Document:

Exhibit
10.1

 

FIFTH
AMENDMENT TO

CREDIT
AGREEMENT

 

FIFTH AMENDMENT TO CREDIT
AGREEMENT, dated as of August 30, 2004 (this “Amendment”), to the
Credit Agreement referred to below by and among APPLIED EXTRUSION TECHNOLOGIES,
INC., a Delaware corporation (the “Borrower”); the other Credit Parties
signatory hereto; GENERAL ELECTRIC CAPITAL CORPORATION, a Delaware corporation
(in its individual capacity, “GE Capital”), for itself, as Lender, and
as Agent for Lenders; and the other Lenders signatory hereto.

 

W
I  T  N  E  S  S  E  T  H

 

WHEREAS, the Borrower,
the other Credit Parties, the Agent, and the Lenders are parties to that
certain Credit Agreement, dated as of October 3, 2003 (as amended,
supplemented or otherwise modified from time to time, prior to the date hereof,
the “Credit Agreement”);

 

WHEREAS, Borrower has
requested that Agent and the Lenders agree to amend the Credit Agreement to
provide, among other things, that failure to pay the interest on the Senior
Notes due on July 1, 2004 shall not constitute a Default or Event of
Default, so long as such payment is made on or prior to the Waiver Termination
Date (as defined below); and

 

WHEREAS, the Borrower,
the Agent and the Lenders have agreed to such request and agree to amend
certain provisions of the Credit Agreement in the manner, and on the terms and
conditions, provided for herein.

 

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

 

1.                                       Certain
Definitions.  Capitalized terms used
herein and not otherwise defined shall have the meanings ascribed to them in
the Credit Agreement.

 

2.                                       Amendment
to Annex A to the Credit Agreement . 
As of the Fifth Amendment Effective Date (as defined below), Annex A
to the Credit Agreement shall be amended as follows:

 

(a)                            by
deleting the definition of “Waiver Termination Date” therein and
inserting the following definition in lieu thereof:

 

“‘Waiver Termination
Date’ shall mean October 1, 2004.”; and

 

 

(b)                           by
inserting the following new definition therein in appropriate alphabetical
order:

 

“‘Fourth Amendment’
means the Fourth Amendment to the Credit Agreement, dated as of July 30,
2004, among the Borrower, the other Credit Parties, the Agent and the Lenders.”

 

3.                                       Defaults;
Conditions to Funding.

 

(c)                            Agent
and Requisite Lenders agree that, notwithstanding the provisions of  (i) Section 1.5(d) of the Credit
Agreement, (ii) Section 2.2(c) of the Credit Agreement, (iii)
Section 8.2 of the Credit Agreement, and (iv) clause (c) of Annex C to the
Credit Agreement to the contrary, for purposes of (i) Section 1.5(d) of
the Credit Agreement, (ii) Section 2.2(c) of the Credit Agreement, (iii)
Section 8.2 of the Credit Agreement, and (iv) clause (c) of Annex C to the
Credit Agreement, the failure of the Borrower to make payment of interest on
the Senior Notes due on July 1, 2004 shall not constitute a “Default” or
“Event of Default” for the period beginning from the Fourth Amendment Effective
Date (as defined in the Fourth Amendment) through the Waiver Termination Date),
so long as such payment is made on or prior to the Waiver Termination Date and,
with respect to clause (iv) above, prior to the payment of such interest,
Borrower and AET Canada transfers or cause to be transferred prior to the end
of each business day from the AET Canada Account and/or the Disbursement
Accounts of AET Canada the aggregate balance in (or held for the benefit of)
AET Canada in the AET Canada Account and such Disbursement Accounts in excess
of CDN$1,500,000 to a Blocked Account of Borrower (or, if established, the
Concentration Account).

 

(d)                           Agent
and Requisite Revolving Lenders agree that (i) with respect to the provisions
of Section 2.2(a) of the Credit Agreement, the failure of any
representation or warranty to be true in any Loan Document, solely as a result
of the Borrower’s failure to make payment of interest on the Senior Notes due
on July 1, 2004 shall not limit any Lender’s obligations to fund any
Advance, convert or continue any Loan as a LIBOR Loan or incur any Letter of
Credit Obligation and (ii) with respect to the provisions of
Section 2.2(b) of the Credit Agreement, Borrower’s failure to make payment
of interest on the Senior Notes due on July 1, 2004 shall not alone,
without the presence of any other facts, events or circumstances (whether
arising as a result of such failure or otherwise), be deemed to create a
Material Adverse Effect, in the case of each of clauses (i) and (ii) of this
sentence, for the period beginning from the Fourth Amendment Effective Date (as
defined in the Fourth Amendment) through the Waiver Termination Date) and so
long as such payment is made on or prior to the Waiver Termination Date.

 

(e)                            Agent
and Requisite Lenders agree that the execution and delivery by Borrower and its
Subsidiaries of a restructuring agreement with the holders of the Senior Notes
(which shall set forth an agreement in principal with the participating holders
of the Senior Notes for the restructuring of the Senior Notes substantially on
the terms previously disclosed by the Borrower to the Agent) shall not alone,
without the presence of any other facts, events or circumstances, constitute an
Event of Default under clause (iv) of Section 8.1(i) of the Credit
Agreement, for the period beginning on the Fifth Amendment Effective Date
through the Waiver Termination Date), provided that nothing set forth
herein shall be construed to

 

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constitute the consent of Agent or any Lender to any action or
transaction by any Credit Party pursuant to, or as contemplated by, any such
restructuring agreement.

 

(f)                              This
Section 3 supercedes and replaces the provision of Section 4 of the
Fourth Amendment.

 

4.                                       Ratification
of Credit Agreement; Remedies.

 

(a)                            Except
as expressly provided for, and on the terms and conditions set forth, herein,
the Credit Agreement and the other Loan Documents shall continue to be in full
force and effect in accordance with their respective terms and shall be
unmodified.  In addition, this Amendment
shall not be deemed a waiver of any term or condition of any Loan Document by
the Agent or the Lenders with respect to any right or remedy which the Agent or
the Lenders may now or in the future have under the Loan Documents, at law or
in equity or otherwise or be deemed to prejudice any rights or remedies which
the Agent or the Lenders may now have or may have in the future under or in
connection with any Loan Document or under or in connection with any Default or
Event of Default which may now exist or which may occur after the date
hereof.  The Credit Agreement and all
other Loan Documents are hereby in all respects ratified and confirmed.

 

(b)                           This
Amendment shall constitute a Loan Document. 
The breach by any Credit Party of any representation, warranty, covenant
or agreement in this Amendment shall constitute an immediate Event of Default
hereunder and under the other Loan Documents.

 

5.                                       Representations
and Warranties.  The Borrower and
the Credit Parties hereby represent and warrant to the Agent and Lenders that:

 

(a)                            The
execution, delivery and performance of this Amendment and the performance of
the Credit Agreement as amended by this Amendment (the “Amended Credit
Agreement”) by the Borrower and the other Credit Parties:  (i) are within their respective
organizational powers; (ii) have been duly authorized by all necessary
corporate and shareholder action; (iii) are not in contravention of any
provision of their respective certificates or articles of incorporation or
by-laws or other organizational documents; (iv) do not violate any law or
regulation, or any order or decree of any court or Governmental Authority; (v)
do not conflict with or result in the breach or termination of, constitute a
default under or accelerate or permit the acceleration of any performance
required by, any indenture, mortgage, deed of trust, lease, agreement or other
instrument to which the Borrower or any Credit Party is a party or by which the
Borrower or any Credit Party or any of its property is bound; (vi) do not result
in the creation or imposition of any Lien upon any of the property of the
Borrower or any Credit Party other than those in favor of Agent pursuant to the
Loan Documents; and (vii) do not require the consent or approval of any
Governmental Authority or any other Person.

 

(b)                           This
Amendment has been duly executed and delivered by or on behalf of the Borrower
and the other Credit Parties.

 

(c)                            Each
of this Amendment and the Amended Credit Agreement constitutes a legal, valid
and binding obligation of the Borrower and the other Credit Parties enforceable

 

3

 

against each of them in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditor’s rights
generally and general equitable principles (whether enforcement is sought by
proceedings in equity or at law).

 

(d)                           No
Default or Event of Default has occurred and is continuing both before and
after giving effect to this Amendment.

 

(e)                            No
action, claim or proceeding is now pending or, to the knowledge of the Borrower
and the other Credit Parties, threatened against the Borrower or the other
Credit Parties, at law, in equity or otherwise, before any court, board,
commission, agency or instrumentality of any federal, state, or local
government or of any agency or subdivision thereof, or before any arbitrator or
panel of arbitrators, (i) which challenges the Borrower’s or the other Credit
Parties’ right, power, or competence to enter into this Amendment or, to the
extent applicable, perform any of its obligations under this Amendment, the
Amended Credit Agreement or any other Loan Document, or the validity or
enforceability of this Amendment, the Amended Credit Agreement or any other
Loan Document or any action taken under this Amendment, the Amended Credit
Agreement or any other Loan Document or (ii) which, if determined adversely, is
reasonably likely to have or result in a Material Adverse Effect.  To the knowledge of the Borrower and each
Credit Party, there does not exist a state of facts which is reasonably likely
to give rise to such proceedings.

 

(f)                              The
representations and warranties of the Borrower and the other Credit Parties
contained in the Amended Credit Agreement and each other Loan Document shall be
true and correct on and as of the date hereof and the Fifth Amendment Effective
Date with the same effect as if such representations and warranties had been
made on and as of such date, except that any such representation or warranty
which is expressly made only as of a specified date need be true only as of
such date.

 

6.                                       Outstanding
Indebtedness.  The Borrower and the other Credit Parties
hereby acknowledge and agree that as of August 27, 2004, (i) the aggregate
outstanding amount of the Revolving Credit Advances is $43,737,913.08, (ii) the aggregate outstanding amount of Letter
of Credit Obligations is $775,000.00,
and (iii) the aggregate outstanding principal amount of the Term Loan is
$45,312,500.00, and that such principal amounts are payable pursuant to the
Credit Agreement without defense, offset, withholding, counterclaim or
deduction of any kind.

 

7.                                       Fees
and Expenses  The Borrower hereby
reconfirms its obligations pursuant to Section 11.3(b) of the Credit
Agreement to reimburse Agent for all out-of-pocket fees, costs and expenses,
including the reasonable fees, costs and expenses of counsel, consultants,
auditors or other advisors, incurred in connection incurred with the
negotiation, preparation, execution and delivery of this Amendment and all
other documents and instruments delivered in connection herewith.

 

8.                                       GOVERNING
LAW.  THIS AMENDMENT, IN ALL
RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE,
SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE
INTERNAL LAWS OF THE STATE OF NEW YORK APPLICABLE TO

 

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CONTRACTS MADE AND PERFORMED IN THAT STATE AND ANY APPLICABLE LAWS OF
THE UNITED STATES OF AMERICA.

 

9.                                       Effectiveness.  This Amendment shall become effective as of
the date hereof (the “Fifth Amendment Effective Date”) only upon
satisfaction in full in the judgment of the Agent of each of the following
conditions on or before August 30, 2004:

 

(a)                            Amendment.  Agent shall have received facsimile copies
of this Amendment duly executed and delivered by the Agent, the Requisite
Lenders, the Requisite Revolving Lenders, the Borrower and each Credit Party.

 

(b)                           Representations
and Warranties.  All representations
and warranties of or on behalf of the Borrower and each Credit Party in this
Amendment and all the other Loan Documents shall be true and correct in all
respects with the same effect as though such representations and warranties had
been made on and as of the date hereof and on and as of the date that the other
conditions precedent in this Section 9 have been satisfied, except
to the extent that any such representation or warranty expressly relates to an
earlier date.

 

10.                                 Counterparts.  This Amendment may be executed in any number
of counterparts, each of which shall be an original with the same effect as if
the signatures thereto and hereto were upon the same instrument.

 

[SIGNATURE PAGES
FOLLOW]

 

5

 

IN WITNESS WHEREOF, each of the parties
hereto has executed this Amendment as of date and year first written above.

 

	
   

  	
  BORROWER

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  APPLIED EXTRUSION TECHNOLOGIES,

  INC.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Brian P. Crescenzo

  	
   

  
	
   

  	
  Name:

  	
  Brian P. Crescenzo

  
	
   

  	
  Title:

  	
  Vice President, Secretary and Chief

  Financial Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  GENERAL
  ELECTRIC CAPITAL

  CORPORATION,

  
	
   

  	
  as Agent and Lender

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ James H. Kaufman

  	
   

  
	
   

  	
   

  	
  Duly Authorized Signatory

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Christopher Cox

  	
   

  
	
   

  	
   

  	
  Duly Authorized Signatory

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  LENDERS

  
	
   

  	
   

  	
   

  
	
   

  	
  BLACK DIAMOND INTERNATIONAL

  FUNDING, LTD.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Paul Cope

  	
   

  
	
   

  	
  Title:

  	
  Director

  
	
   

  	
   

  	
   

  
	
   

  	
  TRS 1, LLC

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Deborah O’Keeffe

  	
   

  
	
   

  	
  Title:

  	
  Vice President

  
	
   

  	
   

  	
   

  
	
   

  	
  MERRILL LYNCH CAPITAL,
  a division of

  Merrill Lynch Business Financial Services Inc.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Steve Coley

  	
   

  
	
   

  	
  Title:

  	
  VP, Group Credit Manager

  
										

 

 

The following Persons are
signatories to this Agreement in their capacity as Credit Parties and not as
Borrower.

 

	
   

  	
  APPLIED
  EXTRUSION TECHNOLOGIES

  (CANADA) INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Brian P. Crescenzo

  	
   

  
	
   

  	
   

  	
  Name:  Brian
  P. Crescenzo

  
	
   

  	
   

  	
  Title:   
  Vice President and Treasurer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  APPLIED
  EXTRUSION TECHNOLOGIES

  LIMITED

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Brian P. Crescenzo

  	
   

  
	
   

  	
   

  	
  Name:  Brian
  P. Crescenzo

  
	
   

  	
   

  	
  Title:   
  Vice President and TreasurerEXHIBIT 10.1

 

Asset Purchase Agreement

(Mills)

 

This ASSET
PURCHASE AGREEMENT (MILLS) is made and entered into as of July 9, 2004
(the “Effective Date”) by and between CROWN PACIFIC LIMITED PARTNERSHIP,
a Delaware limited partnership (“Seller”), Debtor-in-Possession under
Jointly Administered Case No. 03-11258-PHX-RJH (the “Case”) in the
United States Bankruptcy Court for the District of Arizona (the “Bankruptcy
Court”) filed on June 29, 2003 (the “Petition Date”) under
Chapter 11 of Title 11 of the United States Code (the “Bankruptcy
Code”); and INTERNATIONAL FOREST PRODUCTS LIMITED, a British Columbia
corporation (“Buyer”).

 

Recitals:

 

A.            Seller (i) leases a
lumber manufacturing facility located in Clallam County, Washington, and owns
the site on which such facility is located, as well as certain related assets
more fully described herein; (ii) owns a lumber manufacturing facility located
in Snohomish County, Washington, and certain related assets more fully
described herein; (iii) owns a lumber manufacturing facility located in Klamath
County, Oregon, and certain related assets more fully described herein; (iv)
carries on the business of producing lumber products at such facilities and the
sale of such products; and (v) owns a property in Crook County, Oregon that is
not currently used in such business.

 

B.            Crown Partners (this
term and all other capitalized terms used herein having the respective meanings
set forth in Section 9.1), an Affiliate of Seller, and Buyer have entered into
that certain Purchase Agreement (KNRC/Equipment Leases) of even date herewith
(the “KNRC Agreement”), pursuant to which Crown Partners has agreed to
sell to Buyer, and Buyer has agreed to purchase from Crown Partners, on the
terms and conditions set forth therein, all of the issued and outstanding
shares of the capital stock of Klamath Northern Railway Company, an Oregon
corporation (“KNRC”), the owner and operator of a short-line railroad
that serves the Gilchrist Mill, as well as certain contracts more specifically
described therein.

 

C.            Seller wishes to
terminate the Port Angeles Mill Lease and to sell the Port Angeles Mill, the
Marysville Mill, the Gilchrist Mill, the Business, all assets used in the
Business (except as otherwise provided herein), and the Prineville Property to
Buyer, and Buyer wishes to purchase the Port Angeles Mill, the Marysville Mill,
the Gilchrist Mill, the Business, all assets used in the Business (except as
otherwise provided herein), and the Prineville Property from Seller, in each
case on the terms and conditions set forth herein.

 

Agreements:

 

In consideration
of the foregoing, the mutual covenants of the parties set forth in this
Agreement, and other good and valuable consideration, the receipt and adequacy
of which are hereby acknowledged, the parties, intending to be legally bound,
agree as follows:

 

1.             Purchase
and Sale.

 

1.1           Agreement to
Purchase and Sell. On the terms and subject to the conditions set forth in
this Agreement, Seller agrees to sell, transfer, assign, convey, and deliver to
Buyer, and Buyer agrees to purchase from Seller, the following assets
(collectively, the “Purchased Assets”), free and clear of all Liens
other than Permitted Encumbrances:

 

1.1.1        Real Property. (i)
The real property in Clallam County, Washington, legally described on the
attached Schedule 1.1.1-1, all improvements located thereon, and any and
all easements, access rights, water rights, and other rights, privileges, and
hereditaments appurtenant thereto (the “Port Angeles Mill”), (ii) the
real property in Snohomish County, Washington, legally described on the
attached Schedule 1.1.1-2, all improvements located thereon, and any and
all easements, access rights, water rights, and other rights, privileges, and
hereditaments appurtenant thereto (the “Marysville Mill”), (iii) the
real property in Klamath County, Oregon, legally described on the attached Schedule
1.1.1-3, all improvements located thereon, and any and all easements, 

 

1

 

access rights, water
rights, and other rights, privileges, and hereditaments appurtenant thereto
(the “Gilchrist Mill”), and (iv) the real property in Crook County,
Oregon, legally described on the attached Schedule 1.1.1-4, all
improvements located thereon, and any and all easements, access rights, water
rights, and other rights, privileges, and hereditaments appurtenant thereto
(the “Prineville Property”);

 

1.1.2        Real Property Leases. All
right, title, and interest of Seller in and to those certain real property
leases listed on the attached Schedule 1.1.2 (the “Real Property
Leases”);

 

1.1.3        Personal Property. Those
items of equipment, fixtures, and other tangible personal property listed on
the attached Schedule 1.1.3 and any other tangible personal
property acquired by Seller after the Effective Date and prior to the Closing
Date exclusively in connection with the operation of any of the Mills or the
Prineville Property (the “Personal Property”);

 

1.1.4        Inventory. (i) All
inventories of logs, lumber, other wood products and work-in-process, and
residual by-products (the “Raw Materials, Residuals, and Finished Goods
Inventory”) held at any Mill for processing or resale, or in transit to or
from any Mill, or otherwise prepaid for use at any Mill, in each case in the
Ordinary Course of Business as of the Closing Time, wherever located; and (ii)
all inventories of fuel, lubricants, spare parts, and shipping and other
supplies owned by Seller and located at any Mill or the Prineville Property as
of Closing Time (the “Parts and Supplies Inventory”);

 

1.1.5        Contracts. To the
extent transferable and excepting any Excluded Contracts, all right, title, and
interest of Seller in and to (i) those certain leases of equipment and other
personal property and similar arrangements listed on the attached Schedule
1.1.5-1 (the “Personal Property Leases”), and (ii) those other
contracts, licenses, agreements, and similar arrangements listed on the
attached Schedule 1.1.5-2 and all sales and purchase orders arising out
of the operation of any Mill in the Ordinary Course of Business and outstanding
as of the Closing Date, including those sales and purchase orders listed on Schedule
1.1.5-3 to be delivered at the Closing (the “Other Contracts”);

 

1.1.6        Intangible Property.
To the extent transferable, all right, title, and interest of Seller in and to
(i) the licenses, permits, approvals, consents, certificates, registrations,
and authorizations (governmental, regulatory, or otherwise) in respect of the
Business or the Purchased Assets listed on the attached Schedule 1.1.6-1
(the “Permits and Licenses”), (ii) all computer software and systems
located at and used in connection with the operation of the Mills, including
the software and systems listed on the attached Schedule 1.1.6-2 (the “Computer
Software”), (iii) all goodwill of the Business, phone numbers, and other
intangible personal property owned or held by Seller and used solely and
exclusively in connection with the operation of any of the Mills, and (iv) the
Books and Records (together with the Permits and Licenses and the Computer
Software, the “Intangible Property”);

 

1.1.7        Receivables. All
right, title, and interest of Seller in and to all accounts receivable arising
in the Ordinary Course of Business out of the conduct of the Business and
outstanding as of the Closing Time (excluding (i) accounts receivable from
other divisions of Seller, (ii) accounts receivable more than 35  days
overdue, (iii) accounts receivable owed by account debtors with accounts
receivable (other than the accounts receivable identified on the attached Schedule
1.1.7) more than 35 days overdue, and (iv) the accounts receivable
identified on Schedule 1.1.7) and, subject to the provisions of Section 1.2,
all causes of action relating thereto (the “Receivables”); and

 

1.1.8        Miscellaneous Rights, Etc.
Subject to the provisions of Section 1.2, all right, title, and interest of
Seller in and to (i) all other property used principally in respect of the
Business or located at any of the Mills as of the Closing Date or used
principally in respect of the Prineville Property and located thereon as of the
Closing Date, (ii) to the extent transferable, the full benefit of all
representations, warranties, guarantees, indemnities, undertakings,
certificates, covenants, agreements, and all security therefor received by
Seller on the purchase or other acquisition of any part of the Purchased
Assets, and (iii) any rights, demands, claims, credits, allowances, rebates,
causes of action, known or unknown, or rights of set-off (other than against
Seller or any of its Affiliates) arising out of or relating to any of the
Purchased Assets.

 

2

 

1.2           Excluded Assets.
Notwithstanding anything to the contrary in this Agreement, the Purchased
Assets shall not include (collectively, the “Excluded Assets”)
(i) all cash and cash equivalents, (ii) the Tree Farms, (iii) the
Alliance Business, (iv) any Personal Property Lease or Other Contract that is
terminated or expires prior to the Closing Date in accordance with its terms or
with the prior written consent of Buyer, (v) except as otherwise expressly
provided in this Agreement, any and all rights to the use of the name “Crown
Pacific”, (vi) Seller’s rights under this Agreement and to all cash and
non-cash consideration payable or deliverable hereunder, (vii) all
preference or avoidance claims and actions of Seller, including any such claims
or actions arising under Sections 544, 547, 548, 549, and 550 of the Bankruptcy
Code, (viii) insurance proceeds, claims, and causes of action with respect
to, or arising in connection with, any Excluded Asset, and (ix) those other
items listed on the attached Schedule 1.2.

 

1.3           Excluded Liabilities.             Notwithstanding
anything to the contrary in this Agreement, the parties expressly acknowledge and
agree that Buyer shall not assume or in any manner whatsoever be liable or
responsible for any liability or obligation of Seller, or of any predecessor or
Affiliate of Seller, other than the Assumed Liabilities.

 

1.4           Non-Assignment of
Assigned Contracts. Notwithstanding anything to the contrary in this
Agreement, this Agreement shall not constitute an agreement to assign any
Assigned Contract if, after giving effect to Sections 363 and 365 of the
Bankruptcy Code, an attempted assignment thereof, without obtaining a consent,
would constitute a breach thereof by the assignee of such Assigned Contract,
unless and until such consent shall have been obtained. If, after giving effect
to provisions of Sections 363 and 365 of the Bankruptcy Code, such consent is required
but not obtained, Seller shall, at Buyer’s sole cost and expense, cooperate
with Buyer in any reasonable arrangement designed to provide for Buyer the
benefits and obligations of or under such Assigned Contract, including the
enforcement thereof for the benefit of Buyer of any and all rights of Seller
against a third party thereto arising out of the breach or cancellation thereof
by such third party. Seller shall seek an Order from the Bankruptcy Court
providing that (i) all parties to executory contracts shall be given notice of
Seller’s assignment and Buyer’s assumption of Assigned Contracts and (ii) a
party’s failure to timely object to such assignment and such assumption shall
be deemed to constitute such party’s consent to such assignment and assumption.
Any assignment to Buyer of any Assigned Contract that, after giving effect to
the provisions of Sections 363 and 365 of the Bankruptcy Code, requires the
consent of any third party for such assignment as aforesaid shall be made
subject to such consent being obtained.

 

2.             Purchase
Price and Payment; Assumption of Liabilities; Cure Costs.

 

2.1           Purchase Price.
The purchase price (the “Purchase Price”) payable by Buyer to Seller for
the sale, transfer, assignment, conveyance, and delivery to Buyer of the
Purchased Assets shall be equal to the sum of (i) Fifty-seven Million One
Hundred Ninety-nine Thousand Dollars  ($57,199,000), plus (ii) the Actual
Price Adjustment, minus (iii) the amount of the Cure Costs, minus
(iv) the amount of any reduction pursuant to Section 3.5.3, minus (v)
One Million Dollars ($1,000,000) in the event of a Co-Generation Facility
Shutdown Determination.

 

2.2           Deposit Escrow.  Subject
to the terms and conditions of a Deposit Escrow Agreement entered into among
Buyer, Seller, and the Escrow Agent, in substantially the form attached as Exhibit
A-1 (the “Deposit Escrow Agreement”), not later than the Business
Day after the Effective Date, Buyer shall deliver to and deposit in trust with
Chicago Title Insurance Company (the “Escrow Agent”) the sum of Five
Million Dollars ($5,000,000) (the “Deposit”) in immediately available,
good funds. Upon receipt of the Deposit, the Escrow Agent shall immediately
deposit the Deposit into an interest-bearing account pursuant to the Deposit
Escrow Agreement. On the Business Day following entry of the Approval Order by
the Bankruptcy Court, Buyer shall deliver to and deposit in trust with the
Escrow Agent pursuant to the Deposit Escrow Agreement the additional sum of Two
Million Five Hundred Thousand Dollars ($2,500,000), which amount shall
thereupon become a part of the Deposit for all purposes of this Agreement.
Seller and Buyer shall each pay, and shall each be liable only for, one-half of
the Escrow Agent’s escrow fees and charges in connection with the Deposit
escrow account.

 

2.3           Payment of Purchase
Price. Buyer shall pay the Purchase Price to Seller as follows:

 

3

 

2.3.1        The sum of (i) Forty-one
Million Four Hundred Forty-nine Thousand Dollars ($41,449,000), plus
(ii) an amount equal to sixty percent (60%) of the Interim Price Adjustment, minus
(iii) the amount of the Deposit and all accrued interest thereon, minus
(iv) the Cure Costs, minus (v) the amount of any reduction pursuant to
Section 3.5.3, minus (vi) One Million Dollars ($1,000,000) in the event
of a Co-Generation Facility Shutdown Determination, shall be paid by completed
wire transfer to Seller of immediately available, good funds on the Closing
Date;

 

2.3.2        An amount equal to forty
percent (40%) of the Interim Price Adjustment shall be deposited with the
Escrow Agent pursuant to the Price Adjustment Escrow Agreement;

 

2.3.3        The amount of the Deposit
and all accrued interest thereon shall be deemed to be paid by Buyer by the
release of such amount on the Closing Date to or for the account of Seller by
the Escrow Agent, pursuant to the Deposit Escrow Agreement;

 

2.3.4        The sum of Fifteen Million
Seven Hundred Fifty Thousand Dollars ($15,750,000) shall be paid by Buyer by
completed wire transfer of immediately available, good funds on the Closing
Date to Wilmington Trust Company, in its capacity as Owner-Trustee under the
Port Angeles Mill Lease, in consideration of the termination of the Port
Angeles Mill Lease and all related documents and the conveyance to Seller of
the improvements constituting the Port Angeles Mill; and

 

2.3.5        The Purchase Price shall
be adjusted after the Closing to reflect any difference between the Interim
Price Adjustment and the Actual Price Adjustment, as provided in Section 2.5.

 

2.4           Interim Price
Adjustment. Not less than five (5) nor more than ten (10) Business Days
prior to the anticipated Closing Date, Seller shall deliver a calculation of
the Interim Price Adjustment to Buyer. The Interim Price Adjustment shall be based
upon the Mills segment balance sheet components of Seller’s trial balance,
adjusted in accordance with GAAP, as at the last day of the month immediately
preceding the Closing Date unless the Closing Date occurs within the first
thirteen (13) days of a month, in which case the trial balance for the previous
month shall be used.  A sample
calculation of the Interim Price Adjustment based upon the balance sheet
components for the Mills as at April 30, 2004 is attached as Schedule 2.4.  An amount equal to sixty percent (60%) of
the Interim Price Adjustment shall be paid by Buyer to Seller at the Closing,
as provided in Section 2.3.1. On the Closing Date, Buyer shall deliver to and
deposit in trust with the Escrow Agent, pursuant to the terms of a Price Adjustment
Escrow Agreement entered into among Seller, Buyer, and the Escrow Agent, in
substantially the form attached as Exhibit A-2 (the “Price Adjustment
Escrow Agreement”), an amount equal to the remaining forty percent (40%) of
the Interim Price Adjustment (the “Price Adjustment Deposit”). Interest
earned on the Price Adjustment Deposit shall be deemed a part of the Price
Adjustment Deposit for all purposes of this Agreement. The Price Adjustment
Deposit shall be applied in accordance with Section 2.5.4. Seller and Buyer
shall each pay, and shall each be liable only for, one-half of the Escrow
Agent’s escrow fees and charges in connection with the Price Adjustment Deposit
escrow account.

 

2.5           Actual Price
Adjustment.

 

2.5.1        Promptly following the
Closing, Representatives of Seller and Buyer shall jointly conduct a physical
count of the Raw Materials, Residuals, and Finished Goods Inventory as of the
Closing Time.

 

2.5.2        Within twenty (20)
Business Days after the Closing Date, Buyer shall deliver a calculation of the
Actual Price Adjustment to Seller to obtain agreement with respect to the
amount thereof. If Seller and Buyer agree in writing on the amount of the
Actual Price Adjustment, then such amount shall be as they have agreed.

 

2.5.3        If Seller and Buyer are
unable to agree upon any item(s) of the Actual Price Adjustment within twenty
(20) Business Days after the Closing Date, then the item(s) in dispute shall be
referred by the parties to, and shall be resolved by, the Accountants. In such
event, (i) each party shall furnish to the Accountants such working papers and
other documents and information relating to the disputed item(s) as are in the

 

4

 

possession or control of such party and shall be
afforded an opportunity to present to the Accountants the basis for its view
with respect to the disputed item(s) and to discuss the determination of the
disputed item(s) with the Accountants, (ii) the determination by the
Accountants shall be final and binding on the parties, and (iii) Seller and
Buyer shall each pay, and shall each be liable only for, one-half of the fees
and expenses of the Accountants. Seller and Buyer shall direct the Accountants
to use all reasonable efforts to complete their determination of the disputed
item(s) within thirty (30) days after they are submitted to the Accountants.

 

2.5.4        On the third Business Day
following (i) agreement of the parties with respect to the Actual Price
Adjustment, as provided in Section 2.5.2, or (ii) if the parties are unable to
reach agreement, the resolution of any disputed item(s) by the Accountants
pursuant to Section 2.5.3, the appropriate adjusting payment shall be made in
accordance with this Section 2.5.4. If the Actual Price Adjustment, as
determined in accordance with this Section 2.5, is greater than the Interim
Price Adjustment, then (a) the Price Adjustment Deposit shall be released to
Seller by the Escrow Agent, and (b) Buyer shall pay the Price Adjustment
Difference to Seller by wire transfer of immediately available, good funds. If
the Actual Price Adjustment, as determined in accordance with this Section 2.5,
is less than the Interim Price Adjustment and the Price Adjustment Difference
is less than the Price Adjustment Deposit, then (c) an amount equal to the
Price Adjustment Difference shall be released to Buyer from the Price
Adjustment Deposit by the Escrow Agent, and (d) the remainder of the Price
Adjustment Deposit shall be released to Seller by the Escrow Agent. If the
Actual Price Adjustment, as determined in accordance with this Section 2.5, is
less than the Interim Price Adjustment and the Price Adjustment Difference is
greater than the Price Adjustment Deposit, (e) the Price Adjustment Deposit
shall be released to Buyer by the Escrow Agent, and (f) Seller pay to Buyer by
wire transfer of immediately available, good funds an amount equal to the
excess, if any, of the Price Adjustment Difference over the Price Adjustment
Deposit.

 

2.6           Allocation of
Purchase Price. The Purchase Price (excluding the portion thereof
attributable to the Actual Purchase Price Adjustment) shall be allocated among
the Purchased Assets by Buyer and Seller in accordance with the attached Schedule 2.6.
Such allocation shall be reflected in the Tax returns (including Internal
Revenue Service Form 8594) that are filed by Buyer and Seller in accordance
with Section 1060 of the Code (and any similar provision of state or local law,
as appropriate). Buyer and Seller agree to treat and report in filings under
the Code (and any state or local law, as appropriate) (and, if necessary, to
cause each of their respective Affiliates to so treat and report) the
transactions contemplated by this Agreement in a manner consistent with one
another.

 

2.7           Assumption of
Liabilities. Buyer shall assume no liability or obligation of Seller except
the liabilities and obligations set forth in this Section 2.7 (the “Assumed
Liabilities”), which Buyer shall assume and pay, perform, and discharge in
the Ordinary Course of Business in accordance with their respective terms,
subject to any defenses or claimed offsets asserted in good faith against the
obligee to whom such liabilities or obligations are owed:

 

2.7.1        All liabilities and
obligations of Seller under the other Real Property Leases, the Assigned
Contracts, and the Permits and Licenses, in each case arising from and after
the Closing Date;

 

2.7.2        All liabilities and
obligations of Seller under the Permitted Encumbrances arising from and after
the Closing Date;

 

2.7.3        All real and personal
property taxes and assessments on the Purchased Assets that relate to the
period from and after the Closing Date;

 

2.7.4        Any amount which may
become due after the Closing Date pursuant to RCW 82.60 and the regulations
promulgated thereunder on account of sales and use taxes deferred in connection
with Seller’s construction of the Port Angeles Mill, including any such taxes
deferred pursuant to Washington Sales and Use Tax Deferral Certificate No.
5201-97-230, issued by the Washington Department of Revenue to Seller under
registration no. 601 402 865; provided, however, that any such amount
which becomes due after the Closing Date due to any action or inaction of
Seller prior to the Closing Date shall not constitute an Assumed Liability; and

 

2.7.5        All other liabilities and
obligations arising in connection with the ownership, operation, and use of the
Purchased Assets from and after the Closing Date.

 

5

 

2.8           Cure Costs.  Buyer agrees to satisfy, as and when due,
all cure obligations due and owing under the Assigned Contracts which the
Bankruptcy Court orders to be paid as a condition to Seller’s assumption and
assignment to Buyer of the Assigned Contracts in accordance with
Section 365 of the Bankruptcy Code (the “Cure Costs”). Seller’s
estimate of such cure obligations as of the Effective Date is set forth on the
attached Schedule 2.8.

 

3.             Pre-Closing
Matters.

 

3.1           Certain Limitations.
Between the Effective Date and the Closing Date, Seller shall:

 

3.1.1        Conduct the Business and
operate and maintain the Mills and the other Purchased Assets in the Ordinary
Course of Business;

 

3.1.2        Maintain customary levels
of all Inventories;

 

3.1.3        Maintain in force Seller’s
existing insurance against loss relating to the Purchased Assets;

 

3.1.4        Maintain pre-existing
credit terms and policies with respect to the sale of logs, lumber and other
wood products and residual by-products;

 

3.1.5        Not sell, lease, or
otherwise transfer or dispose of any Mill or any other material Purchased Assets,
or any interest therein, other than transfers and dispositions, including the
sale of logs, lumber, and other wood products and residual by-products, made in
the Ordinary Course of Business;

 

3.1.6        Not incur or agree to
incur any material liability or obligation in respect of any of the Purchased
Assets or the Business without the prior written consent of Buyer, which shall
not be unreasonably withheld or delayed;

 

3.1.7        Not permit or allow any
Mill or any other material Purchased Assets to become subject to any additional
Lien (other than Permitted Encumbrances);

 

3.1.8        Not modify or amend the
terms of employment of any Business Employee or, except as provided in Section
7.1.1, terminate the employment of more than five (5) Business Employees; and

 

3.1.9        Use its commercially
reasonable efforts to maintain the relations and goodwill with employees,
suppliers, customers, and others having business relationships with Seller in
connection with the Mills.

 

3.2           Access to
Information. Between the Effective Date and the Closing Date, Seller shall,
upon reasonable advance notice from Buyer to Seller, (i) afford to Buyer and
its Representatives access (during normal business hours), in a manner so as
not to interfere with Seller’s normal operations and subject to reasonable
restrictions imposed by Seller, to the Business Employees, the Purchased
Assets, the Administrative and Sales Employees, and Portland Office systems (to
the extent related to the Business), and (ii) cause the Business Employees and
Seller’s Representatives to furnish Buyer with such information with respect to
the Business, the Purchased Assets, the Administrative and Sales Employees, and
Portland Office systems (to the extent related to the Business) as may be
within Seller’s possession or control and as Buyer may reasonably request.
Buyer acknowledges and agrees that nothing in this Section 3.2 is intended to
give rise to any contingency to Buyer’s obligation to proceed with this
transaction as provided in this Agreement.

 

3.3           Damage or Destruction.

 

3.3.1        Until the Closing Time,
the Purchased Assets shall remain at the risk of Seller. In the event of any
damage to or destruction of any Mill or any other Purchased Asset (other than
normal wear and tear) between the Effective Date and the Closing Date or if any
of the Purchased Assets are appropriated,

 

6

 

expropriated, or seized by any Governmental Authority
between the Effective Date and the Closing Date (in any such case, a “Loss”),
Seller shall give notice thereof to Buyer and Buyer shall have the option,
exercisable by notice to Seller given within five (5) Business Days after
Seller’s notice of such Loss:

 

(a)           To
reduce the Purchase Price by an amount equal to (i) the estimated cost to
repair or restore the Purchased Assets affected by such Loss (the “Affected
Assets”) to substantially their condition immediately prior to the
occurrence of such Loss or (ii) if the Affected Assets are destroyed or damaged
beyond repair or are appropriated, expropriated, or seized, the replacement
cost of the Affected Assets and, in either case, to complete this transaction
as provided in this Agreement, in which event all insurance proceeds or other
compensation payable on account of such Loss shall be retained by Seller, or

 

(b)           To
reduce the Purchase Price by an amount equal to the deductible amount under any
policies of insurance covering such Loss, in which event all proceeds of
insurance or other compensation for such Loss shall be payable to Buyer, all
right and claim of Seller in and to any such amounts shall be assigned and (if
previously received by Seller) paid to Buyer at the Closing, and Buyer shall
complete this transaction as provided in this Agreement without any additional
reduction in the Purchase Price, or

 

(c)           If
such Loss results in a failure of the condition set forth in Section 4.2.3, to
terminate this Agreement in accordance with Section 8.1.2(b).

 

3.3.2        If Seller gives notice of
a Loss pursuant to Section 3.3.1 within five (5) Business Days prior to the
scheduled Closing Date, the Closing shall be postponed until the date which is
five (5) Business Days after the later of (i) the date on which such notice is
given by Seller and (ii) if applicable, the date on which any reduction to the
Purchase Price is determined by an insurance adjuster pursuant to Section
3.3.3.

 

3.3.3        If Buyer elects to reduce
the Purchase Price pursuant to Section 3.3.1(a), Seller and Buyer shall
negotiate in good faith in an effort to agree upon the amount of such
reduction. If they are unable to reach agreement within five (5) Business Days
after notice of the Loss is given by Seller, then the amount of the reduction
shall be determined by an independent, qualified insurance adjuster selected by
the parties (or, if they are unable to agree on such selection, one appointed
by the Bankruptcy Court upon application by either party).

 

3.4           H-S-R Act Matters.
As soon as practicable, and in all events within fifteen (15) Business Days,
after the Effective Date, each of Buyer and Seller shall make an appropriate
filing of a notification and report form pursuant to the H-S-R Act with respect
to the purchase of the Purchased Assets. Buyer and Seller shall thereafter
supply within three (3) Business Days (or as soon thereafter as reasonably
practicable) any information and documentary material that may be further
requested by either the Federal Trade Commission or the Antitrust Division of
the Department of Justice (the “Antitrust Agencies”) pursuant to the
H-S-R Act, and shall use their reasonable best efforts to co-operate with the
Antitrust Agencies to cause the expiration or termination of any applicable
waiting periods under the H-S-R Act as soon as practicable. Each of the parties
agrees not to enter into any agreement with a Governmental Authority with
respect to the H-S-R waiting period except with the prior written consent of
the other parties. Buyer and Seller shall each pay one half of any requisite
filing fees and applicable Taxes in connection with any filing or application made
pursuant to the H-S-R Act.

 

3.5           Permits and Licenses.

 

3.5.1        Promptly after the
Effective Date, the parties, cooperating in good faith, shall take such steps,
including the filing of any required applications with Governmental
Authorities, as may be necessary (i) to effect the transfer of the Permits and
Licenses to Buyer on or as soon as practicable after the Closing Date, to the
extent such transfer is permissible under applicable Legal Requirements, and
(ii) to enable Buyer to obtain, on or as soon as practicable after the Closing
Date, any additional licenses, permits, approvals, consents, certificates,
registrations, and authorizations (whether governmental, regulatory, or
otherwise) as may be necessary for the lawful operation of the Mills from and after
the Closing Date (the actions described in the foregoing clauses (i) and (ii)
being referred to herein as the “Permitting Process”). Any filing or
other fees and other out-of-pocket expenses associated with the Permitting
Process shall be paid by Buyer.

 

7

 

3.5.2        Buyer acknowledges that it
may not be possible to complete the Permitting Process prior to the Closing
Date and agrees that completion of the Permitting Process prior to the Closing
Date shall not be a condition to its obligation to proceed with this
transaction as provided in this Agreement. Notwithstanding the foregoing, in
the event that there is a reasonable prospect that a Material Adverse Effect
will occur after the Closing Date as a result of the failure to complete the
Permitting Process prior to the Closing Date or as a result of requirements
that are likely to be imposed on Buyer in order to complete the Permitting
Process, Buyer shall be entitled to terminate this Agreement by notice to
Seller given within the thirty (30) days after the Effective Date; provided,
however, that if Buyer fails to give a timely notice of termination
pursuant to this Section 3.5.2, it shall have no right thereafter to do so and
shall be obligated to proceed with this transaction as provided in this
Agreement.

 

3.5.3        In the event that Buyer,
acting in good faith, determines that it will be obligated to incur capital
expenditures (which, for purposes of this Section 3.5.3, shall not include (i)
fees payable to Governmental Authorities in connection with the Permitting
Process, (ii) legal fees and expenses incurred by Buyer in connection with the
Permitting Process, or (iii) capital expenditures associated with the
installation of the Cooling Tower Improvements) in excess of $500,000 in the
aggregate in order to complete the Permitting Process, Buyer shall give Seller
notice of such determination within thirty (30) days after the Effective Date.
Such notice shall set forth in reasonable detail the purpose for and aggregate
amount of the capital expenditures that Buyer reasonably anticipates will be
required to complete the Permitting Process. If Buyer fails to give a timely
notice pursuant to the immediately preceding sentence, it shall have no right
thereafter to do so and shall be obligated to proceed with this transaction as
provided in this Agreement, without a reduction in the Purchase Price pursuant
to this Section 3.5.3. If Buyer gives a timely notice pursuant to the foregoing
provisions of this Section 3.5.3, Seller shall thereafter give Buyer notice
whether Seller is willing to reduce the Purchase Price by an amount equal to
the excess of the aggregate amount of capital expenditures set forth in Buyer’s
notice over $500,000; provided that Buyer acknowledges that
Seller shall not be entitled to agree to a reduction in the Purchase Price by
an amount in excess of $500,000 without the prior written consent of the
Secured Lenders (which consent may be withheld in the sole discretion of the
Secured Lenders). If Seller gives such notice within ten (10) days after
Buyer’s notice is given pursuant to this Section 3.5.3, the Purchase Price
shall be so reduced and Buyer shall be obligated to proceed with this
transaction as provided in this Agreement. If Seller fails to give such notice
within such ten (10) day period, Buyer shall thereafter have the right to
terminate this Agreement by notice to Seller given within five (5) Business
Days after the expiration of such ten (10) day period. If Buyer fails to give a
timely notice of termination pursuant to the immediately preceding sentence, it
shall have no right thereafter to do so and shall be obligated to proceed with
this transaction as provided in this Agreement.

 

3.6           Exclusion of Certain
Contracts. At any time and from time to time prior to the start of the
Auction, Buyer may, by notice to Seller, elect to exclude any one or more of
the Assigned Contracts from this transaction. Any Assigned Contract identified
in such a notice (an “Excluded Contract”) shall no longer be an Assigned
Contract. There shall be no reduction in the Purchase Price as a result of
Buyer’s election to exclude any one or more of the Assigned Contracts from this
transaction pursuant to this Section 3.6.

 

3.7           Bankruptcy Court
Approval. Promptly following the Effective Date, Seller shall file one or
more motions with the Bankruptcy Court requesting, and shall thereafter use
commercially reasonable efforts to obtain, entry of an order approving the
Bidding Procedures (the “Bidding Procedures Order”) and an order (the “Approval
Order”) which (i) approves the sale of the Purchased Assets to Buyer
on the terms and conditions set forth in this Agreement and authorizes Seller
to proceed with this transaction, (ii) includes a specific finding that
Buyer is a good faith purchaser of the Purchased Assets and is entitled to the
protection afforded by Section 363(m) of the Bankruptcy Code,
(iii) states that the sale of the Purchased Assets to Buyer shall be free
and clear of all Liens whatsoever, except as expressly provided in this
Agreement, and (iv) approves Seller’s assumption and assignment of the
Assigned Contracts pursuant to Section 365 of the Bankruptcy Code and orders
Buyer to pay any cure amounts determined by the Bankruptcy Court to be payable
to the other parties to such Assigned Contracts as a condition to such
assumption and assignment.

 

3.8           Buyer’s Bidding
Protection and Bidding Procedures. The following bidding procedures (the “Bidding
Procedures”) shall be employed with respect to this transaction and shall
be reflected in the Bidding Procedures Order. Buyer acknowledges and agrees
that the Bidding Procedures may be modified or supplemented by other customary
procedures not inconsistent with the matters set forth in this Section 3.8 and
the terms of this

 

8

 

Agreement. The sale of the Purchased Assets may be
subject to competitive bidding only as set forth in this Section 3.8:

 

3.8.1        Any Person that is
financially capable of consummating the transaction proposed by such Person (a
“Qualifying Bidder”) may submit a written offer (a “Bid”) stating
that (i) such Qualifying Bidder offers to purchase, and is prepared to enter
into a legally binding purchase and sale or similar agreement for the purchase
of, all of the, or certain specified, Purchased Assets upon terms and
conditions that are in the aggregate and under the circumstances generally no
less favorable to Seller than those contained herein (as determined by Seller
in its reasonable business judgment in consultation with the Secured Lenders,
taking into account the assets proposed to be acquired, the impact of any delay
in closing the transaction contemplated by such Bid, purchase price adjustments
included therein, and any other relevant factors); (ii) such Qualifying Bidder
is financially capable of consummating its proposed transaction; and (iii) such
offer is irrevocable until the entry of a final order approving a sale of the
assets set forth in such Bid to a Person other than such Qualifying Bidder. In
addition, each Bid shall contain such financial and other information that will
allow Seller to make a reasonable determination as to the Qualifying Bidder’s
financial and other capabilities to consummate the transactions contemplated by
such Bid. The Secured Lenders shall be deemed Qualifying Bidders and shall be
exempt from the provisions of this Section 3.8.1 requiring the submission of
Bids. Any Secured Lender Bid, which may include in whole or in part a credit
bid for Purchased Assets that are Secured Lender collateral, shall be deemed a
Qualifying Bid when made at the Acution.

 

3.8.2        In order to be a
Qualifying Bid, a Bid conforming to the requirements set forth in Section 3.8.1
(except for Secured Lender Bids) must be submitted to Seller’s counsel so as to
be received not later than seven (7) Business Days prior to the date scheduled
by the Bankruptcy Court for the Sale Hearing (the “Bid Deadline”).
Seller’s counsel shall promptly deliver a copy of each Qualifying Bid to
Buyer’s counsel and Creditors’ Counsel. In the event that there are no
Qualifying Bids, Seller shall proceed to seek Bankruptcy Court approval at the
Sale Hearing for the sale of the Purchased Assets to Buyer pursuant to this
Agreement.

 

3.8.3        If Seller receives one or
more Qualifying Bids, Seller shall, unless otherwise ordered by the Bankruptcy
Court, conduct the Auction  on the date  that is not less than one
(1) Business Day prior to the Sale Hearing, at such time and place as may be
reasonably acceptable to Seller or is otherwise approved by the Bankruptcy
Court. Only Representatives of Buyer, Seller, the Secured Lenders, the
Creditors Committee, and any other Qualifying Bidders shall be entitled to
attend and be heard at the Auction, and only Buyer and Qualifying Bidders shall
be entitled to make any subsequent offers or bids at the Auction.

 

3.8.4        Notwithstanding any other
provision of this Section 3.8, pursuant to the Bidding Procedures Order, a Bid
for all or substantially all of the Purchased Assets shall constitute a
Qualifying Bid only if such Bid (i) in Seller’s reasonable judgment after
consultation with its Representatives and the Secured Lenders, is likely to
result in value to Seller (taking into account the impact of any delay in
closing the transaction contemplated by such Bid, purchase price adjustments
included therein, and any other relevant factors) in an amount greater than the
sum of (A) the Purchase Price, plus (B) the amount of the Break-Up Fee, plus
(C) the amount of the Expense Reimbursement, plus (D) Five Hundred Thousand
Dollars ($500,000); (ii) contains no due diligence contingencies; (iii) is
accompanied by sufficient evidence that the Person submitting it has the
financial ability to consummate such transaction and contains no financing
contingencies; and (iv) unless such Bid is made by one or more of the Secured
Lenders, provides for a deposit in an amount at least equal to the Deposit and
on terms similar to those set forth herein with respect to the Deposit.

 

3.8.5        Notwithstanding any other
provision of this Section 3.8, pursuant to the Bidding Procedures Order, a Bid
that excludes any one or more of the Port Angeles Mill, the Marysville Mill,
the Gilchrist Mill (collectively with the KNRC Stock), or the Prineville
Property shall constitute a Qualifying Bid only if such Bid (i) in Seller’s
reasonable judgment after consultation with its Representatives and the Secured
Lenders, is likely to result in value to Seller more than One Million Dollars
($1,000,000) in excess of that provided under this Agreement (taking into
account other Qualifying Bids for less than all of the Purchased Assets, the
impact of any delay in closing the transaction contemplated by such Bid, the
costs of carrying any unsold assets, the purchase price adjustments included
therein, the payment of the Break-Up Fee and the Expense Reimbursement to Buyer
and any other relevant factors) or that would otherwise be in the best
interests of the bankruptcy estates included in the Case; (ii) contains no due
diligence contingencies; (iii) is accompanied by sufficient evidence that the
Person submitting it

 

9

 

has the financial ability to consummate such
transaction and contains no financing contingencies; and (iv) unless such Bid
is made by one or more of the Secured Lenders, provides for a deposit on terms
similar to those set forth herein with respect to the Deposit and in an amount
equal to not less than ten percent (10%) of the purchase price payable under
such Bid, which amount shall be increased to not less than fifteen percent
(15%) of the purchase price payable under such Bid on the Business Day
following entry of the Approval Order.

 

3.8.6        Notwithstanding any other
provision of this Section 3.8, a Bid that includes the Gilchrist Mill shall constitute
a Qualifying Bid only if such Bid also includes an offer to purchase the KNRC
Stock.

 

3.8.7        At the commencement of the
Auction, Seller shall announce the highest or best Qualifying Bid received
prior to such time. Auction bidding shall begin with such highest or best
Qualifying Bid and subsequently shall continue in minimum increments of at
least Two Hundred Fifty Thousand Dollars ($250,000). Subsequent Bids submitted
by Buyer shall not require any additional deposit. The Auction shall be
conducted by, and under the direction and control of, Seller, unless otherwise
ordered by the Bankruptcy Court. Seller shall have reasonable discretion to
establish and/or modify any Auction rules or procedures so as to maximize, in
Seller’s reasonable judgment and in consultation with the Secured Lenders, the
realization of value for the Purchased Assets except to the extent that any
such newly established  or modified
Auction rules are inconsistent with any provisions of this Agreement. The
Auction shall be concluded by Seller no earlier than the conclusion of
competitive bidding for all or certain of the Purchased Assets. Upon the
conclusion of the Auction, Seller, in its reasonable judgment and in
consultation with the Secured Lenders, shall announce its determination as to
the highest and best Qualifying Bid(s), which may be this Agreement (as it may
be modified during the Auction by any subsequent Buyer’s Bid). At the Sale
Hearing, Seller shall ask the Bankruptcy Court to approve Person(s) making the
highest and best Qualifying Bid(s) as the buyer(s) of the Purchased Assets, and
the Secured Lenders or the Creditors Committee may dispute Seller’s
determination.

 

3.9           Co-Generation
Facility Shutdown Determination. Buyer shall have the right, at its sole
cost and expense, to retain a licensed professional engineering firm selected
by Buyer and reasonably acceptable to Seller for the purpose of determining
whether, following the installation of the Cooling Tower Improvements, Buyer
will be able to continue to operate the co-generation facility at such Mill in
compliance with waste water discharge permits that are then available to Buyer
and otherwise in accordance with all applicable Legal Requirements, including
Certificates of Water Rights No. 12239 and 12240. In the event such engineering
firm determines that such continued operation of such co-generation facility
will not be possible, Seller shall give Buyer prompt notice of such
determination, which notice shall be accompanied by a supporting report from
such engineering firm. In the event Buyer gives such notice by not later than
the fifth (5th) Business Day prior to the date scheduled for the
Auction, a “Co-Generation Facility Shutdown Determination” shall be
deemed to have occurred and the Purchase Price, as well as the amount payable
by Buyer at the Closing, shall be reduced as provided in Sections 2.1(v) and
2.3.1(vi), respectively. In the event Buyer fails to give a timely notice
pursuant to this Section 3.9, there shall be no such reduction in the Purchase
Price or the amount payable by Buyer at the Closing. Buyer acknowledges and
agrees (i) that nothing in this Section 3.9 is intended to give rise to any
contingency to Buyer’s obligation to proceed with this transaction as provided
in this Agreement, and (ii) that in no event shall a Co-Generation Facility
Shutdown Determination, if made, give rise to a Material Adverse Effect for
purposes of Section 3.5.2.

 

3.10         Relinquishment of
Ernst Brothers Claim. After the Effective Date, Seller shall use its
commercially reasonable efforts to obtain from Ernst Brothers a relinquishment
of its claim of ownership with respect to Certificate of Water Right No. 12240,
which is held by Seller in connection with the Gilchrist Mill; provided
that Seller shall not be required to pay any compensation to Ernst Brothers in
consideration of such relinquishment or to initiate litigation against Ernst
Brothers in connection therewith. Buyer acknowledges and agrees (i) that
nothing in this Section 3.10 is intended to give rise to any contingency to
Buyer’s obligation to proceed with this transaction as provided in this
Agreement, regardless of whether Seller is able to obtain a relinquishment of
Ernst Brothers’ claim, and (ii) that in no event shall a failure to obtain a
relinquishment of the Ernst Brothers claim give rise to a Material Adverse
Effect for purposes of Section 3.5.2.

 

4.             Conditions
to Closing.

 

4.1           Seller’s Conditions.
Seller’s obligation to close this transaction shall be subject to and
contingent upon the satisfaction (or waiver by Seller in its sole discretion)
of each of the following conditions:

 

10

 

4.1.1        All representations and
warranties of Buyer set forth in this Agreement (considered collectively) and
each such representation and warranty (considered individually) shall have been
true and correct in all material respects as of the Effective Date and shall be
true and correct in all material respects as of the Closing Date, as if made on
the Closing Date.

 

4.1.2        All of the covenants and
obligations that Buyer is obligated to perform or comply with pursuant to this
Agreement (considered collectively) and each such covenant and obligation
(considered individually) shall have been performed and complied with in all
material respects.

 

4.1.3        As of the Closing Date,
there shall not be in effect any Legal Requirement or any Order that prohibits
the transfer of any material portion of the Purchased Assets by Seller to
Buyer.

 

4.1.4        Since the Effective Date,
there shall not have been commenced or Threatened against Seller or any
Affiliate of Seller any Proceeding (i) seeking material Damages or other
material relief in connection with any aspect of this transaction, or (ii) that
could reasonably be expected to have the effect of preventing or making illegal
this transaction.

 

4.1.5        Neither the consummation
of this transaction nor the performance of Seller’s obligations hereunder
shall, directly or indirectly (with or without notice, lapse of time, or both),
contravene, conflict with, result in a violation of, or cause Seller or any
Affiliate of Seller to suffer any material adverse consequence under any
applicable Legal Requirement or Order that has been published, introduced, or
otherwise proposed by or before any Governmental Authority since the Effective
Date.

 

4.1.6        H-S-R Compliance shall
have been obtained.

 

4.1.7        The Bankruptcy Court shall
have entered the Approval Order and such order shall not have been stayed as of
the Closing Date.

 

4.2           Buyer’s Conditions.
Buyer’s obligation to close this transaction shall be subject to and contingent
upon the satisfaction (or waiver by Buyer in its sole discretion) of each of
the following conditions:

 

4.2.1        All representations and
warranties of Seller set forth in this Agreement (considered collectively) and
each such representation and warranty (considered individually) shall have been
true and correct in all material respects as of the Effective Date and shall be
true and correct in all material respects as of the Closing Date, as if made on
the Closing Date.

 

4.2.2        All of the covenants and
obligations that Seller is obligated to perform or comply with pursuant to this
Agreement (considered collectively) and each such covenant and obligation
(considered individually) shall have been performed and complied with in all
material respects.

 

4.2.3        Since the Effective Date,
there shall not have occurred any state of facts, event, or change in
circumstances that has had or could reasonably be expected to have a Material
Adverse Effect.

 

4.2.4        Buyer shall have received
from the Title Company commitments to issue as of the Closing Date a Title
Policy with respect to each of the Port Angeles Mill, the Marysville Mill, the
Gilchrist Mill, and the Prineville Property.

 

4.2.5        As of the Closing Date,
there shall not be in effect any Legal Requirement or any Order that prohibits
the transfer of any material portion of the Purchased Assets by Seller to
Buyer.

 

4.2.6        Since the Effective Date,
there shall not have been commenced or Threatened against Buyer or any
Affiliate of Buyer any Proceeding (i) seeking material Damages or material
other relief in connection with any aspect of this transaction, or (ii) that
could reasonably be expected to have the effect of preventing or making illegal
this transaction.

 

11

 

4.2.7        Neither the consummation
of this transaction nor the performance of Buyer’s obligations hereunder shall,
directly or indirectly (with or without notice, lapse of time, or both),
contravene, conflict with, result in a violation of, or cause Buyer or any
Affiliate of Buyer to suffer any material adverse consequence under any
applicable Legal Requirement or Order that has been published, introduced, or
otherwise proposed by or before any Governmental Authority since the Effective
Date.

 

4.2.8        H-S-R Compliance shall
have been obtained.

 

4.2.9        The Bankruptcy Court shall
have entered the Approval Order and such order shall not have been stayed as of
the Closing Date.

 

5.             Closing.

 

5.1           Time and Place of
Closing. The Closing shall take place at the offices of Ball Janik LLP, 101
S.W. Main Street, Suite 1100, Portland, Oregon, or at such other location as
the parties may mutually agree. Subject to the provisions of Section 8.1, the
Closing shall take place concurrently with the closing under the KNRC
Agreement, commencing at a time and on a date mutually acceptable to the
parties within ten (10) days after the later of (i) H-S-R Compliance, and (ii)
entry of the Approval Order.

 

5.2           Seller’s Closing
Deliveries. At the Closing, Seller shall deliver, or cause to be delivered,
to Buyer:

 

5.2.1        (i) Statutory Bargain and
Sale Deeds, each in substantially the form attached as Exhibit B-1, duly
executed and acknowledged by Seller, conveying the Port Angeles Mill and the Marysville
Mill, respectively, to Buyer, free and clear of all Liens suffered or created
by Seller other than Permitted Encumbrances, and (ii) Statutory Special
Warranty Deeds, each in substantially the form attached as Exhibit B-2,
duly executed and acknowledged by Seller, conveying the Gilchrist Mill and the
Prineville Property, respectively, to Buyer, free and clear of all Liens
suffered or created by Seller other than Permitted Encumbrances (the foregoing
instruments are collectively referred to herein as the “Deeds”);

 

5.2.2        A Bill of Sale, in
substantially the form attached as Exhibit C (the “Bill of Sale”),
duly executed by Seller, conveying the Personal Property and the Inventory to
Buyer, free and clear of all Liens other than Permitted Encumbrances;

 

5.2.3        An Assignment and
Assumption Agreement, in substantially the form attached as Exhibit D
(the “Assignment and Assumption Agreement”), duly executed by Seller and
providing for (i) the assignment to Buyer of the Assigned Contracts, the
Receivables, and the Intangible Property, and (ii) Buyer’s assumption of the
Assumed Liabilities and indemnification of Seller in respect thereof (including
indemnification in respect of any legal fees or other costs incurred by Seller
in exercising its right to indemnity);

 

5.2.4        If the Permitting Process
has not been completed by the Closing Date and if requested by Buyer, a Permits
Sharing Agreement, in substantially the form attached as Exhibit E (the
“Permits Sharing Agreement”), duly executed by Seller;

 

5.2.5        A Transition Services
Agreement (Operations), in substantially the form attached as Exhibit F
(the “Transition Services Agreement (Operations)”), duly executed by
Seller;

 

5.2.6        A Transition Services
Agreement (Novated Contracts), in substantially the form attached as Exhibit
G (the “Transition Services Agreement (Novated Contracts)”), duly
executed by Seller;

 

5.2.7        The Price Adjustment
Escrow Agreement, duly executed by Seller;

 

5.2.8        A certificate executed by
Seller certifying to Buyer that each of Seller’s representations and warranties
set forth in this Agreement was true and correct in all material respects as of
the Effective Date and is true and correct in all material respects as of the
Closing Date as if made on the Closing Date;

 

12

 

5.2.9        A certificate in the form
required by applicable regulations under Section 1445 of the Code, executed by
Seller, affirming that Seller is not a foreign person (as that term is defined
therein) and containing such other information as may be required thereunder;

 

5.2.10      A receipt for the Purchase
Price, duly executed by Seller; and

 

5.2.11      Such other documents and
instruments of transfer and conveyance as may be reasonably requested by Buyer,
each in form and substance reasonably acceptable to Buyer and Seller, the terms
of which shall be fully consistent with this Agreement.

 

5.3           Buyer’s Closing
Deliveries. At the Closing, Buyer shall deliver, or cause to be delivered,
to Seller:

 

5.3.1        The amount payable by
Buyer pursuant to Section 2.3.1, by wire transfer of immediately available,
good funds to a bank account designated by Seller in writing to Buyer;

 

5.3.2        The Bill of Sale, the
Assignment and Assumption Agreement, the Permits Sharing Agreement (if
applicable), the Transition Services Agreement (Operations), the Transition
Services Agreement (Novated Contracts), and the Price Adjustment Escrow
Agreement, each duly executed by Buyer;

 

5.3.3        A certificate executed by
Buyer certifying to Seller that each of Buyer’s representations and warranties
set forth in this Agreement was true and correct in all material respects as of
the Effective Date and is true and correct in all material respects as of the
Closing Date as if made on the Closing Date; and

 

5.3.4        Appropriate evidence of
all necessary action by Buyer in connection with this transaction, including
(i) certified copies of resolutions duly adopted by Buyer’s Board of
Directors approving this transaction and authorizing the execution, delivery,
and performance by Buyer of this Agreement; and (ii) a certificate as to
the incumbency of officers of Buyer executing this Agreement and the Buyer
Closing Documents.

 

5.4           Other Contracts with
USDA. On or prior to the Closing Date, Buyer shall have (i) provided to the
USDA suitable surety as required by those Other Contracts to which the USDA is
a party and as to which the USDA has approved the assignment to Buyer, and (ii)
caused the release (which may be effective as of the effective time of the
novation agreement) of the surety provided to the USDA by Seller pursuant to
such Other Contracts. On the Closing Date, Seller shall deliver to Buyer a
novation agreement to be accepted and executed by the United States Government
after the Closing with respect to those Other Contracts to which the USDA is a
party and as to which the USDA has approved the assignment to Buyer. Buyer
acknowledges that the United States Government may not execute such novation
agreement until after the Closing and agrees that execution of such novation
agreement by the United States Government shall not be a condition to Buyer’s
obligation to close this transaction as provided herein.

 

5.5           Taxes. In
accordance with Section 1146(c) of the Bankruptcy Code, the making or delivery
of any instrument to evidence, effectuate, or perfect the rights, transfers,
and conveyances contemplated by this Agreement shall be in contemplation of a
plan or plans of reorganization to be confirmed in the Case and, as such, shall
be free and clear of any and all Taxes and any such instrument may, at the
request of Buyer, contain an endorsement to that effect. In the event that,
notwithstanding the foregoing, any Taxes are assessed on the transfer of the
Purchased Assets to Buyer, such Taxes shall be paid by Seller and Seller shall
complete and file all returns associated therewith.

 

5.6           Closing Costs.
The costs associated with the Closing shall be allocated as follows:

 

5.6.1        Seller shall pay one-half
of any escrow fee of the Title Company incurred in connection with the transfer
of the real property included in the Purchased Assets.

 

13

 

5.6.2        Buyer shall pay (i)
one-half of any escrow fee of the Title Company incurred in connection with the
transfer of the real property included in the Purchased Assets, (ii) recording
fees with respect to the Deeds, and (iii) the premium for Title Policies, as
well as for any endorsements thereto that Buyer elects to obtain.

 

5.7           Prorations.

 

5.7.1        Rent and other amounts
paid or payable under the Real Property Leases and the Personal Property
Leases, current-year real property taxes and assessments on the Mills and the
Prineville Property, and current-year personal property taxes, if any, on the
Purchased Assets shall be prorated between Seller and Buyer as of the Closing
Date. All obligations due in respect of periods on or prior to the Closing Date
(other than the Assumed Liabilities) shall be paid in full or otherwise
satisfied by Seller, and all obligations due in respect of periods after the
Closing Date shall be paid in full or otherwise satisfied by Buyer.

 

5.7.2        The parties acknowledge
that Seller has instituted and is pursuing an appeal of certain real property
taxes in connection with the Port Angeles Mill. Without limiting the generality
of the provisions of Section 5.7.1, in the event such appeal results in a
refund of real property taxes previously paid, Seller shall be entitled to the
amount thereof attributable to the period prior to the Closing Date and Buyer
shall be entitled to the amount thereof, if any, attributable to the period
from and after the Closing Date. In the event either party receives any refund
to which the other party is entitled pursuant to the immediately preceding
sentence, the party receiving such refund shall promptly pay to the other party
the appropriate portion of such refund.

 

5.8           Possession.
Buyer shall be entitled to possession of the Mills and the other Purchased
Assets immediately upon the Closing.

 

6.             Representations
and Warranties.

 

6.1           Seller’s
Representations and Warranties. Seller represents and warrants to Buyer as
follows:

 

6.1.1        Organization and Good
Standing. Seller is a limited partnership duly formed, validly existing,
and in good standing under the laws of the State of Delaware. Crown Management
is the sole general partner of Seller.

 

6.1.2        Authority; No Conflict.

 

(a)           Upon
entry of the Approval Order, this Agreement will constitute the legal, valid,
and binding obligation of Seller, enforceable against Seller in accordance with
its terms. Upon their execution and delivery by Seller at the Closing, each of
the Seller Closing Documents will constitute the legal, valid, and binding
obligations of Seller, enforceable against Seller in accordance with their
respective terms. Subject to entry of the Approval Order and applicable
provisions of bankruptcy law, Seller has full partnership power, authority, and
capacity to execute and deliver this Agreement and each of the Seller Closing
Documents and to perform its obligations hereunder and thereunder.

 

(b)           Upon
entry of the Approval Order, neither the execution and delivery of this
Agreement, nor the performance of any of Seller’s obligations hereunder, nor
the consummation of this transaction will, directly or indirectly (with or
without notice, lapse of time, or both), (i) contravene or result in a
violation of any provision of Seller’s Organizational Documents or any
resolution adopted by the Board of Control, by the general or limited partners
of Crown Management, or by the limited partners of Seller; (ii) contravene
or result in a violation of any Legal Requirement or any Order to which Seller
or any of the Purchased Assets is subject; or (iii) contravene or result
in a violation or breach of any provision of, or give any Person the right to
declare a default or exercise any remedy under, any agreement, instrument, or
writing of any nature to which Seller is a party or by which Seller or any of
its assets or properties is bound.

 

14

 

6.1.3        Certain Proceedings.
Except for the Case, no Proceeding is pending or, to Seller’s Knowledge, has
been Threatened, against Seller that challenges, or could reasonably be
expected to have the effect of preventing, making illegal, or otherwise
materially interfering with, this transaction.

 

6.1.4        Sufficiency of
Purchased Assets. The Purchased Assets, together with the Excluded Assets,
the assets of KNRC, and the Tree Farms, constitute all of the assets material
to Seller’s conduct of the Business prior to the Effective Date.

 

6.1.5        Real Property Interests.
Schedules 1.1.1-1, 1.1.1-2, 1.1.1-3, and 1.1.1-4 contain complete and
accurate descriptions of the Port Angeles Mill, the Marysville Mill, the
Gilchrist Mill, and the Prineville Property, respectively. Seller does not own
or lease and has not agreed to acquire or lease any real property or interest
in real property material to the Business other than the Port Angeles Mill, the
Marysville Mill, the Gilchrist Mill, the Prineville Property, the Portland
Office, and the Tree Farms. Seller has the exclusive right to possess, use, and
occupy and has good and marketable title in fee simple to all the real property
described on Schedules 1.1.1-1, 1.1.1-2, 1.1.1-3, and 1.1.1-4 and has the
exclusive right to occupy the properties leased pursuant to the Real Property
Leases (subject to the terms thereof), in each case free and clear of all Liens
other than Permitted Encumbrances; provided that (i) the improvements
constituting the Port Angeles Mill are leased pursuant to the Port Angeles Mill
Lease, and (ii) Seller’s rights with respect to the Port Angeles Mill are
subject to the terms of the Port Angeles Mill Lease. All buildings, structures,
improvements, and appurtenances situated on such owned or leased real property
are adequate and suitable in all material respects for the purposes for which
they are currently being used and Seller has adequate rights of ingress and
egress for the operation of the Business in the ordinary course. To Seller’s
Knowledge, none of such buildings, structures, improvements, or appurtenances
(or any equipment therein), nor the operation or maintenance thereof, violates
in any material respect any applicable restrictive covenant or any applicable
Legal Requirement, or encroaches on any property owned by any other Person.

 

6.1.6        Tangible Personal
Property. All material tangible personal property owned by Seller that is
used in the Business is located at the Mills or at the Portland Office.
Schedule 1.1.3 contains a true and complete list of all machinery, equipment,
motor vehicles, furnishings, trade fixtures, chattels, and other tangible
personal property owned by Seller and used principally in connection with the
Business as of the Effective Date (other than the personal property, if any,
identified on Schedule 1.2 and items of tangible personal property the
aggregate cost of which to Seller was less than $100,000).

 

6.1.7        Intangible Property.

 

(a)           Schedule
1.1.6-1 contains a complete and accurate list of all material licenses,
permits, approvals, consents, certificates, registrations, and authorizations
(governmental, regulatory, or otherwise) held by or issued to Seller in respect
of the Business. To Seller’s Knowledge, the Permits and Licenses are all
licenses, permits, approvals, consents, certificates, registrations and
authorizations (governmental, regulatory, or otherwise) required for the
continued lawful conduct of the Business as the same has been conducted by
Seller prior to the Effective Date.

 

(b)           Other
than the name “Crown Pacific” and Seller’s logo, Seller neither owns nor is
licensed to use any trademarks, trade names, business names, patents,
inventions, copyrights, service marks, brand names, or industrial designs that
are used in conducting the Business. No Person has been granted any interest in
or right to use all or any portion of the Intangible Property by Seller or, to
Seller’s Knowledge, by any other Person.

 

6.1.8        Financial Statements.
The consolidated financial statements of Crown Partners, as filed with the U.S.
Securities and Exchange Commission, are prepared in accordance with GAAP. The
accounting processes and procedures used in the preparation of the Mills
Operating Statements and the Mills Balance Sheets are consistent with
those  used in the preparation of the
foregoing consolidated financial statements of Crown Partners. The Mills
Operating Statements are correct and complete in all material respects and
fairly and accurately present the sales, earnings, and results of operations of
the Business for the respective periods covered by the Mills Operating
Statements. The Mills Balance Sheets are correct and complete in all material
respects and fairly and accurately presents the assets and the known and
recorded liabilities of the Business (excluding Seller’s debt) as at

 

15

 

the Balance Sheet Date. Between the Balance Sheet Date
and the Effective Date, no event or change has occurred that would or could
reasonably be expected to give rise to a Material Adverse Effect.

 

6.1.9        Employees. Seller
has previously provided to Buyer the following information for each of the
Business Employees: Name, job title, current annual salary or rate of pay, the
date and amount of such employee’s most recent pay increase, and such
employee’s period of employment with Seller, any Affiliate of Seller, and any
predecessor of Seller (to the extent, if any, that Seller takes such period of
employment into account in determining entitlement to benefits). The foregoing
information provided to Buyer is true, correct, and complete in all material
respects. There are no contracts of employment or service, whether wholly or
partly in writing or unwritten, with any Business Employees. To Seller’s Knowledge, none of the Business
Employees is subject to any non-competition or confidentiality agreement in
favor of any other Person. Except as set forth on the attached Schedule
6.1.9, Seller has not (i) during the ninety (90) days immediately preceding
the Effective Date, terminated any employees of the Business or (ii) since
January 1, 2000, terminated any employees of the Business in circumstances that
gave rise to any liability or obligation under the WARN Act.

 

6.1.10      Employee Controversies.
To Seller’s Knowledge, except as disclosed on the attached Schedule 6.1.10,
since June 1, 2001, no written notice has been received by Seller of any
complaint filed or Threatened by any of Seller’s employees in respect of the
Business claiming that Seller is in breach of the terms of any contract of
employment or that Seller has violated any applicable Legal Requirements with
respect to employment matters. There are no outstanding orders or charges
against Seller under any applicable Legal Requirements relating to occupational
safety and health. Any levies, assessments, and penalties made against Seller
pursuant to applicable Legal Requirements relating to occupational safety and
health have been paid in full.

 

6.1.11      Employee Benefits.
There are no policies or practices of Seller which confer benefits on employees
of Seller in respect of the Business or create obligations of Seller with
respect to such employees and that will be binding upon Buyer in connection
with its employment of the Business Employees from and after the Closing Date.
Seller has previously made available to Buyer all pension, group insurance,
profit sharing, and similar plans, incentive arrangements, and deferred
compensation plans of any kind made available to any employees of Seller in
respect of the Business. There is no unfunded liability in connection with any
such plans and Seller has complied in all material respects with its
obligations under such plans.

 

6.1.12      No Collective Bargaining
Agreements or Union Certifications. With respect to employees of Seller in
respect of the Business, there are, and since June 1, 2001 have been, no (i)
collective bargaining agreements in effect, (ii) union certifications or
applications for union certification outstanding, (iii) union organizing
drives, (iv) voluntary recognitions of any union as the bargaining agent for
any such employees, or (v) material labor disputes, grievances, strikes, or
lockouts, pending or Threatened.

 

6.1.13      Assigned Contracts.
To Seller’s Knowledge, (i) each of the Assigned Contracts is valid, binding, in
full force and effect, and enforceable by Seller in accordance with its terms,
(ii) the material terms and conditions of each of the Assigned Contracts have
not be modified in any material respect, (iii) Seller is not in breach or
default in any material respect under any of the Assigned Contracts (except to
the extent, if any, that the filing of the Case constitutes a breach or default
thereunder), and (iv) no other party is in breach or default in any material
respect under any of the Assigned Contracts.

 

6.1.14      Compliance with Law.
To Seller’s Knowledge, except as described on the attached Schedule 6.1.14,
Seller has conducted all aspects of the Business, including all dealings with
or in respect of the Business Employees, in accordance with all applicable
Legal Requirements and in compliance with the Permits and Licenses, the breach
of any of which would or could reasonably be expected to give rise to a
Material Adverse Effect.

 

16

 

6.1.15      Environmental Matters.
To Seller’s Knowledge, except as otherwise described on the attached Schedule
6.1.15 or in the Environmental Reports (true, correct, and complete copies
of which have been delivered or made available to Buyer):

 

(a)           In
connection with its ownership and operation of the Mills and the Prineville
Property, Seller has been and is in compliance in all material respects with
all applicable Environmental Laws.

 

(b)           (i)
Except for the prudent and safe use and management of Hazardous Substances in
the Ordinary Course of Business, no Hazardous Substance (x) is or, during the
period of Seller’s ownership, has been used, treated, stored, generated,
manufactured, or otherwise handled on or at any Mill or the Prineville Property
or (y) during the period of Seller’s ownership, has otherwise come to be
located in, on, or under any Mill or the Prineville Property; (ii) no Hazardous
Substances are stored at any Mill or on the Prineville Property except in
quantities necessary to satisfy reasonably anticipated use; and (iii) no
Hazardous Substances have been spilled, released, or discharged in a manner
resulting in the Contamination of any Mill or the Prineville Property during
the period of Seller’s ownership.

 

(c)           All
wastes generated by Seller at any Mill or the Prineville Property have been
properly transported off site and disposed of or recycled in compliance in all
material respects with all applicable Environmental Laws.

 

(d)           No
outstanding Liens (other than Permitted Encumbrances) have been placed on any
Mill or the Prineville Property under any Environmental Law.

 

(e)           Seller
has not received any notice, and is not aware, of any pending or Threatened
Proceeding with respect to any violation, alleged or proven, of any
Environmental Law by Seller involving any Mill, the Prineville Property, or any
operation conducted by Seller at any Mill or on the Prineville Property,
excluding notices or Proceedings relating to matters which have been resolved
in accordance with all applicable Legal Requirements and are no longer
outstanding.

 

(f)            There
are no underground storage tanks at any Mill or the Prineville Property,
including tanks that have been closed in place or are exempt from regulation.

 

6.2           Buyer’s
Representations and Warranties. Buyer represents and warrants to Seller as
follows:

 

6.2.1        Organization and Good
Standing. Buyer is a corporation duly incorporated, validly existing, and
in good standing under the laws of British Columbia.

 

6.2.2        Authority; No Conflict.

 

(a)           This
Agreement constitutes the legal, valid, and binding obligation of Buyer,
enforceable against Buyer in accordance with its terms. Upon their execution
and delivery by Buyer at the Closing, each of the Buyer Closing Documents will
constitute the legal, valid, and binding obligations of Buyer, enforceable
against Buyer in accordance with their respective terms. Buyer has full
corporate power, authority, and capacity to execute and deliver this Agreement
and each of the Buyer Closing Documents and to perform its obligations
hereunder and thereunder.

 

(b)           Neither
the execution and delivery of this Agreement, nor the performance of any of
Buyer’s obligations hereunder, nor the consummation of this transaction will,
directly or indirectly (with or without notice, lapse of time, or both), (i)
contravene or result in a violation of any provision of Buyer’s Organizational
Documents or any resolution adopted by the Board of Directors or the
shareholders of Buyer; or (ii) contravene or result in a violation of any Legal
Requirement or any Order to which Buyer is subject; or (iii) contravene or
result in a violation or breach of any provision of, or give any Person the
right to declare a default or exercise any remedy under, any agreement,
instrument, or

 

17

 

writing of any nature to which Buyer is a party or by
which Buyer or any of its assets or properties is bound.

 

6.2.3        Certain Proceedings.
No Proceeding is pending or, to Buyer’s Knowledge, has been Threatened against
Buyer that challenges, or could reasonably be expected to have the effect of
preventing, making illegal, or otherwise materially interfering with, this
transaction.

 

6.2.4        Sufficient Funds.
Buyer has sufficient funds available to consummate this transaction.

 

6.3           “AS IS” Transaction.
As a material inducement to Seller to enter into this Agreement and to consummate
this transaction, Buyer hereby acknowledges and agrees as follows:

 

6.3.1        Buyer has conducted all
investigations, inspections, studies, tests, and analyses that it wished to
conduct with respect to the Mills, the Prineville Property, and the other Purchased
Assets and has been provided sufficient access to the Mills, the Prineville
Property, and the other Purchased Assets for such purpose. In entering into
this Agreement, Buyer is relying solely on its own investigation and is
assuming the risk that adverse physical, economic, or other conditions or
circumstances may not have been revealed by its investigation.

 

6.3.2        EXCEPT AS EXPRESSLY SET
FORTH IN SECTION 6.1, NEITHER SELLER NOR ANY OF ITS REPRESENTATIVES MAKES OR
HAS MADE ANY REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, WITH
RESPECT TO ANY MATTER RELATING TO ANY MILL, THE PRINEVILLE PROPERTY, OR ANY
OTHER PURCHASED ASSET. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, EXCEPT
AS EXPRESSLY SET FORTH IN SECTION 6.1, SELLER HEREBY EXPRESSLY DISCLAIMS ANY
WARRANTY WHATSOEVER, WHETHER STATUTORY OR OTHERWISE AND WHETHER EXPRESS OR
IMPLIED, OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE AS TO ANY MILL,
THE PRINEVILLE PROPERTY, OR ANY OF THE OTHER PURCHASED ASSETS (OR ANY PORTION
THEREOF).

 

6.3.3        ON CLOSING, BUYER WILL
ACCEPT THE MILLS, THE PRINEVILLE PROPERTY, AND THE OTHER PURCHASED ASSETS “AS
IS,” “WHERE IS,” AND “WITH ALL FAULTS.’

 

6.3.4        Nothing in this Section
6.3 shall be construed to limit Buyer’s right to terminate this transaction as
provided in this Agreement upon a failure of any of the conditions set forth in
Section 4.2.

 

6.4           No  Survival of Representations and Warranties.
The representations and warranties set forth in Sections 6.1 and 6.2 shall not
survive the Closing or beyond the Closing Date.

 

7.             Additional
Covenants.

 

7.1           Employee Matters.

 

7.1.1        Offer of Employment.
Seller shall terminate the employment of all of the Business Employees and up
to ten (10) of the Administrative and Sales Employees, as may be selected by Buyer
in its discretion, as of the Closing Date. Buyer agrees to offer (or to cause
one of its Affiliates to offer) employment at the same or substantially similar
positions, effective as of the Closing Time, to substantially all of the
Business Employees and to the ten (10) or fewer Administrative and Sales
Employees selected by Buyer. Each such offer of employment shall provide for a
base salary or wage level until the first anniversary of the Closing Date that
is not less than that paid by Seller on the Closing Date. Seller shall
cooperate with Buyer in the distribution of contingent offers of employment to
such Business Employees and Administrative and Sales Employees prior to the
Closing and collection of accepted offers. Those Business Employees and Administrative
and Sales Employees who are offered employment and accept such offers of
employment and become employees of Buyer are referred to herein as the “Continuing
Employees”. Buyer reserves the right to terminate the employment of any
Continuing Employee after the Closing Date at will, with or without cause or
advance notice.

 

18

 

7.1.2        WARN Act. To the
extent, if any, required by applicable Legal Requirements, including the WARN
Act, Seller shall be responsible for notifying its employees of the termination
of their employment by Seller as of the Closing Date. To the extent, if any,
required by applicable Legal Requirements, including the WARN Act, Buyer shall
be responsible for notifying the Continuing Employees of any termination of
employment occurring after the Closing Date. Buyer agrees to indemnify, defend,
and hold harmless Seller, its Affiliates, and their respective Representatives
from and against any and all Damages arising or alleged to arise under the WARN
Act or any other applicable Legal Requirement relating to the termination of
any Continuing Employee after the Closing Date.

 

7.1.3        Employee Benefits.
Effective as of the Closing Date, Buyer shall establish a medical plan for the
Continuing Employees and their dependents and beneficiaries, without
preexisting condition exclusions, waiting times to commence coverage, or other
lapses in coverage. Buyer shall recognize for purposes of eligibility and
vesting under its policies and employee benefit plans the service recognized
for such purposes by Seller or any of its Affiliates prior to the Closing Date.

 

7.1.4        Welfare Benefits Claims.
Claims of Continuing Employees and their eligible beneficiaries and dependents
for medical, dental, prescription drug, life insurance, and other welfare
benefits (“Welfare Benefits”) (other than disability benefits as
described below) that are incurred before the Closing Date shall be the sole
responsibility of Seller and Seller’s welfare benefit plans. Claims of Continuing
Employees and their eligible beneficiaries and dependents for Welfare Benefits
(other than disability benefits) that are incurred on or after the Closing Date
shall be the sole responsibility of Buyer and Buyer’s welfare benefit plans.
For purposes of the preceding provisions of this Section 7.1.4, a medical or
dental claim shall be considered incurred on the date when medical or dental
services are rendered or medical or dental supplies are provided, and not when
the condition arose or the course of treatment began. Claims of individuals who
are receiving or have filed claims for long-term disability benefits under a
disability plan of Seller as of the Closing Date shall be the sole
responsibility of Seller under such plan. Claims of Continuing Employees and
their eligible beneficiaries and dependents for short-term or long-term
disability benefits that are first made on or after the Closing Date shall be
the sole responsibility of Buyer.

 

7.1.5        COBRA Obligations.
Notwithstanding anything to the contrary in this Agreement, Seller shall retain
all liabilities, and Buyer shall have no liability, with respect to the
provision of notices, election periods, and benefits pursuant to Section 4980B
of the Code or Part 6 of Subtitle B of Title 1 of ERISA, to any Business
Employees or any other former employees of Seller or other individuals
associated with any Business Employees or any other former employees of Seller
with respect to qualifying events occurring on or before the Closing Date or in
connection with this transaction.

 

7.1.6        Forms W-2. Seller and
Buyer agree that (i) Seller will issue a Form W-2 to each individual who is
employed at any Mill as of, or prior to, the Closing Date in respect of all
payments made by Seller with respect to such pre-Closing employment, and (ii)
Buyer will issue a Form W-2 to each Continuing Employee in respect of all
payments made by Buyer or any Affiliate of Buyer to each such individual after
the Closing Date.

 

7.2           Retention of and
Access to Books and Records.

 

7.2.1        Buyer agrees to retain the
Books and Records for a period of seven (7) years after the Closing Date. Buyer
shall permit Seller (or its successor) and its Representatives to inspect and
copy, at Seller’s (or such successor’s) sole expense, any of the Books and Records
at any time during normal business hours, upon reasonable advance notice.

 

7.2.2        After the seven-year
period referred to in Section 9.2.1, Buyer shall provide not less than thirty
(30) nor more than sixty (60) days notice to Seller (or its successor, if
previously identified by notice to Buyer) prior to any proposed destruction or
disposition of any of the Books and Records. Any such notice shall identify
with reasonable specificity the Books and Records to be destroyed or disposed
of and the date on which such destruction or disposition will occur. If the
recipient of any such notice wishes to obtain any of the Books or Records to be
destroyed or disposed of, it may do so by giving notice to Buyer at any time
prior to the scheduled date for destruction or disposition. All out-of-pocket
costs of delivering any such Books and Records to a requesting party shall be
paid by such party.

 

19

 

7.3           Use of Crown Pacific
Name. Buyer shall not, at any time after the Closing, use in connection
with the ownership, use, or operation of the Mills or the other Purchased
Assets the name “Crown Pacific” or any name deceptively similar thereto or
Seller’s logo; provided, however, that in connection with its sale or use
of Raw Materials, Residuals, and Finished Goods Inventory, Buyer shall be
entitled to use all wrapping included in the Parts and Supplies Inventory,
notwithstanding the inclusion thereon of the name “Crown Pacific” and Seller’s
logo. As soon as reasonably practicable after the Closing Date, Buyer shall
remove from each Mill and the other Purchased Assets, other than Inventory, all
references to the name “Crown Pacific” and Seller’s logo.

 

7.4           Reasonable Access to
Records and Certain Personnel. As long as the Case is pending, (i) Buyer
shall permit Seller’s counsel and other professionals employed in the Case
reasonable access to the Books and Records (whether in documentary or data
form) for the purpose of the continuing administration of the Case (including the
pursuit of any avoidance, preference, or similar action), which access shall
include (a) the right to copy, at Seller’s expense, such documents and records
as such professionals may request in furtherance of the purposes described
above, and (b) Buyer’s copying and delivering to Seller or its professionals
such documents or records as they may request, but only to the extent Seller or
its professionals furnish Buyer with reasonably detailed written descriptions
of the materials to be so copied and Seller reimburses Buyer for the reasonable
costs and expenses thereof, and (ii) Buyer shall provide Seller and such
professionals (at no cost to Seller) with reasonable access during normal
business hours to personnel to whom Seller may need continued access post-Closing
to assist Seller in the continuing administration of the Case, so long as such
access does not unreasonably interfere with Buyer’s normal business operations.

 

7.5           Access Easements.

 

7.5.1        Upon the request of Seller
(or any successor of Seller with respect to the Tree Farms) made before or
after the Closing Date, Seller (or such successor) and Buyer (or its successor
with respect to the Gilchrist Mill) shall negotiate in good faith a perpetual,
non-exclusive easement over the existing road marked in blue on the map
attached as Exhibit K for purposes of access to and from the Tree Farms
(or any portion thereof); provided that Seller (or such successor)
and Buyer shall negotiate in good faith with respect to sharing the cost of
maintaining such road. Any successor owner of the Tree Farms shall have the
right to enforce the provisions of this Section 7.5.

 

7.5.2        Until December 31, 2004,
Buyer shall be entitled to continue to use, without charge, the water loading
facility located on the Tree Farms to the north of the Gilchrist Mill for the
purpose of loading water trucks for use at the Gilchrist Mill in the Ordinary
Course of Business. Seller shall not be obligated to maintain such water
loading facility.

 

7.6           Payments under
Specified Assigned Contract. Buyer shall pay to Seller promptly upon
receipt any amount received by Buyer after the Closing Date pursuant to the
Assigned Contract identified as item 12 on Schedule 1.1.5-1 which is
attributable to the period prior to the Closing Date.

 

7.7           Payments for Certain
Discount Receivables. With respect to any Discount Receivable which is not
paid within ten (10) days of the date billed (and which is therefore not
subject to a one percent (1.0%) discount in favor of the account debtor), Buyer
shall pay to Seller an amount equal to one percent (1.0%) of the amount of such
Receivable, promptly upon Buyer’s receipt of payment therefor from the
applicable account debtor after the Closing Date.

 

8.             Termination.

 

8.1           Termination Events.
This Agreement may, by notice given prior to or at the Closing (which notice
shall specify the grounds for termination), be terminated:

 

8.1.1        By Seller:

 

(a)           Upon
the occurrence of a Buyer Breach,

 

20

 

(b)           Upon
the failure of any of the conditions set forth in Sections 4.1, unless such
failure is the result of a Seller Breach,

 

(c)           Upon
any termination of the KNRC Agreement, or

 

(d)           If
a Qualifying Bid other than this Agreement is announced as the highest and best
bid at the Auction and Seller enters into an agreement with respect to such
Qualifying Bid that would constitute an Alternative Transaction;

 

8.1.2        By Buyer:

 

(a)           Upon
the occurrence of a Seller Breach,

 

(b)           As
provided in Section 3.5.2 or 3.5.3 or upon the failure of any of the conditions
set forth in Sections 4.2, unless such failure is the result of a Buyer Breach,

 

(c)           Upon
any termination of the KNRC Agreement,

 

(d)           On
any date that is more than forty-five (45) days after the Effective Date if the
Bidding Procedures Order has not been entered as of the date on which notice of
termination is given, so long as no Buyer Breach has occurred prior to such
date and remains uncured,

 

(e)           On
any date that is more than ninety (90) days after the Effective Date if the
Closing has not occurred as of the date on which notice of termination is
given, so long as no Buyer Breach has occurred prior to such date and remains
uncured, or

 

(f)            If
a Qualifying Bid other than this Agreement is announced as the highest and best
bid at the Auction and Seller enters into an agreement with respect to such
Qualifying Bid that would constitute an Alternative Transaction, so long as no
Buyer Breach has occurred prior to the conclusion of the Auction and remains
uncured; or

 

8.1.3        By mutual written
agreement of Seller and Buyer.

 

8.2           Remedies for Buyer
Breach. In the event this Agreement is terminated (x) by Seller pursuant to
Section 8.1.1(a), 8.1.1(c) (if the KNRC Agreement is terminated due to a Buyer
Breach), or 8.1.1(d) (if a Buyer Breach has occurred), or (y) by Buyer pursuant
to Section 8.1.2(c) (if the KNRC Agreement is terminated due to a Buyer
Breach), then in any of such events (i) the Deposit and all accrued interest
thereon shall promptly be released to Seller by the Deposit Escrow Agent, and
(ii) neither party shall have any further liability or obligation under this
Agreement.

 

8.3           Return of Deposit.
In the event this Agreement is terminated (x) by Seller pursuant to
Section  8.1.1 (other than in the
circumstances described in Section 8.2), (y) by Buyer pursuant to Section 8.1.2
(unless the KNRC Agreement is terminated due to a Buyer Breach), or (z) by the
parties pursuant to Section 8.1.3, then in any of such events (i) the Deposit
and all accrued interest thereon shall promptly be returned to Buyer by the
Deposit Escrow Agent, and (ii) neither party shall have any further liability
or obligation under this Agreement, except as expressly provided in Sections
8.4 and 8.5.

 

8.4           Expense
Reimbursement. In the event this Agreement is terminated by Seller pursuant
to Section 8.1.1(d) or by Buyer pursuant to Section 8.1.2(a) or 8.1.2(f), then
so long as no Buyer Breach occurred prior to, and remained uncured on, the date
on which notice of such termination is given, Buyer shall be granted an allowed
administrative claim in the Case in the amount of Five Hundred Thousand Dollars
($500,000) (the “Expense Reimbursement”), which sum represents a
reasonable estimate by the parties of amount of the expenses, fees, and
disbursements that will be incurred by Buyer in connection with this
transaction. The Expense Reimbursement shall be payable by Seller to Buyer on
the earlier of (i) the closing of an Alternative Transaction, and (ii) the
effective date of a confirmed plan of reorganization for Seller.

 

21

 

8.5           Break-Up Fee.

 

8.5.1        In the event this
Agreement is terminated by Seller pursuant to Section 8.1.1(d) or by Buyer
pursuant to Section 8.1.2(f), then so long as no Buyer Breach occurred prior
to, and remained uncured on, the date on which notice of such termination is
given, Buyer shall be granted an allowed administrative claim in the Case in
the amount of Two Million Dollars ($2,000,000) (the “Break-Up Fee”). In
the circumstances described in this Section 8.5.1, the Break-Up Fee shall be
payable by Seller to Buyer on the earlier of (i) the closing of an Alternative
Transaction, and (ii) the effective date of a confirmed plan of reorganization
for Seller.

 

8.5.2        In the event this
Agreement is terminated by Buyer pursuant to Section 8.1.2(a) and, within
twelve (12) months after the Effective Date, Seller consummates an Alternative
Transaction, then so long as no Buyer Breach occurred prior to, and remained
uncured on, the date on which notice of such termination was given, Seller
shall pay the Break-Up Fee to Buyer on the closing of such Alternative
Transaction.

 

8.6           Buyer’s Exclusive
Remedies. Buyer’s remedies for any termination of this Agreement shall be
limited to those expressly set forth in this Section 8, including Buyer’s right
to receive the Expense Reimbursement as provided in Section 8.4 and Buyer’s
right to receive the Break-Up Fee as provided in Section 8.5.

 

8.7           Survival of
Provisions. The provisions of Section 8.2 through 8.6, inclusive, shall
survive any termination of this Agreement and be fully enforceable thereafter.

 

9.             Definitions
and Interpretation.

 

9.1           Defined Terms.
As used in this Agreement, the following terms have the respective meanings set
forth below:

 

“Accountants”
means a nationally recognized firm of independent certified public accountants
jointly selected by the parties or, if they are unable to agree within five (5)
Business Days, appointed by the Bankruptcy Court upon the request of either
party.

 

“Actual Price
Adjustment” means an amount equal to:

 

(i)            the
value of the Raw Materials, Residuals, and Finished Goods Inventory on hand as
of the Closing Time (as determined pursuant to Section 2.5.1), valued in
accordance with GAAP, plus

 

(ii)           ninety-five
percent (95.0%) of the value of the Receivables other than the Discount
Receivables, valued in accordance with GAAP; provided that in valuing the
Receivables, no reserve shall be taken for delinquent Receivables, plus

 

(iii)          ninety-four percent (94.0%) of the value of
the Discount Receivables, valued in accordance with GAAP, plus

 

(iv)          amounts
paid as deposits by Seller under Cutting Contracts, to the extent unapplied
thereunder as of the Closing Time, except as the same may be required by Buyer
to be applied to satisfy accrued obligations of Seller thereunder up to the
Closing Time, plus

 

(v)           outstanding
deposits as of the Closing Time (i) on all Assigned Contracts other than
Cutting Contracts, or (ii) that relate to any of the Purchased Assets, plus

 

(vi)          prepaid
expenses (other than prepaid insurance premiums) as of the Closing Time in
connection with the operation of any Mill, plus or minus as may be
applicable

 

(vii)         the net amount of any prorations pursuant to
Section 5.7.1.

 

22

 

“Administrative and
Sales Employees” means employees of Seller who perform sales or marketing,
data processing, accounting, human resource management, payroll, and related
benefits and systems services for the Business as of the Closing Date and who
ordinarily report for work at the Portland Office.

 

“Affected Assets”
has the meaning set forth in Section 3.3.1(a).

 

“Affiliate” means
(i) with respect to an individual (a) each member of such individual’s Family
(as hereinafter defined), (b) any Person that is directly or indirectly
controlled by such individual or one or more members of such individual’s
Family, (c) any Person in which such individual or one or more members of such
individual’s Family hold (individually or in the aggregate) a Material Interest
(as hereinafter defined), and (d) any Person with respect to which such
individual or one or more members of such individual’s Family serves as a
director, officer, partner, executor, or trustee (or in any similar capacity);
or (ii) with respect to any Person other than an individual (a) any Person that
directly or indirectly controls, is directly or indirectly controlled by, or is
directly or indirectly under common control with such Person, (b) any Person
that holds a Material Interest in such Person or in which such Person holds a
Material Interest, (c) each Person that serves as a director, officer, partner,
executor, or trustee of such Person (or in any similar capacity), (d) any
Person with respect to which such Person serves as general partner or trustee (or
in any similar capacity), and (e) any Affiliate of any individual described in
the foregoing clause (ii)(c) or (ii)(d). For purposes of this definition, (A)
the “Family” of an individual means the individual, the individual’s
spouse, any other natural person who is related to the individual or the
individual’s spouse within the second degree, and any other natural person who
resides with the individual; and (B) “Material Interest” means direct or
indirect beneficial ownership of voting securities or interests representing at
least 20% of the outstanding voting power of a Person or equity securities or
interests representing at least 20% of the outstanding equity securities or
interests in a Person.

 

“Agreement” means
this Asset Purchase Agreement (Mills).

 

“Alliance Business”
means the contractor supply businesses operated by Seller in Queen Creek,
Scottsdale, and Glendale, Arizona, and in Sparks (Reno), Nevada.

 

“Alternative
Transaction” means a transaction or plan of reorganization involving
(whether in one or more steps or separate transactions) a disposition of all or
any of the Port Angeles Mill, the Gilchrist Mill or the Marysville Mill, or any
substantial portion of any of them, whether directly or indirectly through a
sale of equity (by merger, consolidation or otherwise) or in consideration of
the claims or liens of creditors of Seller, to a Person or Persons other than
Buyer or any of its Affiliates.

 

“Antitrust Agencies”
has the meaning set forth in Section 3.4.

 

“Approval Order”
has the meaning set forth in Section 3.7.

 

“Assigned Contracts”
means the Personal Property Leases and the Other Contracts, other than any of
the foregoing that become Excluded Contracts pursuant to Section 3.6.

 

“Assignment and
Assumption Agreement” has the meaning set forth in Section 5.2.3.

 

“Assumed Liabilities”
has the meaning provided in Section 2.7.

 

“Auction” means an
auction to be conducted by Seller pursuant to the Bidding Procedures Order.

 

“Balance Sheet Date”
means April 30, 2004.

 

“Bankruptcy Code”
has the meaning set forth in the preamble.

 

“Bankruptcy Court”
has the meaning set forth in the preamble.

 

“Bid” has the
meaning set forth in Section 3.8.1.

 

23

 

“Bid Deadline” has
the meaning set forth in Section 3.8.2.

 

“Bidding Procedures”
has the meaning set forth in Section 3.8.

 

“Bidding Procedures
Order “ has the meaning provided in Section 3.7.

 

“Bill of Sale” has
the meaning set forth in Section 5.2.2.

 

“Board of Control”
means the Board of Control of Crown Management.

 

“Books and Records”
means all customer records, files, books, and records of Seller that pertain
principally to the Business, the operation of the Mills, the ownership, use,
and operation of the Purchased Assets, or the payment or performance of the
Assumed Liabilities, including any such records maintained on computer and all
related computer software, but excluding personnel files the disclosure of
which is prohibited under applicable Legal Requirements.

 

“Breach” means any
inaccuracy in or breach of, or any failure to perform or comply with, any
representation, warranty, covenant, obligation, or other provision of this
Agreement or any document delivered pursuant to this Agreement.

 

“Break-Up Fee” has
the meaning set forth in Section 8.5.1.

 

“Business” means
the business currently carried on by Seller’s manufacturing segment, including
the purchase of logs and the production of lumber products at the Mills and the
sale of such products and all activities of Seller incidental thereto; provided
that in no event shall the Business include the Tree Farms or the Alliance
Business.

 

“Business Day”
means any day other than a Saturday, Sunday, or other day on which commercial
banks in Vancouver, British Columbia, and Portland, Oregon, are authorized or
required by applicable Legal Requirements to be closed.

 

“Business Employees”
means employees of Seller actively employed in the Business as of the Closing
Date who ordinarily report for work at any of the Mills.

 

“Buyer” has the
meaning set forth in the preamble.

 

“Buyer Breach”
means any of the following:

 

(i)            Buyer’s
representations and warranties set forth in this Agreement (considered
collectively) are, or any such representation and warranty (considered
individually) is, determined not to have been true and correct in all material
respects when made;

 

(ii)           Buyer
fails in any material respect to perform or comply with any of its covenants or
obligations under this Agreement and, except in the case of the obligations set
forth in Section 5.3, fails to cure such failure of performance or compliance
within ten (10) Business Days after notice from Seller to Buyer specifying the
nature of such failure of performance or compliance with reasonable
specificity;

 

(iii)          A Buyer Breach within the meaning of the KNRC
Agreement occurs; or

 

(iv)          Buyer
or any Affiliate of Buyer seeks or fails to use commercially reasonable efforts
to oppose an Order that, if entered, would result in the failure of any of the
conditions set forth in Sections 4.1.3, 4.1.5, 4.2.5, or 4.2.7.

 

“Buyer Closing
Documents” means the documents to be executed and delivered by Buyer at the
Closing pursuant to Section 5.3.

 

24

 

“Buyer’s Knowledge”
means that any of Duncan K. Davies, Hugh J. Sutcliffe, or John A. Horning is
actually aware of a particular fact or other matter.

 

“Case” has the
meaning set forth in the preamble.

 

“Claim” has the
meaning set forth in Section 101 of the Bankruptcy Code.

 

“Closing” means
the closing of this transaction, at which the events set forth in Sections 5.2
and 5.3 shall occur.

 

“Closing Date”
means the date on which the Closing occurs.

 

“Closing Time”
means the close of Seller’s business at the Mills on the Closing Date.

 

“Code” means the
Internal Revenue Code of 1986, as amended.

 

“Computer Software”
has the meaning set forth in Section 1.1.6.

 

“Co-Generation
Facility Shutdown Determination” has the meaning set forth in Section 3.9.

 

“Contamination”
means the existence of a Hazardous Substance on or under a specified property
if the existence of such Hazardous Substance requires any investigatory,
remedial, removal, or other responsive action under any Environmental Law or if
any such action could be required by any Governmental Authority under any
Environmental Law.

 

“Continuing Employees”
has the meaning set forth in Section 7.1.1.

 

“Cooling Tower
Improvements” means the cooling tower and related improvements to be
installed at the Gilchrist Mill in connection with the issuance of a new
wastewater discharge permit for such Mill and the reduction of water usage at
such Mill, as described in that certain Preliminary Engineering Cost Estimate
for Cooling Tower and Associated Improvements (Project No. 275-4289-001
(05/06)) dated June 28, 2004, prepared by Brandon Ball, P.E., of Parametrix
Engineering, a true and correct copy of which has been provided to Buyer.

 

“Creditors Committee”  means any statutory creditors committee
appointed in the Case.

 

“Creditors’ Counsel”
means Debevoise & Plimpton LLP; Moore & Van Allen PLLC; Snell &
Wilmer LLP; Lewis and Roca LLP; Sheppard, Mullin, Richter & Hampton LLP;
and Mesch, Clark & Rothschild, P.C.

 

“Crown Management”
means Crown Pacific Management Limited Partnership, a Delaware limited
partnership.

 

“Crown Partners”
means Crown Pacific Partners, L.P., a Delaware limited partnership.

 

“Cure Costs” has
the meaning set forth in Section 2.8.

 

“Cutting Contract”
means any of the Other Contracts pursuant to which Seller has the right to
harvest timber from property owned by another Person, including any
Governmental Authority, regardless of whether such Other Contract includes a
conveyance of stumpage to Seller.

 

“Damages” means
all losses, liabilities, claims, damages (including incidental and
consequential damages), expenses (including costs of investigation and defense
and reasonable attorneys’ fees), and diminution of value, whether or not
involving a third-party claim, except to the extent, if any, that any such
losses, liabilities, claims, damages, expenses, or diminution in value are recovered
through insurance proceeds actually received (net of any costs incurred in
connection therewith, whether through retrospective premium adjustments,
experience-based premium adjustments, or otherwise).

 

25

 

“Deeds” has the
meaning set forth in Section 5.2.1.

 

“Deposit” has the
meaning set forth in Section 2.2.

 

“Deposit Escrow
Agreement” has the meaning set forth in Section 2.2.

 

“Discount Receivables”
means those Receivables that are less than ten (10) days old as of the Closing
Date.

 

“Effective Date”
has the meaning set forth in the preamble.

 

“Environmental
Law” means the Comprehensive Environmental Response, Compensation and
Liability Act, the Clean Air Act, the Water Pollution Control Act, the Solid
Waste Disposal Act, the Resource Conservation and Recovery Act, the Toxic
Substances Control Act, the Emergency Planning and Community Right-to-Know Act,
the Safe Drinking Water Act, the Occupational Safety and Health Act, and any
substantively similar state or local statutes, in each case as amended.

 

“Environmental
Reports” means the environmental reports and related materials described on
the attached Schedule 9.1.

 

“ERISA”
means the Employee Retirement Income Security Act of 1974, as amended.

 

“Ernst Brothers”
means Ernst Brothers L.L.C., an Oregon limited liability company.

 

“Escrow Agent” has
the meaning set forth in Section 2.2.

 

“Excluded Assets”
has the meaning set forth in Section 1.2.

 

“Excluded Contracts”
has the meaning set forth in Section 3.6.

 

“Expense Reimbursement”
has the meaning set forth in Section 8.4.

 

“GAAP” means
generally accepted accounting principles as in effect in the United States,
applied on a basis consistent with prior periods.

 

“Gilchrist Mill”
has the meaning set forth in Section 1.1.1.

 

“Governmental
Authority” means any national, federal, state, provincial, county,
municipal, or local government, or the government of any political subdivision
of the any of the foregoing, or any entity, authority, agency, ministry, or
other similar body exercising executive, legislative, judicial, regulatory, or
administrative authority or functions of or pertaining to the government,
including any quasi-governmental entity established to perform any such
functions.

 

“Hazardous
Substance” means any waste or other substance that is listed, defined,
designated, or classified as, or otherwise determined to be, hazardous,
radioactive, or toxic or a pollutant or a contaminant under or pursuant to any
Environmental Law, including any admixture or solution thereof, and
specifically including petroleum and all derivatives thereof or synthetic
substitutes therefor and asbestos or asbestos-containing materials.

 

“H-S-R Act” means
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

 

“H-S-R Compliance”
means parties have complied with their obligations under the H-S-R Act and
either (i) the Federal Trade Commission under the H-S-R Act advises the parties
that early termination of the applicable waiting period under the H-S-R Act has
been granted, or (ii) the applicable waiting period under the H-S-R Act has
expired.

 

“Intangible Property”
has the meaning set forth in Section 1.1.6.

 

26

 

“Interim Price
Adjustment” means the amount of the Actual Price Adjustment, determined as
provided in Section 2.4, as if the Closing Time occurred at 11:59 p.m. (Pacific
time) on the last day of the month immediately preceding the Closing Date; provided,
however, that if the Closing Date occurs within the first thirteen
(13) days of a month, then such determination shall made at the end of the
previous month.

 

 “Inventory” means the Raw Materials,
Residuals, and Finished Goods Inventory and the Parts and Supplies Inventory.

 

“KNRC” has the
meaning set forth in Recital B.

 

“KNRC Agreement”
has the meaning set forth in Recital B.

 

“KNRC Stock” means
the capital stock of KNRC to be acquired by Buyer pursuant to the KNRC
Agreement.

 

“Legal Requirement”
means any federal, state, local, municipal, foreign, international,
multinational, or other administrative Order, constitution, law, ordinance,
principle of common law, regulation, rule, statute, or treaty.

 

“Lien” means any
mortgage, deed of trust, pledge, assignment, security interest, encumbrance,
lien, charge, or claim of any kind or nature whatsoever in respect of any
property, including any of the foregoing created by, arising under, or
evidenced by any conditional sale or other title retention agreement, the
interest of a lessor under a capital lease, any financing lease having
substantially the same economic effect as any of the foregoing, or the filing
of a financing statement naming the owner of the property as to which such lien
relates as the debtor under the Uniform Commercial Code or any comparable law.

 

“Loss” has the
meaning set forth in Section 3.3.

 

“Marysville Mill”
has the meaning set forth in Section 1.1.1.

 

“Material Adverse
Effect” means a material adverse effect on the combined operations of the
Business resulting, individually or in the aggregate, from any state of facts,
event, or change in circumstances other than (i) general business, economic,
financial, political, legal, regulatory, or other conditions or changes that
are not unique to the Business but also affect other Persons involved in the
wood products manufacturing industry, (ii) financial or securities market
fluctuations, (iii) the announcement of this transaction, (iv) any action by
Seller in accordance with Section 3.1, or (v) Seller’s inability to retain or
Buyer’s inability to hire any of the Business Employees or the Administrative
and Sales Employees.

 

“Mill” means any
of the Gilchrist Mill, the Marysville Mill, or the Port Angeles Mill.

 

“Mills Balance Sheets”
means those certain unaudited summaries of the Mills segment balance sheet
components of Seller’s trial balance as at the Balance Sheet Date, copies of
which are attached as Exhibit I.

 

“Mills Operating
Statements” means those certain unaudited operating statements for the
Mills for the years ended December 31, 2001, 2002 and 2003, copies of which are
attached as Exhibit J.

 

“Order” means any
award, decision, injunction, judgment, order, ruling, subpoena, or verdict
entered, issued, made, or rendered by any court, administrative agency, or
other Governmental Authority or by any arbitrator or mediator.

 

“Ordinary Course of
Business” means any action taken by a Person if, and only if, such action
is consistent with the past practices of such Person and is taken in the
ordinary course of the normal day-to-day operations of such Person.

 

“Organizational
Documents” means (i) the articles or certificate of incorporation and the
bylaws of a corporation, (ii) the partnership agreement and any statement of
partnership of a general partnership, (iii) the limited

 

27

 

partnership agreement and
certificate of limited partnership of a limited partnership, (iv) any charter,
operating agreement, or similar document adopted or filed in connection with
the creation, formation, or organization of a Person, and (v) any amendment to
any of the foregoing.

 

“Other Contracts”
has the meaning set forth in Section 1.1.5.

 

“Parts and Supplies
Inventory” has the meaning set forth in Section 1.1.4.

 

“Permits and Licenses”
has the meaning set forth in Section 1.1.6.

 

“Permits Sharing
Agreement” has the meaning set forth in Section 5.2.4.

 

“Permitted
Encumbrances” means (i) with respect to the Port Angeles Mill, the Liens
set forth in the Title Report therefor, other than any such Liens which secure
obligations of either Seller for borrowed money; (ii) with respect to the
Marysville Mill, the Liens set forth in the Title Report therefor, other than
any such Liens which secure obligations of either Seller for borrowed money;
(iii) with respect to the Gilchrist Mill, the Liens set forth in the Title
Report therefor, other than any such Liens which secure obligations of either
Seller for borrowed money; (iv) with respect to the Prineville Property, the
Liens set forth in the Title Report therefor, other than any such Liens which
secure obligations of either Seller for borrowed money; and (iv) with respect
to any specified property, such defects, irregularities, encumbrances, and
other imperfections of title as normally exist with respect to property similar
in character and, in any event, are not substantial in character, amount, or
extent, and do not materially detract from the value or materially impair the
use of the property in question. Any Liens on the Port Angeles Mill, the
Marysville Mill, the Gilchrist Mill, or the Prineville Property which secure
obligations of Seller for borrowed money shall be removed from title thereto by
Seller or by order of the Bankruptcy Court (or, in the case of the Port Angeles
Mill Lease, as a result of the payment by Buyer contemplated by Section 2.3.4)
prior to or at the Closing. For purposes of this definition, the Port Angeles
Mill Lease shall be considered an obligation of Seller for borrowed money.

 

“Permitting Process”
has the meaning set forth in Section 3.5.1.

 

“Person” means an
individual, partnership, corporation, limited liability company, joint stock
company, trust, unincorporated organization or association, joint venture, or
other organization, whether or not a legal entity, or a Governmental Authority.

 

“Personal Property”
has the meaning set forth in Section 1.1.3.

 

“Personal Property
Leases” has the meaning set forth in Section 1.1.5.

 

“Petition Date”
has the meaning set forth in the preamble.

 

“Port Angeles Mill”
has the meaning set forth in Section 1.1.1.

 

“Port Angeles Mill
Lease” means that certain Facility Lease (Washington) dated as of October
30, 1998, by and between Wilmington Trust Company, Trustee, as lessor, and
Seller, as lessee, pursuant to which Seller leases the improvements
constituting the Port Angeles Mill.

 

“Portland Office”
means Seller’s office located at 805 S.W. Broadway, Suite 1500, Portland,
Oregon.

 

“Price Adjustment
Deposit” has the meaning set forth in Section 2.4.

 

“Price Adjustment
Difference” means, as applicable, the Actual Price Adjustment less the
Interim Price Adjustment, or the Interim Price Adjustment less the Actual Price
Adjustment.

 

“Price Adjustment
Escrow Agreement” has the meaning set forth in Section 2.4.

 

28

 

“Prineville Property”
has the meaning set forth in Section 1.1.1.

 

“Proceeding” means
any action, arbitration, audit, hearing, litigation, or suit (whether civil,
criminal, administrative, investigative, or informal) commenced, brought,
conducted, or heard by or before, or otherwise involving, any Governmental
Authority, arbitrator, or mediator.

 

“Purchase Price”
has the meaning set forth in Section 2.1.

 

“Purchased Assets”
has the meaning set forth in Section 1.1.

 

“Qualifying Bid”
means a Bid that conforms to the requirements of Section 3.8.2 and Section
3.8.4, 3.8.5 or 3.8.6, as applicable.

 

“Qualifying Bidder”
has the meaning set forth in Section 3.8.1.

 

“Raw Materials,
Residuals, and Finished Goods Inventory” has the meaning set forth in
Section 1.1.4.

 

“Real Property Leases”
has the meaning set forth in Section 1.1.2.

 

“Receivables” has
the meaning set forth in Section 1.1.7.

 

“Representative”
means, with respect to a particular Person, any director, officer, employee,
agent, consultant, advisor, or other representative of or to such Person,
including such Person’s attorneys, accountants, and financial advisors.

 

“Sale Hearing”
means the hearing before the Bankruptcy Court to consider Seller’s motion for
entry of the Approval Order.

 

“Secured Lenders”
means The CIT Group/Business Credit, Inc., and the Term Lenders.

 

“Seller” has the
meaning set forth in the preamble.

 

“Seller Breach”
means any of the following:

 

(i)            Seller’s
representations and warranties set forth in this Agreement (considered
collectively) are, or any such representation and warranty (considered
individually) is, determined not to have been true and correct in all material
respects when made;

 

(ii)           Seller
fails in any material respect to perform or comply with any of its covenants or
obligations under this Agreement and, except in the case of the obligations set
forth in Section 5.2, fails to cure such failure of performance or compliance
within ten (10) Business Days after notice from Buyer to Seller specifying the
nature of such failure of performance or compliance with reasonable
specificity;

 

(iii)          A Seller Breach within
the meaning of the KNRC Agreement occurs; or

 

(iv)          Seller
or any Affiliate of Seller seeks or fails to use commercially reasonable
efforts to oppose an Order that, if entered, would result in the failure of any
of the conditions set forth in Sections 4.1.3, 4.1.5, 4.2.5, or 4.2.7.

 

“Seller Closing
Documents” means the documents to be executed and delivered by Seller at
the Closing pursuant to Section 5.2.

 

“Seller’s Knowledge”
means that any of Steven E. Dietrich, P.A. (Tony) Leineweber, or John S. Ernst  is
actually aware of a particular fact or other matter.

 

29

 

“Tax” means any
tax (including any income tax, capital gains tax, value-added tax, sales tax,
excise tax, real or personal property tax, gift tax, or estate tax), levy,
assessment, tariff, duty (including any customs duty), deficiency, or other
fee, and any related charge or amount (including any fine, penalty, interest,
or addition to tax), imposed, assessed, or collected by or under the authority
of any Governmental Authority or payable pursuant to any tax-sharing agreement
or other contract relating to the sharing or payment of any such tax, levy,
assessment, tariff, duty, deficiency, or fee.

 

“Term Lenders”
means (i) the holders of Senior Notes issued by Seller, (ii) the lenders to
Seller from time to time party to that certain Amended and Restated Credit
Agreement dated as of December 1, 1999, and (iii) Bank of America, N.A., in its
capacities as the administrative agent for the lenders under such credit
agreement and as the collateral agent for such lenders and for holders of the
above-referenced Senior Notes.

 

“Threatened”
means, with respect to a claim, Proceeding, dispute, action, or other matter,
the making of any demand or statement (written or oral), the giving of any
written notice, the occurrence of any event, or the existence of any
circumstance that would lead a prudent Person to conclude that such claim,
Proceeding, dispute, action, or other matter is likely to be asserted,
commenced, taken, or otherwise pursued in the future.

 

“Title Company”
means Chicago Title Insurance Co.

 

“Title Policy”
means, with respect to each of the Port Angeles Mill, the Marysville Mill, the Gilchrist
Mill, and the Prineville Property, a standard coverage owner’s policy of title
insurance with a coverage amount equal to the portion of the Purchase Price
allocated to such property on Schedule 2.6, insuring fee simple title thereto
in Buyer, subject only to the standard printed exceptions to such policies, the
applicable Permitted Encumbrances, and any Liens created or suffered by Buyer.

 

“Title Report”
means (i) with respect to the Port Angeles Mill, the preliminary title report
and commitment issued by Land Title & Escrow Company of Clallam County,
Inc. to the Title Company on March 22, 2004, under Reference No. 70400308; (ii)
with respect to the Marysville Mill, the preliminary title report and
commitment issued by the Title Company on February 4, 2004, under Order No.
5301093; (iii) with respect to the Gilchrist Mill, the preliminary title report
and commitment no. 2 issued by Amerititle to the Title Company on March 29,
2004, under Title No. 0051050; and (iv) with respect to the Prineville Property,
the undated preliminary title report and commitment issued by the Title Company
under NBU No. 04-00348.

 

“Transition Services
Agreement (Novated Contracts)” has the meaning set forth in Section 5.2.6.

 

“Transition Services
Agreement (Operations)” has the meaning set forth in Section 5.2.5.

 

“Tree Farms” means
the timberlands, timber, and timber rights owned or controlled by Seller,
excluding the Cutting Contracts listed on Schedule 1.1.5-2.

 

“USDA” means the
United States Department of Agriculture.

 

“WARN Act” means
the Worker Adjustment and Retraining Act, as amended.

 

“Welfare Benefits”
has the meaning set forth in Section 7.1.4.

 

9.2           Construction and
Interpretation.

 

9.2.1        The headings or titles of
the sections of this Agreement are intended for ease of reference only and
shall have no effect whatsoever on the construction or interpretation of any
provision of this Agreement. References herein to sections are to sections of
this Agreement unless otherwise specified.

 

9.2.2        Meanings of defined terms used
in this Agreement are equally applicable to singular and plural forms of the
defined terms. The masculine gender shall also include the feminine and neutral
genders and vice versa.

 

30

 

9.2.3        As used herein, (i) the
term “party” refers to a party to this Agreement, unless otherwise specified,
(ii) the term “this transaction” means the transaction contemplated by this
Agreement, (iii) the terms “hereof,” “herein,” “hereunder,” and similar terms
refer to this Agreement as a whole and not to any particular provision of this
Agreement, (iv) the term “including” is not limiting and means “including,
without limitation,” (v) the term “documents” includes all instruments,
documents, agreements, certificates, indentures, notices, and other writings,
however evidenced, and (vi) the term “property” includes any kind of property
or asset, real, personal, or mixed, tangible or intangible.

 

9.2.4        In the event any period of
time specified in this Agreement ends on a day other than a Business Day, such
period shall be extended to the next following Business Day. In the computation
of periods of time from a specified date to a later specified date, the word
“from” means “from and including,” the words “to” and “until” each mean “to but
excluding,” and the word “through” means “to and including.”

 

9.2.5        All dollar amounts herein
are expressed in United States currency.

 

9.2.6        This Agreement is the
product of arm’s length negotiations among, and has been reviewed by counsel to,
the parties and is the product of all of the parties. Accordingly, this
Agreement shall not be construed for or against any party by reason of the
authorship or alleged authorship of any provision hereof.

 

10.           Miscellaneous
Provisions. 

 

10.1         Survival. Except
for the covenants and agreements that are expressly provided to be performed
after the Closing Date (which shall survive the Closing), none of the
respective representations, warranties, covenants, and agreements of Seller and
Buyer herein, or in any certificates or other documents delivered prior to or
at the Closing, shall survive the Closing.

 

10.2         Expenses. Subject
to the provisions of Section 8.4 with respect to the payment of the Expense
Reimbursement to Buyer, each party shall bear its respective expenses incurred
in connection with the preparation, execution, and performance of this
Agreement and the consummation of this transaction, including all fees and
expenses of its Representatives and any brokerage or finders’ fees or
commissions or any other similar payment in connection with this transaction.

 

10.3         Attorneys’ Fees.
If a suit, action, or other Proceeding of any nature whatsoever (including any
proceeding under the Bankruptcy Code) is instituted in connection with this
Agreement or any instrument or agreement delivered by either party at the
Closing, or to interpret or enforce any rights or remedies hereunder or
thereunder, the prevailing party shall be entitled to recover its attorneys’
fees and all other fees, costs, and expenses actually incurred and reasonably
necessary in connection therewith, as determined by the court at trial or on
any appeal or review, in addition to all other amounts provided by law.

 

10.4         Binding Effect.
The provisions of this Agreement shall be binding upon and inure to the benefit
of the parties and, subject to the restrictions on assignment set forth herein,
their respective successors and assigns.

 

10.5         Assignment.
Neither party shall assign any of its rights or obligations under this
Agreement without the prior written consent of the other party, save and except
that Buyer may, by notice to Seller, assign its rights and obligations under
this Agreement to one or more Affiliates of Buyer; provided, however, that no
such assignment by Buyer shall be effective until and unless Buyer has
delivered to Seller a Guarantee of each such assignee’s obligations under this
Agreement and any documents executed in connection herewith in substantially
the form attached as Exhibit H, duly executed by International Forest
Products Limited, a British Columbia corporation. No assignment of this
Agreement shall release the assigning party from its obligations under this
Agreement.

 

10.6         Notices. All
notices under this Agreement shall be in writing. Notices may be (i) delivered
personally, (ii) transmitted by facsimile, (iii) delivered by a recognized
national overnight delivery service, or (iv) mailed by certified United States
mail, postage prepaid and return receipt requested. Notices to any party shall
be directed to its address set forth below, or to such other or additional
address as any party may specify by notice to

 

31

 

the other party. Any notice delivered in accordance
with this Section 10.6 shall be deemed given when actually received or, if
earlier, (a) in the case of any notice transmitted by facsimile, on the date on
which the transmitting party receives confirmation of receipt by facsimile
transmission, telephone, or otherwise, if sent during the recipient’s normal business
hours or, if not, on the next Business Day, (b) in the case of any notice
delivered by a recognized national overnight delivery service, on the next
Business Day after delivery to the service or, if different, on the day
designated for delivery, or (c) in the case of any notice mailed by certified
U.S. mail, two Business Days after deposit therein.

 

	
  If to Seller:

  	
   

  	
  Crown Pacific Limited
  Partnership

  
	
   

  	
   

  	
  805 S.W. Broadway,
  Suite 1500

  
	
   

  	
   

  	
  Portland, OR 97205

  
	
   

  	
   

  	
  Fax No.: 503-228-4875

  
	
   

  	
   

  	
  Attn:       Steven E. Dietrich

  
	
   

  	
   

  	
   

  
	
  With a copy to:

  	
  Andrews Kurth LLP

  
	
   

  	
   

  	
  600 Travis, Suite 4200

  
	
   

  	
   

  	
  Houston, TX 77002

  
	
   

  	
   

  	
  Fax No.: 713-238-7172

  
	
   

  	
   

  	
  Attn:       John Sparacino

  
	
   

  	
   

  	
   

  
	
  And a copy to:

  	
   

  	
  Ball Janik LLP

  
	
   

  	
   

  	
  101 S.W. Main Street,
  Suite 1100

  
	
   

  	
   

  	
  Portland, OR 97204

  
	
   

  	
   

  	
  Fax No.: 503-295-1058

  
	
  Attn:

  	
   

  	
  William H. Perkins

  
	
   

  	
   

  	
   

  
	
  If to Buyer:

  	
   

  	
  c/o International
  Forest Products Limited

  
	
   

  	
   

  	
  P.O. Box 49114

  
	
   

  	
   

  	
  3500 – 1055 Dunsmuir Street

  
	
   

  	
   

  	
  Vancouver, BC 
  V7X 1H7

  
	
   

  	
   

  	
  Fax No: 604-688-0313

  
	
   

  	
   

  	
  Attn:      John A. Horning

  
	
   

  	
   

  	
   

  
	
  With a copy to:

  	
  Koffman Kalef

  
	
   

  	
   

  	
  19th Floor, 885 West
  Georgia Street

  
	
   

  	
   

  	
  Vancouver, BC  V6C 3H4

  
	
   

  	
   

  	
  Fax No: 604-891-3788

  
	
   

  	
   

  	
  Attn:      Douglas A. Side

  
	
   

  	
   

  	
   

  
	
  And a copy to:

  	
   

  	
  Preston Gates &
  Ellis LLP

  
	
   

  	
   

  	
  925 Fourth Avenue,
  Suite 2900

  
	
   

  	
   

  	
  Seattle, WA 98104-1158

  
	
   

  	
   

  	
  Fax No: 206-623-7022

  
	
   

  	
   

  	
  Attn:      Marc Barreca

  

 

10.7         Waiver. Any
party’s failure to exercise any right or remedy under this Agreement, delay in
exercising any such right or remedy, or partial exercise of any such right or
remedy shall not constitute a waiver of that or any other right or remedy
hereunder. A waiver of any Breach of any provision of this Agreement shall not
constitute a waiver of any succeeding Breach of such provision or a waiver of
such provision itself. No waiver of any provision of this Agreement shall be binding
on a party unless it is set forth in writing and signed by such party.

 

10.8         Amendment. This
Agreement may not be modified or amended except by the written agreement of all
of the parties.

 

10.9         Severability. If
any provision of this Agreement is held invalid, illegal, or unenforceable,
then (i) such provision shall be enforceable to the fullest extent permitted by
applicable law, and (ii) the validity and 

 

32

 

enforceability of the other provisions of this
Agreement shall not be affected and all such provisions shall remain in full
force and effect.

 

10.10       Integration. This
Agreement, including the Exhibits and Schedules hereto, contains the entire
agreement and understanding of the parties with respect to the subject matter
hereof and supersedes all prior and contemporaneous agreements with respect
thereto. The parties acknowledge and agree that there are no agreements or
representations relating to the subject matter of this Agreement, either written
or oral, express or implied, that are not set forth in this Agreement or in the
Exhibits and Schedules to this Agreement.

 

10.11       Governing Law. This
Agreement shall be governed by and construed in accordance with the laws of the
State of Washington (without regard to the principles thereof relating to
conflicts of laws).

 

10.12       Jurisdiction. BUYER
AND SELLER AGREE THAT THE BANKRUPTCY COURT SHALL HAVE EXCLUSIVE JURISDICTION
OVER ALL DISPUTES AND OTHER MATTERS RELATING TO (i) THE INTERPRETATION AND
ENFORCEMENT OF THIS AGREEMENT OR ANY ANCILLARY DOCUMENT EXECUTED PURSUANT
HERETO, AND (ii) THE PURCHASED ASSETS AND THE ASSUMED LIABILITIES, AND BUYER
EXPRESSLY CONSENTS TO AND AGREES NOT TO CONTEST SUCH EXCLUSIVE JURISDICTION.

 

10.13       Tax Effect. None of
the parties (nor any party’s Representatives) has made or is making in this
Agreement any representation to any other party (or such party’s counsel or
accountants) concerning any of the tax effects or consequences of this
transaction. Each party represents that it has obtained, or may obtain,
independent tax advice with respect thereto and upon which, if so obtained,
such party has solely relied.

 

10.14       Execution. This
Agreement may be executed in any number of counterparts, all of which together
shall constitute one and the same agreement. Each party may rely upon the
signature of each other party on this Agreement that is transmitted by
facsimile as constituting a duly authorized, irrevocable, actual, current
delivery of this Agreement with the original ink signature of the transmitting
party.

 

10.15       Incorporation of
Recitals, Exhibits, and Schedules. The recitals to this Agreement and all
Exhibits and Schedules to this Agreement are incorporated herein by this
reference. The parties acknowledge that the Schedules to this Agreement may
contain items solely for informational purposes for the convenience of Buyer
and that a disclosure of any matter therein shall not be constitute an
acknowledgement by Seller that the matter is required to be disclosed under the
terms of this Agreement.

 

10.16       Further Assurances.
Each party agrees to execute and deliver such additional documents and
instruments as may reasonably be required to effect this transaction fully, as
long as the terms thereof are consistent with the terms of this Agreement.

 

[Signature page follows]

 

33

 

IN WITNESS
WHEREOF, the parties have executed this Agreement as of the date first set
forth above.

 

	
  Seller:

  	
  CROWN PACIFIC LIMITED
  PARTNERSHIP,

  	
   

  
	
   

  	
  a Delaware limited
  partnership

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  Crown
  Pacific Management Limited

  	
   

  
	
   

  	
   

  	
  Partnership,
  its General Partner

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/
  Steven E. Dietrich

  	
   

  
	
   

  	
   

  	
  Title:  SVP, CFO & Treasurer

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Buyer:

  	
  INTERNATIONAL FOREST PRODUCTS LIMITED, a

  British Columbia corporation

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Duncan K. Davis

  	
   

  
	
   

  	
  Title: 
  President & CEO

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ John Horning

  	
   

  
	
   

  	
  Title: Sr. Vice President & CFO

  	
   

  
						

 

34

 

	
  Schedules:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  1.1.1-1

  	
   

  	
  Port Angeles Mill Legal
  Description

  
	
  1.1.1-2

  	
   

  	
  Marysville Mill Legal
  Description

  
	
  1.1.1-3

  	
   

  	
  Gilchrist Mill Legal
  Description

  
	
  1.1.1-4

  	
   

  	
  Prineville Property
  Legal Description

  
	
  1.1.2

  	
   

  	
  Real Property Leases

  
	
  1.1.3

  	
   

  	
  Personal Property

  
	
  1.1.5-1

  	
   

  	
  Personal Property
  Leases

  
	
  1.1.5-2

  	
   

  	
  Other Contracts

  
	
  1.1.5-3

  	
   

  	
  Sales and Purchase
  Orders (delivered at Closing)

  
	
  1.1.6-1

  	
   

  	
  Permits and Licenses

  
	
  1.1.6-2

  	
   

  	
  Computer Software

  
	
  1.1.7

  	
   

  	
  Excluded Accounts
  Receivable

  
	
  1.2

  	
   

  	
  Excluded Assets

  
	
  2.4

  	
   

  	
  Example of Estimated
  Purchase Price Adjustment

  
	
  2.6

  	
   

  	
  Purchase Price
  Allocation

  
	
  2.8

  	
   

  	
  Estimated Cure Costs

  
	
  6.1.9

  	
   

  	
  Business Employee
  Terminations

  
	
  6.1.10

  	
   

  	
  Employee Controversies

  
	
  6.1.14

  	
   

  	
  Exceptions to
  Compliance with Law Representations

  
	
  6.1.15

  	
   

  	
  Exceptions to
  Environmental Representations

  
	
  9.1

  	
   

  	
  Environmental Reports

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibits:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  A-1

  	
   

  	
  Deposit Escrow
  Agreement

  
	
  A-2

  	
   

  	
  Price Adjustment Escrow
  Agreement

  
	
  B-1

  	
   

  	
  Washington Deed Form

  
	
  B-2

  	
   

  	
  Oregon Deed Form

  
	
  C

  	
   

  	
  Bill of Sale

  
	
  D

  	
   

  	
  Assignment and
  Assumption Agreement

  
	
  E

  	
   

  	
  Permits Sharing
  Agreement

  
	
  F

  	
   

  	
  Transition Services
  Agreement (Operations)

  
	
  G

  	
   

  	
  Transition Services
  Agreement (Novated Contracts)

  
	
  H

  	
   

  	
  Guarantee

  
	
  I

  	
   

  	
  Mills Balance Sheets

  
	
  J

  	
   

  	
  Mills Operating
  Statements

  
	
  K

  	
   

  	
  Access Easement Map

  

 

35

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00071-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00071-of-00352.parquet"}]]