Document:

exv10w4

 

CONFIDENTIAL MATERIAL
APPEARING IN THIS DOCUMENT WAS OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE 24b-2,
PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED, OMITTED INFORMATION WAS REPLACED WITH ASTERISKS.

EXHIBIT 10.4

FORM OF

PULP SUPPLY AGREEMENT

between

KIMBERLY-CLARK GLOBAL SALES, INC.

and

NEENAH PAPER, INC.

Made the ___ day of September, 2004

 

 

CONFIDENTIAL MATERIAL
APPEARING IN THIS DOCUMENT WAS OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE 24b-2,
PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED, OMITTED INFORMATION WAS REPLACED WITH ASTERISKS.

Table of Contents

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Page
	ARTICLE 1

	 	 	 	DEFINITIONS
	 	 	1	 
	 
	 	 	 	 	 	 	 	 
	1.01
	 	Airdry Metric Ton (“ADMT”)	 	 	1	 
	1.02
	 	Annual Supply Obligation or ASO	 	 	1	 
	1.03
	 	Annual Purchase Obligation or APO	 	 	1	 
	1.04
	 	Contract Year	 	 	1	 
	1.05
	 	Delivery Point	 	 	1	 
	1.06
	 	Distribution Date
	1.07
	 	Environmental/Safety Laws	 	 	2	 
	1.08
	 	Invoice Price	 	 	2	 
	1.09
	 	Phase Down Period	 	 	2	 
	1.10
	 	Pulp	 	 	2	 
	1.11
	 	Regions	 	 	2	 
	1.12
	 	Shipping Points	 	 	2	 
	1.13
	 	Specifications	 	 	2	 
	1.14
	 	Transaction Price	 	 	2	 
	1.15
	 	2004 Supply Period	 	 	2	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE 2

	 	 	 	ANNUAL PURCHASE AND SUPPLY OBLIGATIONS; ANNUAL FORECASTS AND QUARTERLY ESTIMATES; SAFETY
STOCKS
	 	 	2	 
	 
	 	 	 	 	 	 	 	 
	2.01
	 	Annual Purchase and Supply Obligations	 	 	2	 
	2.02
	 	Regional Terms	 	 	4	 
	2.03
	 	Quarterly Estimates	 	 	4	 
	2.04
	 	Annual Forecasts	 	 	4	 
	2.05
	 	Safety Stocks	 	 	5	 
	2.06
	 	Ordering	 	 	5	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE 3

	 	 	 	QUALITY AND SPECIFICATIONS; SPECIFICATION CHANGES; WARRANTIES; PRODUCT SAFETY
CERTIFICATIONS; REPORTS, RECORDKEEPING, AND ACCESS
	 	 	6	 
	 
	 	 	 	 	 	 	 	 
	3.01
	 	Quality and Specifications	 	 	6	 
	3.02
	 	Specifications Change	 	 	6	 
	3.03
	 	Forestry	 	 	6	 
	3.04
	 	Warranties; Product Safety Certification	 	 	7	 
	3.05
	 	Reports, Recordkeeping, and Access	 	 	7	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE 4

	 	 	 	PRICE AND PAYMENT TERMS
	 	 	8	 
	4.01
	 	Price	 	 	8	 
	4.02
	 	Discounts	 	 	9	 
	4.03
	 	Freight and Other Shipping Costs	 	 	9	 
	4.04
	 	Payment Terms	 	 	9	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE 5

	 	 	 	SHIPMENT AND DELIVERY
	 	 	9	 
	5.01
	 	Shipment Method/Shipping and Delivery Points	 	 	9	 

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CONFIDENTIAL MATERIAL
APPEARING IN THIS DOCUMENT WAS OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE 24b-2,
PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED, OMITTED INFORMATION WAS REPLACED WITH ASTERISKS.

Table of Contents

(continued)

	 	 	 	 	 	 	 	 	 
	5.02
	 	Arrearage	 	 	9	 
	5.03
	 	Title and Risk of Loss	 	 	10	 
	5.04
	 	Bale Finishing	 	 	10	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE 6

	 	 	 	TERM AND TERMINATION
	 	 	10	 
	6.01
	 	Term	 	 	10	 
	6.02
	 	Termination	 	 	10	 
	6.03
	 	Termination Without Cause	 	 	11	 
	6.04
	 	Effect of Termination	 	 	11	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE 7

	 	 	 	CLAIMS: DISPUTE RESOLUTION
	 	 	11	 
	7.01
	 	Claims	 	 	11	 
	7.02
	 	Dispute Resolution	 	 	12	 
	7.03
	 	Litigation	 	 	12	 
	7.04
	 	Governing Law	 	 	12	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE 8

	 	 	 	INDEMNIFICATION
	 	 	12	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE 9

	 	 	 	CONTINGENCIES
	 	 	12	 
	 
	 	 	 	 	 	 	 	 
	9.01
	 	Force Majeure	 	 	12	 
	9.02
	 	Environmental/Safety Laws	 	 	13	 
	9.03
	 	Forestry Considerations	 	 	13	 
	9.04
	 	Notice	 	 	13	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE 10

	 	 	 	CONFIDENTIALITY
	 	 	13	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE 11

	 	 	 	CUSTOMS
	 	 	14	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE 12

	 	 	 	GENERAL
	 	 	14	 
	 
	 	 	 	 	 	 	 	 
	12.01
	 	Parties Bound/Assignment	 	 	14	 
	12.02
	 	Right of Offset	 	 	14	 
	12.03
	 	Compliance With Law	 	 	14	 
	12.04
	 	Independent Contractor Status	 	 	14	 
	12.05
	 	Waiver of Breach	 	 	14	 
	12.06
	 	Notices	 	 	15	 
	12.07
	 	Severability of Provisions	 	 	15	 
	12.08
	 	Headings	 	 	15	 
	12.09
	 	Entire Agreement	 	 	16	 
	12.10
	 	Counterparts	 	 	16	 
	 
	 	 	 	 	 	 	 	 
	EXHIBIT A

	 	 	 	PULP PURCHASE OBLIGATIONS, SUPPLY OBLIGATIONS, DELIVERY POINTS AND TRANSPORTATION TERMS	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	EXHIBIT B

	 	 	 	SPECIFICATIONS	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	EXHIBIT C

	 	 	 	DISCOUNT SCHEDULE	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	EXHIBIT D

	 	 	 	CERTIFICATE	 	 	 	 

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CONFIDENTIAL MATERIAL
APPEARING IN THIS DOCUMENT WAS OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE 24b-2,
PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED, OMITTED INFORMATION WAS REPLACED WITH ASTERISKS.

FORM OF

PULP SUPPLY AGREEMENT

     THIS PULP SUPPLY AGREEMENT (“Agreement”), entered into this    day of
September 2004, is by and between NEENAH PAPER, INC., a Delaware corporation
(“Seller”), and KIMBERLY-CLARK GLOBAL SALES, INC., a Delaware corporation
(“K-C”).

WITNESSETH

     WHEREAS, Seller pursuant to a Distribution Agreement (the “Distribution
Agreement”) dated September    , 2004, Kimberly-Clark Corporation, a Delaware
corporation (“Parent”), will transfer certain assets and businesses to Seller
and its subsidiaries in connection with a tax free spin-off of Parent’s United
States paper and Canadian pulp businesses to the stockholders of Parent (the
“Spin-off Transaction”); and

     WHEREAS, following the Spin-off Transaction, Seller and its subsidiaries
will own and operate pulp mills and related woodlands operations in Terrace
Bay, Ontario and Pictou, Nova Scotia; and

     WHEREAS, from and after the Spin-off Transaction, K-C wishes to purchase
from Seller, and Seller wishes to sell to K-C, Pulp, as defined herein, upon
the terms and conditions hereinafter set forth.

     NOW THEREFORE, in consideration of the foregoing premises, which are
incorporated herein, and the mutual covenants recited hereinafter, it is hereby
agreed as follows.

ARTICLE 1

DEFINITIONS

     The following terms shall have the meanings set forth below when used in
this Agreement and when used in any Purchase Order issued pursuant to this
Agreement.

     1.01 Airdry Metric Ton (“ADMT”). One Thousand (1,000) kilograms of
air-dry Pulp, containing ninety percent (90%) bone-dry fiber and ten percent
(10%) moisture.

     1.02 Annual Supply Obligation or ASO. The maximum tonnage of Pulp, as
set forth in Exhibit A hereto and as amended from time to time, which Seller
must make available to K-C for purchase in any one Contract Year.

     1.03 Annual Purchase Obligation or APO. The maximum tonnage of Pulp, as
set forth in Exhibit A hereto and as amended from time to time, which K-C must
purchase from Seller in any one Contract Year.

     1.04 Contract Year. Any of the consecutive calendar years in the term of
this Agreement, with the first year beginning on January 1, 2005 and ending
December 31, 2005.

     1.05 Delivery Point. The facilities or ports set forth in Exhibit A, or
as otherwise mutually agreed to by the parties in writing from time to time.

     1.06 Distribution Date. As such term is defined in the Distribution
Agreement.

1

 

CONFIDENTIAL MATERIAL
APPEARING IN THIS DOCUMENT WAS OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE 24b-2,
PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED, OMITTED INFORMATION WAS REPLACED WITH ASTERISKS.

     1.07 Environmental/Safety Laws. Any foreign or domestic law, regulation,
rule, order or directive related to a concern for human health, safety, welfare
or the natural environment, which in any way affects Seller’s ability to sell
Pulp to K-C or K-C’s ability to purchase and utilize Pulp, all pursuant to the
terms hereof.

     1.08 Invoice Price. Transaction Price less discounts as set forth in
Exhibit C.

     1.09 Phase Down Period. The two (2) year phase down period, invoked by
either party pursuant to Section 3.02 or Section 6.03.

     1.10 Pulp. Prime bleached Elemental Chlorine Free (“ECF”) grade northern
bleached softwood kraft (NBSK) or hardwood kraft (NBHK, which is either
High-Maple or Aspen as requested by K-C) pulp grades meeting the Specifications
and the provisions of Section 9.02 hereof.

     1.11 Regions. K-C’s global locations referred to regionally as: North
America (US and Canada), and Europe.

     1.12 Shipping Points. Seller’s existing stocking terminals from which
Pulp purchased by K-C is to be shipped, or such other locations as the parties
mutually agree in writing.

     1.13 Specifications. Any or all of K-C’s Pulp specifications listed in
Exhibit B hereto, as amended from time to time by mutual agreement of the
parties.

     1.14 Transaction Price. The price, in USD, per ADMT of Pulp from which
discounts are to be taken as set forth in Article 4.

     1.15 2004 Supply Period. The period from the Distribution Date to
December 31, 2004, inclusive.

ARTICLE 2

ANNUAL PURCHASE AND SUPPLY OBLIGATIONS; ANNUAL FORECASTS

AND QUARTERLY ESTIMATES; SAFETY STOCKS

     2.01 Annual Purchase and Supply Obligations.

      (a) Subject to the terms and conditions herein:

         (i) For the 2004 Supply Period, Seller shall make available to
K-C for purchase, and K-C shall purchase from Seller, Pulp in each
Region as set forth in Exhibit A; and

         (ii) Beginning January 1, 2005, Seller shall make the Annual
Supply Obligations available to K-C for purchase, and K-C shall
purchase from Seller, the Annual Purchase Obligations.

      (b) Failure of K-C to Satisfy its Annual Purchase Obligations. If
K-C fails to purchase the Annual Purchase Obligation for any Contract
Year, and such failure is not excused pursuant to this Agreement, then in
lieu of any other direct, indirect, incidental, special, or consequential
damages arising from K-C’s failure to purchase, Seller shall be entitled
to receive from K-C the Purchase Shortfall Amount (as defined below).
Upon

2

 

CONFIDENTIAL MATERIAL
APPEARING IN THIS DOCUMENT WAS OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE 24b-2,
PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED, OMITTED INFORMATION WAS REPLACED WITH ASTERISKS.

notification that K-C will be unable to meet the Annual Purchase
Obligation, Seller will diligently attempt to procure an alternate
purchaser for that quantity of Pulp which, when added to the quantity of
Pulp actually purchased by K-C during the applicable Contract Year, would
equal the Annual Purchase Obligation for such year (the “Purchase
Shortfall Quantity”).

The Purchase Shortfall Amount shall be equal to the amount Seller would
have received from K-C had K-C purchased the Purchase Shortfall Quantity
in accordance with the price and payment terms in Article 4 of this
Agreement (the “Purchase Shortfall Price”), reduced by the amount of
payments made to Seller for the Purchase Shortfall Quantity by alternate
purchasers (the “Purchase Shortfall Mitigation Amount”), and increased by
ten percent (10%) of the difference between the Purchase Shortfall Price
and the Purchase Shortfall Mitigation Amount. If the Purchase Shortfall
Mitigation Amount is greater than the Purchase Shortfall Price, then the
Purchase Shortfall Amount will be zero.

      (c) Failure of Seller to Satisfy its Annual Supply Obligations. If
Seller fails to make available for purchase by K-C the Annual Supply
Obligation for any Contract Year, and such failure is not excused
pursuant to this Agreement, then in lieu of any other direct, indirect,
incidental, special, or consequential damages arising from Seller’s
failure to sell, K-C shall be entitled to receive from Seller the Supply
Shortfall Amount (as defined below). The quantity of Pulp which, when
added to the quantity of Pulp actually supplied by Seller during the
applicable Contract Year, would equal the Annual Supply Obligation for
such year is referred to below as the “Supply Shortfall Quantity”).

The Supply Shortfall Amount shall be equal to the price paid by K-C for
the Supply Shortfall Quantity on the open market (the “Supply Shortfall
Cover Amount”), reduced by the price K-C would have paid Seller for the
Supply Shortfall Quantity if Seller had supplied such Pulp as required by
this Agreement (the “Supply Shortfall Price”) and increased by ten
percent (10%) of the difference between the Supply Shortfall Cover Amount
and the Supply Shortfall Price. If the Supply Shortfall Cover Amount is
less than the Supply Shortfall Price, then the Supply Shortfall Amount
will be zero.

Any tonnage purchased elsewhere by K-C as a result of the circumstances
described in this subparagraph (c) shall be deducted from K-C’s Annual
Purchase Obligation and Seller’s Annual Supply Obligation.

      (d) Shortfall Payments; Exclusive Remedy. In the event that a
shortfall occurs in the Annual Purchase Obligation, or in the Annual
Supply Obligation, the Purchase Shortfall Amount or the Supply Shortfall
Amount, as the case may be, shall be payable within forty-five (45) days
of the date that a written claim is made, provided that such claim shall
not be made until the amount of the shortfall can be determined with
reasonable certainty. Seller’s sole remedy for K-C’s unexcused failure
to satisfy its Annual Purchase Obligation shall be as set forth in
paragraph 2.01(b). K-C’s sole remedy for Seller’s unexcused failure to
satisfy its Annual Supply Obligation shall be as set forth in paragraph
2.01(c).

      (e) Right to Reallocate Deliveries from North America to Europe.
K-C shall have the right to reallocate purchases from North American
Delivery Points to European Delivery Points and to have such purchase
count towards satisfaction of the Annual

3

 

CONFIDENTIAL MATERIAL
APPEARING IN THIS DOCUMENT WAS OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE 24b-2,
PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED, OMITTED INFORMATION WAS REPLACED WITH ASTERISKS.

Purchase Obligation and Annual Supply Obligation, provided the
following conditions are met:

         (i) K-C provides written notice of its request to reallocate
tonnage from North American Delivery Points to a European Delivery
Point no less than forty-five (45) days prior to the requested
shipping date;

         (ii) the requested reallocated tonnage and ocean freight are
available for reallocation from the Pictou Mill;

         (iii) the Transaction Price for the Pulp shipped to the
European Delivery Point will be equal to the Transaction Price for
North American Delivery Points pursuant to this Agreement, applying
the applicable discount for North American Delivery Points;

         (iv) K-C will pay any added freight and other costs incurred
as a result of shipping the Pulp to the specific European Delivery
Point; and

         (v) Seller shall invoice K-C Europe for Pulp provided pursuant
to this subsection and K-C Europe shall pay Seller sixty (60) days
from vessel arrival.

      (f) Right to Reallocate Deliveries from Europe to North America.
K-C shall have the right to reallocate purchases from European Delivery
Points to a North American Delivery Point and to have such purchase count
towards satisfaction of the Annual Purchase Obligation and Annual Supply
Obligation, provided the following conditions are met:

         (i) K-C provides written notice of its request to reallocate
tonnage from European Delivery Points to a North American Delivery
Point no less than sixty (60) days prior to the requested shipping
date;

         (ii) the Transaction Price will be equal to the Transaction
Price for North American Delivery Points pursuant to this
Agreement, applying the applicable discount for North American
Delivery Points;

         (iii) K-C will pay any added freight and other costs incurred
as a result of shipping the Pulp to the specific North American
Delivery Point; and

         (iv) K-C’s payment term pursuant to this subsection shall be
forty-five (45) days from date of shipment of Pulp.

     2.02 Regional Terms. Both parties agree that the terms and conditions of
this Agreement adequately reflect differences in market Regions for Pulp
specifications, transaction price, delivery, and payment terms.

     2.03 Quarterly Estimates. Beginning with the calendar quarter commencing
January 1, 2005, the parties shall communicate thirty (30) days prior to the
commencement of each quarter to forecast: 1) proposed quarterly purchases to
be made by K-C for each of K-C’s mills listed in Exhibit A, and; 2) the month
within the calendar quarter upon which Seller shall make such quantities
available to K-C.

4

 

CONFIDENTIAL MATERIAL
APPEARING IN THIS DOCUMENT WAS OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE 24b-2,
PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED, OMITTED INFORMATION WAS REPLACED WITH ASTERISKS.

     2.04 Annual Forecasts. By October 15 of each preceding Contract Year, for
general guidance, K-C shall provide Seller with K-C’s preliminary non-binding
forecast of purchases for the subsequent Contract Year. K-C shall provide
Seller with its final non-binding forecast of purchases for each subsequent
Contract Year by November 15. Additionally, on an annual basis Seller and K-C
may agree to start discussions on or before October 15, without binding
obligation unless so mutually agreed, to increase the volume of Pulp to be
supplied and purchased above the volumes required by this Agreement, and such
discussions will conclude by November 15 (regardless whether mutual agreement
is reached or not). If mutually agreed upon, the additional volume of Pulp to
be supplied and purchased will be according to the terms and conditions of this
Agreement.

     2.05 Safety Stocks. Seller shall maintain safety stocks which are
adequate to assure the continuous supply of Pulp to K-C set forth in Exhibit A,
taking into account K-C’s forecasts, Seller’s production schedule, normal
shipping times for vessel and inland shipments and other pertinent factors. In
the event that K-C believes that additional safety stock is required, K-C shall
discuss in good faith the safety-stock levels with Seller. If after the
discussions, K-C reasonably determines that additional safety stock is needed,
it shall so notify Seller and, at Seller’s election either (i) Seller may bring
the safety-stock level to the required level within 30 days of receipt of K-C’s
notice or (ii) K-C may purchase Pulp from other suppliers and Seller shall pay
K-C the difference between the higher price paid by K-C for safety stock on the
open market and the price K-C would have paid Seller if Seller had supplied
Pulp as required by this Agreement, plus liquidated damages equal to ten
percent (10%) of such difference in lieu of any other direct, indirect,
incidental, special or consequential damages arising from such failure to
deliver. Any tonnage purchased by K-C pursuant to this Section 2.05 shall be
deducted from K-C’s Annual Purchase Obligation and Seller’s Annual Supply
Obligation.

     2.06 Ordering. Periodic scheduling instructions for Pulp shall be placed
by K-C and followed by Seller as follows, or as the parties may otherwise
mutually agree in writing from time to time:

      (a) K-C shall advise Seller of K-C’s particular need for Pulp under
this Agreement (a “Delivery Schedule”). The Delivery Schedule shall be
communicated to Seller, at least 30 days prior to the date on which the
shipment would be scheduled to leave the mill, by e-mail, or other means
mutually agreed upon in writing by K-C and Seller. The Delivery Schedule
shall set forth:

         (i) the specific quantity and grade of Pulp needed,

         (ii) the requested shipping date(s) and delivery date(s); and

         (iii) shipping instructions and Delivery Points.

      (b) Subject to K-C’s obligations pursuant to Section 2.01, K-C may
cancel any specific quantity of Pulp specified in the Delivery Schedule
by providing a revised Delivery Schedule to Seller for such quantity, by
e-mail, or other means mutually agreed upon in writing by K-C and Seller.
If the revised Delivery Schedule for such quantity is received by Seller
prior to Seller delivering such quantity to a carrier for shipment, then
K-C will be responsible for any out-of-pocket demurrage or other costs
incurred by Seller as a result of such cancellation, provided that Seller
uses commercially reasonable efforts to mitigate any such additional
costs. If the revised Delivery Schedule for such quantity is received by
Seller after such quantity has been delivered to a carrier for

5

 

CONFIDENTIAL MATERIAL
APPEARING IN THIS DOCUMENT WAS OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE 24b-2,
PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED, OMITTED INFORMATION WAS REPLACED WITH ASTERISKS.

shipment, then K-C will be responsible for any additional costs
incurred by Seller in complying with the revised Delivery Schedule for
such quantity, provided that Seller uses commercially reasonable efforts
to mitigate any such additional costs.

      (c) Upon Seller’s receipt of a Delivery Schedule, Seller shall
promptly notify K-C of any proposed deviations from K-C’s instructions.

ARTICLE 3

QUALITY AND SPECIFICATIONS; SPECIFICATION CHANGES;

WARRANTIES; PRODUCT SAFETY CERTIFICATIONS;

REPORTS, RECORDKEEPING, AND ACCESS

     3.01 Quality and Specifications. The Pulp to be sold and purchased
hereunder shall be consistent with the quality of prime pulp grades used
throughout the world and shall be produced in accordance with and shall meet
all of K-C’s requirements and Specifications as set forth in this Agreement and
K-C’s shipping instructions under Article 5. In the event of any conflict or
inconsistency between or among requirements, standards or conditions and unless
otherwise herein specifically provided otherwise, the higher or more detailed
requirement, standard or condition shall control. The parties agree to work
together to make any necessary changes to the Specifications to ensure that the
Pulp meets the performance, processing and other requirements in the
manufacture of products into which the Pulp is incorporated and that the
requirements of such products are met.

     3.02 Specifications Change. K-C shall have the right to propose
reasonable changes to Specifications at any time during the term of this
Agreement, and Seller agrees to use its commercially reasonable efforts to meet
such changes within a reasonable period of time (not to exceed 90 days) after
K-C’s written request has been received. For purposes of this paragraph, a
reasonable change to Specifications shall mean that the Specifications
requested could be met by third-party pulp suppliers in the commercial pulp
market. If Seller is unable to meet such changes within such reasonable
period, K-C may purchase Pulp meeting changed Specifications elsewhere, and
K-C’s Annual Purchase Obligations shall be reduced accordingly. If Seller is
able to make such changes, but Seller’s costs are increased or decreased as a
direct result of such revised Specifications, Seller and K-C agree to negotiate
in good faith to establish, within thirty (30) days of Seller’s knowledge that
price changes shall result, any commercially reasonable revisions in price and
terms. If the parties are unable to agree on a price adjustment within such 30
day period and K-C elects not to forego the Specifications change, irrespective
of any other provision hereof, either party shall have the right to commence
the Phase Down Period immediately with respect to the quantity of Pulp for
which the change to Specifications was requested.

     Seller understands that the introduction of process changes in its Pulp
manufacturing can potentially affect K-C’s manufacturing process and/or final
product attributes. Therefore, Seller will provide K-C with Pulp samples for
evaluation at least one hundred twenty (120) days in advance of making any such
changes. If, in the sole, reasonable opinion of K-C, a process change by
Seller will negatively affect K-C’s manufacturing process and/or final product
attributes, then K-C agrees to give Seller an additional ninety (90) days
written notice of such negative effects. At the end of such ninety (90) day
notice period Seller shall either revoke such process change or immediately and
permanently release K-C from its purchase obligations under this Agreement as
to the Pulp in question.

6

 

CONFIDENTIAL MATERIAL
APPEARING IN THIS DOCUMENT WAS OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE 24b-2,
PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED, OMITTED INFORMATION WAS REPLACED WITH ASTERISKS.

     3.03 Forestry. Seller shall, by December 31, 2005, cause its wholly-owned
wood fiber suppliers to be formally certified in one of the
internationally-recognized forest certification programs, such as the American
Forest and Paper Association’s (AF&PA) Sustainable Forestry Initiative® (SFI)
program. In addition, Seller will use its commercially reasonable efforts to
work with and encourage its industrial contract wood fiber suppliers to be so
certified by December 31, 2005 and shall encourage its non-industrial contract
wood suppliers to adopt the principles of sustainable forestry and to seek
independent certification of their woodlands in an appropriate program such as
the American Tree Farm System’s Standards of Sustainability for Forest
Certification.

     3.04 Warranties; Product Safety Certification.

      (a) Each party represents and warrants to the other party that:

         (i) it is a corporation duly organized, existing and in good
standing under the laws of the state of Delaware and its execution
and performance of this Agreement is within its corporate powers,
has been duly authorized, and is not in contravention or violation
of its charter, by-laws or any corporate resolution or of law or of
any indenture, agreement, undertaking or other obligation to which
it is bound;

         (ii) it has obtained all governmental licenses, approvals and
registrations necessary to perform and fulfill its obligations
under this Agreement;

         (iii) the individual signing this Agreement on its behalf is
duly authorized to do so and this Agreement is legally valid,
binding and enforceable in accord with its terms; and

         (iv) it shall take all steps necessary to assure that all
delivery dates and other obligations established in this Agreement
by it to be performed are met in a timely fashion;

      (b) Seller agrees that the Pulp shall be, at the time of delivery to
K-C, free from contamination or other defects and shall conform in all
respects with the Specifications and other requirements hereof; and

      (c) Seller agrees that, in addition to the other requirements of
this Agreement, each shipment of the Pulp:

         (i) shall conform to the U.S. Food and Drug Administration
requirement for pulp as defined in 21 C.F.R. Section 186.1673, and
requirements for Indirect Food Additives: Pulp and Paperboard
Components as defined in 21 C.F.R. Part 176; and

         (ii) will be sufficiently tested to certify that it meets the
Council of Northeast Governors (“CONEG”) heavy metal requirements
for levels of lead, mercury, cadmium and chromium.

Upon execution of this Agreement, Seller shall provide to K-C a certificate
attesting to the foregoing in the form attached hereto as Exhibit D.

7

 

CONFIDENTIAL MATERIAL
APPEARING IN THIS DOCUMENT WAS OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE 24b-2,
PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED, OMITTED INFORMATION WAS REPLACED WITH ASTERISKS.

     3.05 Reports, Recordkeeping, and Access. Seller shall maintain a quality
assurance program that meets the sampling process, test methods and technical
attributes set forth in the Specifications in Exhibit B. Seller understands
that K-C relies on Seller’s quality assurance program to assure that Pulp
delivered is in compliance with the Specifications and other provisions set
forth herein. During the term of this Agreement, Seller shall collect and for
five (5) years after termination hereof, shall maintain: (i) process control
data and property data typical in the industry for the production of Pulp, (ii)
all data required to document compliance with the Specifications and other
terms hereof, and (iii) any other process control or property data related to
the production of Pulp as K-C may from time to time reasonably request. Seller
shall provide K-C, upon its request, with access, at reasonable times, to
Seller’s facilities for purposes of reviewing such operations and Seller’s
compliance with the terms hereof, including Seller’s records required to be
kept pursuant to this Section 3.05.

ARTICLE 4

PRICE AND PAYMENT TERMS

     4.01 Price.

     (a) The parties acknowledge that the price for Pulp fluctuates
with market conditions and agree that the price at which Seller shall sell and
K-C shall purchase Pulp hereunder shall be determined as set forth in this
Article 4. In order to determine the price for Pulp invoiced in any given
month, the parties shall first establish the Transaction Price which shall be
based on the prevailing price per ADMT of Pulp for the preceding month as
quoted by one or more major, regular market producers of prime bleached Pulp
for contract or regular, long-term customers for any given month. Based upon
such quote(s), Seller and K-C shall attempt to mutually agree on the applicable
Transaction Price for any given month’s shipments. If the parties cannot
agree on the Transaction Price, then the Transaction Price shall be determined
by reference to published market data as follows:

     For Softwood (NBSK) Shipped to North American Delivery Points:

The Transaction Price shall be the average of:

         1) Pulp and Paper Week’s posted price in the “Price
Watch: Market Pulp” table for the preceding month. In the
case of a range of prices, the range average; and

         2) The posted price in RISI World Pulp Monthly’s “Table
5 Market Pulp Price Summary” Delivered to United States for
the preceding month.

In the event that the next issue of the subject publications
adjusts or corrects previously published prices, such resulting
adjustments shall be credited to the proper party and incorporated
into the methodology on a going-forward basis.

For Hardwood (NBHK):

The Transaction Price shall be the posted Aspen and Maple price in RISI
World Pulp Monthly’s “Table 5 Market Pulp Price Summary” Delivered to
United States for the preceding month.

For Softwood (NBSK) Shipped to European Delivery Points:

8

 

CONFIDENTIAL MATERIAL
APPEARING IN THIS DOCUMENT WAS OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE 24b-2,
PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED, OMITTED INFORMATION WAS REPLACED WITH ASTERISKS.

The Transaction Price shall be the average of:

         1) The Hawkins Wright PulpWatch posted price in the
“Price Indication” table for the preceding month. In the
case of a range of prices, the range average; and

         2) The posted price in RISI World Pulp Monthly’s “Table
5 Market Pulp Price Summary” Delivered to Europe for the
preceding month.

In the event that the next issue of the subject publications
adjusts or corrects previously published prices, such resulting
adjustments shall be credited to the proper party and incorporated
into the methodology on a going-forward basis.

     Discontinuation of a Publication

In the event that one or more of the subject publications cease to
exist, then the parties agree to negotiate in good faith to
determine a commercially reasonable alternative to that publication
for use in this Section 4.01.

     (b)
Notwithstanding anything in this Section 4.01, in no event
shall the Transaction Price for NBSK shipped during the period from the Distribution Date to and including December 31, 2007 to North
American Delivery Points be less than $***** per ADMT or more than $***** per ADMT.

     4.02 Discounts. The price to be paid by K-C for Pulp purchased pursuant
to this Agreement shall be the Transaction Price established pursuant to
Section 4.01 (including, if applicable Section 4.01(b)) less the discounts set forth in Exhibit C.

     4.03 Freight and Other Shipping Costs. Except as otherwise set forth
herein, Seller shall pay shipping costs for, and insure deliveries of Pulp to
any of the Delivery Points set forth in Exhibit A. K-C may request accelerated
deliveries or designate other Delivery Points, in which event the parties shall
review costs associated with such accelerated deliveries or other Delivery
Points and establish appropriate shipping costs therefor.

     4.04 Payment Terms. Seller shall invoice K-C on a per load basis for all
Pulp sold under this Agreement. K-C North America’s payment term is forty-five
(45) days from date of shipment of Pulp. Seller shall invoice K-C Europe and
K-C Europe shall pay Seller sixty (60) days from vessel arrival.

ARTICLE 5

SHIPMENT AND DELIVERY

     5.01 Shipment Method/Shipping and Delivery Points. All purchases of Pulp
made hereunder shall be shipped from Seller’s Terrace Bay and Pictou pulp mills
to K-C Delivery Points consistent with the parties’ 2004 shipping history or as
mutually agreed. Seller shall deliver all Pulp to K-C at the Delivery Points
set forth in Exhibit A, or as otherwise mutually agreed from time to time, in
accordance with K-C’s shipping instructions. All pulp received by K-C’s
European locations shall be supplied solely by Seller’s Pictou, Nova Scotia
mill.

     5.02 Arrearage. Seller shall make and monitor all shipments and
deliveries in accordance with the shipment schedules specified in K-C’s
shipping instructions. When Seller becomes aware that it may be unable to ship
any quantity of Pulp hereunder in accordance with K-C’s specified delivery
schedule, Seller shall immediately notify K-C both orally and in writing of
this possibility, and the parties shall determine whether Seller can effect
delivery to meet K-C’s requirements. If, after discussion with Seller, K-C
reasonably determines, in its sole good faith

9

 

CONFIDENTIAL MATERIAL
APPEARING IN THIS DOCUMENT WAS OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE 24b-2,
PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED, OMITTED INFORMATION WAS REPLACED WITH ASTERISKS.

judgment, that Seller will not be able to make a delivery in time to meet
K-C’s requirements, K-C shall have the right to obtain delivery of the required
quantities of Pulp from an alternate supplier. In the event that K-C is
required to purchase Pulp from another supplier pursuant to this Section 5.02,
Seller shall pay K-C the difference between the higher price paid by K-C for
Pulp on the open market and the price K-C would have paid to Seller if Seller
had supplied Pulp as required by this Agreement, plus liquidated damages equal
to ten percent (10%) of such difference, in lieu of any other direct, indirect,
incidental, special or consequential damages arising from such failure to
deliver. Purchases by K-C of Pulp from another supplier pursuant to this
Section 5.02 shall be deducted from K-C’s Annual Purchase Obligation and
Seller’s Annual Supply Obligation.

     5.03 Title and Risk of Loss. All shipments to North American Delivery
Points shall be made FOB Delivery Point at which point risk of loss or damage
shall pass to K-C. All shipments to European Delivery shall be made CIF
European Delivery Point and risk of loss or damage shall pass in accordance
with such CIF terms. Legal title to the Pulp shall pass to K-C at the Delivery
Point designated by K-C.

     5.04 Bale Finishing. For North America, Seller will use commercially
reasonable best efforts to work with K-C to develop and supply wireless bales
meeting K-C technical and transportation requirements no later than June 1,
2006. For Europe, Seller will continue to provide wired bales, unless and
until the parties mutually agree otherwise. Additionally, Seller will use
commercially reasonable efforts to work with K-C to create uniform bale shape,
dimensions, weights, and wrap requirements that will be implemented by June 1,
2006, but the parties acknowledge that transitioning to uniform bale shape,
dimensions, weights, and wrap requirements is capital intensive and that there
is not currently a provision in the budget of Seller for such an outlay and
operational priorities may delay the implementation of uniform bale shape,
dimensions, weights, and wrap requirements.

ARTICLE 6

TERM AND TERMINATION

     6.01 Term. The term of this Agreement shall commence on the Distribution
Date, and shall continue until terminated in accordance with the terms of this
Agreement.

     6.02 Termination. This Agreement may be terminated:

      (a) Upon the mutual written agreement of the parties; or

      (b) By either party for material breach of any of the terms hereof
by the other party if the breach is not corrected (or remedied) within
thirty (30) calendar days after written notice of breach is delivered to
the defaulting party; or

      (c) By either party, upon thirty (30) days written notice to the
other party, for three or more material breaches of the terms of this
Agreement by the other party within a Contract Year, whether or not such
breaches have been cured; or

      (d) By either party, forthwith, upon written notice to the other
party, if such other party shall become insolvent, or shall be placed in
receivership, reorganization, liquidation or bankruptcy, by the other
party, immediately, upon written notice; or

10

 

CONFIDENTIAL MATERIAL
APPEARING IN THIS DOCUMENT WAS OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE 24b-2,
PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED, OMITTED INFORMATION WAS REPLACED WITH ASTERISKS.

      (e) By K-C, forthwith, upon written notice to Seller, if for any
reason, the ownership or control of Seller or any of Seller’s production
facilities becomes vested in, or is made subject to the control or
direction of, any direct competitor of K-C or any governmental or
regulatory authority or any other third party, who in K-C’s reasonable
judgment may not be able to reliably perform the obligations of Seller
hereunder; or

      (f) By either party, upon no less than ninety (90) days written
notice to the other party, in the event of a fundamental change in the
nature of the business of either party that may substantially affect its
ability to sell or to purchase and utilize Pulp hereunder; or

      (g) As otherwise provided for in this Agreement in Article 6,
Sections 9.01, Section 9.02, Section 9.03, or Article 11.

     6.03 Termination Without Cause.

      (a) As to the Entire Agreement, at any time on or after December 31,
2007, either party may provide written notice to the other party of its
intent to commence the Phase Down Period. The notice shall specify the
commencement date of such Phase Down Period. The earliest that the
twenty-four month Phase Down Period can start is January 1, 2009. The
Annual Purchase Obligation and Annual Supply Obligation under the Phase
Down Period are set forth at Exhibit A.

      (b) As to that portion of the Agreement concerning NBHK Pulp only,
Seller may give a three month written notice, consistent with timing of
the Quarterly Estimate process per Section 2.03, to terminate the
Purchase and Supply Obligations for either or both of the hardwood Pulp
grades. The notice shall specify the effective termination date and must
be acknowledged by K-C in writing.

     6.04 Effect of Termination. Upon termination of this Agreement:

      (a) The parties shall meet and discuss which outstanding and not yet
fulfilled orders should be filled and which shall be cancelled.

      (b) Each party shall immediately return to the other (or destroy)
all items of Confidential Information delivered hereunder and all copies
thereof.

      (c) Seller shall continue to fulfill its warranty obligations with
respect to any Pulp sold by Seller to K-C pursuant to this Agreement.

      (d) All requirements of warranties, reports, recording, access,
indemnification, payment terms, obligations related to use or protection
of Confidential Information, and provisions related to venue and choice
of laws, shall survive termination or expiration of this Agreement
according to their terms.

ARTICLE 7

CLAIMS: DISPUTE RESOLUTION

     7.01 Claims. Claims by K-C relative to its inability to utilize the Pulp
as a result of the failure of the Pulp to meet the Specifications must be made
within thirty (30) calendar days after receipt and acceptance of the shipment
by K-C at one of the Delivery Points. K-C shall retain

11

 

CONFIDENTIAL MATERIAL
APPEARING IN THIS DOCUMENT WAS OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE 24b-2,
PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED, OMITTED INFORMATION WAS REPLACED WITH ASTERISKS.

fifty percent (50%) of the Pulp shipment in dispute, when practical,
pending examination by Seller or its nominee. Seller shall examine the Pulp
held by K-C or its consignee within ten (10) calendar days of notification by
K-C, and Seller shall immediately notify K-C regarding how to dispose of any
Pulp which is nonconforming.

     7.02 Dispute Resolution. The parties shall attempt to resolve claims or
other disputes arising with respect to this Agreement within ninety (90)
calendar days of the time a claim or other dispute arises by presenting the
major issues for resolution to appropriate level managers in the normal chain
of command of the affected business units.

     7.03 Litigation. Nothing herein, including the provisions of Section 7.02
above, shall prohibit either party from at any time pursuing or exercising any
or all of its remedies at law or equity.

     7.04 Governing Law. The interpretation, validity and enforcement of this
Agreement shall be governed by and construed in accordance with the laws of the
State of Wisconsin, without regard to choice of law provisions, and shall not
be governed by the Convention on Contracts for the International Sale of Goods.

ARTICLE 8

INDEMNIFICATION

     Each party hereto agrees to defend, indemnify and hold harmless the other
party, its officers, directors, agents and employees, from and against any and
all claims, demands, judgments, costs, expenses and damages for personal injury
or property damage caused by the indemnifying party’s negligent act or omission
or willful misconduct.

     The foregoing indemnifications are subject to and conditioned upon:

      (a) prompt written notice being given to the indemnifying party by
the indemnified party of any threatened or pending claim or other
liability;

      (b) the indemnified party fully cooperating with the indemnifying
party in the investigation and/or defense of any such claim or other
liability; and

      (c) the indemnifying party having the absolute right to direct the
defense and/or settlement of any such claim or other liability and to
select counsel to represent it and the indemnified party.

ARTICLE 9

CONTINGENCIES

     9.01 Force Majeure. If either party is prevented or delayed in the
performance of this Agreement by any cause beyond the affected party’s
immediate or reasonable control and which arises without its fault or
negligence, including an act of God, war or threat of war, strike or other form
of labor disturbances, fire, explosion, or other casualty, any law, restraint,
rule, regulation or other governmental restriction, or by any
Environmental/Safety Laws, then the obligations of the parties to sell and
deliver or to purchase and receive Pulp shall be reduced or canceled during the
continuance of such event with regard to the quantity of Pulp which cannot be
delivered or purchased as a direct consequence of such event. Specifically,
during the continuance of any one or more of the above events impairing
Seller’s performance, Seller shall

12

 

CONFIDENTIAL MATERIAL
APPEARING IN THIS DOCUMENT WAS OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE 24b-2,
PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED, OMITTED INFORMATION WAS REPLACED WITH ASTERISKS.

offer available supplies first to its long-term contract customers,
including K-C, and shall allocate to K-C quantities not less than that quantity
determined by multiplying K-C’s percentage of such total long term contract
amounts by the total available supply. During the continuance of any one or
more of the above events impairing K-C’s ability to accept or utilize Pulp,
K-C’s obligations to purchase Pulp shall be reduced by such quantity as K-C
shall be unable to accept or utilize. Quantities which Seller is unable to
deliver by reason of force majeure shall be deducted from K-C’s Annual Purchase
Obligation and Seller’s Annual Supply Obligation. If a force majeure shall
prevent a party from performing its obligations under this Agreement for more
than one year, the other party may, upon written notice, terminate this
Agreement as to that portion affected by the force majeure.

     9.02 Environmental/Safety Laws. Irrespective of any provision herein to
the contrary, if Seller is unable to supply K-C with Pulp or K-C is unable to
purchase and/or receive Pulp hereunder which complies with all applicable
Environmental/Safety Laws, K-C may reduce the quantity of Pulp to be purchased
hereunder in accordance with Section 9.01 during the period of non-compliance.
Notwithstanding any such reductions, K-C and Seller shall work together for a
reasonable period of time (not to exceed ninety (90) days) to determine whether
Seller can provide any Pulp not affected by Environmental/Safety Laws. In the
event Seller is unable to provide Pulp meeting Environmental/Safety Laws by the
end of such ninety (90) day period, K-C may terminate this Agreement, in whole
or in part, immediately upon written notice to Seller.

     9.03 Forestry Considerations.

      (a) In the event that as a result of Seller’s forestry activities,
continued use of Seller’s Pulp by K-C does, or in the reasonable judgment
of K-C is likely to, result in a substantial loss of sales of K-C
products or to otherwise materially and adversely affect the reputation
of K-C or its products, K-C shall give Seller written notice of the facts
or allegations upon which it relies to base its conclusion that continued
use of Seller’s Pulp will likely cause such consequences (such notice is
referred to herein as the “Section 9.03 Notice”). Within a reasonable
time (not to exceed 90 days from the receipt of K-C’s Section 9.03
Notice), Seller and K-C shall discuss such facts or allegations and work
together in good faith to arrive at a mutually agreeable solution to
reasonably address such facts or allegations.

      (b) If Seller and K-C are able to agree on a mutually acceptable
solution, that agreement will be reduced to writing and will set forth
the respective obligations of the parties under the agreed solution. If
Seller and K-C are unable to agree on a solution, then K-C shall have the
right to terminate this Agreement upon written notice effective not
earlier than one year following the date of such written notice.

     9.04 Notice. If either party is prevented or delayed in performance by
any of the events specified in Section 9.01 or Section 9.02, the party affected
shall give immediate written notice to the other party of the cause, the date
of commencement and other relevant details of any such nonperformance, and to
the best of its knowledge, the extent of such nonperformance and when
deliveries, acceptance or utilization may be anticipated to resume. The
parties agree to cooperate with each other and to use all commercially
reasonable efforts to resolve any such situation in good faith and in a timely
manner. Such resolution may include, but shall not be limited to,
reapportioning or otherwise adjusting the Annual Purchase Obligation to be
purchased by K-C during the term hereof and/or the Annual Supply Obligation.

13

 

CONFIDENTIAL MATERIAL
APPEARING IN THIS DOCUMENT WAS OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE 24b-2,
PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED, OMITTED INFORMATION WAS REPLACED WITH ASTERISKS.

ARTICLE 10

CONFIDENTIALITY

     The specific terms and conditions of this Agreement and any information
conveyed or otherwise received by or on behalf of a party in conjunction
herewith are confidential and are subject to the terms of the Confidentiality
provisions of the Distribution Agreement.

ARTICLE 11

CUSTOMS

     K-C is certified by the U.S. Customs Service as compliant with the
Customs-Trade Partnership Against Terrorism program (“C-TPAT”). Seller agrees
to familiarize itself with the applicable standards of the C-TPAT program
(i.e., see www.customs.gov/xp/cgov/import/ commercial_enforcement/ctpat/). To
the extent Seller deals with K-C in the supply chain of products to be imported
into the U.S., Seller shall implement a verifiable, documented program that
complies with C-TPAT standards and K-C’s requests that K-C reasonably believes
are necessary to maintain K-C’s C-TPAT certification. If K-C has received
notice of non-compliance with C-TPAT from the U.S. Customs Service or a court
or federal agency of competent jurisdiction or if K-C reasonably believes that
Seller has failed to comply with the preceding sentence, K-C shall give Seller
written notice stating in reasonable detail the factual basis for K-C’s claim
of non-compliance, including a copy (if any) of the notice of non-compliance
with C-TPAT from the U.S. Customs Service or a court or federal agency of
competent jurisdiction. The parties shall attempt to resolve K-C’s claim in
accordance with the Dispute Resolution procedure stated in §7.02 hereof and in
good faith discussions among K-C, Seller and the U.S. Customs Service or court
or federal agency of competent jurisdiction. If the parties have not resolved
K-C’s claim to the reasonable satisfaction of K-C or within the time period the
U.S. Customs Service provides to K-C for remedying the non-compliance, then K-C
shall have the right to terminate this Agreement, in whole or in part, without
penalty by giving 180 days written notice to Seller.

ARTICLE 12

GENERAL

     12.01 Parties Bound/Assignment. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective legal
representatives, successors, and permitted assigns. Neither party shall assign
or transfer any right, obligation or interest under this Agreement without the
prior written consent of the other, provided that either party may assign this
Agreement to a wholly owned subsidiary and, except for the situation described
in Section 6.02(e), either party may assign to a successor company by merger or
corporate reorganization but only upon assumption by such successor of the
assignor’s obligations under this Agreement.

     12.02 Right of Offset. Upon written notice to the other party, each party
has the right to deduct from amounts owed to the other party undisputed amounts
due and owing to it by the other party if those amounts go unpaid more than 60
days after they are due and owing.

     12.03 Compliance With Law. Each party shall comply with all applicable
laws, rules, regulations or other requirements of any governmental entity that
affect such party’s obligations and other responsibilities hereunder in
performing this Agreement.

14

 

CONFIDENTIAL MATERIAL
APPEARING IN THIS DOCUMENT WAS OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE 24b-2,
PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED, OMITTED INFORMATION WAS REPLACED WITH ASTERISKS.

     12.04 Independent Contractor Status. Each party shall be an independent
contractor in its performance of this Agreement and shall not be deemed,
expressly or by implication, to be an agent, employee, representative or
servant of the other for any purpose whatsoever.

     12.05 Waiver of Breach. No waiver of breach or non-performance of any of
the provisions of this Agreement shall be construed as a waiver of any
succeeding breach or non-performance of the same or any other provision.

     12.06 Notices. Other than routine communications in the ordinary course
of performing any obligations under this Agreement, all notices and
communications in connection with this Agreement shall be in writing and shall
be deemed complete upon transmittal by a recognized international courier or by
facsimile, with a confirmation of receipt, addressed to the parties hereto at
their respective addresses or facsimile numbers set forth below:

     IF TO SELLER:

Neenah Paper, Inc.

Preston Ridge III, Suite 600

3460 Preston Ridge Road

Alpharetta, Georgia 50005

Attn: Chief Executive Officer

Phone: (678) 566-6500

Fax: (678)                     

     with copy to:

Neenah Paper, Inc.

Preston Ridge III, Suite 600

3460 Preston Ridge Road

Alpharetta, Georgia 50005

Attn: General Counsel

Phone: (678) 566-6500

Fax: (678)                     

     IF TO K-C:

Kimberly-Clark Global Sales, Inc.

2300 Winchester Road

Neenah, WI 54956

Attn: Director Virgin Fiber Procurement

Phone: (920) 721-4116

Fax: (920) 721-4976

     with copy to:

Chief Counsel, Neenah Operations

Kimberly-Clark Corporation

401 N. Lake Street

Neenah, WI 54957 —0349

Phone: (920) 721-2000

Fax: (920) 721-8446

15

 

CONFIDENTIAL MATERIAL
APPEARING IN THIS DOCUMENT WAS OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE 24b-2,
PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED, OMITTED INFORMATION WAS REPLACED WITH ASTERISKS.

or any other address or fax number and to the attention of any other person as
either of the parties may specify hereafter by written notice to the other.

     12.07 Severability of Provisions. If any provision of this Agreement
shall be determined to be invalid, illegal or unenforceable under law, the
validity and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.

     12.08 Headings. Article and section headings used in this Agreement are
for the purpose of reference only and shall not be considered in construing
this Agreement.

     12.09 Entire Agreement. This Agreement, including its Exhibits and
documents referenced herein, constitutes the entire agreement between the
parties related to the subject matter hereof, and cancels and supersedes all
prior or contemporaneous agreements, whether oral or written, relating to the
subject matter of this Agreement and all prior agreements, negotiations,
dealings and understandings, whether written or oral, regarding the subject
matter hereof are hereby superseded and merged into this Agreement. No
conditions, usage of trade, course of dealing or performance, understanding or
agreement purporting to modify, vary, explain or supplement the terms or
conditions of this Agreement shall be binding unless hereafter made in writing
and signed by the party to be bound, and no modification shall be effected by
the acknowledgement or acceptance of purchase order or shipping instruction,
invoice or other forms containing terms or conditions at variance with or in
addition to those set forth in this Agreement.

     12.10 Counterparts. This Agreement may be executed by the parties in two
or more counterparts, each of which shall be deemed an original, but which
together shall constitute one and the same agreement.

     IN WITNESS WHEREOF, this Agreement has been executed in multiple
counterparts by the duly authorized representatives of the parties as of the
date first written above.

	 	 	 	 	 	 	 
	NEENAH PAPER, INC.
	 	KIMBERLY-CLARK GLOBAL SALES, INC.
	 
	 	 	 	 	 	 
	BY:

	 	 	 	BY:	 	 
	

	 	

	 	 	 	

	

	 	Sean T. Erwin
	 	 	 	

	

	 	Chief Executive Officer
	 	 	 	

16

 

CONFIDENTIAL MATERIAL
APPEARING IN THIS DOCUMENT WAS OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE 24b-2,
PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED, OMITTED INFORMATION WAS REPLACED WITH ASTERISKS.

EXHIBIT A

To

Pulp Supply Agreement Between Kimberly-Clark Global Sales, Inc. and NeenahPaper, Inc.

NORTH AMERICAN ANNUAL SOFTWOOD PULP PURCHASE OBLIGATIONS,

SUPPLY OBLIGATIONS, DELIVERY POINTS AND TRANSPORTATION TERMS

Northern Bleach Softwood Kraft (NBSK)

	 	 	 	 	 
	Contract Year

	 	Annual Purchase Obligation
	 	Annual Supply Obligation
	

	 	(K-C)
	 	(Seller)
	2004 [Fourth

Quarter Only]

	 	93,000 ADMT (less tonnage
transferred to K-C during
the Fourth Quarter of
2004 prior to the
Distribution Date)
	 	93,000 ADMT (less
tonnage transferred
to K-C during the
Fourth Quarter of
2004 prior to the
Distribution Date)
	2005 & 2006

	 	360,000 ADMT
	 	360,000 ADMT
	2007†

	 	320,000 ADMT
	 	320,000 ADMT
	2008 and all
subsequent Contract
Years

	 	275,000 ADMT
	 	275,000 ADMT
	Phase Down Year 1

	 	225,000 ADMT
	 	225,000 ADMT
	Phase Down Year 2

	 	150,000 ADMT
	 	150,000 ADMT

† Seller shall use its commercially reasonable best efforts so that, as of
January 1, 2007, each K-C mill shall receive pulp solely from one Seller mill.

Delivery Points and Transportation Terms for K-C North America

	 	 	 	 	 
	Beech Island, SC

	 	Chester, PA
	 	Owensboro, KY
	Huntsville, Ontario

	 	Loudon, TN
	 	Marinette, WI
	Mobile, AL

	 	Corinth, MS
	 	*Celu-Tissue Mills
	Jenks, OK

	 	New Milford, CT
	 	*Schweitzer-Maudit’s Lee, MA Mill

Delivery during the Phase Down Period to be consistent with tonnages across
Delivery Points during the two contract years prior to the start of the Phase
Down Period.

All transportation costs to be paid by Seller.

*Solely for fiber needs related to K-C products.

1

 

CONFIDENTIAL MATERIAL
APPEARING IN THIS DOCUMENT WAS OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE 24b-2,
PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED, OMITTED INFORMATION WAS REPLACED WITH ASTERISKS.

NORTH AMERICAN ANNUAL HARDWOOD PULP PURCHASE OBLIGATIONS, SUPPLY

OBLIGATIONS, DELIVERY POINTS AND TRANSPORTATION TERMS

Northern Bleached Hardwood Kraft (NBHK)

	 	 	 	 	 	 	 	 	 
	Contract Year
	 	Annual Purchase Obligation (K-C)	 	Annual Supply Obligation (Seller)
	2004 [Fourth

Quarter Only]

	 	High-Maple
	 	10,000 ADMT*
	 	High-Maple
	 	10,000 ADMT*
	

	 	Aspen
	 	12,500 ADMT*
	 	Aspen
	 	12,500 ADMT*
	2005

	 	High-Maple
	 	40,000 ADMT
	 	High-Maple
	 	40,000 ADMT
	

	 	Aspen
	 	40,000 ADMT
	 	Aspen
	 	40,000 ADMT
	2006

	 	High-Maple
	 	30,000 ADMT
	 	High-Maple
	 	30,000 ADMT
	

	 	Aspen
	 	30,000 ADMT
	 	Aspen
	 	30,000 ADMT
	2007†

	 	High-Maple
	 	20,000 ADMT
	 	High-Maple
	 	20,000 ADMT
	

	 	Aspen
	 	20,000 ADMT
	 	Aspen
	 	20,000 ADMT
	2008

	 	High-Maple
	 	10,000 ADMT
	 	High-Maple
	 	10,000 ADMT
	

	 	Aspen
	 	10,000 ADMT
	 	Aspen
	 	10,000 ADMT
	2009 and all
	 	 	 	 	 	 	 	 
	subsequent contract
	 	 	 	 	 	 	 	 
	years

	 	No obligation
	 	 	 	No obligation	 	 

• These amounts shall be reduced by any tonnage transferred to K-C during the
Fourth Quarter of 2004 prior to the Distribution Date.

† Seller will use its commercially reasonable best efforts so that, as of
January 1, 2007, each K-C mill shall receive pulp solely from one Seller mill.

Delivery Points and Transportation Terms for K-C North America

	 	 	 	 	 
	Beech Island, SC

	 	Chester, PA
	 	Marinette, WI
	Owensboro, KY

	 	Huntsville, Ontario
	 	Loudon, TN
	*Fullerton, CA

	 	Mobile, AL
	 	Corinth, MS
	Jenks, OK

	 	New Milford, CT
	 	**Celu-Tissue Mills

*Seller will not be required to deliver to Fullerton, CA after December 31,
2004.

**Solely for fiber needs related to K-C products.

All transportation costs to be paid by Seller.

2

 

CONFIDENTIAL MATERIAL
APPEARING IN THIS DOCUMENT WAS OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE 24b-2,
PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED, OMITTED INFORMATION WAS REPLACED WITH ASTERISKS.

EUROPE ANNUAL SOFTWOOD PULP PURCHASE OBLIGATIONS, SUPPLY

OBLIGATIONS, DELIVERY POINTS AND TRANSPORTATION TERMS

Northern Bleached Softwood Kraft (NBSK)

	 	 	 	 	 
	Contract Year	 	Annual Purchase Obligation (K-C)	 	Annual Supply Obligation
	 	 	 	 	(Seller)
	2004 [Fourth Quarter

Only]

	 	21,250 ADMT (less tonnage
transferred to K-C during the
Fourth Quarter of 2004 prior to
the Distribution Date)
	 	21,250 ADMT (less
tonnage transferred to K-C
during the Fourth Quarter
of 2004 prior to the
Distribution Date)
	2005 & 2006

	 	80,000 ADMT
	 	80,000 ADMT
	2007†

	 	75,000 ADMT
	 	75,000 ADMT
	2008 and all
subsequent Contract
Years

	 	70,000 ADMT
	 	70,000 ADMT
	Phase Down Year 1

	 	52,500 ADMT
	 	52,500 ADMT
	Phase Down Year 2

	 	35,000 ADMT
	 	35,000 ADMT

Delivery Points and Transportation Terms for K-C Europe

	 	 	 
	Europe (can only be supplied by Seller’s Pictou
Mill)
	 	 
	Duffel

	 	CIF* Flushing
	Northfleet

	 	CIF* Northfleet
	Barrow

	 	CIF* Northfleet/Barrow
	Rouen

	 	CIF* Rouen
	Salamanca

	 	CIF* Santander
	VSE

	 	CIF* Rouen

† Seller will use its commercially reasonable best efforts so that, as of
January 1, 2007, each K-C mill shall receive pulp solely from one Seller mill.

• As defined according to INCOTERMS 2001(or applicable latest edition).

END OF EXHIBIT A

3

 

CONFIDENTIAL MATERIAL
APPEARING IN THIS DOCUMENT WAS OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE 24b-2,
PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED, OMITTED INFORMATION WAS REPLACED WITH ASTERISKS.

EXHIBIT B

To

Pulp Supply Agreement Between Kimberly-Clark Global

Sales, Inc. and Neenah Paper, Inc.

Kimberly-Clark Raw Material Specifications

K-C Raw Material Specification (RMS) documents listed below are incorporated
herein by reference. These documents are controlled by the K-C Corporate
Quality Systems & Compliance team in Neenah, Wisconsin. Copies of RMS
documents are forwarded directly to Seller’s Sales Department and are otherwise
available upon request. These documents are the primary source of information
necessary to specify pulp for K-C pursuant to this Agreement.

	 	 	 
	Pulp Grade Specifications
	K-C RMS Department	 	Material
	RM 2763

	 	LL-19 ECF
	RM 3061

	 	LL-16 ECF
	RM 3082

	 	Pictou Harmony
	RM 3087

	 	Hi-Mape Pictou

The RMS documents listed above contain Quality Parameters and summarize key
aspects of pulp quality mutually agreed to by K-C and Seller. As used therein,
Quality Parameters have the following definitions:

ACCEPTANCE Characteristics: used to determine suitability of pulp for
shipment to K-C.

TRACKING Characteristics: not for ACCEPTANCE, but run-to-target is
expected, per vendor test results.

OTHER Instructions: additional features of the material and packaging
details for shipping.

The RMS documents listed above shall govern purchases by all K-C locations.
Should any K-C location seek different specifications for pulp to be delivered
to a specific mill(s), such requirements shall be detailed in a K-C regional
Purchase Order, and shall be accommodated in accordance with Section 3.02 of
this Agreement.

In order to continually and accurately specify the pulp materials being
purchased by K-C, the RMS documents listed above, any exceptions thereto, and
the information shown in this EXHIBIT B, may be modified from time to time
upon mutual written agreement between K-C and Seller. All mutually approved
modifications will be communicated in writing and on a timely basis to all
concerned parties.

END OF EXHIBIT B

4

 

CONFIDENTIAL MATERIAL
APPEARING IN THIS DOCUMENT WAS OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE 24b-2,
PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED, OMITTED INFORMATION WAS REPLACED WITH ASTERISKS.

EXHIBIT C

To

Pulp Supply Agreement Between Kimberly-Clark Global Sales, Inc. and Neenah Paper, Inc.

DISCOUNT SCHEDULE

Northern Bleached Softwood Kraft (NBSK)

     NORTH
AMERICA: ***% off of the North American Transaction Price for the prior month.

     EUROPE:
***% off of the European Transaction Price for the prior month.

Northern Bleached Hardwood Kraft (NBHK) (North America only)

     Aspen:
***% off the North American Transaction Price for the prior month.

     Maple:
***% off the North American Transaction Price for the prior month.

END OF EXHIBIT C

5

 

CONFIDENTIAL MATERIAL
APPEARING IN THIS DOCUMENT WAS OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE 24b-2,
PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED, OMITTED INFORMATION WAS REPLACED WITH ASTERISKS.

EXHIBIT D

To

Pulp Supply Agreement Between Kimberly-Clark Global Sales, Inc. and Neenah Paper, Inc.

CERTIFICATE

Seller will provide the following information for all bleached kraft Pulp
grades manufactured by Seller and supplied to Kimberly-Clark Global Sales, Inc.

	 	1.	 	The Pulp has been sampled in the past year and found to be
non-detectable for 2,3,7,8 -TCDD (dioxin). We use elemental chlorine
free bleaching for all Pulp delivered to Kimberly-Clark Global
Sales, Inc.
	 
	 	2.	 	The Pulp has been sampled for CONEG heavy metals in the past
year. All metals were non-detectable in all samples and, therefore,
easily meet the 100 ppm CONEG requirement.
	 
	 	3.	 	All wood Pulp produced by Seller is manufactured with
conventional processes and is considered Generally Recognized As
Safe (GRAS) as an indirect food additive under 21 CFR 186.1673.
Based on this listing, a complete survey of our raw material
suppliers and an independent review by technical and legal
consultants, our products and raw materials also conform to 21 CFR
176.170 — Indirect Food Additives: Paper and Paperboard Components.
	 
	 	4.	 	In addition, Seller does not use ozone depleting substances
(ODS) in the manufacture of its bleached kraft Pulp.

Contact us if you require additional information.

DATE & Location

Signature

Title

END OF EXHIBIT D

6<PAGE>

                                                                    EXHIBIT 10.1

                CONTRIBUTION, CONVEYANCE AND ASSUMPTION AGREEMENT

         This Contribution, Conveyance and Assumption Agreement (this
"Agreement") dated effective as of ______________, 2004, is entered into by and
among Penn Octane Corporation, a Delaware corporation ("POCC"), Rio Vista GP
LLC, a Delaware limited liability company (the "GP"), Rio Vista Energy Partners
L.P., a Delaware limited partnership (the "MLP"), Rio Vista Operating GP LLC, a
Delaware limited liability company (the "Operating GP"), and Rio Vista Operating
Partnership L.P., a Delaware limited partnership (the "Operating Partnership").

                                    RECITALS

         WHEREAS, prior to the date hereof, POCC formed the GP, as a
wholly-owned direct subsidiary, and purchased for $1,000.00 all of the limited
liability company interests in the GP;

         WHEREAS, the GP and POCC formed the MLP, with the GP purchasing a 2%
general partner interest for $20 and POCC purchasing common units representing a
98% limited partner interest for $980.00;

         WHEREAS, the MLP formed the Operating GP and purchased all of the
limited liability company interests in the Operating GP for $1,000.00;

         WHEREAS, POCC and the Operating GP formed the Operating Partnership,
with the Operating GP purchasing a 0.10% general partner interest for $1.00 and
POCC purchasing a 99.9% limited partner interest for $999.00;

         WHEREAS, each of the following transactions shall occur as of 12:01
A.M. Eastern Time on ________, 2004 (the "Contribution Effective Time"):

         1.       POCC will contribute all of the outstanding capital stock of
its subsidiaries (the "Subsidiary Interests") set forth on Exhibit A (the
"Subsidiaries") hereto to the Operating Partnership as a capital contribution;

         2.       POCC will contribute to the Operating Partnership the assets
set forth in the Conveyance Agreement described in Section 1.2 below (the "LPG
Assets") as an additional capital contribution; and

         3.       The GP will convey $1,000 to the MLP in exchange for the
issuance of incentive distribution rights to the GP;

         WHEREAS, each of the following transactions shall occur as of 12:02
A.M. Eastern Time on ___________, 2004 (the "Closing Day Effective Time"):

         1. POCC will contribute all of its limited partner interest in the
Operating Partnership to the MLP as an additional capital contribution.

         NOW, THEREFORE, in consideration of their mutual undertakings and
agreements hereunder, the parties to this Agreement undertake and agree as
follows:

                                   ARTICLE I

         CONVERSIONS, CONTRIBUTIONS AND DISTRIBUTIONS OF VARIOUS ASSETS

         .1 CONTRIBUTION OF THE SUBSIDIARY INTERESTS BY POCC TO THE OPERATING
PARTNERSHIP. At the Contribution Effective Time, POCC hereby grants,
contributes, transfers, assigns and conveys to the Operating Partnership, its
successors and assigns, all right, title and interest in and to the Subsidiary
Interests as a capital contribution and the Operating Partnership hereby accepts
the Subsidiary Interests.

<PAGE>

         .2 CONTRIBUTION OF LPG ASSETS BY POCC TO THE OPERATING PARTNERSHIP. At
the Contribution Effective Time, POCC hereby grants, contributes, transfers,
assigns and conveys to the Operating Partnership, its successors and assigns,
all right, title and interest in and to the LPG Assets, and the Operating
Partnership hereby accepts the LPG Assets. In order to give full effect to the
foregoing grant, contribution, transfer, assignment and conveyance, POCC, as
grantor, and the Operating Partnership, as grantee, shall execute a Conveyance
Agreement in the form attached hereto as Exhibit B together with such other
special warranty deeds, conveyances or other documents required to transfer the
LPG Assets in the jurisdictions in which they are located.

         .3 CONTRIBUTION OF OPERATING PARTNERSHIP INTEREST BY POCC TO THE MLP.
At the Closing Day Effective Time, POCC hereby grants, contributes, transfers,
assigns and conveys to the MLP, its successors and assigns, all right, title and
interest of POCC in and to the 99.9% limited partner interest in the Operating
Partnership as an additional capital contribution to the MLP and the Operating
Partnership hereby accepts such limited partner interest as an additional
capital contribution to the Operating Partnership.

         .4 CONVEYANCE BY THE GP TO THE MLP. At the Closing Day Effective Time,
the GP hereby conveys to the MLP $1,000.00 in exchange for all of the incentive
distribution rights under the First Amended and Restated Agreement of Limited
Partnership of the MLP.

                                   ARTICLE II

                 RECORDATION OF EVIDENCE OF OWNERSHIP OF ASSETS

         SECTION 2.1. In connection with the conveyances that are referred to in
Article I to this Agreement, the parties to this Agreement acknowledge that
certain jurisdictions in which the assets of the applicable parties to such
conveyances are located may require that documents be recorded by such parties
resulting from such conveyances in order to evidence title to the assets owned
by such parties. All such documents shall evidence such new ownership and are
not intended to modify, and shall not modify, any of the terms, covenants and
conditions herein set forth.

                                  ARTICLE III

                        ASSUMPTION OF CERTAIN LIABILITIES

         .1 ASSUMPTION OF LIABILITIES AND OBLIGATIONS BY THE OPERATING
PARTNERSHIP AND THE MLP. In connection with the contributions of the LPG Assets
and the Subsidiary Interests to the Operating Partnership, the Operating
Partnership hereby assumes and agrees to duly and timely pay, perform and
discharge all obligations and liabilities associated with the Contributed
Assets, that arise from and after the date of this Agreement, to the full extent
that either of the Subsidiaries or POCC would have been obligated to pay,
perform and discharge such obligations and liabilities in the future, were it
not for the execution and delivery of this Agreement; provided, however, that
said assumption and agreement to duly and timely pay, perform and discharge such
obligations and liabilities shall not increase the obligation of the Operating
Partnership with respect to such obligations and liabilities beyond that of POCC
as to the LPG Assets, or the Subsidiaries as to the assets acquired by the
Operating Partnership in such interest conveyed by any of POCC or the
Subsidiaries. For purposes of this Agreement, the term "Contributed Assets"
shall mean, collectively, the LPG Assets and the Subsidiary Interests.

                                       2
<PAGE>

                                   ARTICLE IV

                                  TITLE MATTERS

         .1 DISCLAIMER OF WARRANTIES; SUBROGATION.

         (a)      (i) NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS
                  AGREEMENT, THE MLP AND THE OPERATING PARTNERSHIP ACKNOWLEDGE
                  AND AGREE THAT POCC AND THE SUBSIDIARIES HAVE NOT MADE, DO NOT
                  MAKE, AND SPECIFICALLY NEGATE AND DISCLAIM, ANY
                  REPRESENTATIONS, WARRANTIES, PROMISES, COVENANTS, AGREEMENTS
                  OR GUARANTIES OF ANY KIND OR CHARACTER WHATSOEVER, WHETHER
                  EXPRESS, IMPLIED OR STATUTORY, ORAL OR WRITTEN, PAST OR
                  PRESENT (ALL OF WHICH ARE EXPRESSLY DISCLAIMED BY POCC AND THE
                  SUBSIDIARIES) REGARDING (1) THE TITLE, VALUE, NATURE, QUALITY
                  OR CONDITION OF THE CONTRIBUTED ASSETS, (2) THE INCOME TO BE
                  DERIVED FROM THE CONTRIBUTED ASSETS, (3) THE SUITABILITY OF
                  THE CONTRIBUTED ASSETS FOR ANY AND ALL ACTIVITIES AND USES
                  WHICH THE MLP MAY CONDUCT THEREON, (4) THE COMPLIANCE OF OR BY
                  THE CONTRIBUTED ASSETS, OR THEIR OPERATIONS WITH ANY LAWS
                  (INCLUDING WITHOUT LIMITATION ANY ZONING, ENVIRONMENTAL
                  PROTECTION, POLLUTION OR LAND USE LAWS, RULES, REGULATIONS,
                  ORDERS OR REQUIREMENTS), OR (5) THE HABITABILITY,
                  MERCHANTABILITY, MARKETABILITY, PROFITABILITY OR FITNESS FOR A
                  PARTICULAR PURPOSE OF THE CONTRIBUTED ASSETS.

         (ii)     THE MLP AND THE OPERATING PARTNERSHIP ACKNOWLEDGE AND AGREE
                  THAT THEY HAVE HAD THE OPPORTUNITY TO INSPECT THE CONTRIBUTED
                  ASSETS, AND THAT THEY ARE RELYING SOLELY ON THEIR OWN
                  INVESTIGATION OF THE CONTRIBUTED ASSETS, AND NOT ON ANY
                  INFORMATION PROVIDED OR TO BE PROVIDED BY POCC AND THE
                  SUBSIDIARIES, AND POCC AND THE SUBSIDIARIES ARE NOT LIABLE OR
                  BOUND IN ANY MANNER BY ANY VERBAL OR WRITTEN STATEMENTS,
                  REPRESENTATIONS OR INFORMATION PERTAINING TO THE CONTRIBUTED
                  ASSETS, FURNISHED BY ANY AGENT, EMPLOYEE, SERVANT OR THIRD
                  PARTY.

         (iii)    THE MLP AND THE OPERATING PARTNERSHIP ACKNOWLEDGE THAT TO THE
                  MAXIMUM EXTENT PERMITTED BY LAW, THE CONTRIBUTION OF THE
                  CONTRIBUTED ASSETS, AS PROVIDED FOR HEREIN IS MADE ON AN "AS
                  IS", "WHERE IS" BASIS WITH ALL FAULTS AND THE CONTRIBUTED
                  ASSETS, ARE CONTRIBUTED OR DISTRIBUTED AND CONVEYED BY POCC
                  AND THE SUBSIDIARIES SUBJECT TO THE FOREGOING. THIS PARAGRAPH
                  SHALL SURVIVE SUCH CONTRIBUTION OR DISTRIBUTION AND CONVEYANCE
                  OR THE TERMINATION OF THIS AGREEMENT.

         (iv)     THE PROVISIONS OF THIS SECTION 4.1 HAVE BEEN NEGOTIATED BY
                  POCC, THE SUBSIDIARIES, THE MLP AND THE OPERATING PARTNERSHIP
                  AFTER DUE CONSIDERATION AND ARE INTENDED TO BE A COMPLETE
                  EXCLUSION AND NEGATION OF ANY REPRESENTATIONS OR WARRANTIES OF
                  POCC AND THE SUBSIDIARIES, WHETHER EXPRESS, IMPLIED OR
                  STATUTORY, WITH RESPECT TO THE CONTRIBUTED ASSETS, THAT MAY
                  ARISE PURSUANT TO ANY LAW NOW OR HEREAFTER IN EFFECT, OR
                  OTHERWISE.

         (b)      The contributions of the Contributed Assets, made under this
                  Agreement are made with full rights of substitution and
                  subrogation of the Operating Partnership, and all persons
                  claiming by, through and under the Operating Partnership, to
                  the extent assignable, in and to all covenants and warranties
                  by the predecessors-in-title of POCC and the Subsidiaries, and
                  with full subrogation of

                                       3
<PAGE>

                  all rights accruing under applicable statutes of limitation
                  and all rights of action of warranty against all former owners
                  of the Contributed Assets.

         (c)      POCC, the Subsidiaries, the MLP, the GP, the Operating
                  Partnership and Operating GP agree that the disclaimers
                  contained in this Section 4.1 are "conspicuous" disclaimers.
                  Any covenants implied by statute or law by the use of the
                  words "grant," "convey," "bargain," "sell," "assign,"
                  "transfer," "deliver," or "set over" or any of them or any
                  other words used in this Agreement or any exhibits hereto are
                  hereby expressly disclaimed, waived or negated.

                                   ARTICLE V

                               FURTHER ASSURANCES

         .1 FURTHER ASSURANCES. From time to time after the date hereof, and
without any further consideration, POCC, the Subsidiaries, the GP, the MLP, the
Operating GP and the Operating Partnership shall execute, acknowledge and
deliver all such additional deeds, assignments, conveyances, instruments,
notices, releases, acquittances and other documents, and will do all such other
acts and things, all in accordance with applicable law, as may be necessary or
appropriate more fully and effectively to vest in the Operating Partnership and
the MLP and their successors and assigns beneficial and record title to the
Contributed Assets hereby contributed and assigned to the Operating Partnership
or intended so to be and to more fully and effectively carry out the purposes
and intent of this Agreement.

         .2 OTHER ASSURANCES. From time to time after the date hereof, and
without any further consideration, each of the parties to this Agreement shall
execute, acknowledge and deliver all such additional instruments, notices and
other documents, and will do all such other acts and things, all in accordance
with applicable law, as may be necessary or appropriate to more fully and
effectively carry out the purposes and intent of this Agreement.

                                   ARTICLE VI

                                  MISCELLANEOUS

         .1 HEADINGS; REFERENCES; INTERPRETATION. All article and section
headings in this Agreement are for convenience only and shall not be deemed to
control or affect the meaning or construction of any of the provisions hereof.
The words "hereof," "herein" and "hereunder" and words of similar import, when
used in this Agreement, shall refer to this Agreement as a whole, including
without limitation, all exhibits attached hereto, and not to any particular
provision of this Agreement. All references herein to articles, sections, and
exhibits shall, unless the context requires a different construction, be deemed
to be references to the articles, sections and exhibits of this Agreement,
respectively, and all such Exhibits attached hereto are hereby incorporated
herein and made a part hereof for all purposes. All personal pronouns used in
this Agreement, whether used in the masculine, feminine or neuter gender, shall
include all other genders, and the singular shall include the plural and vice
versa. The use herein of the word "including" following any general statement,
term or matter shall not be construed to limit such statement, term or matter to
the specific items or matters set forth immediately following such word or to
similar items or matters, whether or not non-limiting language (such as "without
limitation," "but not limited to," or words of similar import) is used with
reference thereto, but rather shall be deemed to refer to all other items or
matters that could reasonably fall within the broadest possible scope of such
general statement, term or matter.

         .2 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties signatory hereto and their respective
successors and assigns.

         .3 NO THIRD PARTY RIGHTS. The provisions of this Agreement are intended
to bind the parties signatory hereto as to each other and are not intended to
and do not create rights in any other person or confer upon any other person any
benefits, rights or remedies and no person is or is intended to be a third party
beneficiary of any of the provisions of this Agreement.

                                       4
<PAGE>

         .4 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which together shall constitute one agreement binding on
the parties hereto.

         .5 GOVERNING LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Texas applicable to contracts made and
to be performed wholly within such state without giving effect to conflict of
law principles thereof, except to the extent that it is mandatory that the law
of some other jurisdiction, shall apply.

         .6 SEVERABILITY. If any of the provisions of this Agreement are held by
any court of competent jurisdiction to contravene, or to be invalid under, the
laws of any political body having jurisdiction over the subject matter hereof,
such contravention or invalidity shall not invalidate the entire Agreement.
Instead, this Agreement shall be construed as if it did not contain the
particular provision or provisions held to be invalid, and an equitable
adjustment shall be made and necessary provision added so as to give effect to
the intention of the parties as expressed in this Agreement at the time of
execution of this Agreement.

         .7 AMENDMENT OR MODIFICATION. This Agreement may be amended or modified
from time to time only by the written agreement of all the parties hereto.

         .8 INTEGRATION. This Agreement, together with that certain Omnibus
Agreement dated of even date herewith, to be entered into by and among POCC,
certain of POCC's subsidiaries, the MLP, the GP, the Operating Partnership and
the Operating GP (the "Omnibus Agreement"), supersedes all previous
understandings or agreements between the parties, whether oral or written, with
respect to its subject matter. This document is an integrated agreement which
contains the entire understanding of the parties. No understanding,
representation, promise or agreement, whether oral or written, other than those
contained in the Omnibus Agreement, is intended to be or shall be included in or
form part of this Agreement unless it is contained in a written amendment hereto
executed by the parties hereto after the date of this Agreement.

                         (Signatures on following page)

                                       5
<PAGE>

         IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties hereto as of the date first above written.

                            PENN OCTANE CORPORATION

                            By: ________________________________________
                            Name: ______________________________________
                            Title: _____________________________________

                            RIO VISTA GP LLC

                            By: ________________________________________
                            Name: ______________________________________
                            Title: _____________________________________

                            RIO VISTA ENERGY PARTNERS L.P.

                            By: RIO VISTA GP LLC,
                                its General Partner

                                By: ____________________________________
                                Name: __________________________________
                                Title: _________________________________

                            RIO VISTA OPERATING GP LLC

                            By: ________________________________________
                            Name: ______________________________________
                            Title: _____________________________________

                            RIO VISTA OPERATING PARTNERSHIP L.P.

                            By: Rio Vista Operating GP LLC, its General Partner

                                By: Rio Vista Energy Partners L.P.,
                                    its sole member

                                    By: Rio Vista GP LLC,
                                        its General Partner

                                        By: ____________________________
                                        Name: __________________________
                                        Title: _________________________

                                       6
<PAGE>

                                    EXHIBIT A

                              LIST OF SUBSIDIARIES

         Penn-Octane de Mexico, S.A. de C.V.

         Termatsal, S.A. de C.V.

<PAGE>

                                    EXHIBIT B

<PAGE>

                              CONVEYANCE AGREEMENT

         Recording Requested by and When Recorded Return to: Fulbright &
Jaworski L.L.P., 300 Convent St., Suite 2200, San Antonio, Texas, Attn:
Christian G. Herff.

                              CONVEYANCE AGREEMENT

         This Conveyance Agreement (this "Conveyance"), effective as of 12:01
A.M. Eastern Time on ________________, 2004 (the "Effective Date"), is from PENN
OCTANE CORPORATION, a Delaware corporation (herein called "Grantor"), and in
favor of RIO VISTA OPERATING PARTNERSHIP L.P., whose mailing address is 77-530
Enfield Lane, Building D, Palm Desert, CA 92211 (herein called "Grantee").

                                    ARTICLE I

                                 GRANTING CLAUSE

         1.1      GRANTING CLAUSES. Grantor hereby contributes, conveys,
assigns, transfers, delivers, and sets over unto Grantee, its successors and
assigns, all right, title, interests and estate of Grantor in and to the
following described property, to-wit:

         ALL OF THE ASSETS SET FORTH ON SCHEDULE A ATTACHED HERETO

         The property described in this Section 1.1 shall be referred to herein
collectively as the "Subject Property".

         TO HAVE AND TO HOLD the Subject Property, subject to the terms and
conditions hereof, unto Grantee, its successors and assigns, forever.

                                   ARTICLE II

                      ENCUMBRANCES AND WARRANTY DISCLAIMERS

         2.1      PERMITTED ENCUMBRANCES. This Conveyance is made and accepted
expressly subject to (a) all liens, charges, encumbrances, contracts,
agreements, instruments, obligations, defects, restrictions, security interests,
options or preferential rights to purchase, adverse claims, reservations,
exceptions, easements, rights-of-way, conditions, leases, other matters
affecting the Subject Property or to which it is subject; and (b) to all matters
that a current on the ground survey or visual inspection would reflect.

         2.2      CONTRIBUTION AGREEMENT. This Conveyance is expressly made
subject to the terms and conditions of that certain Contribution, Conveyance and
Assumption Agreement dated as of _____________, 2004, among Grantor, Grantee and
the other parties thereto (the "Contribution Agreement"). All capitalized terms
used herein shall have the meanings given to such terms in the Contribution
Agreement, unless otherwise defined herein. Nothing contained in this Conveyance
shall in any way affect the provisions set forth in the Contribution Agreement
nor shall this Conveyance expand or contract any rights or remedies under the
Contribution Agreement. This Conveyance is intended only to effect the transfer
of the Subject Property to Grantee as provided for in the Contribution Agreement
and shall be governed entirely in accordance with the terms and conditions of
the Contribution Agreement. In the event of a conflict between the terms of this
Conveyance and the terms of the Contribution Agreement, the terms of the
Contribution Agreement shall prevail.

         2.3      DISCLAIMER OF WARRANTIES; SUBROGATION. Except as expressly
provided herein or in the Contribution Agreement, this Conveyance is made, and
is accepted by Grantee, without warranty of title, express, implied or
statutory, and without recourse, but with full substitution and subrogation of
Grantee, and all persons claiming by, through, and under Grantee, to the extent
assignable, in and to all covenants and warranties by the predecessors in title
of Grantor and with full subrogation of all rights accruing under applicable
statutes of limitation or prescription and all rights of action of warranty
against all former owners of the Subject Property. Except as

                                      D-1
<PAGE>

expressly provided herein or in the Contribution Agreement, any covenants
implied by statute or by the use of the words "convey", "sell", "assign",
"transfer", "deliver", or "set over" or any of them or any other words used in
this Conveyance, are hereby expressly disclaimed, waived and negated.

                                   ARTICLE III

                                  MISCELLANEOUS

         3.1      FURTHER ASSURANCES. Grantor and Grantee agree to take all such
further actions and to execute, acknowledge and deliver all such further
documents that are necessary or useful in carrying out the purposes of this
Conveyance. So long as authorized by applicable law so to do, Grantor agrees to
execute, acknowledge and deliver to Grantee all such other additional
instruments, notices, affidavits, deeds, conveyances, assignments and other
documents and to do all such other and further acts and things as may be
necessary or useful to more fully and effectively grant, assign, convey,
transfer and deliver to Grantee the Subject Property conveyed hereby or intended
so to be conveyed.

         3.2      SUCCESSORS AND ASSIGNS; NO THIRD PARTY BENEFICIARY. This
Conveyance shall be binding upon, and shall inure to the benefit of, Grantor and
Grantee and their successors and assigns. The provisions of this Conveyance are
not intended to and do not create rights in any other person or entity or confer
upon any other person or entity any benefits, rights or remedies and no person
or entity is or is intended to be a third party beneficiary of any of the
provisions of this Conveyance.

         3.3      GOVERNING LAW. This Conveyance and the legal relations between
the parties shall be governed by, and construed in accordance with, the laws of
the State of Texas, excluding any conflict of law rule which would refer any
issue to the laws of another jurisdiction, except when it is mandatory that the
law of the jurisdiction wherein the Subject Property is located shall apply.

         3.4      HEADINGS; REFERENCES; DEFINED TERMS. All Section headings in
this Conveyance are for convenience only and shall not be deemed to control or
affect the meaning or construction of any of the provisions hereof. The words
"hereof", "herein" and "hereunder" and words of similar import, when used in
this Conveyance, shall refer to this Conveyance as a whole, including, without
limitation, all Schedules and Exhibits attached hereto, and not to any
particular provision of this Conveyance.

         3.5      COUNTERPARTS. This Conveyance may be executed in any number of
counterparts, all of which together shall constitute one agreement binding on
the parties hereto.

         3.6      SEVERABILITY. If any of the provisions of this Conveyance are
held by any court of competent jurisdiction to contravene, or to be invalid
under, the laws of any political body having jurisdiction over the subject
matter hereof, such contravention or invalidity shall not invalidate the entire
agreement. Instead, this Conveyance shall be construed as if it did not contain
the particular provision or provisions held to be invalid and an equitable
adjustment shall be made and necessary provision added so as to give effect to
the intention of the parties as expressed in this Conveyance at the time of
execution of this Conveyance.

                                      D-2
<PAGE>

         IN WITNESS WHEREOF, this Conveyance has been duly executed by the
parties hereto on the dates of the acknowledgments set forth below, to be
effective, however, as of the Effective Date.

                        GRANTOR:

                        PENN OCTANE CORPORATION

                        By: __________________________________________
                        Name: ________________________________________
                        Title: _______________________________________

                        GRANTEE:

                        RIO VISTA OPERATING PARTNERSHIP L.P.

                        By: Rio Vista Operating GP LLC, its General Partner

                            By: Rio Vista Energy Partners L.P.,
                                its sole member

                                By: Rio Vista GP LLC,
                                    its General Partner

                                    By: ______________________________
                                    Name: ____________________________
                                    Title: ___________________________

                                      D-3
<PAGE>

THE STATE OF TEXAS       )
                         )
COUNTY OF _________      )

         This instrument was acknowledged before me on the ____ day of
___________, 2003, by ______________, ______________ of
________________________, on behalf of and in [HIS/HER] capacity as __________
of_____________________

                                       ___________________________________
                                       NOTARY PUBLIC

My Commission Expires: _______________________

                                      D-4
<PAGE>

                                   SCHEDULE A

                                      D-5

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