Document:

Exhibit 10.2

 

AS FILED ON SEDAR

 

EXECUTION COPY

 

DATED as of the 16th day of November, 2005.

 

BETWEEN

 

CASCADES FINE PAPERS GROUP INC./

CASCADES GROUPE PAPIERS FINS INC.

 

- AND -

 

CASCADES INC.

 

- AND -

 

COAST PAPER LIMITED

 

 

ASSET PURCHASE
AGREEMENT

 

 

TABLE OF CONTENTS

 

	
  ARTICLE 1 INTERPRETATION

  	
  2

  
	
   

  	
   

  
	
  1.1 

  	
  Definitions

  	
  2

  
	
  1.2 

  	
  Recitals

  	
  14

  
	
  1.3 

  	
  Accounting
  Principles

  	
  15

  
	
  1.4 

  	
  Governing
  Law; Attornment

  	
  15

  
	
  1.5

  	
  Amendment

  	
  15

  
	
  1.6 

  	
  Calculation
  of Time

  	
  15

  
	
  1.7 

  	
  Performance
  on Holidays

  	
  15

  
	
  1.8 

  	
  Waiver
  of Rights

  	
  15

  
	
  1.9 

  	
  Knowledge

  	
  16

  
	
  1.10

  	
  Severability

  	
  16

  
	
  1.11

  	
  Consents
  and Approvals

  	
  16

  
	
  1.12

  	
  Remedies
  Cumulative

  	
  16

  
	
  1.13

  	
  Additional
  Rules of Interpretation

  	
  16

  
	
   

  	
   

  
	
  ARTICLE 2 PURCHASE AND SALE OF ASSETS AND ASSUMPTION
  OF LIABILITIES

  	
  18

  
	
   

  	
   

  	
   

  
	
  2.1 

  	
  Purchase
  and Sale

  	
  18

  
	
  2.2 

  	
  Excluded
  Assets

  	
  19

  
	
  2.3 

  	
  Assumption
  of Liabilities

  	
  19

  
	
  2.4 

  	
  Excluded Liabilities

  	
  20

  
	
   

  	
   

  
	
  ARTICLE 3 PURCHASE PRICE AND RELATED MATTERS

  	
  20

  
	
   

  	
   

  
	
  3.1

  	
  Amount
  of Purchase Price

  	
  20

  
	
  3.2

  	
  Payment
  of the Purchase Price

  	
  20

  
	
  3.3

  	
  Payment
  of the Goodwill Payment

  	
  21

  
	
  3.4

  	
  Closing

  	
  21

  
	
  3.5

  	
  Allocation
  of Purchase Price

  	
  21

  
	
  3.6

  	
  Taxes
  and Elections

  	
  22

  
	
  3.6.1

  	
  Transfer
  Taxes

  	
  22

  
	
  3.6.2

  	
  Accounts
  Receivable Election  

  	
  22

  
	
  3.7

  	
  Preparation
  of Closing Balance Sheet  

  	
  22

  
	
  3.7.1

  	
  Initial
  Preparation  

  	
  22

  
	
  3.7.2

  	
  Dispute
  Settlement  

  	
  23

  
	
  3.8

  	
  Adjustment
  Payment  

  	
  23

  
	
  3.9

  	
  Accounts
  Receivable  

  	
  24

  
	
  3.10

  	
  Aged
  Inventory  

  	
  24

  
	
  3.11

  	
  Pension
  Adjustment and Allocated Surplus  

  	
  25

  
	
  3.12

  	
  Pension
  Fund Valuation  

  	
  25

  
	
  3.13

  	
  Interest  

  	
  29

  

 

 

	
  ARTICLE 4 REPRESENTATIONS AND WARRANTIES 

  	
  29

  
	
   

  	
   

  
	
  4.1

  	
  Representations
  and Warranties of Vendor and Cascades

  	
  29

  
	
  4.1.1

  	
  Incorporation
  and Status of Vendor and Cascades

  	
  29

  
	
  4.1.2

  	
  Due
  Authorization by Vendor and Cascades

  	
  29

  
	
  4.1.3

  	
  Title
  to Purchased Assets

  	
  30

  
	
  4.1.4

  	
  Conflicting
  Instruments

  	
  30

  
	
  4.1.5

  	
  Employees

  	
  30

  
	
  4.1.6

  	
  Employee
  Benefit Plans

  	
  32

  
	
  4.1.7

  	
  Real
  Property

  	
  33

  
	
  4.1.8

  	
  Status
  of Real Property

  	
  33

  
	
  4.1.9

  	
  Personal
  Property

  	
  34

  
	
  4.1.10

  	
  Contracts

  	
  34

  
	
  4.1.11

  	
  No
  Breach of Material Contracts

  	
  34

  
	
  4.1.12

  	
  Legal
  Proceedings

  	
  35

  
	
  4.1.13

  	
  Accounts
  Receivable

  	
  35

  
	
  4.1.14

  	
  Annual
  Financial Statements

  	
  35

  
	
  4.1.15

  	
  Condition
  and Sufficiency of Tangible Assets

  	
  35

  
	
  4.1.16

  	
  Inventories

  	
  36

  
	
  4.1.17

  	
  Customers
  and Suppliers

  	
  36

  
	
  4.1.18

  	
  Licences
  and Compliance with Laws

  	
  36

  
	
  4.1.19

  	
  Environmental
  Matters

  	
  36

  
	
  4.1.20

  	
  Conduct
  of Business in Ordinary Course

  	
  37

  
	
  4.1.21

  	
  Tax
  Matters

  	
  38

  
	
  4.1.22

  	
  Residence
  of Vendor; GST Status

  	
  38

  
	
  4.1.23

  	
  Intellectual
  and Industrial Property

  	
  38

  
	
  4.2 

  	
  Representations
  and Warranties of the Purchaser

  	
  38

  
	
  4.2.1
  

  	
  Incorporation,
  Authority and Enforceability

  	
  38

  
	
  4.3 

  	
  Commission

  	
  39

  
	
  4.4 

  	
  Survival
  of Representations and Warranties of the Vendor

  	
  39

  
	
  4.5 

  	
  Survival
  of Representations and Warranties of the Purchaser

  	
  39

  
	
   

  	
   

  
	
  ARTICLE 5 OTHER COVENANTS OF THE PARTIES

  	
  40

  
	
   

  	
   

  
	
  5.1 

  	
  Covenants
  of the Vendor

  	
  40

  
	
  5.1.1
  

  	
  Consents
  and Approvals

  	
  40

  
	
  5.1.2
  

  	
  Consent
  Not Received by Closing Time

  	
  40

  
	
  5.1.3
  

  	
  Conduct
  of the Business

  	
  41

  
	
  5.1.4
  

  	
  Books
  and Records of Vendor

  	
  43

  
	
  5.1.5
  

  	
  Exclusivity

  	
  44

  
	
  5.1.6
  

  	
  Access
  for Confirmatory Due Diligence

  	
  44

  
	
  5.1.7
  

  	
  Certificat
  de Localisation

  	
  44

  
	
  5.2 

  	
  Covenants
  of the Purchaser

  	
  44

  
	
  5.2.1
  

  	
  Confidentiality
  of Vendor’s Information

  	
  44

  
	
  5.2.2
  

  	
  Access
  to Books and Records

  	
  45

  
	
  5.2.3
  

  	
  Access
  to Employees

  	
  46

  
	
  5.2.4
  

  	
  Change
  and Use of Name

  	
  46

  

 

ii

 

	
  5.2.5
  

  	
  Equipment
  Leases

  	
  47

  
	
  5.3 

  	
  Mutual
  Covenants

  	
  47

  
	
  5.3.1
  

  	
  Cooperation

  	
  47

  
	
  5.3.2
  

  	
  Access
  to Sensitive Customer Information

  	
  47

  
	
  5.3.3
  

  	
  Amounts
  Received Post-Closing

  	
  47

  
	
  5.3.4
  

  	
  Notice
  of Untrue Representation or Warranty

  	
  47

  
	
  5.3.5
  

  	
  Bulk
  Sales Laws

  	
  48

  
	
   

  	
   

  	
   

  
	
  ARTICLE 6 CONDITIONS OF CLOSING

  	
  48

  
	
   

  	
   

  
	
  6.1 

  	
  Conditions
  for the Benefit of the Purchaser  

  	
  48

  
	
  6.1.1
  

  	
  Representations,
  Warranties and Covenants of the Vendor 
  

  	
  48

  
	
  6.1.2
  

  	
  Deliveries
  by Vendor and Cascades  

  	
  49

  
	
  6.1.3
  

  	
  No
  Adverse Change  

  	
  50

  
	
  6.1.4
  

  	
  Consents  

  	
  51

  
	
  6.1.5
  

  	
  No
  Legal Action  

  	
  51

  
	
  6.2 

  	
  Conditions
  for the Benefit of the Vendor

  	
  51

  
	
  6.2.1
  

  	
  Truth
  of Representations and Warranties of the Purchaser  

  	
  51

  
	
  6.2.2
  

  	
  Delivery
  by Purchaser  

  	
  52

  
	
  6.3 

  	
  Conditions
  for the Benefit of both Parties  

  	
  53

  
	
  6.3.1
  

  	
  Competition
  Act  

  	
  53

  
	
  6.3.2
  

  	
  Investment
  Canada Act  

  	
  53

  
	
  6.3.3
  

  	
  Regulatory
  Approvals  

  	
  53

  
	
  6.4 

  	
  Waiver  

  	
  53

  
	
  6.5 

  	
  Failure
  to Satisfy Conditions  

  	
  53

  
	
  6.6 

  	
  Damage
  or Expropriation  

  	
  54

  
	
   

  	
   

  
	
  ARTICLE 7 TERMINATION 

  	
  55

  
	
   

  	
   

  
	
  7.1

  	
  Termination

  	
  55

  
	
  7.2

  	
  Effect
  of Termination

  	
  55

  
	
   

  	
   

  
	
  ARTICLE 8 INDEMNIFICATION

  	
  55

  
	
   

  	
   

  
	
  8.1

  	
  Indemnification
  by Vendor

  	
  55

  
	
  8.2

  	
  Indemnification
  by the Purchaser

  	
  56

  
	
  8.3

  	
  Agency
  for Representatives

  	
  57

  
	
  8.4

  	
  Notice
  of Third Party Claims

  	
  57

  
	
  8.5

  	
  Defence
  of Third Party Claims

  	
  57

  
	
  8.6

  	
  Assistance
  for Third Party Claims

  	
  58

  
	
  8.7

  	
  Settlement
  of Third Party Claims

  	
  58

  
	
  8.8

  	
  Direct
  Claims

  	
  58

  
	
  8.9

  	
  Failure
  to Give Timely Notice

  	
  59

  
	
  8.10

  	
  Reductions
  and Subrogation

  	
  59

  
	
  8.11

  	
  Payment
  and Interest

  	
  59

  
	
  8.12

  	
  Limitations

  	
  59

  
	
  8.13

  	
  Additional Rules and Procedures  

  	
  60

  

 

iii

 

	
  ARTICLE 9 EMPLOYEES

  	
  61

  
	
   

  	
   

  
	
  9.1

  	
  Employees

  	
  61

  
	
  9.2

  	
  Employee
  Liability of the Purchaser

  	
  61

  
	
  9.3

  	
  Employee
  Liability of the Vendor

  	
  61

  
	
  9.4

  	
  Short
  Term Disabled Employees

  	
  62

  
	
  9.5

  	
  Pension
  and Savings Plans

  	
  62

  
	
  9.6

  	
  Vendor
  Liability

  	
  62

  
	
  9.7

  	
  Notice
  by Vendor

  	
  63

  
	
   

  	
   

  
	
  ARTICLE 10 MISCELLANEOUS

  	
  63

  
	
   

  	
   

  
	
  10.1
  

  	
  Further
  Assurances  

  	
  63

  
	
  10.2
  

  	
  Public
  Announcements  

  	
  63

  
	
  10.3
  

  	
  Notices  

  	
  63

  
	
  10.4
  

  	
  Time
  of the Essence  

  	
  65

  
	
  10.5
  

  	
  Costs
  and Expenses  

  	
  65

  
	
  10.6
  

  	
  Effect
  of Closing  

  	
  65

  
	
  10.7
  

  	
  Counterparts  

  	
  65

  
	
  10.8
  

  	
  Assignment  

  	
  65

  
	
  10.9
  

  	
  Parties
  in Interest  

  	
  66

  
	
  10.10
  

  	
  Third
  Parties  

  	
  66

  
	
  10.11
  

  	
  Liability
  of Cascades  

  	
  66

  
	
  10.12
  

  	
  [              ]

  	
  66

  

 

iv

 

THIS AGREEMENT dated as of the 16th day of
November, 2005.

 

	
  B E T W E E N: 

  	
   

  
	
   

  	
   

  
	
   

  	
  CASCADES
  FINE PAPERS GROUP INC./

  CASCADES GROUPE PAPIERS FINS INC.,
  a

  corporation incorporated under the laws of Canada

  
	
   

  	
   

  
	
   

  	
  (the “Vendor”)

  
	
   

  	
   

  
	
  A N D:

  	
   

  
	
   

  	
   

  
	
   

  	
  CASCADES
  INC., a company amalgamated

  pursuant to the laws of Quebec

  
	
   

  	
   

  
	
   

  	
  (“Cascades”)

  
	
   

  	
   

  
	
  A N D:

  	
   

  
	
   

  	
   

  
	
   

  	
  COAST
  PAPER LIMITED, a corporation

  amalgamated under the laws of Canada

  
	
   

  	
   

  
	
   

  	
  (the “Purchaser”)

  

 

RECITALS:

 

1.             The Vendor,
through its division, Cascades Resources, carries on the business of marketing
and distribution of printing paper, business imaging, graphic arts supplies and
equipment, sanitation and maintenance supplies in Canada (the “Business”);

 

2.             The
Purchaser wishes to purchase from the Vendor and the Vendor wishes to sell,
transfer, assign and convey to the Purchaser, the undertaking and all of the
Vendor’s right, title and interest in, under and to the property and assets
used by the Vendor in carrying on the Business (except for certain assets
specifically identified herein) upon the terms and conditions hereinafter set
forth;

 

3.             The Vendor
is a wholly-owned subsidiary of Cascades and Cascades will derive a substantial
benefit from the completion of the transactions contemplated hereunder;

 

NOW
THEREFORE in
consideration of the premises and mutual agreements hereinafter set out and of
other consideration (the receipt and sufficiency of which are acknowledged by
each Party), the Parties agree as follows:

 

 

ARTICLE 1

INTERPRETATION

 

1.1                            Definitions

 

In this Agreement, unless the context otherwise requires, the following
capitalized words and expressions will have the respective meanings ascribed to
them below:

 

“Accounts Receivable” means all trade accounts receivable, notes
receivable, book debts and other debts due or accruing due to the Vendor in
respect of the Business (including any interest payable thereon) and the full
benefit of all security therefore and all interest thereon payable to the
Vendor other than the Excluded Receivables. As described in Exhibit B
of the Disclosure Letter, the net book value of the Accounts Receivable recorded
on the Closing Balance Sheet shall be reduced by an amount equal to the
Excluded Receivables Adjustment for the purposes of calculating the Adjusted
Net Asset Value. For the purpose of the calculations set forth in Exhibit B
of the Disclosure Letter, the net book value of the Accounts Receivable shall
be deemed to include the net book value of the Excluded Receivables;

 

“Accounting Records” means all of the Vendor’s books of account,
accounting records and other financial data and information relating to the
Business, and includes all records, data and information stored electronically,
digitally or on computer related media;

 

“Act” means the Competition
Act (Canada) and the regulations made thereunder;

 

“Adjusted Closing Value of the
Purchased Assets” means
the value of the Purchased Assets of the Vendor as recorded on the Closing
Balance Sheet and as adjusted in accordance with Exhibit B of the
Disclosure Letter;

 

“Adjusted Net Asset Value” means the difference between the Adjusted Closing
Value of the Purchased Assets and the Closing Value of the Assumed Liabilities
as adjusted in accordance with Exhibit B of the Disclosure Letter;

 

“Adjustment Date” means the seventh Business Day after the Adjusted Net
Asset Value is finally determined in accordance with Section 3.7;

 

“Adjustment Payment” has the meaning ascribed to that term in Section 3.8;

 

“AS Assets” has the meaning ascribed to that term in Section 2.2(i);

 

“Affiliate” means, with respect to any person, any other person
that directly or indirectly controls, is controlled by, or is under common
control with that other person. For purposes of this definition, a person “controls”
another person if that person directly or indirectly possesses the power to
direct or cause the direction of the management and policies of that other
person, whether through ownership or voting of securities, by contract or
otherwise and “controlled by” and “under common control with” have similar
meanings;

 

“Aged Inventory” means the portion of the Inventories
which is at least twelve (12) months old as at the Closing Date. The Aged
Inventory and its book value prior to the Aged 

 

2

 

Inventory
Adjustment are identified in Exhibit B of the Disclosure Letter on
a warehouse basis, save and except for the book value of equipment Inventory
for sale which is identified in Exhibit B of the Disclosure Letter
on a consolidated basis. The manufacturer warranties on the equipment for sale
shall be excluded from the Aged Inventory. The identification of the Aged
Inventory and the determination of its book value prior to the Aged Inventory
Adjustment in Exhibit B of the Disclosure Letter have been made in
accordance with past practices;

 

“Aged Inventory Adjustment” means the Aged Inventory Write-Down less the
provision for clearance and the provision for physical inventory count used in
the preparation of the draft Closing Balance Sheet. The Aged Inventory
Adjustment shall be used in the calculation of the Adjusted Net Asset Value as
described in Exhibit B of the Disclosure Letter;

 

“Aged Inventory Amount” has the meaning ascribed to that term in Section 3.10;

 

“Aged Inventory Net Book Value” means the value of the Aged Inventory after its
write-down for the purpose of calculating the Adjusted Net Asset Value as
described in Exhibit B of the Disclosure Letter. The Aged Inventory
Net Book Value shall be used in the determination of the Aged Inventory Amount
contemplated in Section 3.10;

 

“Aged Inventory Write-Down” means the amount by which the book value of the Aged
Inventory will be written down as at the Closing Date as described in Exhibit B
of the Disclosure Letter. The book value of the paper Inventory between twelve
(12) and twenty-four (24) months old as of the Closing Date shall be written
down by 60% whereas all other Inventory over twelve (12) months old as of the
Closing Date shall be written down by 100%;

 

“Agreement” means this asset purchase agreement;

 

“Allocated Surplus” has the meaning ascribed to that term in Section 3.12(c);

 

“Ancillary Agreements” means each of the Deed of Transfer, the
Non-Competition Agreement, the Employee Non-Competition Agreements, the
Transitional Services Agreement and the Paper Supply Agreement;

 

“Annual Financial Statements” means the financial statements of the Vendor relating
to the Business as at December 31st, 2004, 2003, and 2002,
respectively, consisting in each case of the balance sheet of the Business and
the accompanying statements of profit and loss, retained earnings and cash
flows for the 12 month period then ended, a copy of which is attached to Schedule 1.1B
of the Disclosure Letter;

 

“AR Shortfall” has the meaning ascribed thereto in Section 3.9;

 

“Articles” means, with respect to any body corporate, the
original or restated articles of incorporation, articles of amendment, articles
of amalgamation, articles of arrangement, articles of reorganization, articles
of revival, letters patent, memorandum of agreement, special Act or statute and
any other instrument or constating document by or pursuant to which the body
corporate is incorporated or comes into existence;

 

3

 

“Assumed Liabilities” has the meaning ascribed to that term in Section 2.3;

 

“Basket” has the meaning ascribed to that term in Section 8.12(a);

 

“Books and Records” means the Accounting Records and all books, records,
sales and purchase records, lists of suppliers and customers, price lists and
catalogues, advertising material, sales literature, cost and pricing
information, credit information, personnel and payroll records, production,
Inventories and Accounts Receivable data, formulae, business, engineering and
consulting reports and research and development information and plans and
projections of or relating to the Business and all other documents, files,
records, maps, site plans, surveys, soil and substratum studies, as–built
drawings, appraisals, electrical and mechanical plans and studies,
correspondence, and other data and information, financial or otherwise, which
relate to the Business, including all data and information stored
electronically, digitally or on computer related media to the extent the
foregoing are maintained with respect to the Business and except as any of the
foregoing relate primarily to the Excluded Assets;

 

“Bureau Investigation” means the ongoing inquiry by the Commissioner
concerning alleged activities by certain persons, including the Vendor, in
relation to carbonless paper and other fine paper products, contrary to
sections 45 and 61 of the Competition Act (Canada);

 

“Business” has the meaning ascribed to that term in the
recitals;

 

“Business Day” means a day other than a Saturday, Sunday or any
other day on which the principal chartered banks located in the City of
Montreal, Quebec are not open for the transaction of domestic business during
normal banking hours;

 

“Cash Portion” has the meaning ascribed to that term in Section 3.1;

 

“CICA Standards” has the meaning ascribed to that term in Section 3.12(a);

 

“Claim” means any act, omission or state of facts, and any
Legal Proceeding, assessment, judgment, settlement or compromise relating
thereto, which gives rise to or may give rise to a Loss;

 

“Closing” means the completion of the sale to and purchase by
the Purchaser of the Purchased Assets and the completion of all other
transactions contemplated by this Agreement that are to occur contemporaneously
therewith;

 

“Closing Balance Sheet” means the unaudited balance sheet of the Business as
at the close of business on the Closing Date, as prepared and finally
determined in accordance with the provisions of Section 3.7;

 

“Closing Date” means December 31, 2005 or such earlier or later
date as may be agreed upon in writing by the Parties which date in all
cases shall be the last day of a calendar month;

 

“Closing Date Amount” has the meaning ascribed to that term in Section 3.12(c);

 

4

 

“Closing Date Rate” has the meaning ascribed to that term in Section 3.12(c);

 

“Closing Documents” means the Ancillary Agreements and any other document
or instrument delivered at or subsequent to the Closing as provided in or
pursuant to this Agreement and “Closing
Document” means any one of them;

 

“Closing Time” means 7:00 p.m. Montreal time on the Closing
Date or such other time on the Closing Date as the Parties agree in writing
that the Closing shall take place;

 

“Closing Value of the Assumed
Liabilities” means
the value of the Assumed Liabilities of the Vendor as recorded on the Closing
Balance Sheet;

 

“Collective Agreement” means any collective agreement, letter of
understanding, letter of intent or other written agreement with any labour
union or employee association that governs the terms and conditions of
employment of any Employees;

 

“Commissioner” means the Commissioner of Competition appointed under
the Competition Act (Canada);

 

“Competition Act Approval” means either:

 

(a)                                  the
applicable waiting period under Section 123 of the Competition Act (Canada) shall have
expired and the Purchaser shall have been advised in writing by the
Commissioner in terms satisfactory to the Purchaser in its sole discretion,
that she has determined not to make an application for an Order under the Act
in respect of the transactions contemplated by this Agreement;

 

(b)                                 the
Commissioner shall have issued a waiver under Subsection 113(c) of
the Act and the Purchaser shall have been advised in writing by the
Commissioner in terms satisfactory to the Purchaser in its sole discretion,
that she has determined not to make an application for an Order under the Act
in respect of the transactions contemplated by this Agreement; or

 

(c)                                  an advance
ruling certificate shall have been issued under Section 102 of such Act in
respect of the transactions contemplated by this Agreement;

 

“Confidentiality Agreement” means the confidentiality agreement between Vendor
and PaperlinX Limited dated February 11, 2005 and March 2, 2005;

 

“Consent” means any consent, approval, permit, waiver, ruling,
exemption, or acknowledgement that may be required from any person (other
than the Vendor) under the terms of any Contract (including any Lease or
Equipment Lease) issued to or for the benefit of the Vendor which is provided
for or required pursuant to the terms of such Contract (including any Lease or
Equipment Lease) in connection with the sale of the Purchased Assets to the
Purchaser and the completion of the other transactions contemplated herein or
which is otherwise necessary to permit the Parties to perform their
obligations or is otherwise required to permit the consummation of the
transactions as contemplated herein and the operation of the Business by 

 

5

 

Purchaser
substantially in the same manner as such Business was conducted by Vendor prior
to the Closing;

 

“Contracts” means all contracts, agreements, instruments and
other legally binding commitments or arrangements, written or oral, entered
into by the Vendor in respect of the Business, including those listed or
identified in Section 4.1.10 of Schedule 1.1A of the Disclosure
Letter;

 

“Deed of Transfer” has the meaning ascribed to that term in Section 6.1.2(c);

 

“Deficit Reduction” has the meaning ascribed to that term in Section 3.12(d)(i);

 

“Direct Claim” means any Claim asserted against an Indemnitor by an
Indemnitee which does not result from a Third Party Claim;

 

“Disclosure Documents” has the meaning ascribed to that term in Section 4.1.14;

 

“Disclosure Letter” means the confidential disclosure letter dated as of
the date hereof delivered by the Vendor to the Purchaser on or prior to the
date hereof;

 

“Disclosure Schedule” means Schedule 1.1A of the Disclosure
Letter;

 

“Employee” means an individual who is employed by the Vendor
exclusively in the Business immediately prior to the Closing Date, whether on a
full-time or part-time basis, other than the Inactive Employees;

 

“Employee Benefit Plans” means all compensation, bonus, deferred compensation,
incentive compensation, share purchase, share appreciation, share option,
severance or termination pay, vacation pay, hospitalization or other medical,
health and welfare benefits, life or other insurance, dental, eye care,
disability, salary continuation, supplemental unemployment benefits,
profit-sharing, mortgage assistance, employee loan, employee discount, employee
assistance, counselling, pension, retirement or supplemental retirement benefit
plan, arrangement or agreement, including any defined benefit or defined
contribution pension plan and any group registered retirement savings plan, and
any other similar employee benefit plan, arrangement or agreement, whether oral
or written, funded or unfunded, including policies with respect to holidays,
sick leave, long-term disability, vacations, expense reimbursements and
automobile allowances and rights to company-provided automobiles, that are
sponsored or maintained or contributed to or required to be contributed to, by
the Vendor for the benefit of any of the Employees, former employees or
beneficiaries of any of them, whether or not insured and whether or not subject
to any Law, except that the term “Employee
Benefit Plans” shall not
include any statutory plans with which the Vendor is required to comply,
including the Canada/Quebec Pension Plan or plans administered pursuant to
applicable provincial health tax, workers’ compensation, workers’ safety and
insurance and employment insurance legislation;

 

[              ]

 

6

 

“Encumbrance” means any option or any other right of third parties
of any nature, mortgage, charge, hypothec, Bank
Act (Canada) security, easement, encroachment, lien, adverse claim,
restrictive covenant, assignment by way of security, security interest of any
nature, servitude, pledge, hypothecation, security agreement, leasing, title
retention agreement, right of occupation, option or privilege or any agreement
to create any of the foregoing;

 

“Environment” means all components of the earth, including air (and
all layers of the atmosphere), land (and all surface and subsurface soil,
underground spaces and cavities and all land submerged under water) and water
(and all surface and underground water), organic and inorganic matter and
living organisms. For greater certainty, the interacting natural systems that
include components referred to above are included in the definition of “Environment”;

 

“Environmental Laws” means all Laws relating to the Subject Properties
and/or the Business and relating, in whole or in part, to public health and
safety, pollution or the protection of the Environment, including the existence
or Release of or dealings with those substances which are defined or otherwise
regulated as Hazardous Substances, wastes or threats to the public health and
safety or the environment or the transportation of dangerous goods, including
the Politique de protection des sols et de
réhabilitation des terrains contaminés published in 1998 by the
ministère du Développement durable, de l’Environnement et des Parcs (Quebec),
as amended to this date;

 

“Environmental Liabilities” means any cost, damage, expense, liability,
obligation, Claim or Loss or other responsibility arising from or under
Environmental Laws and consisting of or relating to: (i) any environmental
conditions (including on-site or off-site contamination, and regulation of
chemical substances or products); or (ii) financial responsibility under
Environmental Laws for cleanup costs or corrective action, including any
investigation, cleanup, removal, containment, monitoring or other remediation
or response actions required by applicable Environmental Laws (provided that
such has been required by any Governmental Authority or any other person) and
for any natural resource damages;

 

“Equipment Leases” means all leases of personal or movable property used
in the Business to which the Vendor is a party or under which it has rights;

 

“Estimated Adjusted Net Asset Value” shall be the amount equal to the difference between
the estimated Adjusted Closing Value of the Purchased Assets and the estimated
Closing Value of the Assumed Liabilities as adjusted in accordance with Exhibit B
of the Disclosure Letter. This amount shall be agreed upon by Vendor and
Purchaser at least 10 days prior to Closing;

 

“Estimated Amount” has the meaning ascribed to that term in Section 3.2(a);

 

“Excluded Assets” has the meaning ascribed to that term in Section 2.2;

 

“Excluded Liabilities” has the meaning ascribed to that term in Section 2.4;

 

“Excluded Receivables” has the meaning ascribed to that term in Section 2.2;

 

7

 

“Excluded Receivables Adjustment” means the amount by which the Accounts Receivable
recorded on the Closing Balance Sheet will be reduced on such Closing Balance
Sheet to take into account the Excluded Receivables as described in Exhibit B
of the Disclosure Letter. The Excluded Receivables Adjustment shall be equal to
the net book value of the Excluded Receivables (their book value less the
corresponding provision for doubtful accounts);

 

“GAAP” means, at any time, generally accepted accounting
principles in Canada including those set out in the Handbook of the Canadian
Institute of Chartered Accountants in force at such time;

 

“Goodwill Amount” has the meaning ascribed to that term in Section 3.1;

 

“Goodwill Payment Date” has the meaning ascribed to that term in Section 3.3;

 

“Governmental Authority” means any domestic or foreign government, whether
federal, provincial, state, territorial or municipal; and any governmental
agency, ministry, department, Tribunal, commission, bureau, board or other
instrumentality exercising or purporting to exercise legislative, enforcement,
judicial, regulatory or administrative functions of, or pertaining to,
government;

 

“GST” means taxes, interest, penalties and fines imposed
under Part IX of the Excise Tax Act (Canada)
and the regulations made thereunder; and “GST
Legislation” means such
act and regulations collectively;

 

“Hazardous Substances” means any waste or other substance, including solid,
liquid, gas, odour, heat, sound, vibration or radiation, that is listed,
defined, designated or classified as, or otherwise determined to be, dangerous,
hazardous, radioactive, explosive or toxic or a pollutant or a contaminant
under any Environmental Laws, including any mixture or solution thereof, and
specifically including petroleum and all derivatives thereof or synthetic
substitutes therefor and asbestos or asbestos-containing materials;

 

“ICA Approval” means that the Purchaser shall have made an
application for review under the Investment
Canada Act in connection with the transactions contemplated hereby
and shall have received evidence satisfactory to the Purchaser, acting in its
sole discretion, that the Minister designated under that Act has been satisfied
or has been deemed to have been satisfied that the acquisition by the Purchaser
of the Business is likely to be of net benefit to Canada;

 

“Inactive Employees” means Employees who, on the Closing Date, have been
absent from work for a period of at least 17 weeks but does not include those
Employees who are Short Term Disabled Employees. A separate listing of all the
Inactive Employees and all the Short Term Disabled Employees are set forth in
two parts on Schedule 1.1F of the Disclosure Letter;

 

“Income Tax Act” means, collectively, the Income Tax Act, R.S.C. 1985, 5th Supplement, the Income Tax
Application Rules, R.S.C. 1985, 5th Supplement, and the Income Tax regulations,
in each case as amended to the date hereof;

 

8

 

“Indemnitee” means any Party and its Representatives entitled to
indemnification under this Agreement;

 

“Indemnitor” means any Party obligated to provide indemnification
under this Agreement;

 

“Indemnity Payment” means any amount of a Loss required to be paid
pursuant to Sections 8.1 or 8.2;

 

“Independent Accountant” has the meaning ascribed to that term in Subsection 3.7.2;

 

“Information” has the meaning ascribed to that term in Section 5.2.1(a);

 

“Insurance Recovery” has the meaning ascribed to that term in Section 8.10;

 

“Interested Person” means any present or former officer, director,
shareholder or employee, of the Vendor or any other person with which the
Vendor or any of the foregoing does not deal at arm’s length within the meaning
of the Income Tax Act;

 

“Interim Period” means the period from and including the time of
execution of this Agreement to and including the earlier of the date this
Agreement is terminated in accordance with Section 7.1 and the Closing
Time;

 

“Inventories” means all inventories of every kind and nature and
wheresoever situated used in or produced by the Business, including all
finished goods, work in process, raw materials, goods in transit, new and
unused production and shipping supplies, new and unused major maintenance items
and all other materials and supplies on hand;

 

“June 30 Amount” has the meaning ascribed to that term in Section 3.12(d);

 

“June 30 Rate” has the meaning ascribed to that term in Section 3.12(d);

 

“June Purchaser Reduction” has the meaning ascribed to that term in Section 3.12(d)(ii);

 

“June Vendor Reduction” has the meaning ascribed to that term in Section 3.12(d)(ii);

 

“Law” means, in respect of any person, property,
transaction or event, any domestic or foreign statute, ordinance, rule,
regulation, treaty, restriction, regulatory policy, practice, guideline,
standard, code, by-law (zoning or otherwise) or Order that applies in whole or
in part to such person, property, transaction or event, to the extent it
has the force of law and includes Environmental Laws;

 

“Leased Property” means all the right, title and interest of the Vendor
in, to and under the subject matter (whether real or immovable or personal or
movable) of the Leases and the Equipment Leases;

 

9

 

“Leases” means the real or immovable property leases (including
emphyteutic leases) and other rights of occupancy relating to real property
used in the Business (including any rights to leasehold improvements) to which
the Vendor is a party or under which it has rights, whether as lessor or
lessee;

 

“Legal Proceeding” means any litigation, action, suit, investigation,
hearing, claim, complaint, grievance, arbitration proceeding or other
proceeding and includes any appeal or review and any application for same,
whether or not involving a Third Party Claim;

 

“Licence” means any licence, permit, approval, authorization,
certificate, directive, Order, variance, registration, right, privilege,
concession or franchise issued, granted, conferred or otherwise created by any
Governmental Authority, or any agreement with any Governmental Authority;

 

“Loss” means any loss, liability, damage, cost, expense,
charge, fine, penalty or assessment, whether or not involving a Third Party
Claim, including the costs and expenses of any Legal Proceeding, assessment,
judgment, settlement or compromise relating thereto and all interest, fines and
penalties and reasonable legal fees and expenses incurred in connection
therewith;

 

“Machinery and Equipment” means all machinery, equipment (including trucks,
automobiles, and other vehicles), spare parts, tools, jigs, dies, office
equipment (including computers and computer accessories), furniture, fixtures,
furnishings and accessories and supplies of all kinds used in the Business,
whether located on premises of the Vendor relating to the Business or
elsewhere, including the items set forth and described on Schedule 1.1C
of the Disclosure Letter, together with any additions thereto arising in the
ordinary course during the Interim Period;

 

“Material” means, unless explicitly stated otherwise or in relation
to the expression “Material Contracts”, any issue, change or effect that would
be considered material to a reasonable person in similar circumstances;

 

“Material Contracts” means (i) the agreements and arrangements
described in Section 4.1.5 of the Disclosure Letter, and (ii) the
Leases, the Equipment Leases, the supplier and customer contracts relating to
the Business and the Contracts listed or identified in Section 4.1.10 of
the Disclosure Letter;

 

“Net Receivables” means the amount of the Accounts Receivables less the
Excluded Receivables and less the Reserve as reflected on the Closing Balance
Sheet;

 

“Net Sales” means, with respect to the sale of Aged Inventory,
gross sales before sales Taxes less commissions, rebates and like charges;

 

“Non-Competition Agreement” has the meaning ascribed to that term in Subsection 6.1.2(f);

 

“Non Paper Inventory” means Inventories other than paper Inventories,
including graphic art supplies, industrial and equipment Inventories;

 

10

 

“Notice Period” has the meaning ascribed to that term in Section 8.5;

 

“Order”
means any order, directive, judgment, decree, award or writ of any Tribunal;

 

[              ]

 

“Parties” means the Vendor, Cascades, the Purchaser and any other
person who may become a party to this Agreement and “Party” means any one of them;

 

“Pension Adjustment” means the amount calculated in accordance with Section 3.12(d)(iii);

 

“Pension Adjustment Payment Date” has the meaning ascribed to that term in Section 3.11;

 

“Pension Adjustment Reduction” has the meaning ascribed to that term in Section 3.12(d)(ii);

 

“Pension Plan” has the meaning ascribed to that term in Section 9.5;

 

“Permitted Encumbrances” with respect to the Purchased Assets means:

 

(a)                                  inchoate or
statutory liens for Taxes not at the time overdue but only if the amount
thereof at the Closing Date is taken into account as a current liability in
calculating the Closing Value of the Assumed Liabilities;

 

(b)                                 statutory
liens incurred or deposits made in the ordinary course of the Business in
connection with worker’s compensation, employment insurance employer health
tax, Canada/Quebec Pension Plan and similar legislation;

 

(c)                                  those
Encumbrances listed on Schedule 1.1D of the Disclosure Letter;

 

(d)                                 easements
and any registered restrictions or covenants that run with the land provided
they have been complied with and provided that they do not affect the ability
of the Vendor to carry on the Business as it has been carried on in the past;

 

(e)                                  rights of
way for, or reservations in favour of public utilities relating to sewers,
water lines, gas lines, pipelines, electric lines, telegraph and telephone
lines, cable lines and other similar products or services, provided that they
do not affect the ability of the Vendor to carry on the Business as it has been
carried on in the past; and

 

11

 

(f)            zoning
by-laws, ordinances and other restrictions as to the use of real property, and
agreements with other persons registered against title to the lands (with the
exception of any Encumbrances) and provided that they do not affect the ability
of the Vendor to carry on the Business as it has been carried on in the past;

 

“Preliminary Pension Adjustment” has the meaning ascribed to that term in Section 3.12(c);

 

“Preliminary Purchaser Allocation” has the meaning ascribed to that term in Section 3.12(c);

 

“Prepaid Expenses” means all prepaid expenses and deposits relating to
the Business, other than (i) those relating to Excluded Assets; and (ii) those
prepaid expenses the benefit of which cannot be transferred to the Purchaser
all of which are set forth on Schedule 1.1G of the Disclosure
Letter;

 

“Prime Rate” for any day means the rate of interest expressed as a
rate per annum that National Bank of Canada establishes at its principal office
in Montréal, Québec as the reference rate of interest that it will charge on
that day for Canadian dollar demand loans to its customers in Canada and which
it at present refers to as its prime rate;

 

“Prohibited Logos” has the meaning ascribed to that term in Subsection 5.2.4(a);

 

“Prohibited Name” has the meaning ascribed to that term in Subsection 5.2.4(a);

 

“Purchased Assets” has the meaning ascribed to that term in Section 2.1;

 

“Purchase Price” means the price payable by the Purchaser to the
Vendor for the Purchased Assets provided for in Section 3.1;

 

“Purchaser’s Advisors” means the directors, officers, employees, agents,
legal counsels, accountants and professional advisors of the Purchaser and any
other person authorized in writing by the Purchaser to represent the Purchaser;

 

“Purchaser’s Closing Certificate” has the meaning ascribed to that term in Section 6.2.1;

 

“Purchaser’s Core Representations” has the meaning ascribed to that term in Subsection 6.2.1(a);

 

“Rate Increase” has the meaning ascribed to that term in Section 3.12(b);

 

“Real Property” means all owned real and immovable property used in
or relating to the Business, including the real property described in Section 4.1.7
of the Disclosure Letter, and includes all plant, buildings, structures,
erections, improvements, appurtenances and fixtures situated thereon or forming
part thereof;

 

12

 

“Reference Date” has the meaning ascribed to that term in Section 3.12(b);

 

“Reference Date Amount” has the meaning ascribed to that term in Section 3.12(b);

 

“Reference Date Rate” has the meaning ascribed to that term in Section 3.12(b);

 

“Regulatory Approval” means any approval, consent, ruling, authorization,
notice, permit, waiver, exemption or acknowledgement, other than the
Competition Act Approval and the ICA Approval, that may be required from
any person by Law, the terms of any Licence or the conditions of any Order or
otherwise which is required in connection with the sale of the Purchased Assets
to the Purchaser and the completion of the other transactions contemplated
herein or which is otherwise necessary to permit the Parties to perform their
obligations or is otherwise required to permit the consummation of the
transactions as contemplated herein and the operation of the Business by
Purchaser substantially in the same manner as such Business was conducted by
Vendor prior to Closing;

 

“Release” means any discharge, spill, release, emission,
leaking, pumping, pouring, dumping, emptying, injection, deposit, disposal,
dispersal, leaching or migration of Hazardous Substances not permitted by
applicable Environmental Laws, in, on or into the Environment;

 

“Replacement Plans” has the meaning ascribed to that term in Section 9.1;

 

“Representative” means, in respect of an Indemnitee, each director,
officer, employee, agent, legal counsel, accountant, professional advisor and
other representative of that Indemnitee;

 

“Reserve” means the provision for doubtful Accounts Receivable
reflected in the Closing Balance Sheet excluding the provision for doubtful
accounts for Excluded Receivables;

 

“September 30 Amount” has the meaning ascribed to that term in Section 3.12(a);

 

“September 30 Rate” has the meaning ascribed to that term in Section 3.12(a);

 

“Short Term Disabled Employees” means those Employees who as of the Closing Date are
not working and who are expected to return to work within a period of six (6) months
following the Closing Date.

 

“Subject Properties” means the Real Property and all of the real and
immovable property used in or relating to the Business which constitutes Leased
Property and includes all plants, buildings, structures, erections,
improvements, appurtenances and fixtures situated thereon or forming part thereof;

 

“Tax” or “Taxes” means all taxes, assessments, charges, dues, duties,
rates, fees, imposts, levies and similar charges of any kind lawfully levied,
assessed or imposed by any Governmental Authority under any applicable Tax
Legislation, or other income, capital, goods 

 

13

 

and
services, sales, use, consumption, excise, value-added, business, real or
immovable property, personal or movable property, transfer, franchise,
withholding, payroll, or employer health taxes, customs, import, anti-dumping
or countervailing duties, Canada/Quebec Pension Plan contributions, employment
insurance premiums, and provincial workers’ compensation payments, including
any interest, penalties and fines associated therewith;

 

“Tax Legislation” means, collectively, the Income Tax Act and all
federal, state, provincial, territorial, municipal, foreign, or other statutes
imposing a Tax, including all treaties, conventions, rules, regulations,
Orders, and decrees of any jurisdiction;

 

“Tax Returns” means all reports, elections, returns, and other
documents required to be filed under the provisions of any Tax Legislation and
any tax forms required to be filed, whether in connection with a Tax Return or
not, under any provisions of any applicable Tax Legislation;

 

“Third Party Actuaries” has the meaning ascribed thereto at Section 3.12(e);

 

“Third Party Claim” means any Claim asserted against an Indemnitee that
is paid or payable to, or claimed by, any person who is not a Party;

 

“Transitional Services Agreement” has the meaning ascribed thereto at Section 6.1.2(g);

 

“Tribunal” means any court (including a court of equity),
arbitrator or arbitration panel and any other Governmental Authority, stock
exchange, or association or other body exercising adjudicative, judicial,
regulatory or quasi-judicial powers;

 

“Vendor’s Actuaries” means Morneau Sobeco;

 

“Vendor’s Closing Certificate” has the meaning ascribed to that term in Section 6.1.1;

 

“Vendor’s Core Representations” has the meaning ascribed to that term in Subsection 6.1.1(a);

 

“Vendor’s Intellectual and Industrial Property” means the
intellectual and industrial property rights used in whole or in part in,
or required by the Vendor for the carrying on by the Vendor of, the Business,
both domestic and foreign and whether or not registered anywhere in the world
(but specifically excluding intellectual and industrial property rights listed
as Excluded Assets) all of which is listed in Section 4.1.23 of Schedule 1.1A
of the Disclosure Letter.

 

1.2                            Recitals

 

The Parties
acknowledge and declare that the recitals in this Agreement are true and
correct, are incorporated by reference herein, and deemed to be an integral part of
this Agreement.

 

14

 

1.3                            Accounting Principles

 

Wherever in this Agreement reference is made to GAAP, such reference
shall, unless otherwise specified herein, be deemed to be to the GAAP from time
to time approved by the Canadian Institute of Chartered Accountants applicable
as at the date on which such principles are to be applied or on which any
calculation or determination is required to be made in accordance with GAAP.

 

1.4                            Governing Law;
Attornment

 

This Agreement shall be construed, interpreted and enforced in
accordance with, and the rights of the Parties shall be governed by, the laws
of the Province of Quebec and the federal laws of Canada applicable therein
(excluding any conflict of law rule or principle of such laws that might
refer such interpretation or enforcement to the laws of another jurisdiction).
Each Party irrevocably submits to the exclusive jurisdiction of the courts of
Quebec with respect to any matter arising hereunder or relating hereto.

 

1.5                            Amendment

 

This Agreement may not be amended, supplemented or otherwise
modified in any respect except by written instrument executed by the Parties.

 

1.6                            Calculation of Time

 

In this Agreement, a period of days shall be deemed to begin on the
first day after the event which began the period and to end at 5:00 p.m.
(Montreal time) on the last day of the period. If any period of time is to
expire hereunder on any day that is not a Business Day, the period shall be
deemed to expire at 5:00 p.m. (Montreal time) on the next succeeding
Business Day.

 

1.7                            Performance on Holidays

 

If any act (including the giving of notice) is otherwise required by
the terms hereof to be performed on a day which is not a Business Day, such act
shall be valid if performed on the next succeeding Business Day.

 

1.8                            Waiver of Rights

 

Any waiver of, or consent to depart from, the requirements of any
provision of this Agreement shall be effective only if it is in writing and
signed by the Party giving it, and only in the specific instance and for the
specific purpose for which it has been given. No failure on the part of
any Party to exercise, and no delay in exercising, any right under this
Agreement shall operate as a waiver of such right. No single or partial
exercise of any such right shall preclude any other or further exercise of such
right or the exercise of any other right.

 

15

 

1.9                            Knowledge

 

Where any representation, warranty or other statement in this Agreement
is expressed to be made by the Vendor or Cascades, as applicable, to its
knowledge or is otherwise expressed to be limited in scope to matters known to
the Vendor or Cascades, as applicable, or of which the Vendor or Cascades, as
applicable, is aware, it shall mean such knowledge as is actually known to the
officers or employees of the Vendor or Cascades, as applicable, who have
overall responsibility for or knowledge of the matters relevant to such
statement and shall be deemed to include knowledge that such persons would
acquire after making appropriate inquiries to other officers or employees of
Vendor or of Cascades who, having regard to their position and
responsibilities, should reasonably be expected to have knowledge relevant to
the representation, warranty or other statement in question.

 

1.10                         Severability

 

Any provision in this Agreement which is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions hereof or affecting the validity or enforceability of such provision
in any other jurisdiction.

 

1.11                         Consents and Approvals

 

Unless otherwise specified, where the consent or approval of a Party is
contemplated or required by the terms of this Agreement, that Party shall not
unreasonably delay or withhold the giving of such consent or approval after a
request therefore has been made by the other Party.

 

1.12                         Remedies Cumulative

 

The rights, remedies, powers and privileges herein provided to a Party
are cumulative and in addition to and not exclusive of or in substitution for
any rights, remedies, powers and privileges otherwise available to that Party.

 

1.13                         Additional Rules of
Interpretation

 

(a)                                  In this
Agreement, unless the context requires otherwise, words in one gender include
all genders and words in the singular include the plural and vice versa.

 

(b)                                 The division
of this Agreement into Articles, Sections, Subsections and other subdivisions,
the inclusion of headings and the provision of a table of contents are for
convenience of reference only and shall not affect the construction or
interpretation of this Agreement. The headings in the Agreement are not
intended to be full or precise descriptions of the text to which they refer.

 

(c)                                  Unless
something in the subject matter or context is inconsistent therewith,
references herein to an Article, Section, Subsection, paragraph or clause are
to the applicable article, section, Subsection, paragraph or clause of this
Agreement.

 

16

 

(d)                                 Wherever the
words “include”, “includes” or “including” are used in this Agreement or in any
Closing Document, they shall be deemed to be followed by the words “without
limitation” and the words following “include”, “includes” or “including” shall
not be considered to set forth an exhaustive list.

 

(e)                                  The words “hereof”,
“herein”, “hereto”, “hereunder”, “hereby” and similar expressions shall be
construed as referring to this Agreement in its entirety and not to any
particular Section or portion of it.

 

(f)                                    Unless
otherwise specified, all dollar amounts in this Agreement, including the symbol
“$”, refer to Canadian currency.

 

(g)                                 Unless
otherwise indicated, all references in this Agreement to any statute include
the regulations thereunder and all applicable guidelines, bulletins or policies
made in connection therewith and which are legally binding, in each case as
amended, re-enacted, consolidated or replaced from time to time and in the case
of any such amendment, re-enactment, consolidation or replacement, reference
herein to a particular provision shall be read as referring to such amended,
re-enacted, consolidated or replaced provision as at the appropriate time.

 

(h)                                 All
references herein to any agreement (including this Agreement), document or
instrument mean such agreement, document or instrument as amended,
supplemented, modified, varied, restated or replaced from time to time in
accordance with the terms thereof and, unless otherwise specified therein,
includes all schedules and exhibits attached thereto.

 

(i)                                     Unless the
context otherwise requires, references in this Agreement to a “person” are to be broadly interpreted
and shall include an individual (whether acting as an executor, administrator,
legal representative or otherwise), body corporate, unlimited liability
company, partnership, limited liability partnership, joint venture, trust,
unincorporated association, unincorporated syndicate, any Governmental
Authority and any other legal or business entity.

 

(j)                                     The term “ordinary
course”, when used in relation to the conduct by the Vendor of the Business, or
the conduct of business by any other person, means any transaction which
constitutes an ordinary day-to-day business activity, conducted in a
commercially reasonable and businesslike manner, having no unusual or special
features, and, in the case of the Business, consistent with past practice and,
in the case of any other person (other than an individual), being such as a
person of similar nature and size and engaged in a similar business might
reasonably be expected to carry out from time to time.

 

17

 

(k)                                  Unless
otherwise defined herein, words or abbreviations which have well-known trade
meanings are used herein with those meanings.

 

ARTICLE 2 

PURCHASE AND SALE OF ASSETS AND
 ASSUMPTION OF LIABILITIES

 

2.1                            Purchase and Sale

 

Subject to the terms and conditions of this Agreement, the Vendor
agrees to sell, transfer, assign and convey to the Purchaser and the Purchaser
agrees to purchase from the Vendor, as a going concern, the undertaking and all
of the Vendor’s right, title and interest in, under and to the property and
assets (other than the Excluded Assets) used in carrying on the Business
(collectively, the “Purchased Assets”). The Purchased
Assets shall include all of the Vendor’s right, title and interest in, under
and to:

 

(a)           the Real
Property;

 

(b)           the
Machinery and Equipment;

 

(c)           the
Contracts

 

(d)           the Accounts
Receivable;

 

(e)           the
Inventories;

 

(f)            the Leases;

 

(g)           the
Equipment Leases;

 

(h)           the full
benefit of all Licenses, to the extent that they are transferable;

 

(i)            the Vendor’s
Intellectual and Industrial Property including without limitation the name
Graphic Resources and any trade name used by the Business;

 

(j)            the Prepaid
Expenses;

 

(k)           the Books
and Records; and

 

(l)            the goodwill
of the Business together with the exclusive right of the Purchaser to represent
itself as carrying on the Business in continuation of, and as successor to, the
Vendor.

 

except
to the extent that any such assets constitute Excluded Assets.

 

18

 

2.2                            Excluded Assets

 

Notwithstanding anything to the contrary in Section 2.1 or
elsewhere in this Agreement, the Purchased Assets shall not include the
following (the “Excluded Assets”), which are not part of the purchase and
sale contemplated hereunder and shall remain the property of the Vendor after
Closing:

 

(a)           term or time
deposits, cash on hand or on deposit with banks, other financial institutions
or other depositaries;

 

(b)           guaranteed
investment certificates, treasury bills and other similar cash items and
marketable securities;

 

(c)           the interest
of the Vendor in any insurance policies, including the cash surrender value
thereof and any claims under such policies;

 

(d)           refundable
Taxes previously paid by the Vendor and any claim or right of the Vendor to any
refund of, or credit with respect to, Taxes, in each case in respect of any
period prior to the Closing Date, together with any interest thereon;

 

(e)           the
corporate and Tax records of the Vendor;

 

(f)            Licences of
the Vendor relating to the Business which are not transferable;

 

(g)           subject to
the other provisions of this Agreement, the right to use the name “Cascades” or
the Cascades logo or any variation thereof;

 

(h)           Books and
Records relating exclusively to the foregoing;

 

(i)            assets
located in the City of St-Jérôme, Province of Quebec, relating to the mainframe
(AS 400) (the “AS Assets”);

 

(j)            the accounts
receivables payable over several years that are listed in Section 2.2(j)
of the Disclosure Letter which had an aggregate net book value of approximately
$248,000 as at September 30, 2005 (the “Excluded
Receivables”); and

 

(k)           any other
assets of the Vendor which are not used in the Business.

 

2.3                            Assumption of
Liabilities

 

The Purchaser shall assume and shall pay, satisfy, fulfill and
discharge and perform, as the case may be unless specifically excluded
elsewhere in this Agreement:

 

(a)           all obligations to be performed by the
Vendor on and after the Closing Date under the Contracts (including Leases and
Equipment Leases) which by the terms and conditions thereof are to be paid,
discharged or performed at any time after the Closing excluding any obligations
relating to or arising out of such Contracts (including Leases and Equipment 

 

19

 

Leases) as a result of
any breach of such Contracts (including Leases and Equipment Leases) or any
violation of Law, breach of warranty, tort, delict or infringement occurring on
or prior to the Closing;

 

(b)           all other
liabilities of the Vendor incurred in connection with the Business up to the
Closing Date to the extent only that they are reflected as current liabilities
on the Closing Balance Sheet prepared in accordance with this Agreement;

 

(c)           all
obligations and liabilities relating to warranty and product liability claims
and returned goods relating to the Business;

 

(d)           the
obligations and liabilities relating to the Employees to be assumed by Purchaser
as set out in Section 9.1 and Section 9.2 hereto;

 

(e)           the
obligations and liabilities relating to the Pension Plan assumed by Purchaser
as set out in Section 9.5 hereto; and

 

(f)            those liabilities
listed in Schedule 2.3 of the Disclosure Letter, (collectively, the
“Assumed
Liabilities”).

 

2.4                            Excluded Liabilities

 

Notwithstanding anything to the contrary contained in this Agreement
and regardless of whether such liability or obligation is disclosed herein (or
in the Disclosure Letter (other than the liabilities listed in Schedule 2.3
of the Disclosure Letter) or in the exhibits to the Disclosure Letter), the
Purchaser does not hereby assume and will not assume or be liable for any
liabilities or obligations of the Vendor or any liabilities or obligations of
Cascades except for the Assumed Liabilities (collectively, the “Excluded Liabilities”).

 

ARTICLE 3 

PURCHASE PRICE AND RELATED MATTERS

 

3.1                            Amount of Purchase Price

 

Subject to the adjustments provided herein, the aggregate price payable
by the Purchaser to the Vendor for the Purchased Assets (the “Purchase Price”)
is the sum of the Adjusted Net Asset Value (the “Cash Portion”) plus one million
six hundred thousand dollars ($1,600,000) (the “Goodwill Amount”) and the
assumption of all of the Assumed Liabilities decreased, as the case may be,
by the amount of the Pension Adjustment or increased, as the case may be,
by the Allocated Surplus.

 

3.2                            Payment of the Purchase
Price

 

The Purchase Price shall
be paid and satisfied by the Purchaser as follows: 

 

20

 

(a)           by paying
the Vendor 95% of the Estimated Adjusted Net Asset Value (the “Estimated Amount”)
by wire transfer of immediately available funds on the Closing Date to an
account designated in writing by the Vendor;

 

(b)           by paying
the Vendor the remaining portion of the Cash Portion in accordance with and
subject to the terms and conditions of Section 3.8 by certified cheque,
bank draft or wire transfer of immediately available funds to an account
designated in writing by the Vendor;

 

(c)           by paying
the Vendor the Goodwill Amount in accordance with and subject to the terms and
conditions of Section 3.3 by certified cheque, bank draft or wire transfer
of immediately available funds to an account designated in writing by the
Vendor;

 

(d)           by paying
the Vendor, if applicable, the amount of the Allocated Surplus in accordance
with and subject to the terms and conditions of Section 3.11 by certified
cheque, bank draft or wire transfer of immediately available funds to an
account designated in writing by the Vendor; and

 

(e)           by the
assumption of all of the Assumed Liabilities.

 

3.3                            Payment of the Goodwill
Payment

 

On or prior to a date (the “Goodwill Payment Date”) which is
fifteen (15) Business Days from the date on which the draft Closing Date
Balance Sheet is delivered by the Purchaser to Vendor, Purchaser shall pay to
Vendor by bank draft, certified cheque or wire transfer of immediately
available funds to the account designated in writing by Vendor the amount of the
Goodwill Payment. No interest shall be payable on the Goodwill Amount if such
payment is made on or prior to the Goodwill Payment Date.

 

3.4                            Closing

 

The Closing shall take place at the Closing Time at the offices of
Fraser Milner Casgrain LLP, 1 Place Ville-Marie, Suite 3900, Montreal,
Quebec, or at such other place as may be agreed upon in writing by Vendor
and the Purchaser.

 

3.5                            Allocation of Purchase
Price

 

The Vendor and the
Purchaser agree to allocate the Purchase Price among the Purchased Assets in
accordance with Exhibit A of the Disclosure Letter. The Vendor and
the Purchaser agree that the values so attributed to the Purchased Assets are
the respective fair market values thereof, and each Party shall report the sale
and purchase of the Purchased Assets for all Tax purposes in mutually agreeable
form and in a manner consistent with such allocation. Each Party shall
indemnify and save harmless the other Party in respect of any additional Tax,
legal and/or accounting costs paid or incurred by the other Party as a result
of the failure of the indemnifying Party to file as aforesaid.

 

21

 

3.6                            Taxes and Elections

 

3.6.1                        Transfer Taxes

 

The
Purchaser shall be liable for and shall pay, either to the Vendor at the
Closing Time or directly to the appropriate Governmental Authority, as
required, all land transfer taxes, sales taxes (whether imposed by Canada, a
province or local taxing authority therein) and all other Taxes or other like
charges properly payable upon and in connection with the transfer of the
Purchased Assets to the Purchaser, including, but not limited to GST and
provincial sales taxes but excluding any income taxes payable by the Vendor as
a result of the completion of the transactions herein contemplated. The Vendor
and Purchaser shall make a joint election pursuant to the provisions of Subsection 167(1) of
the GST Legislation, and any similar Tax Legislation, in prescribed form and
including the prescribed information, with respect to the purchase and sale of
the Purchased Assets pursuant to the provisions of this Agreement. The
Purchaser shall file the joint election not later than the day on or before
which the return is required to be filed by the Purchaser under the GST
Legislation and any similar Tax Legislation for the Purchaser’s reporting
period in which the sale was made, in compliance with the requirements of the
GST Legislation and any similar Tax Legislation.

 

3.6.2                        Accounts Receivable
Election

 

Purchaser and Vendor shall jointly elect pursuant to Section 22 of
the Income Tax Act and the corresponding provisions of any other Tax
Legislation, in prescribed form containing the prescribed information and
within the time period specified for the purposes of the prescribed form, with
respect to the purchase and sale of all Accounts Receivable included in the
Purchased Assets and Vendor and Purchaser shall prepare and execute the
prescribed form and deliver it at or before the Closing Time for execution
by Purchaser and Vendor, and Purchaser shall file such form within the
prescribed time period. 

 

3.7                            Preparation of Closing
Balance Sheet 

 

3.7.1                        Initial Preparation 

 

Promptly after the Closing Time, the
Purchaser shall prepare, at its expense and in accordance with GAAP,
consistently applied, a balance sheet of the Business on the Closing Date and a
calculation of the Adjusted Net Asset Value which shall be calculated in
accordance with Exhibit B of the Disclosure Letter hereof. Any
bonus, retention bonus, severance or similar benefit payable to Employees shall
be accrued as a liability on the Closing Balance Sheet. A draft of the Closing
Balance Sheet and a draft calculation of the Adjusted Net Asset Value shall be
delivered to the Vendor no later than 30 Business Days following the Closing Date.
The Closing Balance Sheet shall be prepared in the English language in
accordance with GAAP, consistently applied with the Annual Financial Statements
for the fiscal year ended on December 31, 2004, except as specifically
provided for in Exhibit B of the Disclosure Letter. The Purchaser
shall permit representatives of the Vendor to be present at the inventory count
used in the preparation of the draft Closing Balance Sheet and if requested
shall provide such representatives promptly with copies of all working papers
created in connection with such inventory count. If the Vendor does not give a
notice of disagreement in accordance with Subsection 3.7.2, the 

 

22

 

Vendor
shall be deemed to have accepted the draft Closing Balance Sheet and draft
calculation of the Adjusted Net Asset Value prepared by the Purchaser which
shall be final and binding on the Parties and the draft calculation of the
Adjusted Net Asset Value shall constitute the Adjusted Net Asset Value for
purposes of this Agreement immediately following the expiry date for the giving
of such notice of disagreement.

 

3.7.2                        Dispute Settlement

 

If the Vendor disagrees with any item in the draft Closing Balance
Sheet or the draft calculation of the Adjusted Net Asset Value prepared
pursuant to Section 3.7.1, it shall give notice to the Purchaser of such
disagreement no later than 10 Business Days after delivery of the draft Closing
Balance Sheet. Any notice of disagreement given by the Vendor shall set forth
in detail the particulars of such disagreement. The Parties shall then use
reasonable commercial efforts to resolve such disagreement for a period of 15
Business Days following the giving of such notice. If the disagreement is not
resolved in its entirety by the end of such 15 Business day period, then such
disagreement, or that part of the disagreement that remains unresolved,
shall be submitted by the Parties to an accounting firm of recognized national
standing in Canada, which is independent of the Parties or, in the absence of
agreement, to Deloitte & Touche LLP, Chartered Accountants (the “Independent Accountant”).
The Independent Accountant shall, as promptly as practicable (but in any event
within 20 Business Days following its appointment), make a determination with
respect to the disagreements identified by the Vendor that have not been
resolved by the Parties in accordance with this Section 3.7.2 and based
solely on written submissions submitted by the Parties to the Independent
Accountant. Immediately following the decision of the Independent Accountant as
to such unresolved disagreements, the draft Closing Balance Sheet and the
calculation of the draft Adjusted Net Asset Value shall be deemed to reflect, (i) if
applicable, the matters resolved by the Parties, and (ii) the decision of
the Independent Accountant, and shall respectively become the final and binding
Closing Balance Sheet and Adjusted Net Asset Value for the purpose of this
Agreement. For greater certainty, the Independent Accountant’s decision shall
be final and binding upon the Parties and shall not be subject to appeal. The
Purchaser and the Vendor shall each pay one-half of the fees and expenses of
the Independent Accountant with respect to the resolution of the dispute.

 

3.8                            Adjustment Payment

 

On the Adjustment Date (a) the Purchaser shall pay to the Vendor
the amount, if any, by which the Adjusted Net Asset Value exceeds the Estimated
Amount or (b) the Vendor shall pay to the Purchaser the amount, if any, by
which the Estimated Amount exceeds the Adjusted Net Asset Value (in each case,
the “Adjustment
Payment”), in either case by certified cheque, bank draft or wire
transfer of immediately available funds to an account designated in writing by
the Purchaser or the Vendor, as the case may be. Notwithstanding anything
contained in this Agreement, the Parties hereby agree that the matters
submitted to the Independent Accountants in accordance with Section 3.7.2
shall be limited to the items in dispute, and that the portion of the Adjustment
Payment which is not affected by the outcome of the final determination
contemplated by Section 3.7.2 shall be paid within 15 Business Days
following the delivery of the draft Closing Balance Sheet by the Purchaser to
the Vendor.

 

23

 

3.9                            Accounts Receivable

 

Purchaser shall after the Closing Date use its reasonable commercial
efforts to collect all Accounts Receivable existing as at the Closing Date and
reflected on the Closing Balance Sheet. Any amounts collected by the Purchaser
from any debtor of Accounts Receivable shall be imputed firstly to the invoices
or amounts identified by the debtor when making the payment, and secondly,
where amounts paid do not identify the invoices being paid, to the oldest
Accounts Receivable from such debtor; provided that if a payment of any of the
Accounts Receivable is contested, in whole or in part, by the debtor thereof,
then any amounts collected by the Purchaser from such debtor shall be imputed
to the next oldest uncontested Accounts Receivable from such debtor. Purchaser
shall have no obligation to retain a collection agency or institute suit to
collect any Accounts Receivable. Purchaser shall have no further duty to use
its reasonable commercial efforts to collect any Accounts Receivable that
remain uncollected on the 180th day after the Closing Date. If, on the 180th
day after the Closing Date, the amount of Accounts Receivable collected by
Purchaser is less than the Net Receivables (the “AR Shortfall”), Vendor shall
immediately pay to Purchaser an amount equal to the sum of (a) for any AR
Shortfall up to $500,000, Vendor shall pay 50% of that portion of the
shortfall; (b) for any AR Shortfall in excess of $500,000 and up to
$1,000,000, Vendor shall pay 75% of that portion of the shortfall; and (c) for
any AR Shortfall in excess of $1,000,000, Vendor shall pay 100% of that portion
of the shortfall.

 

3.10                         Aged Inventory

 

On the Closing Date or on the day following the Closing Date, the
Vendor shall provide the Purchaser with a list of the Aged Inventory existing
as at the Closing Date. With respect to any Aged Inventory sold by Purchaser in
the twelve (12) months following the Closing Date, Purchaser undertakes to use
its reasonable commercial efforts to sell and maximize the price of the Aged
Inventory and shall pay (the “Aged Inventory Amount”) to Vendor
an amount equal to the sum of (a) for the amount of Net Sales from Aged
Inventory up to $1,000,000, an amount equal to 80% of such Net Sales minus the
net book value of such inventory; (b) for the amount of Net Sales from
Aged Inventory in excess of $1,000,000 up to $2,000,000, an amount equal to 75%
of such Net Sales minus the net book value of such inventory; and (c) for
the amount of Net Sales from Aged Inventory in excess of $2,000,000, an amount
equal to 70% of such Net Sales minus the net book value of such inventory. For
the purposes of the foregoing calculation, the net book value of such inventory
shall be calculated in accordance with the definition of Aged Inventory Net
Book Value. The Aged Inventory Amount shall be calculated in respect of each of
the four quarters following the Closing Date and be paid by Purchaser to Vendor
within 45 Business Days of the end of the relevant quarter and shall be accompanied
by a statement setting forth the amount of the Aged Inventory sold during such
quarter and the calculation of the Aged Inventory Amount. During such twelve
(12) month period following the Closing Date, the Purchaser shall permit the
Vendor and the Vendor’s advisors, without undue interference to the ordinary
conduct of the Business and upon reasonable notice, to inspect the Aged
Inventory and shall furnish to the Vendor and the Vendor’s advisors such
reports and financial and operating data and other information with respect to
the Aged Inventory as the Vendor shall from time to time reasonably request. Upon
expiration of the twelve (12) month period following the Closing Date, the
Purchaser agrees that the Vendor shall have the right at its cost and expense
(including without limitation promptly reimbursing the Purchaser for any and
all picking costs incurred by the Purchaser) to pick up from the Purchaser any
remaining unsold Aged Inventory; provided, however, that the Vendor shall not
be permitted 

 

24

 

to
sell any of such remaining Aged Inventory in North America, other than through
normal marketing channels, without first obtaining Purchaser’s prior written
consent which consent shall not be unreasonably withheld.

 

3.11                         Pension Adjustment and
Allocated Surplus

 

Within seven (7) Business Days from the date on which the
determination of the amount of the Pension Adjustment or, as the case may be,
the Allocated Surplus, becomes final and binding upon the Parties (the “Pension Adjustment
Payment Date”), (a) the Vendor shall pay to Purchaser the
amount of the Pension Adjustment, and the Purchase Price shall be deemed to
have been reduced by such an amount, or (b) the Purchaser shall pay to the
Vendor the amount of the Allocated Surplus, and the Purchase Price shall be
deemed to have been increased by such amount, in either case by bank draft,
certified cheque or wire transfer of immediately available funds to an account
designated in writing by the Purchaser, or, as the case may be, by the
Vendor. No interest shall be payable on the amount of the Pension Adjustment or
of the Allocated Surplus if such payment is made on or prior to the Pension
Adjustment Payment Date.

 

3.12                         Pension Fund Valuation

 

(a)           Forthwith after
the execution of this Agreement, Vendor shall retain the Vendor’s Actuaries for
the purpose of determining the amount (the “September 30 Amount”) of the
surplus or deficit of the Pension Plan for accounting purposes calculated in
accordance with Chapter 3461 of the Handbook of the Canadian Institute of
Chartered Accountants (the “CICA Standards”) as of September 30,
2005. The discount rate used to determine the September 30 Amount shall be
the discount rate that represents the upper limit of the discount rate range
determined by the Vendor’s Actuaries as of September 30, 2005 (the “September 30 Rate”).
The Vendor’s Actuaries shall be instructed to conduct an actuarial valuation
for the purpose of determining the September 30 Amount which shall consist
of a valuation of the Pension Plan’s assets and liabilities as of September 30,
2005. Such actuarial valuation shall use and rely upon the same methods as
those found in the Vendor’s pension cost and disclosure information for the
Pension Plan that was prepared for the Vendor’s most recent annual audited
financial statements.

 

(b)           No later
than on a date agreed to in writing by Vendor and Purchaser which shall be at
least thirty (30) days prior to the Closing Date, or as otherwise agreed to in
writing by Vendor and Purchaser (the “Reference Date”), Vendor shall
retain the Vendor’s Actuaries for the purpose of determining the amount (the “Reference Date Amount”)
of the surplus or deficit of the Pension Plan for accounting purposes
calculated in accordance with the CICA Standards as of the Reference Date. The
discount rate used to determine the Reference Date Amount shall be the discount
rate that represents the upper limit of the discount rate range determined by
the Vendor’s Actuaries as of the Reference Date except that if such discount
rate is 5.25% or lower, then such rate shall be increased

 

25

 

by 0.25% (the “Rate Increase”)
(such discount rate, as it may be increased by the Rate Increase, shall be
referred to as the “Reference Date Rate”). The Vendor’s
Actuaries shall be instructed to conduct an actuarial update for the purpose of
determining the Reference Date Amount using and relying upon all of the
assumptions, methods and data that were used and relied upon for determining
the September 30 Amount and use the same valuations except that (x) the
Reference Date Rate will be used instead of the September 30 Rate, and (y)
the value of the Pension Plan’s assets and liabilities (as described in the
summary of the rollover methodology set forth on Exhibit J of the
Disclosure Letter) established as of September 30, 2005 will be rolled
forward to the Reference Date. If the Reference Date Amount is a deficit, then
the Parties will notionally allocate the Reference Date Amount between
Purchaser and Vendor by applying the following formula: (a) the first
$1,100,000 of the Reference Date Amount will be allocated to Vendor, (b) the
amount of the Reference Date Amount in excess of $1,100,000 will be allocated
50%-50% between Vendor and Purchaser, except that the maximum amount allocable
to the Purchaser shall be $1.5 million and Vendor’s allocation shall be
unlimited. If the portion of the Reference Date Amount allocated to Vendor
pursuant to the foregoing calculation is in excess of $3.8 million, then Vendor
will have, in its discretion, five (5) days (and no more) from the date on
which the Reference Date Amount has been finally determined to notify Purchaser
in writing that it wishes to terminate this Agreement in accordance with the
terms of Article 7 hereof.

 

(c)           Forthwith after the Closing Date,
Purchaser shall retain the Vendor’s Actuaries for the purpose of determining
the amount (the “Closing Date Amount”) of the surplus or deficit of the Pension
Plan for accounting purposes calculated in accordance with the CICA Standards
as of the Closing Date. The discount rate used to determine the Closing Date
Amount shall be the discount rate that represents the upper limit of the
discount rate range determined by the Vendor’s Actuaries as of the Closing Date
except that if such discount rate is 5.25% or lower, then such rate shall be
increased by the Rate Increase (such discount rate, as it may be increased
by the Rate Increase, shall be referred to as the “Closing Date Rate”). The Vendor’s
Actuaries shall be instructed to conduct an actuarial update for the purpose of
determining the Closing Date Amount using and relying upon all of the
assumptions, methods and data that were used and relied upon for determining
the September 30 Amount and use the same valuations except that (x) the
Closing Date Rate will be used instead of the September 30 Rate, and (y)
the value of the Pension Plan’s assets and liabilities (as described in the
summary of the rollover methodology as set forth in Exhibit J of
the Disclosure Letter) established as of September 30, 2005 will be rolled
forward as of the Closing Date. If the Closing Date Amount is a deficit, then
the Parties will notionally allocate the Closing Date Amount between Purchaser
and Vendor by applying the following formula: (a) the first $1,100,000 of
the Closing 

 

26

 

Date Amount will be
allocated to Vendor, (b) the amount of the Closing Date Amount in excess
of $1,100,000 will be allocated 50%-50% between Vendor and Purchaser, except
that the maximum amount allocable to the Purchaser shall be $1.5 million and
Vendor’s allocation shall be unlimited. The amount notionally allocated to
Vendor in accordance with the foregoing shall be referred to as the “Preliminary Pension
Adjustment”. The amount notionally allocated to Purchaser in
accordance with the foregoing shall be referred to as the “Preliminary Purchaser Allocation”.
For greater certainty, the Parties acknowledge that the Preliminary Purchaser
Allocation includes the amount attributable to the Rate Increase, if
applicable. If the Closing Date Amount as calculated without the Rate Increase,
if any, is a surplus, then such surplus (i.e. the surplus calculated without
the Rate Increase) will be allocated 50%-50% between Vendor and Purchaser,
except that the maximum amount allocable to the Purchaser shall be $1.5 million
and Vendor’s allocation shall be unlimited. The Purchase Price shall be
increased by the surplus amount allocated to the Vendor (the “Allocated Surplus”)
calculated in accordance with the foregoing.

 

(d)           If
the Closing Date Amount is a deficit, forthwith after June 30, 2006,
Purchaser shall retain the Vendor’s Actuaries for the purpose of (i) determining the applicable discount rate
that would be used to determine the amount (the “June 30 Amount”) of the
surplus or deficit of the Pension Plan for accounting purposes if such surplus
or deficit had to be calculated as of June 30, 2006, and (ii) if
applicable, determining the amount of the June 30 Amount. The discount
rate (the “June 30
Rate”) that would be used to determine the June 30 Amount would
be the discount rate that represents the upper limit of the discount rate range
determined by the Vendor’s Actuaries as of June 30, 2006.

 

If the June 30 Rate
is equal to or less than the Closing Date Rate, then the Pension Adjustment
shall be deemed to be equal to the Preliminary Pension Adjustment and the
Vendor’s Actuaries shall not calculate the June 30 Amount. For greater
certainty, the June 30 Rate shall not be increased by the Rate Increase.

 

If the June 30 Rate
is higher than the Closing Date Rate, then the Pension Adjustment shall be
determined in accordance with the provisions that follow:

 

(i)            the Vendor’s Actuaries shall be instructed
to determine the June 30 Amount using and relying upon all of the
assumptions, methods and data that were used and relied upon for determining
the Closing Date Amount so that the sole difference between the determination
of the June 30 Amount and the Closing Date Amount shall be the use of a
different discount rate. For greater certainty, it is acknowledged by the Parties
that the valuation of the 

 

27

 

Pension Plan’s assets and
liabilities will not be rolled forward to June 30, 2006. The difference
between the Closing Date Amount and the June 30 Amount shall be referred
to as the “Deficit
Reduction”;

 

(ii)           the amount of the Deficit Reduction, up
to an amount equal to two times the Preliminary Purchaser Allocation, shall be
notionally allocated 50% to the Vendor (the “June Vendor Reduction”) and
50% to the Purchaser (the “June Purchaser Reduction”).
Any amount of the Deficit Reduction in excess of the sum of the June Vendor
Reduction and the June Purchaser Reduction shall be allocated 100% to the
Vendor, subject to an aggregate maximum allocation to Vendor equal to the
Preliminary Pension Adjustment. The aggregate amount allocated to Vendor in
accordance with the foregoing shall be referred to as the “Pension Adjustment Reduction”; and

 

(iii)          the amount of the Pension Adjustment
shall be equal to the difference between the Preliminary Pension Adjustment
and, if any, the Pension Adjustment Reduction. Notwithstanding any other
provision of this Agreement, the calculation of the Pension Adjustment shall
never result in an increase of the Purchase Price, and the amount of the
Pension Adjustment cannot exceed the Preliminary Pension Adjustment.

 

(e)           Vendor and Purchaser shall cause the
Vendor’s Actuaries to use their best efforts to deliver their written reports
with respect to the determinations for which they are retained pursuant to this
Section 3.12 to the Parties as soon as possible. The fees and expenses of
the Vendor’s Actuaries shall be borne (i) by the Vendor with respect to
the work that such actuaries perform pursuant to Sections 3.12(a), 3.12(b) and

3.12(d), and (ii) by the Purchaser with respect to the work that such
actuaries perform pursuant to

Section 3.12(c). If Purchaser disagrees with any of the determinations
made by the Vendor’s Actuaries (including any assumptions, methods or data used
or relied upon by the Vendor’s Actuaries for the purpose of calculating the
surplus or deficit of the Pension Fund), then Purchaser shall send a written
notice to Vendor indicating with reasonable details the reason(s) for the
disagreement within five (5) days of the date on which the applicable
Vendor’s Actuaries written report was delivered to Purchaser, failing which
such determination shall be final and binding on the Parties upon the
expiration of such date. If the matter cannot be resolved by Purchaser and
Vendor within five (5) days of the date on which the aforesaid notice was
sent by Purchaser, then either Purchaser or Vendor shall be entitled to refer
the matter(s) in dispute to Watson Wyatt (provided that there is no conflict)
(the “Third
Party Actuaries”) who shall make a determination as soon as
reasonably practicable in respect of such dispute and, where applicable, revise
the amount of the surplus or 

 

28

 

deficit of the Pension
Plan. The Third Party Actuaries’ determination shall be final and binding on
the Parties. The fees and expenses of the Third Party Actuaries incurred in
connection with the foregoing shall be borne equally between Purchaser and
Vendor.

 

3.13                         Interest

 

In the event that a Party fails to make a payment pursuant to Article 3
by the due date of such payment, then the unpaid balance of such payment shall
bear interest at a rate per annum equal to the Prime Rate plus 3%, calculated
and payable monthly, both before and after judgment, with interest on overdue
interest at the same rate, from said due date until the unpaid balance and the
accrued interest thereon is paid in full.

 

ARTICLE 4 

REPRESENTATIONS AND WARRANTIES

 

4.1                            Representations and
Warranties of Vendor and Cascades

 

The Vendor and where applicable, Cascades does not give or assume any
guarantees, warranties, representations or undertakings other than those
expressly contained in this Agreement or in any of the applicable Ancillary
Agreements. For the avoidance of doubt, other guarantees, representations,
warranties or undertakings of the Vendor are hereby explicitly excluded.
Subject to any limitations contained in this Agreement, or in any of the
Ancillary Agreements, the Vendor and where applicable, Cascades hereby
represents and warrants to the Purchaser that the Vendor’s and where
applicable, Cascades’ representations and warranties set forth below are true
and correct, unless expressly specified otherwise. The Vendor’s and where
applicable, Cascades representations and warranties set forth below are subject
to any and all modifications, exceptions and/or qualifications set forth in the
Disclosure Letter and/or elsewhere in this Agreement, or in any of the
Ancillary Agreements.

 

4.1.1                        Incorporation and Status
of Vendor and Cascades

 

Each of the Vendor and Cascades is a corporation duly incorporated,
organized and subsisting under the laws of Canada and has the corporate power, authority
and capacity to execute and deliver this Agreement, to sell, assign and
transfer the Purchased Assets to the Purchaser as herein contemplated and to
perform its other obligations hereunder and will have the corporate power,
authority and capacity to execute and deliver the applicable Ancillary
Agreements. No proceedings have been taken or authorized by the Vendor or
Cascades or by any other person with respect to the bankruptcy, insolvency,
liquidation, dissolution or winding up of the Vendor or Cascades or with
respect to any amalgamation, merger, consolidation, arrangement or
reorganization of, or relating to, the Vendor or Cascades nor, to the knowledge
of the Vendor or Cascades, have any such proceedings been threatened by any
other person.

 

4.1.2                     Due
Authorization by Vendor and Cascades

 

The execution and delivery of this Agreement and each of the Ancillary
Agreements to which each of the Vendor and Cascades is a Party when executed
and delivered 

 

29

 

and
the completion of the transactions herein and therein contemplated have been
duly and validly authorized by all necessary corporate action on behalf of the
Vendor and Cascades, as applicable, and this Agreement has been duly and
validly executed and delivered by the Vendor and Cascades and is a valid and
binding obligation of the Vendor and Cascades enforceable against the Vendor
and Cascades in accordance with its terms and each of the Ancillary Agreements
to which they are a Party will be duly and validly executed and delivered by
the Vendor and Cascades, as applicable, and will be valid and binding
obligations of the Vendor and Cascades, as applicable, enforceable against the
Vendor and Cascades, as applicable, in accordance with their terms. There is no
Legal Proceeding in progress, pending or, to the knowledge of the Vendor,
threatened, against or affecting the Vendor or affecting the title of the
Vendor to any of the Purchased Assets before any Tribunal which affects
adversely or might reasonably be expected to affect adversely the ability of
the Vendor and Cascades to enter into this Agreement or the Ancillary
Agreements or to perform its obligations hereunder or thereunder other
than as set out in the Disclosure Letter.

 

4.1.3                        Title to Purchased
Assets

 

Except as disclosed in Section 4.1.3 of the Disclosure Letter, the
Vendor is the legal and beneficial owner of all of the Purchased Assets with
good and marketable title thereto, free and clear of all Encumbrances other
than Permitted Encumbrances and has the exclusive right to possess and dispose
of the Purchased Assets. No person has, or has any right capable of becoming,
any agreement, option, understanding or commitment for the purchase or other
acquisition from the Vendor of the Business or any of the Purchased Assets,
other than pursuant to purchase orders accepted by the Vendor in the ordinary
course of the Business. No other person owns any property and assets which are
being used in the Business except for the Leases and the Equipment Leases.

 

4.1.4                        Conflicting Instruments

 

Except as disclosed in Section 4.1.4 of the Disclosure Letter,
none of the entering into of this Agreement by the Parties, nor the entering
into of any agreement or other instrument contemplated hereby nor the completion
of the transactions herein contemplated nor the performance by the Vendor of
its obligations hereunder will:  (a) materially
conflict with, or result in the breach or violation of or default under, or
cause the acceleration of any obligations of the Vendor under, any of the terms
and provisions of (i) to the knowledge of Vendor, any Law, (ii) the
Articles of the Vendor or its by-laws or any resolution of the directors or
shareholders of the Vendor; or (iii) any Material Contract, or of any
Licence or Order held by the Vendor in respect of the Business or otherwise
affecting the Business, (b) relieve any other party to any Material
Contract of that party’s obligations thereunder or enable it to terminate its
obligations thereunder, (c) cause the Vendor or the Purchaser to lose any
Material rights under any Contract or any right to a government grant or tax
credit or refund or (d) result in the creation of any Encumbrance on any
of the Purchased Assets.

 

4.1.5                        Employees

 

(a)           [              ]

 

30

 

[              ]

 

(b)           Except as disclosed
in Section 4.1.5 of the Disclosure Letter,
the Vendor is not a party to or bound by or subject to any Collective Agreement
relating to the Employees, has not made any commitment to, or conducted any
negotiation or discussion with, any labour union or employee association with
respect to any future agreement or arrangement, is not required to recognize
any labour union or employee association representing its employees or any agent
having bargaining rights for its employees and, to the knowledge of the Vendor,
there is no current attempt to organize, certify or establish any labour union
or employee association with respect to Employees nor has there been any
attempt to do so during the period of one year preceding the date hereof.

 

(c)           Except as set forth
in Section 4.1.5 of the Disclosure Letter, there has not been, for a
period of twelve (12) consecutive months preceding the date hereof, nor is
there existent or, to the knowledge of the Vendor, threatened any strike,
slowdown, picketing or work stoppage with respect to the Employees of the
Business. Except as set forth in Section 4.1.5 of the Disclosure Letter,
Vendor has not engaged in any unfair labour practice with respect to the
Business;

 

(d)           Except as set forth
in Section 4.1.5 of the Disclosure Letter, to the knowledge of the Vendor,
no managerial Employee and no group of Employees of the Business has or have
any plans to terminate his, her or its employment.

 

(e)           No employees other
than the Employees are employed by the Vendor in connection with the Business.

 

(f)            Except as set forth
in Section 4.1.5 of the Disclosure Letter, no Employee or former employee
of the Business will become entitled to any bonus, retirement, severance, job
security or similar benefit or any enhanced benefit solely as a result of the
consummation of the transactions contemplated herein.

 

31

 

(g)           All amounts due and owing or accrued due
but not yet owing for all salary, wages, bonuses, commissions, vacation with
pay, pension benefits or other employee benefits in connection with the
Employees have been paid or if accrued are reflected in the Books and Records.

 

4.1.6                         Employee Benefit Plans

 

(i)            Schedule 4.1.6 of the Disclosure Letter includes copies
of all Employee Benefit Plans, together with all related documentation
including, without limitation, funding and investment management agreements,
summary plan descriptions, the most recent actuarial reports, financial
statements and asset statements, all Material opinions and memoranda (whether
externally or internally prepared) and all Material correspondence with all
regulatory authorities or other relevant persons. No changes, except for
changes resulting from the administration of, or as a result of the application
of, the Employee Benefit Plans or as a result of the application of a Law, have
occurred or are expected to occur which would materially affect the information
contained in the actuarial reports, financial statements or asset statements
required to be provided to the Purchaser pursuant to this provision.

 

(ii)           All of the Employee Benefit Plans are and
have been established, registered, qualified, invested and administered, in all
respects, in accordance with their terms and all Laws, including all Tax Laws
where same is required for preferential tax treatment. To the knowledge of
Vendor, no fact or circumstance exists that could adversely affect the
preferential tax treatment ordinarily accorded to any such Employee Benefit
Plan.

 

(iii)          All obligations regarding the Employee
Benefit Plans have been satisfied, there are no outstanding defaults or
violations by any party to any Employee Benefit Plan and no Taxes, penalties,
or fees are owing or exigible under or in respect of any of the Employee
Benefit Plans.

 

(iv)          All contributions or premiums required to
be paid by Vendor under the terms of each Employee Benefit Plan or by Laws have
been made in a timely fashion in accordance with Laws and the terms of the
Employee Benefit Plans. Vendor has no liability (other than liabilities
accruing after the Closing Date) with respect to any of the Employee Benefit
Plans. Contributions or premiums for the period up to the Closing Date have
been paid by Vendor even though not otherwise required to be paid until a later
date.

 

32

 

(v)           Since December 31, 2004, no commitments to
improve or otherwise amend any Employee Benefit Plan have been made except as
required by Laws.

 

(vi)          Except as set forth in Schedule 4.1.6 of
the Disclosure Letter, there are no funded plans.

 

(vii)         No insurance policy or any other agreement affecting
any Employee Benefit Plan requires or permits a retroactive increase in
contributions, premiums or other payments due thereunder. The level of
insurance reserves under each insured Employee Benefit Plan is reasonable and
sufficient to provide for all incurred but unreported claims.

 

(viii)        Except as disclosed in Section 4.1.6 of the
Disclosure Letter, none of the Employee Benefit Plans provide post-employment
benefits or benefits to retired employees or to the beneficiaries or dependants
of retired employees.

 

(ix)          No Employee Benefit Plan exists that
could result in (i) the payment to any person of any money, benefits or
other property, (ii) accelerated or increased funding requirements for any
Employee Benefit Plan or (iii) the acceleration or provision of any other
increased rights or benefits to any person as a result of the transactions
contemplated by this Agreement.

 

4.1.7                         Real Property

 

Other than the Leases and except as disclosed in Section 4.1.7 of
the Disclosure Letter, the Vendor does not own or have any interest in, nor is the
Vendor a party to or bound by or subject to any agreement, contract, commitment
or option, respecting any real or immoveable property relating to the Business.
Section 4.1.7 of the Disclosure Letter specifies the following with
respect to each separate parcel of Real Property: the municipal address, a
brief legal description, the public highway on which it fronts, its approximate
dimensions and size, a brief description of buildings and structures thereon, a
brief description of any easements or restrictive covenants benefiting or
burdening the parcel. The “certificat de localisation” to be prepared by a
Québec land surveyor on the Real Property shall not disclose any Encumbrance,
defect, irregularity or problem, save for Permitted Encumbrances, any minor
discrepancy between the title deeds, the cadastre and/or the measurements and
any other defect, irregularity or problem (whether or not registered) which
does not materially interfere with the occupation, use or enjoyment of the Real
Property. The Vendor is the owner of the Real Property with good and marketable
title thereto and the Real Property is free of any Encumbrance except Permitted
Encumbrances. No part of the Real Property is in an agricultural zone
pursuant to Quebec Law.

 

4.1.8                        Status of Real Property

 

Except as disclosed in Section 4.1.8 of the Disclosure Letter,
there are no agreements, options, contracts or commitments to sell, transfer or
dispose of the Real Property or

 

33

 

any
interest therein or which would restrict the ability of the Vendor to transfer
the Real Property, and no person has any right to occupy or use the Real
Property or any part thereof other than the Vendor. To the Vendor’s
knowledge, the Vendor has received no notice from any Governmental Authority to
the effect that the Real Property does not comply with applicable Laws.

 

4.1.9                        Personal Property

 

Except as disclosed in Section 4.1.9 of the Disclosure Letter and
property subject to an Equipment Lease, the Vendor is the owner of all personal
and movable property used in the Business with good and marketable title
thereto free of any Encumbrance other than Permitted Encumbrances.

 

4.1.10                      Contracts

 

The Vendor is not a party to or bound by or subject to any Contract,
written or oral, of any nature or kind relating to the Business except for:

 

(a)           the Leases,
all of which are listed in Section 4.1.10 of the Disclosure Letter;

 

(b)           the
Equipment Leases, all of which are listed in Section 4.1.10 of the
Disclosure Letter;

 

(c)           service
contracts;

 

(d)           agreements
and arrangements with respect to Employees, Employee Benefit Plans and persons
receiving compensation for work or services provided to the Vendor set forth
and described in Section 4.1.5 of the Disclosure Letter;

 

(e)           supplier and
customer contracts;

 

(f)            Permitted
Encumbrances set forth and described in Schedule 1.1D of the
Disclosure Letter; and

 

(g)           the other
Contracts listed or identified in Section 4.1.10 of the Disclosure Letter.

 

4.1.11                      No Breach of Material Contracts

 

The Vendor has performed all Material obligations required to be
performed by it and is entitled to all benefits under, and is not alleged to be
in default of, any Material Contract to which it is a party. Each of the
Material Contracts is in full force and effect and there exists no actual or
alleged default or event of default or event, occurrence, condition or act
(including the purchase of the Purchased Assets and the other transactions
contemplated herein) which, with the giving of notice, the lapse of time, or
both, or the happening of any other event or condition,

 

34

 

would
become a Material default or event of default under any Material Contract.
True, correct and complete copies of all Material Contracts have been delivered
to Purchaser.

 

4.1.12                       Legal Proceedings

 

Except as set forth and described in Section 4.1.12 of the
Disclosure Letter, there is no Legal Proceeding (whether or not purportedly on
behalf of the Vendor) in progress, pending or, to the Vendor’s knowledge,
threatened against or affecting the Business or the Purchased Assets before any
Tribunal.

 

4.1.13                      Accounts Receivable

 

Except as disclosed in Section 4.1.13 of the Disclosure Letter or
in Exhibit B of the Disclosure Letter, the Accounts Receivable, less the Reserve, have been
calculated in accordance with GAAP, consistently applied.

 

4.1.14                      Annual Financial Statements

 

The Annual Financial Statements have been prepared in accordance with
GAAP applied on a basis consistent with those of previous fiscal years and each
fairly, accurately and completely discloses in all Material respects (i) the
assets, liabilities and obligations (whether accrued, contingent, absolute or
otherwise), income, losses, retained earnings, reserves and financial position
of the Business, (ii) the results of operations of the Business and (iii) the
changes in the financial position of the Business, all as at the dates and for
the periods therein specified. None
of the Purchased Assets have been revalued upward at any time since December 31,
2004.

 

True, correct and complete copies of the Annual Financial Statements
are attached as Schedule 1.1B to the Disclosure Letter.

 

The confidential information memorandum, including any supplement or
modification thereto, prepared in connection with the sale of the Business, the
documents made available in the data room set up by Vendor in connection
with the sale of the Business and the documents remitted to Purchaser’s
representatives in connection with Vendor’s management presentations regarding
the sale of the Business (collectively, the “Disclosure Documents”), are true
and accurate in all material respects, and do not omit to state any fact
necessary in order to make the statements, financial information and other
information therein not misleading. The Parties agree that the representation
and warranty contained in this paragraph: (i) shall not extend to any
forward-looking statements contained in the Disclosure Documents, (ii) does
not extend to any verbal information provided to the Purchaser or its
representatives by the Vendor or its representatives, and (iii) with
respect to any Disclosure Document, the representation and warranty is made as
of the date that such Disclosure Document was delivered to the Purchaser or its
representative.

 

4.1.15                      Condition and Sufficiency of Tangible
Assets

 

The tangible assets owned or leased by the Vendor are adequate and
suitable for the uses to which they are being put. The tangible assets owned or
leased by the Vendor (other

 

35

 

than
the AS Assets) constitute all of the tangible assets used or held for use in
connection with the Business as currently conducted and constitute all of the
tangible assets necessary to conduct such Business.

 

4.1.16                      Inventories

 

Except as disclosed in Section 4.1.16 of the Disclosure Letter or
in Exhibit B of the Disclosure Letter, the inventories of the
Business (other than inventories which have been written down in the Annual
Financial Statements as at December 31, 2004) have been valued in the
Annual Financial Statements as at December 31, 2004 at the lower of
average cost or net realizable value in accordance with GAAP, consistently
applied.

 

4.1.17                      Customers and Suppliers

 

Section 4.1.17 of the Disclosure Letter contains a list of the top
100 customers of the Business (determined on the basis of revenues) for each of
the last two fiscal years of the Vendor and the top 20 suppliers of the
Business (determined on the basis of sales less gross profit) for each of the
last two fiscal years of the Vendor. Since December 31, 2004, except as
disclosed in Section 4.1.17 of the Disclosure Letter, none of such
customers or suppliers has ceased to do business with the Business other than
as a result of ordinary course of business. To Vendor’s knowledge, no customer
or supplier is in financial distress or threatened with bankruptcy or
insolvency. To Vendor’s knowledge, none of the Vendor’s suppliers or top 50
customers have advised the Vendor of their intention to terminate their
business relationship with the Vendor.

 

4.1.18                      Licences and Compliance with Laws

 

The Vendor possesses all Material Licences necessary to carry on the
Business, all of which are listed in Section 4.1.18 of the Disclosure
Letter and has conducted and, except for the Bureau Investigation, is
conducting the Business in Material compliance with all applicable Laws and, to
the Vendor’s knowledge, is not in Material breach of any provision of
applicable Laws.

 

4.1.19                      Environmental Matters

 

Except as set forth in the reports and documents contained in Section 4.1.19
of the Disclosure Letter therein

 

(a)           the Vendor
operates the Business and each one of the Subject Properties are, and, to the
Vendor’s knowledge, at all times have been, in Material compliance with all
Environmental Laws and, to the knowledge of the Vendor, there are no facts that
could reasonably be expected to give rise to a notice of Material
non-compliance by the Vendor with any Environmental Law;

 

(b)           to the
knowledge of Vendor, there are no Hazardous Materials located in, on, at or
under any of the Subject Properties contrary to Environmental Laws;

 

36

 

(c)           the Vendor
has not been required by any Governmental Entity to (A) alter any of the
Subject Properties in a Material way in order to be in compliance with
Environmental Laws, (B) file any notice with any Governmental Authority
relating to any potential or actual contaminated Subject Property or (C) perform any
environmental closure, decommissioning, rehabilitation, restoration or
post-remedial investigation on, about or in connection with any Subject
Property, nor, to the knowledge of Vendor, is there any fact or circumstance
which could give rise to such a request by a Governmental Authority;

 

(d)           there are no
pending or, to the knowledge of Vendors, threatened Claims or restrictions of
any nature arising resulting from any Environmental Liabilities or under or
pursuant to any Environmental Laws with respect to or affecting the Business or
any of the Subject Properties;

 

(e)           to the
knowledge of Vendor, none of the Subject Properties currently owned, leased or
used by the Vendor or over which it has or had charge, management or control
has ever had asbestos, asbestos-containing materials, PCBs, lead, radioactive
substances or aboveground or underground storage systems, active or abandoned,
located on, at or under them; and

 

(f)            the Vendor
has not received or does not have any basis to expect receipt of (and, to the
knowledge of Vendor, no person for whose conduct the Vendor is or may be
held responsible has received or has a basis to expect receipt of) any written
directive, inquiry, notice, order, warning or other communication from any
Governmental Authority or other persons that relates to any Hazardous
Substances or any alleged actual or potential violation or failure to comply
with any Environmental Laws, or of any alleged actual or potential obligation
to undertake or bear the cost of any Environmental Liabilities.

 

Section 4.1.19 of the Disclosure Letter lists all reports and
documents relating to the environmental matters affecting the Business or any
Subject Property which are in the possession or under the control of the
Vendor. Copies of all such reports and documents have been provided to
Purchaser. To the knowledge of Vendor, there are no other reports or documents
relating to environmental matters affecting the Business or any Subject
Property which have not been made available to Purchaser whether by reason of
confidentiality restrictions or otherwise.

 

4.1.20                      Conduct of Business in Ordinary
Course

 

Except as disclosed in Section 4.1.20
of the Disclosure Letter, since December 31, 2004, the Vendor has carried
on the Business in the ordinary course and, without limiting the generality of
the foregoing, the Vendor has taken the actions described in Section 5.1.3(a) and
has not taken any of the actions described in paragraphs (iii), (vi), (vii),
(viii), (x), (xii), (xiv) and (xv) of Subsection 5.1.3(b) or agreed
or became bound to do any of such actions.

 

37

 

4.1.21                      Tax Matters

 

There are no outstanding liabilities for Taxes payable, collectible or
remittable or that may become payable or due by the Vendor, whether
assessed or not, which may result in an Encumbrance on or other claim
against or seizure or sale of all or any part of the Purchased Assets or
would otherwise adversely affect the Business or would result in the Purchaser
becoming liable or responsible therefor. There are no actions, assessments,
reassessments, suits, proceedings, investigations or Claims pending or
threatened against the Vendor in respect of Taxes which may result in an
Encumbrance on or other Claim against or seizure or sale of any of the
Purchased Assets or liability or responsibility on the part of the
Purchaser for Taxes payable, collectible or remittable by the Vendor. The
Vendor has withheld from each payment (including taxable benefits) made by it
to any person all Taxes and other deductions required to be withheld therefrom
and has remitted the same to the proper Tax or other receiving authority within
the time required under the applicable Laws.

 

4.1.22                      Residence of Vendor; GST Status

 

The Vendor is not a “non-resident” of Canada within the meaning of the
Income Tax Act. The Vendor is registered for the purposes of the GST
Legislation and the Act Respecting the
Quebec Sales Tax and its registration numbers are 104607387RT and
1000055901, respectively. This Agreement provides for the sale to the Purchaser
of all or part of a business that was established or carried on by the
Vendor.

 

4.1.23                      Intellectual and Industrial Property

 

Section 4.1.23 of the Disclosure Letter sets forth and describes
all of the Vendor’s Intellectual and Industrial Property forming part of
the Purchased Assets and specifies, for each item, whether the Vendor’s
Intellectual and Industrial Property (including all Intellectual Property
Rights pertaining thereto) is owned by the Vendor or whether the Vendor’s
Intellectual and Industrial Property is used by the Vendor under a licence
agreement or arrangement from another person. To the knowledge of the Vendor,
none of the Vendor’s Intellectual or Industrial Property is being infringed by
third parties.

 

4.2                            Representations and
Warranties of the Purchaser

 

The Purchaser represents and warrants to the Vendor as set out in this Section 4.2
and acknowledges that the Vendor is relying on such representations and
warranties in connection with the transactions contemplated in this Agreement
and the applicable Ancillary Agreements.

 

4.2.1                        Incorporation, Authority and
Enforceability

 

The Purchaser is a corporation duly amalgamated and subsisting under
the laws of Canada and has the corporate power and capacity to enter into this
Agreement, to and will have the corporate power and capacity to enter into the
applicable Ancillary Agreements, purchase the Purchased Assets from the Vendor
as herein contemplated and to perform its other obligations hereunder and
under the applicable Ancillary Agreements. The execution and delivery of this
Agreement and the Ancillary Agreements and the completion of the transactions
herein and

 

38

 

therein
contemplated have been duly and validly authorized by all necessary corporate action
on behalf of the Purchaser and this Agreement has been duly and validly
executed and delivered by the Purchaser and is a valid and binding obligation
of the Purchaser enforceable against the Purchaser in accordance with its terms
and the applicable Ancillary Agreements will be duly and validly executed and
delivered by the Purchaser and will be valid and binding obligations of the
Purchaser enforceable against the Purchaser in accordance with their terms.

 

4.3                            Commission

 

Each Party represents and warrants to the other Party that such other
Party will not be liable for any brokerage commission, finder’s fee or other
similar payment in connection with the transactions contemplated hereby because
of any action taken by, or agreement or understanding reached by, that Party. The
Vendor will be responsible for payment of any fees charged by CIBC World
Markets Inc.

 

4.4                            Survival of
Representations and Warranties of the Vendor

 

The representations and warranties of the Vendor contained in this
Agreement and in any Closing Document and in any agreement, certificate,
affidavit, statutory declaration or other document delivered or given pursuant
to this Agreement or any Closing Document shall survive the Closing and,
notwithstanding the Closing or any investigation made by or on behalf of the
Purchaser with respect thereto, shall continue in full force and effect for the
benefit of the Purchaser; provided, however, that no claim in respect thereof
shall be valid unless it is made within the following time periods:

 

(a)           in the case
of a claim in respect of the Vendor’s Core Representations and Warranties (and
the corresponding representations and warranties set out in the Vendor’s
Closing Certificate) and in the case of a claim in respect of a representation
or warranty based on fraud, [              ];
and

 

(b)           in the case
of a claim in respect of any other representation or warranty (and the
corresponding representations and warranties set out in the Vendor’s Closing
Certificate) within a period of [              ]
from the Closing Date;

 

and any such claim as
aforesaid shall be made in accordance with the provisions set forth in Article 8
and, upon the expiry of the relevant limitation period referred to in
Subsections (a) and (b) of this Section 4.4, the Vendor shall
have no further liability to the Purchaser with respect to the representations
or warranties referred to in such clauses, respectively, except in respect of
claims which have theretofore been made in accordance with the provisions set
forth above.

 

4.5                            Survival of
Representations and Warranties of the Purchaser

 

The representations and warranties of the Purchaser contained in this
Agreement and in any Closing Document and in any agreement, certificate,
affidavit, statutory declaration or other document delivered or given pursuant
to this Agreement or any Closing Document shall survive the Closing and,
notwithstanding the Closing or any investigation made by or on behalf

 

39

 

of the
Vendor with respect thereto, shall continue in full force and effect for the
benefit of the Vendor provided, however, that no claim in respect thereof shall
be valid unless it is made within the following time periods: 

 

(a)           in the case
of a claim in respect of the Purchaser’s Core Representations and Warranties
(and the corresponding representations and warranties set out in the Purchaser’s
Closing Certificate), [              ];  

 

(b)           in the case
of a claim in respect of any other representation and warranty (and the
corresponding representations and warranties set out in the Purchaser’s Closing
Certificate), within a period of [              ]
from the Closing Date; 

 

and
any such claim shall be made in accordance with the provisions set forth in Article 8
and, upon the expiry of the relevant limitation period referred to in
Subsections (a) and (b) of this Section 4.5, the Purchaser shall
have no further liability to the Vendor with respect to any of such
representations or warranties, except with respect to claims which have been
properly made in accordance with the provisions set forth above.

 

ARTICLE 5

OTHER COVENANTS OF THE PARTIES

 

5.1                            Covenants of the Vendor

 

The Vendor hereby covenants and agrees with the Purchaser as set out in
this Section 5.1.

 

5.1.1                         Consents and Approvals

 

Commencing forthwith after the date hereof, the Vendor shall use all
reasonable commercial efforts to obtain, at or prior to the Closing Time, all
Consents and Regulatory Approvals, as well as the Competition Act Approval,
provided that the foregoing shall not include, for greater certainty, the
obligation to negotiate any remedy with the Commissioner.

 

5.1.2                        Consent Not Received by Closing Time

 

If a consent or
approval of a third party required to permit the transfer or assignment to the
Purchaser of the Vendor’s interest in any of the Contracts or the Licenses is
not received on or before the Closing Time, and if, notwithstanding such
non-receipt, the Vendor and the Purchaser proceed to complete the sale and the
purchase of the Business and the Purchased Assets contemplated by this
Agreement, the transfer or assignment of those Contracts and Licenses in
respect of which the required consent has not been received on or before the
Closing Time will not be effective in each case until the applicable consent or
approval has been received and such Contract or Licenses will be held by the
Vendor following the Closing Time in trust for the benefit and exclusive use of
the Purchaser and the Vendor shall, to the extent permitted by Law, carry out
and comply with the terms and provisions thereof for the

 

40

 

Purchaser’s
exclusive benefit. The Vendor shall continue to use all reasonable commercial
efforts to obtain the required consents and approvals and shall only make use
of such Contracts and Licenses in accordance with the directions of the
Purchaser that do not conflict with the terms of such Contracts or Licenses.

 

Following Closing, the Purchaser shall indemnify the Vendor against any
Claim or Loss suffered by, imposed upon or asserted against the Vendor as a
result of any action taken by the Purchaser pursuant to Contracts or Licenses
that have not been assigned or transferred from the Vendor to the Purchaser.

 

5.1.3                        Conduct of the Business

 

(a)           During the
Interim Period, the Vendor shall:

 

(i)            carry on the
Business in the ordinary course (except as may be otherwise required or
contemplated by the provisions of this Agreement) and in compliance with
applicable Laws and perform its obligations under all Contracts (including
Leases and Equipment Leases) including the payment of all Taxes due and
payable;

 

(ii)           use
reasonable commercial efforts to preserve the Business and the goodwill of
suppliers, customers and others having business relations with the Vendor in
connection with the Business and maintain in full force and effect all of the
Vendor’s Intellectual and Industrial Property and all licence agreements or
arrangements with respect thereto;

 

(iii)          use
reasonable commercial efforts to retain the services of the present executives,
Employees, consultants and advisors of or to the Business (except as may be
otherwise required or contemplated by the provisions of this Agreement); and

 

(iv)          continue in
full force and effect the insurance coverage on the Business and the Purchased
Assets, take out such additional insurance as may be required in the
ordinary course of the Business and give all notices and present all claims
under all insurance policies in a due and timely fashion and promptly advise
the Purchaser in writing of any such claims.

 

(b)           During the
Interim Period, the Vendor shall not (except as may be otherwise required
or contemplated by the provisions of this Agreement), without the prior written
consent of the Purchaser:

 

(i)            become a
party to or bound by or subject to any new agreement, contract or commitment
with any Interested Person relating to the Business or amend or concur in the
amendment of any such existing agreement, contract or commitment or make or
authorize

 

41

 

any
payment to or for the benefit of any Interested Person other than such as is
required or contemplated by an existing policy or practice as to periodic
review of Employee Benefit Plans, or as otherwise required by applicable Laws;

 

(ii)           make any
budgeted capital expenditure as of the date hereof relating to the Business in
excess of $50,000 and which are in the ordinary course of Business or authorize
any new capital expenditures relating to the Business in excess of $100,000 in
the aggregate; 

 

(iii)          become a
party to or bound by or subject to any new agreement or arrangement with
respect to Employee benefits (other than an employment or personal services
agreement or arrangement which is terminable by the Vendor without liability on
no more than 30 days’ notice) or amend or concur in the amendment of or
increase any payment or obligation under any existing agreement or arrangement
with respect to Employee Benefit Plans other than such as is required or
contemplated by an existing policy or practice as to periodic review of
Employee Benefit Plans, or as otherwise required by applicable Laws;

 

(iv)          terminate
the employment of any manager of the Business or grant any severance or
termination pay to any manager of the Business;

 

(v)           pay a bonus
to an employee other than as specified in written employment agreements, copies
of which having been provided to Purchaser;

 

(vi)          make any
change in the rate or form of compensation or remuneration payable or to
become payable to any manager or other employee which is outside the ordinary
course;

 

(vii)         take any
step to dissolve, wind-up or otherwise affect its continuing corporate
existence or amalgamate or merge with any person or amend the Vendor’s Articles
or by-laws;

 

(viii)        sell or
lease any of the Purchased Assets other than in the ordinary course of
business;

 

(ix)          cancel, waive or
vary the terms of any debt owing to or any claim or right of the Vendor
relating to the Business;

 

(x)            incur any
obligation or liability relating to the Business except in the ordinary course
of business or make, authorize or accept any early payment of any such existing
obligation or liability;

 

42

 

(xi)          create or permit
the creation of any new Encumbrance on any of the Purchased Assets (except for
any Permitted Encumbrance) or amend or concur in the amendment of any such
existing Encumbrance;

 

(xii)         terminate, enter into, amend or otherwise modify in
any Material respect any Material Contracts, other than with respect to the
entering into of any customer contract;

 

(xiii)        terminate, transfer, assign, modify or change, or
grant any rights under, any of the Vendor’s Intellectual and Industrial
Property other than in the ordinary course of business;

 

(xiv)        revalue upward any of the Purchased Assets set forth
on the balance sheet that is part of the Annual Financial Statements or
any Purchased Assets acquired after the date of the Annual Financial
Statements; or

 

(xv)         take or refrain from taking any other action that
would cause any of the representations and warranties of the Vendor under this
Agreement or any Closing Document to be inaccurate, false or misleading;

 

or
agree or become bound to do any of the foregoing.

 

5.1.4                         Books and Records of Vendor

 

(a)           The Vendor
shall, from and after the Closing Date, retain all books and records of Vendor
(other than the Books and Records) that relate to the Business or the Purchased
Assets relating to any period ending on or prior to the Closing Date for a
period of seven years following the Closing Date. So long as such books and
records and other documents, information and files are retained by the Vendor
pursuant to the provisions hereof, the Purchaser shall have the right, to
inspect and make copies of the same at the expense of the Vendor during normal
business hours and upon reasonable notice.

 

(b)           After
Closing, the Vendor agrees to cooperate in a reasonable manner with the
Purchaser and the Purchaser’s Representatives for the purposes of the
preparation of the Purchaser’s accounts and Tax Returns and in providing all
information required for legal, filing and regulatory purposes. Without
limiting the generality of the foregoing, the Vendor shall, upon reasonable
notice, provide the Purchaser and its Representatives reasonable access during
normal business hours to all books and records of the Vendor (other than the
Books and Records) that relate to the Business or the Purchased Assets
necessary for the preparation of such accounts and tax returns and for
gathering the required information for legal, filing and

 

43

 

regulatory purposes
together with the assistance of those employees of the Vendor that the
Purchaser may reasonably request.

 

5.1.5                         Exclusivity

 

During the Interim Period, Cascades and/or Vendor shall not, directly
or indirectly, solicit, initiate or encourage any inquiries or proposals from,
discuss or negotiate with, provide any non-public information to, or consider
the merits of any inquiries or proposals from, any person (other than Purchaser
and its Affiliates) relating to any transaction involving the disposition of
all or substantially all of the Business or any Material part of the
Purchased Assets.

 

5.1.6                         Access for Confirmatory Due Diligence

 

Vendor shall (a) permit
Purchaser and Purchaser’s Advisors for a period of 30 days after the date
hereof, without undue interference to the ordinary conduct of the Business, to
have reasonable access upon reasonable notice (i) to the premises of the
Business for the purpose of site visits, (ii) to the Contracts not
previously reviewed in the due diligence data room and the Contracts
provided in the due diligence data room that were redacted or that were
otherwise incomplete, (iii) to the senior personnel of the Business for
the purpose of conducting interviews, (iv) to any relevant information
necessary for reviewing all matters included in the Disclosure Letter that were
not previously disclosed, and (v) to any relevant information in respect
of any matters arising out of the foregoing, and (b) furnish to Purchaser
or Purchaser’s Advisors such financial and operating data and other information
with respect to the Purchased Assets and the Business as Purchaser shall from
time to time reasonably request.

 

No investigations made by or on behalf of Purchaser or information
received by Purchaser in the course of its due diligence investigations,
whether under this Section 5.1.6 or any other provision of this Agreement
or of the Disclosure Letter, shall have the effect of waiving, diminishing the
scope of, or otherwise affecting any representation or warranty made by Vendor
in this Agreement.

 

5.1.7                         Certificat de Localisation

 

The Vendor hereby covenants and agrees that it shall use its
commercially reasonable efforts to deliver a “certificat de localisation” to
the Purchaser that is prepared by a Québec land surveyor that is satisfactory
to the Purchaser acting reasonably on or before the Closing Date.

 

5.2                            Covenants of the
Purchaser

 

The Purchaser hereby covenants and agrees with the Vendor as set out in
this Section 5.2:

 

5.2.1                        Confidentiality of Vendor’s
Information

 

In addition to its
obligations under the Confidentiality Agreement:

 

44

 

(a)           During the
Interim Period, the Purchaser shall keep confidential any trade secrets,
know-how or confidential, personal or proprietary information and any financial
or Business documents or information (collectively in this Section 5.2.1
the “Information”)
received by it from the Vendor concerning the Business and shall not disclose
any Information to any third party, provided that any Information may be
disclosed to the Purchaser’s Advisors who need to know such Information in
connection with the transactions herein contemplated. The Purchaser shall use all
reasonable commercial efforts to ensure that the Purchaser’s Advisors keep
confidential any Information disclosed to them.

 

(b)           From and
after the Closing Date, the Purchaser shall not disclose any information or
documentation, nor shall it allow any of its employees (including, without
limitation, the Employees) to disclose any information or documentation, to any
third party, other than any Governmental Authority, in the event that such
disclosure may result in a liability or obligation of the Vendor except if
such disclosure is (i) required under any applicable Law, or (ii) made
for the purpose of enforcing Purchaser’s rights under this Agreement or any
Ancillary Agreement.

 

(c)           If this
Agreement is terminated in accordance with the provisions hereof, the Purchaser
shall:

 

(i)            ensure that
all Information and all copies thereof are either destroyed or returned to the
Vendor if it so requests and certify the destruction of all Information and all
copies thereof in writing to the Vendor so that, so far as possible, any
Information obtained during and as a result of any investigation by the
Purchaser’s Advisors is not disseminated beyond those persons concerned with
such investigations; and

 

(ii)           not,
directly or indirectly, use for its own purposes, any Information discovered or
acquired by the Purchaser’s Advisors as a result of the Vendor making available
to them any documents and materials relating to the Business.

 

5.2.2                        Access to Books and Records

 

(a)           The Purchaser shall, from and after the
Closing Date, retain all Books and Records relating to any period ending on or
prior to the Closing Date for a period of seven years following the Closing
Date. So long as such Books and Records and other documents, information and
files are retained by the Purchaser pursuant to the provisions hereof, the
Vendor shall have the right, for the purpose of filing any Tax Returns as
required under this Agreement and for the purpose of contesting any assessment
or reassessment for Tax in accordance with the provisions of Article 8 to

 

45

 

inspect and make copies
of the same at the expense of the Vendor during normal business hours and upon
reasonable notice.

 

(b)           After Closing, the Purchaser agrees to
cooperate in a reasonable manner with the Vendor and the Vendor’s agents,
representatives and auditors for the purposes of the preparation of the Vendor’s
accounts and Tax Returns and in providing all information required for legal,
filing and regulatory purposes. Without limiting the generality of the
foregoing, the Purchaser shall, upon reasonable notice, provide the Vendor, its
agents, representatives and auditors reasonable access during normal business
hours to all Books and Records necessary for the preparation of such accounts
and tax returns and for gathering the required information for legal, filing
and regulatory purposes together with the assistance of those employees of the
Purchaser that the Vendor may reasonably request.

 

5.2.3                         Access to Employees

 

The Purchaser shall, from and after the Closing Date, make the
Employees available to the Vendor upon any reasonable request to that effect by
Vendor, but at Vendor’s cost and expense, for the purposes of the Bureau
Investigation during normal business hours and upon reasonable notice.

 

5.2.4                         Change and Use of Name

 

(a)           As soon as
reasonably practicable, but in any event within one hundred and twenty (120)
days after the Closing Date, the Purchaser shall ensure and procure that the
Business shall have ceased using the words “Cascades” whether used alone or as part or
in combination with other words or any other word that is similar or reasonably
likely to be confused with it (the “Prohibited Name”), any of the
logos or symbols set out in Section 5.2.4(a) of the Disclosure Letter
(the “Prohibited
Logos”) and shall have removed them from all stationery, marketing
documentation and all other external written communications of the Business
that contain the Prohibited Name or the Prohibited Logos.

 

(b)           As soon as
reasonably practicable, but in any event within two hundred and forty (240)
days after the Closing Date, the Purchaser shall ensure and procure that the
Business shall have ceased using the Prohibited Name and Prohibited Logos and
shall have removed them from all machinery, vehicles, products and packaging.

 

(c)           As soon as
reasonably practicable, but in any event within three hundred and sixty (360)
days after the Closing Date, the Purchaser shall ensure and procure that the
Business shall have ceased using the Prohibited Name and Prohibited Logos and
shall have removed them from and shall have removed them from all elements of
its business including, but not limited to, its buildings and plants.

 

46

 

5.2.5                         Equipment Leases

 

The Purchaser shall use reasonable commercial efforts to cause any
lender or lessor party to an Equipment Lease to unconditionally release
Cascades from any guarantee it provided as a condition to the execution of such
Equipment Lease. Following Closing, the Purchaser shall indemnify Cascades
against any post Closing derived or based Claim or Loss suffered by, imposed
upon or asserted against Cascades as a result of any such lender or lessor
enforcing such guarantee post Closing. 

 

5.3                            Mutual Covenants

 

Each Party hereby covenants and agrees with the other Party
as follows:

 

5.3.1                         Cooperation

 

The Parties shall cooperate fully in good faith with each
other and their respective Representatives in connection with any steps required to be taken as part of
their respective obligations under this Agreement.

 

5.3.2                         Access to Sensitive Customer
Information

 

Notwithstanding any other term of this Agreement, any competitively
sensitive information concerning customer pricing, competitive strategy or
bidding activities of the Business to be disclosed in connection with this
Agreement shall be identified by the Vendor as such. Any such information may be
disclosed to the Purchaser’s external advisors, Governmental Authorities and to
employees of the Purchaser who have acknowledged in writing that they are bound
by the Confidentiality Agreement and who shall not be sales or marketing
representatives and who shall keep such information confidential from all other
employees of the Purchaser and not use it for any operational purpose of the
Purchaser until after Closing of this Agreement.

 

5.3.3                         Amounts Received Post-Closing

 

All amounts collected on or after the Closing Date (i) from
Accounts Receivable or otherwise relating to the Purchased Assets or the
Business, or (ii) from accounts receivable or otherwise relating to the
business conducted by Purchaser on or after the Closing Date, shall belong to,
and if received by Vendor shall be received for the benefit and the account of,
Purchaser, and Vendor shall, on a daily basis in the first two weeks after
Closing and on a weekly basis thereafter, transfer and remit to Purchaser all
such amounts received by or paid to Vendor on or after the Closing Date. Notwithstanding
the foregoing, any amount relating to the Excluded Assets collected on or after
the Closing Date shall belong to, and if received by Purchaser shall be
received for the benefit and the account of, Vendor, and Purchaser shall, on a
daily basis in the first two weeks after Closing and on a weekly basis
thereafter, transfer and remit to Vendor all such amounts received by or paid
to Purchaser on or after the Closing Date.

 

5.3.4                         Notice of Untrue Representation or
Warranty

 

Vendor shall promptly notify Purchaser, and Purchaser shall promptly
notify Vendor, upon any representation or warranty made by such Party contained
in this Agreement

 

47

 

becoming
untrue or incorrect during the Interim Period. Any such notification shall set
out particulars of the untrue or incorrect representation or warranty and
details of any actions being taken by the Vendor or Purchaser, as the case may be,
to rectify that state of affairs.

 

5.3.5                         Bulk Sales Laws

 

The Parties hereby waive compliance with the Bulk Sales Act (Ontario) and any other applicable bulk sales
Laws.

 

ARTICLE 6

CONDITIONS OF CLOSING

 

6.1                            Conditions for the
Benefit of the Purchaser

 

The transactions herein contemplated, including the sale and purchase
of the Purchased Assets in accordance with the terms of this Agreement, are
subject to the conditions precedent set out in this Section 6.1, each of
which is hereby declared to be for the exclusive benefit of the Purchaser. Each
of such conditions is to be satisfied in full at or prior to the Closing Time. The
Vendor covenants and agrees to use its reasonable commercial efforts to cause
each of such conditions to be fulfilled at or prior to the Closing Time.

 

6.1.1                        Representations, Warranties and
Covenants of the Vendor

 

Each of:

 

(a)           the
representations and warranties of Vendor (A) in Sections 4.1.1
(Incorporation and Status of Vendor), 4.1.2 (Due Authorization by Vendor),
4.1.3 (Title to Purchased Assets), 4.1.4 (Conflicting Instruments)
(subparagraph (a) only), 4.1.22 (Residence of Vendor) and 4.3 (Commission)
(“Vendor’s
Core Representations”) and (B) made pursuant to this Agreement
that are qualified by a reference to materiality or GAAP shall, in each case,
have been true and correct in all respects on the date hereof and shall be true
and correct in all respects on the Closing Date with the same force and effect
as if made at and as of the Closing Date and as though Closing Date was
substituted for the date hereof or similar terms throughout such
representations and warranties;

 

(b)           the other
representations and warranties of Vendor or Cascades, as applicable made
pursuant to this Agreement shall have been true and correct in all Material
respects on the date hereof and shall be true and correct in all Material
respects on the Closing Date with the same force and effect as if made at and
as of the Closing Date and as though Closing Date was substituted for the date
hereof or similar terms throughout such representations and warranties; and

 

(c)           the
covenants contained in this Agreement to be performed by Vendor on or prior to
the Closing Date shall have been performed in all Material

 

48

 

respects and the Vendor
shall not be in Material breach of any agreement on its part contained in
this Agreement,

 

and Purchaser shall have
received a certificate confirming the foregoing, signed for and on behalf of
Vendor by senior officers or directors of Vendor, in each case in form and
substance reasonably satisfactory to Purchaser and Purchaser’s counsel (the “Vendor’s Closing
Certificate”). The receipt of the Vendor’s Closing Certificate and
the consummation of Closing shall not constitute a waiver by Purchaser or an
amendment of any of the representations and warranties or covenants of Vendor
which are contained in this Agreement. The materiality qualifications permitted
to be in the Vendor’s Closing Certificate pursuant to paragraphs (b) and (c) above
are solely for purposes of determining whether this condition has been
satisfied, and shall not be deemed to have so qualified the representations, warranties
or covenants referred to therein. Upon delivery of the Vendor’s Closing
Certificate, the representations and warranties of Vendor shall be deemed to
have also been made on and as of the Closing Date and as though Closing Date
was substituted for the date hereof or similar terms throughout such
representations and warranties, except as may be qualified in the Vendor’s
Closing Certificate.

 

6.1.2                         Deliveries by Vendor and Cascades

 

Vendor or Cascades, as applicable, shall deliver or cause to be delivered
to Purchaser the following in form and substance satisfactory to
Purchaser, acting reasonably:

 

(a)           certified
copies of (A) the constating documents and by-laws of Vendor and of
Cascades, (B) all resolutions of the board of directors of Vendor and of Cascades
approving the entering into and completion of the transactions contemplated by
this Agreement and each of the Ancillary Agreements to which Vendor or
Cascades, as applicable, is a party;

 

(b)           a recent
certificate of status, compliance, good standing or similar certificate with
respect to Vendor issued by the appropriate government officials of its
jurisdiction of incorporation;

 

(c)           [              ]

 

(d)           a deed of
transfer (the “Deed of Transfer”) in respect of the Real Property
substantially in the form of the deed of transfer attached hereto as Exhibit E
to the Disclosure Letter;

 

49

 

(e)           [              ]

 

(f)            Each of
Cascades and Vendor shall have delivered to Purchaser an executed copy of a
non-competition and non-solicitation agreement (the “Non-Competition Agreement”)
substantially as set forth in the form of the non-competition and
non-solicitation agreement attached as Exhibit F to the Disclosure
Letter;

 

(g)           Vendor shall
have delivered to Purchaser an executed copy of a transitional services
agreement (the “Transitional Services Agreement”) substantially as set forth
in the form of agreement attached as Exhibit G to the
Disclosure Letter.

 

(h)           necessary
releases, discharges, deeds, conveyances, assurances, transfers, assignments or
any other instruments necessary or reasonably required to transfer the
Purchased Assets to Purchaser with a good title, free and clear of all
Encumbrances other than Permitted Encumbrances, in form and substance
satisfactory to Vendor and Purchaser acting reasonably;

 

(i)            the
elections referred to in Section 3.6;

 

(j)            the Vendor’s
Closing Certificate;

 

(k)           an opinion
of counsel to Vendor, substantially in the form attached as Exhibit H
to the Disclosure Letter;

 

(l)            all such
other agreements, certificates, affidavits, statutory declarations, instruments
of transfer and other documentation reasonably required by Purchaser to
implement the transactions herein contemplated, all of which shall be
satisfactory in form and substance to counsel to Purchaser, acting
reasonably; and

 

(m)          Vendor shall
deliver to Purchaser on the Closing Date the names of all Employees and
Inactive Employees contemplated by Section 4.1.5 of the Disclosure Letter.

 

6.1.3                        No Adverse Change

 

During the Interim
Period, there shall have been no change in the operations, results of
operation, affairs, prospects or condition (financial or otherwise) of the
Business which, would have a Material adverse effect on the Business, the
Purchased Assets or the Assumed Liabilities, except that there shall not be
taken into account any effect or losses arising out of (i) changes in laws
or their interpretation, (ii) deteriorations in paper prices or in the
specialty paper products industry in general other than deteriorations
attributable in whole or in part to the Vendor and/or its Affiliates, or (iii) [              ]

 

50

 

[              ]

 

6.1.4                         Consents

 

All Consents necessary to allow the Vendor to assign the Material
Contracts to the Purchaser, which Consents shall include an acknowledgement by
the other party that the Material Contracts so assigned remain in full force
and effect and that the Purchaser may continue to enjoy all rights and
benefits thereunder, shall have been granted, obtained and received.

 

6.1.5                         No Legal Action

 

No action or proceeding shall be pending or threatened by any person
(other than the Parties) in any jurisdiction, to enjoin, restrict or prohibit
any of the transactions contemplated by this Agreement or the right of the
Purchaser to conduct the Business after Closing on substantially the same basis
as previously operated.

 

6.2                            Conditions for the
Benefit of the Vendor

 

The transactions herein contemplated, including the sale and purchase
of the Purchased Assets in accordance with the terms of this Agreement, are
subject to the conditions precedent set out in this Section 6.2, each of
which is hereby declared to be for the exclusive benefit of the Vendor. Each of
such conditions is to be satisfied in full at or prior to the Closing Time. The
Purchaser covenants and agrees to use its reasonable commercial efforts to
cause each of such conditions to be fulfilled at or prior to the Closing Time.

 

6.2.1                        Truth of Representations and
Warranties of the Purchaser

 

Each of:

 

(a)           the
representations and warranties of Purchaser (A) in Section 4.2.1
(Incorporation, Authority and Enforceability) (“Purchaser’s Core Representations”)
and (B) made pursuant to this Agreement that are qualified by a reference
to materiality or GAAP shall, in each case, have been true and correct in all
respects on the date hereof and shall be true and correct in all respects on
the Closing Date with the same force and effect as if made at and as of the
Closing Date and as though Closing Date was substituted for the date hereof or
similar terms throughout such representations and warranties;

 

(b)           the other
representations and warranties of Purchaser made pursuant to this Agreement
shall have been true and correct in all Material respects on the date hereof
and shall be true and correct in all Material respects on the

 

51

 

Closing Date with the
same force and effect as if made at and as of the Closing Date and as though
Closing Date was substituted for the date hereof or similar terms throughout
such representations and warranties; and

 

(c)           the covenants contained in this Agreement
to be performed by Purchaser on or prior to the Closing Date shall have been
performed in all Material respects and Purchaser shall not be in Material
breach of any agreement on its part contained in this Agreement,

 

and Vendor shall have
received a certificate confirming the foregoing, signed for and on behalf of
Purchaser by senior officers or directors of Purchaser, in each case in form and
substance reasonably satisfactory to Vendor and Vendor’s counsel (the “Purchaser’s Closing
Certificate”). The receipt of the Purchaser’s Closing Certificate
and the consummation of Closing shall not constitute a waiver by Vendor or an
amendment of any of the representations and warranties or covenants of
Purchaser which are contained in this Agreement. The materiality qualifications
permitted to be in the Purchaser’s Closing Certificate pursuant to paragraphs (b) and
(c) above are solely for purposes of determining whether this condition
has been satisfied, and shall not be deemed to have so qualified the
representations, warranties or covenants referred to therein. Upon delivery of
the Purchaser’s Closing Certificate, the representations and warranties of
Purchaser shall be deemed to have also been made on and as of the Closing Date
and as though Closing Date was substituted for the date hereof or similar terms
throughout such representations and warranties, except as may be qualified
in the Purchaser’s Closing Certificate.

 

6.2.2                         Delivery by Purchaser

 

Purchaser shall deliver or cause to be delivered to Vendor the
following in form and substance satisfactory to Vendor, acting reasonably:

 

(a)           certified
copies of (A) the constating documents and by-laws of Purchaser, (B) all
resolutions of the board of directors of Purchaser approving the entering into
and completion of the transactions contemplated by this Agreement and each of
the Ancillary Agreements to which Purchaser is a party;

 

(b)           a recent
certificate of status, compliance, good standing or similar certificate with
respect to Purchaser issued by the appropriate government officials of its
jurisdiction of incorporation;

 

(c)           the
elections referred to in Section 3.6;

 

(d)           the
Purchaser’s Closing Certificate;

 

(e)           Purchaser
shall have delivered to Vendor an executed copy of the [              ].

 

52

 

(f)            an opinion
of counsel to Purchaser, substantially in the form attached as Exhibit I
to the Disclosure Letter; and

 

(g)           all such
other agreements, certificates, affidavits, statutory declarations, instruments
of transfer and other documentation reasonably required by Vendor to implement
the transactions herein contemplated, all of which shall be satisfactory in form and
substance to counsel to Vendor, acting reasonably.

 

6.3                            Conditions for the
Benefit of both Parties

 

The transactions herein contemplated, including the sale and purchase
of the Purchased Assets in accordance with the terms of this Agreement, are
subject to the conditions precedent set out in this Section 6.3, each of
which is hereby declared to be for the benefit of both of the Parties hereto.
Each of such conditions is to be satisfied in full at or prior to the Closing
Time. Each of the Parties covenants and agrees to use its reasonable commercial
efforts to cause each of such conditions to be fulfilled prior to the Closing
Time, provided that the foregoing shall not include, for greater certainty, the
obligation to negotiate any remedy with the Commissioner.

 

6.3.1                         Competition Act

 

The Competition Act
Approval shall have been obtained.

 

6.3.2                         Investment Canada Act

 

The ICA Approval shall
have been obtained, if applicable.

 

6.3.3                         Regulatory Approvals

 

All Regulatory Approvals required in connection with the sale of the
Purchased Assets to the Purchaser and the completion of the other transactions
contemplated herein shall have been granted, obtained and received. All such
Regulatory Approvals shall have no Material conditions or be on terms
satisfactory to the Parties, acting reasonably.

 

6.4                            Waiver

 

Either Party may waive, by notice to the other Party, any
condition set forth in this Article 6 which is for its benefit. No waiver
by a Party of any condition, in whole or in part, shall operate as a waiver of
any other condition.

 

6.5                            Failure to Satisfy
Conditions

 

(a)           If any condition set forth in Sections
6.1 or 6.2 is not satisfied or waived by the applicable beneficiary of such
condition at the Closing Time, or if it becomes apparent that any such
condition can not be satisfied at the Closing Time, the Party entitled to the
benefit of such condition (the

 

53

 

“First Party”) may terminate this Agreement by notice in
writing to the other Party and in such event:

 

(i)            unless the
other Party can show that the condition or conditions which have not been
satisfied and for which the First Party has terminated this Agreement are
reasonably capable of being performed or caused to be performed by the First
Party or have not been satisfied by reason of a default by the First Party
hereunder, the First Party shall be released from all obligations hereunder;
and

 

(ii)           unless the
First Party can show that the condition or conditions which have not been
satisfied and for which the First Party has terminated this Agreement are
reasonably capable of being performed or caused to be performed by the other
Party or have not been satisfied by reason of a default by the other Party
hereunder, then the other Party shall also be released from all obligations
hereunder.

 

6.6                            Damage or Expropriation

 

If, prior to the Closing Time, all or any substantial portion of the
Purchased Assets are destroyed or substantially damaged by fire or other hazard
or shall be expropriated or seized by any Governmental Authority or any other
person in accordance with applicable Laws, or if notice of any such
expropriation or seizure shall have been given in accordance with applicable
Laws, the Purchaser shall have the option, exercisable by written notice to the
Vendor given prior to the Closing Time:

 

(a)           to terminate
this Agreement and not complete the transactions herein contemplated, in which
case the Purchaser shall be released from all obligations hereunder except those
set forth in Sections 4.3, 5.2.1, 10.2 and 10.5 or 10.11 as of and from the
giving of such notice; or

 

(b)           to complete
the transactions herein contemplated with a reduction of the Purchase Price by
the net amount equal to the cost of repair, or, if expropriated or seized or if
destroyed or damaged beyond repair, by the net amount equal to the replacement
cost of the property or assets so expropriated, seized, damaged or destroyed,
after taking into account all proceeds of any insurance or compensation for
such destruction, damage, expropriation or seizure received by the Vendor and
assigned to and received by the Purchaser. For greater certainty, the amount
contemplated pursuant to this Subsection (b) shall in no event be
less than zero.

 

If any loss, damage or
claim for which insurance is carried by the Vendor in respect of the Purchased
Assets arises during the Interim Period, or if any of the Purchased Assets are
expropriated or seized, the Purchaser, as a condition of Closing, shall be
entitled to be satisfied that the insurers or the expropriating authority
recognize all claims of the Vendor for payment in accordance with the terms of
the relevant insurance policies or rules of the relevant expropriating

 

54

 

authority
and that all such claims and proceeds thereof are assignable, and are assigned,
to the Purchaser.

 

ARTICLE 7

TERMINATION

 

7.1                            Termination

 

This Agreement and the
transactions contemplated hereby may be terminated:

 

(a)           at any time
by mutual written consent of the Vendor and the Purchaser;

 

(b)           in the event
that the Reference Date Amount is in excess of $3.8M, at the discretion of the
Vendor provided that it notifies Purchaser in writing within 5 days of the date
on which the final determination of the Reference Date Amount is made;

 

(c)           by the
Vendor or the Purchaser at any time, if (i) the Closing has not occurred
on or before [              ]
(the “Drop
Dead Date”) or (ii) it becomes evident that the Competition Act
Approval will not be obtained prior to the Drop Dead Date, unless the failure
of the Closing to occur by such date shall be due to the failure of the Party
seeking to terminate this Agreement to perform or observe the covenants
and agreements of such Party set forth herein.

 

7.2                            Effect of Termination

 

In the event of termination of this Agreement by either the Vendor or
the Purchaser in accordance with Section 6.5 or as provided in Section 7.1
hereof, this Agreement shall, subject to the terms of Section 6.5 become
void and have no effect except that (i) this Section 7.2 shall
survive any termination of this Agreement, (ii) no Party shall be relieved
or released from any liabilities or damages arising out of such Party’s wilful
breach of any provision of this Agreement, and (iii) no Party shall be
released of any obligations under Section 4.3, Subsection 5.2.1, Section 10.2,
Section 10.5 or Section 10.11.

 

ARTICLE 8

INDEMNIFICATION

 

8.1                            Indemnification by
Vendor

 

The Vendor shall
indemnify, defend and save harmless the Purchaser and each of Purchaser’s
Representatives from and against any Claim or Loss suffered by, imposed upon or
asserted against them, as a direct or indirect result of, or arising in
connection with or related in any manner whatsoever to:

 

55

 

(a)           subject to Section 4.4
and the limitations set forth in Section 8.12(a), any misrepresentation or
breach of warranty made or given by the Vendor in this Agreement, in any
Closing Document or in any other document delivered pursuant to this Agreement
or any Closing Document;

 

(b)           any failure
by the Vendor to observe or perform any covenant or obligation contained
in this Agreement, any Closing Document or in any document delivered pursuant
to this Agreement or any Closing Document;

 

(c)           any
liabilities or obligations for Taxes attributable to the Vendor or the Business
prior to or arising from the Closing including any Taxes payable by the Vendor
in connection with any transaction contemplated under this Agreement except if
such Taxes are accrued on the Closing Balance Sheet and only to the extent of
the amount so accrued;

 

(d)           any Claim or
Loss, including any fine or other liabilities (whether civil or criminal)
against the Purchased Assets, the Business, the Purchaser, its Affiliates or
the Employees by or on behalf of any Governmental Authority or any other party
directly or indirectly arising in connection with, or related in any manner
whatsoever to the Bureau Investigation or any civil proceeding related thereto
or to facts that are the subject of the Bureau Investigation;

 

(e)           any
liabilities or obligations of the Vendor of any nature whatsoever (including,
without limitation, the Excluded Liabilities) existing on or after Closing
other than the Assumed Liabilities;

 

(f)            the non-compliance
by the Parties with respect to any applicable bulk sales Laws in connection
with the transactions contemplated by this Agreement except to the extent that
any applicable Damages are attributable to the Purchaser’s failure to pay,
discharge or perform its obligations pursuant to the Assumed Liabilities;
and

 

(g)           the Excluded
Assets.

 

For greater certainty, the right to indemnification under Sections 8.1(b) to
8.1(g) exists notwithstanding Section 4.4 and notwithstanding any
representation or warranty in Section 4.1 and such right to
indemnification is a right that is separate and independent from any other
right or remedy under this Agreement and is not subject to any of the
limitations set out in Section 8.12(a), provided that Vendor shall not
hereby be obligated to indemnify Purchaser twice for the same Damages.

 

8.2                            Indemnification by the
Purchaser

 

The Purchaser
shall indemnify, defend and save harmless the Vendor and each of the Vendor’s
Representatives from and against any Claim or Loss suffered by, imposed upon or
asserted against them, as a direct or indirect result of, or arising in
connection with or related in any manner whatsoever to:

 

56

 

(a)           subject to Section 4.5
and the limitations set forth in Section 8.12(b), any misrepresentation or
breach of any warranty made or given by the Purchaser in this Agreement, in any
Closing Document or in any document delivered pursuant to this Agreement or any
Closing Document; or

 

(b)           the
operations of the Business after the Closing Time including, without
limitation, any failure by the Purchaser to pay, satisfy, discharge, perform or
fulfill any of the Assumed Liabilities as they become due;

 

(c)           the matters
set forth in Section 9.2; or

 

(d)           any failure
by the Purchaser to observe or perform any covenant or obligation
contained in this Agreement, in any Closing Document or in any document
delivered pursuant to this Agreement or any Closing Document.

 

8.3                            Agency for
Representatives

 

Each Party agrees that it accepts each indemnity in favour of any of
its Representatives as agent and trustee of that Representative. Each Party
agrees that the other Party may enforce an indemnity in favour of any of
that Party’s Representatives on behalf of that Representative.

 

8.4                            Notice of Third Party
Claims

 

If an Indemnitee receives notice of the commencement or assertion of
any Third Party Claim, the Indemnitee shall give the Indemnitor reasonably
prompt notice thereof, but in any event no later than 30 Business Days after
receipt of such notice of such Third Party Claim. Such notice to the Indemnitor
shall describe the Third Party Claim in reasonable detail and shall indicate,
if reasonably practicable, the nature and estimated amount of the Loss or Claim
that has been or may be sustained by the Indemnitee.

 

8.5                            Defence of Third Party
Claims

 

Subject to Section 8.13(a),
the Indemnitor may participate in or assume the defence of any Third Party
Claim (provided that (i) the Third Party Claim seeks only monetary damages
and does not seek any injunctive or other relief against the Indemnified Party,
and (ii) legal counsel chosen by the Indemnifying Party is satisfactory to
the Indemnified Party, acting reasonably) by giving notice to that effect to
the Indemnitee not later than 20 Business Days after receiving notice of that
Third Party Claim (the “Notice Period”). The Indemnitor’s
right to do so shall be subject to the rights of any insurer or other party who
has potential liability in respect of that Third Party Claim. The Indemnitor
shall pay all of its own expenses of participating in or assuming such defence.
The Indemnitee shall co-operate in good faith in the defence of each Third
Party Claim, even if the defence has been assumed by the Indemnitor and may participate
in such defence assisted by counsel of its own choice at its own expense. If
the Indemnitee has not received notice within the Notice Period that the
Indemnitor has elected to assume the defence of such Third Party Claim, the
Indemnitee may, at its option, elect to settle or

 

57

 

compromise
the Third Party Claim or assume such defence, assisted by counsel of its own
choosing and the Indemnitor shall be liable for all reasonable costs and
expenses paid or incurred in connection therewith and any Claim or Loss
suffered or incurred by the Indemnitee with respect to such Third Party Claim.
If the Indemnitor elects to assume the defence of a Third Party Claim under
this Section 8.5, the Indemnitor shall not have the right thereafter to
contest its liability for such claim.

 

8.6                            Assistance for Third
Party Claims

 

The Indemnitor and the Indemnitee will use all reasonable commercial
efforts to make available to the Party which is undertaking and controlling the
defence of any Third Party Claim (the “Defending Party”) and at such
Party’s cost and expense,

 

(a)           those
employees and other persons whose assistance, testimony or presence is
necessary to assist the Defending Party in evaluating and in defending any
Third Party Claim; and

 

(b)           all
documents, records and other materials in the possession of such Party
reasonably required by the Defending Party for its use in defending any Third
Party Claim,

 

and
shall otherwise cooperate with the Defending Party.

 

8.7                            Settlement of Third
Party Claims

 

If an Indemnitor elects to assume the defence of any Third Party Claim
as provided in Section 8.5, then the Indemnitor shall not be liable for
any legal expenses incurred by the Indemnitee in connection with the defence of
such Third Party Claim following the receipt by the Indemnitee of notice of
such assumption. Notwithstanding the foregoing, if the Indemnitor fails to take
reasonable steps necessary to defend diligently such Third Party Claim within
20 Business Days after receiving notice from the Indemnitee, or that the
Indemnitee believes on reasonable grounds that the Indemnitor has failed to
take such steps, then the Indemnitee may, at its option, elect to assume the
defence of and to negotiate, settle or compromise the Third Party Claim
assisted by counsel of its own choosing and the Indemnitor shall also be liable
for all reasonable costs and expenses paid or incurred in connection therewith.
The Indemnitor shall not, without the prior written consent of the Indemnitee,
enter into any compromise or settlement of a Third Party Claim, which would
lead to liability or create any other obligation, financial or otherwise, on
the Indemnitee.

 

8.8                            Direct Claims

 

Any Direct Claim
shall be asserted by giving the Indemnitor reasonably prompt written notice
thereof, but in any event not later than 40 Business Days after the Indemnitee
becomes aware of the basis of such Direct Claim. The Indemnitor shall then have
a period of 20 Business Days within which to respond in writing to such Direct
Claim. If the Indemnitor does not so respond within such 20 Business Days
period, the Indemnitor shall be deemed to have rejected such Claim, and in such
event the Indemnitee shall be free to pursue such remedies as may be
available to the Indemnitee.

 

58

 

8.9                            Failure to Give Timely
Notice

 

A failure to give timely notice as provided in this Article 8
shall not affect the rights or obligations of any Party except and only to the
extent that, as a result of such failure, any Party which was entitled to
receive such notice was deprived of its right to recover any payment under its
applicable insurance coverage or was otherwise directly and materially damaged
as a result of such failure.

 

8.10                          Reductions and Subrogation

 

If the amount of any Loss at any time subsequent to the making of an
Indemnity Payment in respect of that Loss is reduced by any recovery,
settlement or otherwise under or pursuant to any insurance coverage (the “Insurance Recovery”),
and provided that any such Insurance Recovery is actually received by the
Indemnitee, the amount of such reduction (less any costs or expenses (including
Taxes) or premiums incurred in connection therewith), shall promptly be repaid
by the Indemnitee to the Indemnitor. Upon making a full Indemnity Payment, the
Indemnitor shall, to the extent of such Indemnity Payment, be subrogated to all
rights of the Indemnitee against any third party that is not an Affiliate of
the Indemnitee in respect of the Loss to which the Indemnity Payment relates. Until
the Indemnitee recovers full payment of its Loss, any and all claims of the
Indemnitor against any such third party on account of such Indemnity Payment
shall be postponed and subordinated in right of payment to the Indemnitee’s rights
against such third party. Without limiting the generality or effect of any
other provision hereof, the Indemnitee and Indemnitor shall duly execute upon
request all instruments reasonably necessary to evidence and perfect such
postponement and subordination.

 

8.11                          Payment and Interest

 

All Losses shall bear interest at a rate per annum equal to the Prime
Rate plus 3%, calculated and payable monthly, both before and after judgment,
with interest on overdue interest at the same rate, from the date that the
Indemnitee disbursed funds, suffered damages or losses or incurred a loss,
liability or expense in respect of a Loss, to the date of payment by the
Indemnitor to the Indemnitee.

 

8.12                          Limitations

 

(a)           No Claims and/or Losses may be
asserted by the Purchaser or the Purchaser’s Representatives under Section 8.1(a) unless
and until the aggregate amount of the Claims and/or Losses of the Purchaser and
its Representatives collectively, in respect of such Claims and/or Losses
exceeds [              ]%
of the Adjusted Net Asset Value in the aggregate (the “Basket”), with a maximum aggregate
liability equal to [              ]%
of the Adjusted Net Asset Value, other than (i) in respect of the Vendor’s
Core Representations and Warranties (and the corresponding representations and
warranties in the Vendor’s Closing Certificate), and (ii) in respect of
Claims and/or Losses based on fraud, which, in each case, shall not be subject
to such limitations and for whom the Vendor’s indemnification obligations
hereunder shall be for an unlimited amount and shall be from

 

59

 

the first dollar of the
Claims and/or Losses suffered or incurred by the Purchaser or the Purchaser’s
Representatives.

 

(b)           No Claim
and/or Losses may be asserted by the Vendor or the Vendor’s
Representatives under Section 8.2(a) unless and until the aggregate
amount of the Claims and/or Losses of the Vendor and its Representatives
collectively, in respect of such Claims and/or Losses exceeds [     ]%
of the Adjusted Net Asset Value in the aggregate, up to a maximum aggregate
liability equal to [     ]% of the Adjusted Net Asset
Value, other than (i) in respect of the Purchaser’s Core Representations
and Warranties (and the corresponding representations and warranties in the
Purchaser’s Closing Certificate), and (ii) in respect of Claims and/or
Losses based on fraud, which, in each case, shall not be subject to such
limitations and for whom the Purchaser’s indemnification obligations hereunder
shall be for an unlimited amount and shall be from the first dollar of the
Claims and/or Losses suffered or incurred by the Vendor or the Vendor’s
Representatives.

 

(c)           The parties
agree that all obligations and liabilities of Purchaser relating to warranty
and product liability claims and returned goods relating to the Business
assumed by Purchaser hereunder shall be deemed to constitute Claims or Losses
for the purpose of determining whether the threshold in Subsection 8.12(a) above
has been met or exceeded.

 

8.13                          Additional Rules and Procedures

 

(a)           If any Third
Party Claim is of a nature such that the Indemnitee is required by Law to make
a payment to any person (a “Third Party”) with respect to such
Third Party Claim before the completion of settlement negotiations or related
legal proceedings, the Indemnitor’s rights under Section 8.5 shall only
apply after payment of such Third Party Claim to the Third Party or the
provision of sufficient security by the Indemnitor. If the amount of any
liability under the Third Party Claim in respect of which such a payment was
made, as finally determined, is less than the amount which was paid by the
Indemnitor, the Indemnitee shall, forthwith after receipt of the difference
from the Third Party, pay such difference to the Indemnitor;

 

(b)           The
Indemnitee and the Indemnitor shall co-operate with each other, acting
reasonably, with respect to Third Party Claims, shall keep each other advised
with respect thereto (including supplying copies of all relevant documentation
promptly as it becomes available) and shall each designate a senior officer who
will keep himself informed about and be prepared to discuss the Third Party
Claim with his counterpart and with counsel at all reasonable times.

 

60

 

ARTICLE 9

EMPLOYEES

 

9.1                            Employees

 

Effective as of the Closing Date, the Purchaser shall assume all labour
and employment obligations of the Vendor relating to the Business and establish
or provide replacement employee benefit plans (other than the Pension Plan) to
the Employees that provide equivalent or similar benefits to the Employees
(other than with respect to Employees covered by a collective agreement) in
order to meet its obligations hereunder (such replacement employee benefit
plans are hereinafter collectively referred to as the “Replacement Plans”). For greater
certainty, the Purchaser shall recognize, to the extent previously recognized
by the Vendor, the service of the Employees for all purposes including, without
limitation, eligibility and vesting under the Replacement Plans. The Purchaser
shall also cause the Replacement Plans to waive any pre-existing condition
limitations, accept any pre-approvals, and honour any deductibles and
out-of-pocket expenses incurred by the Employees (and their dependents and
survivors) due to their participation in the applicable Employee Benefit Plans
provided by the Vendor immediately prior to the Closing Date.

 

9.2                            Employee Liability of
the Purchaser

 

Without limiting the Purchaser’s obligations in respect of the
Employees on and after the Closing Date the Purchaser shall be responsible for:

 

(a)           All
liabilities for salary, wages, bonuses, retention bonuses, commissions, pension
contributions, vacation pay, and other compensation relating to employment of the
Employees on and after the Closing Date, and all liabilities under or in
respect of the Replacement Plans;

 

(b)           All
severance payments, damages for wrongful dismissal and all related costs in
respect of the termination by the Purchaser of the employment of any Employee;
and

 

(c)           All
employment-related claims, penalties and assessments in respect of the Business
arising out of matters which occur on or subsequent to the Closing Date.

 

9.3                            Employee Liability of
the Vendor

 

Without limiting the Vendor’s obligations in respect of Employees
employed in the Business prior to the Closing Date, the Vendor shall be
responsible for (i) all liabilities for salary, wages, bonuses,
commissions and other compensation relating to employment of all Employees in
the Business, in each case, prior to or as at the Closing Date, except to the
extent that they are accrued on the Closing Balance Sheet, (ii) any
termination pay and severance payment resulting from the termination of
employment of all Employees with the Vendor on or prior to the Closing Date, (iii) all
termination pay, all severance payments, damages for wrongful dismissal and all
related costs in respect of the termination by the Vendor of the employment of
any Employee who does not accept to continue his employment with the Purchaser,
(iv) all

 

61

 

liabilities
for claims for injury, disability, death or workers’ compensation arising from
or related to employment in the Business prior to the Closing Date, (v) all
employment related claims, penalties and assessments in respect of the Business
arising out of matters which occurred prior to the Closing Date, and (vi) all
liabilities related to the Employee Benefit Plans existing prior to or as at
the Closing Date, except to the extent that they are accrued on the Closing
Balance Sheet.

 

9.4                            Short Term Disabled
Employees

 

Notwithstanding anything contained herein to the contrary, the Vendor
agrees that it shall be responsible for any and all liabilities arising at any
time before or after the Closing Date that relate to the Short Term Disabled
Employees and which result from their absence from work during the short term
disability period without regard to whether the Vendor’s applicable insurance
covers such liabilities during such period.

 

9.5                            Pension and Savings
Plans

 

As of and effective on the Closing Date, Vendor shall transfer to
Purchaser all its rights and obligations under the Pension Plan for the employees of Cascades Resources, a division of
Cascades Fine Papers Group Inc. (the “Pension Plan”) and Purchaser shall
become the sponsor of the Pension Plan and, subject to the other provisions of
this Agreement, assume all the rights and obligations of Vendor thereunder. Active
members of the Pension Plan who are not Employees shall have their rights under
the Pension Plan dealt with in accordance with its rules and relevant
applicable pension Law.

 

9.6                            Vendor Liability

 

Vendor shall retain responsibility for, and satisfy all obligations and
liabilities with respect to, all payments and benefits of the Employees (and
all former employees, agents and representatives involved in the Business)
under the Employee Benefit Plans (other than the Pension Plan), as the case may be,
accrued up to the Closing Date or which relate to the events prior to the
Closing Date in accordance with the terms thereof and Laws (other than the
obligations and liabilities that are accrued on the Closing Balance Sheet), and
the Vendor agrees to indemnify and hold the Purchaser harmless from and against
any and all damages which the Purchaser may suffer or incur in connection
with such obligations and liabilities.

 

For the avoidance of doubt, Vendor shall be responsible for the
following claims or benefit payments of all Employees and former employees involved
in the Business regardless of whether such claims are filed before or after the
Closing Date:

 

(a)           with respect
to death or dismemberment claims, those in respect of which the event occurred
prior to the Closing Date;

 

(b)           with respect
to health claims, those in respect of which the services were provided or the
supplies were purchased prior to the Closing Date;

 

(c)           with respect
to short term and/or long term disability claims and workers’ compensation
claims, for those claims resulting from events that occurred prior to the
Closing Date, including, to the extent covered under the

 

62

 

Employee Benefit Plans,
for recurring illnesses which first originated with events occurring prior to
the Closing Date, whether or not such claims continue after the Closing Date.

 

9.7                            Notice by Vendor

 

Vendor shall prior to the Closing Date send a written notice to the
Employees advising them of the delay and the time limit within which a claim
must be filed under Vendor’s Employee Benefit Plans for claims in respect of
which the event occurred, the services were provided or the supplies were
purchased prior to the Closing Date.

 

ARTICLE 10

MISCELLANEOUS

 

10.1                          Further Assurances

 

Each Party shall from time to time execute and deliver or cause to be
executed and delivered all such further documents and instruments and do or
cause to be done all further acts and things as the other Party may, before or
after the Closing Time, reasonably require as being necessary or desirable in
order to effectively carry out or better evidence or perfect the full intent
and meaning of this Agreement or any provision hereof.

 

10.2                          Public Announcements

 

Each Party agrees that no disclosure or public announcement regarding
this Agreement or the transactions contemplated hereby shall be made by either
Party without the prior written consent of the other Party, which consent shall
not be unreasonably withheld or delayed. If a public announcement or disclosure
is required by either of the Parties pursuant to Law, the Parties shall
cooperate in the preparation and release of a public announcement or disclosure
regarding this Agreement or the transactions contemplated hereby

 

10.3                          Notices

 

(a)           Any notice, direction or other
communication (in this Section, a “notice”) required or permitted to
be given to a Party shall be in writing and shall be sufficiently given if
delivered personally, mailed or transmitted by facsimile as follows:

 

(i)            in the case of the Vendor or Cascades,
at:

 

CASCADES FINE PAPERS GROUP INC.

2 Rolland Avenue

Saint-Jérôme QC  J7Z 5V6

 

Attention:              President

 

Fax No.:                  450 569-3933

 

63

 

with a copy to:

 

FRASER
MILNER CASGRAIN LLP

1 Place Ville Marie, Suite 3900

Montréal QC H3B 4M7

 

Attention:              Charles R. Spector

 

Fax No.:                  514 866-2241

 

(ii)           in the case of the Purchaser, at:

 

C/O
SPICERS PAPER, INC.

12310 E. Slauson
Avenue

Santa Fe Springs,
CA 90670

USA

 

Attention:              Anthony J. Kennedy

 

Fax No.:                  562 693-0868

 

and to:

 

PAPERLINX
LIMITED

307 Ferntree Gully
Road

Mt. Waverley, VIC
3149

Australia

 

Attention:              Chief Financial Officer

 

Fax No.:                  61 3 8540 2255

 

with a copy to:

 

STIKEMAN
ELLIOTT LLP

1155 René-Lévesque Blvd, Suite 4000

Montreal, Québec H3B 3V2

 

Attention:              John W. Leopold and Michel Gélinas

 

Fax No.:                  514 397-3222

 

(b)           Any notice delivered personally, shall be
deemed to have been given and received on the day on which it was delivered, if
delivered prior to 5:00 p.m. (recipient’s time) on a Business Day;
otherwise on the first Business Day thereafter. Any notice mailed shall be
deemed to have been given and received on the third Business Day after it was
mailed, provided that if the Party giving the notice knows or ought reasonably
to know of

 

64

 

disruptions in the postal
system that might affect the delivery of mail, such notice shall not be mailed
but shall be given by personal delivery or facsimile transmission. Any notice
transmitted by facsimile shall be deemed to have been given and received on the
day of its transmission if the machine from which it was sent receives the
answerback code of the Party to whom it was sent prior to 5:00 p.m.
(recipient’s time) on such day; otherwise on the first Business Day thereafter.

 

(c)           Either Party may change its address
for service from time to time by notice given to each of the other Party in
accordance with the foregoing provisions.

 

10.4                          Time of the Essence

 

Time shall be of the
essence of this Agreement.

 

10.5                          Costs and Expenses

 

Each Party shall be responsible for all costs and expenses (including
the fees and disbursements of legal counsel, bankers, investment bankers,
accountants, brokers and other advisors) incurred by it in connection with this
Agreement and the transactions contemplated herein.

 

10.6                          Effect of Closing

 

All provisions of this Agreement shall remain in full force and effect
notwithstanding the Closing, subject only to the limitations specified in
Sections 4.4 and 4.5 and Article 8.

 

10.7                          Counterparts

 

This Agreement may be executed in counterparts, each of which
shall be deemed to be an original and both of which together shall constitute
one and the same instrument. To evidence its execution of an original counterpart of
this Agreement, a Party may send a copy of its original signature on the
execution page hereof to the other Party by facsimile transmission and
such transmission shall constitute delivery of an executed copy of this
Agreement to the receiving Party.

 

10.8                          Assignment

 

This Agreement may not be assigned by any Party without the prior
written consent of the other Parties. Purchaser may assign and transfer
this Agreement and any agreement ancillary to this Agreement and any of its
rights and obligations hereunder and thereunder to one or more of its
Affiliates provided that Purchaser shall remain solidarily liable with such
Affiliate(s) for its obligations hereunder and thereunder.

 

65

 

10.9                          Parties in Interest

 

This Agreement shall enure to the benefit of and be binding upon the
Parties and their respective successors, including any successor by reason of
the amalgamation or merger of a Party, and permitted assigns.

 

10.10                        Third Parties

 

Except as specifically set forth or referred to herein, nothing herein
is intended or shall be construed to confer upon or give to any person, other
than the Parties and their respective successors, including any successor by
reason of the amalgamation or merger of a Party, and permitted assigns, any
rights or remedies under or by reason of this Agreement.

 

10.11                        Liability of Cascades

 

Cascades hereby acknowledges that by executing this Agreement, it is
solidarily (within the meaning of the Civil
Code of Quebec) liable with the Vendor for the timely performance
and fulfilment by Vendor of all of Vendor’s obligations and covenants under
this Agreement and the Ancillary Agreements.

 

Cascades acknowledges that Purchaser is relying on this covenant in
connection with the purchase of the Purchased Assets under this Agreement and
that Purchaser would not have entered into the Agreement without the benefit of
such covenant by Cascades.

 

10.12                        [              ]

 

[              ]

 

[Rest of page intentionally left blank]

 

[Signature page follows]

 

66

 

IN WITNESS WHEREOF this Agreement has been executed by the
Parties hereto.

 

	
   

  	
  CASCADES INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Alain Lemaire

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  CASCADES FINE PAPERS GROUP INC./

  CASCADES GROUPE PAPIERS FINS INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Alain Lemaire

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  COAST PAPER LIMITED

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Darryl Abotomey

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  

 

67Exhibit 4.01

 

CUSIP
NO. 52517PF30

 

	
  REGISTERED

  	
   

  	
  PRINCIPAL AMOUNT: $3,000,000

  
	
  No. R-1

  	
   

  	
   

  

 

LEHMAN BROTHERS HOLDINGS INC.

 

MEDIUM-TERM NOTE, SERIES H

 

PRINCIPAL PROTECTED DIGITAL BASKET FX-LINKED
NOTE

DUE MARCH 24, 2008

 

THIS NOTE IS A GLOBAL SECURITY WITHIN THE MEANING OF THE
INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF THE
DEPOSITORY OR A NOMINEE OF THE DEPOSITORY. UNLESS THIS CERTIFICATE IS PRESENTED
BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER
STREET, NEW YORK, NEW YORK) TO THE COMPANY (AS DEFINED BELOW) OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT AND ANY CERTIFICATE ISSUED IS
REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY AND ANY PAYMENT IS
MADE TO CEDE & CO., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF,
CEDE & CO., HAS AN INTEREST HEREIN.

 

UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR
NOTES IN CERTIFICATED FORM (A “CERTIFICATED NOTE”), THIS GLOBAL SECURITY MAY
NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE
DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE
OF THE DEPOSITORY OR BY THE DEPOSITORY OR ANY SUCH NOMINEE TO A SUCCESSOR
DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITORY.

 

 

LEHMAN BROTHERS HOLDINGS INC., a corporation duly
organized and existing under the laws of the State of Delaware (herein called
the “Company,” which term includes any successor corporation under the
Indenture referred to on the reverse hereof), for value received, hereby
promises to pay to CEDE & Co., or registered assigns, on the Maturity Date,
an amount equal to the Redemption Amount. The Notes do not bear interest. No
payments on the Notes will be made until the Maturity Date.

 

The “Maturity Date” is March 24, 2008, or if such
day is not a Business Day, on the next following Business Day.

 

The Redemption Amount, for each $1 principal amount
of the Notes represented hereby, is the amount equal to the sum of (a) $1 plus (b) the Additional Amount.

 

The “Additional Amount”, for each $1 principal
amount of the Notes represented hereby will be (subject to the occurrence of a
Disruption Event) $1 multiplied by (i) 31.45%, if the Basket Value is greater
than or equal to 0, or (ii) 0% if the Basket Value is less than 0.

 

The “Reference Currencies” are the Brazilian
Real (BRL), Indonesian Rupiah (IDR), Turkish Lira (TRY) and U.S. Dollar (USD).

 

The “Basket Value” equals the sum of:

 

(i) a quotient, the numerator of which is 0.70183
and the denominator of which is the Settlement Rate for BRL plus

 

(ii) a quotient, the numerator of which is
3052.66361 and the denominator of which is the Settlement Rate for IDR plus

 

(iii) a quotient, the numerator of which is 0.44133
and the denominator of which is the Settlement Rate for TRY plus

 

(iv) a quotient, the numerator of which is -1.0000 and the denominator of which is the
Settlement Rate for USD.

 

The
“Settlement Rate” for each Reference Currency is the Reference Exchange Rate on
the Valuation Date, observed as per the Settlement Rate Option (subject to the
occurrence of a Price Source Unavailability Event).

 

The “Reference Exchange Rates” are the spot
exchange rates for each of the Reference Currencies quoted against the U.S.
dollar expressed as number of currency units per USD 1.

 

The
“Settlement Rate Option” for each Reference Currency is as follows:

 

	
  Reference

  Currency

  	
   

  	
  Settlement Rate Option

  
	
  BRL

  	
   

  	
  The
  Brazilian Real/U.S. Dollar offered rate for U.S. Dollars, expressed as the
  amount of Brazilian Reais per one U.S. Dollar, for settlement in two Business
  Days reported by the Banco Central do Brasil on SISBACEN Data System under
  transaction code PTAX-800 (“Consulta de Cambio” or Exchange Rate Inquiry),
  Option 5 (“Cotacoes para Contabilidade” or Rates for Accounting Purposes),
  which appears on Reuters Screen BRFR Page under the caption “Dolar PTAX” at
  approximately 6:30 pm Sao Paolo time on the Valuation Date

  
	
  IDR

  	
   

  	
  The
  Indonesian Rupiah/U.S. Dollar spot rate at 11:00 a.m., Singapore time,
  expressed as the amount of Indonesian Rupiah per one U.S. Dollar, for
  settlement in two Business Days, reported by the Association of 

  

 

2

 

	
   

  	
   

  	
  Banks
  in Singapore which appears on the Telerate Page 50157 to the right of the
  caption “Spot” under the column “IDR” at approximately 11:30 a.m., Singapore
  time, on the Valuation Date.

  
	
  TRY

  	
   

  	
  The
  spot rate in (A) divided by the spot rate in (B)

  
	
   

  	
   

  	
  (A)
  The Turkish Lira/Euro fixing rate, expressed as the amount of Turkish Lira
  per one Euro which appears on Reuters Screen ECB37 to the right of the
  caption “TRY” at approximately 2:15 p.m., Central European time, on that
  Valuation Date.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (B)
  The U.S. Dollar/Euro fixing rate, expressed as the amount of U.S. Dollar per
  one Euro which appears on Reuters Screen ECB37 to the right of the caption
  “USD” at approximately 2:15 p.m., Central European time, on that Valuation
  Date.

  

 

The
screen or time of observation indicated in relation to any Settlement Rate
Option above shall be deemed to refer to such screen or time of observation as
modified or amended from time to time, or to any substitute screen thereto.

 

The “Valuation Date” is March 17, 2008 or, if such
day is not a Valuation Business Day, the immediately preceding Valuation
Business day.

 

A
“Valuation Business Day” means, with respect to (a) TRY, any day on which the
Trans-European Automated Real-Time Gross Settlement Express Transfer (TARGET)
System is open, and (b) BRL or IDR, any day, other than a Saturday or Sunday,
that is neither a legal holiday nor a day on which commercial banks are
authorized or required by law, regulation or executive order to close
(including for dealings in foreign exchange in accordance with the practice of
the foreign exchange market) in Sao Paolo or Singapore, respectively.

 

A
“Business Day”, notwithstanding any provision in the Indenture, is any day that
is not is not a Saturday or Sunday and that is not a day on which banking
institutions in New York City generally are authorized or obligated by law or
executive order to be closed.

 

Upon the occurrence of a Disruption Event with
respect to any Reference Currency on any day during the term of the notes, the
Calculation Agent shall determine the Additional Amount payable on the Maturity
Date in good faith and in a commercially reasonable manner.

 

A “Disruption Event” means any of the following
events (other than a Price Source Unavailability Event), as determined in good
faith by the Calculation Agent:

 

(A)                              for any Reference Currency other than EUR, the occurrence and/or
existence of an event on any day that has the effect of preventing or making
impossible

 

i)  the
conversion of any Reference Currency into USD through customary legal channels;
or

 

ii)  the
delivery (x) of USD from accounts inside the country for which a Reference
Currency is the lawful currency (such jurisdiction with respect to such
Reference Currency, the “Reference Currency Jurisdiction”) to accounts outside
that Reference Currency Jurisdiction or (y) of any Reference Currency between
accounts inside any Reference Currency Jurisdiction or to a party that is a
non-resident of such Reference Currency Jurisdiction;

 

(B)                                the occurrence of any event causing the Reference Exchange Rate for any
Reference Currency to be split into dual or multiple currency exchange rates;
or

 

3

 

(C)                                the occurrence and/or existence of any event (other than those set
forth in (A) or (B) above or those constituting a Price Source Unavailability
Event) with respect to any Reference Currency that prevents or makes impossible
(x) the Calculation Agent’s ability to calculate the Additional Amount, (y) the
fulfilment of our obligations under the notes, or (z) our ability or the
ability of any of our affiliates through which we hedge our position under the
notes to hedge such position or to unwind all or a material portion of such
hedge.

 

Upon the occurrence of a Price Source Unavailability
Event with respect to a Reference Currency, the Settlement Rate for the
affected Reference Currency will be determined in accordance with the Fallback
Rate Observation Methodology.

 

A
“Price Source Unavailability Event” means, as determined in good faith by the
Calculation Agent, the Settlement Rate being unavailable for a Reference
Currency, or the occurrence of an event (other than an event constituting a
Disruption Event) that generally makes it impossible to obtain the Settlement Rate
for a Reference Currency, on the relevant Valuation Date.

 

The
“Fallback Rate Observation Methodology” means that the Settlement Rate for a
Reference Currency will be calculated on the basis of the arithmetic mean of
the applicable spot quotations received by the Calculation Agent at
approximately 10:00 a.m., New York City time, on the Valuation Business Day
next succeeding the Valuation Date for the purchase or sale for deposits in the
Reference Currency by the New York offices of three leading banks engaged in
the interbank market (selected in the sole discretion of the Calculation Agent)
(the “Reference Banks”). If fewer than three Reference Banks provide spot
quotations then the Settlement Rate for such Reference Currency will be
determined by the Calculation Agent in good faith and in a commercially
reasonable manner.

 

Except as provided below, the Redemption Amount may,
at the option of the Company, be made by check mailed to the person entitled
thereto at such person’s address as it appears on the registry books of the
Company.

 

Payment of the Redemption Amount will be made in
immediately available funds upon surrender of this Note at the corporate trust
office or agency of the Trustee (or any duly appointed Paying Agent) maintained
for that purpose in the Borough of Manhattan, New York City (the “Corporate
Trust Office”), provided that this Note is presented to the Trustee (or any
such Paying Agent) in time for the Trustee (or any such Paying Agent) to make
such payments in such funds in accordance with its normal procedures.

 

The Company will pay any administrative costs
imposed by banks in making payments in immediately available funds, but any
tax, assessment or governmental charge imposed upon payments hereunder,
including, without limitation, any withholding tax, will be borne by the Holder
hereof.

 

References herein to “USD”, “U.S. dollars” or “U.S.$”
or “$” are to the coin or currency of the United States as at the time of
payment is legal tender for the payment of public and private debts.

 

4

 

REFERENCE IS HEREBY MADE TO THE FURTHER PROVISIONS
OF THIS NOTE SET FORTH ON THE REVERSE HEREOF. SUCH FURTHER PROVISIONS SHALL FOR
ALL PURPOSES HAVE THE SAME EFFECT AS IF SET FORTH AT THIS PLACE.

 

This Note shall not be valid or become obligatory
for any purpose until the certificate of authentication hereon shall have been
signed by the Trustee under the Indenture.

 

5

 

IN WITNESS WHEREOF, Lehman Brothers Holdings Inc.
has caused this instrument to be signed by its Chairman of the Board, its
President, its Vice Chairman, its Chief Financial Officer, one of its Vice
Presidents or its Treasurer, by manual or facsimile signature under its
corporate seal, attested by its Secretary or one of its Assistant Secretaries
by manual or facsimile signature.

 

	
  Dated: March 22, 2006

  	
   

  
	
   

  	
   

  
	
  [SEAL]

  	
  LEHMAN BROTHERS HOLDINGS INC.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Attest:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  

 

 

TRUSTEE’S CERTIFICATE OF AUTHENTICATION

 

This
is one of the Securities of the series designated herein referred to in the
within-mentioned Indenture.

 

CITIBANK,
N.A.

  as
Trustee

 

 

	
  By:

  	
   

  	
   

  
	
   

  	
  Authorized Officer

  

 

6

 

[REVERSE OF
NOTE]

 

LEHMAN BROTHERS HOLDINGS INC.

MEDIUM-TERM NOTES, SERIES H

PRINCIPAL PROTECTED DIGITAL BASKET FX-LINKED
NOTE

DUE MARCH 24, 2008

 

Section 1. General. This Note is one of a
duly authorized series of Notes of the Company designated as the Medium-Term
Notes, Series H, Principal Protected Digital Basket FX-Linked Note (herein
called the “Notes”). The Notes are one of an indefinite number of series of
debt securities of the Company (collectively, the “Securities”) issued or
issuable under and pursuant to an indenture dated as of September 1, 1987, as
amended and supplemented (the “Indenture”), duly executed and delivered by the
Company and Citibank, N.A., as Trustee (herein called the “Trustee”), to which
Indenture and all indentures supplemental thereto reference is hereby made for
a description of the rights, limitations of rights, obligations, duties and
immunities thereunder of the Trustee, the Company and the holders of the
Securities. The separate series of Securities may be issued in various
aggregate principal amounts, may mature at different times, may bear interest
(if any) at different rates, may be subject to different redemption provisions
or repurchase rights (if any), may be subject to different sinking, purchase or
analogous funds (if any), may be subject to different covenants and Events of
Default and may otherwise vary as in the Indenture provided.

 

Section 2. Principal Amount for Indenture
Purposes. For the purpose of determining whether Holders of the requisite
amount of Notes of this series outstanding under the Indenture have made a
demand, given a notice or waiver or taken any other action, the principal
amount of this Note will be deemed to be the principal amount of this Note then
outstanding.

 

Section 3. Modification and Waivers. The
Indenture contains provisions permitting the Company and the Trustee, with the
consent of the Holders of not less than 66-2/3% in aggregate principal amount
of each series of the Securities at the time Outstanding to be affected,
evidenced as in the Indenture provided, to execute supplemental indentures
adding any provisions to or changing in any manner or eliminating any of the
provisions of the Indenture or of any supplemental indenture or modifying in
any manner the rights of the holders of the Securities of all such series;
provided, however, that no such supplemental indenture shall, among other
things, (i) change the fixed maturity of any Security, or reduce the Redemption
Amount or the principal amount thereof, or reduce the rate or extend the time
of payment of interest thereon or reduce any premium or other amount payable on
redemption, or make the Redemption Amount or the principal amount thereof,
premium or other amount payable, if any, or interest thereon payable in any
coin or currency other than that hereinabove provided, without the consent of
the Holder of each Security so affected, or (ii) change the place of payment on
any Security, or impair the right to institute suit for payment on any
Security, or reduce the aforesaid percentage of Securities, the holders of
which are required to consent to any such supplemental indenture, without the
consent of the holders of each Security so affected. It is also provided in the
Indenture that, prior to any declaration accelerating the maturity of any
series of Securities, the holders of a majority in aggregate principal amount
of the Securities of such series Outstanding may on behalf of the holders of
all the Securities of such series waive any past

 

 

default
or Event of Default under the Indenture with respect to such series and its
consequences, except a default in the payment of interest, if any, on the
Redemption Amount or the principal amount, or premium, if any, on any of the
Securities of such series, or in the payment of any sinking fund installment or
analogous obligation with respect to Securities of such series. Any such
consent or waiver by the Holder of this Note shall be conclusive and binding
upon such Holder and upon all future holders and owners of this Note and any
Notes of this series which may be issued in exchange or substitution herefor,
irrespective of whether or not any notation thereof is made upon this Note or
such other Notes of this series.

 

Section 4. Obligations Unconditional. No
reference herein to the Indenture and no provisions of this Note or of the
Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the Redemption Amount or the principal
amount on this Note at the place, at the respective times, at the rate, and in
the coin or currency herein prescribed.

 

Section 5. Defeasance. The Indenture contains
provisions for the discharge of the Indenture and defeasance at any time of the
indebtedness on this Note upon compliance by the Company with certain
conditions set forth therein, which provisions apply to this Note.

 

Section 6. Authorized Form and Denominations.
The Notes of this series are issuable in registered form, without coupons. Each
Note will be issued initially as either a Global Security or a Certificated
Note, at the option of the Company, in denominations of $10,000 or whole
multiples of $10,000, either at the office or agency to be designated and
maintained by the Company for such purpose in the Borough of Manhattan, New
York City, pursuant to the provisions of the Indenture or at any of such other
offices or agencies as may be designated and maintained by the Company for such
purpose pursuant to the provisions of the Indenture, and in the manner and
subject to the limitations provided in the Indenture, but without the payment
of any service charge, except for any tax or other governmental charges imposed
in connection therewith. Notes of this series are exchangeable for a like
aggregate principal amount of Notes of this series of a different authorized
denomination, except that Global Securities will not be exchangeable for
Certificated Notes of this series.

 

Section 7. Registration of Transfer. As
provided in the Indenture and subject to certain limitations as therein set
forth, the transfer of this Note is registrable in the Security Register, upon
surrender of this Note for registration of transfer, at the Corporate Trust
Office or agency in a Place of Payment for this Note, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Security Registrar requiring such written instrument of
transfer duly executed by, the Holder hereof or his attorney duly authorized in
writing, and thereupon one or more new Notes of this series, of authorized
denominations and for the same aggregate principal amount, will be issued to
the designated transferee or transferees.

 

If at any time the Depository notifies the Company
that it is unwilling or unable to continue as Depository or if at any time the
Depository shall no longer be eligible under the Indenture, the Company shall
appoint a successor Depository. If a successor Depository for the Notes of this
series is not appointed by the Company within 90 days after the Company
receives such notice or becomes aware of such ineligibility, the Company will
issue, and the Trustee will authenticate and deliver, Notes of this series in
definitive form in an aggregate principal amount equal to the principal amount
of this Note.

 

 

No service charge shall be made for any such
registration of transfer or exchange, but the Company may require payment of a
sum sufficient to cover any tax or other governmental charge that may be
imposed in connection therewith.

 

Prior to due presentment of this Note for
registration of transfer, the Company, the Trustee and any agent of the Company
or the Trustee may treat the person in whose name this Note is registered as
the owner hereof for all purposes, and neither the Company nor the Trustee nor
any agent of the Company or of the Trustee shall be affected by any notice to
the contrary.

 

Section 8. Events of Default. If an Event of
Default with respect to Notes of this series shall occur and be continuing, the
amount declared due and payable upon any acceleration of the Notes will be
determined by the Calculation Agent and will equal the Redemption Amount
calculated as though the maturity of the Notes were the date of early repayment
in the manner and with the effect provided in the Indenture. The amount payable
to the Holder hereof upon any acceleration permitted under the Indenture will
be equal to the Redemption Amount calculated as though the date to which the
maturity has been accelerated were the Maturity Date as determined by the
Calculation Agent.

 

Section 9. No Recourse Against Certain Persons.
No recourse for the payment of the Redemption Amount or for any claim based
hereon or otherwise in respect hereof, and no recourse under or upon any
obligation, covenant or agreement of the Company in the Indenture or any
Indenture supplemental thereto or in any Note, or because of the creation of
any indebtedness represented thereby, shall be had against any incorporator,
stockholder, officer or director, as such, past, present or future, of the
Company or of any successor corporation, either directly or through the Company
or any successor corporation, whether by virtue of any constitution, statute or
rule of law or by the enforcement of any assessment or penalty or otherwise,
all such liability being, by the acceptance hereof and as part of the
consideration for the issue hereof, expressly waived and released.

 

Section 10. Tax Treatment. The Company
agrees, and by acceptance of beneficial ownership interest in the Notes of this
series, each Holder of such Notes will be deemed to have agreed, for United
States federal income tax purposes, (i) to treat the Notes of this series as
indebtedness that is subject to Treas. Reg. Sec. 1.1275-4 (the “Contingent
Payment Regulations”) and (ii) to be bound by the Company’s determination of
the “comparable yield” and “projected payment schedule,” within the meaning of
the Contingent Payment Regulations, with respect to the Notes of this series.

 

Section 11. Defined Terms. All terms used but
not defined in this Note are used herein as defined in the Indenture.

 

Section 12. GOVERNING LAW. THIS NOTE SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

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