulp Business, the Woodlands
Business or any other business of Seller; or (B) any material changes in
the terms and conditions of employment of any Employees of the Pulp Business or
the Woodlands Business;


 


34

















 


(x)                       except
as contemplated by the Capital Projects, any capital expenditures or capital
commitments relating to the Pulp Business, the Woodlands Business or Assets in
excess of $500,000 in the aggregate;


 


(xi)                    any
forward purchase commitments, other than those made in the ordinary and normal
course of the Pulp Business or the Woodlands Business pursuant to any Contract
or other arrangements in effect as of December 31, 2007;


 


(xii)                 any
forward sales commitments, other than those made in the ordinary and normal
course of the Pulp Business or the Woodlands Business pursuant to any Contract
or other arrangements in effect as of December 31, 2007;


 


(xiii)              any
change in the accounting or tax practices followed by Seller;


 


(xiv)             any change
adopted by Seller in its depreciation or amortization policies or rates; or


 


(xv)                any
change in the credit terms offered to customers of, or by suppliers to, the
Pulp Business or the Woodlands Business.


 


(q)                                 Contracts


 


Except as set
forth on Schedule 3.1(q):


 


(i)                           each
of the Real Property Leases, Assumed Contracts, Collective Agreements, Forest
Licenses and Permits is in full force and effect and is binding upon Seller
and, to the knowledge of Seller, the other parties thereto;


 


(ii)                        neither
Seller nor, to the knowledge of Seller, any of the other contracting parties is
in breach or default (whether with notice or lapse of time or both) under any
such Contract or Permit referred to in clause (i) above;


 


(iii)                     Seller has
provided to Purchaser or made available to Purchaser on the Project Wahoo Data
Site a true, correct and complete copy of each such (A) Contract which
involves a price, consideration or financial obligation of more than $50,000 in
the aggregate on an annual basis and is for a term of more than one year and (B) Permit
that is material to the Pulp Business or the Woodlands Business, in each case
including all amendments thereto, waivers thereunder and any material written
correspondence with the other parties thereto that clarifies or confirms, or
proposes to clarify or confirm, a party’s understanding of the terms thereof,
referred to in clause (i) above; and


 


(iv)                    Seller has
provided to Purchaser a complete list of current purchase orders that are
material to either of the Purchased Businesses.


 


35

















 


(r)                                    Intellectual
Property


 


Schedule 2.1(m) sets
out all registered or pending patents or trademarks (including certain
particulars of registrations or applications for registration) and all patent
licence agreements which comprise or relate to Intellectual Property.  Seller is, or at the Time of Closing will be,
the beneficial owner of the Intellectual Property, free and clear of all
Encumbrances, and is not a party to or bound by any Contract or any other
obligation whatsoever that limits or impairs its ability to sell, transfer,
assign or convey, or that otherwise affects, the Intellectual Property.  Seller has not granted to any Person any
interest in or right to use all or any portion of the Intellectual
Property.  Seller’s conduct of the
Purchased Businesses does not infringe upon the industrial or intellectual
property rights, domestic or foreign, of any other Person.  Seller has no knowledge of any claim of
infringement or breach of any industrial or intellectual property rights of any
other Person, nor has Seller received any notice that the conduct of the
Purchased Businesses, including the use of the Intellectual Property, infringes
upon or breaches any industrial or intellectual property rights of any other
Person, or the trade secrets, know-how or confidential or proprietary
information of any other Person, and Seller has no knowledge of any
infringement or violation of any of its rights in the Intellectual
Property.  Seller is not aware of any
state of facts which casts doubt on the validity or enforceability of any of
the Intellectual Property.  Seller has
provided to Purchaser a true and complete copy of all Contracts and amendments
thereto identified in Schedule 2.1(m).


 


(s)                                  Forestry
Representations


 


(i)                           Schedule
3.1(s)(i) sets out all of the registrations, approvals, licenses, permits
and Contracts made pursuant to or related to the Nova Scotia Forest Acts, to
which Seller is a party or the beneficiary in respect of the Purchased
Businesses, issued by or registered or entered into with:


 


(A)                              the
Department of Natural Resources (Nova Scotia) or the Minister thereof; or


 


(B)                                one
or more third parties pursuant to directions or directives of the Department of
Natural Resources (Nova Scotia) or the Minister thereof


 


(collectively the “Forest
Licenses”).


 


(ii)                        Schedule
3.1(s)(ii) sets out those Forest Licenses which by their terms are not
transferable to Purchaser and will not be so transferred as part of the
transactions contemplated hereby (the “Excluded Forest Licenses”).


 


(iii)                     Seller has
observed and performed all material covenants, agreements and obligations on
its part to be observed or performed under the provisions of each of the Forest
Licenses, the Nova Scotia Forest Acts and all other applicable forestry
legislation.


 


(iv)                    Seller has not
received any notice of breach by Seller of any of the Forest Licenses or any of
the timber cutting rights or permits or operating or 


 


36
















 


development plans
issued or filed pursuant to any of the Forest Licenses which has not been
remedied by Seller or abandoned by the Person alleging such breach.


 


(t)                                    Inventories


 


Since December 31,
2007, the Inventories have been maintained and accounted for in the ordinary
course of business consistent with past practice and GAAP.


 


(u)                                 Insurance


 


Schedule 3.1(u) sets
out all insurance policies (specifying the insurer, the amount of the coverage,
the type of insurance and the policy number) maintained by Seller on the Assets
as of the date hereof.


 


(v)                                 Boat Harbour
Documents


 


(i)                           Each
of the Boat Harbour Documents is in full force and effect and is a legal, valid
and binding obligation of the parties thereto, enforceable against such parties
by the other parties thereto.  Neither
Seller nor, to the knowledge of Seller, any other party to a Boat Harbour
Document is in default of any of its obligations under any of the Boat Harbour
Documents.  All payments required to be
made and all actions required to be taken under the Boat Harbour Documents have
been made and taken by Seller and, to the knowledge of Seller, the other
parties thereto in accordance with the terms thereof.


 


(ii)                        Seller
has the full benefit of all rights granted to any predecessor or predecessor-in-interest
of Seller under the Boat Harbour Documents. 
Seller has the right to use the lands of her Majesty the Queen in Right
of the Province of Nova Scotia in connection with the operation of the Effluent
Treatment System, as currently conducted.


 


(iii)                     The MOU is the
only material Contract that Seller is party to with the PLFN relating to the
use of Boat Harbour or the operation of the Effluent Treatment System in
connection with the operation of the Pulp Business.


 


(iv)                    Except for the
Boat Harbour Documents and the documents listed in Schedule 3.1(v), there are
no material documents relating to (A) the past, present or future use of
Boat Harbour or the operation of the Effluent Treatment System by or in
connection with the Pulp Business and in respect of which Seller continues to
have any liabilities or obligations, or (B) engineering and environmental
studies and reports relating thereto which have been commissioned by or made
available to the Pulp Business with respect to Boat Harbour.  Seller has provided to Purchaser a true,
correct and complete copy of all of the Boat Harbour Documents and the material
amendments thereto and each of the documents listed on Schedule 3.1(v).


 


37

















 


 


(w)                               Financial Statements


 


The Financial
Statements have been prepared in accordance with GAAP (with the exception of
the exclusion of the Statement of Cash Flows and the Statement of Equity and
the notes thereto and the exclusion from the Income Statement of pulp and
currency hedging, miscellaneous transaction charges and corporate overhead
allocations) applied on a basis consistent with prior periods and present
fairly the assets, liabilities (whether accrued, absolute, contingent or
otherwise) and financial condition of Seller as at their respective dates and
the sales, earnings and results of operations of Seller for the respective
periods covered by them.  Seller has
provided true and complete copies of the Financial Statements to Purchaser.


 


(x)                                   Books and Records


 


The books and
records of Seller present fairly, in accordance with GAAP, the financial
position of Seller as at the date such books and records were prepared, and all
financial transactions of Seller relating to the Purchased Businesses have been
accurately recorded in such books and records.


 


(y)                                 Closing Balance
Sheet


 


When prepared,
the Closing Balance Sheet for the Purchased Businesses will be prepared in
accordance with GAAP applied on a basis consistent with those used in the
preparation of the Year End Financial Statements and will present fairly the
Assets and Assumed Liabilities as at the close of business on the Closing Date.


 


(z)                                   Non-Arm’s
Length Transactions


 


(i)            With
respect to the Purchased Businesses, except for Contracts of employment and any
Benefit Plan, Pension and Retirement Plan, Statutory Plan or similar plan,
Seller is not a party to any Contract with any officer, director, employee,
shareholder or any other Person not dealing at arm’s length with Seller or any
Affiliate or family member of any of the foregoing.


 


(ii)         No
officer, director or shareholder of Seller and no Affiliate or family member of
one or more of such individuals, owns, directly or indirectly, in whole or in
part, any assets that Seller uses in the operations of the Purchased Businesses,
except for any or all of the Retained Assets.


 


(aa)                            Customers and
Suppliers


 


(i)             Except
as set out in Schedule 3.1(aa)(i), there has been no termination or
cancellation of, and no material modification or change in, Seller’s business
relationship with any major customer (being a customer of the Pulp Business or
the Woodlands Business accounting for more than 10% of sales for the year
ending December 31, 2007), except as set forth in the Contract related to
such customer, true, correct and complete copies of which have been provided to
Purchaser.


 


38

















 


(ii)          Seller
has not been certified by any agent other than the Central Wood Suppliers
Division to negotiate for primary forest products from woodlot owners pursuant
to the Primary Forest Products Marketing Act
(Nova Scotia).   Seller is in compliance
with its obligations under such Act.


 


(bb)                          Environmental


 


(i)             Except
as specifically described in Schedule 3.1(bb)(i), Seller (in respect of the
Purchased Businesses and the Assets) and the Owned Real Property and the Leased
Real Property and all operations thereon have been and are in material
compliance with all applicable Environmental Laws.


 


(ii)          Seller
has all Permits required under Environmental Laws that are material to the
Purchased Businesses and to own, use and operate the Assets (the “Environmental Permits”), all of which are described in
Schedule 3.1(bb)(ii).  Each Environmental
Permit is valid, subsisting and in good standing, and Seller is not in default
or breach of any Environmental Permit, and, to Seller’s knowledge, no
proceeding is pending or threatened and no grounds exist to revoke or limit any
Environmental Permit. Seller has provided a copy of each Environmental Permit
to Purchaser.


 


(iii)       Seller,
in respect of the Purchased Businesses, has not used or permitted to be used,
except in material compliance with all Environmental Laws, the Assets, the
Owned Real Property or the Leased Real Property in conjunction with the
Release, generation, manufacture, process, distribution, use, treatment,
storage, transportation or handling of any Hazardous Substance.


 


(iv)      Except
as disclosed on Schedule 3.1(bb)(iv) or in material compliance with
Environmental Laws, there are no Hazardous Substances located on, in, under or
from the Owned Real Property or the Leased Property and all Hazardous
Substances relating in any way to the Purchased Businesses (including any
Hazardous Substances treated in any manner by or resulting from the Effluent
Treatment System) have been disposed of, treated and stored in material
compliance with all Environmental Laws and in such manner that there is no
actual, alleged, nor (to the knowledge of Seller) potential, material liability
of Seller for such Hazardous Substances.


 


(v)         Except
as disclosed in Schedule 3.1(bb)(v), Seller (in respect of the Purchased
Businesses and the Assets) has not received any written notice of, or has it
been prosecuted for, any actual or alleged non-compliance with any
Environmental Laws, nor has Seller settled any allegation of non-compliance
prior to prosecution, in each case since December 1, 2004.  Except as disclosed in Schedule 3.1(bb)(v),
there are no actions, proceedings, notices, orders, written demands or
directions relating to environmental matters requiring, or notifying Seller
that it is or may be 


 


39

















 


responsible for,
any investigation, containment, clean-up, remediation or other corrective
action or any work, repairs, construction or capital expenditures to be made
under Environmental Laws with respect to the Purchased Businesses or the
Assets.


 


(vi)      Seller
has delivered to Purchaser or made available to Purchaser on the Project Wahoo
Data Site true and complete copies of all material environmental reports,
audits, evaluations, assessments, studies or tests relating to the Purchased
Businesses, the Assets, the Owned Real Property or the Leased Real Property and
their use that are under, or with reasonable effort could be brought under, the
possession or control of Seller.


 


(cc)                            Canso


 


(i)             Seller
is the registered and beneficial owner of one-third of the issued and
outstanding shares of Canso (the “Canso Shares”),
all of which are fully paid and non-assessable and freely transferable except as
contemplated in the shareholders’ agreement dated as of January 1, 1985
(the “Canso Shareholders’ Agreement”).


 


(ii)         Other
than the Canso Shareholders’ Agreement, there are no other material Contracts
to which the holder of the Canso Shares, in such capacity, is bound.


 


(iii)      Canso
does not own and does not have any Contract to acquire, directly or indirectly,
any shares in the capital or other equity or proprietary interests in any
Entity.


 


(iv)     To
Seller’s knowledge, there are no current material violations of any Applicable
Law relating to Canso’s assets or its business as currently conducted.


 


(v)        To
Seller’s knowledge, all material facts relating to the business, assets and
liabilities of Canso and to the Canso Shares have been disclosed to Purchaser.


 


3.2                               Survival of Seller’s Representations, Warranties and Covenants


 


The
representations and warranties and, to the extent they have not been fully
performed at or prior to the Time of Closing, the covenants of Seller contained
in this Agreement and any agreement, instrument, certificate or other document
executed or delivered pursuant hereto, shall survive the Closing for a period
of 18 months from and after the Closing Date and, notwithstanding such closing
or any investigation made by or on behalf of Purchaser, shall continue in full
force and effect for the benefit of Purchaser during such period, except that:


 


40

















 


(i)            the
representations and warranties set out in Sections 3.1(h)(i) and 3.1(k) shall
survive and continue in full force and effect without limitation of time;


 


(ii)         the
representations and warranties set out in Section 3.1(n) shall
survive and continue in full force and effect until 90 days after the
expiration of the period, if any, during which an assessment, reassessment or
other form of recognized written demand assessing liability for tax, interest
or penalties under applicable tax legislation in respect of any taxation year
to which such representations and warranties extend could be issued under such
tax legislation;


 


(iii)      the
representations and warranties set out in Section 3.1(bb)  shall survive and continue in full force and effect until
the second anniversary of the Closing Date; and


 


(iv)     a
claim for any breach of any of the representations and warranties contained in
this Agreement or in any agreement, instrument, certificate or other document
executed or delivered pursuant hereto involving fraud or fraudulent
misrepresentation may be made at any time following the Time of Closing, subject
only to applicable limitation periods imposed by law.


 


3.3                               Purchaser’s Representations and Warranties


 


Purchaser
represents and warrants to Seller as follows and acknowledges that Seller is
relying on such representations and warranties in connection with its
consummation of the transactions contemplated hereby:


 


(a)                                  Due Incorporation
and Authority


 


Purchaser is duly
incorporated, validly existing and in good standing with respect to filing its
annual returns under the laws of the Province of Nova Scotia and has all
requisite corporate power and capacity to own, lease and operate its assets,
properties and business and to carry on its business as currently conducted.


 


(b)                                 Authority to
Execute and Perform Agreement


 


Purchaser has all
requisite corporate power and capacity to enter into, execute and deliver this
Agreement and to perform fully its obligations hereunder.  This Agreement, the Ancillary Agreements to
which Purchaser is a party and the Instruments of Assumption being delivered by
Purchaser hereunder have been duly authorized, executed and delivered by
Purchaser and (assuming the due authorization, execution and delivery of this
Agreement and the Ancillary Agreements by Seller or its Affiliates and the
validity and binding effect hereof and thereof on Seller and its Affiliates)
are the valid and binding obligation of Purchaser enforceable against Purchaser
in accordance with their terms.


 


41

















 


(c)                                  No Breach


 


The execution,
delivery and performance by Purchaser of this Agreement, the Ancillary
Agreements to which Purchaser is a party and the Instruments of Assumption, and
the consummation by Purchaser of the transactions contemplated hereby and
thereby, will not


 


(i)             violate
or result in the breach of any provision of the constating documents of
Purchaser;


 


(ii)          violate,
result in the breach of, or default (or an event which, with notice or lapse of
time or both, would constitute a default) under, any material contract to which
Purchaser is a party or to which Purchaser or any of its assets or properties
may be bound; or


 


(iii)       to
Purchaser’s knowledge, violate any statute, law or regulation of any
jurisdiction, which violation, individually or in the aggregate, could have a
material adverse effect on Purchaser’s ability to consummate the transactions
contemplated herein or the performance of its obligations hereunder.


 


(d)                                 Consents and
Approvals


 


The execution and
delivery by Purchaser of this Agreement, the Ancillary Agreements to which
Purchaser is a party and the Instruments of Assumption and the performance by
Purchaser of its obligations hereunder and thereunder do not require Purchaser
to obtain any consents, approvals, authorizations, licenses, permits or other
actions of, or make any filings with, any Governmental Authority or any other
Person.


 


(e)                                  Actions and
Proceedings


 


There are no
outstanding orders, judgments, injunctions, awards or decrees of any court,
arbitrator or other Governmental Authority against Purchaser, and there are no
actions, litigation or suits or legal, administrative or arbitral proceedings
of any type whatsoever pending, or to the knowledge of Purchaser, threatened,
against Purchaser which individually or in the aggregate could reasonably be
expected to adversely affect Purchaser’s ability to consummate the transactions
contemplated herein or the performance of its obligations hereunder.


 


(f)                                    Issued Shares


 


The issuance of
the Issued Shares has been duly authorized and approved by all requisite
corporate, regulatory and other action, and the Issued Shares are validly
issued as fully paid common shares of Purchaser.


 


(g)                                 ETA
Registration


 


Purchaser is a
registrant for purposes of the ETA whose registration number is 80788 9019
RT0001.


 


42

















 


3.4                               Survival of Purchaser’s Representations, Warranties and Covenants


 


The
representations, warranties and, to the extent they have not been fully
performed at or prior to the Time of Closing, the covenants of Purchaser set
forth in this Agreement will survive the Closing for a period of 18 months from
and after the Closing Date.


 


ARTICLE 4 — COVENANTS


 


The parties
hereto covenant and agree as follows:


 


4.1                               Governmental Filings


 


As soon as
practicable after the execution of this Agreement, Seller and Purchaser shall
cooperate with each other and with their respective Affiliates and shall make
any and all filings and submissions to any Governmental Authority which are
required to be made in connection with the transactions contemplated hereby (including
all notices, filings and submissions required for the transfer of or
application for all necessary Permits and Forest Licenses).  Notwithstanding the foregoing, Purchaser (at
Purchaser’s cost) shall be responsible for making all filings necessary to transfer
and obtain all Permits and Forest Licenses necessary for the operation of the
Purchased Businesses on and after the Closing Date.  Seller shall furnish to Purchaser and its
Affiliates and Purchaser shall furnish to Seller and its Affiliates such information
and assistance as the other parties may reasonably request in connection with
the preparation of any such notices, filings or submissions.  Each party hereto agrees to give the other
parties hereto prompt written notice of any notification that it receives from
any Governmental Authority in connection with the transactions contemplated
hereby.


 


4.2                               Expenses


 


The parties to
this Agreement shall bear their own respective expenses incurred in connection
with the preparation, execution and performance of this Agreement, including
all fees and expenses of agents, representatives, counsel and accountants.  Purchaser shall bear the costs and expenses
associated with (a) obtaining any surveys not already in the possession of
Seller and any title insurance policies and endorsements, (b) any sales or
use taxes, federal taxes and any other taxes or duties payable by either party
as a result of the transactions contemplated hereby (excluding any gains
taxes), (c) any recording costs or transfer taxes (including real property
transfer or documentary stamp taxes) resulting or arising from the transactions
contemplated herein, and (d) any fees, costs, legal fees or expenses
required in connection with filings with Governmental Authorities, in each case
relating to the Assets and the transactions contemplated hereby.


 


4.3                               Indemnification for Brokerage Commissions


 


(a)                                  Seller
represents and warrants to Purchaser that there are no brokerage commissions,
finder’s fees or similar fees or commissions payable in connection herewith on
account of Seller’s actions or the actions of any of its Affiliates.  Seller agrees to indemnify and save Purchaser
harmless from any claim or demand for commission or other compensation by any
broker, finder, agent or 


 


43

















 


similar
intermediary claiming to have been employed by or on behalf of Seller, NPI or
any of their respective Affiliates, and to bear the cost of any legal expenses
incurred by Purchaser in defending against any such claim.


 


(b)                                 Purchaser
represents and warrants to Seller that there are no brokerage commissions,
finders’ fees or similar fees or commissions payable in connection herewith on
account of Purchaser’s actions or the actions of its Affiliates.  Purchaser agrees to indemnify and save Seller
and its Affiliates harmless from any claim or demand for commission or other
compensation by any broker, finder, agent or similar intermediary claiming to
have been employed by or on behalf of Purchaser or any of its Affiliates and to
bear the cost of any legal expenses incurred by Seller or any of its Affiliates
in defending against any such claim.


 


4.4                               Access to Records


 


After the Closing
Date, Purchaser and Seller shall afford to each other and their respective
representatives the opportunity, upon reasonable request, to examine and make
copies of the books and records of the Purchased Businesses sold to Purchaser
or of the books and records of the Purchased Businesses retained by Seller, as
the case may be, relating to periods prior to the Time of Closing and to
consult with their respective officers, employees, accountants and other
representatives, in connection with any bona fide
business purpose, including the preparation of tax and financial reports and
the conducting of any audits or disputes with respect thereto, the
administration of Seller’s Benefit Plans, the review of any materials, books,
records or circumstances relating to such party’s ongoing obligations under
this Agreement, the Ancillary Agreements, the Deeds and Assignments or the
Instruments of Assumption.  Purchaser and
Seller shall each maintain all such books and records and shall not destroy or
dispose of any such books and records without the prior written consent of the
other for a period of six years following the Closing Date.  Notwithstanding the foregoing, Purchaser or
Seller may at any time notify the others that they desire to dispose of
identified books and records, in which event the party receiving such notice may,
at its own cost and expense, take delivery of some or all of such books and
records, failing which the party giving such notice may dispose of such books
and records without further liability to the other parties.


 


4.5                               Affiliation with Seller


 


Purchaser and its
Affiliates shall not represent to any third party that Purchaser, its
Affiliates or the Purchased Businesses are in any way affiliated or associated
with, or owned or operated by, Seller or its Affiliates except to the extent
required by or permitted under any of the Ancillary Agreements and Section 4.9.


 


4.6                               Further Assurances


 


Seller and
Purchaser will from time to time execute and deliver all such further documents
and instruments and do all acts and things as the other party may, either
before or after the Closing Date, reasonably require to effectively carry out
or better evidence or perfect the full intent and meaning of this Agreement.


 


44

















 


4.7                               Mail and Money Received After Closing


 


(a)                                  On or after the
Closing Date, Purchaser may receive and open all mail addressed to Seller, the
Pulp Business or the Woodlands Business and, to the extent that such mail and
the contents thereof relate to the Pulp Business, the Woodlands Business, the
Assets or any of the Assumed Liabilities, deal with the contents thereof in its
discretion.  Purchaser agrees to deliver
or to cause to be delivered promptly to Seller all other mail (including any
mail that relates to Retained Assets or Retained Liabilities) received which is
addressed to Seller, the Pulp Business or the Woodlands Business.  In the event that Seller receives mail on or
after the Closing Date addressed to Seller, the Pulp Business or the Woodlands
Business that relates to the operations of the Pulp Business, the Woodlands
Business or the Assets, Seller shall deliver or cause to be delivered promptly
to Purchaser such mail.


 


(b)                                 If, at any time
from and after the Closing, Seller receives any payment or other money
comprising or relating to the Assets that Seller is not otherwise entitled to
hereunder, Seller shall be deemed to be holding such funds in trust for
Purchaser and shall promptly upon receipt of such funds deliver the same to
Purchaser without deduction, set-off, counterclaim or offset.


 


4.8                               Delivery of Books and Records


 


Notwithstanding
any provision of this Agreement to the contrary, Purchaser and Seller
acknowledge and agree that any books and records constituting Assets which are
not physically located at the Pictou Pulp Mill shall be delivered by Seller to
Purchaser on the Closing Date or as soon as practicable thereafter, but in no
event later than ten days thereafter.


 


4.9                               Use of Seller’s Trade Name


 


Purchaser shall
be entitled to use existing sales literature, inventories, packaging, office
supplies, and such other items bearing any of the trade names and trademarks of
Seller which are included in the Assets for a period of nine months from and
after the Closing Date.  Purchaser agrees
to cease using or delete such trade names and trademarks from such items as
soon as reasonably practicable after the Closing Date but in any event within
such nine-month period.


 


ARTICLE 5 — EMPLOYMENT AND BENEFIT PLAN ARRANGEMENTS


 


5.1                               Employees


 


Purchaser shall,
effective as of the Time of Closing:


 


(a)                                  employ
on and after the Closing Date all of the Employees who are employed in the Pulp
Business or the Woodlands Business who are not covered by a Collective
Agreement on terms and conditions of employment (excluding any stock-based
compensation) no less favourable in the aggregate than those in effect
immediately prior to the Closing Date, provided that nothing herein shall
guarantee continued employment to any particular Employee from and after the
Closing Date or prevent the termination of employment of any Employee within
such period; and


 


45

















 


(b)                                 employ
on and after the Closing Date all of the Employees who are employed by Seller
in the Pulp Business or the Woodlands Business and who are covered by a
Collective Agreement.


 


5.2                               Pension and Retirement Plans and Benefit Plans


 


(a)                                  Prior to the Time
of Closing, Seller shall have (i) transferred from the Benefit Plans to
other benefit plans of Seller any obligations, liabilities or funds relating to
benefits for employees, inactive employees, former employees and retired
employees of Seller in respect of the Terrace Bay, Ontario pulp mill or any
other business or operation of Seller other than the Purchased Businesses (all
of which shall be Retained Liabilities for all purposes of this Agreement), and
(ii) amended the Benefit Plans to reflect any such transfer.


 


(b)                                 Effective as of
the Time of Closing, Seller hereby assigns to Purchaser, and Purchaser hereby
assumes from Seller, the Benefit Plans relating to the Employees of the
Purchased Businesses and the Pension and Retirement Plans relating to Retired
Employees and Former Employees of the Purchased Businesses.


 


(c)                                  Effective as of
the Time of Closing, Purchaser shall execute and file with the appropriate
Governmental Authorities an amendment to the Pension Plans which shall provide
for Purchaser to become an administrator and sponsor of the Pension Plans.


 


(d)                                 Written
confirmation of any and all regulatory approvals shall be forwarded by each
party to the other forthwith upon receipt.


 


(e)                                  Seller shall provide
to Purchaser such information in respect of Employees, Retired Employees and
Former Employees of the Purchased Businesses as is reasonably required by
Purchaser, as the case may be, or their respective agents to properly
administer the Benefit Plans and that is in the possession or control of
Seller, as the case may be.


 


ARTICLE 6 — CLOSING ARRANGEMENTS


 


6.1                               Closing


 


The sale and
purchase of the Assets will be completed at the Time of Closing on the Closing
Date at:


 


Stewart McKelvey Stirling Scales

Purdy’s Wharf Tower One

1959 Upper Water Street

Suite 900

Halifax, Nova Scotia  B3J 2X2

Canada


 


46

















 


ARTICLE 7— GENERAL


 


7.1                               Time of the Essence


 


Time is of the
essence of this Agreement.


 


7.2                               Public Announcements


 


Neither Seller
nor Purchaser shall make any publicity release or announcement concerning this
Agreement, or make any disclosure with respect to the consideration paid
pursuant to this Agreement, or the transactions contemplated hereby without the
prior written approval thereof by Purchaser or Seller, as the case may be,
except as required by Applicable Law, in which case the party issuing the
release or making such disclosure shall so advise the other party in writing in
advance of such issuance or disclosure.


 


7.3                               Benefit of the Agreement


 


This Agreement
will inure to the benefit of and be binding upon the respective heirs,
executors, administrators, successors and permitted assigns of the parties
hereto.


 


7.4                               Third Party Beneficiaries


 


The provisions of
this Agreement are solely for the benefit of the parties hereto and their
respective Affiliates, successors and permitted assigns and shall not confer
upon any third Person any remedy, claim, liability, reimbursement or other
right in excess of those existing without reference to this Agreement.  Nothing in this Agreement shall obligate
Seller or its Affiliates or Purchaser to assist any Employee, Retired Employee
or Former Employee to enforce any rights such Employee, Retired Employee or
Former Employee may have with respect to any of the Benefit Plans or other
employment-related benefits referred to in this Agreement.


 


7.5                               Entire Agreement


 


This Agreement
and the Ancillary Agreements referred to herein (including the Schedules
hereto) constitute the entire agreement between the parties hereto with respect
to the subject matter hereof and cancel and supersede any prior understandings
and agreements between the parties hereto with respect thereto.  There are no representations, warranties,
terms, conditions, undertakings or collateral agreements, express, implied or
statutory, between the parties other than as expressly set forth in this
Agreement and the Ancillary Agreements.


 


7.6                               Amendments and Waivers


 


No amendment to
this Agreement will be valid or binding unless set forth in writing and duly
executed by each of the parties hereto. 
No waiver of any breach of any provision of this Agreement will be
effective or binding unless made in writing and signed by the party purporting
to give the same and, unless otherwise provided, will be limited to the
specific breach waived.


 


47

















 


7.7                               Assignment


 


This Agreement
may not be assigned by any party hereto without the written consent of the
other parties hereto.


 


7.8                               Notices


 


Any demand,
notice or other communication to be given in connection with this Agreement
will be given in writing and will be given by personal delivery or by facsimile
communication addressed to the recipient as follows:


 


(i)             to
Seller:


 


Neenah Paper Company of Canada

3460 Preston Ridge Road, Suite 600

Alpharetta, Georgia  30005


 


Attention:                                         Steven S. Heinrichs


Senior Vice President, General Counsel and Secretary


 


Facsimile:                                            678-518-3283


 


(ii)          to
Purchaser:


 


Northern Pulp Nova Scotia Corporation

260 Granton Abercrombie Branch Road

Abercrombie, Nova Scotia  B2H 5C6


 


or by mail to


 


Northern Pulp Nova Scotia Corporation

P.O. Box 549, Station Main

New Glasgow, Pictou County, Nova Scotia 
B2H 5E8




Attention:                                         General Manager

Fax:                                                                           (902) 752-5404




in either case with a copy to:




Atlas Holdings, LLC

One Sound Shore Drive

Suite 302

Greenwich, Connecticut  06830


 


Attention:                                         Tim Fazio


 


Facsimile:                                            203-622-0151


 


48

















 


or
to such other address, individual or electronic communication number as may be
designated by notice given by either party to the other.  Any demand, notice or other communication
given by personal delivery will be conclusively deemed to have been given on
the day of actual delivery thereof and, if given by facsimile communication, on
the day of transmittal thereof if given during the normal business hours of the
recipient and on the Business Day during which such normal business hours next
occur if not given during such hours on any day if receipt of such facsimile
communication is confirmed.


 


7.9                               Remedies Cumulative


 


The rights and
remedies of the parties hereunder are cumulative and are in addition to, and
not in substitution for, any other rights and remedies available at law or in
equity or otherwise.  No single or
partial exercise by a party of any right or remedy precludes or otherwise
affects the exercise of any other right or remedy to which that party may be
entitled.


 


7.10                        Governing Law


 


This Agreement is
governed by and will be construed in accordance with the laws of the Province
of Nova Scotia and the federal laws of Canada applicable therein.


 


7.11                        Attornment


 


For the purpose
of all legal proceedings, this Agreement will be deemed to have been performed
in the Province of Nova Scotia and the courts of the Province of Nova Scotia
(and all courts competent to hear appeals therefrom) will have exclusive
jurisdiction to entertain any action arising under this Agreement.  Seller and Purchaser each hereby attorns to
the jurisdiction of the courts of the Province of Nova Scotia and all courts
competent to hear appeals therefrom.


 


7.12                        Counterparts


 


This Agreement
and any amendment, supplement, restatement or termination of any provision of
this Agreement may be executed and delivered in any number of counterparts,
each of which when executed and delivered is an original but all of which taken
together constitute one and the same instrument.


 


[The next page is the signature page.]


 


49

















 


IN
WITNESS WHEREOF the parties have executed this Agreement.


 


 


	
  AS SELLER

  	
   

  	
  NEENAH PAPER COMPANY OF CANADA

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Per:

  	
   

  
	
   

  	
   

  	
   

  	
    Name:Sean Erwin

  
	
   

  	
   

  	
   

  	
    Title:President and Chief Executive
  Officer

  



 


 


	
  AS PURCHASER

  	
   

  	
  NORTHERN PULP NOVA SCOTIA CORPORATION

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Per:

  	
   

  
	
   

  	
   

  	
   

  	
    Name:Sean Erwin

  
	
   

  	
   

  	
   

  	
    Title:President and Chief Executive
  Officer

  



 


Signature page for
Mill and Woodlands Asset Purchase Agreement