Document:

EXHIBIT 10.4

 

Purchase Agreement

(KNRC/Equipment Leases)

 

This PURCHASE AGREEMENT
is made and entered into as of July 9, 2004 (the “Effective Date”) by
and between CROWN PACIFIC PARTNERS, L.P., 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 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) owns all of
the issued and outstanding capital stock of Klamath Northern Railway Company,
an Oregon corporation (“Klamath Northern”). Klamath Northern owns and
operates a short-line railroad in central Oregon that serves a sawmill owned by
CPLP (this term and all other capitalized terms used herein having the
respective meanings set forth in Section 9.1) in Gilchrist, Oregon, and (ii) is
party to certain equipment leases more fully described herein.

 

B.            CPLP and Buyer have
entered into that certain Asset Purchase Agreement (Mills) of even date
herewith (the “Mill Agreement”), pursuant to which CPLP has agreed to
sell to Buyer, and Buyer has agreed to purchase from CPLP, on the terms and
conditions set forth therein, certain sawmills and other assets owned by CPLP,
including the sawmill served by Klamath Northern.

 

C.            Seller wishes to sell
to Buyer, and Buyer wishes to purchase from Seller, the Klamath Northern Stock
and the Equipment Leases, 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.             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, free and
clear of all Liens:

 

1.1           Klamath Northern
Stock. All of the issued and outstanding capital stock of Klamath Northern,
on a fully diluted basis as of the Closing Date (the “Klamath Northern Stock”);
and

 

1.2           Equipment Leases.
All right, title, and interest of Seller in and to those certain leases of
equipment listed on the attached Schedule 1.2 (the “Equipment Leases”).

 

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

 

2.1           Purchase
Price and Payment. In consideration of the sale, transfer, assignment,
conveyance, and delivery to Buyer of the Klamath Northern Stock and the
Equipment Leases, Buyer shall, at the Closing, pay to Seller, by wire transfer
of immediately available, good funds, an amount (the “Purchase Price”)
equal to (i) Fifty-one Thousand Dollars ($51,000), minus (ii) the
aggregate amount of the Cure Costs, if any.

 

2.2           Allocation
of Purchase Price. The Purchase Price shall be allocated (i) $1,000 to the
Klamath Northern Stock and (ii) $50,000 to the Equipment Leases.

 

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2.3           Assumption
of Liabilities. 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, all liabilities and
obligations of Seller under the Equipment Leases arising from and after the
Closing Date (the “Assumed Liabilities”).

 

2.4           Cure
Costs. Buyer agrees to satisfy, as and when due, all cure obligations due
and owing under the Equipment Leases which the Bankruptcy Court orders to be
paid as a condition to Seller’s assumption and assignment to Buyer of the
Equipment Leases in accordance with Section 365 of the Bankruptcy Code
(the “Cure Costs”). To Seller’s Knowledge, as of the Effective Date
there are no Cure Costs associated with the Equipment Leases.

 

3.             Pre-Closing
Matters.

 

3.1           Conduct
of Klamath Northern’s Business.

 

3.1.1        Between the Effective Date and the Closing
Date, Seller shall cause Klamath Northern to:

 

(a)           Conduct the Business
and operate and maintain its assets in the Ordinary Course of Business, except
as may otherwise be provided herein; and

 

(b)           Use its commercially
reasonable efforts to maintain the relations and goodwill with employees,
suppliers, customers, and others having business relationships with it.

 

3.1.2        Between the Effective Date and the Closing
Date, Seller shall not suffer or permit Klamath Northern to:

 

(a)           Sell, lease, or
otherwise transfer or dispose of any material assets, or any interest therein,
other than transfers and dispositions made in the Ordinary Course of Business,
or permit or allow any material assets to become subject to any Lien (other
than Permitted Encumbrances);

 

(b)           Issue, sell, or pledge
any stock or any warrants or other rights to acquire stock;

 

(c)           Incur or assume any
debt for borrowed money or incur any material liability or obligation;

 

(d)           Assume, guarantee,
endorse, or otherwise become liable or responsible (whether directly,
contingently, or otherwise) for the obligations of any other Person, except in
the Ordinary Course of Business;

 

(e)           Make any loans or
advances to, or any investments in, any Person;

 

(f)            Make any commitment
for capital expenditures for additions to property, equipment, or facilities to
be made after the Closing Date;

 

(g)           Change any of the
accounting principles or practices used by it, except as may be required by
generally accepted accounting principles;

 

(h)           Amend any of its
Organizational Documents;

 

(i)            Enter into any new
employment, severance, consulting, or salary continuation contract or grant any
increases in compensation or other benefits;

 

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(j)            Otherwise modify or
amend the terms of employment of any of its employees, adopt any employee
benefit plan, or terminate more than five (5) employees; or

 

(k)           Enter into any contract
agreeing to do any of the foregoing.

 

3.1.3        Prior to the Closing, Seller shall cause
Klamath Northern to (i) satisfy all of its debts, liabilities, and obligations
accruing up to the Closing Date (other than a payable owed to Crown Pacific,
Ltd., an Affiliate of Seller, in an amount not to exceed $4,000), (ii)
distribute all of its cash and cash equivalents to Seller, and (iii) close all
of its bank accounts. Buyer acknowledges and agrees CPLP will, prior to the
Closing Date, write off all accounts receivable owing to CPLP from KNRC, being
in an aggregate amount not to exceed $450,000.

 

3.2           Access
to Information. Between the Effective Date and the Closing Date, Seller
shall, upon reasonable advance notice from Buyer to Seller, (i) cause Klamath
Northern to afford to Buyer and its Representatives access (during normal
business hours), in a manner so as not to interfere with Klamath Northern’s
normal operations and subject to reasonable restrictions imposed by Seller, to
the Business Employees and to Klamath Northern’s assets, including its books
and records, (ii) afford to Buyer and its Representatives access (during normal
business hours), in a manner so as not to interfere with the normal operations
of Seller and its Affiliates and subject to reasonable restrictions imposed by
Seller, to employees of Seller and its Affiliates who are involved in the
operation of KNRC, and (iii) cause the Business Employees and Seller’s
Representatives to furnish Buyer with such information with respect to Klamath
Northern, its assets and liabilities, and the Equipment Leases as may be within
Seller’s or Klamath Northern’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           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 the Bidding Procedures
Order and an order (the “Approval Order”) which (i) approves the
sale of the Klamath Northern Stock and the Equipment Leases 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 Klamath Northern Stock and the Equipment Leases and
is entitled to the protection afforded by Section 363(m) of the Bankruptcy
Code, (iii) states that the sale of the Klamath Northern Stock and the
Equipment Leases 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 Equipment Leases 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 the Equipment Leases as
a condition to such assumption and assignment.

 

3.4           Filing
with Surface Transportation Board. Promptly following the Effective Date,
the parties, cooperating in good faith, shall make such filings with the U.S.
Surface Transportation Board as may be necessary to obtain approval of this
transaction pursuant to the exemption process available to Class III railroads
such as Klamath Northern (the “STB Approval”). Buyer and Seller shall
each pay one-half of any fees associated with such filings.

 

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:

 

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.

 

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4.1.2        All of the covenants and
obligations that Buyer is obligated to perform or comply with pursuant to this
Agreement prior to or at the Closing (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,
the STB Approval shall have been obtained and there shall not be in effect any
Legal Requirement or any Order that prohibits the transfer of the Klamath
Northern Stock or the Equipment Leases 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        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 prior to or at the Closing (considered collectively) and each such
covenant and obligation (considered individually) shall have been performed and
complied with in all material respects.

 

4.2.3        As of the Closing Date,
the STB Approval shall have been obtained and there shall not be in effect any
Legal Requirement or any Order that prohibits the transfer of the Klamath
Northern Stock or the Equipment Leases by Seller to Buyer.

 

4.2.4        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.

 

4.2.5        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.

 

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

 

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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. The Closing shall take place concurrently with
the closing under the Mill Agreement.

 

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

 

5.2.1        The original stock certificates representing
the Klamath Northern Stock duly endorsed by Seller (or accompanied by stock
powers duly executed by Seller) for transfer to Buyer;

 

5.2.2        The original stock book, stock ledger, and
minute book of Klamath Northern;

 

5.2.3        A counterpart of an agreement terminating the
KNRC Management Contract without any further liability or obligation
thereunder, duly executed by CPLP, Crown Management, and Klamath Northern;

 

5.2.4        Resignations by all officers and directors of
Klamath Northern;

 

5.2.5        General releases of all claims (i) by each of
CPLP, Crown Management, and the officers and directors of Klamath Northern,
made in favor of Klamath Northern, and (ii) by Klamath Northern made in favor
of each of CPLP, Crown Management, and the officers and directors of Klamath
Northern;

 

5.2.6        An Assignment and Assumption Agreement, in
substantially the form attached as Exhibit A (the “Assignment and
Assumption Agreement”), duly executed by Seller and providing for (i) the
assignment to Buyer of the Equipment Leases, 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); and

 

5.2.7        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.

 

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

 

5.3.1        The Purchase Price by wire transfer of
immediately available, good funds to a bank account designated by Seller in
writing to Buyer;

 

5.3.2        The Assignment and Assumption Agreement, 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           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

 

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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 Klamath Northern Stock or the Equipment Leases to Buyer,
such Taxes shall be paid by Buyer and Buyer shall complete and file all returns
associated therewith.

 

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; Subsidiaries. Seller is a limited partnership duly formed,
validly existing, and in good standing under the laws of the State of Delaware.
Crown Management is a limited partnership duly formed, validly existing, and in
good standing under the laws of the State of Delaware and is the managing
general partner of Seller. Klamath Northern is a corporation duly incorporated,
validly existing, and in good standing under the laws of the State of Oregon.
Klamath Northern has full corporate power and authority to conduct its business
as it is now being conducted and to own and use the properties that it owns and
uses. Klamath Northern has no subsidiaries.

 

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 obtaining 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 and obtaining the STB Approval, 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 or Klamath Northern’s
Organizational Documents, or any resolution adopted by the Board of Control, by
the general or limited partners of Crown Management, by the limited partners of
Seller, or by the board of directors or shareholders of Klamath Northern; (ii)
contravene or result in a violation of any Legal Requirement or any Order to
which Seller, Klamath Northern, or any of Klamath Northern’s assets is subject;
(iii) contravene or result in a violation of any of the terms or requirements
of any Governmental Authorization held by Klamath Northern; or (iv) 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 or Klamath Northern is a
party or by which Seller, Klamath Northern, or any of Klamath Northern’s assets
is bound.

 

6.1.3        Klamath Northern Stock.
The authorized equity securities of Klamath Northern consist solely of 10,000
shares of common stock, no par value, 100 of which are issued and outstanding.
Seller is and on the Closing Date will be the record and beneficial owner of
the Klamath Northern Stock, free and clear of all Liens. All shares of the
Klamath Northern Stock have been duly authorized and validly issued and are
fully paid and nonassessable. None of the Klamath Northern Stock was issued in
violation of the Securities Act or any other Legal Requirement. No Person has
any right to acquire any stock in Klamath Northern pursuant to any option,
warrant, conversion right, or other contract. There are no contracts relating
to the issuance, sale, or transfer of any stock in Klamath Northern. Upon the
transfer of the Klamath Northern Stock to Buyer pursuant to this Agreement,
Buyer will own all of the issued and outstanding stock in Klamath Northern,
free and clear of all Liens other than any Liens suffered or incurred by Buyer.

 

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

 

6.1.5        Conduct of the Business. Klamath
Northern presently owns all of the assets required to conduct the Business as
the same has been conducted by Klamath Northern prior to the Effective Date.

 

6.1.6        Real Property Interests.  The attached Schedule 6.1.6 sets
forth a complete and accurate description of all the real property and
interests in real property used by Klamath Northern in connection with the
Business (the “KNRC Real Property”). Klamath Northern 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 KNRC Real Property.
Except as otherwise described on Schedule 6.1.6, Klamath Northern has the
exclusive right to possess, use, and occupy all of the KNRC Real Property, free
and clear of all Liens other than Permitted Encumbrances. Except as described
in that certain undated report regarding KNRC’s tracks prepared at Buyer’s
request by Jim L. Stutters, all buildings, structures, improvements and
appurtenances situated on the KNRC Real Property are adequate and suitable in
all material respects for the purposes for which they are currently being used
and Klamath Northern 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
restrictive covenant or any provision of any applicable Legal Requirement, or
encroaches on any property owned by any other Person.

 

6.1.7        Tangible Personal Property.  All material tangible personal property owned
by Klamath Northern that is used in the Business is located on the KNRC Real
Property or at the Gilchrist Mill.  The
attached Schedule 6.1.7 contains a true and complete list of all
machinery, equipment, motor vehicles, furnishings, trade fixtures, chattels,
and other tangible personal property owned by Klamath Northern and used in
connection with the Business as of the Effective Date (other than items of
tangible personal property the aggregate cost of which to Klamath Northern was
less than $50,000).

 

6.1.8        Intangible Property.

 

(a)           The attached Schedule
6.1.8 contains a complete and accurate list of all Governmental
Authorizations held by or issued to Klamath Northern in respect of the Business
(the “Permits and Licenses”). 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 Klamath Northern prior to the Effective Date.

 

(b)           Klamath Northern
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.

 

6.1.9        Financial Statements.  The Financial Statements have been prepared
substantially in accordance with U.S. generally accepted accounting principles
applied on a basis consistent with prior periods, are correct and complete in
all material respects, and present fairly and accurately the assets, known and
recorded liabilities, and financial condition of Klamath Northern as at the
respective dates of the Financial Statements and the sales, earnings and
results of operations of Klamath Northern for the respective periods covered by
the Financial Statements.  Between the
Balance Sheet Date and the Effective Date, no event or change has occurred that
would or would reasonably be expected to give rise to a Material Adverse Effect
in respect of the Business.

 

6.1.10      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 Klamath Northern. The

 

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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. Klamath Northern 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.

 

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

 

6.1.12      Employee Benefits. There are no policies
or practices of Klamath Northern which confer benefits on employees of Klamath
Northern or create obligations of Klamath Northern with respect to such
employees and that will be binding upon Buyer or Klamath Northern in connection
with Klamath Northern’s 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
Klamath Northern. There is no unfunded liability in connection with any such
plans and Klamath Northern has complied in all material respects with their
obligations under such plans.

 

6.1.13      No Collective Bargaining Agreements or Union
Certifications. With respect to the Business Employees, 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) any material labor
disputes, grievances, strikes, or lockouts, pending or Threatened.

 

6.1.14      Equipment Leases/KNRC Contracts.

 

(a)           The attached Schedule
6.1.14 contains a complete and accurate list of all material contracts,
agreements, and similar arrangements to which Klamath Northern is a party,
other than the KNRC Management Contract (the “KNRC Contracts”). To
Seller’s Knowledge, (i) each of the KNRC Contracts is valid, binding, in full
force and effect, and enforceable by Klamath Northern in accordance with its
terms, (ii) the material terms and conditions of each of the KNRC Contracts
have not been modified in any material respect, (iii) Klamath Northern is not
in breach or default in any material respect under any of the KNRC Contracts,
and (iv) no other party is in breach or default in any material respect under any
of the KNRC Contracts.

 

(b)           To Seller’s Knowledge,
(i) each of the Equipment Leases 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 Equipment Leases have not been modified in any
material respect, (iii) Seller is not in breach or default in any material
respect under any of the Equipment Leases, and (iv) no other party is in breach
or default in any material respect under any of the Equipment Leases.

 

6.1.15      Compliance with Law.  To Seller’s Knowledge, Klamath Northern has
conducted all aspects of the Business, including all dealings with or in
respect of the Business Employees, in accordance in 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.

 

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6.1.16      Environmental. To
Seller’s Knowledge, during the period when the Klamath Northern Stock has been
owned by Seller or its Affiliates:

 

(a)           Klamath Northern 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
Klamath Northern’s ownership, has been used, treated, stored, generated,
manufactured, or otherwise handled on or at any KNRC Real Property or (y)
during the period of Klamath Northern’s ownership, has otherwise come to be
located in, on, or under any KNRC Real Property; (ii) no Hazardous Substances
are stored at any KNRC Real 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 KNRC Real Property during the period of Klamath Northern’s ownership.

 

(c)           All wastes generated by
Klamath Northern at any KNRC Real 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 KNRC Real Property
under any Environmental Law.

 

(e)           Neither Seller nor
Klamath Northern has received any notice, or is aware, of any pending or
Threatened Proceeding with respect to any violation, alleged or proven, of any
Environmental Law by Klamath Northern involving any KNRC Real Property, or any
operation conducted by Klamath Northern at any KNRC Real 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 KNRC Real 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

 

9

 

any Person the right to declare a default or exercise
any remedy under, any agreement, instrument, or 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.

 

6.2.5        Acquisition for Investment. Buyer
acknowledges (i) that the Klamath Northern Stock has not been registered under
the Securities Act or qualified or registered under any state securities law on
the grounds that no distribution or public offering of the Klamath Northern
Stock is to be effected, (ii) that no public market now exists for the Klamath
Northern Stock, and (iii) that a public market therefor may never exist. Buyer
is acquiring the Klamath Northern Stock solely for its own account for
investment purposes and not as a nominee or agent for any other Person and not
with a view to, or for sale in connection with, any distribution thereof. Buyer
has no agreement or arrangement with any Person to sell, transfer, or pledge
the Klamath Northern Stock to such Person or to any other Person, and no present
intention or plan to enter into any such agreement or arrangement.

 

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 it desired to conduct with respect to
Klamath Northern, the Business, Klamath Northern’s assets and liabilities, and
the Equipment Leases and acknowledges that it has been provided sufficient
access to Klamath Northern’s assets, including its books and records, 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 KLAMATH NORTHERN, THE KLAMATH NORTHERN STOCK, THE BUSINESS,
KLAMATH NORTHERN’S ASSETS OR LIABILITIES, OR THE EQUIPMENT LEASES. 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 ANY PARTICULAR PURPOSE AS TO ANY OF KLAMATH NORTHERN’S ASSETS (OR
ANY PORTION THEREOF).

 

6.3.3        ON CLOSING, BUYER WILL ACCEPT THE KLAMATH
NORTHERN STOCK, INCLUDING KLAMATH NORTHERN’S ASSETS, AND THE EQUIPMENT LEASES
“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.

 

10

 

7.             Additional
Covenants.

 

7.1           Retention of and
Access to Books and Records.

 

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

 

7.1.2        After the seven-year period referred to in
Section 9.1.1, Buyer shall provide not less than thirty (30) nor more than
sixty (60) days notice to Seller (or its successors, if previously identified
by notice to Buyer) prior to any proposed destruction or disposition of any of
the books and records of or relating to Klamath Northern. 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.

 

7.2           No
Transition Services. Except as provided in the Transition Services
Agreement (Operations) entered into pursuant to the Mill Agreement, as of the
Closing Date all data processing, accounting, insurance, banking, legal,
communications, and other services and products provided by Seller or its
Affiliates in respect of the operation of Klamath Northern shall terminate and
Buyer shall not be entitled to any on-going benefit thereof.

 

7.3           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 of Klamath Northern (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 furnishes 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.

 

7.4           Payments
under Specified Equipment Lease. Buyer shall pay to Seller promptly upon
receipt any amount received by Buyer or KNRC after the Closing Date pursuant to
the Equipment Lease identified as item 4 on Schedule 1.2 which is attributable
to the period prior to the Closing Date.

 

7.5           Use
of Existing Roads Crossing KNRC Tracks. Buyer acknowledges that CPLP, as
owner of the Tree Farm located in Klamath County, Oregon, uses roads that cross
KNRC tracks at two or more locations. Buyer agrees that, from and after the
Closing Date, CPLP and any successor owner of such Tree Farm shall have the
perpetual, non-exclusive right to use such road crossings; provided that CPLP or such
successor owner shall be required to maintain all such road crossings at its
sole cost and expense. In furtherance thereof, Seller shall have the right,
prior to the Closing, to cause Klamath Northern to enter into and record in the
real property records of Klamath County, Oregon, an amendment to the applicable
easement listed on Schedule 6.1.6 permitting the use of each such crossing on
the terms set forth in this Section 7.5. In the event any such amendment is not
entered into prior to the Closing, Buyer shall, at the request of CPLP or any
successor owner of such Tree Farm, cause Klamath Northern to enter into such an
amendment in form reasonably satisfactory to Buyer and CPLP or such successor,
which amendment shall be recorded in the real property records of Klamath
County, Oregon, at the cost of CPLP or such successor. CPLP and any successor
owner of the Tree Farm shall have the right to enforce the provisions of this
Section 7.5.

 

11

 

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 (i) upon the occurrence of a Buyer
Breach, (ii) upon the failure of any of the conditions set forth in Sections
4.1, unless such failure is the result of a Seller Breach, or (iii) upon any
termination of the Mill Agreement;

 

8.1.2        By Buyer (i) upon the occurrence of a Seller
Breach, (ii) upon the failure of any of the conditions set forth in Sections
4.2, unless such failure is the result of a Buyer Breach, or (iii) upon any
termination of the Mill Agreement; or

 

8.1.3        By mutual written agreement of Seller and
Buyer.

 

8.2           Effect
of Termination. In the event this Agreement is terminated pursuant to
Section 8.1.1 or 8.1.2, neither party shall have any further liability or
obligation hereunder; provided that (i) the parties respective
rights with respect to the Deposit shall be as set forth in the Mill Agreement,
and (ii) Buyer shall be entitled to such rights and remedies as may be provided
in the Mill Agreement.

 

9.             Definitions and
Interpretation.

 

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

 

“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 Purchase Agreement
(KNRC/Equipment Leases).

 

“Approval Order” has the meaning set forth in
Section 3.3.

 

“Assignment and Assumption Agreement” has the
meaning set forth in Section 5.2.6.

 

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

 

“Balance Sheet Date” means  April 30, 2004.

 

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

 

12

 

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

 

“Bidding Procedures Order” has the meaning set
forth in the Mill Agreement.

 

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

 

“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.

 

“Business” means the operation of a short-line
railroad servicing the Gilchrist Mill.

 

“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 the employees of Klamath
Northern.

 

“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 Mill 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 4.1.4, 4.1.5, 4.2.4, or 4.2.5.

 

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

 

“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.

 

“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.

 

“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 response action under
any Environmental Law or if any such action could be required by any
Governmental Authority under any Environmental Law.

 

13

 

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

 

“Crown Management” means Crown Pacific
Management Limited Partnership, a Delaware limited partnership, the managing
general partner of Seller.

 

“Cure Costs” has the meaning set forth in
Section 2.3.

 

“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 suffered or incurred directly or indirectly and
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).

 

“Deposit” has the meaning set forth in the Mill
Agreement.

 

“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.

 

“Equipment Leases” has the meaning set forth in
Section 1.2.

 

“Financial Statements” means those certain
unaudited (i) operating statements of Klamath Northern for each of the years
ended December 31, 2001, 2002, and 2003 and for the four months ended April 30,
2004 and (ii) balance sheets of Klamath Northern as at December 31, 2001, 2002,
and 2003 and April 30, 2004, copies of which have been provided to Buyer.

 

“Gilchrist Mill” means the sawmill in Klamath
County, Oregon, owned by CPLP.

 

“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.

 

“Governmental Authorization” means any consent,
license, permit, waiver, or other authorization issued, granted, given, or
otherwise made available by or under the authority of any Governmental
Authority or pursuant to any Legal Requirement.

 

“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.

 

“Klamath Northern” has the meaning set forth in
Recital A.

 

“Klamath Northern Stock” has the meaning set
forth in Section 1.1.

 

“KNRC Contracts” has the meaning set forth in
Section 6.1.14.

 

14

 

“KNRC Management Contract” means that certain
Management Agreement made by and among CPLP, Crown Management, and Klamath
Northern dated as of January 1, 2002, under which CPLP and Crown Management
provide certain management services to Klamath Northern.

 

“KNRC Real Property” has the meaning set forth
in Section 6.1.6.

 

“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.

 

“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 short-line railroad industry, (ii)
financial or securities market fluctuations, (iii) the announcement of this
transaction, (iv) any action by Seller or Klamath Northern in accordance with
Section 3.1, or (v) Klamath Northern’s inability to retain any of the Business
Employees.

 

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

 

“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 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.

 

“Permits and Licenses” has the meaning set
forth in Section 6.1.8.

 

“Permitted Encumbrances” means 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; provided, however, that the Permitted
Encumbrances shall not include any Liens securing obligations of Seller or
Klamath Northern for borrowed money, all of which shall be removed from title
by Seller or by the Bankruptcy Court prior to or at the Closing.

 

“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.

 

15

 

“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.

 

“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.

 

“Securities Act” means the Securities Act of
1933, as amended.

 

“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 Mill 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 4.1.4, 4.1.5, 4.2.4, or 4.2.5.

 

“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.

 

“STB Approval” has the meaning set forth in
Section 3.4.

 

“Tax” means any tax (including any income tax,
capital gains tax, value-added tax, sales tax, excise tax, 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.

 

“Third Party Liability” has the meaning set
forth in Section 8.2.

 

“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.

 

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

 

16

 

“Tree Farms” has the meaning set forth in the
Mill Agreement.

 

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

 

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.

 

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 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
as otherwise provided herein and 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. 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.

 

17

 

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 in substantially the form attached as Exhibit B, 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
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 Partners, L.P.

  
	
   

  	
   

  	
  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 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

  

 

18

 

	
  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 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 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 Oregon (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 KLAMATH NORTHERN STOCK, THE EQUIPMENT LEASES, AND THE
ASSUMED LIABILITIES, AND BUYER EXPRESSLY CONSENTS TO AND AGREES NOT TO CONTEST
SUCH EXCLUSIVE JURISDICTION.

 

10.13       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.

 

10.14       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.

 

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

 

[Signature
page follows]

 

19

 

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

 

	
  Seller:

  	
  CROWN PACIFIC PARTNERS, L.P.,

  	
   

  
	
   

  	
  a Delaware limited partnership

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  Crown Pacific Management Limited Partnership, its

  Managing 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 Pres.
  & CFO

  	
   

  
							

 

20

 

	
  Schedules:

  
	
   

  	
   

  	
   

  
	
  1.2

  	
   

  	
  Equipment Leases

  
	
  6.1.6

  	
   

  	
  KNRC Real Property Interests

  
	
  6.1.7

  	
   

  	
  Personal Property

  
	
  6.1.8

  	
   

  	
  Permits and Licenses

  
	
  6.1.14

  	
   

  	
  KNRC Contracts

  
	
   

  	
   

  	
   

  
	
  Exhibits:

  
	
   

  	
   

  	
   

  
	
  A

  	
   

  	
  Assignment and Assumption Agreement

  
	
  B

  	
   

  	
  Guarantee

  

 

21EXHIBIT
10.5

 

Amendment
No. 1 to Purchase Agreement

(KNRC/Equipment Leases)

 

This AMENDMENT NO. 1 TO
PURCHASE AGREEMENT (KNRC/EQUIPMENT LEASES) (the “Amendment”) is made and
entered into as of August 18, 2004, by and between CROWN PACIFIC PARTNERS,
L.P., a Delaware limited partnership (“Seller”), Debtor-in-Possession
under Jointly Administered Case No. 03-11258-PHX-RJH in the United States
Bankruptcy Court for the District of Arizona filed on June 29, 2003 under
Chapter 11 of Title 11 of the United States Code, and INTERNATIONAL
FOREST PRODUCTS LIMITED,  a British Columbia corporation (“Buyer”).

 

Recitals:

 

A.            Seller and Buyer are parties to that certain
Purchase Agreement (KNRC/Equipment Leases) dated as of July 9, 2004 (the “Agreement”),
pursuant to which Seller has agreed to sell and Buyer has agreed to purchase,
on the terms and conditions set forth therein, all of the issued and
outstanding capital stock of Klamath Northern and certain equipment leases as
more fully described therein. 
Capitalized terms used but not defined herein have the respective
meanings set forth in the Agreement.

 

B.            The parties wish to
amend the Agreement to exclude an agreement from the Equipment Leases.

 

Agreements:

 

In consideration of the
foregoing and the mutual covenants of the parties set forth in this Amendment,
the parties, intending to be legally bound, agree as follows:

 

1.             Exclusion of Certain Contract.  Schedule 1.2
to the Agreement is hereby amended by deleting the following Equipment Lease
therefrom and substituting the phrase “Intentionally Omitted” in lieu thereof:

 

	
  Master Lease Agreement,
  dated June 5, 2001, between Volvo Commercial Finance LLC The Americas and
  Crown Pacific Partners, L.P. – Volvo L220D wheel loader, serial # L220DV1640

  	
   

  	
  23.1.12

  

 

2.             Modification.  This Amendment may not
be modified or amended except by the written agreement of the parties.

 

3.             Binding
Effect.  The provisions of this
Amendment shall be binding upon and inure to the benefit of the parties and
their respective successors and permitted assigns.

 

4.             Effect
of Amendment.  Except as expressly
provided in this Amendment, the Agreement shall remain unamended and in full
force and effect.  All references in the
Agreement to “this Agreement” shall be deemed to mean the Agreement as amended
by this Amendment.

 

1

 

5.             Execution.  This Amendment 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
Amendment 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.

 

IN
WITNESS WHEREOF, the parties have executed this Amendment as of the date first
above written.

 

	
  Seller:

  	
  CROWN PACIFIC
  PARTNERS, L.P.,

  	
   

  
	
   

  	
  a Delaware
  limited partnership

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  Crown Pacific
  Management Limited 

  Partnership, its Managing General Partner

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Steven E.
  Dietrich

  	
   

  
	
   

  	
   

  	
  Name: Steven E.
  Dietrich

  	
   

  
	
   

  	
   

  	
  Title: Senior
  Vice President

  	
   

  
	
   

  	
   

  	
     Chief Financial Officer and Treasurer

  	
   

  
	
   

  	
   

  	
   

  
	
  Buyer:

  	
  INTERNATIONAL FOREST
  PRODUCTS 

  LIMITED, a British Columbia corporation

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ G. J. Friesen

  	
   

  
	
   

  	
  Name:  G. J. Friesen

  	
   

  
	
   

  	
  Title:  V.P. & Corp. Secretary

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ L. D. Cocke

  	
   

  
	
   

  	
  Name: L. D. Cocke

  	
   

  
	
   

  	
  Title:  Corporate Controller

  	
   

  
							

 

2

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