ASSET PURCHASE AGREEMENT

QuickLinks -- Click here to rapidly navigate through this document

EXHIBIT 2.1

ASSET PURCHASE AGREEMENT

BETWEEN

MERCER INTERNATIONAL INC.

AND

0706906 B.C. LTD.

AND

KPMG INC.

Dated November 22, 2004

SANGRA MOLLER

FASKEN MARTINEAU DUMOULIN LLP

TABLE OF CONTENTS

				Page
1.0		INTERPRETATION		2
1.1		Definitions		2
1.2		Other Terms		16
1.3		Gender and Number		17
1.4		Currency		17
1.5		Currency Conversion and Valuation		17
1.6		Disclosure Letter and Exhibits		17
1.7		Section Headings and References		17
1.8		Knowledge		17
1.9		Vendor's Statements		18
1.10		Time of Essence		18
2.0		PURCHASE AND SALE OF ASSETS		18
2.1		Purchase and Sale of Assets		18
2.2		Purchase Price		18
2.3		Payment		18
2.4		Allocation of Purchase Price		19
2.5		Determination of Estimated Working Capital		19
2.6		Preparation of Post-Closing Working Capital Statement		20
2.7		Closing Adjustments		21
2.8		Cost of Accountants		22
2.9		Legend		22
2.10		Arbitration		22
3.0		CLOSING MATTERS		23
3.1		Closing		23
3.2		Transfer and Delivery of Purchased Assets		23
3.3		Assumed Obligations		23
3.4		Excluded Liabilities and Indemnity		24
3.5		Security for Pre-Closing Payables		25
3.6		Certainty		25
3.7		Sales and Transfer Taxes		25
3.8		Goods and Services Tax and Harmonized Sales Tax Election		26
3.9		B.C. Social Service Tax		26
3.10		Unassignable Contracts and Licences and Permits		26
4.0		REPRESENTATIONS AND WARRANTIES		27
4.1		The Vendor		27
4.2		Mercer and the Purchaser		27
4.3		Survival		27
4.4		Purchaser's Acknowledgement		28
4.5		Limitations of Liability		28
4.6		Payments		30
5.0		COVENANTS		30
5.1		Access and Information		30
5.2		Meetings		31
5.3		Site Investigations		31

5.4		Filings		31
5.5		Disclosure of Information		32
5.6		Operations Until Closing		33
5.7		Negative Covenants of the Vendor		35
5.8		Efforts to Obtain Consents or Approvals		36
5.9		Court Approvals		38
5.10		Celgar Name		38
5.11		Notification Covenant regarding Representations		38
5.12		Execution of Other Documents		38
6.0		CONDITIONS OF CLOSING		38
6.1		Mutual Conditions		38
6.2		Conditions for the Benefit of the Purchaser		40
6.3		Conditions for the Benefit of the Vendor		41
6.4		Termination		41
6.5		Expense Payment		42
6.6		Consideration		43
7.0		CLO S ING MATTERS		43
7.1		Vendor's Closing Documents		43
7.2		Mercer's and the Purchaser's Closing Documents		44
7.3		Assignment of Lock-up Agreement and Registration Rights Agreement		45
7.4		Terms of Closing		46
7.5		Books and Records		46
8.0		EMPLOYEE MATTERS		46
8.1		Definitions		46
8.2		Hourly Employees		47
8.3		Salaried Employees		48
8.4		Labour Disputes		48
8.5		Termination Compensation		48
8.6		Purchaser Not Responsible		48
8.7		Purchaser Responsible		49
8.8		Employee Loans		49
8.9		Payroll		49
9.0		MERCER OBLIGATIONS		49
9.1		Obligations of Mercer		49
10.0		RISK OF LOSS		49
10.1		Risk of Loss		49
10.2		Pre-Closing Loss		49
10.3		Material Loss		50
11.0		POST-CLOSING MATTERS		50
11.1		Possession Following Time of Closing		50
11.2		Maintain Existence		50
11.3		Post-Closing Access		50
11.4		Transitional Services		51
11.5		Administration of Pension Plans		51
12.0		MISCELLANEOUS		51
12.1		Amendment and Modification; Waiver		51

ii

12.2		Expenses		51
12.3		Public Disclosure		51
12.4		Assignment		52
12.5		Entire Agreement		52
12.6		Parties in Interest		52
12.7		Further Assurances		52
12.8		Counterparts		52
12.9		Performance on Holidays		52
12.10		Notices		53
12.11		Governing Law		55

 

EXHIBIT A — Representations and Warranties of the Vendor
EXHIBIT B — Representations and Warranties of the Purchaser and Mercer
EXHIBIT C — Vesting Order
EXHIBIT D — Registration Rights Agreement
EXHIBIT E — Lock-up Agreement
EXHIBIT F — Assumption Agreement

iii

ASSET PURCHASE AGREEMENT

THIS AGREEMENT is made the 22nd day of November, 2004.

BETWEEN:

MERCER INTERNATIONAL INC. , a business trust organized under the laws of the State of Washington, having an office at 14900 Interurban Avenue South, Suite 282, Seattle, Washington, 98168

("Mercer")

AND:

0706906 B.C. LTD. , a corporation organized under the laws of British Columbia, having an office at Suite 1790, 400 Burrard Street, Vancouver, B.C., V6C 3A6

(the "Purchaser")

AND:

KPMG INC. , in its capacity as the receiver of all the assets and undertaking of Stone Venepal (Celgar) Pulp Inc. having an office at Suite 900, 777 Dunsmuir Street, Vancouver, B.C., V7Y 1K3

(the "Vendor")

WHEREAS:

A.    The Company previously owned and operated the Northern Bleached Softwood Kraft ("NBSK") pulp mill situate at or near Castlegar, British Columbia (the "Pulp Mill");

B.    The Company was assigned into bankruptcy under the Bankruptcy and Insolvency Act (Canada) on or about July 23, 1998 and KPMG Inc. was appointed as the trustee in bankruptcy of the Company (the "Trustee");

C.    Concurrently with the Company being assigned into bankruptcy, the Banks appointed the Vendor as the receiver of all the assets and undertaking of the Company pursuant to the Indentures (the "Receiver");

D.    KPMG Inc., in its capacity as trustee in bankruptcy of the Company, has operated the Pulp Mill and the Business since August 28, 1998; and

1

E.    The Vendor wishes to sell substantially all of the assets and undertaking used in connection with and relating to the Business, and the Purchaser wishes to purchase such assets (other than certain excluded assets), on the terms and conditions set out herein.

NOW, THEREFORE, in consideration of the covenants, representations, warranties and agreements contained herein, the Parties hereto covenant and agree as follows:

1.      INTERPRETATION

1.1.     Definitions .    Unless otherwise specifically provided or the context otherwise requires, where used in this Agreement (including the Exhibits hereto) and the Recitals to this Agreement, the following terms shall have the meanings set forth or as referenced below:

1.1.1

"1933 Act" means the United States Securities Act of 1933 , as amended.

1.1.2

"Accountants" means Deloitte & Touche LLP, Chartered Accountants.

1.1.3

"Accountants' Determination" has the meaning ascribed thereto in Section 2.6.

1.1.4

"Accrued Employee Liabilities" means the aggregate liabilities of the Vendor and the Company for accrued statutory and floating holiday pay and regular and supplementary vacation pay, sick pay, banked overtime, floater hours, alternative days off, deferred statutory holiday pay, personal days or other paid time-off as set forth in the Books and Records with respect to the Employees as at the Closing Date.

1.1.5

"Affiliate" with respect to any Person means another Person which is affiliated with the first mentioned person within the meaning thereof in the Securities Act (British Columbia).

1.1.6

"Agreement" means this agreement, the recitals hereto and all Exhibits attached hereto, in each case, as they may be amended or supplemented from time to time in accordance with this Agreement, and the expressions "hereof", "herein", "hereto", "hereunder", "hereby", and similar expressions, when used in this Agreement, refer to this Agreement as a whole and not to any particular provision of this Agreement.

1.1.7

"Applicable Law" means any domestic or foreign statute, law (including the common law), ordinance (including any Environmental Laws), rule, regulation, by-law (zoning or otherwise), or Order that applies to the subject person, entity, property or securities.

1.1.8

"Arbitration Panel Determination" has the meaning ascribed thereto in Section 2.10.3.

2

1.1.9

"Assumption Agreement" means the assumption agreement to be entered into between the Vendor, the Purchaser and Mercer in the form attached hereto as Exhibit F.

1.1.10

"Assumed Obligations" has the meaning ascribed thereto in Section 3.3.

1.1.11

"Banks" mean Royal Bank of Canada and The Royal Bank of Scotland Plc, acting in its capacity as agent for, National Westminster Bank Plc (a chartered bank under the laws of England), being the lenders having the benefit of certain security over the assets of the Company which secure the indebtedness of the Company to the Banks or a trustee.

1.1.12

"Benefit Plans" means all bonus, deferred compensation, incentive compensation, share purchase, share appreciation and share option, severance or termination pay, hospitalization or other medical benefits, life or other insurance, dental, disability, salary continuation, vacation, supplemental unemployment benefits, profit-sharing, mortgage assistance, employee loan, employee assistance, pension, retirement or supplemental retirement plan or agreement (including any defined benefit or defined contribution pension plan and any group registered retirement savings plan), and each other employee benefit plan or agreement (whether oral or written, formal or informal, funded or unfunded, including any post-retirement benefits), sponsored, maintained or contributed to or required to be contributed to by the Vendor or the Company for the benefit of any of the employees of the Business, whether or not insured and whether or not subject to any Applicable Law, except that the term "Benefit Plans" shall not include the Canada Pension Plan or plans administered pursuant to applicable provincial health, workers' compensation and employment insurance legislation.

1.1.13

"Books and Records" means all books and records in the possession or control of the Vendor, or any of its Affiliates, related to the Business or the Purchased Assets or the Company including operating, inventory, personnel, payroll and customer records, any legal and accounting records, all sales and promotional literature, customer and supplier correspondence and files, and software systems related to the use and operation of the Business or the Purchased Assets, together with, in the case of any such information that is stored electronically, the media on which the same is stored, whether maintained at the Pulp Mill or otherwise.

1.1.14

"Business" means the business of producing NBSK pulp and other related business and operations carried on by the Vendor at the Pulp Mill including, without limitation, the marketing and sale of the NBSK pulp so produced.

1.1.15

"Business Day" means any day other than a Saturday, a Sunday or a statutory holiday in Vancouver, British Columbia, London, England or New York, New York.

3

1.1.16

"Certified Working Capital" means the Working Capital as shown on the Post-Closing Working Capital Statement or, if recalculated by the Accountants in accordance with Section 2.6 and/or by arbitration in accordance with Section 2.10, the final and binding determination of Working Capital pursuant to those Sections.

1.1.17

"Claims" has the meaning as ascribed thereto in Section 4.5.

1.1.18

"Closing" means the completion of the purchase and sale of the Purchased Assets as set out in Section 2.1.

1.1.19

"Closing Adjustments" means the financial adjustments referred to in Section 2.7.

1.1.20

"Closing Date" has the meaning as ascribed thereto in Section 3.1.

1.1.21

"Collective Agreement" means the collective agreement listed in the Disclosure Letter.

1.1.22

"Company" means Stone Venepal (Celgar) Pulp Inc., a corporation organized under the laws of Canada (formerly known as Power Consolidated (China) Pulp Inc.) and doing business as Celgar Pulp Company, and its predecessors.

1.1.23

"Confidentiality Agreement" means the confidentiality agreement dated July 16, 2004, between the Vendor and Mercer.

1.1.24

"Consents" means all necessary third party notices, consents and approvals to the assignment of the Contracts, Licences and Permits and Intellectual Property to the Purchaser and all necessary consents, authorizations, registrations and approvals required by any Governmental Authority relating to the transactions contemplated by this Agreement, including, but not limited to, those listed in the Disclosure Letter.

1.1.25

"Contaminants" means any pollutant, contaminant, waste, toxic, corrosive or hazardous substance, deleterious substance, dangerous substance, dangerous good or hazardous or special waste as defined in, or prohibited or regulated by, any Environmental Laws including, without limitation, asbestos, asbestos-containing materials, radioactive materials, urea formaldehyde and PCBs (polychlorinated biphenyls).

1.1.26

"Contamination" is as defined in Part 4 of the Environmental Management Act (British Columbia).

1.1.27

"Contracts" means, collectively, the Fibre Supply Agreements, the Material Contracts, the Leases and the Water Lots.

4

1.1.28

"Court" means the British Columbia Supreme Court having jurisdiction over the Proceedings.

1.1.29

"Current Liabilities" means the Accrued Employee Liabilities and the current portion of obligations under the capital leases related to or used in the Business.

1.1.30

"Dischargeable Encumbrances" means the list of specific Encumbrances set forth in the Disclosure Letter to be discharged by the Vendor on or before Closing.

1.1.31

"Disclosure Letter" means the disclosure letter dated November 22, 2004 relating to certain matters concerning the Vendor, the Company, the Business and the Purchased Assets and delivered by the Vendor to the Purchaser.

1.1.32

"Employees" means the employees listed in the Disclosure Letter related to the Business.

1.1.33

"Encroached Lands" means real property, fee simple title to which is held by third parties, being encroached upon by any portion of the Pulp Mill, and any buildings, structures, appurtenances, fixtures, private roads and other improvements utilized in connection with the Business and any portions thereof.

1.1.34

"Encumbrance" means any encumbrance of any kind whatsoever and includes, without limitation, a security interest, mortgage, lien, hypothec, pledge, assignment, charge, title retention agreement, option, security under Section 426 or Section 427 of the Bank Act (Canada), trust or deemed trust (whether contractual, statutory or otherwise arising), any covenant or other agreement, restriction or limitation relating to the transfer of the Purchased Assets and any (a) easement, (b) restrictive covenant, (c) right of way, (d) restriction, (e) encroachment, (f) title reservation of any kind with respect to real property, or (g) adverse claim of any kind or character whatsoever.

1.1.35

"Environment" means the air above the land, the water (including surfacewater and groundwater) in, on, adjoining and under the land and the land (including soil, sediments and lands submerged under water) as well as all animals, plants, fish and other species using or living in such areas.

1.1.36

"Environmental Laws" means all federal, provincial, municipal, or local laws, statutes, regulations, by-laws or rules, Orders, Environmental Permits issued or made by any Governmental Authority, as well as any standards, directions, policies, interpretations, codes, guidelines, or other requirements having the force of law and made by any Governmental Authority, now or hereafter in force, and the common law relating in whole or in part to the protection or preservation of the Environment, human health, occupational health and safety or transportation of dangerous goods and includes those laws relating to the storage, generation, use, handling, manufacture, processing, transportation,

5

 

import, export, treatment, remediation, release or disposal of any Contaminants and includes, without limitation, the Canadian Environmental Protection Act (Canada), the Fisheries Act (Canada), the Hazardous Products Act (Canada), the Transportation of Dangerous Goods Act (Canada), the Transportation of Dangerous Goods Act (British Columbia), the Environmental Management Act (British Columbia), the Environmental Management Amendment Act (British Columbia), the Water, Land and Air Protection Statutes Amendment Act (British Columbia) and all rules and regulations promulgated from time to time thereunder including the Contaminated Sites Regulation (British Columbia) as amended or replaced from time to time hereafter.

1.1.37

"Environmental Liabilities" means any and all liability, claim, demand, obligation, cause of action, remediation, cost recovery action, investigation, proceeding, Order, violation, damage, Loss, cost, expense, judgment, penalty, or fine asserted by any third party (including, without limitation, any private party or Government Authority), arising out of, or relating to the Environment or Environmental Laws. "Environmental Liabilities" includes, without limitation, any cost of removing or disposing of any Contaminants, any cost relating to enforcement or remedial actions, and any other cost or expense whatsoever, related to emissions or effluent containing Contaminants, whether onto or from the Lands.

1.1.38

"Environmental Permits" means all permits, certificates, approvals, consents, authorizations, registrations, licences, exemptions, waivers or other Orders issued, granted, conferred, created or required by any Governmental Authority pursuant to any Environmental Laws including those listed in the Disclosure Letter.

1.1.39

"Estimated Working Capital Amount" means the amount set out in the Estimated Working Capital Statement, as determined in accordance with Section 2.5.

1.1.40

"Estimated Working Capital Statement" means the statement of estimated Working Capital prepared by the Vendor in accordance with GAAP applied on a basis consistent with the past practice of the Vendor (except as specifically contemplated by the definition of Working Capital and the valuation contemplated by Section 1.5) and certified by an authorized officer of the Vendor.

1.1.41

"Exchange Act" means the United States Securities Exchange Act of 1934 , as amended.

1.1.42

"Excluded Assets" means the following assets of the Vendor, the Trustee and/or the Company used or related to the Business:

6

1.1.42.1		cash on hand, term deposits and similar cash items derived from the operation of the Business prior to the Closing Date;
1.1.42.2		accounts receivable arising from the operation of the Business prior to the Closing Date, including sales of NBSK pulp or the sale of products produced by the Business prior to the Closing Date;
1.1.42.3		all income tax instalments and the entitlement, if any, to the return or rebate of taxes for the period prior to the Closing Date, including input tax credits under the Excise Tax Act (Canada);
1.1.42.4		inventories of Finished Goods produced at the Pulp Mill prior to the Closing Date and which are stamped as "KPMG" or an equivalent marking;
1.1.42.5		any Contract or Licence and Permit, the assignment of which to the Purchaser requires the consent of a third party, and where such consent has not been obtained as at the Closing Date or within the period of 90 days referred to in Section 3.10, together with those contracts of the Vendor and/or the Company which by their terms are not assignable and which are identified as such in the Disclosure Letter;
1.1.42.6		insurance policies and unfulfilled purchase orders relating to the volumes of Finished Goods produced prior to the Closing Date which are stamped as "KPMG" or an equivalent marking;
1.1.42.7		pre-paid insurance, pre-paid freight relating to the Finished Goods produced prior to the Closing Date and any other pre-paid expenses, if any, relating to an Excluded Asset;
1.1.42.8		the benefit of any claims of the Vendor in respect of the litigation pertaining to the "IMO Turbine" and the lime kiln insurance claim;
1.1.42.9		proceeds of insurance arising from any insured loss occurring prior to the Closing Date and payable: (a) in reimbursement of repair and replacement expenses paid by the Vendor; or (b) in respect of business interruption or similar damages incurred by the Vendor; and
1.1.42.10		any of the Vendor's internally generated reports, accounts, valuations, communications and reports to the Banks, correspondence and other materials to and from legal counsel and other solicitor-client privileged information, and any other records relating to the administration of the receivership of the Company.

1.1.43

"Excluded Liabilities" has the meaning ascribed thereto in Section 3.4.

7

1.1.44

"Fibre Supply Agreements" means the agreements listed in the Disclosure Letter for the supply of wood chips, pulp logs, pulpwood and wood residues for processing at the Pulp Mill.

1.1.45

"Financial Statements" means the financial statements of the Company as defined in paragraph 14 of Exhibit A hereto and attached to the Disclosure Letter.

1.1.46

"Finished Goods" means finished product produced in the Business wrapped, bailed and identified by lot number and ready for shipment to customers, whether or not appropriated to a specific customer.

1.1.47

"Form S-3" means a registration statement on Form S-3 pursuant to the 1933 Act.

1.1.48

"GAAP" means generally accepted accounting principles in Canada, applied consistently.

1.1.49

"Goodwill" means the goodwill of the Business and information and documents related thereto, including lists of customers and suppliers, credit information research materials, and research and development files, together with the exclusive right to represent the Purchaser as carrying on the Business as successor to the Vendor and the use of the names "Celgar" and "Celgar Pulp Company".

1.1.50

"Governmental Authority" means any domestic or foreign government whether federal, provincial, municipal, state or local and any Person, agency, authority, court tribunal, commission or other regulatory body of any kind whatsoever constituted by such government, including the SEC.

1.1.51

"Indentures" means the deeds of trust, mortgages and other security described in the Disclosure Letter.

1.1.52

"Intangible Property" means all right, title and interest of the Vendor and/or the Company in and to the intangible assets and property used in or related to the Business including, without limitation, all telephone numbers, facsimile numbers and email addresses and all other intangible assets and property used in or related to the Business listed in the Disclosure Letter.

1.1.53

"Intellectual Property" means all right, title and interest of the Vendor and/or the Company in and to the intellectual property used in or related to the Business including, without limitation, issued patents, inventions, pending applications for patents, Trade Names, copyrights, copyright registrations and applications, industrial designs and process, royalty rights, or other proprietary rights (and any applications related thereto), ISO registrations, domain names, websites and the

8

 

content therein, computer software (including licences to use computer software), engineering drawings and plans, technical specifications and ratings data, know-how, trade secrets, instruction manuals, formulae, industrial and production technology, process control technology, and similar rights used in the ordinary course of the Business, including, without limitation, the intellectual property listed in the Disclosure Letter.

1.1.54

"Inventory" means all of the inventory, other than the Finished Goods, of the Vendor and the Company used in or related to the Business, including, without limitation, wood chips, pulpwood, pulp logs, other wood residues, work-in-process, chemicals and Mill Stores and Supplies.

1.1.55

"Lands" means (i) the fee simple lands and premises owned by the Vendor, the Trustee and/or the Company upon which the Pulp Mill is situated and those related to the Business including the lands listed and described in Section 1.1.55 of the Disclosure Letter, together with all premises, buildings, structures, appurtenances, fixtures, private roads and other improvements situated thereon, but excluding portions thereof situated on the Encroached Lands, and (ii) any and all right, title and interest, if any, of the Vendor and/or Company relating to the Encroached Lands, together with all premises, buildings, structures, appurtenances, fixtures, private roads and other improvements, including portions thereof, situated thereon.

1.1.56

"Leased Premises" means the leased premises (other than the Water Lots), covenants, rights-of-way, easements, licenses, rights-to-purchase or similar rights listed in the Disclosure Letter and other similar rights related to the Business and any other rights of a similar nature issued, subsequent to the date of this Agreement, to the Vendor and/or the Company for the benefit of the Business and which, in each case, do not expire before the Closing Date.

1.1.57

"Leasehold Improvements" means the leasehold improvements related to the Business situated on the Leased Premises.

1.1.58

"Leases" means the leases related to the Leased Premises listed in the Disclosure Letter.

1.1.59

"Letter Agreement" means the letter agreement between the Vendor and Mercer dated October 8, 2004, as amended.

1.1.60

"Licences and Permits" means all the licences, permits, certificates, approvals, consents, registrations, orders, grants and other authorizations related to the Business including, but not limited to, the Environmental Permits and those listed in the Disclosure Letter.

1.1.61

"Lock-up Agreement" means, subject to Section 7.3, the lock-up agreement among the Vendor, Mercer and RBC Capital Markets entered into concurrently

9

 

herewith and made effective as at the Time of Closing, an unexecuted copy of which is attached hereto as Exhibit E.

1.1.62

"Loss" means any and all loss, liability, damage, cost or expense actually suffered or incurred by a Party (including, without limitation, the costs and expenses of all actions, suits, proceedings, hearings, investigations, charges, complaints, claims, demands, injunctions, assessments, judgments, Orders, rulings, dues, penalties, fines, amounts paid in settlement or compromise, including court costs and reasonable legal fees and expenses).

1.1.63

"Material Consents" means those material Consents identified in the Disclosure Letter with an asterisk (*) annotation.

1.1.64

"Material Contracts" means those contracts, equipment leases, commitments, instruments, product warranties, guarantees of performance and binding obligations and arrangements related to the Business, and listed in the Disclosure Letter, and any contracts entered into by or on behalf of the Vendor or the Trustee subsequent to the date of this Agreement of the type referred to in Section 1.1.64.3 of this definition and any other contracts entered into by the Vendor or the Trustee subsequent to the date of this Agreement in accordance with its terms which, in each case, do not expire prior to the Time of Closing, and which, in the case of those contracts entered into after the date hereof, include only the following contracts, which, in each case, have been disclosed in writing to the Purchaser prior to the Closing Date:

1.1.64.1		unfilled purchase orders except those that form part of the Excluded Assets;
1.1.64.2		forward commitments by the Vendor or the Trustee for supplies, services or materials for the Business entered into in the ordinary course of the Business; and
1.1.64.3		contracts for supplies and services for the Business entered into by the Vendor or the Trustee, including, without limitation, annual maintenance and capital items, in the ordinary course of the Business.

1.1.65

"Materially Adverse" or "Material Adverse Effect" means with respect to a Person, fact, circumstance, event, thing, term, right, obligation or other matter that (alone or in combination with one or more related Persons, facts, circumstances, events, things, terms, rights, obligations or other matters) such Person, fact, circumstance, event, thing, term, right, obligation or other matter significantly adversely affects or could reasonably be expected to significantly adversely affect the Purchased Assets, or the financial condition, results of operations, prospects or liabilities of the Business taken as a whole, other than those facts, circumstances, events, things, terms, rights, obligations or other matters which result from any changes: (a) in domestic or international

10

 

economic conditions, including fluctuations in currencies; (b) general market conditions in the pulp and paper industry, including commodity price changes or fluctuations in market demand; or (c) attributable solely to the announcement of the transactions contemplated by this Agreement.

1.1.66

"Mercer Publicly Filed Documents" has the meaning ascribed thereto in paragraph 8 of Exhibit B hereto.

1.1.67

"Mercer Shares" means the class of securities in the capital of Mercer designated as "shares of beneficial interest" as referred to in Mercer's amended Form S-3 filed with the SEC on January 29, 2004, being the class of securities currently quoted on the Nasdaq National Market under symbol "MERCS" and listed on the TSX under symbol "MRI.U".

1.1.68

" Mercer Share Price " means the greater of: (a) $7.75; and (b) the amount determined by dividing the aggregate sale price of all Mercer Shares sold on the Nasdaq National Market during the period of 20 consecutive trading days ending on the day that is five Business Days prior to the Closing Date by the total number of Mercer Shares sold on the Nasdaq National Market during such period expressed to the third decimal point; provided however, if the Mercer Share Price is determined to be equal to or greater than $9.50, the Mercer Share Price shall be $9.50.

1.1.69

"Mill Stores and Supplies" means the mill stores (including all maintenance and repair supplies and spares), supplies (including fuels, grease and all rotables but excluding chemicals) and raw materials of the Vendor and the Company related to the Business as historically referred to in the notes to the Financial Statements as "other raw materials and supplies", a subcategory of Inventory.

1.1.70

"Order" means any order, decision, determination, judgment, injunction, decree, award or writ of any court, arbitrator or Governmental Authority, or other Person who is authorized to make legally binding determinations.

1.1.71

"Other Transaction Documents" has the meaning ascribed thereto in paragraph 1 of Exhibit A.

1.1.72

"Parties" means Mercer, the Purchaser and the Vendor, and "Party" means any one of them.

1.1.73

"Payroll" means those monies paid or payable to Employees in respect of work or pursuant to the provisions of a contract or agreement, including, but not limited to, the Collective Agreement and any agreement in respect of severance, and including money required to be paid for an Employee's benefit to a fund, insurer or other person or to a Government Authority in respect of statutory withholdings, but does not include accrued and unpaid vacation pay.

11

1.1.74

"Permitted Encumbrances" means:

1.1.74.1		the reservations, limitations, provisions or conditions expressed in the original grants from the Crown of any of the Lands and the statutory exceptions to title currently applicable to those Lands;
1.1.74.2		exceptions and reservations in favour of other grantors, restrictive covenants, easements, rights-of-way, mineral claims, reservations of under surface rights, agricultural land reserve notations and other similar rights or agreements, in any such case, as presently registered against title to any of the Lands;
1.1.74.3		charges granted by public utilities or the holders of the interests described in Section 1.1.74.2 above in respect of their interests, if any, in the Lands;
1.1.74.4		a claim of right, title or jurisdiction which may be made or established by any aboriginal peoples by virtue of their status as aboriginal peoples to or over any lands, waters or products harvested therefrom;
1.1.74.5		undetermined or inchoate liens and charges incidental to current construction or current operations which have not been filed or registered in accordance with Applicable Law or of which written notice has not yet been duly given in accordance with Applicable Law or that relate to an obligation not yet due or delinquent, which in each case relate to obligations or liabilities assumed by the Purchaser at the Time of Closing;
1.1.74.6		the interests of the lessor or conditional sale vendor in respect of any item of Personal Property which is leased or purchased conditionally in the ordinary course of the Business and which interests are listed in the Disclosure Letter, or which interests arise after the date hereof and are permitted by the definition of Material Contracts and which have been disclosed in writing to the Purchaser prior to the Closing Date;
1.1.74.7		the other Encumbrances listed in the Disclosure Letter as Permitted Encumbrances; and
1.1.74.8		such other non-financial rights, liens, charges and encumbrances which have been granted, or arose, in the normal course of the Business or do not, when regarded individually or as a whole, Materially Adversely affect the value of the Purchased Assets or materially impair their use in the Business as presently conducted by the Vendor.

12

1.1.75

"Person" means any individual, corporation, partnership, limited partnership, limited liability company, joint venture, association, joint-stock company, trust, society, incorporated organization or any other similar entity.

1.1.76

"Personal Property" means:

1.1.76.1		all of the machinery, plant, equipment, trade fixtures, furnishings, accessories, trucks, automobiles, vehicles and similar equipment (including accessories), boats and boom boats used in the Business, and all capital spares, including those listed in the Disclosure Letter;
1.1.76.2		the interests of the Vendor and/or the Company under any lease or conditional sales agreement of any equipment, plant, machinery or vehicles used in the Business and listed in the Disclosure Letter or registered in the British Columbia Personal Property Registry as at the date hereof, or entered into in accordance with the terms of this Agreement as at the date hereof or from time to time hereafter on or before the Closing Date; and
1.1.76.3		any additional personal property related to the Business and acquired by the Vendor subsequent to the date of this Agreement in the ordinary course of the operation of the Business or as otherwise acquired in accordance with the terms of this Agreement,

but excluding any Excluded Assets or any such personal property which is consumed or disposed of in the ordinary course of the Business prior to the Closing Date.

1.1.77

"Post-Closing Working Capital Statement" means the statement of Working Capital prepared by the Purchaser in accordance with GAAP applied on a basis consistent with the past practice of the Vendor (except as specifically contemplated by the definitions of Working Capital and the valuation contemplated by Section 1.5) and certified by an authorized officer of the Purchaser.

1.1.78

"Pre-paid Expenses" means the cash pre-paid expenses of the Business as at the Closing Date which relate to the Purchased Assets, excluding pre-paid insurance and pre-paid freight relating to the Finished Goods produced prior to the Closing Date.

1.1.79

"Prime Rate" means the rate of interest expressed as a rate per annum that the Royal Bank of Canada establishes and announces from time to time as the reference rate of interest that it will charge for Canadian dollar demand loans to its customers in Canada and which it refers to as its "prime rate".

13

1.1.80

"Proceeding" means the Court proceeding brought by the Vendor plead in a form satisfactory to the Vendor and the Purchaser, acting reasonably, for the purpose of obtaining the Vesting Order.

1.1.81

"Pulp Mill" has the meaning ascribed thereto in Recital A.

1.1.82

"Purchased Assets" means all of the properties, assets, undertaking and rights, real and personal, tangible and intangible, of every kind and description that are subject to the security interests and charges secured by the Indentures, or that are vested in the Trustee, or owned or used by the Trustee, the Vendor and/or the Company, or to which the Trustee, the Vendor and/or the Company are entitled, in connection with the conduct of the Business, as a going concern, including, without limitation:

1.1.82.1		Pre-paid Expenses;
1.1.82.2		the Inventory;
1.1.82.3		the Lands;
1.1.82.4		the Leasehold Improvements and, subject to the Leases, the Leased Premises;
1.1.82.5		the Personal Property;
1.1.82.6		the rights and benefits under the Contracts;
1.1.82.7		the rights and benefits under the Licences and Permits;
1.1.82.8		the Books and Records;
1.1.82.9		the Intangible Property;
1.1.82.10		the Intellectual Property;
1.1.82.11		the Goodwill;
1.1.82.12		the employee receivables, employee mortgages and security interests identified in the Disclosure Letter; and
1.1.82.13		any deposits provided by the Vendor or the Company which: (a) relate to the assets listed in Sections 1.1.82.2 to 1.1.82.5, 1.1.82.9 and 1.1.82.10 of this definition, (b) constitute deposits on Contracts for the purchase of Personal Property, or (c) constitute deposits in respect of Contracts and Licences and Permits,

14

but excluding the Excluded Assets.

1.1.83

"Purchaser's Material Loss" means any damage to or destruction of any of the Purchased Assets, individually or in the aggregate by a casualty of any kind, in respect of which: (a) the cost of repair as evidenced by the estimate of construction costs provided by qualified and independent third parties in keeping with normal industry practice is expected to exceed $2,000,000; or (b) the period of time during which the Pulp Mill is not operating at levels in excess of 80% of the rated daily capacity of the Pulp Mill exceeds ten consecutive days.

1.1.84

"Receiver" has the meaning ascribed thereto in Recital C.

1.1.85

"Receivership Period" means the period from July 23, 1998 up to, but not including the Closing Date.

1.1.86

"Registration Rights Agreement" means, subject to Section 7.3, the registration rights agreement among Mercer and the Vendor entered into concurrently herewith and made effective as at the Time of Closing, an unexecuted copy of which is attached hereto as Exhibit D.

1.1.87

"Regulatory Approvals" has the meaning ascribed thereto in Section 5.8.1.

1.1.88

"SEC" means the United States Securities and Exchange Commission.

1.1.89

"Tax Elections" has the meaning ascribed thereto in Section 3.8.

1.1.90

"Taxes" means all taxes, duties, levies, charges, withholding charges, assessments, reassessments and fees (including interest and penalties on any such amounts), of whatsoever nature or kind lawfully levied, assessed or imposed by any Governmental Authority.

1.1.91

"Threshold Amount" has the meaning ascribed thereto in Section 2.5.2.

1.1.92

"Time of Closing" means 8:00 a.m., Vancouver time, on the Closing Date or such other time as the Parties agree in writing that the Closing shall take place.

1.1.93

"TSX" means the Toronto Stock Exchange.

1.1.94

"Trade Names" means all right, title and interest of the Vendor and/or the Company in and to the domain names, service marks, trade marks, trade names, brand names, logos and other proprietary designs used in or related to the Business, including, without limitation, those listed in the Disclosure Letter, and further including, without limitation, all rights to the names "Celgar", "Celgar Pulp", "Celstar" and "Celect", and all related applications for registration thereof and all the goodwill associated therewith, together with all of the Vendor's rights

15

		to sue for, and remedies against, past, present or future infringements thereof, and rights of priority and protection of interests therein under Applicable Law.
1.1.95		"Trustee" has the meaning ascribed thereto in Recital B.
1.1.96		"U.S. GAAP" means generally accepted accounting principles in the United States, applied consistently.
1.1.97		"Vendor's Material Loss" means any damage to or destruction by fire, earthquake, act of God or other hazard to the whole or any part of the Business or the Purchased Assets, individually or in the aggregate by a casualty of any kind, in respect of which the cost of repair as evidenced by the estimate of construction costs provided by qualified and independent third parties in keeping with normal industry practice is expected to exceed $50,000,000.
1.1.98		"Vesting Order" means an order of the Court in the Proceeding vesting in the Purchaser or providing for a vesting in the Purchaser of all the right, title and interest of the Vendor, the Trustee and the Company in the Purchased Assets free and clear of all Encumbrances, other than the Permitted Encumbrances, in substantially the form of the order attached hereto as Exhibit C.
1.1.99		"Water Lots" means the interests of the Vendor and/or the Company under the leases with the Crown listed in the Disclosure Letter.
1.1.100		"Working Capital" means as at the close of business on the Business Day prior to the Closing Date:

 

1.1.100.1		the aggregate sum of: (a) Inventory; (b) Pre-paid Expenses that form part of the Purchased Assets; (c) CDN$4,000,000; (d) the employee receivables that form part of the Purchased Assets that are recorded as current assets in the Books and Records; and (e) the deposits that form part of the Purchased Assets that are recorded as current assets in the Books and Records, less
1.1.100.2		the aggregate sum of: (a) Mill Stores and Supplies; and (b) Current Liabilities less the current portion of obligations under the capital releases related to or used in the Business.

1.2.

Other Terms .    Other terms may be defined elsewhere in the text of this Agreement and, unless otherwise indicated, shall have such meaning throughout this Agreement. All accounting terms not otherwise defined herein have the meanings attributable to them under GAAP and all determinations of an accounting nature required to be made shall be made in accordance with GAAP, applied consistently with prior periods.

16

1.3.

Gender and Number .    Words and defined terms importing the singular shall include and have a comparable meaning when used in the plural, and vice versa, and words importing gender include all genders.

1.4.

Currency .    All references to currency shall mean United States Dollars unless otherwise expressly provided. References to "CDN$" shall mean Canadian Dollars.

1.5.

Currency Conversion and Valuation .    For the purposes of any determination of amounts of Working Capital:

1.5.1

Working Capital denominated or calculated in Canadian dollars shall be valued in U.S. dollars at the Bank of Canada noon rate of exchange for exchange between such currencies on the Business Day immediately preceding the Closing Date; and

1.5.2

Inventory shall be valued at the lower of cost or net realizable value in accordance with GAAP. For the purposes of the calculation of Certified Working Capital, Inventory will be valued based on an inventory count by representatives of the Vendor conducted in the presence of representatives of the Purchaser as of the close of business on the Business Day immediately preceding the Closing Date.

1.6.

Disclosure Letter and Exhibits .    The Disclosure Letter and the following Exhibits attached hereto are integral to and form part of this Agreement:

	Exhibit		Description
	A		Representations and Warranties of the Vendor
	B		Representations and Warranties of the Purchaser and Mercer
	C		Vesting Order
	D		Registration Rights Agreement
	E		Lock-Up Agreement
	F		Assumption Agreement

1.7.

Section Headings and References .    All Section headings contained in this Agreement are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. Unless otherwise indicated, references to Articles or Sections are to Articles or Sections in the main body of this Agreement and references to paragraphs are references to numbered paragraphs in the Exhibits.

1.8.

Knowledge .    All statements in this Agreement that are qualified "to the best knowledge of the Vendor", "to the knowledge of the Vendor", "its information and belief" and terms of similar import shall mean and be limited to the actual knowledge of: (i) the Vendor, in its capacity as the Trustee and the Receiver, and (ii) the employees of the Vendor, in its capacity as the Trustee and the Receiver, after making reasonable investigation; provided, however, with respect to the representations and warranties of the Vendor set out in paragraphs 22 and 23 of Exhibit A after making enquiries of those senior management

17

 

personnel of the Company as identified by the Vendor in the Disclosure Letter who are primarily responsible for the environmental compliance of the Business and have reviewed the said paragraphs 22 and 23. For greater certainty, with respect to the representations and warranties of the Vendor set out in paragraphs 22 and 23 of Exhibit A, the Vendor shall not be required to make any enquiries of any other employees of the Company or conduct any independent investigations of the Purchased Assets (including conducting any environmental assessments or audits) or make any enquiries of any Governmental Authorities or other Persons whatsoever.

1.9.

Vendor's Statements .    The Vendor agrees and acknowledges that all references to "Vendor" in the representations and warranties made by the Vendor relating to the Purchased Assets or the Business in Exhibit A shall be deemed for the purpose of this Agreement to include the Vendor, in its capacity as the Trustee, which has operated the Pulp Mill and the Business since August 28, 1998. In connection therewith, the Vendor covenants and agrees that it will, and will cause the Vendor, in its capacity as the Trustee, to discharge and perform all of the covenants and obligations of the Vendor contained in this Agreement or any other document, instrument or agreement delivered pursuant hereto. In consideration of such agreements, the Purchaser and Mercer agree and acknowledge that any release, indemnity, limitation of liability and any other covenant or agreement of the Purchaser or Mercer in favour of the Vendor contained in this Agreement or any other document or instrument delivered pursuant hereto shall be deemed to be for the benefit of the Vendor, in its capacities as both Receiver and Trustee.

1.10.

Time of Essence .    Time is of the essence of this Agreement.

2.     PURCHASE AND SALE OF ASSETS

2.1.

Purchase and Sale of Assets .    Upon and subject to the terms and conditions of this Agreement, the Vendor hereby agrees to sell and transfer, and to cause to be sold and transferred, to the Purchaser, and the Purchaser hereby agrees, and Mercer agrees to cause the Purchaser, to purchase and acquire from the Vendor, the Purchased Assets, free and clear of all Encumbrances, other than the Permitted Encumbrances.

2.2.

Purchase Price .    The consideration for the Purchased Assets shall be the aggregate of:

2.2.1

$210,000,000; and

2.2.2

plus or minus (as applicable) the Working Capital and Closing Adjustments; and

2.2.3

the Assumed Obligations,

(collectively, the "Purchase Price").

2.3.

Payment .    The Purchaser shall, and Mercer shall cause the Purchaser to, on the Closing Date, pay the Purchase Price as follows:

18

2.3.1

to or to the order of the Vendor, $170,000,000 plus or minus (as applicable) the Estimated Working Capital Amount and Closing Adjustments, less, if any, the Deferred Working Capital Amount, by bank draft, certified cheque or wire transfer, or where required by the Vendor, by electronic funds transfer in accordance with the Canadian Payments Association's Large Value Transfer System of, a Schedule 1 chartered bank under the Bank Act (Canada), payable at par in Vancouver, British Columbia, of immediately available funds, and such payment must be received by the Vendor in Vancouver, British Columbia on or before 2:00 p.m. (Vancouver Time) on the Closing Date;

2.3.2

to or to the order of the Vendor, that number of fully paid non-assessable Mercer Shares equal to $40,000,000 divided by the Mercer Share Price (rounded to the nearest whole number); and

2.3.3

the assumption by the Purchaser of the Assumed Obligations.

2.4.

Allocation of Purchase Price .    The Purchase Price shall be allocated in accordance with the provisions set forth in Section 2.4 of the Disclosure Letter. The Parties shall report the purchase and sale of the Purchased Assets in any Tax returns in accordance with such allocations.

2.5.

Determination of Estimated Working Capital .

2.5.1

Not less than five Business Days prior to the Closing, the Vendor shall prepare and deliver to the Purchaser two copies of the Estimated Working Capital Statement setting forth the Estimated Working Capital Amount. The calculation of the estimated Working Capital in the Estimated Working Capital Statement shall be based upon the Company's financial statements as at the end of the month prior to the Closing Date, adjusted for all transactions up to the close of business on the tenth Business Day prior to the Closing Date and estimated for transactions to the Business Day prior to the Closing Date. The Purchaser shall be entitled to attend and review all Inventory counts (which shall be conducted in accordance with standard industry practice) in respect of the calculation of estimated Working Capital pursuant to this Section 2.5.1.

2.5.2

The Parties further agree that to the extent the Estimated Working Capital Amount is positive and is greater than CDN$30,000,000 (the "Threshold Amount"), the Purchaser may by notice in writing to the Vendor prior to the Closing Date elect to defer payment of the amount of the Estimated Working Capital Amount in excess of the Threshold Amount (the "Deferred Working Capital Amount") and, if the Purchaser so elects, the Purchaser and Mercer, jointly and severally, agree to pay the Deferred Working Capital Amount, with interest at the Prime Rate plus two (2%) percent, to the Vendor on the later of: (a) the 60th day following the Closing Date; (b) three Business Days after the Accountant's Determination (if applicable); and (c) three Business Days after the Arbitration Panel Determination (if applicable), by bank draft, certified cheque

19

 

or wire transfer of immediately available funds. The Deferred Working Capital Amount shall be increased or decreased in accordance with Sections 2.6.2 and 2.6.3.

2.5.3

The Purchaser shall have the right to prepay the whole or any part of the outstanding balance of the Deferred Working Capital Amount, together with accrued but unpaid interest, at any time and from time to time. The Parties acknowledge that it is their mutual intention that such facility be paid and retired as soon as practicable and in any event not later than the date of the last payment contemplated in Section 2.5.2.

2.6.

Preparation of Post-Closing Working Capital Statement .    As soon as reasonably practicable after the Closing (but not later than 30 days thereafter), the Purchaser shall prepare and deliver two copies of the Post-Closing Working Capital Statement to the Vendor. A sample Post Closing Working Capital Statement using amounts as at September 30, 2004 is attached to the Disclosure Letter. The Purchaser shall provide the Vendor's representatives with such co-operation as they may reasonably require to enable them to review the Post-Closing Working Capital Statement. As soon as reasonably practicable after delivery of the Post-Closing Working Capital Statement (but not later than 15 days thereafter), the Vendor shall advise the Purchaser in writing whether the Post-Closing Working Capital Statement is agreed to by the Vendor and if not, specifying the matters not agreed to (the "Disputed Matters") and, in such case, the Disputed Matters shall be referred to the Accountants for determination and, if deemed appropriate by the Accountants, for a recalculation of the Certified Working Capital. Upon completion of their determination of any Disputed Matters and, if necessary, the recalculation of the Certified Working Capital, the Accountants shall advise the Purchaser and the Vendor in writing of their determination and recalculation (the "Accountants' Determination"). If either Party does not agree with the Accountants' Determination such Party may within 15 days of its receipt of such determination provide notice in writing to the other Parties (the "Arbitration Request") that it wishes to refer determination of the Disputed Matters to arbitration pursuant to Section 2.10. If an Arbitration Request is not provided within such 15 day period, then the Accountants' Determination shall be final and binding on the Parties. Each of the Parties will use all reasonable efforts to facilitate any such determination and recalculation by the Accountants and by arbitration, as applicable. On the third Business Day following the date that the Vendor advises the Purchaser of the Vendor's agreement with the Post-Closing Working Capital Statement or, as applicable, upon the Accountants' Determination becoming final and binding or the determination pursuant to arbitration under Section 2.10:

2.6.1

if the Certified Working Capital exceeds the Estimated Working Capital Amount (the amount of the difference referred to as the "Adjustment Amount" in this Section 2.6.1) and the Certified Working Capital is less than the Threshold Amount, the Adjustment Amount shall be paid to the Vendor by the Purchaser and Mercer by wire transfer, certified cheque or bank draft of immediately available funds;

20

2.6.2

if the Certified Working Capital exceeds the Estimated Working Capital Amount (the amount of the difference referred to as the "Adjustment Amount" in this Section 2.6.2) and the Certified Working Capital is greater than the Threshold Amount: (a) the Adjustment Amount, or portion thereof necessary to top up the Estimated Working Capital Amount to the Threshold Amount, shall be paid to the Vendor by the Purchaser and Mercer by wire transfer, certified cheque or bank draft of immediately available funds; and (b) with respect to the balance of the Adjustment Amount (the "Excess Amount"), if any, the Purchaser may at its option elect to treat the Excess Amount as a Deferred Working Capital Amount in accordance with Section 2.5.2, mutatis mutandis , or pay the Excess Amount by wire transfer, certified cheque or bank draft of immediately available funds; or

2.6.3

if the Certified Working Capital is less than the Estimated Working Capital Amount (the amount of the difference referred to as the "Shortfall Amount"), the Shortfall Amount shall, firstly, be applied to reduce the Deferred Working Capital Amount, if any, and, secondly, any balance of the Shortfall Amount remaining thereafter shall be paid to the Purchaser by the Vendor by wire transfer, certified cheque or bank draft of immediately available funds.

2.7.

Closing Adjustments .

2.7.1

The Purchase Price shall be adjusted for all property taxes (and the related penalties payable in connection with the current arrangement between the Vendor and the Municipality of Castlegar), utilities, and warehousing and assessments, charges, duties and levies and such other matters referred to in this Agreement and all other items normally adjusted between a vendor and purchaser in a sale of similar assets and property so that the Vendor will bear and pay all expenses and receive all income relative to the Purchased Assets up to and including the Time of Closing and the Purchaser shall bear and pay all expenses and receive all income relative to the Purchased Assets after the Time of Closing. All other matters to be adjusted, and all items adjusted for on the Closing Date but requiring readjustment, if any, shall be settled directly between the Parties within 45 days after the Closing Date or at such earlier time as the information required to complete such adjustments becomes available. At the Time of Closing, the Vendor shall take or cause to be taken readings or other measurements of gas, water, electricity and other utilities which shall be used for the apportionment required herein.

2.7.2

If the Parties are unable to agree upon the Closing Adjustments referred to in Section 2.7.1 by the Closing Date, then payment of the Closing Adjustments shall be made based upon the Vendor's calculations and estimates and the final determination of the questioned amount shall be made concurrent with and in the same manner as the final determination of the Certified Working Capital pursuant to Section 2.6. The final amount for any such adjustments so

21

 

determined shall then be paid to the party entitled within the time limits and in the manner referred to in Section 2.6.

2.8.

Cost of Accountants .    The fees, costs and expenses in respect of the services provided by the Accountants, if any, under Section 2.6 and 2.7.2 shall be borne 50% by the Purchaser and 50% by the Vendor.

2.9.

Legend .    The Vendor acknowledges and agrees that the share certificate(s) representing the Mercer Shares to be issued by Mercer in payment of the Purchase Price will be legended to reflect that such Mercer Shares are subject to statutory hold periods in Canada and the United States as prescribed by Applicable Law.

2.10.

Arbitration .

2.10.1

Where a party disagrees with the recalculation of the Certified Working Capital by the Accountants under Section 2.6 and requests arbitration thereunder pursuant to this Section 2.10, such arbitration shall constitute the sole and exclusive procedure to resolve such disagreement.

2.10.2

Arbitration pursuant to this Section 2.10 shall be conducted before a panel of three independent and impartial arbitrators (the "Arbitration Panel") in accordance with the Commercial Arbitration Act (British Columbia), as amended, and the then current commercial arbitration rules of the British Columbia International Arbitration Centre, except to the extent such rules are inconsistent with this Section 2.10, in which case the provisions of this Section 2.10 shall be followed. The Purchaser and the Vendor each shall select one member of the Arbitration Panel and the two members so selected shall jointly select the third member of the Arbitration Panel. In no case shall there be any ex parte communications between any Party hereto and any member of the Arbitration Panel regarding any dispute between the Parties. The Arbitration Panel shall have the discretion to order a pre-hearing exchange of information by the Parties, including, without limitation, the production of requested documents, the exchange of testimony of proposed witnesses, and the examination by deposition of Parties. The Arbitration Panel shall not have the authority to make any ruling, finding or award that does not conform to the terms and conditions of this Agreement.

2.10.3

The site of any arbitration brought pursuant to this Agreement shall be Vancouver, British Columbia, Canada, and the language in which the arbitration shall be conducted, including all writings relating thereto (including, but not limited to, the award of the Arbitration Panel) shall be in English. All discovery activities shall be completed within 30 days after the initial meeting of the Arbitration Panel. The award of the Arbitration Panel (the "Arbitration Panel Determination") shall be: (a) final and binding upon the Parties; (b) issued within 60 days after the initial meeting of the Arbitration Panel; (c) in writing;

22

 

and (d) set forth the factual and legal bases for such award. The Arbitration Panel is to award legal fees and cost of the arbitration to the prevailing Party.

3.      CLOSING MATTERS

3.1.

Closing .    The Closing of the sale and purchase of the Purchased Assets shall, subject to the satisfaction or waiver of the conditions set out in Article 6, take place at the offices of Sangra Moller, 1000 Cathedral Place, 925 West Georgia Street, Vancouver, British Columbia at the Time of Closing on or before the date (the "Closing Date") which is the fifth Business Day following the day all of the conditions as set out in Article 6 (other than those to be satisfied as part of Closing) are satisfied or waived, or at such other place, time and date as the Parties may agree, provided that if the Closing has not occurred on or before February 28, 2005 (such date as may be extended in accordance with this Section 3.1 is referred to as the "Termination Date"), then either Party may terminate this Agreement as provided in Section 6.4, provided that if the Closing is delayed as the result of delays in, or requirements to obtain, approvals or consents from Governmental Authorities (including, without limitation, delays in Mercer securing the necessary financing to satisfy the condition in Section 6.2.6 resulting from an SEC review and/or comments on Mercer's Form S-3 and any delay in the Vendor obtaining the Vesting Order or the appeal period in respect thereof not having expired), the Termination Date may be extended to March 10, 2005 by any Party providing notice in writing to the other Parties on or prior to February 28, 2005.

3.2.

Transfer and Delivery of Purchased Assets .    On the Closing, the Vendor shall, or shall cause the Company to, execute and deliver to the Purchaser all such bills of sale, assignments, instruments of transfer, deeds, assurances, consents, and other documents, as shall be reasonably necessary or desirable to effectively transfer the Purchased Assets to the Purchaser and the Vendor shall, or shall cause the Company to, deliver up to the Purchaser possession of the Purchased Assets, free and clear of all Encumbrances, other than Permitted Encumbrances.

3.3.

Assumed Obligations .    On the terms and subject to the conditions herein contained, at the Time of Closing the Purchaser will, pursuant to the Assumption Agreement, assume and thereafter pay, perform, discharge and satisfy only the following liabilities and obligations of the Vendor and the Company related to the Business:

3.3.1

all liabilities and obligations of the Vendor accruing on and after the Time of Closing under the Contracts, and the Licences and Permits, excluding the unassignable Contracts and Licences and Permits referred to in Section 3.10;

3.3.2

the Current Liabilities;

3.3.3

all liabilities and obligations of the Vendor accruing on and after the Time of Closing in respect of the Permitted Encumbrances; and

23

3.3.4

the obligations and liabilities assumed by the Purchaser under Article 8, including for greater certainty, any and all funding obligations under pension plans disclosed in the Disclosure Letter, whether or not such plans are currently in a deficit position,

(collectively, the "Assumed Obligations") and the Purchaser and Mercer will indemnify and save the Vendor and its employees, officers, directors and agents harmless from and against any claim, demand, action, cause of action, loss, damage, cost, fine, penalty or expense whatsoever, including reasonable legal fees, suffered or incurred, directly or indirectly, by any of them by reason of the failure of the Purchaser to pay or discharge any of the obligations referred to in this Section 3.3 and all other obligations and liabilities arising in connection with its ownership, operation and use of the Purchased Assets from and after the Closing Date.

3.4.

Excluded Liabilities and Indemnity .    The Purchaser will not assume and the Purchaser and Mercer will not be liable for any and all obligations, commitments and liabilities of and claims against the Vendor and/or the Company (whether absolute, accrued or contingent) related to the Business or the Purchased Assets, except for the Assumed Obligations, and without limiting the generality of the foregoing, the Parties agree that, except for the Assumed Obligations, the Purchaser and Mercer will have no liability for any of the following obligations or liabilities:

3.4.1

all accounts payable, accrued liabilities and other monetary indebtedness arising from the operation of the Business by the Vendor during the Receivership Period, including, without limitation, all indebtedness to the Royal Bank of Canada in respect of operating lines of credit, but excluding Current Liabilities;

3.4.2

all product liability claims and liabilities for warranty or product return claims relating to any products of the Business sold or delivered by the Vendor in the six month period immediately preceding the Closing Date;

3.4.3

all liabilities for all Taxes, duties, levies, assessments and other such charges, including any penalties, interest and fines with respect thereto, payable by the Vendor or the Company to any federal, provincial, municipal, state or other government or Governmental Authority, domestic or foreign arising from the Vendor's operation of the Business during the Receivership Period;

3.4.4

all liabilities for Payroll (including, without limitation, salary, bonus and other compensation) and all liabilities under and obligations to pay premiums and contribute to the Benefit Plans related to the employment by the Vendor of all Persons in the Business during the Receivership Period, provided the Vendor shall have no liability in respect of any funding deficiency existing with respect to any pension plan;

3.4.5

all severance payments, damages for wrongful dismissal and all related costs in respect of the termination by the Vendor or the Company of the employment of

24

 

any employee of the Business who does not accept the Purchaser's offer of employment referred to in Article 8;

3.4.6

all liabilities for claims for injury, disability, death or workers' compensation arising from or related to employment by the Vendor of all Persons in the Business during the Receivership Period; and

3.4.7

any actions, suits, petitions, claims or other proceedings related to the Business or the Purchased Assets, including, without limitation, those listed in the Disclosure Letter, to the extent they arise or are based, in whole or in part, on any fact, circumstance or event that occurred or arose during the Receivership Period, other than: (i) those referred to in Section 8.4, and (ii) any actions, suits, petitions, claims or other proceedings arising out of or relating to Environmental Laws or Environmental Liabilities, except to the extent that the Purchaser and Mercer have a Claim against the Vendor under Section 4.5 for a misrepresentation or breach of warranty in respect of the environmental representations and warranties made by the Vendor in paragraphs 22 and 23 of Exhibit A,

(collectively, the "Excluded Liabilities"). The Vendor shall be solely liable and responsible for and will indemnify and save the Purchaser and Mercer and its employees, officers, directors and agents harmless from and against any claim, demand, action, cause of action, loss, damage, cost, fine, penalty or expense whatsoever, including reasonable legal fees, suffered or incurred, directly or indirectly, by any of them by reason of the failure of the Vendor to pay or discharge any of the items set forth in Sections 3.4.1 to 3.4.7.

3.5.

Security for Pre-Closing Payables .    As partial security for the Vendor's obligations under Section 3.4 to pay and discharge the items set forth in Sections 3.4.1 to 3.4.7, the Vendor shall commencing at Closing and ending six months thereafter hold the sum of $10,000,000 in a segregated trust account. At Closing, and on a monthly basis thereafter, the Vendor shall provide the Purchaser with evidence of its compliance with the terms of this Section 3.5.

3.6.

Certainty .    For greater certainty, the Purchaser and/or Mercer are not and shall not be considered to take on, assume or otherwise become liable or responsible in any way whatsoever for any obligations, liabilities or commitments (contingent or otherwise) of the Vendor and/or the Company, other than the Assumed Obligations. Further, the indemnity of the Vendor pursuant to Section 3.4 hereof shall not extend, include or otherwise cover any obligations, liabilities or commitments whatsoever other than those set forth in Sections 3.4.1 to 3.4.7.

3.7.

Sales and Transfer Taxes .    The Purchaser shall be responsible to pay when due any property transfer, sales, social service, goods and services and similar Taxes and any registration and transfer charges and fees payable in respect of the sale and transfer of the Purchased Assets. The Purchaser shall pay direct to the appropriate Governmental

25

 

Authority all such Taxes, charges and fees payable by it in respect of the purchase and sale of the Purchased Assets under this Agreement, other than the goods and services tax imposed under Part IX of the Excise Tax Act (Canada) and any social service or sales tax imposed under the Social Services Tax Act (British Columbia) payable in respect thereof, which shall be paid by the Purchaser to and collected by the Vendor. The Vendor shall pay such amounts paid to and collected by it to the appropriate Governmental Authorities in accordance with Applicable Laws.

3.8.

Goods and Services Tax and Harmonized Sales Tax Election .    The Purchaser and the Vendor shall jointly elect, under subsection 167(1) of Part IX of the Excise Tax Act (Canada) and any equivalent or corresponding provision under any applicable provincial legislation imposing a similar social service or sales tax (collectively, the "Tax Elections"), that no tax be payable with respect to the purchase and sale of the Purchased Assets under this Agreement. The Purchaser and the Vendor shall make such elections in prescribed form containing prescribed information and the Purchaser shall file such elections in compliance with the requirements of the applicable legislation.

3.9.

B.C. Social Service Tax .    In respect of the purchase and sale of the Purchased Assets under this Agreement, the Vendor shall use commercially reasonable efforts to obtain a certificate pursuant to Section 99 of the Social Service Tax Act (British Columbia) (the "SST Certificate") and deliver to the Purchaser a copy of the SST Certificate.

3.10.

Unassignable Contracts and Licences and Permits .    This Agreement or any document delivered hereunder shall not constitute an assignment of any rights, benefits or remedies (the "Rights") under any Contracts or Licences and Permits that are not assignable by the Vendor or the Company to the Purchaser without the consent of the other party thereto (the "Third Party"). To the extent any such consent is not obtained prior to the Time of Closing, and the Purchaser and the Vendor waive the satisfaction of the condition to Closing contained in Section 6.1.2 (if applicable), then to the extent permitted by Applicable Law and provided that the Purchaser or Mercer pay in advance all the reasonable costs and expenses of the Vendor to be incurred in carrying out its obligations under this Section 3.10 (or provide security acceptable to the Vendor, acting reasonably):

3.10.1

the Vendor will, and will cause the Company to, at the request and direction of the Purchaser, promptly assist the Purchaser in applying for and use all commercially reasonable efforts to obtain all consents or approvals contemplated by those Contracts or Licences and Permits, in a form satisfactory to the Vendor and the Purchaser, acting reasonably, provided that nothing in this Section shall require the Vendor to make any payment to any other party to any of those Contracts or Licences and Permits;

3.10.2

the Vendor will use all reasonable commercial efforts to, and will cause the Company to, in the name of the Vendor or the Company to take such actions and do such things as may be reasonably and lawfully designed to provide the benefits of those non-assignable Contracts and Licences and Permits to the Purchaser, including without limitation, holding those Contracts and Licences

26

 

and Permits in trust for the benefit of the Purchaser or acting as agent for the Purchaser; and

3.10.3

the Vendor will, and will cause the Company to, promptly pay over to the Purchaser all such moneys collected by the Vendor or the Company, as applicable, in respect of such Contracts,

provided that the Purchaser will indemnify the Vendor against all liabilities, costs and expenses incurred by the Vendor arising out of the Vendor's performance of such obligations set forth in this Section 3.10, except for liabilities, costs and expenses incurred by the Vendor as a result of the Vendor's own breach of the unassignable Contracts or Licences and Permits, or the Vendor's gross negligence or wilful misconduct.

The obligations of the Vendor under this Section 3.10 shall continue for 90 days following the Closing Date. Nothing herein shall preclude the Vendor after the Closing Date from giving notice of termination of any Contract for which consent to assignment has not been obtained provided that such termination does not take effect prior to such 90 day period. For greater certainty, at the end of the foregoing 90 day period the Vendor will have no further liability to the Purchaser under this Section 3.10.

4.      REPRESENTATIONS AND WARRANTIES

4.1.

The Vendor .    The Vendor hereby makes the representations and warranties set out in Exhibit A hereto to the Purchaser and Mercer, recognizing that the Purchaser and Mercer are relying on such representations and warranties in entering into the transactions contemplated by this Agreement. All due diligence searches, investigations or inspections by the Purchaser and/or Mercer up to the date hereof and up to the Closing Date are without prejudice to the Purchaser's and Mercer's right to rely upon such representations and warranties of the Vendor.

4.2.

Mercer and the Purchaser .    Mercer and the Purchaser hereby jointly and severally make the representations and warranties set out in Exhibit B hereto to the Vendor, recognizing that the Vendor is relying on such representations and warranties in entering into the transactions contemplated by this Agreement. All due diligence searches and investigations by the Vendor up to the date hereof and up to the Closing Date are without prejudice to the Vendor's right to rely upon such representations and warranties of Mercer and the Purchaser.

4.3.

Survival .    The representations and warranties of the Vendor set out in paragraphs 22 and 23 of Exhibit A shall survive the Closing for a period of 12 months after the Closing Date. Except as provided in the previous sentence, all other representations and warranties made by each of the Vendor, Mercer and the Purchaser in this Agreement shall survive the Closing for a period of 15 months after the Closing Date. After the expiration of such applicable period, no Party shall have any further liability to any other Party with

27

 

respect to such representations and warranties except with respect to Claims properly made within such time period.

4.4.

Purchaser's Acknowledgement .

4.4.1

The Vendor expressly disclaims, and the Purchaser acknowledges, that except for the representations and warranties set out in Exhibit A hereto, the Vendor has not made nor has the Purchaser or Mercer relied upon any representations, warranties or conditions, expressed or implied, statutory or otherwise, relating to the Vendor, the Company, the Purchased Assets or the Business.

4.4.2

Except for any Claim the Purchaser may have against the Vendor for any misrepresentation or breach of warranty of the representations and warranties of the Vendor in Exhibit A: (i) the Purchaser and Mercer (collectively, the "Releasors") hereby remise, release and forever discharge the Vendor, the Banks, the Company and the Trustee under the Indentures and their respective Affiliates, directors, officers, agents, employees and shareholders (in this Section collectively called the "Releasees") of and from any and all liability, claim, demand, obligation, cause of action, remediation, cost recovery action, investigation, proceeding, order, violation, damage, loss, cost, expense, judgment, penalty, or fine asserted by any party (including, without limitation, any private party or Governmental Authority) arising out of or relating to Environmental Laws or Environmental Liabilities related to or in respect of the Purchased Assets, including without limitation, the cost, if any, of managing, removing, remediating or disposing of any Contaminants or Contamination, as well as any liability, cost or expense whatsoever, if any, relating to enforcement actions, orders, cost recovery actions or remedial actions related to Environmental Liabilities, Contaminants or Contamination, and; (ii) the Releasors hereby waive any and all such rights that the Releasors now have or will have as against the Releasees or any of them in respect of the matters set forth in (i) above. The Vendor, Purchaser and Mercer acknowledge and confirm that the provisions of this Agreement constitutes a private agreement between them respecting environmental liability and that except for any Claim the Purchaser may have against the Vendor for any misrepresentation or breach of warranty of the representations and warranties of the Vendor in Exhibit A hereto, the Purchaser accepts responsibility for remediation, if any is ever required, of the Purchased Assets under Environmental Laws. The Purchaser hereby waives the requirement contained in Section 40(6) of the Environmental Management Act (British Columbia) for the Vendor to provide a Site Profile (as that term is defined in the Environmental Management Act (British Columbia)). The provisions of this Section apply notwithstanding anything to the contrary contained in Sections 3.3, 3.4 and 3.6.

4.5.

Limitations of Liability .    The liability of the Parties with respect to any claims for any misrepresentation or breach of warranty made or given in this Agreement or any other agreement, document or other instrument delivered by a Party pursuant to this Agreement

28

 

or any failure to observe or perform any covenant or obligation contained in this Agreement or any other agreement, document or other instrument delivered by a Party pursuant to this Agreement (each a "Claim") shall be subject to the following:

4.5.1

notice of any Claim must if, based upon a misrepresentation or breach of warranty, be given to the Party against whom the Claim is made on or before the time stipulated in Section 4.3 for the expiry of such representation or warranty. For greater certainty, if notice of a Claim is duly given such Claim will include all damages incurred in respect of such Claim, whether incurred before or after the date of such notice;

4.5.2

no Claims may be made by the Purchaser or Mercer against the Vendor in connection with any misrepresentation or breach of warranty made or given by the Vendor in this Agreement or any agreement, certificate or other document delivered by the Vendor pursuant to this Agreement, unless:

4.5.2.1

in the case of a misrepresentation or breach of warranty in respect of the environmental representations and warranties made by the Vendor in paragraphs 22 and 23 of Exhibit A, the aggregate damages suffered or incurred by the Purchaser or Mercer in respect of all such misrepresentations or breaches of warranty exceeds $1,000,000 in the aggregate, in which event all such damages may be claimed by the Purchaser or Mercer;

4.5.2.2

in the case of any other misrepresentation or breach of warranty made by the Vendor, the aggregate damages suffered or incurred by the Purchaser or Mercer in respect of all such misrepresentations or breaches of warranty exceeds $500,000 in the aggregate, in which event all such damages may be claimed by the Purchaser or Mercer;

4.5.3

no Claims may be made by the Vendor against the Purchaser or Mercer in connection with any misrepresentation or breach of warranty made or given by the Purchaser or Mercer in this Agreement, unless the aggregate of all damages suffered or incurred by the Vendor in respect of all such misrepresentations or breaches of warranty exceeds $500,000 in the aggregate, in which event all such damages may be claimed by the Vendor; and

4.5.4

unless otherwise expressly stated in this Agreement and except with respect to any damages that arise out of the fraud or wilful misconduct of a Party:

4.5.4.1

the aggregate liability of the Vendor in respect of any and all misrepresentations and breaches of warranty (including, without limitation, the environmental representations and warranties referred to in paragraphs 22 and 23 of Exhibit A) shall be limited to the maximum aggregate liability of $30,000,000, provided that of that amount the maximum aggregate liability of the Vendor in respect of

29

 

any and all misrepresentations and breaches of warranty of the environmental representations and warranties referred to in paragraphs 22 and 23 of Exhibit A shall be limited to $20,000,000;

4.5.4.2

the aggregate liability of the Purchaser and Mercer in respect of any and all misrepresentations and breaches of warranty shall be limited to the maximum aggregate liability of $30,000,000; and

4.5.4.3

in respect of failures to observe or perform any covenants or obligations shall be limited to the maximum aggregate liability of $30,000,000.

For greater certainty, the limitations set forth in Section 4.5.4 shall represent the maximum aggregate liability of the Purchaser and Mercer jointly and severally.

4.6.

Payments .    Any payment made in respect of a Claim shall include interest on such amounts at the Prime Rate plus two (2%) percent from the date of Loss by the paying party to the date of payment.

5.      COVENANTS

5.1.

Access and Information .    The Vendor shall, and shall cause the Company, to:

5.1.1

forthwith make available to the Purchaser, its representatives and legal, accounting, financial, engineering, environmental and other consultants and professional advisors after the date of execution of this Agreement reasonable access to the Purchased Assets, any Books and Records, Contracts, title documents, minute books, plans, reports (including forecasts and projections), Licences and Permits, Leases, orders, books of account, accounting records, financial statements, plans, performance results, correspondence and all other documents and information relating thereto (including, if requested, copies thereof, but, for greater certainty, excluding any books and records or assets which form part of Excluded Assets), and the senior management of the Business and of the Vendor during regular business hours and upon reasonable advance notice, and shall forthwith furnish, or cause to be furnished, to the Purchaser any existing financial and operating data or other information that is or becomes available in the ordinary course with respect to the Purchased Assets and the Business in order to permit the Purchaser to continue its due diligence or as the Purchaser shall from time to time otherwise reasonably request;

5.1.2

afford the Purchaser and its authorized representatives, upon reasonable notice, reasonable access, in the presence of representatives of the Vendor, to the Business, the Lands, the Leased Premises, assets, undertaking, records and documents of the Vendor related to the Business and in the Vendor's possession so long as such access does not disrupt in any material way the operations of the

30

 

Business, provided that nothing herein shall limit the Purchaser's right to such access in the event representatives of the Vendor are unavailable to attend; and

5.1.3

at the request of the Purchaser, execute or cause to be executed such consents, authorizations and directions as may be necessary to permit any reasonable inspection of the Business and the Purchased Assets and to enable the Purchaser or its authorized representatives to obtain full access to all files and records relating to any of the Purchased Assets maintained by Government Authorities, including, if the Purchaser so requires, authorizing the Canada Revenue Agency and any other Governmental Authority or any other Person to any Contracts or Licences and Permits to disclose to the Purchaser and its representatives and agents, such information in connection with the Business as may be reasonably required by the Purchaser, provided that any such inspections or access shall be limited to files and records relating to the Receivership Period.

5.2.

Meetings .    Upon reasonable prior notice and subject to the consent of the Vendor, not to be unreasonably withheld or delayed, the Purchaser shall be entitled to meet with employees of the Company and the Vendor for the purposes of discussing the operations of the Company and the new employment of the Employees with the Purchaser after the Closing Date. At the Purchaser's request and subject to the Vendor's consent, not to be unreasonably withheld or delayed, the Vendor shall co-operate with the Purchaser in arranging meetings with the Vendor's or the Company's auditors or solicitors or any other Person engaged or previously engaged to provide services to the Vendor who have knowledge of matters relating to the Purchased Assets or the Business. The Vendor may require that any meetings contemplated by this Section 5.2 occur in the presence of a representative of the Vendor, provided that the Purchaser's right to conduct such meetings shall not be impaired in the event representatives of the Vendor are not available to attend.

5.3.

Site Investigations .    The Vendor shall, subject to the Purchaser providing a customary indemnity to the Vendor and the Company, permit the Purchaser's representatives or consultants to conduct all such testing and inspection in respect of environmental matters as the Purchaser may reasonably require to satisfy itself in respect of such matters, provided that such testing shall not unreasonably interfere with the operation of the Business. The exercise of any rights of inspection by or on behalf of the Purchaser under this Section 5.3 shall not mitigate or otherwise affect the representations and warranties of the Vendor hereunder, which shall continue in full force and effect as provided in Section 4.3.

5.4.

Filings .    From the date of this Agreement to the Closing Date, the Vendor will:

5.4.1

use all commercially reasonable efforts to diligently and promptly provide all information relating to the Company and the Business necessary for inclusion in a registration statement of Mercer on Form S-3 (including audited financial statements for the past three years and for the most recent interim period conformed to U.S. GAAP as required and any information that may be required

31

 

in any amendment or supplement to such Form S-3) and a private placement memorandum or Form S-3 for the sale of equity securities and/or senior notes that Mercer may require to qualify its securities for distribution in the United States and in the Provinces of Canada and to satisfy all requirements of applicable United States and Canadian securities laws;

5.4.2

use all commercially reasonable efforts to cause the Company and its auditors to conform the Company's audited financial statements for the last three years ended December 31, 2003 and the unaudited interim financial statements for the nine months ended September 30, 2004 to U.S. GAAP and take such actions and perform such procedures as may be necessary or desirable in order to include such financial information in Mercer's Form S-3 or in any private placement documentation Mercer may use; and

5.4.3

use all reasonable commercial efforts to cause the Company's auditors to deliver to the Purchaser: (a) an unqualified audit report and consent letter relating to the audited financial statements described in Section 5.4.2; (b) a review engagement report relating to the unaudited interim financial statements described in Section 5.4.2; and (c) comfort letters addressed to the applicable securities commissions, underwriters/agents (appointed in connection with any Mercer debt and/or equity financing), the trustees of Mercer and the directors of the Purchaser, as applicable, in form and substance satisfactory to the Purchaser, acting reasonably, with respect to the financial information relating to the Company and the Business provided by the Vendor to the Purchaser for inclusion in any Form S-3 or in any private placement documentation Mercer may use.

The Purchaser and Mercer, jointly and severally, agree to pay the reasonable costs of such auditor to conform prior period financial statements to U.S. GAAP and the costs of auditing the 2004 financial statements of the Company on an expedited basis and the other reports and letters referred to in this Section 5.4 up to CDN$300,000. The obligation to pay for such costs shall survive the termination of this Agreement. The Vendor shall be responsible for any statement or financial information in the Form S-3 or private placement documentation relating to the Business, provided that the Vendor has been given reasonable opportunity to review any such statement or financial information and has approved in writing the statement or financial information prior to the inclusion thereof in the Form S-3 or private placement documentation.

5.5.

Disclosure of Information .    In the course of the Purchaser's due diligence in respect of the Purchased Assets, the Purchaser may request and the Vendor may disclose certain personnel records and other information related to the Business that may include "personal information" (the "Personal Information") as defined in and subject to the B.C. Personal Information Protection Act ("PIPA"). For the purposes of Section 20 of PIPA:

5.5.1

the Purchaser hereby confirms to the Vendor that the Personal Information that the Purchaser may hereafter request in the course of its due diligence is

32

necessary in order for the Purchaser to determine whether to proceed with the proposed purchase of the Purchased Assets; and

5.5.2

the Purchaser hereby covenants and agrees that:

5.5.2.1

prior to Closing, any Personal Information that the Vendor discloses to the Purchaser shall be used by the Purchaser solely for purposes related to its due diligence and its proposed purchase of the Purchased Assets, and the Purchaser shall not disclose or otherwise make available any of the Personal Information to any Person except employees, directors, officers and professional advisors of the Purchaser with a need to know for the purposes of such due diligence and proposed purchase;

5.5.2.2

if the proposed purchase of the Purchased Assets does not proceed or is not completed, the Purchaser will destroy or return to the Vendor all of the Personal Information disclosed to the Purchaser by the Vendor in accordance with the Vendor's instructions and/or pursuant to the Confidentiality Agreement; and

5.5.2.3

if the proposed purchase of the Purchased Assets is completed: (i) the Purchaser shall only use or disclose the Personal Information for the same purposes for which it was collected, used or disclosed by the Vendor, or as otherwise permitted by and in accordance with PIPA; and (ii) the Purchaser shall notify the individuals who are the subject of the Personal Information that the purchase of the Purchased Assets has taken place and that their Personal Information was disclosed to the Purchaser.

5.6.

Operations Until Closing .    Except as otherwise consented to in writing by the Purchaser, from the date of this Agreement until the Closing Date, the Vendor shall:

5.6.1

keep closed all data or information rooms previously maintained regarding the Purchased Assets, the Business and/or the Company in order to solicit bids or expressions of interest in relation to the Purchased Assets, the Business and/or the Company;

5.6.2

manage the Purchased Assets and conduct the Business in the ordinary course and consistent with its past practice;

5.6.3

use all reasonable commercial efforts to, in the ordinary course and consistent with its past practice, preserve intact the business organization related to the Business and the Goodwill, keep available the services of the Employees as a group and maintain the Vendor's and the Company's relationships with suppliers, agents, distributors, customers and others who have, or have had, business relationships with the Pulp Mill or the Business to the end that its Goodwill and

33

 

ongoing business at the date hereof shall be in all material respects unimpaired at the Closing Date, all on the basis of and using the degree of care, skill and diligence that a prudent owner would exercise in comparable circumstances for its own account, and as otherwise contemplated or provided in this Section 5.6 and Section 5.7;

5.6.4

use all reasonable commercial efforts to, in the ordinary course and consistent with its past practice, ensure that, at the Time of Closing, the Inventory does not include any materials that are below standard quality or of a quality or quantity not useable or saleable in the normal course of the Business, the value of which have not been written down on the Books and Records to net realizable market value and will maintain Inventory levels of the Business until the Closing Date at such amounts as are required for the operation of the Business as presently conducted and consistent with its past practice;

5.6.5

maintain the Books and Records in the ordinary course, consistent with its past practice, and record all transactions on a basis consistent with that practice;

5.6.6

do all repairs and maintenance to the Purchased Assets and take all such steps as are reasonably necessary or advisable in the ordinary and normal course of the Business consistent with the Vendor's past practice and to pay all expenses therefor;

5.6.7

comply in all material respects with all Applicable Laws;

5.6.8

use all reasonable commercial efforts to continue and maintain, or cause to be continued and maintained, in full force and effect, policies of insurance or renewals thereof on the Purchased Assets as they are insured on the date of this Agreement, and shall give all notices and present all claims under all policies of insurance in a due and timely fashion;

5.6.9

promptly advise the Purchaser of any Materially Adverse changes in the condition (financial or otherwise), liabilities, operations, earnings or affairs of the Business or the Purchased Assets;

5.6.10

provide to the Purchaser the monthly operating reports prepared by the Vendor in accordance with its past practice, as soon as practicable after their respective preparation and in any event not later than three days after receipt by the Vendor of each finalized monthly operating report, so as to keep the Purchaser informed as to the operation of the Business;

5.6.11

use all reasonable commercial efforts to conduct the Business and its affairs so that all the representations and warranties provided by the Vendor pursuant to this Agreement are true in all material respects at the Time of Closing as if made at that time;

34

5.6.12

promptly advise the Purchaser of any event occurring after the date of this Agreement that would render any representation or warranty of the Vendor untrue in any material respect if made on and as of the Closing Date or would result in a material breach by the Vendor of its obligations under this Agreement; and

5.6.13

pay and discharge the liabilities related to or incurred or accrued in respect of the Business and/or the Purchased Assets during the Receivership Period and which are payable on the date hereof or which become due and payable at or prior to the Closing Date, including, without limitation, liabilities in respect of unpaid property taxes, assessments, charges, levies, penalties and interest payable to any Governmental Authority, in the ordinary course in accordance and consistent with its past practice, except those contested in good faith by the Vendor and the penalties payable in connection with the current arrangement between the Vendor and the Municipality of Castlegar.

5.7.

Negative Covenants of the Vendor .    Except as contemplated by this Agreement, or otherwise consented to in writing by the Purchaser, the Vendor covenants not to do or permit to be done any of the following, from the date of this Agreement until Closing:

5.7.1

grant or commit to any Employee any increase in compensation (other than routine increases in compensation consistent with past practice with respect to non-union employees not exceeding CDN$250,000 in aggregate) or in severance or termination payments, or enter into new, or amend existing agreements respecting employment, compensation or termination (including benefit plans, bonuses, incentive compensation, pensions, supplemental pensions, non-pension employee or post-retirement benefits, retirement allowances, deferred compensation, insurance, profit sharing, and other forms of compensation or benefits) with such a Person, including pursuant to any amendment, replacement or extension of the Collective Agreement, provided that nothing in this Section 5.7.1 shall preclude the Vendor from terminating an Employee in the ordinary course of its business;

5.7.2

proceed with, incur, approve or commit to any capital expenditures in respect of the Business exceeding CDN$1,000,000 individually or in the aggregate in a series of related expenditures, from time to time, unless approved in writing by the Purchaser, such approval not to be unreasonably withheld or delayed, save and except expenditures which the Vendor, acting reasonably, believes are required to be made to prevent or deal with, an emergency in the operation of the Pulp Mill;

5.7.3

except in the ordinary course of the Business:

5.7.3.1

sell, transfer or otherwise dispose of, or agree to sell, transfer, pledge, lease, encumber or otherwise dispose of, any Purchased Assets other

35

 

than obsolete or surplus assets or pursuant to the terms of any of the Contracts or Inventory in the ordinary course of the Business;

5.7.3.2

enter into any agreement or transaction which would result in the creation of any Encumbrance on any of the Purchased Assets, other than Permitted Encumbrances;

5.7.3.3

enter into any agreement which obligates the Vendor to pay more than CDN$1,000,000 in the aggregate and that cannot be terminated without cost or liability to the Company on not more than 30 days notice or implement any material change in the Business;

5.7.4

permit the Business to reorganize, amalgamate, merge, consolidate or combine with any Person or acquire or agree to acquire by amalgamating, merging, consolidating or entering into a business combination with, purchasing or selling substantially all the assets of or otherwise acquire or be acquired by, any Person;

5.7.5

dissolve, liquidate or wind-up;

5.7.6

terminate, modify or amend any of the Contracts or any of the Licences and Permits except in the ordinary course of the Business consistent with past practice;

5.7.7

take any action that would interfere with or be inconsistent with the completion of the transactions contemplated under this Agreement or would render, or that reasonably may be expected to render, any representation or warranty made by the Vendor in this Agreement untrue or incorrect in any material respect at any time prior to the Time of Closing if made at that time;

5.7.8

make any changes to the existing accounting practices related to the Business, except as required by Applicable Law or a change in GAAP; and

5.7.9

except in the ordinary course of the Business and consistent with past practice, relinquish any material contractual rights or any other rights with respect to any Contracts or Licences and Permits, or enter into any interest rate, currency or commodity swaps, hedges or other similar financial instruments.

5.8.

Efforts to Obtain Consents or Approvals .    Each of the Parties shall take, or cause to be taken, all commercially reasonable actions and do, or cause to be done, all commercially reasonable things and promptly execute and file, or join in the execution and filing of, any application or other document that may be necessary, proper or advisable to permit and diligently pursue the completion of the transactions contemplated by this Agreement in accordance with the terms hereof, including obtaining the authorization, approval or consent of any Governmental Authority or other Person which may be reasonably required, or which the other Party may reasonably request, in connection with the consummation of the transactions contemplated by this Agreement, and shall co-operate

36

 

with each other in connection therewith, including using all commercially reasonable best efforts to obtain as soon as reasonably possible and in any event, prior to the Closing Date:

5.8.1

the Consents, including any consents required under the Competition Act (Canada), the Investment Canada Act and the United States Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "Regulatory Approvals");

5.8.2

if applicable, the re-issuance in the name of the Purchaser of new rights in replacement of any Leases, Water Lots or Licences and Permits which cannot, or because of the practice of the applicable Governmental Authority will not, be transferred to the Purchaser by way of assignment; and

5.8.3

provide notice to, and obtain all necessary waivers, consents and approvals or releases from, other parties to Contracts, Licences and Permits and other agreements, understandings and documents to which it is a party or by which it or its properties are bound or affected.

The Vendor will have primary responsibility to obtain the Consents to the assignment of the Contracts and the Licences and the Permits. Any such Consents shall be in form and substance satisfactory to the Purchaser and the Vendor, each acting reasonably, it being acknowledged and agreed that the Vendor will not be responsible for the payment of fees to, or the cost of any concessions that may be agreed to by the Purchaser in favour of, Governmental Authorities or any other Person as a precondition to providing such Consents. The Parties will use reasonable commercial efforts (which in the case of the Purchaser and Mercer shall not require it to expend monies other than for its out-of-pocket costs and expenses for advisors and agents in obtaining Consents) to try to cause any third party who is a party to a Contract which is to be assigned to the Purchaser to release the Vendor (in its capacities as both Receiver and Trustee) from any on-going liability arising under the Contract after the Time of Closing and, in that regard, the Purchaser and Mercer will provide such evidence concerning its financial condition and experience as may reasonably be requested by such third parties. The Purchaser shall be responsible for obtaining the Regulatory Approvals and shall be responsible for all filing fees, costs and other charges applicable to the applications for the Regulatory Approvals. The Purchaser will, at the Vendor's request, advise the Vendor of the status of any applications which the Purchaser makes for Regulatory Approvals and, upon request, shall provide the Vendor with copies of all such applications as well as correspondence between the Purchaser and the relevant Governmental Authorities respecting such applications. The Vendor may, with the Purchaser's consent, such consent not to be unreasonably withheld, and then only together and in conjunction with the Purchaser or its representatives, discuss any and all such applications and matters directly with the relevant Governmental Authority, provided that the Vendor's right to have such discussions shall not be impaired in the event representatives of the Purchaser are not available.

37

5.9.

Court Approvals .    The Vendor will use all commercially reasonable efforts to obtain the Vesting Order prior to the Closing Date and the Vendor will obtain the consent of the Purchaser to any changes to the Vesting Order requested by the Court or by any party to the Proceeding.

5.10.

Celgar Name .    The Vendor will use all commercially reasonable efforts to change the corporate name of the Company to a name other than "Stone Venepal (Celgar) Pulp Inc." and which eliminates the use of the word "Celgar" and which will enable the Purchaser to change its name to a name which includes the word "Celgar" effective as of the Closing Date.

5.11.

Notification Covenant regarding Representations .    Each of the Parties will promptly advise the other Parties of any event or circumstance which becomes known to it after the date of this Agreement that would render any representation or warranty of such other Party untrue in any material respect if made on and as of the Closing Date or would result in a material breach by such Party of its obligations under this Agreement.

5.12.

Execution of Other Documents .    Concurrently with the execution of this Agreement, the Parties shall execute and cause to be executed the following additional documents which will be effective from and after the Time of Closing:

5.12.1

the Registration Rights Agreement; and

5.12.2

the Lock-up Agreement.

If Closing does not occur, this Agreement is terminated or the Registration Rights Agreement and Lock-up Agreement are replaced in accordance with Section 7.3, the Registration Rights Agreement and the Lock-up Agreement will be null and void.

6.      CONDITIONS OF CLOSING

6.1.

Mutual Conditions .    The obligation of the Vendor to complete the sale of the Purchased Assets contemplated by this Agreement and of the Purchaser and Mercer to complete the purchase of the Purchased Assets as contemplated by this Agreement is subject to the satisfaction of each of the following conditions:

6.1.1

No Violations of Laws .    No Applicable Law is in force, and no action has been taken under any Applicable Law or by any Governmental Authority, and no Order of a court or Governmental Authority shall be in effect that: (a) makes it illegal or otherwise, directly or indirectly, restrains, enjoins or prohibits the completion of the transactions contemplated by this Agreement; (b) results in an Order or assessment of damages, directly or indirectly, relating to the transactions contemplated by this Agreement that would have a Material Adverse Effect on the Business or the Purchased Assets; or (c) would impose any condition or restriction that, after giving effect to the transactions

38

 

contemplated by this Agreement, would have a Material Adverse Effect on the Business or the Purchased Assets;

6.1.2

Consents .    Each of the Material Consents shall have been obtained on or before the Closing in a form and on terms acceptable to the Purchaser and the Vendor, acting reasonably;

6.1.3

Vesting Order .    The Vendor shall have obtained the Vesting Order and all applicable appeal periods relating to the Vesting Order shall have expired, without the filing of any appeal, or all filed appeals have been dismissed on terms satisfactory to the Purchaser, and the Vesting Order shall not have been stayed, varied or vacated, and the Vesting Order and such other directions, letters and instruments as the Parties may reasonably require shall have been submitted for registration at the Kamloops/Nelson Land Title Office and delivered to the British Columbia Personal Property Registry;

6.1.4

Competition Act .    With respect to the Competition Act (Canada):

6.1.4.1

the applicable waiting periods under Section 123 of the Competition Act (Canada) have expired and the Commissioner of Competition (the "Commissioner") shall have issued a written confirmation that the Commissioner has received adequate notification of the transactions contemplated by this Agreement pursuant to Section 114 of the Competition Act (Canada) and, that pursuant to Section 123 of the Competition Act (Canada), the Commissioner does not intend, at that time, to take any action to refer these transactions to the Competition Tribunal for review; or

6.1.4.2

the Commissioner shall have issued an advance ruling certificate under Section 102 of the Competition Act (Canada) in respect of the transactions contemplated by this Agreement in a form and on terms satisfactory to the Purchaser;

6.1.5

Investment Canada Act .    The Purchaser will have received a notice from the Minister responsible for the Investment Canada Act issued under Sections 21, 22 or 23 of such Act indicating that the Minister is, or is deemed to be, satisfied that the transactions contemplated by this Agreement are likely to be of net benefit to Canada;

6.1.6

Hart Scott-Rodino Antitrust .    All consents or approvals which may be required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 in respect of the purchase and sale of the Purchased Assets shall have been obtained or all applicable waiting periods thereunder shall have expired or notice of earlier termination received without any action being taken or threatened by any competent authority which would restrain, prevent or otherwise impose adverse conditions on the transactions contemplated by this Agreement;

39

6.1.7

Registration Rights Agreement .    Mercer and the Vendor (or the Banks, their Affiliates or the Vendor's Affiliates to whom the Mercer Shares are issued at the direction of the Vendor) shall have delivered the Registration Rights Agreement;

6.1.8

Lock-up Agreement .    Mercer and the Vendor (or the Banks, their Affiliates or the Vendor's Affiliates to whom the Mercer Shares are issued at the direction of the Vendor) shall have delivered the Lock-up Agreement;

6.1.9

Distribution of Securities .    The distribution of the Mercer Shares pursuant to this Agreement is exempt from the registration and prospectus requirements of the Securities Act (British Columbia) and the registration requirements under the 1933 Act; and

6.1.10

TSX and Nasdaq Approval .    The Mercer Shares to be issued pursuant to this Agreement as partial payment of the Purchase Price shall be authorized for quotation on the Nasdaq National Market and conditionally approved for listing on the TSX subject to compliance by Mercer with the conditions set forth by the Nasdaq National Market (if any) and the TSX.

The foregoing conditions are inserted for the mutual benefit of the Vendor, the Purchaser and Mercer and may be waived in whole or in part only if jointly waived in writing by the Vendor, the Purchaser and Mercer.

6.2.

Conditions for the Benefit of the Purchaser .    The obligation of the Purchaser and Mercer to complete the purchase of the Purchased Assets at the Closing as contemplated by this Agreement is subject to the satisfaction of each of the following conditions:

6.2.1

Representations and Warranties .    Each of the representations and warranties of the Vendor contained in this Agreement shall be true and correct in all material respects at the date hereof and at the Time of Closing (unless such representation and warranty is already subject to a materiality qualification, in which case it shall be true and correct in all respects at the date hereof and at the Time of Closing) as if made at and as of each such date and time;

6.2.2

Covenants .    Each of the covenants and agreements of the Vendor to be performed prior to or at the Time of Closing shall have been duly performed in all material respects;

6.2.3

Materially Adverse Change .    There shall have been no Materially Adverse change in the condition (financial or otherwise), liabilities, operations, earnings or affairs of the Business or the Purchased Assets since the date of the Financial Statements, excluding a Purchaser's Material Loss or a Vendor's Material Loss, each of which, if any, shall be dealt with pursuant to Sections 10.3 and 6.4.7;

40

6.2.4

Laws .    There shall be no change in Applicable Laws from those in effect as at the date hereof relating to the regulation of the forestry or the pulp and paper industries in British Columbia which is Materially Adverse;

6.2.5

Insurance .    Mercer shall have arranged for and obtained customary insurance consistent with industry practice in respect of the Purchased Assets and the Business, on terms and conditions and with an amount of coverage reasonably satisfactory to Mercer; and

6.2.6

Financings .    Mercer shall have raised from the sale of its equity securities and/or senior notes funds to finance payment of the Purchase Price and refinance the indebtedness of its Rosenthal pulp mill, on terms and conditions satisfactory to Mercer, and Mercer shall have accepted a commitment from a Canadian chartered bank or its Affiliates for an operating credit facility of not less than U.S.$30 million.

The foregoing conditions are for the exclusive benefit of the Purchaser and Mercer and may be waived, in writing, by the Purchaser and Mercer, in whole or in part.

6.3.

Conditions for the Benefit of the Vendor .    The obligation of the Vendor to complete the sale of the Purchased Assets at the Closing as contemplated by this Agreement is subject to the satisfaction of each of the following conditions:

6.3.1

Representations and Warranties .    Each of the representations and warranties of Mercer and the Purchaser contained in this Agreement shall be true and correct in all material respects at the date hereof and at the Time of Closing (unless such representation and warranty is already subject to a materiality qualification, in which case it shall be true and correct in all respects at the date hereof and at the Time of Closing) as if made at and as of each such date and time; and

6.3.2

Covenants .    Each of the covenants and agreements of Mercer and the Purchaser to be performed prior to or at the Time of Closing shall have been duly performed in all material respects.

The foregoing conditions are for the exclusive benefit of the Vendor and may be waived, in writing, by the Vendor, in whole or in part.

6.4.

Termination .    This Agreement may be terminated by notice given prior to or at the Closing as follows:

6.4.1

by mutual written agreement of the Parties;

6.4.2

by the Purchaser and/or Mercer by notice in writing to the Vendor if the Vendor shall have failed to comply in any material respect with any of the provisions of this Agreement (other than those to be performed on the Closing Date) for a period of seven Business Days (or a lesser period specified by the Purchaser

41

 

and/or Mercer if the Closing Date is to occur within seven Business Days after the giving of such notice) after the Purchaser and/or Mercer shall have notified the Vendor of such failure to comply in writing;

6.4.3

by the Vendor by notice in writing to the Purchaser and Mercer if the Purchaser or Mercer shall have failed to comply in any material respect with any of the provisions of this Agreement (other than those to be performed on the Closing Date) for a period of seven Business Days (or a lesser period specified by the Vendor if the Closing Date is to occur within seven Business Days after the giving of such notice) after the Vendor shall have notified the Purchaser and Mercer of such failure to comply in writing;

6.4.4

by the Purchaser and/or Mercer by notice in writing to the Vendor if any condition in Sections 6.1 and 6.2 has not been satisfied by the Closing Date and the Purchaser has not waived such condition on or before such date;

6.4.5

by the Vendor by notice in writing to the Purchaser and Mercer if any condition in Sections 6.1 and 6.3 has not been satisfied by the Closing Date and the Vendor has not waived such condition on or before such date;

6.4.6

by any Party by notice in writing to the others if any condition in Article 6 has not been satisfied by the Termination Date and the Parties have not waived such condition on or before such date; or

6.4.7

by: (a) the Purchaser and/or Mercer if a Purchaser's Material Loss occurs; or (b) the Purchaser and/or Mercer or the Vendor if a Vendor's Material Loss occurs, all as set forth in Section 10.3,

provided that either the Vendor or the Purchaser and/or Mercer may also bring an action against the others for damages suffered where the non-performance or non-fulfilment of the relevant condition is a result of a breach of a covenant, representation or warranty contained in this Agreement by the others and such Party has not used all reasonable commercial efforts to cure such breach prior to the Closing.

6.5.

Expense Payment .    In addition to the costs payable by the Purchaser and Mercer under Section 5.4, and except as provided in this Section 6.5, if this Agreement is terminated by the Purchaser, Mercer or the Vendor, the Purchaser and Mercer, jointly and severally, agree to pay to the Vendor an amount in respect of the Vendor's actual out-of-pocket expenses (including, without limitation, legal, auditing, accounting, actuarial and other related professional fees and expenses) in connection with the transactions contemplated by this Agreement not to exceed the sum of (i) CDN$200,000, plus (ii) the amount, if any, by which CDN$300,000 exceeds the amount that the Purchaser and Mercer become liable to pay under Section 5.4; provided, however, the Vendor shall not be entitled to the foregoing expense payment if this Agreement is terminated: (a) as the result of the non-performance or non-fulfilment of a condition contained in Article 6 where such non-performance or non-fulfilment is the result of a breach of a covenant, representation

42

 

or warranty contained in this Agreement by the Vendor; or (b) pursuant to Section 6.4.7. For greater certainty, there shall be no duplication or overlap of amounts payable under this Section 6.5 and amounts payable under Section 5.4. This Section 6.5 shall survive the termination of this Agreement.

6.6.

Consideration .    Each of the Vendor and the Purchaser acknowledge receipt from the other of $1.00 and other good and valuable consideration and the Parties agree that they shall not have the right to revoke any agreement made hereunder while this Agreement remains subject to the Conditions Precedent set forth in this Section 6. For greater certainty, nothing in this Section 6.6 shall preclude a Party from exercising any right of termination granted hereunder.

7.      CLOSING MATTERS

7.1.

Vendor's Closing Documents .    At the Closing, the Vendor will deliver the following to the Purchaser:

7.1.1

a certified copy of the Vesting Order in form registrable in all necessary places required to effect its registration;

7.1.2

letters from legal counsel of the Vendor to the Registrar of Titles of the Kamloops/Nelson Land Title Office and the Registrar of the British Columbia Personal Property Registry and to the Purchaser, each as provided for in the Vesting Order;

7.1.3

evidence of the receipt of those Consents obtained by the Vendor prior to the Closing, together with any other consents, approvals and authorizations referred to in Sections 5.8 or 5.9 obtained by the Vendor;

7.1.4

a certified copy of a resolution of the Board of Directors or other authorizing resolution of the Vendor in its capacity as Receiver authorizing the sale and transfer of the Purchased Assets, respectively, as contemplated by this Agreement and the execution and delivery of this Agreement and all documents to be executed and delivered by the Vendor pursuant hereto;

7.1.5

a certificate of a senior officer of the Vendor in its capacity as Receiver as to the incumbency of the signatories on behalf of the Vendor and certifying the accuracy as of the Closing Date of the Vendor's representations and warranties and the performance of its covenants to be performed at or before the Closing in each case in all material respects;

7.1.6

to the extent not discharged by the Vesting Order, the discharge and release of the Dischargeable Encumbrances, in form and substance satisfactory to the Purchaser, acting reasonably;

7.1.7

the SST Certificate;

43

7.1.8

the Tax Elections executed by the Vendor or the Company, as applicable;

7.1.9

all deeds, documents of title, conveyances, bills of sale, transfers, assignments, and indentures and other documents necessary or desirable to effect the assignment, transfer and sale of the Purchased Assets as contemplated by this Agreement;

7.1.10

the Registration Rights Agreement;

7.1.11

the Lock-up Agreement;

7.1.12

the Assumption Agreement executed by the Vendor;

7.1.13

an opinion of counsel to the Vendor, in form and substance satisfactory to the Vendor, the Purchaser and Mercer, and their counsel, acting reasonably; and

7.1.14

such other documents as may be requested by the Purchaser or Mercer, acting reasonably, including, without limitation, the Other Transaction Documents.

7.2.

Mercer's and the Purchaser's Closing Documents .    At the Closing, Mercer and the Purchaser will deliver the following to the Vendor:

7.2.1

payment of the Purchase Price pursuant to Section 2.3.1, together with any Taxes to be remitted to the Vendor as contemplated by Section 3.7;

7.2.2

share certificate(s) representing the Mercer Shares issued by Mercer in payment of the Purchase Price pursuant to Section 2.3.2, legended as set forth in Section 2.9;

7.2.3

evidence of the receipt of those Consents obtained by the Purchaser prior to the Closing, together with any other consents, approvals and authorizations referred to in Section 5.8 obtained by the Purchaser;

7.2.4

evidence of the conditional a