-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BqZIkMk8k4PZ+hT1Sf+DC2jvd4am6vcM3BvLS3NhmyKruq5ZydkFZ9NkrCXdtet0 R7LDg77GO5udtdeKxH+sYA== 0001047469-98-012849.txt : 19980401 0001047469-98-012849.hdr.sgml : 19980401 ACCESSION NUMBER: 0001047469-98-012849 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980331 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CROWN PACIFIC PARTNERS L P CENTRAL INDEX KEY: 0000930735 STANDARD INDUSTRIAL CLASSIFICATION: SAWMILLS, PLANNING MILLS, GENERAL [2421] IRS NUMBER: 931161833 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-24976 FILM NUMBER: 98581661 BUSINESS ADDRESS: STREET 1: 121 S W MORRISON ST STE 1500 CITY: PORTLAND STATE: OR ZIP: 97204 BUSINESS PHONE: 5032742300 MAIL ADDRESS: STREET 1: 121 SW MORRISON ST STREET 2: STE 1500 CITY: PORTLAND STATE: OR ZIP: 97204 10-K405 1 10-K405 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K ____________________ [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended: December 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 0-24976 CROWN PACIFIC PARTNERS, L.P. (Exact name of registrant as specified in its charter) DELAWARE 93-1161833 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 121 SW MORRISON STREET, SUITE 1500, PORTLAND, OREGON 97204 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 503-274-2300 Securities registered pursuant to Section 12(b) of the Act: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED ------------------- ----------------------------------------- COMMON UNITS, REPRESENTING LIMITED NEW YORK STOCK EXCHANGE PARTNER INTERESTS Securities registered pursuant to Section 12(g) of the Act: NONE ____________________ Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K, or any amendment to this Form 10-K. [ X ] The aggregate market value of the voting Units of the Registrant held by non-affiliates of the Registrant was $550,881,502 as of January 30, 1998 based upon the last sales price as reported by the New York Stock Exchange. As of January 30, 1998 there were 21,541,189 Common Units and 5,773,088 Subordinated Units outstanding. ____________________ Documents Incorporated by Reference NONE. CROWN PACIFIC PARTNERS, L.P. 1997 FORM 10-K ANNUAL REPORT TABLE OF CONTENTS Page ---- PART I Item 1. Business 2 Item 2. Properties 13 Item 3. Legal Proceedings 13 Item 4. Submission of Matters to a Vote of Security Holders 13 PART II Item 5. Market for Registrant's Common Equity and Related Unitholder Matters 14 Item 6. Selected Financial Data 15 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 17 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 23 Item 8. Financial Statements and Supplementary Data 23 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 23 PART III Item 10. Directors and Executive Officers of the Managing General Partners 24 Item 11. Executive Compensation 27 Item 12. Security Ownership of Certain Beneficial Owners and Management 30 Item 13. Certain Relationships and Related Transactions 32 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 33 Signatures 36 1 PART I ITEM 1. BUSINESS GENERAL Crown Pacific Partners, L.P. ("Crown Pacific" or the "Partnership"), a Delaware limited partnership, through its 99% owned subsidiary, Crown Pacific Limited Partnership (the "Operating Partnership"), was formed in 1994 to acquire, own and operate timberlands and wood product manufacturing facilities located in the northwest United States. The Partnership's business consists primarily of growing and harvesting timber for sale as logs in domestic and export markets and the manufacturing and selling of lumber and other wood products. Crown Pacific Management Limited Partnership (the "Managing General Partner") manages the businesses of the Partnership and the Operating Partnership. The Managing General Partner owns a 0.99% general partner interest in the Partnership and the remaining 1% general partner interest in the Operating Partnership. Crown Pacific, Ltd. ("CPL"), which is the Special General Partner of the Partnership, and the Managing General Partner, comprise the General Partners of the Partnership. The Special General Partner owns a 0.01% general partner interest and a 10% limited partnership interest in the Partnership. All management decisions related to the Partnership are made by the Managing General Partner, but Unitholders have voting rights for certain issues as described in the Partnership Agreement. For a discussion of the Partnership's timberlands, see "Business-Timberlands" and "Business-Timberland Management." For a discussion of the Partnership's manufacturing facilities ("Manufacturing Facilities"), see "Properties - -Manufacturing Facilities." The Partnership has pursued a plan of growth through strategic acquisitions of timberlands and other assets since its inception. The following table summarizes the significant acquisitions, net of asset resales, during the Partnership's history:
Acquisition Date Consideration - ----------- ------------- ------------- Central Oregon timberlands April 1988 $35.6 million Prineville, Oregon sawmill November 1988 $6.3 million Hamilton timberlands July 1989 $237.8 million Central Oregon timberlands and Gilchrist, Oregon sawmill October 1991 $131.5 million Central Oregon timberlands June 1992 $8.8 million Eastern Washington timberlands December 1992 $10.1 million Redmond, Oregon plywood and remanufacturing facilities September 1993 $29.4 million Inland Region timberlands and sawmills October 1993 $238.0 million Western Washington, Tract 17 timberlands July 1995 $18.0 million Olympic timberlands and Eastside timberlands May 1996 $205.0 million Bellingham, Washington timberlands October 1997 $153.0 million
2 RECENT ACQUISITIONS In January 1998, the Partnership acquired Alliance Wholesale Lumber, Inc. ("Alliance") for $29.5 million. Alliance operates three contractor service yards in the Phoenix, Arizona area, which provide a variety of wood products to residential and commercial contractors. In October 1997, the Partnership acquired 65,000 acres of timberland from Trillium Corp. of Bellingham, Washington for $153.0 million. The timberlands are located in Whatcom, Skagit and Snohomish counties and include approximately 590 million board feet ("MMBF") of merchantable hemlock, Douglas fir, cedar and hardwoods. RECENT DISPOSITION Crown Pacific has historically engaged in the sale or disposal of timberland and other manufacturing facilities not integral to its forest products operations and strategies. In March 1997, the Partnership sold substantially all of the assets of its Redmond, Oregon remanufacturing facility for $7.4 million. In conjunction with the sale, the Partnership entered into a long-term supply agreement with the purchaser to supply lumber at market prices. Proceeds from the sale of these assets have been used to fund a portion of the Partnership's mill expansion and capital improvement program. TIMBERLANDS The Partnership owns or controls approximately 800,000 acres of timberlands, which contain a total merchantable timber inventory of approximately 5.0 billion board feet, located in Oregon, Washington, Idaho and Montana. The following table summarizes the estimated volume and acreage of the Partnership's timberlands:
Volume Timberlands (MMBF) Acreage - ---------------------------------------------- ------- ------- Oregon Timberlands 1,164 356,000 Washington Timberlands 2,218 234,000 Inland Timberlands 1,643 202,000 ------- ------- 5,025 792,000 ------- ------- ------- -------
The Partnership believes it is one of the largest non-governmental holders of mature Ponderosa pine in the United States. The Partnership's Ponderosa pine, as well as substantial quantities of export-quality Douglas fir and hemlock located on the Hamilton and Olympic timberlands, have historically commanded premium prices over other softwood species. The Partnership also has significant holdings of other softwood species, including white fir, lodgepole pine, cedar and sugar pine. Most of the timber on the timberlands is softwood. Due to its long fiber, strength, flexibility and other characteristics, softwood is generally preferred over hardwood for construction lumber and plywood. The timberlands are comprised principally of mature stands, with over 50% of the Partnership's merchantable timber in the Oregon and Inland Regions being at least 80 years old. In northwest Washington, where timber is harvested at a much earlier age because of high growth rates, over 70% of the Partnership's merchantable timber is at least 40 years old. 3 The Partnership's substantial timber resources reduce its reliance on third-party log sources to supply its manufacturing facilities, which the Partnership believes gives it a significant competitive advantage over lumber manufacturers without a supply of fee timber. During 1997, 1996 and 1995, Crown Pacific's timberlands provided the Oregon manufacturing facilities with 42%, 54% and 35%, respectively, and the Inland manufacturing facilities with 63%, 47% and 40%, respectively, of their log requirements. The decrease at the Oregon manufacturing facilities in 1997 is primarily a result of substantially more logs being obtained in the form of purchased stumpage and logs as a greater quantity of high quality logs were available for purchase. The increase at the Inland manufacturing facilities in 1997 resulted from the closure of two Inland Region manufacturing facilities and capital improvements to the remaining manufacturing facilities that have reduced dependence on outside log sources through more efficient processing. TIMBERLAND MANAGEMENT Particular forestry practices vary by geographic region and depend on factors such as soil productivity, weather, terrain, tree size, age and stocking. Crown Pacific actively manages its timber operations based on these factors and other relevant information in order to maximize the long-term value of its timber assets. The Partnership's management practices begin with the development of harvest plans for each of its tree farms. These plans are regularly reviewed and updated to reflect forestry considerations, market conditions, contractual and financing obligations and regulatory limitations. Consistent with prudent forestry practices, Crown Pacific attempts to harvest any trees that are dead, dying, downed, diseased or deformed. Prudent forestry practices also indicate that "thinning," a process by which smaller trees are selectively removed from among larger trees or the number of trees of equal size on a tract is reduced, helps to increase the overall growth rate of the remaining stand of trees. Commercial thinning is generally performed when the trees that are harvested produce merchantable timber, but pre-commercial thinning is also practiced on the Partnership's timberlands. Although the majority of Crown Pacific's timberlands regenerate naturally due to selective harvesting practices, the Partnership is engaged in active reforestation programs that generally exceed reforestation requirements applicable to the timberlands. These programs are designed to promote better health and growth rates and facilitate greater future harvest flexibility. Active reforestation is practiced primarily in the Washington timberlands due to the Partnership's even aged forestry management in that region, an approach made necessary by the difficult logging conditions and uniform ages and species of trees harvested in that region. The Partnership maintains a 40 acre seed orchard on Whidbey Island in Washington to support these programs. Legal title to the Partnership's timberlands is subject to existing easements, rights of way, flowage and flooding rights, servitudes, cemeteries, camping sites, hunting and other leases, licenses and permits, none of which materially adversely affect the value of the timberlands or materially restrict the harvesting of timber or other operations of the Partnership. In addition, under the terms of the Partnership's senior notes and bank credit facilities, the Partnership's ability to pledge, assign or transfer its timberlands is subject to certain restrictions. Forests are subject to a number of hazards, including damage by fire, insects and disease. These hazards, along with severe weather conditions and other natural disasters, can reduce the productivity of the Partnership's timberlands. Such hazards are unpredictable and there can be no assurance that Crown Pacific's losses, if any, will be limited. Consistent with practices of other forest products companies, the Partnership does not maintain insurance against losses to standing timber on the timberlands. Even if such insurance were available, the cost would likely be prohibitive to the Partnership. 4 PRODUCTS, COMPETITION AND SEASONALITY Most of the timber harvested by Crown Pacific is utilized by its manufacturing facilities for the production of lumber. The remainder, primarily from the Washington timberlands, is sold in third party domestic and export log markets. The Partnership's markets are highly competitive with respect to price, quality of products, distribution and other factors. Crown Pacific expects its products to experience increasing competition from engineered wood products and other substitute products. During 1997, total sales to customers involved in exporting activities were $16.3 million, or 3.2% of revenues, and no customer accounted for 10% or more of total revenues. LOGS The Partnership competes in the domestic market with other log suppliers, including numerous private land and timber owners in the northwest United States, many of whom have significantly greater financial resources than Crown Pacific, as well as with the states of Idaho, Montana and Washington and United States government agencies, such as the United States Forest Service (the "USFS"), the Bureau of Land Management (the "BLM") and the Bureau of Indian Affairs (the "BIA"). Competitive factors with respect to the domestic log market generally include price, species and grade, proximity to wood processing facilities and ability to meet current and future delivery requirements. Crown Pacific competes in the export log market with other U.S. companies, as well as those in Chile, New Zealand, Mexico, Russia and Scandinavia, many of whom have abundant timber resources. Principal competitive factors in the export market are quality, size and species. Domestic log sales volumes are generally at their lowest point in the second quarter of each year during spring breakup, when warming weather thaws and softens roadbeds, restricting access to harvest sites. Export log sales are affected by variations in inventory, both domestically and in the countries where such logs are sold, as well as by weather conditions. Total log sales, including stumpage sales, were 24.1% of revenues for the year ended December 31, 1997. LUMBER Crown Pacific produces an array of lumber products at its five mills in Oregon, Idaho and Washington (see Item 2. Properties). The Partnership's two Oregon facilities produce shop-grade lumber products primarily for industrial remanufacturers who produce doors, windows and other specialty products. Products produced at the Oregon facilities generally command premium prices due to the higher quality timber in that region. The Partnership's two facilities in Idaho produce 1" boards and 2" dimension commodity-grade lumber for various construction applications, including stud walls, roof trusses and joists, decking, laminated beams and remanufactured items. Crown Pacific's Washington facility produces commodity-grade studs for the construction industry. Total lumber sales, excluding sales of lumber products through the Partnership's wholesale division, were 38.7% of revenues for the year ended December 31, 1997. Domestic demand for lumber and manufactured wood products is directly affected by the level of residential construction activity. In the winter, demand generally subsides, increasing in the spring as construction activity resumes. Crown Pacific competes in the domestic lumber markets primarily with other U.S. and Canadian companies. Competitive factors in the commodity-grade lumber market are based on pricing strategies, while sales of shop grade lumber are based on quality, species and price. 5 WHOLESALE PRODUCTS In September 1996, the Partnership acquired substantially all of the assets of a company located in Eugene, Oregon, which operates as a trader and wholesaler of lumber and other wood products. Many of the products sold from the wholesale operation are manufactured by the Partnership; however, a substantial amount of the sales are products manufactured by other parties. During the year ended December 31, 1997, sales from the wholesale operation were approximately 25.3% of total revenues. This operation generates lower margins than the other parts of the Partnership's business. In January 1998, the Partnership acquired Alliance Wholesale Lumber, Inc., an operator of three contractor supply yards in the Phoenix area. 1997 sales for Alliance Wholesale Lumber, Inc. were approximately $100 million. Crown Pacific competes in the wholesale sales market with other wholesale companies and forest products companies. REMANUFACTURED PRODUCTS Crown Pacific sold its Redmond, Oregon remanufacturing facility in March 1997. Sales of remanufactured products were 2.7% of revenues for the year ended December 31, 1997. CHIPS AND BY-PRODUCTS All of Crown Pacific's manufacturing facilities produce wood chips and other by-products during their conversion processes. Chips are typically sold to regional pulp and paper mills, while other by-products are sold to particle board manufacturers or used as fuel in the Partnership's manufacturing facilities. Sales of chips and other by-products were 2.4% of revenues in 1997. SOURCES AND AVAILABILITY OF RAW MATERIALS The supply of Pacific Northwest timber provided by the USFS has decreased significantly from the late 1980s as a result of environmental regulations and endangered species concerns by federal authorities (see "Federal and State Regulation"). Reductions in timber supply have resulted in a number of regional mill closures, including some by the Partnership and its predecessor entities during the past several years. Crown Pacific believes that these supply reductions will continue and give the Partnership a competitive advantage over many smaller forest products companies due to the ability of the Partnership to supply its manufacturing facilities with timber harvested from its timberlands. For the year ended December 31, 1997, logs from Crown Pacific's timberlands represented 65.1% of all logs used in the Partnership's manufacturing facilities or sold to third parties, compared to 60.9% in 1996 and 44.6% in 1995. Crown Pacific supplements logs from its timberlands with logs purchased from third parties, including private landowners, the states of Idaho, Montana and Washington, certain United States government agencies and foreign sources for use in its manufacturing facilities. The Partnership expects its domestic sources to remain fairly stable in the face of the decline in the supply of federal timber. Reductions in federal timber supplies have also increased demand and pricing for privately owned timber. As of December 31, 1997, Crown Pacific had approximately 159 MMBF of timber under contract from external sources, principally the USFS, which may be harvested primarily over the next two years. In addition, the Partnership imports logs, primarily Radiata pine from New Zealand as a lower quality substitute for Ponderosa pine in its Oregon sawmills. During 1997, Crown Pacific imported 8.1 MMBF of Radiata pine logs. In 1996, the U.S. and Canadian governments announced a five-year lumber trade agreement effective April 1, 1996. This agreement is intended to reduce the volume of Canadian lumber exported into the U.S. through the assessment of an export tariff on annual lumber exports to the U.S. in excess of certain base level volumes. The Partnership believes that the agreement has had the effect of limiting the amount of lumber imported from Canada. 6 FEDERAL AND STATE REGULATION GENERAL Crown Pacific's operations are subject to numerous federal, state and local laws and regulations, including those relating to its Timberland activities, the environment, endangered species, health and safety, log exports and product liability regulations. Although the Managing General Partner believes that the Partnership is in material compliance with these requirements, there can be no assurance that significant costs, civil and criminal penalties, and liabilities will not be incurred, including those relating to claims for damages to property or natural resources resulting from Crown Pacific's operations. Crown Pacific maintains appropriate compliance programs and periodically conducts internal regulatory audits of its manufacturing facilities to monitor compliance with such laws and regulations. In addition, appropriate due diligence with respect to environmental compliance was conducted in connection with the acquisition of the various manufacturing facilities and timberlands. The manufacturing facilities have been, and may in the future be, the subject of compliance or enforcement proceedings under environmental laws and regulations. Prior compliance matters have been satisfactorily resolved without any material expenditure or substantial impairment of activities or operations. Environmental laws and regulations have changed substantially and rapidly over the last 20 years, and the Managing General Partner anticipates there will be continuing changes. The trend in environmental regulation is to place more restrictions and limitations on activities that may affect the environment, such as emissions of pollutants and the generation and disposal of wastes. Increasingly strict environmental restrictions and limitations have resulted in higher operating costs for Crown Pacific, and it is possible that the costs of compliance with environmental laws and regulations will continue to increase. Crown Pacific's activities are also subject to federal and state laws and regulations regarding forestry operations. In addition, the operations of the manufacturing facilities and the timberlands are subject to the requirements of the federal Occupational Safety and Health Act ("OSHA") and comparable state statutes relating to the health and safety of the Partnership's employees. Crown Pacific conducts internal safety audits to identify potential violations of law or unsafe conditions. The Managing General Partner believes that Crown Pacific is in material compliance with safety and health laws and regulations. There can be no assurance that future legislative, administrative or judicial actions, which are becoming increasingly stringent, will not adversely affect Crown Pacific or its ability to continue its activities and operations as currently conducted. As of the date hereof, the Managing General Partner is not aware of any pending legislative, administrative or judicial action that could materially and adversely affect the Partnership. TIMBERLANDS In addition to federal environmental laws, the operation of the timberlands is subject to specific laws and regulations in the states of Washington, Oregon, Idaho and Montana which are intended to regulate and restrict the growing, harvesting, processing and reforestation of timber on forest lands. The states of Oregon, Idaho and Montana require prior notification before beginning harvesting activities. The state of Washington is more restrictive, requiring a rigorous regulatory review taking from 15 to 30 days or more prior to harvesting, depending upon the environmental and other sensitivities of the proposed logging site. 7 Other state laws and regulations control timber slash burning, operations during fire hazard periods, logging activities affecting or utilizing water courses or in proximity to certain ocean and inland shore lines, water anti-degradation and certain grading and road construction activities. AIR QUALITY Crown Pacific's manufacturing facilities emit regulated substances that are subject to the requirements of the federal Clean Air Act, as amended, and comparable state statutes. Most of the Partnership's manufacturing facilities are required to obtain federal operating permits under Title V of the 1990 Clean Air Act Amendments. Title V requires that major industrial sources of air pollution obtain federally enforceable permits, which contain the applicable air quality restrictions for the facility. All of the required applications for Title V permits have been filed in a timely manner; one has been issued and one is currently being processed by the regulatory authorities. All other currently operating Partnership sources have been determined to not require Title V permitting due to their volume of emissions. During 1998, the new Bonners Ferry and Port Angeles mills (see "Liquidity and Capital Resources" in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations") will be permitted prior to operation. The cost of permitting is included in their capitalized construction costs. The Managing General Partner believes that additional costs associated with these requirements at existing facilities will be incidental to ongoing operating expenses. WATER QUALITY AND WASTEWATER The federal Clean Water Act and comparable state statutes regulate discharges of process wastewater, and require National Pollutant Discharge Elimination System ("NPDES") permits for discharge of industrial wastewater and stormwater into regulated public waters. All of the Partnership's lumber manufacturing facilities have secured the necessary permits and are operating in material compliance with NPDES wastewater and stormwater requirements. Because of the Partnership's method of containing runoff water resulting from washing vehicles, it believes its operations will not require additional capital investment to meet Clean Water Act Standards. Due to changes in water discharge requirements in Oregon, an estimated $60,000 capital investment may be required for containment of sprinkler runoff on log decks in the summer of 1998. The Partnership's facilities, at which mobile and vehicular equipment are based, are currently installing systems to collect the runoff resulting from the washing of vehicles. Capital costs associated with this project are estimated not to exceed $50,000 for concrete wash pads and catch basins in Marysville, Washington and Coeur d'Alene, Idaho. When this project is completed, Crown Pacific will be able to collect and dispose of this wastewater at minimal operating cost. These steps will make all Crown Pacific facilities compliant with the requirements of the Clean Water Act. SOLID AND HAZARDOUS WASTE DISPOSAL Crown Pacific's manufacturing facilities generate hazardous and non-hazardous solid wastes, including wood waste and boiler ash, which are subject to the Resource Conservation and Recovery Act and comparable state statutes. Crown Pacific periodically reviews its waste disposal practices to ensure compliance with applicable laws. The Partnership's manufacturing facilities have in the past utilized off-site facilities, including landfills, for the disposal of hazardous wastes. The Managing Partner does not believe that the results of any regulatory involvement at any such disposal sites will have a material adverse effect on the Partnership's operations or financial position; however, there can be no assurance that Crown Pacific will not incur future environmental expenditures for remedial activities associated with any of these sites. 8 SUPERFUND The Comprehensive Environmental Response, Compensation and Liability Act, also known as Superfund, and comparable state laws impose liability, without regard to fault or the legality of the original act, on certain classes of persons who contributed to the release of a "hazardous substance" into the environment. These persons include the owner or operator of a site and companies that disposed of or arranged for the disposal of hazardous substances found at a site. Those statutes also authorize government environmental authorities such as the U.S. Environmental Protection Agency and, in some instances, third parties, to take actions in response to threats to the public health or the environment and to seek recovery of the costs incurred from the responsible persons. In the course of its ordinary operations, the Partnership's manufacturing facilities have disposed of and are expected to continue disposing of hazardous wastes, consisting primarily of wood waste and boiler ash, at various off-site disposal facilities. Crown Pacific has not received notification that it may be potentially responsible for any cleanup costs under Superfund. Based on environmental compliance auditing programs, the Managing General Partner is not aware of any activities by Crown Pacific or any conditions on the timberlands or at its manufacturing facilities that would be likely to result in Crown Pacific being named a potentially responsible party under Superfund regulations. REMEDIATION AND COMPLIANCE ACTIVITY While Crown Pacific maintains a comprehensive environmental program designed to prevent the discharge of materials that could cause contamination to soil or water, contamination of soil and water has occurred in the past and may occur in the future. As Crown Pacific becomes aware of these sites, it cooperates with the appropriate environmental agencies to design and implement necessary response measures. All known contamination sites at the Partnership's facilities have been addressed to the extent required by applicable law. In connection with the acquisition of the studmill in Marysville, Washington in 1996, the Partnership completed soil remediation efforts and monitoring of groundwater for five quarters. Based on the results of these actions, the Managing General Partner estimates that future remediation costs will not exceed $40,000. ENDANGERED SPECIES The federal Endangered Species Act and counterpart state legislation protect species threatened with possible extinction. Protection of endangered species may include restrictions on timber harvesting, road building and other silvicultural activities in areas containing the affected species. A number of species indigenous to the Pacific Northwest have been protected under the Endangered Species Act, including the northern spotted owl (the "Owl"), marbled murrelet, mountain caribou, grizzly bear, bald eagle and various anadromous fish species. During 1994, Crown Pacific received reports from an independent consulting firm regarding certain endangered species on the Inland timberlands and regarding the Owl on the Hamilton and Central Oregon timberlands. The reports indicated that the Owl was unlikely to be found on the Inland timberlands, that only 3,500 acres of the Central Oregon timberlands were potentially suitable Owl habitat and that the likelihood of the Owl inhabiting these lands was very low and that only 1,640 acres of the current Hamilton timberlands were suitable habitat for the Owl. An eagle management plan will be required for the Olympic timberlands, but this is not expected to significantly affect Crown Pacific's operations. During 1995, Crown Pacific began developing a Habitat Conservation Plan (the "HCP") for the Hamilton timberlands in conjunction with the United States Fish and Wildlife Service (the "USFWS"). This plan was initiated by Crown Pacific in order to allow for more predictable harvests 9 in the area. After the HCP is completed and accepted by the USFWS, it will serve as the basis for regulating the Partnership's harvesting activities in that region. Crown Pacific believes that the HCP will be obtained by the end of 1998 at a remaining cost not exceeding $100,000. Crown Pacific is not currently considering the development of HCPs with respect to its other timberlands. During 1997, Crown Pacific acquired approximately 265 acres of old growth timberland in the state of Washington from Trillium Corporation. This acreage may be suitable habitat for listed or endangered species. Crown Pacific has entered into an option with The Trust for Public Lands to sell this acreage and other surrounding acreage during 1998. In September 1997, Crown Pacific received a subpoena from the United States Attorney for the Western District of Washington to produce documents in connection with an investigation by the United States Fish & Wildlife Service regarding the sale by Crown Pacific in 1996 of a 379 acre tract from the Hamilton tree farm that contained Owl habitat, at least 160 acres of which could be harvested without any significant adverse impact on the Owl. No charges have been brought against Crown Pacific or any of its employees, and Crown Pacific is cooperating with the investigation and is still producing documents requested in the September subpoena. Anadromous fish species are being analyzed by the USFWS and the State of Washington as potentially endangered or threatened. Certain of these species are found in rivers or streams that cross or border the timberlands, particularly in Washington. The presence of these species has not materially affected, and is not expected to materially affect, Crown Pacific's operations and related financial results even if they are considered endangered or threatened. The Partnership anticipates that the listing of anadromous or other fish species as threatened or endangered will primarily affect the availability of timber from federal lands, a resource the Partnership has already assumed will be in decline. Based on the reports described above and management's knowledge of the timberlands, the Partnership does not believe that there are any species protected under the Endangered Species Act that would materially and adversely affect Crown Pacific's ability to harvest the timberlands in accordance with its current harvest plans. There can be no assurance however, that species within the timberlands may not subsequently receive protected status under the Endangered Species Act or that currently protected species may not be discovered within the timberlands. LOG EXPORTS Federal laws prohibit the export of unprocessed timber acquired from federal lands in the western United States, or the substitution of unprocessed federal timber from the western United States for unprocessed private timber that is exported. Persons owning timber-processing facilities may seek authorization from the United States Department of Agriculture for a "sourcing area," within which the person may purchase federal timber while exporting unprocessed private timber originating from outside the sourcing area. A sourcing area for timber processing facilities in states other than the state of Washington must be geographically and economically separate from any geographic areas where the person or its affiliates harvest private timber for export. Crown Pacific has been granted sourcing areas which allow it to purchase available federal timber to supply its manufacturing facilities located in Oregon and Idaho, while selling logs for export from its Washington timberlands. These sourcing areas are reviewed by the federal government every five years. The next regular review of Crown Pacific's sourcing areas is scheduled in 1999. Various parties, including one of the Partnership's competitors, initiated litigation in July 1995 in U.S. District Court in Idaho seeking to overturn the federal government's approval of Crown Pacific's sourcing areas. These parties' principal contention is that the sourcing areas are not geographically and economically separate from the region from which Crown Pacific sells logs for export. Although not named as a defendant, the Partnership has intervened in the proceeding. In November 1996, the plaintiffs and the federal government as defendant entered into a Stipulation of Settlement. As part of the settlement, the USFS agreed that Crown Pacific's previously-approved sourcing areas would be remanded for review by the USFS. Pending the review, the remand does not affect the status of the sourcing areas granted. 10 In November 1997, Congress amended the governing law and the USFS is required to promulgate new implementing regulations. The Partnership believes that the USFS will not review its previously approved sourcing areas until after the new regulations are in place and that, if and when its sourcing areas are reviewed by the USFS, the outcome will be favorable to the Partnership. However, even if the USFS review of Crown Pacific's previously-approved sourcing areas is resolved against Crown Pacific and any administrative and/or judicial appeal of the USFS's adverse ruling is upheld, the Partnership believes that its ability or inability to acquire federal timber would not have a material impact on its financial results or operations because it has previously assumed that federal timber would not be available in significant quantities to supply its manufacturing facilities. Congress has also prohibited the USFS from adopting any policies that would restrain domestic transportation or processing of timber from private lands, except that it has authorized the USFS to prohibit timber-processing facilities in the state of Idaho from bringing private logs harvested from outside their sourcing areas into such facilities for conversion. If the USFS exercises its authority to adopt such a prohibition, it would restrict the Partnership's ability to bring logs harvested from private lands outside its sourcing area into its Idaho manufacturing facilities for conversion. Even if the USFS does adopt the prohibition, the Partnership does not expect it to adversely affect its financial results or operations since the Partnership rarely, if ever, has purchased private logs outside of its sourcing area for processing in its Idaho manufacturing facilities. PRODUCT LIABILITY AND REGULATION All of the states in the United States and many foreign jurisdictions in which Crown Pacific sells its products have, through some combination of legislation and judicial decision, provided for the liability of the manufacturer and supplier of defective materials for resulting personal injury and property damage. The operations of Crown Pacific entail exposure to product liability in connection with both the export and domestic sales of logs and lumber products. Crown Pacific has not been subject to any material litigation relating to product liability. INCOME TAX CONSIDERATIONS PARTNERSHIP STATUS Beneficial owners of Units in the Partnership are considered partners for federal income tax purposes. Accordingly, the Partnership pays no federal income taxes, and Unitholders are required to report their share of the Partnership's income, gains, losses and deductions in their federal income tax returns. Cash distributions to Unitholders are taxable only to the extent that they exceed the tax basis in their Units. LIMITATIONS ON DEDUCTIBILITY OF PARTNERSHIP LOSSES Under the passive loss limitations, Partnership losses are available to offset future income generated by the Partnership and cannot be used to offset income from other activities, including other passive activities or investments. Any losses unused by virtue of the passive loss rules may be deducted when the Unitholder disposes of all of his or her Units in a fully taxable transaction with an unrelated party. STATE TAX INFORMATION The Partnership conducts significant operations in six states, five of which (Arizona, California, Idaho, Oregon and Montana) have a state income tax. The Partnership also has a minor amount of income allocable to the state of New York. A Unitholder may be required to file state income tax returns in Arizona, California, Idaho, Oregon, Montana and New York if their share of the Partnership's income attributable to those states exceeds de minimis filing exceptions. 11 SECTION 754 ELECTION The Partnership has made an election under Section 754 of the Internal Revenue Code (the "Code"), which generally permits a Unitholder to adjust his or her share of the basis in the Partnership's properties ("Inside Basis") pursuant to Section 743(b) of the Code to fair market value (as reflected by his or her Unit price), as if he or she had acquired a direct interest in the Partnership's assets. A Unitholder's allocable share of Partnership income, gains, losses and deductions is determined in accordance with the Unitholder's unique basis under this election. In the case of the Partnership Units, the Section 743(b) adjustment acts in concert with the Section 704(c) allocation (and curative allocations) in providing the purchaser with a fair market value Inside Basis. Such election is irrevocable and may not be changed without the consent of the Internal Revenue Service ("IRS"). The Section 743(b) adjustment is attributed solely to a purchaser of Units and is not added to the basis of the Partnership's assets associated with all of the Unitholders. TAX-EXEMPT ENTITIES Certain entities otherwise exempt from federal income taxes (such as individual retirement accounts ("IRAs"), employee benefit plans and other charitable or exempt organizations) may be subject to federal income tax if their Unrelated Business Taxable Income ("UBTI") for their taxable year exceeds $1,000. The majority of a Unitholders' allocable share of taxable income from the Partnership will be classified as UBTI. TIMBER INCOME - CAPITAL GAIN BENEFIT Section 631 of the Code provides special rules by which gains from the sale of timber or cut logs, which would otherwise be taxable as ordinary income, are treated as capital gains from the sale of property used in a trade or business. Effective May 6, 1997, the maximum capital gain rate was lowered to 20% from 28% for most assets. It is estimated that substantially all of the Partnership's income will qualify for Section 631, the effect of which characterizes the income generated from the Partnership as capital gain to the Unitholder. EMPLOYEES At December 31, 1997, the Partnership had 199 salaried and 857 hourly employees. The Managing General Partner believes that the Partnership's employee relations are good. The Partnership's wage scale and benefits are generally competitive with other forest products companies. FORWARD-LOOKING STATEMENTS The information throughout this Form 10-K includes certain forward-looking statements, including statements regarding the Partnership's expectations, hopes, beliefs, intentions or strategies regarding the future. These statements and the Partnership's business and prospects are subject to a number of risks. These risks include the volatility of timber and lumber prices, factors limiting harvesting of timber - including contractual obligations, governmental restrictions, weather and access limitations - as well as capital expenditures required to supply its operations. Additional factors include environmental risks, operating risks normally associated with the timber industry, competition, government regulation, economic changes in regions where the Partnership has customers, including Southeast Asia and Japan, the value of the U.S. dollar against foreign currencies such as the Japanese yen, and the ability of the Partnership to implement its business strategy. These and other risks are described in this report and other of the Partnership's reports and registration statements that are available from the United States Securities and Exchange Commission. 12 ITEM 2. PROPERTIES TIMBERLANDS The Partnership's timberlands are described above under "Timberlands" in Item 1. Business. MANUFACTURING FACILITIES The Partnership currently operates five lumber mills that are located in Oregon, Idaho and Washington. The two Oregon facilities are located in central Oregon and are two of the largest producers of premium grade pine boards in the United States. The two Idaho mills are located in northern Idaho near the Inland timberlands and produce a diverse line of lumber products, including 1" boards and 2" dimension lumber products. The Washington mill in Marysville produces studs. The Partnership also owns a chip plant, which is located in Central Oregon. The following table summarizes the annual production and capacity of the Partnership's lumber and remanufacturing facilities (amounts in MMBF):
1998 Production 1997 1996 1995 Description of Facility Capacity Production Production Production - ----------------------- ----------- ---------- ---------- ---------- Oregon lumber mills 196 164 145 146 Inland lumber mills (1) 210 189 218 243 Washington lumber mill(s) (2)(4) 142 32 5 - Remanufacturing facility (3) - 7 22 19
- -------------- (1) 1996 and 1995 amounts include production at facilities no longer operated by the Partnership. (2) The facility at Marysville, Washington was purchased on September 16, 1996 and the 1996 amount includes production from that date. (3) The assets and related inventories of the Partnership's remanufacturing facility in Redmond, Oregon were sold in March 1997, and 1997 amounts reflect production through the date of sale. (4) Estimated 1998 capacity includes a mill currently under construction in Port Angeles, Washington, which will have an estimated capacity of 100 MMBF. ITEM 3. LEGAL PROCEEDINGS There is no pending litigation involving the Partnership, and to the knowledge of the Managing General Partner there is no threatened litigation, the unfavorable resolution of which would have a material adverse effect on the business, the financial position or results of operations of the Partnership. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to the vote of the limited partners in the fourth quarter of 1997. 13 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED UNITHOLDER MATTERS The Partnership's Common Units are traded principally on the New York Stock Exchange. As of December 31, 1997, there were approximately 27,000 beneficial owners of 21,331,189 outstanding Common Units. The Subordinated Units are not publicly traded. As of December 31, 1997, there were five beneficial owners of 5,773,088 outstanding Subordinated Units. Trading price data for the Common Units, as reported by the New York Stock Exchange, and declared distribution information for 1997 and 1996 was as follows:
1st 2nd 3rd 4th 1997 Quarter Quarter Quarter Quarter - ---------------------------- ------- ------- ------- ------- High $23.38 $24.25 $26.25 $27.00 Low $20.75 $20.13 $23.38 $22.88 Cash Distribution Per Unit $0.538 $0.538 $0.538 $0.538 1st 2nd 3rd 4th 1996 Quarter Quarter Quarter Quarter - ---------------------------- ------- ------- ------- ------- High $21.00 $21.38 $21.75 $22.38 Low $18.13 $19.50 $19.00 $20.50 Cash Distribution Per Unit $0.524 $0.524 $0.524 $0.524
Cash distributions, if any, are expected to be paid quarterly from "Available Cash" as defined in the Partnership Agreement. In addition, the Partnership's debt agreements have certain restrictive covenants limiting cash distribution amounts. 14 ITEM 6. SELECTED FINANCIAL DATA
1994 Partnership 1993 1997 1996 1995 and Former Former IN MILLIONS, EXCEPT PER UNIT AMOUNTS Partnership Partnership Partnership Entities (10) Entities - --------------------------------------------------- ----------- ----------- ----------- ------------- -------- INCOME STATEMENT DATA Revenues (1) 505.6 $401.6 $383.4 $397.3 $220.6 Depreciation, depletion and amortization (2 and 4) 47.6 39.8 35.0 40.9 31.2 Operating income (2 and 3) 68.4 61.0 48.2 47.3 58.8 Income before extraordinary item (2 and 3) 27.7 20.5 17.3 19.7 38.9 Income per Unit before extraordinary item (2 and 3) 1.01 0.94 0.94 1.07 N/A Extraordinary item - loss on debt extinguishment (4) - - - (16.2) - Net income (2, 3 and 4) 27.7 20.5 17.3 3.6 38.9 Net income per Unit (2, 3, 4 and 11) $1.01 $0.94 $0.94 $0.19 N/A Cash distribution per Unit (4 and 5) $2.152 $2.096 $2.040 $0.055 N/A CASH FLOW AND OTHER DATA EBITDDA (6) 114.4 $99.2 $83.3 $87.0 $85.9 Additions to timber and timberlands (7) 189.0 227.6 31.2 15.8 11.2 Additions to equipment 11.6 14.7 10.4 14.8 1.9 Cash flow from operating activities 64.7 65.1 21.9 57.5 59.7 BALANCE SHEET DATA Working capital $75.2 $65.2 $66.7 $51.7 $2.3 Total assets (7) 839.1 675.8 476.5 461.5 738.4 Long-term debt (7) 574.5 392.0 326.0 300.0 480.4 Partners' Capital (8) 208.2 240.0 107.1 119.4 98.6 OPERATING DATA (UNAUDITED) Fee timber harvest (MMBF) 332 297 202 215 152 External log sourcing (MMBF) (9) 210 191 251 269 106 Lumber production (MMBF) (9) 385 333 390 421 199 Plywood production (MMSF 3/8" basis) (9) N/A 76 113 142 45
15 Footnotes for Item 6. Selected Financial Data: (1) Included in revenues are revenues from closed or sold operations. Total revenues from these operations were $13.9 million in 1997, $68.7 million in 1996, $78.7 million in 1995, $90.0 million in 1994 and $69.9 million in 1993. (2) See effect of update of timber inventory system in Note 4 of Notes to Consolidated Financial Statements. (3) See effect of LIFO liquidation in Note 2 of Notes to Consolidated Financial Statements. (4) In conjunction with the 1994 refinancing of the former entities' (Crown Pacific Limited Partnership, Crown Pacific Inland Limited Partnership, Crown Pacific, Ltd., Crescent Creek Logging, Inc., and Crown Pacific Leasing Limited Partnership) borrowings, $16.2 million, or $0.88 per Unit on a pro forma basis, of deferred debt issuance costs were written off as an extraordinary charge. (5) Amount in 1994 represents distributions for the Partnership's 10-day period ended December 31, 1994. (6) EBITDDA is defined as net income before interest, amortization of debt issuance costs, income taxes, depreciation, depletion and amortization and extraordinary items. EBITDDA is provided because management believes EBITDDA provides useful information for evaluating the Partnership's ability to service debt and support its future cash distributions to Unitholders. EBITDDA should not be construed as an alternative to operating income, as an indicator of the Partnership's operating performance, as an alternative to cash flows from operating activities or as a measure of liquidity. (7) See 1997 acquisition of Trillium timberlands and 1996 acquisition of Cavenham timberlands in Note 4 of Notes to Consolidated Financial Statements. Included in total assets and long-term debt at December 31, 1993 was $220 million related to the purchase of certain timberlands in 1989. The Former Entities issued twenty-two $10 million installment notes to the seller secured by unconditional letters of credit. The deposited funds were restricted such that they could only be used to repay the notes. As a result, both the assets and liabilities remained on the Former Entities' balance sheet. (8) See effects of the Partnership's public offerings at Note 6 of Notes to Consolidated Financial Statements. (9) See Note 3 of Notes to Consolidated Financial Statements related to closures of mill and plywood facilities. (10) Certain of the 1994 information relates to combination of the Former Entities and the Partnership. (11) Per Unit amounts in 1994 are on a pro-forma basis for the entire year. See Note 1 of Notes to Consolidated Financial Statements for discussion of the implementation of Financial Accounting Standards No 128, "Earnings per Share." 16 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INDUSTRY CONDITIONS Crown Pacific's principal operations consist of the growing and harvesting of timber, the sale of logs and the processing and sale of lumber and other wood products (see Item 1. Business). The Partnership's ability to implement its business strategy over the long term and its results of operations depend upon a number of factors, many of which are beyond its control. These factors include general industry conditions, domestic and international prices and supply and demand for logs, lumber and other wood products, seasonality and competition from other supplying regions and substitute products. SUPPLY Environmental and other similar concerns and governmental policies have substantially reduced the volume of timber under contract to be harvested from federal lands. The resulting supply decrease caused prices for logs and lumber to increase significantly, reaching peak levels during late 1993 and early 1994. Even though prices have declined from these record levels, current prices still exceed pre-1993 levels. The low supply of timber from federal lands, which is expected to continue for the foreseeable future, has benefited forest products companies with private timber holdings, such as the Partnership, through higher stumpage and log prices. Additionally, many manufacturing facilities without a sufficient supply of fee timber were forced to close, including, in 1996, two Crown Pacific sawmills in the Inland Region that were closed or sold. Increased supplies of logs harvested from private lands and logs imported from foreign countries have only partially offset the lost volume from federal lands and have not replaced the mature, high-quality timber found in greater quantities on federal lands. Historically, Canada has been a significant source of lumber for the U.S. market. In 1996, the U.S. and Canadian governments announced a five-year lumber trade agreement effective April 1, 1996. This agreement is intended to reduce the volume of Canadian lumber exported into the U.S. through the assessment of an export tariff on annual lumber exports to the U.S. in excess of 14,700 MMBF from the four major producing provinces. DEMAND Changes in general demographic and economic factors, including interest rates for home mortgages and construction loans, have historically caused fluctuations in housing starts and in turn in demand, and therefore prices, for lumber and commodity wood products. Domestic demand for lumber and manufactured wood products is directly affected by the level of residential construction activity. In addition to housing starts, demand for wood products is also significantly affected by repair and remodeling activities and industrial uses, demand for which has historically been less cyclical. Domestic demand for logs, lumber and other wood products is seasonal. In the winter, demand generally subsides, increasing in the spring as construction activity resumes. Severe weather conditions, storms, floods and natural disasters can also affect demand. The Partnership is also affected by international demand factors, which are cyclical and seasonal as well. The strength of the economy in Japan and other Asian countries and the relative strength of the United States dollar directly affect the demand for exported logs from the Partnership's Washington Region. 17 EFFECTS OF INFLATION Crown Pacific has experienced increased costs due to the effect of inflation on the cost of labor, materials, supplies, energy, plant and equipment. Certain of these increases directly affect income through increased operating costs. During the period from 1992 through early 1994, raw material (primarily logs) prices increased significantly and exceeded inflation. Conversely, raw material prices have generally decreased from early 1994 and operating costs have increased at approximately the same rate as inflation. Improved operating efficiencies as a result of recent capital expenditures have partially offset these cost increases. EFFECTS OF ACQUISITIONS Each of Crown Pacific's acquisitions has been accounted for using the purchase method of accounting. Accordingly, the historical financial and operating data from one period to the next are not necessarily comparable and are not indicative of future operating results. YEAR 2000 ISSUES As the year 2000 approaches, Crown Pacific recognizes the need to ensure its operations will not be adversely impacted by Year 2000 software failures. The Partnership is addressing this issue to ensure the availability and integrity of its financial systems and the reliability of its operational systems. The Partnership has made, and will continue to make, certain investments in its software systems and applications to ensure the Partnership is Year 2000 compliant. The cost to the Partnership has not been, and is not anticipated to be, material. RESULTS OF OPERATIONS (1997 COMPARED TO 1996) Net sales in 1997 increased $104.0 million, or 25.9%, over sales in 1996, to $505.6 million. The $104.0 million increase was principally due to a $94.6 million sales increase in 1997 from the wholesale operation, which was acquired in September 1996, as well as increased sales of lumber and log products due to higher prices during the first six months of 1997. Sales increases during 1997 were partially offset by decreases in plywood and millwork products subsequent to the sale of the associated facilities and decreases in the prices of wood chips and other residuals. Lumber sales, excluding sales of lumber products through the wholesale division, represented 38.7% of sales in 1997, compared to 43.8% in 1996. Average external prices received for lumber in the Inland region increased 10.7% to $467 per thousand board feet ("MBF") for 1997 compared to prices received in 1996, while average external lumber prices in the Oregon region decreased 3.4% to $626/MBF in 1997. Lumber prices decreased in Oregon during the third and fourth quarters of 1997 as the U.S. millwork industry worked off existing inventory levels. Price increases in the Inland Region were due to strong U.S. housing and residential and commercial remodeling markets. Prices for lumber products sold from the Partnership's studmill in Marysville, Washington, acquired in September 1996, were $320/MBF in 1997. Moderate increases in lumber prices are expected beginning in the early part of the first quarter of 1998, as a result of higher seasonal demand. External lumber sales volumes, excluding sales from the wholesale operation, increased 7.3% in 1997 to 369.8 MMBF, from 344.5 MMBF in 1996. Sales volumes of Oregon lumber increased 16.7% to 151.3 MMBF in 1997 due to increases in capacity at the Partnership's Gilchrist and Prineville, Oregon facilities subsequent to capital improvements made in the first quarter of 1997. External lumber sales volumes in the Inland region decreased by 9.9% to 188.6 MMBF in 1997 primarily due 18 to the closure of the Albeni Falls, Idaho sawmill in June 1996. External sales volumes from the Marysville studmill were 29.8 MMBF during 1997. Total log sales represented approximately 24.1% of sales in 1997, compared to 26.9% in 1996. Average external domestic prices received for logs sold in the Olympic and Hamilton tree farms increased 36.5% and 4.2%, respectively, to $441/MBF and $467/MBF over prices experienced in 1996. Average external prices received for logs sold from the Oregon tree farm decreased 9.4% to $405/MBF from prices experienced during 1996. The average external prices received for logs sold in the Inland tree farm decreased 6.4% to $423/MBF from 1996. Overall decreases in domestic pricing were primarily due to increased sales of less expensive hemlock and lower grade cedar. Sales of logs to customers involved in exporting activities (included in total log sales above) were $16.3 million, or 3.2% of sales in 1997, compared to $20.3 million, or 5.0% of sales in 1996. Prices received for export logs remained stable at $646/MBF while sales volumes decreased 19.6% to 25.2 MMBF in 1997 from levels experienced in 1996. Export pricing remained stable primarily as a result of a shift in sales of mid-grade species from the export to the domestic market, elevating the export sales mix to higher grades. The current economic downturn in Southeast Asia is not expected to have a material impact on the Partnership's results of operations. Historically, only about 3% of the Partnership's log sales have been to customers for delivery to Asia. Given the current economic situation in this region, sales will continue to be directed primarily to the domestic markets. Export volume is expected to decline because some of the logs that would previously have gone to export sales will instead be utilized by the Partnership at the new Port Angeles, Washington mill when it is completed in the third quarter of 1998. Domestic log sales volumes increased 8.3% in 1997 to 223.4 MMBF, compared to 206.2 MMBF in 1996. Domestic sales volumes from the Oregon and Hamilton tree farms increased 18.5% and 58.7%, respectively, to 44.3 MMBF and 47.5 MMBF, respectively, over volumes experienced in 1996. Volumes sold from the Inland tree farm decreased 8.7% to 78.6 MMBF in 1997, while volumes sold from the Olympic tree farm acquired in May 1996 remained flat at 52.9 MMBF. Sales from the Partnership's wholesale operations acquired in September 1996 consisted of lumber and other wood products, most of which were not manufactured by the Partnership, and represented 25.3% of sales in 1997. Sales of timberlands were 4.3% of sales in 1997, compared to 3.1% of sales in 1996. Timberland sales resulted in a $6.9 million gain in 1997 and an $8.6 million gain in 1996. By-product and other revenues accounted for 2.4% of sales in 1997, compared to 3.4% of sales in 1996. Cost of sales as a percentage of sales increased slightly to 81.7% in 1997, compared to 80.2% in 1996. Higher margin sales of the Partnership's lumber and log products in the 1997 period were offset by lower margin sales from the Partnership's wholesale operation. Without the effect of sales from the wholesale operation, cost of sales decreased to 76.6% of total sales in 1997 from 78.7% in 1996, reflecting higher product prices and the closure of less profitable sawmill, plywood and remanufacturing facilities. 19 Selling, general and administrative expenses increased $5.5 million to $24.1 million in 1997, from $18.6 million in 1996. Selling, general and administrative expenses represented 4.8% of sales in 1997 and 4.6% in 1996. Increases were primarily due to increased marketing expenses associated with the Partnership's wholesale operation and additional salaries, wages and other benefits needed to support the current level of sales and marketing activities, as well as increased compensation costs related to equity-based executive compensation plans. Interest expense remained stable at approximately $39 million in 1997 and 1996. The Partnership pays no significant income taxes and does not include a provision for income taxes in its financial statements. RESULTS OF OPERATIONS (1996 COMPARED TO 1995) Net sales in 1996 increased $18.2 million, or 4.7%, over sales in 1995, to $401.6 million. The $18.2 million increase was principally due to increased sales of logs, including stumpage, and sales related to the Partnership's wholesale operations, which were acquired in September 1996. Sales increases in 1996 were partially offset by decreases in prices of plywood, wood chips and other residuals and the closure of mills. Lumber sales represented 43.8% of sales in 1996, compared to 47.9% in 1995. External lumber prices in the Oregon and Inland regions increased 3.1% and 18.5%, respectively, in 1996 from 1995 price levels. Price increases were due to strong U.S. housing and residential and commercial remodeling markets. Total lumber sales volumes decreased 11.2% in 1996, compared to 1995. Sales volumes of Oregon lumber decreased slightly to 129.7 MMBF in 1996, compared to 131.3 MMBF in 1995. Sales volumes in the Inland region decreased by 18.4% to 209.4 MMBF in 1996, due to closures of two of the Partnership's mills in 1996. Sales volumes of lumber from the Partnership's newly acquired studmill in Marysville, Washington were 5.3 MMBF for 1996 (see Note 3 of Notes to Consolidated Financial Statements). External log sales represented approximately 26.9% of sales in 1996, compared to 22.4% in 1995. Pricing for external logs sold domestically decreased approximately 7.3%. Decreases in pricing were offset by increases in sales volumes, including stumpage, of 66.8% in 1996, compared to 1995. Volume increases were attributed to log sales from the newly acquired Cavenham timberlands (see Note 4 of Notes to Consolidated Financial Statements). Increases in total revenues for 1996 were partially offset by a 37.0% decrease in plywood sales as a result of the sale of the Partnership's plywood manufacturing facility in September 1996. Revenues from wood chips and other residual products also declined by approximately 60% due to declining market prices of wood chips. Sales from the Partnership's newly acquired wholesale operations were 8.3% of sales in 1996 and primarily include sales of lumber and other wood products. Cost of sales as a percentage of sales decreased slightly to 80.2% in 1996, compared to 81.8% in 1995, due to a higher utilization of fee timber in 1996, compared to 1995, which was partially offset by lower margin sales from the Partnership's wholesale operation. 20 Selling, general and administrative expenses decreased 13.9% in 1996 from 1995 levels principally due to reductions related to plant closures in 1996 and other miscellaneous decreases in 1996 compared to 1995. Interest expense increased 25.1% in 1996, due to increases in long-term debt related to the acquisition of the Cavenham timberlands in May 1996 (see Notes 4 and 5 of Notes to Consolidated Financial Statements). The Partnership pays no significant income taxes and does not include a provision for income taxes in its financial statements. Weighted average Units outstanding in 1996 increased by 3.6 million due to the Partnership's second public offering of 8.97 million Common Units in August 1996. LIQUIDITY AND CAPITAL RESOURCES The Partnership's primary sources of liquidity have been cash provided by operating activities as well as debt and equity financings. Cash provided by operating activities was relatively consistent for both 1997 and 1996 at approximately $65 million. Working capital increased to $75.2 million at December 31, 1997 compared to $65.2 million at December 31, 1996. The current ratio decreased to 2.3:1 at December 31, 1997 from 2.5:1 at December 31, 1996. Net cash used in investing activities of $174.1 million resulted from additions to timberlands, equipment and timber cutting rights, which was partially offset by proceeds from notes receivable and sales of properties. The most significant addition to timberlands was the $153 million acquisition of 590 MMBF of timber from Trillium Corporation. The acquisition was financed with a combination of bank debt and seller provided financing. On July 22, 1997, the Board of Control of the Managing General Partner ratified the Partnership's previously announced plans to build a new high-technology studmill in Port Angeles, Washington. The Port Angeles mill will allow the Partnership to add value to the logs harvested from its Olympic Tree Farm. Total costs are expected to be approximately $18 million. Also on July 22, 1997, Crown Pacific announced plans to construct a new $17 million state-of-the-art sawmill at its existing mill site at Bonners Ferry, Idaho. The Partnership believes it can realize sizable efficiency and fiber recovery improvements from this new facility. Both mills are expected to be completed in the third quarter of 1998. Net cash provided by financing activities of $114.9 million resulted primarily from $182.5 million of net proceeds from long-term debt, offset by distributions to partners of $59.1 million and payments on the Partnership's working capital line of $6.2 million. On January 27, 1998, the Board of Control authorized the Partnership to make a distribution of $0.538 per unit, the Second Target Distribution as defined by the Partnership Agreement. The total distribution was $15.0 million (including $.30 million to the General Partners) and was paid on February 13, 1998 to Unitholders of record on February 6, 1998. Cash required to meet the Partnership's quarterly cash distributions (as required by the Partnership Agreement), to pay for capital expenditures and to satisfy interest and principal payments on indebtedness, will be significant. Capital expenditures, excluding purchases of timber and 21 timberlands, acquisitions of businesses and any costs incurred in connection with new mills, are expected to be approximately $16.0 million in 1998. The Managing General Partner expects that capital expenditures will be funded by property sales, cash generated from operations, current funds and/or bank borrowings. The new mills will be financed using operating leases. Debt service is expected to be funded from current operations. The Partnership expects to make cash distributions from its current funds and cash generated from operations. Capital expenditures during 1997 were funded by property sales, proceeds from note collections, cash provided by operations and additional debt. The Partnership has a $40 million revolving credit facility with a group of banks for working capital purposes and stand-by letters of credit that expires on September 30, 2000. The credit facility bears a floating rate of interest, 6.875% at December 31, 1997, and among other provisions, requires the Partnership to repay all outstanding indebtedness under the facility for at least 30 consecutive days during any twelve-month period. The line of credit is secured by the Partnership's inventories and receivables. At December 31, 1997 the Partnership had $9.0 million outstanding under this facility. On October 10, 1997, the Partnership renegotiated the terms of its Acquisition Facility with a group of banks to provide for a $150 million revolving line of credit for the acquisition of additional timber, timberlands and related assets. The Acquisition Facility is unsecured, bears a floating rate of interest, 7.49% at December 31, 1997, and expires September 30, 2000. At the end of the revolving period, the Partnership may elect to convert any outstanding borrowings under this facility to a four-year term loan, requiring quarterly principal payments equal to 6.25% of the outstanding principal balance on the conversion date. Borrowings against this facility were $61.0 million at December 31, 1997. On October 15, 1997, the Partnership used $107.5 million of seller provided financing to fund the Trillium acquisition. The notes to Trillium require monthly interest payments, at variable rates, with principal payments of $55 million in January 1998 and $52.5 million in 1999. The $55 million payment in January 1998 was paid with the proceeds from a new senior note offering issued in January 1998. On December 30, 1997, the Partnership issued $15 million of new senior notes and on January 13, 1998, the Partnership issued an additional $80 million of new senior notes. The $95 million of combined notes have an average interest rate of 7.80%, with principal payments of varying amounts due 2010 to 2018. The proceeds of these notes were used to refinance indebtedness associated with the Trillium acquisition and to finance a portion of the Alliance acquisition. The Partnership's 9.78%, 9.60% and 8.17% senior notes, issued in 1994, 1995 and 1996, respectively, are unsecured and require semi-annual interest payments through 2013. The senior note agreements require the Partnership to make an aggregate annual principal payment of $37.5 million on December 1, 2002, and principal payments in various amounts from December 1, 2003 through 2013. All of the Partnership's senior note agreements and bank lines of credit contain certain restrictive covenants, including limitations on harvest levels, land sales, cash distributions and the amount of future indebtedness. The Partnership was in compliance with such covenants at December 31, 1997. 22 NEW ACCOUNTING PRONOUNCEMENTS In June 1997, the FASB issued Statement of Financial Accounting Standard No. 130, "Reporting Comprehensive Income" ("SFAS 130"). This statement establishes standards for reporting and displaying comprehensive income and its components in a full set of general purpose financial statements. The objective of SFAS 130 is to report a measure of all changes in equity of an enterprise that result from transactions and other economic events of the period other than transactions with owners. The Partnership expects to adopt SFAS 130 in the first quarter of 1998 and does not expect comprehensive income to be materially different from currently reported net income. In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information." This Statement establishes standards for public business enterprises to report financial and descriptive information about operating segments in annual financial statements on the basis that is used internally for evaluating segment performance and deciding how to allocate resources to segments. SFAS No. 131 also establishes the standards for related disclosures about products and services, geographic areas and major customers. This Statement is effective for periods beginning after December 15, 1997. Management is currently evaluating the requirements of SFAS No. 131. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK None. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The financial statements and supplementary data filed as part of this report follow the signature page of this report and begin on page F-1. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 23 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE MANAGING GENERAL PARTNER Set forth below is certain information concerning the directors and executive officers of the Managing General Partner. As the general partners of the Managing General Partner, Fremont Investors, Inc. and a corporation owned by Messrs. Stott and Krage elect directors of the Managing General Partner on an annual basis. All officers of the Managing General Partner serve at the discretion of the directors of the Managing General Partner. DIRECTORS ROBERT JAUNICH II, 57, Chairman of the Board of Control of the Managing General Partner since its formation. Mr. Jaunich has been Chairman of the Board of Directors of the Special General Partner since 1991. Mr. Jaunich is a member of the Managing General Partners' Executive Committee. Since 1991, he has been Managing Director of direct investments of Fremont Investors, Inc. From 1986 until he joined Fremont Investors, Inc., Mr. Jaunich was a member of the chief executive office and Executive Vice President of Swiss-based Jacob Suchard AG, one of the world's top four chocolate, sugar confectionery and coffee companies. Mr. Jaunich currently serves on the board of directors of Consolidated Freightways, Inc. and on the boards of various other private companies. PETER W. STOTT, 53, Director of the Board of Control since its formation and a member of the Executive Committee. He has been President and Chief Executive Officer of the Managing General Partner since its inception in 1994. Mr. Stott served as Chief Executive Officer and in various other capacities for predecessors of the Partnership from 1988 until 1994. Mr. Stott is also Chairman and founder of Market Transport, Ltd., a temperature controlled regional motor carrier company located in Portland, Oregon, which employs over 350 people. Mr. Stott has been involved in the ownership and operations of timberlands since 1983. Mr. Stott is a member of the Board of Trustees for the Nature Conservancy and a member of the Board of Directors for Liberty Northwest Insurance Company. JAMES A. BONDOUX, 58, Director of the Board of Control since its formation and of the Special General Partner since 1991. Mr. Bondoux is a member of the Managing General Partner's Executive Committee and Compensation Committee. He has been a Managing Principal of Fremont since December 1984 concentrating on private ventures and special situation equity investments. CHARLES E. CARLBOM, 63, was elected Director of the Board of Control in December 1997 and is a member of the audit committee. Mr. Carlbom is the President and Chief Executive Officer of United Grocers, Inc. and has more than 20 years of forest industry experience with Willamette Industries and Western Kraft Corporation. RICHARD B. KELLER, 69, was elected Director of the Board of Control in January 1995 and is a member of the Compensation Committee. Mr. Keller has been President of Keller Enterprises, Inc. since 1975. He was Senior Vice President of Western Kraft Corporation, a division of Willamette Industries, Inc. from 1970 to 1975 and held various positions with Western Kraft from 1954. Mr. Keller started his career in the forest products industry at Georgia-Pacific Corporation where he served as an Assistant to the Vice Chairman. Mr. Keller currently serves on the Board of Directors of Northwest Natural, a publicly owned natural resource service provider. 24 JOHN W. LARSON, 60, was elected Director of the Board of Control in January 1995 and is a member of the Audit Committee. He was Chief Operating Officer of Chronicle Publishing from 1990 to 1993. Since 1993, Mr. Larson has been a private investor. He was a General Partner in J.H. Whitney and Company from 1984 to 1989 and served as a Director of McKinsey and Company from 1965 to 1984. CHRISTOPHER G. MUMFORD, 52, was elected Director of the Board of Control in January 1995 and is a member of the Audit Committee. He has been a General Partner of Scarff, Sears & Associates in San Francisco since 1986 and a Managing Director of Questor Partners Fund, L.P., since 1996. In addition to his duties with these private investment partnerships, Mr. Mumford was Executive Vice President and Chief Financial Officer of Arcata Corporation from 1982 to 1994, and has served as a director of several other privately owned companies. WILLIAM L. SMITH, 56, was elected Director of the Board of Control in January 1995 and is a member of the Compensation Committee. Mr. Smith is President of William Smith Properties, Inc., which he founded in 1983. Mr. Smith has 25 years of experience managing timberland and developing recreational properties, including his service as President of Brooks Resources Corporation, a publicly owned real estate development company formed as a spin-off from Brooks Scanlon, Inc., a publicly owned timber and sawmill company, from 1973 to 1983. EXECUTIVE OFFICERS For a description of Peter W. Stott's background, the President and Chief Executive Officer of the Managing General Partner, see "Directors" above. ROGER L. KRAGE, 50, was promoted to Senior Vice President of Corporate Affairs, General Counsel and Corporate Secretary of the Managing General Partner in January 1998. From 1994 until January 1998, Mr. Krage was Secretary and General Counsel of the Managing General Partner and served in comparable capacities for the Partnership's predecessors from 1988 to 1994. Mr. Krage has been involved in the legal, administrative, financial and risk management aspects of the forest products business for over 16 years. In addition to overseeing the legal affairs of Crown Pacific, he is closely involved with the development and implementation of corporate planning. RICHARD D. SNYDER, 50, Vice President and Chief Financial Officer of the Managing General Partner. Mr. Snyder joined Crown Pacific in 1992 as Treasurer and Chief Financial Officer and has served as Assistant to the President. Mr. Snyder has over 26 years experience in the accounting and finance profession focusing extensively on the forest products industry. From 1981 through 1992, Mr. Snyder was Vice President of Finance for Gregory Forest Products. Mr. Snyder worked for seven years as a CPA with the accounting firm of Arthur Andersen & Co. before serving five years at Georgia-Pacific as Director of Corporate Finance. G.P. ("PAT") HANNA, 69, Senior Vice President of the Managing General Partner, oversees Crown Pacific's timberland and manufacturing operations. Mr. Hanna, who joined Crown Pacific in 1989 from Willamette Industries, Inc., has over 35 years experience in managing timberlands. He was the Raw Materials Manager for Willamette Industries, Inc. from 1974 to 1989; and from 1969 until 1974, he was the Timber Contract Supervisor and Resident Forester for that company. 25 W. R. ("RAY") JONES, 45, Vice President of Land and Timber of the Managing General Partner. Mr. Jones joined Crown Pacific in 1992 as Procurement and Acquisition Forester and as Divisional Land and Timber Manager in Central Oregon. Mr. Jones has over 20 years of experience in timberland management, procurement and acquisitions. From 1985 through 1992 Mr. Jones was Timber Manager for Triangle Veneer, Inc., and was a log buyer and woodlands forester for Pope and Talbot from 1979 through 1984. Prior to 1979, Mr. Jones was a service forester and Forest Practices officer for the Oregon Department of Forestry. L. JAMES WEEKS, 56, Vice President of Marketing and Sales of the Managing General Partner. Mr. Weeks joined Crown Pacific in 1996 to oversee all marketing and sales activities of the Partnership. Mr. Weeks has over 27 years experience in the forest products industry, primarily in sales and marketing related functions. Mr. Weeks was formerly President of Maywood-Anderson Forest Products Company, a wholesale sales company, and was with that firm from 1982 through 1996 in several executive capacities. Crown Pacific acquired Maywood-Anderson in September 1996. Mr. Weeks was President of Mallery-Weeks Lumber Company from 1979 through 1982 and held various management positions with Wickes Forest Industries from 1969 through 1978. Mr. Weeks is a past member of the Board of Governors of the Western Wood Products Association. P.A. ("TONY") LEINEWEBER, 53, Vice President of the Managing General Partner, joined Crown Pacific in 1990 to oversee its administrative, personnel, risk management and public relations functions. Mr. Leineweber has over 20 years experience in managing these corporate functions. MARK B. CONAN, 37, Controller and Treasurer of the Managing General Partner. Mr. Conan joined Crown Pacific in 1993 as Tax Director and Assistant Treasurer. Mr. Conan has over 15 years experience in the accounting and finance profession, focusing primarily on taxation, mergers and acquisitions. Mr. Conan was formerly a Senior Manager at the accounting firm of Price Waterhouse LLP, and was with that firm from 1983 though 1993. COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT Section 16(a) of the Exchange Act requires the Managing General Partner's directors and executive officers, and persons who own more than ten percent of the Partnership's Common Units, to file reports of ownership and changes in ownership with the Commission and the NYSE. Based on the Partnership's review of the copies of such reports received by the Partnership and on written representations received by the Partnership, the Partnership believes that no director, officer or holder of more than ten percent of the Common Units failed to file on a timely basis the reports required by Section 16(a) of the Exchange Act during fiscal 1997. 26 ITEM 11. EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE
Long Term Compensation Annual Compensation Awards ----------------------- ------------ Securities Name and Principal Underlying Position Year Salary($) Bonus($) Options (#) - ------------------ ---- --------- -------- ------------ Peter W. Stott 1997 600,000 420,000 57,000 President and Chief 1996 600,000 120,000 26,000 Executive Officer 1995 600,000 250,000 188,335 Roger L. Krage 1997 275,191 175,000 40,000 Secretary and General 1996 250,000 50,000 15,000 Counsel 1995 250,000 100,000 188,335 Richard D. Snyder 1997 225,000 35,000 25,000 Vice President and 1996 175,000 45,000 15,000 Chief Financial Officer 1995 130,733 6,000 8,000 G. Pat Hanna 1997 191,551 30,000 25,000 Senior Vice President 1996 167,885 25,000 15,000 1995 125,000 18,000 8,000 L. James Weeks 1997 250,000 15,000 8,000 Vice President, 1996 (A) 83,333 -- -- Marketing and Sales 1995 -- -- --
(A) Includes compensation earned from the time Mr. Weeks joined the Partnership on September 1, 1996 through December 31, 1996. STOCK OPTION GRANTS The following table contains information concerning the grant of unit options under the Company's 1994 Unit Option Plan to the named executive officers in 1997. OPTIONS GRANTS IN LAST FISCAL YEAR
Potential Realizable Value At Assumed Annual Rates of Stock Price Appreciation for Individual Grants (A) Option Term (B) - ----------------------------------------------------------------------- -------------------- Number of % of Total Securities Options Underlying Granted to Options Employees in Exercise Expiration Name Granted (1) Fiscal Year Price ($/Sh.) Date 5% ($) 10% ($) - ----------------------------------------------------------------------- -------------------- Peter W. Stott 57,000 22.4% 22.00 01/01/07 788,634 1,998,553 Roger L. Krage 40,000 15.7% 22.00 01/01/07 553,427 1,402,493 Richard D. Snyder 25,000 9.8% 22.00 01/01/07 345,892 876,558 G. Pat Hanna 25,000 9.8% 22.00 01/01/07 345,892 876,558 L. James Weeks 8,000 3.1% 22.00 01/01/07 110,685 280,498
27 (1) Options granted in 1997 vest as to 10%, 20%, 30% and 40% on each of the first through fourth anniversaries of the grant date, respectively, with full vesting occurring on the fourth anniversary date. (2) These calculations are based on certain assumed annual rates of appreciation as required by rules adopted by the Securities and Exchange Commission requiring additional disclosure regarding executive compensation. Under these rules, an assumption is made that the shares underlying the stock options shown in this table could appreciate at rates of 5% and 10% per annum on a compounded basis over the ten-year term of the stock options. Actual gains, if any, on stock option exercises are dependent on the future performance of the Company's Common Stock and overall stock market conditions. There can be no assurance that amounts reflected in this table will be achieved. OPTION EXERCISES AND HOLDINGS The following table provides information concerning the exercise of options during 1997 and unexercised options held as of the end of the fiscal year, with respect to the named executive officers. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
Number of Securities Underlying Unexercised Value of Unexercised Shares Options In-The-Money Options Acquired Value At FY-End (#) At FY-End ($) (B) On Exercise Realized Exercisable/ Exercisable/ Name (#) ($) (A) Unexercisable Unexercisable - ----------------- ------------- ---------- ------------------------ ------------------------ Peter W. Stott - - 2,600 / 261,735 14,612 / 639,262 Roger L. Krage - - 1,500 / 234,835 8,430 / 553,874 Richard D. Snyder 3,900 14,074 - / 44,100 - / 132,220 G. Pat Hanna 3,900 20,187 - / 44,100 - / 132,220 L. James Weeks - - - / 8,000 - / 14,000
(A) Market value of the underlying securities at exercise date, minus exercise price of the options. (B) Market value of the underlying securities at December 31, 1997, $23.75 per unit, minus exercise price of the unexercised options. COMPENSATION OF DIRECTORS Outside Directors of the Board of Control of the Managing General Partner receive annual retainers of $12,000 and 600 Common Units of Crown Pacific plus $1,000 for each Board of Control meeting and committee meeting attended. Mr. Mumford receives $1,500 per quarter for his services as Chairman of the Audit Committee of the Board of Control. Messrs. Jaunich, Stott and Bondoux were not directly compensated by the Managing General Partner or the Partnership for their services as directors of the Managing General Partner. 28 EMPLOYEE CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS The Managing General Partner entered into employment agreements with Mr. Stott and Mr. Krage in December 1994. Each agreement has a term of three years, which expired December 31, 1997 and included confidentiality provisions and, in the case of Mr. Stott's agreement, noncompete provisions and an involuntary termination provision pursuant to which the executive officer would have received severance pay equal to up to six months base salary. In Mr. Stott's agreement, the confidentiality provisions continue for 18 months following the later to occur of Mr. Stott's termination of employment or his resignation or removal from the Board, and, unless Mr. Stott is terminated without cause, the noncompete provisions continue until the earlier to occur of (i) December 31, 1999 or (ii) the later to occur of December 31, 1998 or the date on which Fremont and its affiliates dispose of substantially all of their Subordinated Units to an unaffiliated third party. In the case of Mr. Krage's agreement, the confidentiality provisions continue for 18 months following Mr. Krage's termination of employment. Extensions of the agreements are under negotiation and expected to be finalized in April 1998. 29 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The following table sets forth, as of January 30, 1998, certain information furnished to the Company with respect to ownership of the Partnership's Common and Subordinated Units of (i) each Director, (ii) the Chief Executive Officer, (iii) the "named executive officers" other than the Chief Executive Officer, (iv) all persons known by the Company to be beneficial owners of more than 5 percent of its Common or Subordinated Units, and (v) all executive officers and Directors as a group:
COMMON UNITS (A) SUBORDINATED UNITS -------------------------- ----------------------- PERCENT PRECENT NUMBER OF UNITS NUMBER OF UNITS SHAREHOLDER OF UNITS OUTSTANDING OF UNITS OUTSTANDING - ------------------------------------ -------- ----------- --------- ---------- Fremont Investors, Inc. (2) (3) - - 3,562,825 61.7% SVE II, Inc. (1) - - 2,711,318 47.0% Sequoia Ventures Inc. (2) - - 1,466,758 25.4% Robert Jaunich II (4) 14,000 * 5,029,583 87.1% Peter W. Stott (5) 297,694 1.4% 3,403,904 59.0% James A. Bondoux (6) - - 2,711,318 47.0% Richard B. Keller 607,318 2.8% - - Roger L. Krage (7) 203,774 * 50,919 0.9% John W. Larson 24,535 * - - G. P. Hanna (8) 5,873 * - - Richard D. Snyder (9) 3,948 * - - L. James Weeks (10) 3,800 * - - Christopher G. Mumford 2,026 * - - Charles E. Carlbom - - - - All executive officers and directors as a group (12 persons) (11) 987,588 4.6% 5,773,088 100.0%
- -------------- * Less than 1% of the class. 30 (1) Current address is 121 S.W. Morrison Street, Suite 1500, Portland, Oregon 97204. Fremont controls SVE II. (2) Current address is 50 Fremont Street, Suite 3700, San Francisco, California 94105. Mr. Stephen D. Bechtel, Jr., through the ownership of stock and his position as trustee of various trusts (in which he disclaims any beneficial interest), is entitled to vote more than 50% of the stock in Fremont. As a result of the foregoing, Mr. Bechtel may be deemed to control Fremont. Mr. Bechtel is the largest single stockholder in Sequoia Ventures Inc. ("Sequoia"). Accordingly, Mr. Bechtel may be deemed to control Sequoia. Fremont controls SVE II. (3) Subordinated Units beneficially owned includes 2,711,318 Subordinated Units owned by SVE II, Inc. (4) Includes (i) 851,507 Subordinated Units owned by Fremont Investors, Inc, of which Mr. Jaunich serves as a director, (ii) 1,466,758 Subordinated Units beneficially owned by Sequoia Ventures Inc., of which Mr. Jaunich is a director, and (iii) 2,711,318 Subordinated Units beneficially owned by SVE II, Inc., of which Mr. Jaunich is a director. Mr. Jaunich disclaims beneficial ownership of all such Units other than 9,000 Common Units owned directly by him. Current address is 50 Fremont Street, Suite 3700, San Francisco, California 94105. (5) Includes: (i) 2,711,318 Subordinated Units beneficially owned by SVE II, Inc., of which Mr. Stott is a director and stockholder but disclaims beneficial ownership with respect to such Units, (ii) 195,000 Common Units beneficially owned by SK Partners, of which Mr. Stott is a general partner and owns a 92% interest; (iii) 84,000 Common Units owned by Columbia Investments II, LLC., a wholly owned company of Mr. Stott's; and (iv) 13,500 Units subject to options exercisable within 60 days of January 30, 1998. Current address is 121 S.W. Morrison Street, Suite 1500, Portland, Oregon 97204. (6) Includes 2,711,318 Subordinated Units beneficially owned by SVE II, Inc., of which Mr. Bondoux is a director. Mr. Bondoux disclaims beneficial ownership of such Units. Current address is 50 Fremont Street, Suite 3700, San Francisco, California 94105. (7) Includes 195,000 Common Units owned by SK Partners, of which Mr. Krage is a general partner and owns an 8% interest, and 4,000 Units subject to options exercisable within 60 days of January 30, 1998. Current address is 121 S.W. Morrison Street, Suite 1500, Portland, Oregon 97204. (8) Includes 2,500 Units subject to options exercisable within 60 days of January 30, 1998. (9) Includes 2,500 Units subject to options exercisable within 60 days of January 30, 1998. (10) Includes 800 Units subject to options exercisable within 60 days of January 30, 1998. (11) Includes: (i) 752,488 Units owned directly by the executive officers and directors as a group; (ii) 195,000 Units beneficially owned by SK Partners, of which Mr. Stott and Mr. Krage are general partners; and (iii) 40,100 Units subject to options exercisable within 60 days of January 30, 1998. 31 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS As provided by the Partnership Agreement, the Partnership reimburses the General Partners for the direct costs incurred to manage the Partnership. These cost reimbursements totaled $5.3 million in 1997. During 1997, the Partnership paid $100,000 to Freemont Investors, Inc. for management services provided. All related party transactions are conducted at arm's length. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K FINANCIAL STATEMENTS AND SCHEDULES The Consolidated Financial Statements, together with the report thereon of Price Waterhouse LLP, are included on the pages indicated below:
Page ---- Report of Independent Public Accountants F-1 Consolidated Statement of Income for the years ended December 31, 1997, 1996 and 1995 F-2 Consolidated Balance Sheet - December 31, 1997 and 1996 F-3 Consolidated Statement of Cash Flows for the years ended December 31, 1997, 1996 and 1995 F-4 Consolidated Statement of Changes in Partners' Capital - December 31, 1997, 1996 and 1995 F-5 Notes to Consolidated Financial Statements F-6
There are no schedules required to be filed with this report on Form 10-K. REPORTS ON FORM 8-K On October 28, 1997, the Partnership filed a report on Form 8-K, dated October 15, 1997, under Items 2. And 7. 32 EXHIBITS The following exhibits are filed herewith and this list is intended to constitute the exhibit index:
Exhibit No. Description - ----------- ----------- *2.1 Agreement for the Sale and Purchase of Business Assets dated March 28, 1997 between Registrant and Team Millwork, LLC (filed with the Registrant's Form 10-Q for the quarter ended March 31, 1997). *2.2 Timberlands Purchase Agreement by and between Trillium Corporation, a Washington corporation and Crown Pacific Limited Partnership, a Delaware limited partnership, dated September 12, 1997 (filed with the Registrant's Form 8-K dated October 15, 1997). 2.3 Stock Acquisition Agreement by and among Crown Pacific Partners, CP Acquisition Co., True H. Carr as Trustee of Carr Revocable Living Trust, Milan J. McMannis and Virginia McMannis as Trustees of McMannis Revocable Living Trust and Alliance Wholesale Lumber, Inc., dated November 10, 1997. *3.1 Form of Second Amended and Restated Agreement of Limited Partnership of Crown Pacific Partners, L.P. (Filed as Exhibit A to Part I of Registrant's Registration Statement on Form S-1 No. 83-85066). *3.2 First Amendment to Second Amended and Restated Agreement of Limited Partnership of Crown Pacific Partners, L.P. (filed with the Registrant's Form 10-Q for the quarter ended March 31, 1997). *3.3 Form of Agreement of Limited Partnership of Crown Pacific Limited Partnership (Filed as Exhibit 3.2 to the Registrant's Statement on Form S-1 No. 83-85066). 3.4 Amendment to Amended and Restated Agreement of Limited Partnership of Crown Pacific Limited Partnership. *4.1 Note Purchase Agreement relating to 9.78% Senior Notes due 2009 (Filed as Exhibit 10.3 to Registrant's Report on Form 10-K for the year ended December 31, 1995). *4.2 Note Purchase Agreement relating to 9.6% Senior Notes due 2009 (Filed as Exhibit 10.2 to Registrant's Report on Form 10-K for the year ended December 31, 1995). *4.3 Amended and Restated Facility B Credit Agreement dated as of May 13, 1996 (Filed as Exhibit 4.3 to the Registrant's Registration Statement on Form S-3 No. 333-05099). *4.4 Amended and Restated Credit Agreement dated as of May 13, 1996 (Filed as Exhibit 4.4 to the Registrant's Registration Statement on Form S-3 No. 333-05099). *4.5 Form of Amended and Restated Facility B Credit, dated as of July 31, 1996 (Filed as Exhibit 4.5 to the Registrant's Statement on Form S-3 No. 333-05099). *4.6 Form of Amended and Restated Credit Agreement, dated as of July 31, 1996 (Filed as Exhibit 4.6 to the Registrant's Statement on Form S-3 No. 333-05099). *10.1 Amended Credit Agreement with respect to a working capital credit facility and acquisition credit facility among Crown Pacific Limited Partnership and certain banks in the amount up to $40,000,000 and up to $100,000,000, respectively (Filed as Exhibit 10.1 to Registrant's Report on Form 10-K for the year ended December 31, 1995). 33 Exhibit No. Description - ----------- ----------- *10.2 Second Amendment to Amended and Restated Credit Agreement dated as of July 31, 1996 (filed with the Registrant's Form 10-Q for the quarter ended March 31, 1997). *10.3 Third Amendment to Amended and Restated Credit Agreement dated as of July 31, 1996 (filed with the Registrant's Form 10-Q for the quarter ended September 30, 1997). 10.4 Fourth Amendment to Amended and Restated Credit Agreement, dated as of July 31, 1996. *10.5 First Amendment to Amended and Restated Credit Agreement B dated as of July 31, 1996 (filed with the Registrant's Form 10-Q for the quarter ended March 31, 1997). *10.6 Second Amendment to Amended and Restated Credit Agreement B dated as of July 31, 1996 (filed with the Registrant's Form 10-Q for the quarter ended September 30, 1997). 10.7 Third Amendment to Amended and Restated Credit Agreement B, dated as of July 31, 1996. *10.8 Form of Purchase Rights Agreement (Filed as Exhibit 10.2 to the Registrant's Registration Statement on Form S-1 No. 83-85066). *10.9 1994 Unit Option Plan (Filed as Exhibit 10.5 to Registrant's Report on Form 10-K for the year ended December 31, 1995). 10.10 1997 Distribution Equivalent Rights Plan *10.11 $55 million Purchase Price Note due to Trillium Corporation, a Washington corporation, dated October 15, 1997 (filed with the Partnership's Form 8-K dated October 15, 1997). *10.12 $52.5 million Purchase Price Note due to Trillium Corporation, a Washington corporation, dated October 15, 1997 (filed with the Partnership's Form 8-K dated October 15, 1997). *10.13 Lumber Supply Agreement, dated March 28, 1997 between Registrant and Team Millwork, LLC (filed with the Partnership's Form 10-Q for the quarter ended March 31, 1997). 10.14 Ground Lease Agreement dated as of December 19, 1997 between Crown Pacific Limited Partnership as Ground Lessor, and Selco Service Corporation, as Ground Lessee 10.15 Lease agreement dated as of December 19, 1997 between Selco Service Corporation, as Lessor and Crown Pacific Limited Partnership, as Lessee and Construction Agent - Port Angeles Sawmill Complex 10.16 Ground Lease Agreement dated as of December 19, 1997 between Crown Pacific Limited Partnership as Ground Lessor, and Selco Service Corporation as Ground Lessee - Bonners Ferry, Idaho 10.17 Lease Agreement dated as of December 19, 1997 between Selco Service Corporation as Lessor and Crown Pacific Limited Partnership as Lessee and Construction Agent - Bonners Ferry Circle Mill 34 Exhibit No. Description - ----------- ----------- 10.18 Note Purchase Agreement dated as of December 15, 1997 - $95 million Senior Notes, Series A, B and C *21 List of Subsidiaries (Filed as Exhibit 21.1 to the Registrant's Registration Statement on Form S-1 No. 33-85066). 23 Consent of Price Waterhouse LLP. 27 Financial Data Schedule.
- -------------- * Incorporated herein by reference to the indicated filing. 35 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CROWN PACIFIC PARTNERS, L.P. (Registrant) By: Crown Pacific Management Limited Partnership, as Managing General Partner By: /s/ Peter W. Stott ------------------------------ Peter W. Stott President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on the behalf of the registrant and, in the capacities indicated on February 18, 1998, on behalf of, as applicable, Crown Pacific Management, L.P., the Registrant's Managing General Partner. By: /s/ Robert Jaunich II Chairman of the Board of Control ------------------------------ Robert Jaunich II By: /s/ Peter W. Stott President and Chief Executive ------------------------------ Officer & Member, Board of Control, Peter W. Stott Executive Committee, Crown Pacific Management, L.P. (Principal Executive Officer) By: /s/ Richard D. Snyder Vice President & Chief Financial Officer ------------------------------ Crown Pacific Management, L.P. Richard D. Snyder (Principal Financial and Accounting Officer) By: /s/ John W. Larson Member, Board of Control, ------------------------------ Audit Committee John W. Larson By: /s/ Christopher G. Mumford Member, Board of Control, ----------------------------- Audit Committee Christopher G. Mumford 36 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Control of Crown Pacific Management Limited Partnership and the Partners of Crown Pacific Partners, L.P. In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of income, of changes in partners' capital and of cash flows present fairly, in all material respects, the financial position of Crown Pacific Partners, L.P. and its subsidiaries at December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Partnership's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PRICE WATERHOUSE LLP Portland, Oregon January 26, 1998 F-1 CROWN PACIFIC PARTNERS, L.P. CONSOLIDATED STATEMENT OF INCOME (IN THOUSANDS, EXCEPT UNIT AND PER UNIT DATA)
FOR THE YEAR ENDED DECEMBER 31, 1997 1996 1995 ---- ---- ---- Revenues $ 505,588 $ 401,579 $ 383,383 Operating costs: Cost of products sold 413,085 321,935 313,490 Selling, general and administrative expenses 24,070 18,636 21,653 ---------- ---------- ---------- Operating income 68,433 61,008 48,240 Interest expense 39,083 38,852 31,053 Amortization of debt issuance costs 745 594 508 Other expense (income), net 922 1,021 (599) ---------- ---------- ---------- Net income $ 27,683 $ 20,541 $ 17,278 ---------- ---------- ---------- ---------- ---------- ---------- Net income per Unit $ 1.01 $ 0.94 $ 0.94 ---------- ---------- ---------- ---------- ---------- ---------- Weighted average Units outstanding 27,104,277 21,690,655 18,133,527 ---------- ---------- ---------- ---------- ---------- ----------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. F-2 CROWN PACIFIC PARTNERS, L.P. CONSOLIDATED BALANCE SHEET (IN THOUSANDS, EXCEPT UNIT INFORMATION)
DECEMBER 31, 1997 1996 ---- ---- ASSETS Current assets: Cash and cash equivalents $ 22,384 $ 16,818 Accounts receivable 50,523 42,810 Notes receivable 4,063 5,605 Inventories 44,914 35,746 Deposits on timber cutting contracts 6,656 4,771 Prepaid and other current assets 2,421 2,674 --------- --------- Total current assets 130,961 108,424 Property, plant and equipment, net 47,325 43,679 Timber, timberlands and roads, net 645,641 511,869 Other assets 15,217 11,789 --------- --------- Total assets $ 839,144 $ 675,761 --------- --------- --------- --------- LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Notes payable $ 9,000 $ 15,000 Accounts payable 14,626 11,363 Accrued expenses 25,007 10,470 Accrued interest 6,144 5,369 Current portion of long-term debt 1,000 1,000 --------- --------- Total current liabilities 55,777 43,202 Long-term debt 574,500 392,000 Other non-current liabilities 628 561 --------- --------- 630,905 435,763 --------- --------- Commitments and contingent liabilities Partners' capital: General partners 2,093 2,708 Limited partners (27,104,277 Units outstanding at December 31, 1997 and 1996) 206,146 237,290 --------- --------- Total partners' capital 208,239 239,998 --------- --------- Total liabilities and partners' capital $ 839,144 $ 675,761 --------- --------- --------- ---------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. F-3 CROWN PACIFIC PARTNERS, L.P. CONSOLIDATED STATEMENT OF CASH FLOWS (IN THOUSANDS)
FOR THE YEAR ENDED DECEMBER 31, 1997 1996 1995 ---- ---- ---- Cash flows from operating activities: Net income $ 27,683 $ 20,541 $ 17,278 Adjustments to reconcile net income to net cash provided by operating activities: Depletion, depreciation and amortization 47,626 39,847 34,959 Gain on sale of property (7,430) (8,097) (6,816) Other (134) (785) 5,034 Net change in current assets and current liabilities: Accounts and notes receivable (5,682) (2,120) (17,406) Inventories (14,259) 10,748 692 Prepaid and other current assets (1,439) 5,246 2,207 Accounts payable and accrued expenses 18,329 (314) (14,068) --------- -------- --------- Net cash provided by operating activities 64,694 65,066 21,880 --------- -------- --------- Cash flows from investing activities: Additions to timberlands (175,408) (214,761) (26,218) Additions to timber cutting rights (13,585) (12,842) (4,993) Additions to property, plant and equipment (11,561) (14,660) (10,437) Proceeds from sales of property 20,129 9,060 11,538 Principal payments received on notes 6,196 11,516 1,096 Acquisition of businesses, net of cash -- (6,028) -- Other investing activities 156 (9) (617) --------- -------- --------- Net cash used in investing activities (174,073) (227,724) (29,631) --------- -------- --------- Cash flows from financing activities: Proceeds from sale of partnership interests -- 161,922 -- Retirement of equity interests -- (4,100) -- Net (decrease) increase in short-term borrowing (6,170) (5,517) 15,592 Proceeds from issuance of long-term debt 214,500 343,000 68,600 Repayments of long-term debt (32,000) (276,000) (42,600) Distributions to partners (59,131) (41,294) (29,342) Capital contributions -- 3,329 -- Debt and equity issuance costs (1,786) (11,883) -- Other financing activities (468) (273) (628) --------- -------- --------- Net cash provided by financing activities 114,945 169,184 11,622 --------- -------- --------- Net increase in cash and cash equivalents 5,566 6,526 3,871 Cash and cash equivalents at beginning of year 16,818 10,292 6,421 --------- -------- --------- Cash and cash equivalents at end of year $ 22,384 $ 16,818 $ 10,292 --------- -------- --------- --------- -------- ---------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. F-4 CROWN PACIFIC PARTNERS, L.P. CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL (IN THOUSANDS)
GENERAL PARTNERSHIP LIMITED PARTNERSHIP INTEREST INTEREST -------- -------- Balances, December 31, 1994 $ (35) $ 119,432 Equity issuance costs (277) Net income for the year 173 17,105 Distributions (290) (29,052) -------- ---------- Balances, December 31, 1995 (152) 107,208 Equity issuance costs (7,456) Issuance of partnership Units 161,922 Contribution of capital 3,329 Redemption of Special Allocation Units (4,100) Net income for the year 205 20,336 Distributions (674) (40,620) -------- ---------- Balances, December 31, 1996 2,708 237,290 Equity issuance costs and other (311) Net income for the year 277 27,406 Distributions (892) (58,239) -------- ---------- Balances, December 31, 1997 $ 2,093 $ 206,146 -------- ---------- -------- ----------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. F-5 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES SUMMARY OF OPERATIONS Crown Pacific Partners, L.P. (the "Partnership"), a Delaware limited partnership, through its 99% owned subsidiary, Crown Pacific Limited Partnership (the "Operating Partnership"), was formed in 1994 to acquire, own and operate timberlands and wood product manufacturing assets located in the Northwest United States. The Partnership's business consists primarily of growing and harvesting timber for sale as logs in domestic and export markets and the manufacturing and marketing of lumber and other wood products. Crown Pacific Management Limited Partnership (the "Managing General Partner") manages the businesses of the Partnership and the Operating Partnership. The Managing General Partner owns a 0.99% general partner interest in the Partnership and the remaining 1% general partner interest in the Operating Partnership. Crown Pacific, Ltd. ("CPL"), the Special General Partner of the Partnership, and the Managing General Partner comprise the General Partners of the Partnership. The Special General Partner owns a 0.01% general partner interest and a 10% limited partnership interest in the Partnership. All management decisions related to the Partnership are made by the Managing General Partner. Unitholders have voting rights for certain issues as outlined in the Partnership Agreement. PRINCIPLES OF CONSOLIDATION All significant intercompany balances and transactions have been eliminated in the consolidated financial statements. REVENUE RECOGNITION The Partnership recognizes revenue from log sales upon delivery to the customer. Revenue from lumber, plywood and millwork sales is recognized upon shipment. Sales of real property, including standing timber, are recognized when title transfers, upon receipt of a sufficient down payment and when the collectibility of any outstanding receivable from the purchaser is assured. The allowance for doubtful accounts was $0.45 million and $0.25 million at December 31, 1997 and 1996, respectively. CASH AND CASH EQUIVALENTS Cash and cash equivalents consist primarily of funds invested in overnight repurchase agreements. The Partnership considers all liquid investments that have original maturities of three months or less to be cash equivalents. INVENTORIES Inventories, consisting of lumber and logs, are stated at the lower of LIFO cost or market. Supplies and inventories maintained at non-manufacturing locations are valued at the lower of average cost or market. DEPOSITS ON TIMBER CUTTING CONTRACTS The Partnership purchases timber under cutting contracts with government agencies and private landowners, where title to the timber does not pass until the timber is harvested and measured. Timber remaining under contract is considered to be a commitment and is not recorded as an asset or liability until it is harvested and measured. Deposits are generally required to be made on these contracts and are applied to the purchase of timber as it is harvested. F-6 PROPERTY, PLANT AND EQUIPMENT Buildings, machinery and equipment, including additions and improvements that add to productive capacity or extend useful life, are recorded at cost, including capitalized interest during construction of $1.0 million for the year ended December 31, 1997. Maintenance and repairs are expensed currently. Upon retirement or disposal of assets, the cost and related accumulated depreciation are removed from their respective accounts and any gain or loss is reflected in earnings. Depreciation is calculated for financial reporting purposes using the straight-line method that is based on estimated useful lives as follows: Buildings and leasehold improvements 15 to 25 years Machinery and equipment 3 to 10 years TIMBER AND TIMBERLANDS Timber and timberlands, including logging roads, are stated at cost less depletion for timber previously harvested and accumulated amortization related to roads. Amortization of the Partnership's logging roads and depletion of timber harvested are determined based on the volume of timber harvested in relation to the amount of estimated recoverable timber. The Partnership estimates its timber inventory using statistical information and data obtained from physical measurements, site maps, photo-types and other information- gathering techniques. These estimates are updated annually and may result in adjustments of timber volumes and depletion rates, which are recognized prospectively (see Note 4). Changes in these estimates have no impact on the Partnership's cash flow. Timber purchased through cutting contracts is recorded separately as cutting rights and depleted throughout the harvest. DEBT ISSUANCE COSTS Debt issuance costs including $1.6 million and $3.1 million of costs in 1997 and 1996, respectively, are a component of other assets and include all costs and fees incurred that are directly related to obtaining credit facilities. These costs are amortized over the term of the related credit agreement. Unamortized debt issuance costs were $8.0 million and $7.1 million at December 31, 1997 and 1996, respectively. INCOME TAXES The Partnership is not subject to federal income tax as its income or loss is included in the tax returns of the individual Unitholders. ACCRUED EXPENSES Included in accrued expenses are accrued payroll and profit sharing expenses of $5.1 million and $4.8 million for the years ended December 31, 1997 and 1996, respectively (see Note 7). PER UNIT INFORMATION Net income per Unit is calculated using the weighted average number of Common and Subordinated Units outstanding, divided into net income (loss), after adjusting for the 1% General Partner interest. The Partnership adopted Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS 128), for the year ended December 31, 1997. The adoption of SFAS 128 had no effect on earnings per Unit for any years presented. For the Partnership, under SFAS 128 there is no significant difference between basic and diluted earnings per Unit as net income is allocated proportionately to both subordinated and common Units. F-7 SALES TO EXPORTERS The Partnership sells logs to domestic customers engaged in exporting activities. Total sales to those customers were $16.3 million, $20.3 million and $11.1 million for the years ended December 31, 1997, 1996 and 1995, respectively. STOCK-BASED COMPENSATION Statement of Financial Accounting Standards No. 123, "Accounting for Stock- Based Compensation" (SFAS 123), allows companies to choose whether to account for stock-based compensation on a fair value method, or to continue accounting for such compensation under the method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25). The Partnership has chosen to continue to account for unit-based compensation using APB 25 (see Note 7). If the accounting provisions of SFAS 123 had been adopted, as of the beginning of 1996, the effect on 1997 and 1996 net income would have been immaterial. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates, including those related to timber volumes and related depletion and amortization of costs, and assumptions that affect the amounts reported in the consolidated financial statements and notes to financial statements. Actual results could differ from these estimates and changes in such estimates may affect amounts reported in future periods. FINANCIAL INSTRUMENTS All of the Partnership's significant financial instruments are recognized in its consolidated balance sheet. Carrying values approximate fair market value, unless otherwise noted (see Note 5). CONCENTRATION OF RISK The Partnership is subject to credit risk through short-term cash investments and trade and notes receivable. The Partnership restricts investment of short-term cash investments to high credit quality financial institutions. At times, such investments may be in excess of the FDIC insurance limit. Credit risk on trade receivables is mitigated by control procedures to monitor the credit worthiness of customers. The Partnership may mitigate credit risk related to notes receivable by obtaining asset lien rights or other secured interests or performing credit worthiness procedures or both. ENVIRONMENTAL COSTS The Partnership expenses environmental costs incurred related to its operations and for which no current or future benefit is discernible. Expenditures that extend the life of the timberlands and related properties are capitalized and amortized over their estimated useful lives. FINANCIAL STATEMENT RECLASSIFICATIONS Certain amounts in prior years have been reclassified to conform with current year presentation and had no impact on net income or partners' capital. F-8 SUPPLEMENTAL CASH FLOW INFORMATION The Partnership made cash payments for interest (in thousands):
YEAR ENDED DECEMBER 31, 1997 1996 1995 ------- ------- ------- Interest $39,316 $35,936 $28,932
2. INVENTORIES Inventories consisted of the following (in thousands):
DECEMBER 31, 1997 1996 ------- ------- Finished goods $13,054 $ 9,068 Work in process -- 6,417 Logs 29,720 16,123 Supplies 1,224 1,534 LIFO adjustment 916 2,604 ------- ------- Total inventories $44,914 $35,746 ------- ------- ------- -------
In 1996, the liquidation of LIFO inventories decreased cost of sales and, therefore, increased net income by $1.0 million. 3. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consisted of the following (in thousands):
DECEMBER 31, 1997 1996 -------- -------- Land $ 3,880 $ 3,885 Buildings and leasehold improvements 5,229 6,102 Machinery and equipment 57,722 41,040 Construction in progress 3,410 12,579 -------- -------- 70,241 63,606 Less: accumulated depreciation (22,916) (19,927) -------- -------- Property, plant and equipment, net $ 47,325 $ 43,679 -------- -------- -------- --------
In February 1997, the Partnership sold the assets of its remanufacturing facility in Redmond, Oregon. The net gain recognized on the sale was insignificant. In September 1996, the Partnership acquired substantially all of the assets of a company located in Eugene, Oregon, which operates as a trader of lumber and other wood products for $3.0 million. In addition, in September 1996, the Partnership acquired substantially all of the assets of a studmill in Marysville, Washington for $2.7 million. In 1996, the Partnership disposed of substantially all of the assets of the Thompson Falls, Montana and Albeni Falls, Idaho sawmills. Additionally, in 1996, the Partnership disposed of substantially all of the assets of its Redmond, Oregon plywood facility. The Partnership's aggregate net loss related to these disposals was insignificant. F-9 4. TIMBER, TIMBERLANDS AND ROADS Timber, timberlands and roads consisted of the following (in thousands):
DECEMBER 31, 1997 1996 ---------- ---------- Timber, timberlands and logging roads, net $637,353 $497,491 Timber cutting rights 8,288 14,378 -------- -------- Total timber and timberlands, net $645,641 $511,869 -------- -------- -------- --------
On October 15, 1997 the Partnership purchased 65,000 acres of timberlands in Northwest Washington from Trillium Corporation for $152.5 million (the "Trillium Acquisition"). The Trillium Acquisition was initially financed with $45 million from an existing acquisition line of credit and the balance of $107.5 million was financed by the seller (see Note 5). On May 15, 1996, the Partnership purchased 207,000 acres of Northwest timberland from Cavenham Forest Industries for $205 million (the "Cavenham Acquisition"). The Cavenham Acquisition, along with existing acquisition line borrowings, was financed with a $250 million bank credit facility (the "Acquisition Facility"), which was subsequently repaid with the proceeds of a new equity offering (see Note 6) and placement of senior notes on August 13, 1996 (see Note 5). The Partnership's annual update of its timber inventory system (See Note 1) resulted in an increase in timber volumes, which reduced estimated depletion rates and decreased the depletion cost for the year ended December 31, 1995 by $7.4 million, or $0.41 per Unit. The adjustments for 1997 and 1996 were not significant. 5. LONG-TERM DEBT Long-term debt consisted of the following (in thousands):
DECEMBER 31, 1997 1996 -------- -------- 9.78% Senior Notes due 2002 - 2009 $275,000 $275,000 9.60% Senior Notes due 2002 - 2009 25,000 25,000 8.17% Senior Notes due 2003 - 2013 91,000 91,000 7.80% Senior Notes due 2012 15,000 -- Term Note - $55.0 million due in 1998 and $52.5 million due in 1999, variable rate: 6.94% at December 31, 1997 107,500 -- Term Note due 1997 - 1998, variable rate: 5.79% at December 31, 1997 1,000 2,000 Revolving Acquisition Line of Credit 61,000 -- -------- -------- 575,500 393,000 Less: current portion (1,000) (1,000) -------- -------- Long-term debt, excluding current portion $574,500 $392,000 -------- -------- -------- --------
F-10 The Partnership has a $40 million revolving credit facility with a group of banks for working capital purposes and stand-by letters of credit that expire on September 30, 2000. The credit facility bears a floating rate of interest, 6.875% at December 31, 1997, and among other provisions, requires the Partnership to repay all outstanding indebtedness under this facility for at least 30 consecutive days during any twelve-month period. The Partnership's inventories and receivables secure the line of credit. At December 31, 1997 and 1996, the Partnership had $9 million and $15.0 million, respectively, outstanding under this facility. On December 31, 1996 the Partnership borrowed $15 million on this facility and repaid the loan in full on January 6, 1997. On October 10, 1997 the Partnership renegotiated the terms of its Acquisition Facility with a group of banks to provide for a $150 million three- year revolving line of credit for the acquisition of additional timber, timberlands and related assets. The Acquisition Facility is unsecured and bears a floating rate of interest, 7.49% at December 31, 1997. At the end of the revolving period, the Partnership may elect to convert any outstanding borrowings under this facility to a four-year term loan, requiring quarterly principal payments equal to 6.25% of the outstanding principal balance on the conversion date. At December 31, 1997 the Partnership had $61.0 million outstanding under this facility. On October 15, 1997 the Partnership used $107.5 million of seller provided financing to fund the Trillium Acquisition. The notes to Trillium require monthly interest payments with principal payments of $55 million in January 1998 and $52.5 million in 1999. The $55 million payment in January 1998 was paid with the proceeds from a new senior note offering issued in January 1998 and, therefore, is classified as long-term debt in the accompanying balance sheet. In December 1997 the Partnership committed to issue $95 million of new senior notes. The Partnership issued $15.0 million of these notes on December 30, 1997. The proceeds from these notes were used to fund, in part, the $29.5 million acquisition of Alliance Wholesale Lumber, Inc. on January 2, 1998 (see Note 10). The balance of the notes was issued on January 13, 1998 to repay in part the indebtedness incurred in connection with the Trillium Acquisition. The new senior notes bear an average interest rate of 7.80% and require semi- annual interest payments. The new senior note agreements require the Partnership to make annual principal payments in varying amounts beginning in 2010 and continuing through 2018. The Partnership's 9.78%, 9.60% and 8.17% senior notes are unsecured and require semi-annual interest payments through 2013. The senior note agreements require the Partnership to make an annual principal payment of $37.5 million on December 1, 2002, and various principal amounts from December 1, 2003 through 2013. All of the Partnership's senior note agreements and bank lines of credit contain certain restrictive covenants, including limitations on harvest levels, land sales, cash distributions and the amount of future indebtedness. The Partnership was in compliance with such covenants at December 31, 1997. The senior notes are redeemable prior to maturity, subject to a premium on redemption based on interest rates of U.S. Treasury securities, having a similar average maturity as the senior notes, plus 50 basis points. On December 31, 1997, the estimated aggregate fair value of the Partnership's senior notes was approximately $446 million and was carried at $406 million. The fair value was calculated in accordance with the requirements of SFAS No. 107, "Disclosures About the Fair Value of Financial Instruments," and was estimated by discounting the future cash flows using rates currently available to the Partnership for debt instruments with similar terms and remaining maturities. All other long-term debt amounts approximate market value. F-11 6. PARTNERS' EQUITY, INCOME AND DISTRIBUTIONS PARTNERSHIP EQUITY On December 22, 1994, the Partnership sold 9,850,000 Common Units in an initial public offering (the "1994 Offering"). Simultaneous to the 1994 Offering, 2,510,439 Common Units, 5,773,088 Subordinated Limited Partnership Units ("Subordinated Units") and 10,000 Special Allocation Units ("SAUs") were issued to certain existing partners of the predecessor entity to the Partnership. During August 1996, the Partnership sold 8,970,750 additional Common Units in a second public offering (the "1996 Offering"). Proceeds from the 1996 Offering were $165.2 million, including $3.3 million from the General Partner, and were used to redeem the SAUs for $4.1 million and to retire a portion of the debt incurred to fund the Cavenham Acquisition (see Notes 4 and 5). An additional 2,647,470 Common Units were sold in the 1996 Offering by certain selling Unitholders. The Partnership had 21,331,189 Common Units outstanding at December 31, 1997 and 1996. The Partnership also had 5,773,088 Subordinated Units outstanding at December 31, 1997 and 1996. PARTNERSHIP INCOME The Partnership's income and losses are allocated 99% to the holders of Common and Subordinated Units and 1% to the General Partners. CASH DISTRIBUTIONS In accordance with the Partnership Agreement, the Managing General Partner is required to make quarterly cash distributions from Available Cash. Generally, cash distributions are paid in order of preference: first to Common Unitholders and, second, to the extent cash remains available, to Subordinated Unitholders. The Partnership agreement also sets forth certain cash distribution hurdle rates for the General Partner to meet in order to increase its share of the available cash flow. To the extent that the annual distribution exceeds $2.26 per Unit, the General Partner receives 15% of the excess cash flow rather than the base amount of 2%. The General Partner can receive a maximum of 50% of the available cash flow if the annual distribution exceeds $3.62 per Unit. The Subordinated Units are subordinated in right of distributions to the holders of Common Units. Provided that certain increases in cash distributions are paid to the holders of Common and Subordinated Units, 50% of the Subordinated Units will convert to Common Units in 1999 and the remaining 50% will convert to Common Units in 2000. The Managing General Partner declared distributions of $2.15 per Unit, $2.10 per Unit and $2.04 per Unit for the years ended December 31, 1997, 1996 and 1995, respectively. The Partnership's 1997, 1996 and 1995 consolidated distributions to partners included $0.6 million, $0.4 million, and $0.3 million, respectively, paid to the Managing General Partner for its 1% share of the Operating Partnership's distributions for those years. The remaining 99% of the Operating Partnership's distributions was eliminated in consolidation. F-12 7. UNIT OPTION AND PROFIT SHARING AND EMPLOYEE SAVINGS BENEFIT PLANS Effective December 22, 1994, the Managing General Partner adopted the 1994 Unit Option Plan (the "1994 Option Plan"). The 1994 Option Plan allows the Partnership to award or grant Unit options to certain key employees of the Partnership and Managing General Partner. Under the terms of the 1994 Option Plan, the Managing General Partner can grant annual options on or about January 1, 1995 through January 1, 1999. Total options granted in any one year cannot exceed 1% of the total outstanding Common and Subordinated Units. There were 35,900 and 15,200 units exercisable at December 31, 1997 and 1996, respectively. The exercise price for each annual option grant is the market price of the Common Units at the date of grant. Option grants vest over a four-year period as follows: 10% in year one; an additional 20% in year two; an additional 30% in year three; and the final 40% in year four. After the options are granted, they are generally exercisable for a ten-year period. A summary of option transactions during each of the three years in the period ended December 31, 1997 is shown below:
UNITS OPTION PRICE ------- ------------ December 31, 1994 181,000 $21.50 Granted -- -- Exercised -- -- Canceled (8,000) $21.50 ------- December 31, 1995 173,000 $21.50 Granted 156,000 $18.13 Exercised -- -- Canceled (21,000) $21.50 ------- December 31, 1996 308,000 $18.13-$21.50 Granted 255,000 $22.00 Exercised (20,700) $18.13-$21.50 Canceled (22,000) -- ------- December 31, 1997 520,300 $18.13-$22.00 ------- -------
In January 1998 the Board of Control of the Managing General Partner granted an additional 271,000 Unit options. F-13 Effective December 22, 1994, the 1994 Option Plan provided for the granting of front end options to two officers of the Managing General Partner. Under the terms of the front end option grants, each officer received an option to purchase 181,335 Units on December 31, 1999, with an exercise price of $21.50 per Unit (not included in the previous table). Front end options will vest on December 31, 1999 and may be exercised for the period beginning on December 31, 1999 through December 31, 2004, provided all of the following conditions are met: 1) The Subordinated Units must convert to Common Units; 2) The officer must continue his employment with the Managing General Partner through at least December 31, 1999; and 3) The Partnership must make certain minimum levels of cash distributions to Common and Subordinated Unitholders through December 31, 1999 in excess of those required for Subordinated Unit conversion. During 1997, the Partnership recorded compensation expense of $1.0 million relative to the front end options. No expense was recorded in 1996 or 1995. In January 1997, the Board of Control of the Managing General Partner approved an incentive compensation plan (the "Plan") to attract and retain certain key employees, who also have unit options outstanding under the 1994 Option Plan, by awarding them Distribution Equivalent Rights ("DERs"). Participants under the Plan may be granted DERs with respect to one or more of their options granted on or after January 1, 1997. Each year, an amount equal to the cash distribution made by the Partnership per Unit will be allocated to each participant's account for each DER granted. Such amounts are subordinated to the payment of quarterly distributions on all units. To the extent the option related to the DER is vested under the 1994 Option Plan, the DER amount corresponding to the vesting portion of such option will be paid to the participant. In January 1997, the Board of Control awarded 255,000 DERs. The Partnership recorded $0.4 million in expense related to these DERs in 1997. An additional 271,000 DERs were awarded in January 1998. The Partnership has a Profit Sharing and Employee Savings Benefit Plan covering substantially all full-time, nonunion employees who have completed at least one year of service. Contributions are determined annually at the discretion of the Managing General Partner. The expense related to profit sharing was $1.7 million for each of the years ended December 31, 1997, 1996 and 1995. 8. RELATED PARTIES In accordance with the Partnership Agreement, the Partnership reimburses the General Partners for the direct costs incurred to manage the Partnership. These reimbursements were $5.3 million, $3.7 million, and $2.9 million in 1997, 1996 and 1995, respectively. 9. COMMITMENTS AND CONTINGENT LIABILITIES As of December 31, 1997 and 1996, the Partnership was committed to purchase timber or logs from government and private sources. These commitments mature on various dates through 2001. The remaining commitments were approximately $73.8 million at December 31, 1997. The Partnership is engaged in the construction of conversion facilities in Bonners Ferry, Idaho and Port Angeles, Washington. At December 1997, the Partnership had commitments for expenditures of approximately $12.5 million for completion of these projects. The Partnership becomes involved in litigation and other proceedings arising in the normal course of its business. In the opinion of management, the Partnership's liability, if any, under any pending litigation would not materially affect its financial condition or results of operations. F-14 10. SUBSEQUENT EVENTS On January 2, 1998 the Partnership acquired the stock of Alliance Wholesale Lumber, Inc. for $29.5 million. The purchase was financed with $15 million of senior notes, $5 million of Partnership Units and $9.5 million of assumed debt. Alliance operates three contractor service yards in the Phoenix, Arizona, area, which provide a variety of wood products to residential and commercial contractors. On January 13, 1998 the Partnership issued $80 million of the second series of new senior notes. The first series of $15 million was issued on December 30, 1997. The $95 million of combined notes have an average interest rate of 7.80%, with principal payments of varying amounts due 2010 to 2018. The proceeds of the second series of notes were used to refinance indebtedness associated with the Trillium Acquisition. In January 1998, the Board of Control of the Managing General Partner declared the fourth quarter 1997 distribution of $0.538 per Unit. The distribution will equal $15.0 million, including $0.3 million to the General Partners, and will be paid on February 13, 1998 to Unitholders of record on February 6, 1998. F-15 EX-2.3 2 EXHIBIT 2.3 EXHIBIT 2.3 STOCK ACQUISITION AGREEMENT THIS STOCK ACQUISITION AGREEMENT is made and entered into as of November 10, 1997 (the "EFFECTIVE DATE"), by and among CROWN PACIFIC PARTNERS, L.P., a Delaware limited partnership ("CROWN PARTNERS"), CP ACQUISITION CO., an Oregon corporation ("CP ACQUISITION"), TRUE H. CARR, as Trustee of CARR REVOCABLE LIVING TRUST DATED FEBRUARY 12, 1988 (the "CARR TRUST"), MILAN J. McMANNIS and VIRGINIA McMANNIS, as Trustees of McMANNIS REVOCABLE LIVING TRUST DATED FEBRUARY 11, 1988 (the "MCMANNIS TRUST"), and ALLIANCE WHOLESALE LUMBER, INC., an Arizona corporation (the "COMPANY"). RECITALS: The Carr Trust and the McMannis Trust (collectively, "SELLERS" and individually each a "SELLER") together own all of the issued and outstanding capital stock of the Company. The Crown Parties wish to acquire, and Sellers wish to transfer, all such stock on the terms and conditions set forth in this Agreement (this term and all other capitalized terms used herein having the respective meanings set forth in Section 10). AGREEMENTS: In consideration of the foregoing and the mutual covenants of the parties set forth in this Agreement, the parties, intending to be legally bound, agree as follows: 1. ACQUISITION AND TRANSFER OF COMMON STOCK. 1.1 AGREEMENT TO ACQUIRE AND TRANSFER. Sellers agree to transfer the Shares to the Crown Parties, and the Crown Parties agree to acquire the Shares from Sellers, in each case for the consideration and on the other terms and conditions set forth in this Agreement. To the extent that the Crown Parties elect pursuant to Section 1.4 to have Crown Partners issue Units in consideration of the acquisition of Shares, Sellers shall contribute to Crown Partners at Closing that percentage of the Shares which equals the value of the Units issued to Sellers pursuant to Section 1.4.1 divided by the Base Consideration. CP Acquisition shall purchase the remainder of the Shares. 1.2 CONSIDERATION FOR ACQUISITION. The consideration for the Crown Parties' acquisition of the Shares shall consist of the Base Consideration, which shall be paid or represented by Units issued at the Closing, and, in the circumstances described in Section 1.2.3, the Contingent Payment, which shall be paid, if at all, as provided in Section 1.2.3. 1.2.1 ADJUSTMENT TO BASE CONSIDERATION. The Base Consideration shall be reduced by the amount, if any, by which the stockholders' equity of the Company as of the Closing Date, determined in accordance with GAAP, is less than $4,100,000. 1 1.2.2 DETERMINATION OF NOTES PAYABLE AND STOCKHOLDERS' EQUITY. For purposes of calculating the Base Consideration, the aggregate amount of principal and unpaid accrued interest due under the Notes Payable as of the Closing Date and the stockholders' equity of the Company as of the Closing Date shall be determined as follows: (a) Not later than 10 Business Days prior to the anticipated Closing Date, Sellers shall provide to the Crown Parties Sellers' preliminary estimates of (i) the aggregate amount of principal and unpaid accrued interest that will be due under the Notes Payable as of the Closing Date and (ii) the stockholders' equity of the Company as of the Closing Date, in each case accompanied by reasonably detailed supporting calculations and information. Such preliminary estimates shall be used to determine the Base Consideration payable at the Closing; PROVIDED that the Base Consideration shall thereafter be adjusted in accordance with this Section 1.2.2. (b) Sellers shall prepare and shall cause Sellers' Accountants to audit, at the Company's expense, financial statements for the Company as of the Closing Date (the "CLOSING FINANCIAL STATEMENTS"), including computations of the aggregate amount of principal and unpaid accrued interest due under the Notes Payable as of the Closing Date and the stockholders' equity of the Company as of the Closing Date. The Crown Parties shall be entitled to have their independent certified public accountants monitor the preparation and auditing of the Closing Financial Statements, at the Crown Parties' expense. Sellers shall deliver the Closing Financial Statements to the Crown Parties as soon as practicable, and in all events within 45 days, after the Closing Date. If within 30 days after delivery of the Closing Financial Statements, the Crown Parties have not given Sellers a notice of objection to the Closing Financial Statements (which notice shall state the basis for such objection in reasonable detail), then the computations of the aggregate amount principal and unpaid accrued interest due under the Notes Payable as of the Closing Date and the stockholders' equity of the Company as of the Closing Date set forth in the Closing Financial Statements shall be used for purposes of the adjustment pursuant to Section 1.2.2(d). (c) If the Crown Parties submit a timely notice of objection to the Closing Financial Statements and if the parties are unable to resolve the matters set forth therein within 10 Business Days after such notice is given, then the issues in dispute shall be submitted to the Accountants for resolution. If issues in dispute are submitted to the Accountants for resolution, (i) each party shall furnish to the Accountants such workpapers and other documents and information relating to the disputed issues as are in the possession or control of such party and shall be afforded an opportunity to present to the Accountants the basis for its view with respect to the disputed issues and to discuss the determination of the disputed issues with the Accountants, (ii) the determination by the Accountants, as set forth in a notice delivered to the parties by the Accountants within 30 days after the disputed issues are submitted to the Accountants, shall be final and binding on the parties, and (iii) the Crown Parties and Sellers shall each pay one-half of the fees and expenses of the Accountants. 2 (d) On the 10th Business Day following (i) the expiration of the 30 day period referred to in Section 1.2.2(b), if no notice of objection is given by the Crown Parties thereunder, or (ii) the resolution of any disputed issues, whether by agreement of the parties or by the Accountants pursuant to Section 1.2.2(c), if such a notice of objection is given, the Base Consideration shall be recalculated taking into account the aggregate amount of principal and unpaid accrued interest due under the Notes Payable as of the Closing Date and the stockholders' equity of the Company as of the Closing Date, in each case as set forth in the Closing Financial Statements, as the same may have been adjusted based on the agreement of the parties or by the Accountants pursuant to Section 1.2.2(c). If the Base Consideration as so recalculated is greater than the Base Consideration calculated pursuant to Section 1.2.2(a) for purposes of the Closing, CP Acquisition shall pay the difference to Sellers. If the Base Consideration as so recalculated is less than the Base Consideration calculated pursuant to Section 1.2.2(a) for purposes of the Closing, Sellers shall pay the difference to CP Acquisition. Any such payment by CP Acquisition or Sellers shall be made on the 10th Business Day described above in this Section 1.2.2(d) and shall include interest on the amount thereof at the rate of 7.0% per annum for the period from the Closing Date to the date of payment. 1.2.3 CONTINGENT PAYMENT. In the event Cash Flow equals or exceeds $7,900,000 for any of the years 2000, 2001, or 2002, CP Acquisition shall pay the Contingent Payment to Sellers. Cash Flow shall be determined and the Contingent Payment, if earned, shall be paid as follows: (a) Within 60 days after the end of each of the years 2000, 2001, and 2002, the Crown Parties shall prepare and submit to Sellers a calculation of Cash Flow (and the components thereof) for such year in reasonable detail; PROVIDED that in the event the Contingent Payment is earned based upon Cash Flow for 2000 or 2001, no further calculation of Cash Flow shall thereafter be required. If within 30 days after delivery of any such calculation of Cash Flow, Sellers have not given the Crown Parties a notice of objection to such calculation (which notice shall state the basis for such objection in reasonable detail), such calculation shall be final and shall be used to determine whether the Contingent Payment has been earned based upon Cash Flow for the year in question. (b) If Sellers submit a timely notice of objection to the calculation of Cash Flow for any year and if the parties are unable to resolve the matters set forth therein within 10 Business Days, then the issues in dispute shall be submitted to the Accountants for resolution. If issues in dispute are submitted to the Accountants for resolution, (i) each party shall furnish to the Accountants such workpapers and other documents and information relating to the disputed issues as are in the possession or control of such party and shall be afforded an opportunity to present to the Accountants the basis for its view with respect to the disputed issues and to discuss the determination of the disputed issues with the Accountants, (ii) the determination by the Accountants, as set forth in a notice delivered to the parties by the Accountants within 30 days after the disputed issues are submitted to the Accountants, shall be final and binding on the parties, 3 and (iii) the Crown Parties and Sellers shall each pay one-half of the fees and expenses of the Accountants. (c) If the Contingent Payment has been earned based upon Cash Flow for any of the years 2000, 2001, or 2002, whether as calculated by the Crown Parties pursuant to Section 1.2.3(a) or as determined by agreement of the parties or by the Accountants pursuant to Section 1.2.3(b), then on the 10th Business Day following (i) the expiration of the 30 day period referred to in Section 1.2.3(a), if no notice of objection is given by Sellers thereunder, or (ii) the resolution of any disputed issues, whether by agreement of the parties or by the Accountants pursuant to Section 1.2.3(b), if such a notice of objection is given, CP Acquisition shall pay the Contingent Payment to Sellers, together with interest on the amount thereof at the rate of 7.0% per annum for the period from the date on which the calculation of Cash Flow for the year in question was originally delivered by the Crown Parties pursuant to Section 1.2.3(a) to the date of payment. (d) In the event the Contingent Payment is not earned based upon Cash Flow for any of the years 2000, 2001, or 2002, Sellers right to the Contingent Payment shall automatically expire and be of no further force and effect. In no event shall Sellers be entitled to any payment based upon or as a result of Cash Flow for any year other than 2000, 2001, or 2002. (e) Notwithstanding any other provision of this Section 1.2.3, in the event that both Carr and McMannis voluntarily terminate their employment under their respective Employment Agreements or are terminated for Cause prior to the expiration of the respective initial terms of the Employment Agreements, Sellers shall have no right to receive the Contingent Payment based upon Cash Flow for the year in which the second such voluntary termination or termination for Cause occurs or based upon Cash Flow for any subsequent year. A termination of the Employment Agreements for any reason other than as set forth in the immediately preceding sentence shall have no effect on Sellers' entitlement to the Contingent Payment, if earned in accordance with this Section 1.2.3. (f) Each Seller's right to receive the Contingent Payment in the circumstances set forth in this Section 1.2.3 is personal to such Seller and may not be sold, transferred, assigned, conveyed, pledged, or otherwise disposed of in whole or in part without the prior written consent of Crown Partners, which may be withheld in Crown Partners' sole and absolute discretion; PROVIDED that either Seller shall be entitled, without obtaining the consent of Crown Partners to transfer, in whole or in part, its right to receive the Contingent Payment to any trust established for the benefit of some or all of the same beneficiaries as such Seller, so long as such Seller gives notice to Crown Partners of such transfer. 1.3 PAYMENTS IN IMMEDIATELY AVAILABLE FUNDS. Except to the extent represented by Units issued to Sellers pursuant to Section 1.4, any payment to a party under this 4 Section 1 shall be made by wire transfer of immediately available funds in accordance with instructions provided by the payee. 1.4 CONTRIBUTION OF SHARES; ISSUANCE OF UNITS. 1.4.1 The Crown Parties may elect to acquire Shares representing up to $5,000,000 of the Base Consideration by having Sellers contribute such Shares to Crown Partners in consideration of the issuance of Units by Crown Partners to Sellers at the Closing. The Crown Parties may exercise such election by giving notice to Sellers at any time not later than five Business Days prior to the anticipated Closing Date. If such election is made, the Units so issued will be valued for purposes of this transaction at the average of the daily closing prices for Units on the New York Stock Exchange for the 20 consecutive trading days immediately preceding the Closing Date. 1.4.2 The Units to be issued under Section 1.4.1 will be issued by Crown Partners under its effective shelf registration statement on Form S-4, as filed with the Securities and Exchange Commission on October 7, 1997 (Registration No. 333-37365) under the Securities Act. Rule 145 of the General Rules and Regulations under the Securities Act will be available to each Seller to sell the Units acquired hereunder without further registration. Each Seller agrees not to sell, transfer, assign, convey, pledge, or otherwise dispose of any of the Units issued to such Seller except (i) in accordance with Rule 145(d) of the General Rules and Regulations under the Securities Act, to the extent such Rule will permit such Seller to transfer Units without registration, and (ii) after full compliance with all applicable provisions of the Securities Act. 1.4.3 Sellers agree that, in addition to the restrictions set forth in Section 1.4.2, they shall not, at any time during the period from the Closing through the third anniversary of the Closing Date, sell on a combined basis through one or more public sales more than an aggregate of 10,000 Units during any calendar week without the prior written consent of Crown Partners. 1.4.4 Each Seller acknowledges that the certificate(s) representing the Units may bear the following legend referring to the foregoing restrictions on disposition: The units represented by this certificate were issued in a transaction registered under the Securities Act of 1933 and may only be sold or otherwise transferred if the holder hereof represents in writing to the issuer that such holder agrees to comply with resale limitations under applicable securities laws. Sale of the units represented by this certificate may be restricted pursuant to the terms of that certain Stock Acquisition Agreement dated as of November 10, 1997 by and among Crown Pacific Partners, L.P., CP Acquisition Co., True H. Carr, as Trustee of Carr Revocable Living Trust Dated February 12, 1988, Milan J. McMannis and Virginia McMannis, as Trustees of McMannis 5 Revocable Living Trust Dated February 11, 1988, and Alliance Wholesale Lumber, Inc. Promptly following the first anniversary of the Closing Date, Crown Partners shall issue replacement certificates with respect to any Units then held by Sellers, which certificates shall eliminate the first sentence from the foregoing legend. Promptly following the third anniversary of the Closing Date, Crown Partners shall issue replacement certificates with respect to any Units then held by Sellers, which certificates shall eliminate the foregoing legend in its entirety. 1.5 ALLOCATION BETWEEN SELLERS. Each payment or issuance of Units to Sellers pursuant to this Section 1 shall be allocated between them in proportion to the number of Shares owned by each of them as of the Closing Date. 1.6 CROWN PARTNERS GUARANTEE. Crown Partners unconditionally guarantees all independent obligations of CP Acquisition under this Agreement. 2. PRE-CLOSING COVENANTS. 2.1 ACCESS AND INVESTIGATION. Between the Effective Date and the Closing Date, Sellers shall, and shall cause their respective Representatives, the Company, and the Company's Representatives to, (i) afford the Crown Parties and their Representatives full and free access to the Company's personnel, properties, contracts, books and records, and other documents and data, (ii) furnish the Crown Parties and their Representatives with copies of all such contracts, books and records, and other documents and data as the Crown Parties may reasonably request, and (iii) furnish the Crown Parties and their Representatives with such additional financial, operating, and other data and information relating to the Company as the Crown Parties may reasonably request; PROVIDED, HOWEVER, that the Crown Parties and their Representatives shall coordinate their access to the Company's personnel and properties with Sellers and their Representatives so as to minimize, to the extent practicable consistent with the Crown Parties' investigation of the Company, the likelihood of unintended disclosure of this transaction. 2.2 OPERATION OF THE COMPANY'S BUSINESS. Between the Effective Date and the Closing Date, Sellers shall, and shall cause the Company to: 2.2.1 Conduct the business of the Company only in the Ordinary Course of Business; 2.2.2 Use their Best Efforts to preserve intact the current business organization of the Company, keep available the services of the current employees and agents of the Company, and maintain the relations and good will with suppliers, customers, landlords, creditors, employees, agents, and others having business relationships with the Company; 2.2.3 Confer with the Crown Parties regarding operational matters of a material nature; and 6 2.2.4 Otherwise report periodically to the Crown Parties regarding the status of the business, operations, and finances of the Company. 2.3 LIMITATION ON CERTAIN ACTIONS. Except as expressly permitted by this Agreement or with the prior written consent of the Crown Parties, between the Effective Date and the Closing Date, Sellers shall not, and shall cause the Company not to, take any affirmative action or fail to take any reasonable action that is within their or its control, as a result of which any of the events described in Section 5.17 is likely to occur. 2.4 REQUIRED CONSENTS AND APPROVALS. 2.4.1 ACTION BY SELLERS. As promptly as practicable after the Effective Date, Sellers shall, and shall cause the Company to, (i) make all filings required by Legal Requirements to be made by them in order to consummate this transaction, and (ii) cooperate with the Crown Parties, to the extent reasonably requested by them, with respect to all filings that they are required by Legal Requirements to make in connection with this transaction. 2.4.2 ACTION BY CROWN PARTIES. As promptly as practicable after the Effective Date, the Crown Parties shall (i) make all filings required by Legal Requirements to be made by them in order to consummate this transaction, (ii) cooperate with Sellers, to the extent reasonably requested by them, with respect to all filings that they are required by Legal Requirements to make in connection with this transaction, and (iii) cooperate with Sellers, to the extent reasonably requested by them, in obtaining all consents identified in SCHEDULE 5.2.3. 2.5 SATISFACTION OF CONDITIONS. Each party shall use its Best Efforts to cause the conditions set forth in Section 3 to be satisfied prior to the Closing Date, or any earlier date set forth therein with respect to one or more of such conditions. 2.6 NOTIFICATION OF CERTAIN EVENTS. 2.6.1 BY SELLERS. Between the Effective Date and the Closing Date, each Seller shall promptly notify the Crown Parties in writing if such Seller or the Company becomes aware of (i) any fact or condition that causes or constitutes a Breach of any representation or warranty of Sellers or the Company as of the Effective Date, (ii) any fact or condition that would (except as expressly contemplated by this Agreement) cause or constitute a Breach of any such representation or warranty had such representation or warranty been made as of the time of occurrence or discovery of such fact or condition, (iii) the occurrence of any Breach of any covenant of Sellers in this Section 2, or (iv) the occurrence of any event that may make the satisfaction of any of the conditions set forth in Section 3 impossible or unlikely. In the event that any fact or condition of the type described in the foregoing clause (i) or (ii) requires any change in any of the Schedules to this Agreement if such fact or condition had occurred or been known as of the Effective Date, Sellers shall promptly deliver to the Crown Parties a Supplement to such Schedule specifying the necessary change. 7 2.6.2 BY CROWN PARTIES. Between the Effective Date and the Closing Date, each Crown Party shall promptly notify Sellers in writing if such Crown Party becomes aware of (i) any fact or condition that causes or constitutes a Breach of any representation or warranty of Sellers or of the Crown Parties as of the Effective Date, (ii) any fact or condition that would (except as expressly contemplated by this Agreement) cause or constitute a Breach of any such representation or warranty had such representation or warranty been made as of the time of occurrence or discovery of such fact or condition, (iii) the occurrence of any Breach of any covenant of the Crown Parties in this Section 2, or (iv) the occurrence of any event that may make the satisfaction of any of the conditions set forth in Section 3 impossible or unlikely. 2.7 PAYMENT OF CERTAIN INDEBTEDNESS. Prior to the Closing Date, Sellers shall cause any and all indebtedness owed to the Company by either Seller or by any Related Person of either Seller to be paid in full. 2.8 NO NEGOTIATION. Until such time, if any, as this Agreement is terminated pursuant to Section 8.1, Sellers shall not, and shall cause the Company not to, directly or indirectly, through any Representative or otherwise, solicit or entertain offers from, negotiate with, or in any manner encourage, discuss, accept, or consider any proposal of any other person or entity relating to an acquisition of the stock, assets, or business of the Company, in whole or in part, whether directly or indirectly, through purchase, merger, consolidation, or otherwise, other than sales of inventory in the Ordinary Course of Business. 3. CONDITIONS PRECEDENT TO CLOSING. 3.1 SELLERS' CONDITIONS. Sellers' obligation to sell or contribute the Shares and otherwise to consummate this transaction shall be subject to the satisfaction of each of the following conditions precedent (any one of which may be waived by Sellers in whole or in part): 3.1.1 All representations and warranties of the Crown Parties set forth in this Agreement (considered collectively) and each such representation and warranty (considered individually) shall have been accurate in all material respects as of the Effective Date and shall be accurate in all material respects as of the Closing Date, as if made on the Closing Date. 3.1.2 (i) All of the covenants and obligations that the Crown Parties are, or either of them is, obligated to perform or comply with pursuant to this Agreement prior to or at the Closing (considered collectively) and each such covenant and obligation (considered individually) shall have been performed and complied with in all material respects; and (ii) the Crown Parties shall have made the deliveries of documents and funds required to be made pursuant to Section 4.2.2. 3.1.3 [Intentionally omitted.] 3.1.4 The following documents shall have been delivered to Sellers (i) an opinion of Ball Janik LLP, dated the Closing Date, in substantially the form attached as EXHIBIT A; and (ii) such other documents as Sellers may reasonably request for the purpose of (a) 8 enabling their counsel to provide the opinion described in Section 3.2.5, (b) evidencing the accuracy of any representation or warranty of the Crown Parties set forth in this Agreement, (c) evidencing the performance by the Crown Parties of, or their compliance with, any covenant or obligation of the Crown Parties under this Agreement, (d) evidencing the satisfaction of any of the conditions described in this Section 3.1, or (e) otherwise facilitating the consummation of this transaction. 3.1.5 As of the Closing Date, there shall not be in effect any Legal Requirement or any injunction or other Order that (i) prohibits the transfer of the Shares by Sellers to the Crown Parties, and (ii) has been adopted, entered, issued, made, or rendered, or has otherwise become effective, since the Effective Date. 3.1.6 Since the Effective Date, there shall not have been commenced or Threatened against either Seller, the Company, or any Related Person of either Seller (i) involving any challenge to, or seeking damages or other relief in connection with, any aspect of this transaction, or (ii) that may have the effect of preventing, delaying, making illegal, or otherwise interfering with any aspect of this transaction. 3.1.7 The waiting period with respect to this transaction under the HSR Act shall have expired. 3.2 CROWN PARTIES' CONDITIONS. The Crown Parties' obligation to acquire the Shares and otherwise to consummate this transaction shall be subject to the satisfaction of each of the following conditions precedent (any one of which may be waived by the Crown Parties in whole or in part): 3.2.1 All representations and warranties of Sellers and the Company set forth in this Agreement (considered collectively) and each such representation and warranty (considered individually) shall have been accurate in all material respects as of the Effective Date and shall be accurate in all material respects as of the Closing Date, as if made on the Closing Date, without giving effect to any Supplement; PROVIDED that each of the representations and warranties of Sellers and the Company set forth in Sections 5.3, 5.4, and 5.13, and in the last sentence of Section 5.25, shall have been accurate in all respects as of the Effective Date and shall be accurate in all respects as of the Closing Date, as if made on the Closing Date, without giving effect to any Supplement. 3.2.2 (i) All of the covenants and obligations that Sellers are, or either of them is, obligated to perform or comply with pursuant to this Agreement prior to or at the Closing (considered collectively) and each such covenant and obligation (considered individually) shall have been performed and complied with in all material respects; and (ii) Sellers shall have made the deliveries of documents required to be made pursuant to Section 4.2.1. 3.2.3 [Intentionally omitted.] 9 3.2.4 The Crown Parties shall be satisfied in all respects, in their sole and absolute discretion, with the results of their due diligence investigation of the Company and its properties. The condition set forth in this Section 3.2.4 shall be deemed satisfied or waived by the Crown Parties unless they give notice of the failure of such condition to Sellers by not later than (i) November 14, 1997 with respect to all aspects of the Crown Parties' due diligence investigation other than its investigation of the environmental condition of the Facilities, or (ii) December 1, 1997 with respect to the Crown Parties' due diligence investigation regarding the environmental condition of the Facilities. 3.2.5 The following documents shall have been delivered to the Crown Parties (i) an opinion of Tiffany & Bosco, dated the Closing Date, in substantially the form attached as EXHIBIT B; (ii) resignations, dated as of the Closing Date, from all officers and directors of the Company; (iii) the Leasehold Title Policies, the premiums for which shall be paid by the Crown Parties; and (iv) such other documents as the Crown Parties may reasonably request for the purpose of (a) enabling their counsel to provide the opinion described in Section 3.1.4, (b) evidencing the accuracy of any representation or warranty of Sellers set forth in this Agreement, (c) evidencing the performance by Sellers of, or their compliance with, any covenant or obligation of Sellers under this Agreement, (d) evidencing the satisfaction of any of the conditions described in this Section 3.2, or (e) otherwise facilitating the consummation of this transaction. 3.2.6 Since the Effective Date, there shall not have been commenced or Threatened against either Crown Party, any of either Crown Party's properties, or any Person affiliated with either Crown Party any Proceeding (i) involving any challenge to, or seeking damages or other relief in connection with, any aspect of this transaction, or (ii) that may have the effect of preventing, delaying, making illegal, or otherwise interfering with any aspect of this transaction. 3.2.7 No Person shall have made or Threatened any claim asserting that such Person (i) is the holder or the beneficial owner of, or has the right to acquire or to obtain the beneficial ownership of, any stock of or any voting, equity, or ownership interest in the Company, or (ii) is entitled to all or any portion of the Base Consideration or the Contingent Payment. 3.2.8 Neither the consummation of this transaction nor the performance of any of the Crown Parties' obligations hereunder shall, directly or indirectly, with or without notice, lapse of time, or both, materially contravene, conflict with, result in a violation of, or cause either of the Crown Parties or any Person affiliated with either of them to suffer any material adverse consequence under any applicable Legal Requirement or Order or any Legal Requirement or Order that has been published, introduced, or otherwise proposed by or before any Governmental Authority. 3.2.9 The Crown Parties shall have obtained such Consents from lenders to CPLP as may be necessary to permit the Post-Closing Company Operations to be conducted in CPLP. The condition set forth in this Section 3.2.9 shall be deemed satisfied or waived by the 10 Crown Parties unless they give notice of the failure of such condition to Sellers by not later than November 14, 1997. 3.2.10 The waiting period with respect to this transaction under the HSR Act shall have expired. 4. CLOSING. 4.1 TIME AND PLACE OF CLOSING. The Closing shall take place at the offices of the Crown Parties' Arizona counsel, Osborn Maledon, P.A., at 2929 North Central Avenue, Suite 2100, Phoenix, Arizona, at 10:00 a.m. local time on the later of (i) January 2, 1998, or (ii) the date that is two Business Days after satisfaction (or waiver by the benefited party) of the conditions set forth in Sections 3.1.3, 3.1.7, 3.2.3, and 3.2.10 or at such other time and place as the parties may mutually agree, subject to the rights of the parties with respect to termination of this Agreement, as set forth in Section 8.1. 4.2 CLOSING DELIVERIES. 4.2.1 At the Closing, Sellers shall deliver or cause to be delivered to the Crown Parties: (a) The Certificates, duly endorsed (or accompanied by duly executed stock powers) for transfer to Crown Partners or CP Acquisition, as appropriate; (b) A Release in the form attached as EXHIBIT C, executed by Sellers (the "SELLERS' RELEASE"); (c) Employment Agreements in the form attached as EXHIBIT D, executed by Carr and McMannis (the "EMPLOYMENT AGREEMENTS"); (d) A Certificate executed by Sellers representing and warranting to the Crown Parties that each of Sellers' representations and warranties set forth in this Agreement was accurate in all respects as of the Effective Date and is accurate in all respects as of the Closing Date as if made on the Closing Date (giving full effect to any Supplements that are delivered by Sellers to the Crown Parties prior to the Closing Date in accordance with Section 2.6.1); (e) A Lease with respect to each of the Facilities, each in the form attached as EXHIBIT E, executed by Sellers, as landlords, and by the Company, as Tenant (the "LEASES"); and (f) Evidence of the termination of that certain Amended and Restated Share Purchase and Redemption Agreement among Sellers and the Company dated as of July 17, 1995, as amended. 11 4.2.2 At the Closing, the Crown Parties shall deliver or cause to be delivered to Sellers: (a) Immediately available funds, by wire transfer in accordance with Sellers' instructions, in an amount equal to the Base Consideration, less the value of any Units issued pursuant to Section 1.4.1 (b) Certificates issued in the name of Sellers representing any Units to be issued pursuant to Section 1.4.1; (c) The Employment Agreements, executed by the Company; (d) A Lease Guaranty of the tenant's performance of its obligations under the Leases, in the form attached as EXHIBIT F, executed by Crown Partners; (e) A Release in the form attached as EXHIBIT G, executed by the Crown Parties (the "CROWN PARTIES' RELEASE"); and (f) A Certificate executed by the Crown Parties representing and warranting to Sellers that each of the Crown Parties' representations and warranties set forth in this Agreement was accurate in all respects as of the Effective Date and is accurate in all respects as of the Closing Date as if made on the Closing Date. 5. REPRESENTATIONS AND WARRANTIES OF SELLERS AND THE COMPANY. Sellers and the Company jointly and severally represent and warrant to the Crown Parties as follows: 5.1 ORGANIZATION AND GOOD STANDING; NO SUBSIDIARIES. The Company is a corporation duly organized, validly existing, and in good standing under the laws of the State of Arizona, with full corporate power and authority to conduct its business as it is now being conducted, to own and use the properties that it purports to own or use, and to perform all of its obligations under all Company Contracts. The Company is not qualified to do business as a foreign corporation in any jurisdiction and neither the ownership or use of the properties owned or used by it or the nature of its activities requires any such qualification. Sellers have delivered to the Crown Parties complete and accurate copies of the Organizational Documents of the Company, as currently in effect. The Company has no Subsidiaries. 5.2 AUTHORITY; NO CONFLICT. 5.2.1 This Agreement constitutes the legal, valid, and binding obligation of Sellers and the Company, enforceable against each of them in accordance with its terms. Upon the execution and delivery of Sellers' Closing Documents, Sellers' Closing Documents will constitute the legal, valid, and binding obligations of Sellers (to the extent each is a party thereto) (and, in the case of the Leases, of the Company), enforceable against each of them in accordance with their respective terms. Sellers and the Company have the absolute and unrestricted right, power, authority, and capacity to execute and deliver this Agreement and Sellers' Closing 12 Documents (to the extent each is a party thereto) and to perform their respective obligations hereunder and thereunder. 5.2.2 Except as set forth on the attached SCHEDULE 5.2.2, neither the execution and delivery of this Agreement, nor the performance of any of Sellers' or the Company's obligations hereunder, nor the consummation of this transaction will, directly or indirectly, with or without notice, lapse of time, or both, (i) contravene, conflict with, or result in a violation of any provision of the Organizational Documents of either Seller, the Company's Organizational Documents, or any resolution adopted by the board of directors or the shareholders of the Company; (ii) contravene, conflict with, or result in a violation of, or give any Governmental Authority or other Person the right to challenge this transaction or to exercise any remedy or obtain any relief under, any Legal Requirement or any Order to which the Company or either Seller, or any of the properties owned or used by the Company, may be subject; (iii) contravene, conflict with, or result in a violation of any of the terms or requirements of, or give any Governmental Authority the right to revoke, withdraw, suspend, cancel, terminate, or modify, any Governmental Authorization that is held by the Company or that otherwise relates to the business of, or to any of the properties owned or used by, the Company; (iv) cause either of the Crown Parties or the Company to become subject to, or to become liable for the payment of, any Tax; (v) cause any of the properties owned by the Company to be reassessed or revalued by any taxing authority or other Governmental Authority; (vi) contravene, conflict with, or result in a violation or breach of any provision of, or give any Person the right to declare a default or exercise any remedy under, or to accelerate the maturity or performance of, or to cancel, terminate, or modify, any Company Contract or any Contract to which either Seller is a party or by which either Seller is bound; or (vii) result in the imposition or creation of any Lien upon or with respect to any of the properties owned or used by the Company. 5.2.3 Except as set forth on the attached SCHEDULE 5.2.3, neither Seller nor the Company is or will be required to give any notice to, make any filing with, or obtain any Consent from any Person in connection with the execution and delivery of this Agreement, the performance of their respective obligations hereunder, or the consummation of this transaction. 5.3 CAPITALIZATION. The authorized equity securities of the Company consist of 1,000,000 shares of common stock, par value $1.00 per share, 750 of which are issued and outstanding and constitute the Shares. Sellers are and on the Closing Date will be the record and beneficial owners and holders of the Shares, free and clear of all Liens. The Carr Trust owns 375 of the Shares and the McMannis Trust owns 375 of the Shares. No legend or other reference to any purported Lien appears upon any certificate representing any of the Shares. All of the Shares have been duly authorized and validly issued and are fully paid and nonassessable. There are no Contracts relating to the issuance, sale, or transfer of any of the Shares. None of the Shares was issued in violation of the Securities Act or any other Legal Requirement. The Company does not own, or have any Contract to acquire, any equity securities or other securities of any Person or any direct or indirect equity or ownership interest in any other business. 5.4 FINANCIAL STATEMENTS. Sellers have delivered to the Crown Parties (i) a balance sheet of the Company as at December 31 in each of the years 1991 through 1996, and the 13 related statements of income, changes in stockholders' equity, and cash flow for each of the fiscal years then ended, together with the report thereon of Sellers' Accountants, and (ii) an unaudited balance sheet of the Company as at September 30, 1997 (the "INTERIM BALANCE SHEET") and the related unaudited consolidated statement of income for the nine months then ended, including in each case the notes thereto. Such financial statements and notes fairly present the financial condition and the results of operations, changes in stockholders' equity, and cash flow of the Company as at the respective dates of and for the periods referred to in such financial statements, all in accordance with GAAP, subject, in the case of interim financial statements, to normal recurring year-end adjustments (the effect of which will not, individually or in the aggregate, be materially adverse) and the absence of notes (that, if presented, would not differ materially from those included in the most recent financial statements referred to in the foregoing clause (i)). The financial statements referred to in this Section 5.4 reflect the consistent application of such accounting principles throughout the periods involved, except as may be disclosed in the notes to such financial statements. 5.5 BOOKS AND RECORDS. The books of account, minute books, stock record books, and other records of the Company, all of which have been made available to the Crown Parties, are complete and correct and have been maintained in accordance with sound business practices, including the maintenance of an adequate system of internal controls. The minute books of the Company contain complete and accurate records of all meetings held of, and all corporate action taken by, the stockholders, the board of directors, and committees of the board of directors, if any, of the Company, and no meeting of such stockholders, board of directors, or committee has been held for which minutes have not been prepared and are not contained in such minute books. At the Closing, all of the foregoing books and records will be in the possession of the Company. 5.6 REAL PROPERTY. 5.6.1 The Company does not own any real property, in whole or in part, or any fee interest in real property. 5.6.2 The attached SCHEDULE 5.6.2 contains a complete and accurate list of all leases of real property by the Company (the "LEASED REAL PROPERTY"), setting forth the address, landlord, and tenant for each parcel of Leased Real Property. All of the Leased Real Property is held by the Company pursuant to valid and binding leases that are in full force and effect and enforceable by the Company in accordance with their respective terms. The Company has provided to the Crown Parties complete and accurate copies of all leases of Leased Real Property. Except as set forth on SCHEDULE 5.6.2. the Company is not in material default under and has not received or given any notice of default under any lease of Leased Real Property. 5.6.3 The Leased Real Property constitutes all of the real property used in connection with and material to the business or operations of the Company. 14 5.7 PERSONAL PROPERTY. 5.7.1 The attached SCHEDULE 5.7.1 contains a complete and accurate list of all machinery, equipment, and other tangible personal property (other than inventory) owned by the Company that has an original cost in excess of $5,000. The Company has good title to all such personal property, free and clear of all Liens other than (i) Liens for taxes not yet due and payable, (ii) statutory Liens for carriers, warehousemen, mechanics, workmen, materialmen, and similar Persons for liabilities and obligations incurred by the Company in the Ordinary Course of Business that are not yet delinquent or are being contested in good faith, (iii) such defects, irregularities, encumbrances, and other imperfections of title as normally exist with respect to property similar in character, none of which are substantial in character, amount, or extent, materially detract from the value or impair the use of the property subject thereto, or impair the operations of the Company, and (iv) Liens disclosed on SCHEDULE 5.7.1. 5.7.2 The attached SCHEDULE 5.7.2 contains a complete and accurate list of all machinery, equipment, and other tangible personal property leased by the Company and sets forth the lessor with respect to each such item of personal property. 5.8 CONDITION AND SUFFICIENCY OF ASSETS. Except as disclosed on the attached SCHEDULE 5.8, (i) the buildings, structures, machinery, and equipment of the Company, including buildings and structures located on Leased Real Property, are structurally sound, in good operating condition and repair, and adequate for the respective uses to which they are being put by the Company; and (ii) none of such buildings, structures, machinery, or equipment is in need of maintenance or repair, except for ordinary, routine maintenance and repairs that are not material in nature or cost. The Company's buildings, structures, machinery, and equipment are sufficient for the conduct of the business of the Company after the Closing in substantially the same manner as conducted prior to the Closing. 5.9 ACCOUNTS RECEIVABLE. All of the Company's accounts receivable that are reflected on the Interim Balance Sheet or on the Company's accounting records (collectively, the "ACCOUNTS RECEIVABLE") represent or will represent valid obligations arising from sales actually made or services actually performed in the Ordinary Course of Business. There is no contest, claim, or right of set-off, other than returns in the Ordinary Course of Business, under any Contract with any obligor of an Accounts Receivable relating to the amount or validity of such Accounts Receivable. The attached SCHEDULE 5.9 contains a complete and accurate list of all Accounts Receivable as of the date of the Interim Balance Sheet and sets forth the aging of such Accounts Receivable. To the Knowledge of each Seller and the Company, except as set forth on SCHEDULE 5.9, unless paid prior to the Closing Date, the Accounts Receivable are or will be as of the Closing Date current and collectible net of the respective reserves shown on the Interim Balance Sheet or on the Company's accounting records. 5.10 INVENTORY. All of the Company's inventory, whether or not reflected on the Interim Balance Sheet, consists of a quality and quantity usable and salable in the Ordinary Course of Business, except for obsolete items and items of below-standard quality, all of which have been written off or written down to net realizable value on the Interim Balance Sheet or on 15 the Company's accounting records as of the Closing Date, as the case may be. For purposes of the Closing Financial Statements, inventories will be valued on the same basis as on the audited year-end financial statements of the Company. The quantities of each item of inventory (whether raw materials, work-in-process, or finished goods) are not excessive, but are reasonable in the Company's present circumstances. 5.11 NO UNDISCLOSED LIABILITIES, Except as set forth on the attached SCHEDULE 5.11, the Company has no liabilities or obligations of any kind or nature (whether known or unknown and whether absolute, accrued, contingent, or otherwise) except for liabilities or obligations reflected or reserved against on the Interim Balance Sheet and current liabilities incurred in the Ordinary Course of Business since the date of the Interim Balance Sheet. 5.12 TAXES. 5.12.1 The Company has filed or caused to be filed on a timely basis all Tax Returns that are or were required to be filed by or with respect to it pursuant to applicable Legal Requirements. Sellers have delivered to the Crown Parties complete and accurate copies of, and the attached SCHEDULE 5.12 contains a complete and accurate list of, all such Tax Returns relating to income or franchise taxes filed since January 1, 1992. The Company has paid, or made provision for the payment of, all Taxes that have or may have become due pursuant to such Tax Returns or otherwise, or pursuant to any assessment received by Sellers or the Company, except such Taxes, if any, as are listed on SCHEDULE 5.12 and are being contested in good faith and as to which adequate reserves (determined in accordance with GAAP) have been provided on the Interim Balance Sheet. 5.12.2 The Company's federal and state income Tax Returns have been audited by the IRS or relevant state tax authorities or are closed by the applicable statute of limitations for all taxable years through 1993. SCHEDULE 5.12 contains a complete and accurate list of all audits of all such Tax Returns, including a reasonably detailed description of the nature and outcome of each audit. All deficiencies proposed as a result of such audits have been paid, reserved against, settled, or, as described on SCHEDULE 5.12, are being contested in good faith by appropriate proceedings. SCHEDULE 5.12 describes all adjustments to the United States federal income Tax Returns filed by the Company for all taxable years since January 1, 1992, and the resulting deficiencies proposed by the IRS. Except as described on SCHEDULE 5.12, neither Seller nor the Company has given or been requested to give waivers or extensions (or is or would be subject to a waiver or extension given by any other Person) of any statute of limitations relating to the payment of Taxes of the Company or for which the Company may be liable. 5.12.3 To the Knowledge of each Seller and the Company, the charges, accruals, and reserves with respect to Taxes on the Company's books are adequate (determined in accordance with GAAP) and are at least equal to the Company's liability for Taxes. To the Knowledge of each Seller and the Company, there exists no proposed tax assessment against the Company except as disclosed on the Interim Balance Sheet or on SCHEDULE 5.12. No consent to the application of Section 341(f)(2) of the Code has been filed with respect to any property held, acquired, or to be acquired by the Company. All Taxes that the Company is or was required by 16 Legal Requirements to withhold or collect have been duly withheld or collected and, to the extent required, have been paid to the proper Governmental Authority or other Person. 5.12.4 All Tax Returns filed by the Company are true, correct, and complete. There is no tax-sharing agreement that will require any payment by the Company after the date of this Agreement. 5.13 NO MATERIAL ADVERSE CHANGE. Since the date of the Interim Balance Sheet, there has not been any material adverse change in the business, operations, properties, prospects, or condition (financial or otherwise) of the Company, and no event has occurred or circumstance exists that will or could reasonably be expected to result in such a material adverse change. 5.14 EMPLOYEE BENEFIT PLANS. 5.14.1 The attached SCHEDULE 5.14 contains a complete and accurate list of all Employee Benefit Plans of the Company. Except as set forth on SCHEDULE 5.14, no such Employee Benefit Plan is a Multiemployer Plan or a plan that is subject to Title IV of ERISA and no such Employee Benefit Plan provides health or other welfare benefits to former employees of the Company other than (i) as necessary to comply with Section 4980B of the Code or any similar state Legal Requirement ("COBRA"), or (ii) death benefits under such an Employee Benefit Plan. 5.14.2 Except as set forth on SCHEDULE 5.14, each Employee Benefit Plan of the Company is maintained and administered in compliance with all applicable Legal Requirements. Each Employee Benefit Plan of the Company that is intended to be qualified under Section 401(a) of the Code has received a favorable determination letter to the effect that it is so qualified and the Company has no Knowledge of any facts or circumstances that will or could reasonably be expected to affect any such favorable determination letter adversely. 5.14.3 With respect to each Employee Benefit Plan of the Company that is an Employee Pension Benefit Plan, (i) all required contributions that are due for all periods ending prior to or on the Closing Date have been made, (ii) all such contributions that are not due as of the Closing Date have been properly accrued to the extent required by GAAP, and (iii) the Company has not incurred any accumulated funding deficiency (as defined in Section 412 of the Code). With respect to each other Employee Benefit Plan of the Company, all contributions, premiums, and other payments that are due under the terms thereof have been made or, if not due as of the Closing Date, have been properly accrued to the extent required by GAAP. 5.14.4 The Company has complied and is in compliance with all Legal Requirements relating to Employee Benefit Plans of the Company. No liability under Title IV of ERISA has been or is reasonably expected to be incurred by the Company with respect to any Employee Benefit Plan. 5.14.5 The Company has not announced any plan or made any legally binding commitment to create additional benefits that are intended to cover employees or former 17 employees of the Company or to make any amendment or modification to any Employee Benefit Plan of the Company, except as required by applicable Legal Requirements and disclosed on SCHEDULE 5.14. 5.14.6 Neither the execution and delivery of this Agreement, the performance of Sellers' obligations hereunder, nor the consummation of this transaction will (i) except as disclosed on SCHEDULE 5.14, result in any payment (including any severance, unemployment compensation, golden parachute, or other payment) becoming due to any employee or former employee of the Company, (ii) increase any benefits otherwise payable to any employee or former employee of the Company, or (iii) result in the acceleration of the time of payment or vesting of any benefits under any Employee Benefit Plan of the Company. 5.15 COMPLIANCE WITH LAW; GOVERNMENTAL AUTHORIZATIONS. 5.15.1 Except as set forth on the attached SCHEDULE 5.15, (i) the Company is, and at all times since January 1, 1992 has been, in full compliance with each Legal Requirement that is or was applicable to it or to the conduct or operation of its business or the ownership or use of any of its properties; (ii) no event has occurred or circumstance exists that (with or without notice, lapse of time, or both) (a) may constitute or result in a violation by the Company of, or a failure on the part of the Company to comply with, any Legal Requirement, or (b) may give rise to any obligation on the part of the Company to undertake, or to bear all or any portion of the cost of, any remedial action of any nature; and (iii) the Company has not received, at any time since January 1, 1992, any notice or other communication (oral or written) from any Governmental Authority or other Person regarding (a) any actual, alleged, possible, or potential violation of, or failure to comply with, any Legal Requirement, or (b) any actual, alleged, possible, or potential obligation on the part of the Company to undertake, or to bear all or any portion of the cost of, any remedial action of any nature. 5.15.2 SCHEDULE 5.15 contains a complete and accurate list of each Governmental Authorization that is held by the Company or that otherwise relates to the business of, or to any of the properties owned or used by, the Company. Each Governmental Authorization listed or required to be listed on SCHEDULE 5.15 is valid and in full force and effect. Except as set forth on SCHEDULE 5.15, (i) the Company is, and at all times since January 1, 1992 has been, in full compliance with all of the terms and requirements of each Governmental Authorization identified or required to be identified on SCHEDULE 5.15; (ii) no event has occurred or circumstance exists that may (with or without notice, lapse of time, or both) (a) constitute or result directly or indirectly in a violation of or a failure to comply with any term or requirement of any Governmental Authorization listed or required to be listed on SCHEDULE 5.15, or (b) result directly or indirectly in the revocation, withdrawal, suspension, cancellation, or termination of, or any modification to, any Governmental Authorization listed or required to be listed on SCHEDULE 5.15; (iii) the Company has not received, at any time since January 1, 1992, any notice or other communication (oral or written) from any Governmental Authority or other Person regarding (a) any actual, alleged, possible, or potential violation of or failure to comply with any term or requirement of any Governmental Authorization, or (b) any actual, proposed, possible, or potential revocation, withdrawal, suspension, cancellation, termination of, or modification to any 18 Governmental Authorization; and (iv) all applications required to have been filed for the renewal of the Governmental Authorizations listed or required to be listed on SCHEDULE 5.15 have been duly filed on a timely basis with the appropriate Governmental Authorities, and all other filings required to have been made with respect to such Governmental Authorizations have been duly made on a timely basis with the appropriate Governmental Authorities. 5.15.3 The Governmental Authorizations listed on SCHEDULE 5.15 collectively constitute all of the Governmental Authorizations necessary to permit the Company lawfully to conduct and operate its business in the manner it currently conducts and operates such business and to permit the Company to own and use its properties in the manner in which it currently owns and uses such properties. 5.16 LEGAL PROCEEDINGS; ORDERS. 5.16.1 Except as set forth on the attached SCHEDULE 5.16, (i) there is no pending Proceeding (a) that has been commenced by or against the Company or that otherwise relates to or may affect the business of, or any of the properties owned or used by, the Company; or (b) that challenges, or that may have the effect of preventing, delaying, making illegal, or otherwise interfering with, this transaction; and (ii) to the Knowledge of each Seller and the Company, (a) no such Proceeding has been Threatened, and (b) no event has occurred or circumstance exists that may give rise to or serve as a basis for the commencement of any such Proceeding. Sellers have delivered or made available to the Crown Parties copies of all pleadings, correspondence, and other documents relating to each Proceeding listed on SCHEDULE 5.16. Such Proceedings will not have a material adverse effect on the business, operations, properties, prospects, or condition (financial or otherwise) of the Company. 5.16.2 Except as set forth on SCHEDULE 5.16, (i) there is no Order to which the Company, or any of the properties owned or used by it, is subject; (ii) neither Seller is subject to any Order that relates to the business of, or any of the properties owned or used by, the Company; and (iii) to the Knowledge of each Seller and the Company, no officer, director, agent, or employee of the Company is subject to any Order that prohibits such officer, director, agent, or employee from engaging in or continuing any conduct, activity, or practice relating to the business of the Company. 5.16.3 Except as set forth on SCHEDULE 5.16, (i) the Company is, and at all times since January 1, 1992 has been, in full compliance with all of the terms and requirements of each Order to which it, or any of the properties owned or used by it, is or has been subject; (ii) no event has occurred or circumstance exists that may constitute or result in (with or without notice, lapse of time, or both) a violation of or failure to comply with any term or requirement of any Order to which the Company, or any of the properties owned or used by it, is subject; and (iii) the Company has not received, at any time since January 1, 1992, any notice or other communication (oral or written) from any Governmental Authority or other Person regarding any actual, alleged, possible, or potential violation of, or failure to comply with, any term or requirement of any Order to which the Company, or any of the properties owned or used by it, is or has been subject. 19 5.17 ABSENCE OF CERTAIN CHANGES AND EVENTS. Except as set forth on the attached SCHEDULE 5.17, since the date of the Interim Balance Sheet, the Company has conducted its businesses only in the Ordinary Course of Business and there has not been any: 5.17.1 Change in the Company's authorized or issued capital stock, grant of any stock option or right to purchase shares of capital stock of the Company, issuance of any security convertible into such capital stock, grant of any registration rights, purchase, redemption, retirement, or other acquisition by the Company of any shares of any such capital stock; (ii) amendment to the Organizational Documents of the Company; 5.17.2 Payment or increase by the Company of any bonuses, salaries, or other compensation to any director, officer, or (except in the Ordinary Course of Business) employee, other than Sellers, or entry into any employment, severance, or similar Contract with any director, officer, or employee; 5.17.3 Adoption of, or increase in the payments to or benefits under, any Employee Benefit Plan of the Company; 5.17.4 Damage to or destruction or loss of any property of the Company, whether or not covered by insurance, materially and adversely affecting the business, operations, properties, condition (financial or otherwise), or prospects of the Company; 5.17.5 Termination of, or receipt of notice of termination of, (i) any material license, distributorship, dealer, sales representative, joint venture, credit, or similar Contract, or (ii) any Contract or transaction involving a total remaining commitment by or to the Company of at least $50,000; 5.17.6 Sale (other than sales of inventory in the Ordinary Course of Business and the replacement of obsolete or worn-out equipment), lease, or other disposition of any property of the Company or mortgage, pledge, or imposition of any Lien on any material property of the Company; 5.17.7 Cancellation or waiver of any claims or rights with a value to the Company in excess of $50,000; 5.17.8 Material change in the accounting methods used by the Company; or 5.17.9 Contract by the Company to do any of the foregoing. 5.18 CONTRACTS; NO DEFAULTS. 5.18.1 The attached SCHEDULE 5.18 contains a complete and accurate list, and Sellers have delivered or made available to the Crown Parties complete and accurate copies of: 20 (a) Each Company Contract that relates to (i) any indebtedness of the Company for borrowed money, including indebtedness owed to either Seller or to any Related Party of either Seller, or (ii) any Lien on any Leased Real Property leased to the Company by either Seller or by any Related Party of either Seller; (b) Each Company Contract that is a joint venture agreement, a partnership agreement, and any other Company Contract (however named) that involves a sharing of profits, losses, costs, or liabilities by the Company with any other Person; (c) Each Company Contract that is a real property lease or sublease or a rental or occupancy agreement, whether the Company is the lessor or the lessee thereunder; (d) Each Company Contract providing for the acquisition or sale of real property by the Company, including any Company Contract containing an option or right of first refusal with respect to real property; (e) Each Company Contract that is a personal property lease (whether or not a capital lease), rental agreement, or installment financing Contract, except for any such Company Contract that involves property with a value or aggregate payments of less than $50,000 and has a term of less than one year; (f) Each Company Contract that is a collective bargaining agreement or other Contract with any labor union or other employee representative; (g) Each Company Contract that is an employment or similar contract, and a written summary of each oral employment obligation with any officer or senior management employee of the Company; (h) Each Company Contract that provides for any payment or other benefit to any Person upon a sale of capital stock or equity securities of the Company; (i) Each Company Contract that grants to any Person a power of attorney on behalf of the Company; (j) Each Company Contract entered into other than in the Ordinary Course of Business that contains or provides for an express undertaking by the Company to be liable or responsible for consequential damages; (k) Each Company Contract that contains any provision or covenant that purports to restrict or limit the business activities of the Company or the Company's freedom to engage in any line of business or to compete with any Person; (l) Each Company Contract that provides for capital expenditures by the Company in excess of $50,000; 21 (m) Each Company Contract that provides for the license or use by the Company of any technology, proprietary information, or Intellectual Property of another Person or for the license or use by any other Person of any technology, proprietary information, or Intellectual Property of the Company; (n) Each Company Contract that contains a commitment of suretyship, guarantee, or indemnification by the Company, other than endorsements of instruments for deposit or collection; (o) Each Company Contract that contains restrictions with respect to dividends or other distributions in respect of the capital stock or equity securities of the Company; (p) Each Company Contract that was not entered into in the Ordinary Course of Business and that involves receipts or expenditures of the Company in excess of $50,000; and (q) Each Company Contract, not within any of the foregoing categories, that involves the performance of services or the delivery of goods or materials to or by the Company of an amount or value in excess of $50,000, other than price sheets issued by the Company in the Ordinary Course of Business. SCHEDULE 5.18 sets forth with respect to each such Company Contract the name and date of and parties to the Contract, including the date(s) of any amendment(s), modification(s), or supplement(s). 5.18.2 Except as set forth on SCHEDULE 5.18, (i) neither Seller (and no Related Person of either Seller) has or may acquire any rights under, and neither Seller (and no Related Person of either Seller) has or may become subject to any obligation or liability under, any Contract that relates to the business of, or any of the properties owned or used by, the Company; and (ii) to the Knowledge of each Seller and the Company, no officer, director, agent, employee, consultant, or contractor of the Company is bound by any Contract that purports to limit the ability of such officer, director, agent, employee, consultant, or contractor (a) to engage in or continue any conduct, activity, or practice relating to the business of the Company, or (b) to assign to the Company or to any other Person any rights to any invention, improvement, or discovery. 5.18.3 Except as set forth on SCHEDULE 5.18, each Contract identified or required to be identified on SCHEDULE 5.18 is in full force and effect and is valid and enforceable in accordance with its terms. 5.18.4 Except as set forth on SCHEDULE 5.18, (i) the Company is, and at all times since January 1, 1992 has been, in full compliance with all applicable terms and requirements of each Contract under which the Company has or had any obligation or liability or by which the Company or any of the properties owned or used by the Company is or was bound; 22 (ii) to the Knowledge of each Seller and the Company, each other Person that has or had any obligation or liability under any Contract under which the Company has or had any rights is, and at all times since January 1, 1992 has been, in full compliance with all applicable terms and requirements of such Contract; (iii) no event has occurred or circumstance exists that (with or without notice, lapse of time, or both) may contravene, conflict with, or result in a violation or breach of, or give the Company or any other Person the right to declare a default or exercise any remedy under, or to accelerate the maturity or performance of, or to cancel, terminate, or modify, any Company Contract; and (iv) the Company has not given to or received from any other Person, at any time since January 1, 1992, any notice or other communication (oral or written) regarding any actual, alleged, possible, or potential violation or breach of, or default under, any Contract. 5.18.5 There are no renegotiations of, attempts to renegotiate, or outstanding rights to renegotiate any material amounts paid or payable to the Company under any current or completed Contract with any Person and no such Person has made written demand for such renegotiation. 5.18.6 All Contracts relating to the sale, design, manufacture, or provision of products or services by the Company have been entered into in (i) the Ordinary Course of Business and (ii) without the commission of any act, either alone or in concert with any other Person, or the payment or promise of any consideration, that is or would be in violation of any Legal Requirement. 5.19 INSURANCE. 5.19.1 Sellers have delivered or made available to the Crown Parties (i) complete and accurate copies of all policies of insurance to which the Company is a party or under which the Company, or any director of the Company, is or has been covered at any time since January 1, 1992; (ii) complete and accurate copies of all pending applications for policies of insurance; and (iii) a complete and accurate copy of any statement by the auditor of the Company's financial statements with regard to the adequacy of the Company's insurance coverage or of its reserves for claims. 5.19.2 The attached SCHEDULE 5.19 accurately describes (i) any self-insurance arrangement by or affecting the Company, including any reserves established thereunder; (ii) any Contract or other arrangement, other than a policy of insurance, for the transfer or sharing of any risk by the Company; and (iii) all obligations of the Company to other Persons with respect to insurance (including such obligations under leases and service agreements) and identifies the policy under which such coverage is provided. 5.19.3 SCHEDULE 5.19 accurately describes, by year, for the current policy year and each of the three preceding policy years, (i) a summary of the loss experience under each policy of insurance of the Company; (ii) a statement describing each claim under any such policy for an amount in excess of $50,000, which sets forth (a) the name of the claimant, (b) a description of the policy by insurer, type of insurance, and period of coverage, and (c) the 23 amount and a brief description of the claim; and (iii) a statement describing the loss experience for all claims that were self-insured, including the number and aggregate cost of such claims. 5.19.4 Except as set forth on SCHEDULE 5.19, (i) all policies to which the Company is a party or that provide coverage to either Seller, the Company, or any director or officer of the Company (a) are valid, outstanding, and enforceable, (b) are issued by an insurer that is reputable and, to the Knowledge of each Seller and the Company, financially sound, (c) taken together, provide adequate insurance coverage for the properties and operations of the Company for all risks to which the Company is normally exposed, (d) are sufficient for compliance with all Company Contracts and all Legal Requirements applicable to the Company, (e) will continue in full force and effect following the consummation of this transaction, and (f) do not provide for any retrospective premium adjustment or other experienced-based liability on the part of the Company; (ii) neither Seller nor the Company has received (a) any refusal of coverage or any notice that a defense will be afforded with reservation of rights, or (b) any notice of cancellation or other indication that any insurance policy is no longer in full force or effect or will not be renewed or that the issuer of any policy is not willing or able to perform its obligations thereunder; (iii) the Company has paid all premiums due, and has otherwise performed all of its obligations, under each policy to which the Company is a party or that provides coverage to the Company or any director thereof; and (iv) the Company has given notice to the insurer of all claims that may be insured by any policy to which the Company is a party or that provides coverage to the Company or any director thereof. 5.20 ENVIRONMENTAL MATTERS. Except as set forth on the attached SCHEDULE 5.20: 5.20.1 To the Knowledge of each Seller and the Company, the Company is, and at all times has been, in full compliance with, and has not been and is not in violation of or liable under, any Environmental Law. Neither Seller nor, to the Knowledge of each Seller and the Company, the Company has any basis to expect, nor has any of them or any other Person for whose conduct any of them is or may be held responsible received, any actual or Threatened Order, notice, or other communication from (i) any Governmental Authority or any private citizen acting in the public interest, or (ii) the current or prior owner or operator of any property in which either Seller or the Company has or previously had any interest, of any actual or potential violation or failure to comply with any Environmental Law, or of any actual or Threatened obligation to undertake or bear the cost of any Environmental Liabilities with respect to any property in either Seller or the Company has or previously had an interest, or with respect to any property at, to, or from which Hazardous Materials were generated, manufactured, refined, transferred, imported, used, or processed by either Seller, the Company, or any other Person for whose conduct any of them is or may be held responsible. 5.20.2 To the Knowledge of each Seller and the Company, there are no pending or Threatened claims, Liens, or other restrictions of any nature resulting from any Environmental Liabilities or arising under any Environmental Law with respect to or affecting any property in which either Seller or the Company has or previously had an interest. 24 5.20.3 Neither Seller nor, to the Knowledge of each Seller and the Company, the Company has any basis to expect, nor has any of them or any other Person for whose conduct any of them is or may be held responsible, received, any citation, directive, inquiry, notice, Order, summons, warning, or other communication that relates to (i) Hazardous Materials, (ii) any alleged, actual, or potential violation of or failure to comply with any Environmental Law, or (iii) any alleged, actual, or potential obligation to undertake or bear the cost of any Environmental Liabilities with respect to any property in which either Seller or the Company has or previously had an interest, or with respect to any property at or to which Hazardous Materials generated, manufactured, refined, transferred, imported, used, or processed by either Seller, the Company, or any other Person for whose conduct any of them is or may be held responsible, have been transported, treated, stored, handled, transferred, disposed, recycled, or received. 5.20.4 To the Knowledge of each Seller and the Company, neither Seller nor the Company, nor any other Person for whose conduct any of them is or may be held responsible, has any Environmental Liabilities with respect to any property in which either Seller or the Company has or previously had an interest, or any property geologically or hydrologically adjoining any such property. 5.20.5 To the Knowledge of each Seller and the Company, there are no Hazardous Materials present on, in, or under any property in which the Company has an interest, including any Hazardous Materials contained in barrels, above or underground storage tanks, landfills, land deposits, dumps, equipment (whether moveable or fixed), or other containers, either temporary or permanent, or deposited or located in land, water, sumps, or any other part of any such property, or incorporated into any structure therein or thereon, other than such Hazardous Materials as may be used by the Company in the Ordinary Course of Business and as are used, stored, and disposed of in full compliance with all Environmental Laws. 5.20.6 Sellers have delivered or made available to the Crown Parties complete and accurate copies of all reports, analyses, studies, tests, and monitoring results possessed or initiated by either Seller or the Company with respect to Hazardous Materials in, on, or under any property in which either Seller or the Company has or previously had an interest or compliance with Environmental Laws by either Seller, the Company, or any other Person for whose conduct any of them is or may be held responsible. 5.21 EMPLOYEES. 5.21.1 The attached SCHEDULE 5.21 contains a complete and accurate list of (i) the following information for each employee or director of the Company, including each employee on leave of absence or layoff status: name; job title; current compensation paid or payable; accrued vacation; and service credited for purposes of vesting and eligibility to participate under any Employee Benefit Plan of the Company; and (ii) the following information for each retired employee or director of the Company, or their dependents, receiving benefits or scheduled to receive benefits in the future: name, pension benefit, pension option election, retiree medical insurance coverage, retiree life insurance coverage, and other benefits. 25 5.21.2 No employee or director of the Company is a party to, or is otherwise bound by, any Contract or other arrangement, including any confidentiality, noncompetition, or proprietary rights agreement, with any other Person, including either Seller or the Company, that in any way adversely affects or will adversely affect (i) the performance of such individual's duties as an employee or director of the Company, or (ii) the ability of the Company to conduct its business. To the Knowledge of each Seller, no director, officer, or other key employee of the Company intends to terminate his employment. 5.22 LABOR RELATIONS. The Company has not been and is not a party to any collective bargaining or other labor Contract. Except as described on the attached SCHEDULE 5.22, since January 1, 1992, there has not been, and there is not presently pending, existing, or Threatened, (i) any strike, slowdown, picketing, work stoppage, or employee grievance process by or involving any employees of the Company, (ii) any Proceeding against or affecting the Company relating to the alleged violation of any Legal Requirement pertaining to labor relations or employment matters, or (iii) to the Knowledge of each Seller and the Company, any application for certification of a collective bargaining agent. To the Knowledge of each Seller and the Company, no event has occurred or circumstance exists that could provide the basis for any work stoppage or other labor dispute by or involving any employees of the Company. There is no lockout of any employees by the Company, and no such action is contemplated by the Company. The Company has complied in all respects with all Legal Requirements relating to employment, equal employment opportunity, nondiscrimination, immigration, wages, hours, benefits, collective bargaining, the payment of social security and similar taxes, occupational safety and health, and plant closing. The Company is not liable for the payment of any compensation, damages, taxes, fines, penalties, or other amounts, however designated, for failure to comply with any of the foregoing Legal Requirements. 5.23 INTELLECTUAL PROPERTY. The attached SCHEDULE 5.23 contains a complete and accurate description of (i) all Intellectual Property (other than computer software used by the Company in the Ordinary Course of Business) in which the Company has an interest, (ii) each pending application of any nature made by the Company with respect to Intellectual Property, and (iii) each license granted to or by the Company with respect to the use of Intellectual Property (other than licenses of computer software used by the Company in the Ordinary Course of Business). Except as set forth on SCHEDULE 5.23, no claim or Proceeding is pending or Threatened with respect to the validity, enforceability, use, or ownership of any Intellectual Property by the Company. 5.24 CERTAIN PAYMENTS. Since January 1, 1992, neither the Company nor, to the Knowledge of either Seller or the Company, any director, officer, agent, or employee of the Company or any other Person associated with or acting for or on behalf of the Company, has directly or indirectly (i) made or promised any contribution, gift (other than gifts not exceeding $1,500 in cost or value in any single instance), bribe, rebate, payoff, influence payment, kickback, or other payment to any Person, private or public, regardless of form, whether in money, property, or services (a) to obtain favorable treatment in securing business, (b) to pay for favorable treatment for business secured, (c) to obtain special concessions, or for special concessions already obtained, for or in respect of the Company or any Related Person of the 26 Company, or (d) in violation of any Legal Requirement; or (ii) established or maintained any fund or property that has not been recorded in the books and records of the Company. 5.25 DISCLOSURE. No representation or warranty of Sellers or the Company in this Agreement and no statement in any Schedule to this Agreement relating to any such representation or warranty omits to state a material fact necessary to make the statements herein or therein, in light of the circumstances in which they were made, not materially misleading. No notice given pursuant to Section 2.6.1 will contain any untrue statement or omit to state a material fact necessary to make the statements therein or in this Agreement, in light of the circumstances in which they were made, not materially misleading. There is no fact known to either Seller or the Company that has specific application to either Seller or to the Company (other than general economic or industry conditions) and that materially adversely affects or, as far as either Seller can reasonably foresee, materially threatens, the business, operations, properties, condition (financial or otherwise), or prospects of the Company that has not been set forth in this Agreement or the Schedules hereto. 5.26 RELATIONSHIPS WITH RELATED PERSONS. Except as set forth on the attached SCHEDULE 5.26 and except for Sellers' ownership of the Facilities, neither Seller nor any Related Person of either Seller or of the Company (i) has, or since January 1, 1996 has had, any interest in any property used in or pertaining to the Company's businesses; (ii) has, or since January 1, 1996 has had, any equity or other financial or profits interest in any Person that has (a) had business dealings or a material financial interest in any transaction with the Company, other than business dealings or transactions conducted in the Ordinary Course of Business with the Company at substantially prevailing market prices and on substantially prevailing market terms, or (b) engaged in competition with the Company with respect to any line of the products or services of the Company in any market presently served by the Company; or (iii) is a party to any Contract with, or has any claim or right against, the Company. 5.27 BROKERS AND FINDERS. Sellers and their agents have incurred no obligation or liability, contingent or otherwise, for brokerage or finders' fees or agents' commissions or other similar payment in connection with this Agreement or this transaction. 5.28 MATTERS RELATING TO UNITS. Each Seller (i) has been provided with a copy of Crown Partners' Shelf Offering Prospectus dated October 27, 1997, and with copies of the various reports incorporated therein by reference, and has been provided as much time and opportunity as such Seller deemed appropriate to review and study such Prospectus and such reports and to consult with Representatives of Crown Partners regarding the merits and risks of an investment in Crown Partners; (ii) has had adequate opportunity to ask questions of and receive answers from the officers of Crown Partners regarding any and all matters relating to the business of Crown Partners that such Seller deemed appropriate to ask, including the background and experience of such officers and the members of the board of control of Crown Partners, the plans of such officers for the operation of Crown Partners, and the current conduct and status of and prospects for Crown Partners' business; (iii) has in fact asked of the officers of Crown Partners any and all questions of the nature described in the foregoing clause (ii) that such Seller has wished to ask, and all such questions have been answered to the satisfaction of such Seller; 27 (iv) is the true party in interest and will not be acquiring any Units for the benefit of any other Person; (v) has such knowledge and experience in financial and business matters and investments in general that such Seller is capable of evaluating the merits and risks of the ownership of Units; (vi) understands that the Units will not be capable of being sold readily without compliance with applicable federal and state securities laws; and (vii) has liquid assets and income sufficient to assure that such Seller's current and future personal needs will be provided for notwithstanding the complete loss of such Seller's investment in Units. 6. REPRESENTATIONS AND WARRANTIES OF THE CROWN PARTIES. The Crown Parties jointly and severally represent and warrant to Sellers as follows: 6.1 ORGANIZATION AND GOOD STANDING. Crown Partners is a limited partnership duly organized, validly existing, and in good standing under the laws of the State of Delaware. CP Acquisition is a corporation duly organized, validly existing, and in good standing under the laws of the State of Oregon. 6.2 AUTHORITY; NO CONFLICT. 6.2.1 This Agreement constitutes the legal, valid, and binding obligation of the Crown Parties, enforceable against each of them in accordance with its terms. Upon the execution and delivery of the Employment Agreements and the Crown Parties' Release, the Employment Agreements and the Crown Parties' Release will constitute the legal, valid, and binding obligations of the Company, enforceable against the Company in accordance with their respective terms. The Crown Parties have the absolute and unrestricted right, power, authority, and capacity to execute and deliver this Agreement and the Crown Parties' Release, the Company will, as of the Closing Date, have the absolute and unrestricted right, power, authority, and capacity to execute and deliver the Employment Agreement, and the Crown Parties have and, as of the Closing Date, the Company will have the absolute and unrestricted right, power, authority, and capacity to perform their respective obligations hereunder and thereunder. 6.2.2 Neither the execution and delivery of this Agreement, nor the performance of any of the Crown Parties' obligations hereunder, nor the consummation of this transaction will, directly or indirectly (with or without notice, lapse of time, or both), (i) contravene, conflict with, or result in a violation of any provision of the Crown Parties' Organizational Documents or any resolution adopted by the board of control, managing general partner, or limited partners of Crown Partners or by the board of directors or the shareholders of CP Acquisition; (ii) give any Person the right to prevent, delay, or otherwise interfere with this transaction pursuant to any Legal Requirement or Order to which either Crown Party may be subject or any Contract to which either Crown Party is a party or by which it is bound. 6.2.3 Other than filings under the HSR Act, neither Crown Party is or will be required to give any notice to, make any filing with, or obtain any Consent from any Person in connection with the execution and delivery of this Agreement, the performance of their respective obligations hereunder, or the consummation of this transaction. 28 6.3 INVESTMENT INTENT. CP Acquisition is acquiring the Shares for its own account and not with a view to their distribution within the meaning of Section 2(11) of the Securities Act. 6.4 CERTAIN PROCEEDINGS. No Proceeding is pending or has been Threatened against either Crown Party that challenges, or may have the effect of preventing, delaying, making illegal, or otherwise interfering with, this transaction. 6.5 DISCLOSURE. No representation or warranty of the Crown Parties in this Agreement omits to state a material fact necessary to make the statements herein or therein, in light of the circumstances in which they were made, not materially misleading. 6.6 BROKERS AND FINDERS. The Crown Parties and their agents have incurred no obligation or liability, contingent or otherwise, for brokerage or finders' fees or agents' commissions or other similar payment in connection with this Agreement or this transaction. 7. POST-CLOSING COVENANTS. 7.1 REPAYMENT OF CERTAIN NOTES PAYABLE. The Crown Parties shall cause the Company to repay in full the Notes Payable identified on the attached SCHEDULE 7.1. Such repayment shall occur (i) on the Closing Date and immediately after the Closing in the case of all such Notes Payable that do not relate to financing for specific vehicles or equipment acquired by the Company, or (ii) within 30 days after the Closing Date in the case of all such Notes Payable that relate to financing for specific vehicles or equipment acquired by the Company. The Crown Parties shall provide Sellers with evidence of the repayment of all such Notes Payable. 7.2 RESPONSIBILITY FOR CERTAIN TAX RETURNS AND AUDITS. Sellers shall be solely responsible for, shall be entitled to amend in such manner as they deem appropriate, and shall pay all costs and expenses relating to and all Taxes due pursuant to, all federal and state income Tax Returns previously or hereafter filed or required to have been filed by the Company that relate to the period to and including the Closing Date and any and all audits of such Tax Returns by Governmental Authorities. The Crown Parties agree to cause the Company to make available to Sellers and their Representatives such access to the books and records of the Company as they may reasonably request for the purpose of preparing such Tax Returns and responding to such audits. 7.3 MANAGEMENT OF POST-CLOSING COMPANY OPERATIONS. 7.3.1 The Crown Parties acknowledge that (i) the existence of the Contingent Payment requires them to make reasonable, good faith efforts to cause the Post-Closing Company Operations to achieve the Cash Flow necessary to enable the Contingent Payment to be made, and (ii) they have no present strategy regarding the Post-Closing Company Operations that would make achievement of such Cash Flow unlikely. Notwithstanding the foregoing, the parties acknowledge and agree that the Crown Parties cannot reasonably be required to conduct the Post-Closing Company Operations on the basis of short-term strategies 29 and objectives that are established only for the purpose of attaining the Cash Flow necessary to enable the Contingent Payment to be made and that do not reflect careful long-term planning. The Crown Parties agree not to take or fail to take any action for the purpose of causing the Contingent Payment not to be payable pursuant to Section 1.2.3. To the extent necessary to permit an accurate calculation of Cash Flow and its components, all financial matters with respect to the Post-Closing Company Operations will be accounted for separately from financial matters relating to other businesses and operations of Crown Partners and its Subsidiaries. 7.3.2 Ultimate control with respect to the management Post-Closing Company Operations will be vested in Crown Partners' board of control and chief executive officer. For so long as they are employed pursuant to their respective Employment Agreements, the authority to manage the day-to-day business and affairs of the Company will be delegated to Carr and McMannis, subject to operating and capital budgets to be proposed by Carr and McMannis and approved by the board of control of Crown Partners. 7.4 POST-CLOSING INSURANCE. Throughout the period from the Closing Date through the fifth anniversary of the Closing Date, the Crown Parties shall cause the Company to maintain in full force and effect, with one or more reputable insurance companies licensed to issue insurance in the State of Arizona, insurance coverages of the types and in the minimum amounts set forth in Section 6 of the Leases. All such insurance shall name Sellers, Carr, and McMannis as insureds and shall contain a clause or endorsement pursuant to which the insurer waives any right of subrogation to any claim that the Crown Parties may have against Sellers under this Agreement. The Crown Parties shall deliver a certificate evidencing such insurance to Sellers at the Closing and shall deliver evidence of the renewal of such insurance to Sellers at least 30 days prior to its expiration. Each insurance policy maintained pursuant to this Section 7.4 shall contain a provision pursuant to which it cannot be canceled without at least 30 days prior written notice to Sellers. 7.5 CREDIT FOR COMPANY SENIORITY. For purposes of determining their entitlement to employee benefits after the Closing, all employees of the Company, including Carr and McMannis, shall be credited for their seniority with the Company as of the Closing Date. 8. TERMINATION. 8.1 TERMINATION EVENTS. This Agreement may, by notice given prior to or at the Closing, be terminated: 8.1.1 By either Sellers or the Crown Parties if a material Breach of any provision of this Agreement has been committed by the other party and such Breach has not previously been waived; PROVIDED that except with respect to a Breach of the parties' obligations under Section 4.2, a Breach shall not give either party the right to terminate this Agreement unless (i) the non-Breaching party has given the Breaching party notice specifying the nature of the Breach in reasonable detail, and (ii) the Breaching party either (a) has failed to cure such Breach within ten Business Days after such notice is given, or (b) if such Breach cannot be cured solely by the payment of money and cannot reasonably be cured within ten Business Days 30 despite the exercise of due diligence, has failed to commence curative action within ten Business Days after such notice is given or thereafter fails to complete the cure of such Breach as soon as practicable; 8.1.2 (i) By Sellers, if any of the conditions in Section 3.1 has not been satisfied as of the Closing Date or if satisfaction of such a condition is or becomes impossible (other than through the failure of Sellers to comply with their obligations under this Agreement) and Sellers have not waived such condition on or before the Closing Date; or (ii) by the Crown Parties, if any of the conditions in Section 3.2 has not been satisfied as of the Closing Date or if satisfaction of such a condition is or becomes impossible (other than through the failure of the Crown Parties to comply with their obligations under this Agreement) and the Crown Parties have not waived such condition on or before the Closing Date; 8.1.3 By mutual consent of the Crown Parties and Sellers; or 8.1.4 By either Sellers or the Crown Parties if the Closing has not occurred (other than through the failure of any party seeking to terminate this Agreement to comply fully with its obligations under this Agreement) on or before February 1, 1998, or such later date as the parties may agree upon. 8.2 EFFECT OF TERMINATION. Each party's right of termination under Section 8.1 is in addition to any other rights it may have under this Agreement or otherwise, and the exercise of a right of termination shall not constitute an election of remedies. If this Agreement is terminated pursuant to Section 8.1, all further obligations of the parties under this Agreement shall thereupon terminate, except that the obligations set forth in Sections 11.6 through 11.8 shall survive; PROVIDED, HOWEVER, that if this Agreement is terminated by a party because of a Breach of this Agreement by the other party or because one or more of the conditions to the terminating party's obligations under this Agreement is not satisfied as a result of the other party's failure to comply with its obligations under this Agreement, the terminating party's right to pursue all legal remedies shall survive such termination unimpaired, subject to any limitations thereon expressly set forth in this Agreement. 9. INDEMNIFICATION; REMEDIES. 9.1 SURVIVAL; EFFECT OF KNOWLEDGE OR WAIVER. All representations, warranties, covenants, and obligations set forth in this Agreement, any Supplements, and any certificate or document delivered pursuant to this Agreement shall survive the Closing; PROVIDED, HOWEVER, that the representations and warranties made by the Company in this Agreement shall not survive the Closing. The right to indemnification, payment of Damages, or any other remedy based on such representations, warranties, covenants, and obligations shall not be affected by any investigation conducted with respect to, or any Knowledge capable of being acquired at any time, whether before or after the execution and delivery of this Agreement or the Closing Date, with respect to the accuracy or inaccuracy of or compliance with any such representation, warranty, covenant, or obligation; PROVIDED that a party shall not be entitled to indemnification or payment 31 of Damages based on any breach of a representation or warranty of another party of which such first party had Actual Knowledge prior to the Closing Date. 9.2 INDEMNIFICATION BY SELLERS. 9.2.1 Sellers, jointly and severally, shall indemnify and hold harmless the Crown Parties, the Company, and their respective Representatives, partners, stockholders, controlling persons, and affiliates (collectively, the "INDEMNIFIED PERSONS") for, and shall pay to the Indemnified Persons the amount of, any and all Damages arising, directly or indirectly, from or in connection with any of the following: (a) Any Breach of any representation or warranty made by Sellers or the Company in this Agreement (giving effect to any Supplements), any Supplement (giving effect to any subsequent Supplement), or any other certificate or document delivered by Sellers pursuant to this Agreement; (b) Any Breach by either Seller of any covenant or obligation of such Seller in this Agreement; (c) Any product shipped or manufactured by, or any services provided by, the Company prior to the Closing Date; (d) Any matter disclosed in the attached SCHEDULE 9.2; or (e) Any claim by any Person for brokerage or finder's fees or commissions or similar payments based upon any Contract alleged to have been made by any such Person with either Seller or the Company (or any Person acting on their behalf) in connection with this transaction. 9.2.2 Without limiting the generality of the provisions of Section 9.2.1, Sellers, jointly and severally, shall indemnify and hold harmless the Indemnified Persons for, and shall pay to the Indemnified Persons the amount of, any Damages (including costs of cleanup, containment, or other remediation) arising, directly or indirectly, from or in connection with: (a) Any Environmental Liabilities arising out of or relating to (i) the operation at any time on or prior to the Closing Date of any property in which either Seller or the Company has or previously had an interest; (ii) any Hazardous Materials that, to the Knowledge of either Seller or the Company, were present on, in, or under any such property at any time on or prior to the Closing Date; (iii) any Hazardous Materials that, to the Knowledge of either Seller or the Company, were, or were allegedly, generated, transported, stored, treated, released, or otherwise handled by either Seller, the Company, or any other Person for whose conduct any of them is or may be held responsible at any time on or prior to the Closing Date; or (iv) any actual or alleged violation of Environmental Laws on or prior to the Closing Date by either Seller, the Company, or any other Person for whose conduct any of them is or may be held responsible; or 32 (b) Any bodily injury (including illness, disability, and death, and regardless of when any such bodily injury occurred, was incurred, or manifested itself or occurs, is incurred, or manifests itself), personal injury, property damage (including trespass, nuisance, wrongful eviction, and deprivation of the use of real property), or other damage of or to any Person, including any employee or former employee of either Sellers, the Company, or any other Person for whose conduct any of them is or may be held responsible, in any way arising from or allegedly arising from any activity conducted or allegedly conducted in violation of Environmental Laws with respect to the operation on or prior to the Closing Date of the Company or of any property in which either Seller or the Company has or previously had an interest or from any Hazardous Material that was (i) to the Knowledge of either Seller or the Company, present or suspected to be present on or before the Closing Date on or at any property in which either Seller or the Company has or previously had an interest (or present or suspected to be present on any other property, if such Hazardous Material emanated or allegedly emanated from any of such property on or prior to the Closing Date) or (ii) to the Knowledge of either Seller or the Company, released or allegedly released by either Seller, the Company, or any other Person for whose conduct any of them is or may be held responsible at any time on or prior to the Closing Date. The Crown Parties shall be entitled to control any cleanup, any related Proceeding, and, except as provided in the following sentence, any other Proceeding with respect to which indemnity may be sought under this Section 9.2.2. The procedure described in Section 9.7 shall apply to any claim solely for monetary damages relating to a matter covered by this Section 9.2.2. 9.2.3 The remedies provided in Section 9.2.1 and 9.2.2 shall be exclusive remedies available to the Crown Parties or the other Indemnified Persons with respect to matters covered thereby; PROVIDED, HOWEVER, that the limitation set forth in this Section 9.2.3 shall not apply to any claim of fraud asserted by the Crown Parties or any other Indemnified Person, to any Breach of any of Sellers' representations and warranties of which either Seller had Knowledge at any time prior to the date on which such representation and warranty is made, or to any intentional Breach by either Seller of any covenant or obligation of Sellers under this Agreement. 9.2.4 Sellers shall have no right of contribution against the Company with respect to any liability of Sellers under this Section 9. 9.3 INDEMNIFICATION BY THE CROWN PARTIES. The Crown Parties, jointly and severally, shall indemnify and hold harmless Sellers, and shall pay to Sellers the amount of any Damages arising, directly or indirectly, from or in connection with (i) any Breach of any representation or warranty made by the Crown Parties in this Agreement or in any certificate delivered by the Crown Parties pursuant to this Agreement, (ii) any Breach by either Crown Party of any covenant or obligation of such Crown Party in this Agreement, or (iii) any claim by any Person for brokerage or finder's fees or commissions or similar payments based upon any Contract alleged to have been made by such Person with a Crown Party (or any Person acting on its behalf) in connection with this transaction. 33 9.4 TIME LIMITATIONS. 9.4.1 If the Closing occurs, Sellers' liability (for indemnification or otherwise) with respect to representations or warranties and with respect to covenants or obligations to be performed and complied with prior to the Closing Date shall be subject to the following limitations: (a) Sellers shall have no liability with respect to any of the representations and warranties set forth in Sections 5.1, 5.4 through 5.10, 5.13, 5.17, 5.18, 5.19, 5.21 through 5.24, 5.26, and 5.27, or with respect to any such covenant or obligations to be performed or complied with prior to the Closing Date, except with respect to any such matter as to which, on or before the first anniversary of the Closing Date, the Crown Parties notify Sellers of a claim specifying the factual basis of that claim in reasonable detail to the extent then known by the Crown Parties. (b) Sellers shall have no liability with respect to any of the representations and warranties set forth in Sections 5.2, 5.3, 5.11, 5.14, 5.15, 5.16, 5.25, and 5.28, except with respect to any such matter as to which, on or before the third anniversary of the Closing Date, the Crown Parties notify Sellers of a claim specifying the factual basis of that claim in reasonable detail to the extent then known by the Crown Parties. (c) Sellers shall have no liability with respect to any of the representations and warranties set forth in Sections 5.12 and 5.20, or under Section 9.2.2, except with respect to any such matter as to which, on or before the fifth anniversary of the Closing Date, the Crown Parties notify Sellers of a claim specifying the factual basis of that claim in reasonable detail to the extent then known by the Crown Parties. 9.4.2 If the Closing occurs, the Crown Parties will have no liability (for indemnification or otherwise) with respect to any representation or warranty, or covenant or obligation to be performed and complied with prior to the Closing Date, except with respect to any matter as to which, on or before the third anniversary of the Closing Date, Sellers notify the Crown Parties of a claim specifying the factual basis of that claim in reasonable detail to the extent then known by Sellers. A claim not based upon any representation or warranty or any covenant or obligation to be performed and complied with prior to the Closing Date, may be made at any time. 9.5 LIMITATIONS ON AMOUNT. 9.5.1 Sellers shall have no liability (for indemnification or otherwise) with respect to the matters described in Section 9.2.1(a), 9.2.2, or, to the extent relating to any failure to perform or comply prior to the Closing Date, 9.2.1(b), (i) until the total of all Damages with respect to such matters exceeds $500,000, and then only for the amount by which such Damages exceed $500,000, or (ii) for an aggregate amount in excess of the Base Consideration; PROVIDED, HOWEVER, that the limitations set forth in this Section 9.5.1 shall not apply to any 34 Breach of any of Sellers' representations and warranties of which either Seller had Actual Knowledge at any time prior to the date on which such representation and warranty is made or any intentional Breach by either Seller of any covenant or obligation, and Sellers shall be jointly and severally liable for all Damages with respect to such Breaches. 9.5.2 The Crown Parties shall have no liability (for indemnification or otherwise) with respect to the matters described in clause (i) or (ii) of Section 9.3 until the total of all Damages with respect to such matters exceeds $500,000, and then only for the amount by which such Damages exceed $500,000; PROVIDED, HOWEVER, that the limitation set forth in this Section 9.5.2 shall not apply to any Breach of any of the Crown Parties' representations and warranties of which either of the Crown Parties had Actual Knowledge at any time prior to the date on which such representation and warranty is made or any intentional Breach by either Crown Party of any covenant or obligation, and the Crown Parties shall be jointly and severally liable for all Damages with respect to such Breaches. 9.6 RIGHT OF SET-OFF. Upon notice to Sellers specifying in reasonable detail the basis for such set-off, the Crown Parties may set off any amount to which a court of competent jurisdiction has determined they are entitled under this Section 9 against the Contingent Payment and against amounts otherwise payable to Sellers under any Lease (for so long as Sellers own the real property subject to such Lease) or otherwise. Neither the exercise of nor the failure to exercise such right of set-off shall constitute an election of remedies or limit the Crown Parties in any manner in the enforcement of any other remedies that may be available to them. 9.7 PROCEDURE FOR INDEMNIFICATION. 9.7.1 Promptly after receipt by an indemnified party under Section 9.2.1, 9.3, or (to the extent provided in the last sentence of Section 9.2.2) 9.2.2 of notice of the commencement of any Proceeding against it, such indemnified party shall, if a claim is to be made against an indemnifying party under such Section, give notice to the indemnifying party of the commencement of such claim; PROVIDED that the failure to notify the indemnifying party shall not relieve the indemnifying party of any liability that it may have to any indemnified party, except to the extent that the indemnifying party demonstrates that the defense of such Proceeding is prejudiced by the indemnifying party's failure to give such notice. 9.7.2 If any Proceeding referred to in Section 9.7.1 is brought against an indemnified party and it gives notice to the indemnifying party of the commencement of such Proceeding, the indemnifying party shall, unless the claim involves Taxes, be entitled to participate in such Proceeding and, to the extent that it wishes (unless (i) the indemnifying party is also a party to such Proceeding and the indemnified party determines in good faith that joint representation would be inappropriate, or (ii) the indemnifying party fails to provide reasonable assurance to the indemnified party of its financial capacity to defend such Proceeding and to provide indemnification with respect to such Proceeding), to assume the defense of such Proceeding with counsel reasonably satisfactory to the indemnified party and, after notice from the indemnifying party to the indemnified party of its election to assume the defense of such Proceeding, the indemnifying party shall not, as long as it diligently conducts such defense, be 35 liable to the indemnified party under this Section 9 for any fees of other counsel or any other expenses with respect to the defense of such Proceeding, in each case subsequently incurred by the indemnified party in connection with the defense of such Proceeding, other than reasonable costs of investigation. If the indemnifying party assumes the defense of a Proceeding, (i) it shall be conclusively established for purposes of this Agreement that the claims made in that Proceeding are within the scope of and subject to indemnification; (ii) no compromise or settlement of such claims may be effected by the indemnifying party without the indemnified party's consent unless (a) there is no finding or admission of any violation of Legal Requirements or any violation of the rights of any Person and no effect on any other claims that may be made against the indemnified party, and (b) the sole relief provided is monetary damages that are paid in full by the indemnifying party; and (iii) the indemnified party shall have no liability with respect to any compromise or settlement of such claims effected without its consent. If notice is given to an indemnifying party of the commencement of any Proceeding and the indemnifying party does not, within 10 days after the indemnified party's notice is given, give notice to the indemnified party of its election to assume the defense of such Proceeding, the indemnifying party shall be bound by any determination made in such Proceeding or any compromise or settlement effected by the indemnified party. 9.7.3 Notwithstanding the foregoing provisions of this Section 9.7, if an indemnified party determines in good faith that there is a reasonable probability that a Proceeding may adversely affect it or its affiliates other than as a result of monetary damages for which it would be entitled to indemnification under this Agreement, the indemnified party may, by notice to the indemnifying party, assume the exclusive right to defend, compromise, or settle such Proceeding, but the indemnifying party shall not be bound by any determination of a Proceeding so defended or any compromise or settlement effected without its consent (which shall not be unreasonably withheld). 9.7.4 Sellers and the Crown Parties each hereby consent to the non-exclusive jurisdiction of any court in which a Proceeding is brought against any Indemnified Person for purposes of any claim that an Indemnified Person may have under this Agreement with respect to such Proceeding or the matters alleged therein, and agree that process may be served on Sellers or the Crown Parties with respect to such a claim anywhere in the world. 9.7.5 A claim for indemnification for any matter not involving a third-party claim may be asserted by notice to the party from whom indemnification is sought. 10. DEFINITIONS AND INTERPRETATION. 10.1 CERTAIN DEFINED TERMS. As used in this Agreement, the following terms have the respective meanings set forth below: "ACCOUNTANTS" means Arthur Andersen LLP. "ACCOUNTS RECEIVABLE" has the meaning set forth in Section 5.9. 36 "ACTUAL KNOWLEDGE" means (i) with respect to the Crown Parties, that Peter W. Stott, Roger L. Krage, Richard D. Snyder, Mark Conan or any attorney representing the Crown Parties in connection with this transaction is actually aware of a particular fact or other matter, or (ii) with respect to Sellers, that Carr, McMannis, or any attorney representing either Seller or the Company in connection with this transaction is actually aware of a particular fact or other matter. "AGREEMENT" means this Stock Acquisition Agreement. "BASE CONSIDERATION" means, subject to adjustment as provided in Section 1.2.1, an amount equal to the excess of (i) $29,500,000, over (ii) the aggregate amount of principal and unpaid accrued interest due under the Notes Payable as of the Closing Date. "BEST EFFORTS" means the efforts that a prudent Person who wishes to achieve a result would use in similar circumstances to achieve such result as expeditiously as possible. "BREACH" means, with respect to any representation, warranty, covenant, obligation, or other provision of this Agreement or any document delivered pursuant to this Agreement, (i) any inaccuracy in or breach of, or any failure to perform or comply with, such representation, warranty, covenant, obligation, or other provision, or (ii) any claim by any Person or any other occurrence or circumstance that is or was inconsistent with such representation, warranty, covenant, obligation, or other provision. "BUSINESS DAY" means any day other than a Saturday, Sunday, or other day on which commercial banks in Portland, Oregon, Phoenix, Arizona, New York City, New York, or San Francisco, California are authorized or required by law to be closed. "CARR" means True H. Carr, an individual. "CARR TRUST" has the meaning set forth in the preamble to this Agreement. "CASH FLOW" means, with respect to any calendar year, an amount equal to (i) the net income attributable to the Post-Closing Company Operations for such year (using the first in-first out method of accounting for inventory), excluding gains and losses from sales of properties outside the Ordinary Course of Business, PLUS (ii) any federal or state income taxes, interest expense, depreciation, depletion, and amortization taken into account in determining such net income, MINUS (iii) all capital expenditures (other than Expansive Capital Expenditures) incurred during such year in connection with the Post-Closing Company Operations, to the extent such capital expenditures do not exceed the depreciation taken into account in determining such net income, MINUS (iv) an amount equal to the product of (a) the CPLP Borrowing Cost for such year, multiplied by (b) the Excess Working Capital, if any, for such year, MINUS (v) an amount equal to 10% of the aggregate Expansive Capital Expenditures incurred during the period from the Closing Date to the end of such year; PROVIDED that in no event shall any general overhead allocation from Crown Partners or its Subsidiaries be taken into account in the calculation of Cash Flow. "CAUSE" has the meaning given that term in the Employment Agreements. 37 "CERTIFICATES" means the outstanding certificates that, on the Closing Date, represent shares of Common Stock. "CLOSING" means the closing of the acquisition and transfer of the Shares pursuant to this Agreement. "CLOSING DATE" means the date on which the Closing occurs. "CLOSING FINANCIAL STATEMENTS" has the meaning set forth in Section 1.2.2(b). "COBRA" has the meaning set forth in Section 5.14.1. "CODE" means the Internal Revenue Code of 1986 or any successor law, and the regulations and rules issued thereunder, as amended through the Closing Date. "COMMON STOCK" means the common stock of the Company, $1.00 par value per share. "COMPANY" has the meaning set forth in the preamble to this Agreement. "COMPANY CONTRACT" means any Contract (i) under which the Company has or may acquire any rights, (ii) under which the Company has or may become subject to any obligation or liability, or (iii) by which the Company or any of the properties owned or used by the Company is or may become bound. "CONSENT" means any approval, consent, ratification, waiver, or other authorization, including any Governmental Authorization. "CONTINGENT PAYMENT" means the sum of $3,000,000, to be paid to Sellers in the circumstances and manner set forth in Section 1.2.3. "CONTRACT" means any agreement, contract, obligation, promise, or understanding, whether written or oral and whether express or implied, that is legally binding. "CP ACQUISITION" has the meaning set forth in the preamble to this Agreement. "CPLP" means Crown Pacific Limited Partnership, a Delaware limited partnership and a Subsidiary of Crown Partners. "CPLP BORROWING COST" means the average interest rate payable by CPLP during any calendar year under the terms of its then-current working capital credit facility. "CROWN PARTIES" means Crown Partners and CP Acquisition. "CROWN PARTIES' RELEASE" has the meaning set forth in Section 4.2.2(e). "CROWN PARTNERS" has the meaning set forth in the preamble to this Agreement. 38 "DAMAGES" means all losses, liabilities, claims, damages (including incidental and consequential damages), expenses (including costs of investigation and defense and reasonable attorneys' fees), and diminution of value, whether or not involving a third party claim, except to the extent, if any, that any such losses, liabilities, claims, damages, expenses, or diminution in value are recovered through insurance proceeds actually received (net of any costs incurred in connection therewith, whether through retrospective premium adjustments, experience-based premium adjustments, or otherwise). "EFFECTIVE DATE" has the meaning set forth in the preamble to this Agreement. "ERISA" means the Employee Retirement Security Income Security Act of 1974 or any successor law, and the regulations and rules issued thereunder, as amended through the Closing Date. "EMPLOYEE BENEFIT PLAN" means any (i) nonqualified deferred compensation or retirement plan or arrangement that is an Employee Pension Benefit Plan, (ii) qualified defined contribution retirement plan or arrangement that is an Employee Pension Benefit Plan, (iii) qualified defined benefit retirement plan or arrangement (including any Multiemployer Plan) that is an Employee Pension Benefit Plan, (iv) Employee Welfare Benefit Plan, or (v) other material fringe benefit plan, program, or arrangement, that, in the case of any of the foregoing, is sponsored or contributed to by the Company for the benefit of any current or former employee of the Company. "EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in Section 3(2) of ERISA. "EMPLOYEE WELFARE BENEFIT PLAN" has the meaning set forth in Section 3(1) of ERISA. "EMPLOYMENT AGREEMENTS" has the meaning set forth in Section 4.2.1(c). "ENVIRONMENTAL LAW" means any federal, state, or local Legal Requirement relating or pertaining to environmental, health, safety, natural resource, or land use matters, including the Comprehensive Environmental Response, Compensation and Liability Act, the Clean Air Act, the Water Pollution Control Act, the Solid Waste Disposal Act, the Resource Conservation and Recovery Act, the Toxic Substances Control Act, the Emergency Planning and Community Right-to-Know Act, the Safe Drinking Water Act, the Occupational Safety and Health Act, and any substantively similar state or local statutes, in each case as amended through the Closing Date. "ENVIRONMENTAL LIABILITIES" means any cost, damages, expense, fine, penalty, liability, obligation, or other responsibility arising from or under any Environmental Law, including response, investigative, remedial, or inspection costs and expenses. "EXCESS WORKING CAPITAL" means, with respect to any calendar year, the amount, if any, by which (i) average Working Capital for such year (based upon Working Capital as of 39 the last day of each month during such year) exceeds (ii) 15.0% of the gross sales generated by the Post-Closing Company Operations during such year. "EXPANSIVE CAPITAL EXPENDITURES" means capital expenditures incurred in connection with the Post-Closing Company Operations for the acquisition of existing or the construction of new capital assets intended to increase the operating capacity of such operations. "FACILITIES" means the facilities at which the Company operates, located at 7400 East Adobe Drive, Scottsdale, Arizona; 24610 and 24602 South Rittenhouse Road, Queen Creek, Arizona; and 6770 West Northern Avenue, Glendale, Arizona. "GAAP" means generally accepted accounting principles as in effect in the United States as of the date of this Agreement, applied on a consistent basis. "GOVERNMENTAL AUTHORITY" means any national, federal, state, provincial, county, municipal, or local government, foreign or domestic, or the government of any political subdivision of the any of the foregoing, or any entity, authority, agency, ministry, or other similar body exercising executive, legislative, judicial, regulatory, or administrative authority or functions of or pertaining to the government, including any quasi-governmental entity established to perform any such functions. "GOVERNMENTAL AUTHORIZATION" means any approval, consent, license, permit, waiver, or other authorization issued, granted, given, or otherwise made available by or under the authority of any Governmental Authority or pursuant to any Legal Requirement. "HAZARDOUS MATERIAL" means any waste or other substance that is listed, defined, designated, or classified as, or otherwise determined to be, hazardous, radioactive, or toxic or a pollutant or a contaminant under or pursuant to any Environmental Law, including any admixture or solution thereof, and specifically including petroleum and all derivatives thereof or synthetic substitutes therefor and asbestos or asbestos-containing materials. "HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. "INDEMNIFIED PERSONS" has the meaning set forth in Section 9.2.1. "INTELLECTUAL PROPERTY" means any patent, trademark, service mark, or copyright registration. "INTERIM BALANCE SHEET" has the meaning set forth in Section 5.4. "IRS" means the United States Internal Revenue Service or any successor agency and, to the extent relevant, the United States Department of the Treasury. "KNOWLEDGE" means (i) with respect to an individual, (a) that such individual is actually aware of a particular fact or other matter, or (b) that a prudent individual could be 40 expected to discover or otherwise become aware of such fact or other matter in the course of conducting a reasonably diligent investigation concerning the existence of such fact or other matter; or (ii) with respect to a Person other than an individual, that any individual who is serving as a director, officer, senior management employee, partner, executor, trustee of such Person (or in any similar capacity) has Knowledge of a particular fact or other matter. "LEASED REAL PROPERTY" has the meaning set forth in Section 5.6.2. "LEASEHOLD TITLE POLICY" means a standard coverage policy of leasehold title insurance with respect to each Lease, in the coverage amount of $1,000,000, insuring that fee title to the applicable Facility is held by Sellers and the Company's interest thereto as lessee under such Lease, subject only to the standard exceptions to such policies and such Liens as may be approved by the Crown Parties. "LEASES" has the meaning set forth in Section 4.2.1(e). "LEGAL REQUIREMENTS" means any federal, state, local, municipal, foreign, international, multinational, or other administrative order, constitution, law, ordinance, principle of common law, regulation, rule, statute, or treaty. "LIEN" means any mortgage, deed of trust, pledge, assignment, security interest, encumbrance, lien, charge, or claim of any kind or nature whatsoever in respect of any property, including any of the foregoing created by, arising under, or evidenced by any conditional sale or other title retention agreement, the interest of a lessor under a capital lease, any financing lease having substantially the same economic effect as any of the foregoing, or the filing of a financing statement naming the owner of the property as to which such lien relates as the debtor under the Uniform Commercial Code or any comparable law. "MCMANNIS" means Milan J. McMannis, an individual. "MCMANNIS TRUST" has the meaning set forth in the preamble to this Agreement. "MULTIEMPLOYER PLAN" has the meaning set forth in Section 3(37) of ERISA. "NOTES PAYABLE" means all promissory notes and other documents evidencing indebtedness of the Company, including capital leases (determined in accordance with GAAP), but excluding accounts payable incurred in the Ordinary Course of Business. "ORDER" means any award, decision, injunction, judgment, order, ruling, subpoena, or verdict entered, issued, made, or rendered by any court, administrative agency, or other Governmental Authority or by any arbitrator. "ORDINARY COURSE OF BUSINESS" means any action taken by a Person if, and only if (i) such action is consistent with the past practices of such Person and is taken in the ordinary course of the normal day-to-day operations of such Person, (ii) such action is not required to be authorized by the board of directors of such Person (or by any Person or group of Persons 41 exercising similar authority over such Person), and (iii) such action is similar in nature and magnitude to actions customarily taken, without any authorization by the board of directors (or by any Person or group of Persons exercising similar authority), in the ordinary course of the normal day-to-day operations of other Persons that are in the same line of business as such Person. "ORGANIZATIONAL DOCUMENTS" means (i) the articles or certificate of incorporation and the bylaws of a corporation, (ii) the partnership agreement and any statement of partnership of a general partnership, (iii) the limited partnership agreement and certificate of limited partnership of a limited partnership, (iv) any charter or similar document adopted or filed in connection with the creation, formation, or organization of a Person, and (v) any amendment to any of the foregoing. "PERSON" means an individual, partnership, corporation, limited liability company, joint stock company, trust, unincorporated organization or association, joint venture, or other organization, whether or not a legal entity, or a Governmental Authority. "POST-CLOSING COMPANY OPERATIONS" means the operations of the business of the Company after the Closing Date, whether such operations are undertaken directly by the Company or through one or more other Subsidiaries of Crown Partners or through one or more divisions of one or more other Subsidiaries of Crown Partners. "PROCEEDING" means any action, arbitration, audit, hearing, investigation, litigation, or suit (whether civil, criminal, administrative, investigative, or informal) commenced, brought, conducted, or heard by or before, or otherwise involving, any Governmental Authority or arbitrator. "RELATED PERSON" means (i) with respect to an individual (a) each member of such individual's Family, (b) any Person that is directly or indirectly controlled by such individual or one or more members of such individual's Family, (c) any Person in which such individual or one or more members of such individual's Family hold (individually or in the aggregate) a Material Interest, and (d) any Person with respect to which such individual or one or more members of such individual's Family serves as a director, officer, partner, executor, or trustee (or in any similar capacity); or (ii) with respect to any Person other than an individual (a) any Person that directly or indirectly controls, is directly or indirectly controlled by, or is directly or indirectly under common control with such Person, (b) any Person that holds a Material Interest in such Person or in which such Person holds a Material Interest, (c) each Person that serves as a director, officer, partner, executor, or trustee of such Person (or in any similar capacity), (d) any Person with respect to which such Person serves as general partner or trustee (or in any similar capacity), and (e) any Related Person of any individual described in the foregoing clauses (ii)(b) or (ii)(c). For purposes of this definition, (x) the "FAMILY" of an individual includes the individual, the individual's spouse, any other natural person who is related to the individual or the individual's spouse within the second degree, and any other natural person who resides with the individual; and (y) "MATERIAL INTEREST" means direct or indirect beneficial ownership of voting securities or interests representing at least 20% of the outstanding voting power of a Person or 42 equity securities or interests representing at least 20% of the outstanding equity securities or interests in a Person. "REPRESENTATIVE" means, with respect to a particular Person, any director, officer, employee, agent, consultant, advisor, or other representative of or to such Person, including such Person's attorneys, accountants, and financial advisors. "SECURITIES ACT" means the Securities Act of 1933 or any successor law, and the regulations and rules issued thereunder, as amended through the Closing Date. "SELLERS" has the meaning set forth in the Recitals. "SELLERS' ACCOUNTANTS" means Mukai, Greenlee & Co., P.C., or another independent certified public accounting firm (other than Arthur Andersen LLP) selected by Sellers. "SELLERS' CLOSING DOCUMENTS" means the Sellers' Release, the Employment Agreements, and the Leases. "SELLERS' RELEASE" has the meaning set forth in Section 4.2.1(b). "SHARES" means all of the issued and outstanding shares of the Common Stock on a fully diluted basis as of the Closing Date, assuming the exercise of all securities of the Company that are convertible into or exchangeable for share of Common Stock. "SUBSIDIARY" means, with respect to any Person, any corporation, partnership, association, or other business entity of which (i) if a corporation, a majority of the total voting power of shares of stock entitled to vote in the election of directors, managers, or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more other Subsidiaries of that Person or a combination thereof, or (ii) if a partnership, association, or other business entity, a majority of the partnership or other ownership interests thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more other Subsidiaries of that Person or a combination thereof. For purposes of the foregoing, a Person shall be deemed to have a majority ownership interest of a partnership, association, or other business entity if such Person is or would be allocated a majority of partnership, association, or other business entity gains or losses or is or controls the managing director, managing member, general partner, or other managing Person of such partnership, association, or other business entity. Unless the context otherwise requires, each reference herein to a Subsidiary shall be deemed a reference to a Subsidiary of the Company. "SUPPLEMENT" means any supplement to any Schedule to this Agreement delivered by Sellers to the Crown Parties pursuant to Section 2.6.1. "TAX" means any tax (including any income tax, capital gains tax, value-added tax, sales tax, excise tax, property tax, gift tax, or estate tax), levy, assessment, tariff, duty (including any customs duty), deficiency, or other fee, and any related charge or amount 43 (including any fine, penalty, interest, or addition to tax), imposed, assessed, or collected by or under the authority of any Governmental Authority or payable pursuant to any tax-sharing agreement or other Contract relating to the sharing or payment of any such tax, levy, assessment, tariff, duty, deficiency, or fee. "TAX RETURN" means any return (including any informational return), report, statement, schedule, notice, form, or other document or information filed with or submitted to, or required to be filed with or submitted to, any Governmental Authority in connection with the determination, assessment, collection, or payment of any Tax or in connection with the administration, implementation, or enforcement of or compliance with any Legal Requirement relating to any Tax. "THREATENED" means, with respect to a claim, Proceeding, dispute, action, or other matter, the making of any demand or statement (orally or in writing), the giving of any notice (orally or in writing), the occurrence of any event, or the existence of any circumstance that would lead a prudent Person to conclude that such claim, Proceeding, dispute, action, or other matter is likely to be asserted, commenced, taken, or otherwise pursued in the future. "UNIT" means a common unit representing a limited partner interest in Crown Partners. "WORKING CAPITAL" means, as of any date, an amount equal to (i) current assets of the Post-Closing Company Operations as of such date, minus (ii) current liabilities of the Post-Closing Company Operations as of that date (other than funded debt). 10.2 CONSTRUCTION AND INTERPRETATION. 10.2.1 The headings or titles of the sections of this Agreement are intended for ease of reference only and shall have no effect whatsoever on the construction or interpretation of any provision of this Agreement. References herein to sections are to sections of this Agreement unless otherwise specified. 10.2.2 Meanings of defined terms used in this Agreement are equally applicable to singular and plural forms of the defined terms. The masculine gender shall also include the feminine and neutral genders and vice versa. 10.2.3 As used herein, (i) the term "party" refers to a party to this Agreement, unless otherwise specified, (ii) the terms "hereof," "herein," "hereunder," and similar terms refer to this Agreement as a whole and not to any particular provision of this Agreement, (iii) the term "this transaction" refers to the transaction(s) contemplated by this Agreement, (iv) the term "including" is not limiting and means "including without limitation," (v) the term "documents" includes all instruments, documents, agreements, certificates, indentures, notices, and other writings, however evidenced, and (vi) the term "property" includes any kind of property or asset, real, personal, or mixed, tangible or intangible. 44 10.2.4 In the event any period of time specified in this Agreement ends on a day other than a Business Day, such period shall be extended to the next following Business Day. In the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including," the words "to" and "until" each mean "to but excluding," and the word "through" means "to and including." 10.2.5 This Agreement is the product of arm's length negotiations among, and has been reviewed by counsel to, the parties and is the product of all the parties. Accordingly, this Agreement shall not be construed for or against any party by reason of the authorship or alleged authorship of any provision hereof. 11. MISCELLANEOUS PROVISIONS. 11.1 BINDING EFFECT. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties and, subject to the restrictions on assignment set forth herein, their respective successors and assigns. 11.2 ASSIGNMENT. No party shall assign any of its rights or interests under this Agreement without the prior written consent of the other parties, except that Crown Partners shall be entitled to cause CP Acquisition to assign any of its rights hereunder to any other Subsidiary of Crown Partners. 11.3 NOTICES. All notices under this Agreement shall be in writing. Notices may be (i) delivered personally, (ii) delivered by a recognized national overnight delivery service, or (iii) mailed by certified United States mail, postage prepaid and return receipt requested. Notices to any party shall be directed to the address set forth below, or to such other or additional address as any party may specify by notice to the other party. Any notice delivered in accordance with this Section 11.3 shall be deemed given when actually received or, if earlier, (a) in the case of any notice delivered by a recognized national overnight delivery service, on the next business day after delivery to the service or, if different, on the day designated for delivery, or (b) in the case of any notice mailed by certified U.S. mail, four business days after deposit therein. If to the Carr Trust: True H. Carr 2929 E. Acoma Phoenix, AZ 85032 With a copy to: Tiffany & Bosco, P.A. 500 Viad Tower 1850 North Central Avenue Phoenix, AZ 85004 Attn: William J. Simon If to the McMannis Trust: Milan J. McMannis 6416 N. 30th Place Phoenix, AZ 85016 45 With a copy to: Tiffany & Bosco, P.A. 500 Viad Tower 1850 North Central Avenue Phoenix, AZ 85004 Attn: William J. Simon If to the Crown Parties: Crown Pacific Partners, L.P. 121 S.W. Morrison Street, Suite 1500 Portland, Oregon 97204 Attn: Roger L. Krage With a copy to: Ball Janik LLP 101 S.W. Main Street, Suite 1100 Portland, OR 97204 Attn: William H. Perkins Notices to the Company shall be sent in any of the manners set forth above to both the Carr Trust and the McMannis Trust, with a copy to Tiffany & Bosco, P.A., in each case at the applicable address set forth above. 11.4 WAIVER. Any party's failure to exercise any right or remedy under this Agreement, delay in exercising any such right or remedy, or partial exercise of any such right or remedy, shall not constitute a waiver of that or any other right or remedy hereunder. A waiver of any breach of any provision of this Agreement shall not constitute a waiver of any succeeding breach of such provision or a waiver of such provision itself. No waiver of any provision of this Agreement shall be binding on a party unless it is set forth in writing and signed by such party. 11.5 AMENDMENT. This Agreement may not be modified or amended except by the written agreement of the parties. 11.6 EXPENSES. 11.6.1 Subject to the provisions of Section 11.6.2 and except as expressly provided elsewhere in this Agreement, each party shall bear its respective expenses incurred in connection with the preparation, execution, and performance of this Agreement and this transaction, including all fees and expenses of its Representatives. 11.6.2 If a suit, action, or other proceeding of any nature whatsoever (including any proceeding under the U.S. Bankruptcy Code) is instituted in connection with this transaction, this Agreement, or any document delivered by either party at Closing, or to interpret or enforce any rights or remedies hereunder or under any such document, the prevailing party shall be entitled to recover its attorneys' fees and all other fees, costs, and expenses actually incurred and reasonably necessary in connection therewith, as determined by the court at trial or on any appeal or review, in addition to all other amounts provided by law. 46 11.7 CONFIDENTIALITY. Between the date of this Agreement and the Closing Date, Sellers and the Crown Parties shall maintain in confidence, and shall cause their respective Representatives to maintain in confidence, any written, oral, or other information obtained in confidence from another party or the Company in connection with this Agreement or this transaction, unless (i) such information is already known to such party or to others not bound by a duty of confidentiality or such information becomes publicly available through no fault of such party, (ii) the use of such information (a) is necessary or appropriate in giving any notice, making any filing, or obtaining any Consent required for the consummation of this transaction or in seeking any IRS ruling necessary or appropriate, in the judgment of the Crown Parties, in connection with the Post-Closing Company Operations, and (b) has been approved by Sellers and the Crown Parties, which approval shall not be unreasonably withheld, or (iii) the furnishing or use of such information is required by or necessary or appropriate in connection with legal proceedings. If this transaction is not consummated, each party shall return or destroy as much of the written information referred to in this Section 11.7 as the other party may reasonably request. 11.8 PUBLIC ANNOUNCEMENTS. Any public announcement or similar publicity with respect to this Agreement or this transactions shall be issued, if at all, with such contents, at such time, and in such manner as the parties mutually agree; PROVIDED that Sellers and the Company acknowledge and agree that Crown Partners shall be entitled to make a public announcement regarding this transaction as such time as it is advised by its legal counsel that such announcement is required under the Securities Act, so long as the content of such announcement is approved in advance by Sellers, which approval shall not be unreasonably withheld. Sellers and the Crown Parties shall consult with each other concerning the means by which the Company's' employees, customers, and suppliers and others having dealings with the Company will be informed of this transaction, and the Crown Parties shall have the right to have a Representative present during any such communication. 11.9 SEVERABILITY. If any provision of this Agreement is held invalid, illegal, or unenforceable, then (i) such provision shall be enforceable to the fullest extent permitted by applicable law, and (ii) the validity and enforceability of the other provisions of this Agreement shall not be affected and all such provisions shall remain in full force and effect. 11.10 INTEGRATION. This Agreement contains the entire agreement and understanding of the parties with respect to the subject matter hereof and supersedes all prior and contemporaneous agreements with respect thereto, including that certain letter or intent dated as of October 1, 1997. The parties acknowledge and agree that there are no agreements or representations relating to the subject matter of this Agreement, either written or oral, express or implied, that are not set forth in this Agreement or in the Exhibits or Schedules (or Supplements thereto) to this Agreement. 11.11 EXECUTION. This Agreement may be executed in any number of counterparts, all of which together shall constitute one and the same agreement. Each party may rely upon the signature of each other party on this Agreement that is transmitted by facsimile as constituting a duly authorized, irrevocable, actual, current delivery of this Agreement with the original ink signature of the transmitting party. 47 11.12 INCORPORATION OF RECITALS, EXHIBITS, AND SCHEDULES. The Recitals to this Agreement and the Exhibits and Schedules attached to this Agreement and any Supplements hereafter delivered pursuant to Section 2.6.1 are incorporated herein by this reference. In the event of any conflict between this Agreement and anything set forth in such Exhibits, Schedules, or Supplements, the provisions of this Agreement shall control. 11.13 FURTHER ASSURANCES. Each party agrees to execute and deliver such additional documents as may reasonably be required to effect this transaction fully, so long as the terms thereof are consistent with the terms of this Agreement. 11.14 NO THIRD PARTY BENEFICIARIES. This Agreement is made and entered into for the sole protection and legal benefit of the parties and, subject to the restrictions on assignment set forth herein, their respective successors and assigns, and no other Person shall be a direct or indirect legal beneficiary of, or have any direct or indirect cause of action or claim in connection with, this Agreement. 11.15 TIME OF ESSENCE. Time is of the essence with respect to all dates and time periods set forth or referred to in this Agreement. 11.16 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Arizona, without regard to the principles thereof relating to conflicts of laws. 48 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first set forth above. Crown Partners: CROWN PACIFIC PARTNERS, L.P., a Delaware limited partnership By: ------------------------------------- Title: ----------------------------------- CP Acquisition: CP ACQUISITION CO., an Oregon corporation By: -------------------------------------- Title: ----------------------------------- Carr Trust: ----------------------------------------- True H. Carr, Trustee Carr Revocable Living Trust dated February 12, 1988 McMannis Trust: ----------------------------------------- Milan J. McMannis, Trustee McMannis Revocable Living Trust dated February 11, 1988 ----------------------------------------- Virginia McMannis, Trustee McMannis Revocable Living Trust dated February 11, 1988 Company: ALLIANCE WHOLESALE LUMBER, INC., an Arizona corporation By: -------------------------------------- Title: ----------------------------------- 49 EXHIBIT A FORM OF BALL JANIK LLP LEGAL OPINION Attached. EXHIBIT B FORM OF TIFFANY & BOSCO, P.A., LEGAL OPINION Attached. EXHIBIT C FORM OF SELLERS' RELEASES Attached. EXHIBIT D FORM OF EMPLOYMENT AGREEMENTS Attached. EXHIBIT E FORM OF LEASES Attached. EXHIBIT F FORM OF LEASE GUARANTY Attached. EXHIBIT G FORM OF CROWN PARTIES' RELEASE Attached. SCHEDULE 5.2.2 EXCEPTIONS TO NO CONFLICT REPRESENTATIONS [SELLERS TO PROVIDE ANY EXCEPTIONS TO REPRESENTATIONS AND WARRANTIES IN SECTION 5.2.2; IF NONE, SO STATE.] SCHEDULE 5.2.3 REQUIRED CONSENTS [SELLERS TO IDENTIFY ANY REQUIRED CONSENTS; IF NONE, SO STATE.] SCHEDULE 5.6.2 LEASED REAL PROPERTY PART I [SELLERS TO IDENTIFY ALL LEASED REAL PROPERTY; IF NONE, SO STATE.] PART II [SELLERS TO IDENTIFY ANY DEFAULTS UNDER LEASES OF LEASED REAL PROPERTY; IF NONE, SO STATE.] SCHEDULE 5.7.1 OWNED PERSONAL PROPERTY PART I Owned machinery, equipment, and other tangible personal property (other than inventory) is identified on ATTACHMENT 1 to this SCHEDULE 5.7.1. PART II [SELLERS TO IDENTIFY ANY LIENS ON OWNED PERSONAL PROPERTY; IF NONE, SO STATE.] SCHEDULE 5.7.2 LEASED PERSONAL PROPERTY Leased machinery, equipment, and other tangible personal property is identified by the designation L, A, F, or P in the column labeled "AWL#" on ATTACHMENT 1 to this SCHEDULE 5.7.2. SCHEDULE 5.8 CONDITION OF ASSETS [SELLERS TO IDENTIFY ANY EXCEPTIONS TO REPRESENTATIONS AND WARRANTIES SET FORTH IN SECTION 5.8; IF NONE, SO STATE.] SCHEDULE 5.9 ACCOUNTS RECEIVABLE PART I Accounts Receivable as of the date of the Interim Balance Sheet and related aging information is set forth on ATTACHMENT 1 to this SCHEDULE 5.9. PART II [SELLERS TO IDENTIFY ANY EXCEPTIONS TO COLLECTIBILITY REPRESENTATION; IF NONE, SO STATE.] SCHEDULE 5.11 OTHER LIABILITIES [SELLERS TO IDENTIFY ANY LIABILITIES OTHER THAN THOSE REFLECTED ON INTERIM BALANCE SHEET OR INCURRED IN ORDINARY COURSE OF BUSINESS; IF NONE, SO STATE.] SCHEDULE 5.12 TAXES PART I [SELLERS TO IDENTIFY ALL TAX RETURNS SINCE JANUARY 1, 1992.] PART II [SELLERS TO DESCRIBE ANY AUDITS AND ADJUSTMENTS IN ACCORDANCE WITH SECTION 5.12.2; IF NONE, SO STATE.] PART III [SELLERS TO IDENTIFY ANY PROPOSED TAX ASSESSMENTS; IF NONE, SO STATE.] SCHEDULE 5.14 ERISA PART I [SELLERS TO IDENTIFY ALL EMPLOYEE BENEFIT PLANS AND ANY THAT ARE MULTIEMPLOYER PLANS OR SUBJECT TO TITLE IV OF ERISA.] PART II [SELLERS TO DESCRIBE ANY EXCEPTIONS TO REPRESENTATION AND WARRANTY REGARDING COMPLIANCE WITH LEGAL REQUIREMENTS; IF NONE, SO STATE.] PART III [SELLERS TO MAKE ANY DISCLOSURE REQUIRED BY SECTION 5.14.5; IF NONE, SO STATE.] PART IV [SELLERS TO MAKE ANY DISCLOSURE REQUIRED BY SECTION 5.14.6; IF NONE, SO STATE.] SCHEDULE 5.15 COMPLIANCE WITH LAW; GOVERNMENTAL AUTHORIZATIONS PART I [SELLERS TO DESCRIBE ANY EXCEPTIONS TO REPRESENTATIONS AND WARRANTIES IN SECTION 5.15.1; IF NONE, SO STATE.] PART II [SELLERS TO IDENTIFY ALL GOVERNMENTAL AUTHORIZATIONS.] PART III [SELLERS TO DESCRIBE ANY EXCEPTIONS TO REPRESENTATIONS AND WARRANTIES IN SECTION 5.15.2; IF NONE, SO STATE.] SCHEDULE 5.16 LEGAL PROCEEDINGS; ORDERS PART I [SELLERS TO IDENTIFY ANY PROCEEDINGS AND RELATED EVENTS REQUIRED TO BE DISCLOSED UNDER SECTION 5.16.1; IF NONE, SO STATE.] PART II [SELLERS TO IDENTIFY ANY ORDERS REQUIRED TO BE DISCLOSED UNDER SECTION 5.16.2; IF NONE, SO STATE.] PART III [SELLERS TO DESCRIBE ANY EXCEPTIONS TO REPRESENTATIONS AND WARRANTIES IN SECTION 5.15.3; IF NONE, SO STATE.] SCHEDULE 5.17 CERTAIN CHANGES AND EVENTS [SELLERS TO IDENTIFY ANY CHANGES OR EVENTS REQUIRED TO BE DISCLOSED UNDER SECTION 5.17; IF NONE, SO STATE.] SCHEDULE 5.18 CONTRACTS PART I [SELLERS TO IDENTIFY ANY COMPANY CONTRACTS REQUIRED TO BE DISCLOSED UNDER SECTION 5.18.1; IF NONE, SO STATE.] PART II [SELLERS TO DESCRIBE ANY EXCEPTIONS TO REPRESENTATIONS AND WARRANTIES IN SECTIONS 5.18.2, 5.18.3, AND 5.18.4; IF NONE, SO STATE.] SCHEDULE 5.19 INSURANCE PART I [SELLERS TO IDENTIFY ANY SELF-INSURANCE ARRANGEMENTS REQUIRED TO BE DISCLOSED UNDER SECTION 5.19.2; IF NONE, SO STATE.] PART II [SELLERS TO DESCRIBE INSURANCE CLAIMS AND RELATED MATTERS REQUIRED TO BE DISCLOSED UNDER SECTION 5.19.3; IF NONE, SO STATE.] PART III [SELLERS TO DESCRIBE ANY EXCEPTIONS TO REPRESENTATIONS AND WARRANTIES IN SECTION 5.19.4; IF NONE, SO STATE.] SCHEDULE 5.20 ENVIRONMENTAL MATTERS [SELLERS TO IDENTIFY ANY EXCEPTIONS TO REPRESENTATIONS AND WARRANTIES SET FORTH IN SECTION 5.20; IF NONE, SO STATE.] SCHEDULE 5.21 EMPLOYEES [SELLERS TO PROVIDE EMPLOYEE INFORMATION REQUIRED BY SECTION 5.8] SCHEDULE 5.22 LABOR RELATIONS [SELLERS TO IDENTIFY ANY EXCEPTIONS TO REPRESENTATIONS AND WARRANTIES SET FORTH IN SECTION 5.22; IF NONE, SO STATE.] SCHEDULE 5.23 INTELLECTUAL PROPERTY PART I [SELLERS TO PROVIDE INTELLECTUAL PROPERTY INFORMATION REQUIRED TO BE DISCLOSED UNDER FIRST SENTENCE OF SECTION 5.23.] PART II [SELLERS TO DESCRIBE ANY EXCEPTIONS TO REPRESENTATIONS AND WARRANTIES IN SECOND SENTENCE OF SECTION 5.23; IF NONE, SO STATE.] SCHEDULE 5.26 RELATIONSHIPS WITH RELATED PERSONS [SELLERS TO PROVIDE INFORMATION REQUIRED TO BE DISCLOSED UNDER SECTION 5.26; IF NONE, SO STATE.] SCHEDULE 7.1 NOTES PAYABLE TO BE REPAID AT CLOSING All indebtedness of the Company pursuant to: Promissory Notes of the Company payable to the Carr Trust. Promissory Notes of the Company payable to the McMannis Trust. The Company's working capital and equipment acquisition lines of credit with Pacific Century Bank, N.A., and First National Bank of Arizona. SCHEDULE 9.2 CERTAIN INDEMNIFIED MATTERS Any claim asserted against the Company or the Crown Parties with respect to or any Damages incurred by the Company or the Crown Parties in connection with the Company's prior involvement in any of the following Persons or projects: Avondale Gateway Associates Limited Partnership Phoenix Western Gateway Associates Limited Partnership T-Bar-H Land & Cattle Co. Joint Venture between the Company and Carlson Systems Corporation Alliance Court Architectural Construction Supplies, Inc. Vogel Property Partnership I Vogel Property Partnership II U.S. Carpentry Any claim asserted against the Company or the Crown Parties by any former shareholder of the Company, including Michael Nicholas or Rock Schaffer. STOCK ACQUISITION AGREEMENT NOVEMBER 10, 1997
TABLE OF CONTENTS PAGE ---- 1. Acquisition and Transfer of Common Stock. 1 1.1 Agreement to Acquire and Transfer. 1 1.2 Consideration for Acquisition. 1 1.2.1 Adjustment to Base Consideration. 1 1.2.2 Determination of Notes Payable and Stockholders' Equity. 2 1.2.3 Contingent Payment 3 1.3 Payments in Immediately Available Funds. 4 1.4 Contribution of Shares; Issuance of Units. 5 1.5 Allocation Between Sellers. 6 1.6 Crown Partners Guarantee. 6 2. Pre-Closing Covenants. 6 2.1 Access and Investigation. 6 2.2 Operation of the Company's Business. 6 2.3 Limitation on Certain Actions. 7 2.4 Required Consents and Approvals. 7 2.4.1 Action by Sellers. 7 2.4.2 Action by Crown Parties. 7 2.5 Satisfaction of Conditions. 7 2.6 Notification of Certain Events. 7 2.6.1 By Sellers. 7 2.6.2 By Crown Parties. 8 2.7 Payment of Certain Indebtedness. 8 2.8 No Negotiation. 8 3. Conditions Precedent to Closing. 8 3.1 Sellers' Conditions. 8 3.2 Crown Parties' Conditions. 9
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TABLE OF CONTENTS PAGE ---- 4. Closing. 11 4.1 Time and Place of Closing. 11 4.2 Closing Deliveries. 11 5. Representations and Warranties of Sellers and the Company. 12 5.1 Organization and Good Standing; No Subsidiaries. 12 5.2 Authority; No Conflict. 12 5.3 Capitalization. 13 5.4 Financial Statements. 13 5.5 Books and Records. 14 5.6 Real Property. 14 5.7 Personal Property. 15 5.8 Condition and Sufficiency of Assets 15 5.9 Accounts Receivable. 15 5.10 Inventory. 15 5.11 No Undisclosed Liabilities, 16 5.12 Taxes. 16 5.13 No Material Adverse Change. 17 5.14 Employee Benefit Plans. 17 5.15 Compliance with Law; Governmental Authorizations. 18 5.16 Legal Proceedings; Orders. 19 5.17 Absence of Certain Changes and Events. 20 5.18 Contracts; No Defaults. 20 5.19 Insurance. 23
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TABLE OF CONTENTS PAGE ---- 5.20 Environmental Matters. 24 5.21 Employees. 25 5.22 Labor Relations. 26 5.23 Intellectual Property. 26 5.24 Certain Payments. 26 5.25 Disclosure. 27 5.26 Relationships with Related Persons. 27 5.27 Brokers and Finders. 27 5.28 Matters Relating to Units. 27 6. Representations and Warranties of the Crown Parties. 28 6.1 Organization and Good Standing. 28 6.2 Authority; No Conflict. 28 6.3 Investment Intent. 29 6.4 Certain Proceedings. 29 6.5 Brokers and Finders. 29 7. Post-Closing Covenants. 29 7.1 Repayment of Certain Notes Payable. 29 7.2 Responsibility for Certain Tax Returns and Audits. 29 7.3 Management of Post-Closing Company Operations. 29 7.4 Post-Closing Insurance. 30 7.5 Credit for Company Seniority. 30 8. Termination. 30 8.1 Termination Events. 30
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TABLE OF CONTENTS PAGE ---- 8.2 Effect of Termination. 31 9. Indemnification; Remedies. 31 9.1 Survival; Effect of Knowledge or Waiver. 31 9.2 Indemnification by Sellers. 32 9.3 Indemnification by the Crown Parties. 33 9.4 Time Limitations. 34 9.5 Limitations on Amount. 34 9.6 Right of Set-Off. 35 9.7 Procedure for Indemnification. 35 10. Definitions and Interpretation. 36 10.1 Certain Defined Terms. 36 10.2 Construction and Interpretation. 44 11. Miscellaneous Provisions. 45 11.1 Binding Effect. 45 11.2 Assignment. 45 11.3 Notices. 45 11.4 Waiver. 46 11.5 Amendment. 46 11.6 Expenses. 46 11.7 Confidentiality. 47 11.8 Public Announcements. 47 11.9 Severability. 47 11.10 Integration. 47
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TABLE OF CONTENTS PAGE ---- 11.11 Execution. 47 11.12 Incorporation of Recitals, Exhibits, and Schedules. 48 11.13 Further Assurances. 48 11.14 No Third Party Beneficiaries. 48 11.15 Time of Essence. 48 11.16 Governing Law. 48
v EX-3.4 3 EXHIBIT 3.4 EXHIBIT 3.4 AMENDMENT TO AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF CROWN PACIFIC LIMITED PARTNERSHIP THIS AMENDMENT TO AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP (the "AMENDMENT") is made and entered into as of January 2, 1998, by and between CROWN PACIFIC MANAGEMENT LIMITED PARTNERSHIP, a Delaware limited partnership, as General Partner (the "GENERAL PARTNER"), and CROWN PACIFIC PARTNERS, L.P., a Delaware limited partnership, as Limited Partner (the "LIMITED PARTNER"). RECITALS: The General Partner and the Limited Partner are parties to that certain Amended and Restated Agreement of Limited Partnership of Crown Pacific Limited Partnership dated as of December 22, 1994 (the "PARTNERSHIP AGREEMENT"). The General Partner and the Limited Partner wish to amend the Partnership Agreement on the terms and conditions set forth in this Amendment. AGREEMENTS: In consideration of the foregoing and the mutual covenants of the parties set forth herein, the parties, intending to be legally bound, agree as follows: 1. The following defined terms set forth in Article I of the Partnership Agreement are hereby deleted and replaced in their entirety with the following: "LIMITED PARTNER" means the MLP and, upon its admission to the Partnership pursuant to Section 11.3, CP Acquisition; PROVIDED that CP Acquisition shall have no voting or other rights except as provided in Section 7.4. "PARTNERS" means the General Partner and the Limited Partners. "PERCENTAGE INTEREST" means (a) prior to the admission of CP Acquisition to the Partnership pursuant to Section 11.3, (i) as to the General Partner (in its capacity as General Partner and without reference to any limited partner interests held by it), 1.0101%, and (ii) as to the MLP, 98.9899%; and (b) from and after the admission of CP Acquisition to the Partnership pursuant to Section 11.3, (i) as to the General Partner (in its capacity as General Partner and without reference to any limited partner interests held by it), 1.0101%, (ii) as to the MLP, 98.1219%, and (iii) as to CP Acquisition, 0.868%. 2. The following definition is hereby added to Article I of the Partnership Agreement: 1 "CP ACQUISITION" means CP Acquisition Co., an Oregon corporation. 3. Section 11.3 is hereby added to Article XI of the Partnership Agreement, reading as follows: 11.3 Without the need for any additional action by any Partner, the Partnership shall issue a Partnership Interest to CP Acquisition and CP Acquisition shall be admitted to the Partnership as a Limited Partner simultaneously with the contribution by CP Acquisition to the Partnership of substantially all of its assets, including the assets acquired by CP Acquisition by merger with Alliance Wholesale Lumber, Inc., but excluding any promissory note of CP Air, Inc., held by CP Acquisition. 4. Except as expressly provided herein, the Partnership Agreement shall remain unamended and in full force and effect. All references in the Partnership Agreement to "this Agreement" shall be deemed to refer to the Partnership Agreement as amended by this Amendment. IN WITNESS WHEREOF, the parties have executed this Amendment to be effective as of the date first written above. CROWN PACIFIC MANAGEMENT LIMITED PARTNERSHIP, a Delaware limited partnership By: -------------------------------------- Roger L. Krage, Secretary CROWN PACIFIC PARTNERS, L.P., a Delaware limited partnership By: Crown Pacific Management Limited Partnership, its General Partner By: -------------------------------------- Roger L. Krage, Secretary 2 EX-10.4 4 EXHIBIT 10.4 EXHIBIT 10.4 FOURTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT THIS FOURTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this "AMENDMENT"), dated as of December 23, 1997, is entered into among Crown Pacific Limited Partnership, a Delaware limited partnership (the "COMPANY"), the several financial institutions from time to time party to the Credit Agreement referred to below (collectively, the "BANKS"; individually, a "BANK"), Bank of America National Trust and Savings Association, as agent for the Banks (in such capacity, the "AGENT"), and ABN AMRO Bank, N.V. and Societe Generale, as co-agents for the Banks (in such capacity, the "CO-AGENTS"). RECITALS WHEREAS, the Company, the Banks, the Co-Agents and the Agent are parties to the Amended and Restated Credit Agreement dated as of July 31, 1996, as amended by the First Amendment to Amended and Restated Credit Agreement dated as of October 15, 1996, and the Second Amendment to Amended and Restated Credit Agreement dated as of March 31, 1997, and the Third Amendment to Amended and Restated Credit Agreement dated as of October, 10, 1997 (as so amended, the "CREDIT AGREEMENT"), pursuant to which the Banks have extended certain credit facilities to the Company; WHEREAS, the Company, the Banks, the Co-Agents and the Agent now hereby wish to amend the Credit Agreement in certain respects, all as set forth in greater detail below; NOW, THEREFORE, in consideration of the foregoing premises and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: AGREEMENT 1. DEFINED TERMS. Unless otherwise defined herein, capitalized terms used herein shall have the meanings assigned to them in the Credit Agreement. 2. AMENDMENTS TO THE CREDIT AGREEMENT. The Credit Agreement is hereby amended as follows: (a) Section 1.1 shall be amended by deleting the definition of "Senior Debt" and adding the following in its stead: "SENIOR DEBT" means, as to the Company, as of any date of determination, without duplication, all outstanding unsecured Indebtedness of the Company of the type described in clauses (a), (b), or (d) of the definition of Indebtedness herein and all Indebtedness represented by the Senior Notes, this Agreement and 1 the Facility B Credit Agreement (including "L/C Obligations" as defined therein), but not including any Indebtedness subordinated to the Obligations upon terms and conditions satisfactory to the Agent and the Banks. (b) The definition of "Trillium Note" in Section 1.1 shall be amended by deleting the word "note" and inserting the word "notes" in its stead. (c) Subsection 2.7(a)(iii) shall be amended by deleting the first sentence thereof and inserting the following in its stead: "Subject to payment of any amounts owing under Section 3.4, if the Company shall incur any Senior Debt for borrowed money pursuant to subsection 7.6(i) (other than (a) Loans, (b) Senior Debt to the extent used within 10 Business Days after its incurrence to repay in whole or in part the Trillium Note, and (c) Senior Debt to the extent used within 10 Business Days after its incurrence to repay in whole or in part Senior Debt assumed by the Company in connection with the acquisition of the assets of Alliance Wholesale Lumber), the Company shall prepay, on the later of the date the Company receives the net proceeds thereof and the date such debt ceases to be excluded from this subsection pursuant to the 10 Business Day limitation in clauses (b) or (c) of the preceding parenthetical, the outstanding principal amount of the loans in an amount equal to the net proceeds of such Senior Debt." (d) Subsection 2.7(b) shall be amended by deleting that portion of the first sentence thereof that ends at the first semicolon, and inserting the following phrase in its stead: "The Aggregate Commitment shall be permanently reduced from time to time by the amount of any mandatory prepayment of Loans required by subsection 2.7(a)(i) and by the amount of any Senior Debt incurred by the Company pursuant to subsection 7.6(i) (other than (a) Loans, (b) Senior Debt evidenced by the Trillium Note, (c) Senior Debt to the extent used to repay the Trillium Note in whole or in part within 10 Business Days after its incurrence, (d) Senior Debt in an amount not to exceed $24,500,000 assumed by the Company in connection with the acquisition of the assets of Alliance Wholesale Lumber, (e) Senior Debt in an amount not to exceed $24,500,000 to the extent used within 10 Business Days after its incurrence to repay in whole or in part Senior Debt assumed by the Company in connection with the acquisition of the assets of Alliance Wholesale Lumber, and (f) Senior Debt in an amount not to exceed $15,500,000 to the extent used within 10 Business Days after its incurrence to repay in whole or in part outstanding Loans);". (d) Subsection 2.8(b) shall be amended by deleting the date "December 31, 1999" and inserting "December 31, 2000" in its stead. (e) A new Subsection 7.5(ee) shall be inserted between existing subsections 7.5(e) and 7.5(f): (ee) Acquisitions as long as (x) after giving effect to such Acquisition, the Company remains engaged solely in a Permitted Business on a consolidated basis, and (y) in the case of an Acquisition of stock or other equity interests, the Person 2 acquired is domiciled in, and substantially all of its assets are located in, the United States, Canada, Mexico or New Zealand, or, in the case of an Acquisition of assets, substantially all of such assets are located in the United States, Canada, Mexico or New Zealand; (f) Subsection 7.5(f) shall be amended by inserting the word "solely" after the word "engaged" in clause (w) thereof. (g) Section 7.11 shall be amended by adding the following new clause (c) at the end thereof: "and (c) Subsidiaries of the Company may declare and make dividends or distributions to the Company." 3. REPRESENTATIONS AND WARRANTIES. The Company hereby represents and warrants to the Agent, the Co-Agents and the Banks as follows: (a) No Default or Event of Default exists. (b) The execution, delivery and performance by the Company of this Amendment have been duly authorized by all necessary partnership and corporate and other action and do not and will not require any registration with, consent or approval of, notice to or action by, any Person (including any Governmental Authority) in order to be effective and enforceable. The Credit Agreement as amended by this Amendment constitutes the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with its respective terms, without defense, counterclaim or offset. (c) All representations and warranties of the Company contained in the Credit Agreement are true and correct as though made on and as of the date hereof (except to the extent such representations and warranties specifically relate to an earlier date, in which case they were true and correct as of such earlier date). (d) The Company is entering into this Amendment on the basis of its own investigation and for its own reasons, without reliance upon the Agent, any of the Co-Agents, any Banks or any other Person. 3 4. AMENDMENT FEE. In consideration of the execution of this Amendment by the Agent and the Banks, the Company agrees to pay on the Effective Date to the Agent for the pro rata distribution to the Banks in accordance with their Commitments an amendment fee equal to 0.04% of the Aggregate Commitment. 5. EFFECTIVE DATE. This Amendment will become effective on the first Business Day (the "Effective Date") upon which the Agent has received (a) this Amendment executed by the Company, the Agent, and each Bank, and in sufficient copies for each Bank and (b) payment of the amendment referred to in Section 4 of this Amendment in immediately available funds. 6. RESERVATION OF RIGHTS. The Company acknowledges and agrees that the execution and delivery by the Agent and the Banks of this Amendment shall not be deemed to create a course of dealing or otherwise obligate the Agent or the Banks to forbear or execute similar amendments under the same or similar circumstances in the future. 7. MISCELLANEOUS. (a) Except as herein expressly amended, all terms, covenants and provisions of the Credit Agreement are and shall remain in full force and effect and all references therein and in the other Loan Documents to the Credit Agreement shall henceforth refer to the Credit Agreement as amended by this Amendment. This Amendment shall be deemed incorporated into, and a part of, the Credit Agreement. (b) This Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. No third party beneficiaries are intended in connection with this Amendment. (c) This Amendment shall be governed by, and construed in accordance with, the law of the State of California; provided, however, that the Agent and the Banks shall retain all rights arising under federal law. (d) This Amendment may be executed in any number of counterparts, each of which when so executed shall be deemed an original, and all such counterparts taken together shall be deemed to constitute but one and the same instrument. (e) This Amendment, together with the Credit Agreement, contains the entire and exclusive agreement of the parties hereto with reference to the matters discussed herein and therein. This Amendment supersedes all prior drafts and communications with respect thereto. (f) If any term or provision of this Amendment shall be deemed prohibited by or invalid under any applicable law, such provision shall be invalidated without affecting the remaining provisions of this Amendment, or the Credit Agreement, respectively. (g) The Company covenants to pay to or reimburse the Agent, upon demand, for all costs and expenses (including allocated costs of in-house counsel) incurred in connection with the development, preparation, negotiation, execution and delivery of this Amendment. 4 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their duly authorized officers as of the date first above written. CROWN PACIFIC LIMITED PARTNERSHIP, a Delaware limited partnership By: CROWN PACIFIC MANAGEMENT LIMITED PARTNERSHIP, a Delaware limited partnership, its general partner By: ---------------------------- Title: ---------------------------- BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent and as a Bank By: --------------------------------- Title: --------------------------------- ABN AMRO BANK N.V., as Co-Agent and as a Bank By: --------------------------------- Title: --------------------------------- By: --------------------------------- Title: --------------------------------- 5 SOCIETE GENERALE, as Co-Agent and as a Bank By: --------------------------------- Title: --------------------------------- BANK OF MONTREAL By: --------------------------------- Title: --------------------------------- THE BANK OF NOVA SCOTIA By: --------------------------------- Title: --------------------------------- BANQUE PARIBAS By: --------------------------------- Title: --------------------------------- By: --------------------------------- Title: --------------------------------- 6 UNION BANK OF CALIFORNIA, N.A. By: --------------------------------- Title: --------------------------------- KEYBANK NATIONAL ASSOCIATION By: --------------------------------- Title: --------------------------------- WELLS FARGO BANK, N.A. By: --------------------------------- Title: --------------------------------- 7 EX-10.7 5 EXHIBIT 10.7 EXHIBIT 10.7 THIRD AMENDMENT TO AMENDED AND RESTATED FACILITY B CREDIT AGREEMENT THIS THIRD AMENDMENT TO AMENDED AND RESTATED FACILITY B CREDIT AGREEMENT (this "AMENDMENT"), dated as of December 23, 1997, is entered into among Crown Pacific Limited Partnership, a Delaware limited partnership (the "COMPANY"), the several financial institutions from time to time party to the Credit Agreement referred to below (collectively, the "BANKS"; individually, a "BANK"), Bank of America National Trust and Savings Association, as agent for the Banks (in such capacity, the "AGENT"), and ABN AMRO Bank, N.V. and Societe Generale, as co-agents for the Banks (in such capacity, the "CO-AGENTS"). RECITALS WHEREAS, the Company, the Banks, the Co-Agents and the Agent are parties to the Amended and Restated Facility B Credit Agreement dated as of July 31, 1996, as amended by the First Amendment to Amended and Restated Facility B Credit Agreement dated as of March 31, 1997, and the Second Amendment to Amended and Restated Facility B Credit Agreement dated as of October 10, 1997 (as so amended, the "CREDIT AGREEMENT"), pursuant to which the Banks, the Swingline Bank and the Issuing Bank have extended certain credit facilities to the Company; WHEREAS, the Company, the Banks, the Co-Agents and the Agent now hereby wish to amend the Credit Agreement in certain respects, all as set forth in greater detail below; NOW, THEREFORE, in consideration of the foregoing premises and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: AGREEMENT 1. DEFINED TERMS. Unless otherwise defined herein, capitalized terms used herein shall have the meanings assigned to them in the Credit Agreement. 2. AMENDMENTS TO THE CREDIT AGREEMENT. The Credit Agreement is hereby amended as follows: (a) Section 1.1 shall be amended by deleting the definition of "Senior Debt" and adding the following in its stead: "SENIOR DEBT" means, as to the Company, as of any date of determination, without duplication, all outstanding unsecured Indebtedness of the Company of the type described in clauses (a), (b), or (d) of the definition of Indebtedness herein and all Indebtedness represented by the Senior Notes, this Agreement 1 (including L/C Obligations), and the Facility A Credit Agreement, but not including any Indebtedness subordinated to the Obligations upon terms and conditions satisfactory to the Agent and the Banks. (b) A new Subsection 8.5(ee) shall be inserted between existing subsections 8.5(e) and 8.5(f): (ee) Acquisitions as long as (x) after giving effect to such Acquisition, the Company remains engaged solely in a Permitted Business on a consolidated basis, and (y) in the case of an Acquisition of stock or other equity interests, the Person acquired is domiciled in, and substantially all of its assets are located in, the United States, Canada, Mexico or New Zealand, or, in the case of an Acquisition of assets, substantially all of such assets are located in the United States, Canada, Mexico or New Zealand; (c) Subsection 8.5(f) shall be amended by inserting the word "solely" after the word "engaged" in clause (w) thereof. (d) Section 8.11 shall be amended by adding the following new clause (c) at the end thereof: "and (c) Subsidiaries of the Company may declare and make dividends or distributions to the Company." 3. REPRESENTATIONS AND WARRANTIES. The Company hereby represents and warrants to the Agent, the Co-Agents and the Banks as follows: (a) No Default or Event of Default exists. (b) The execution, delivery and performance by the Company of this Amendment have been duly authorized by all necessary partnership and corporate and other action and do not and will not require any registration with, consent or approval of, notice to or action by, any Person (including any Governmental Authority) in order to be effective and enforceable. The Credit Agreement as amended by this Amendment constitutes the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with its respective terms, without defense, counterclaim or offset. (c) All representations and warranties of the Company contained in the Credit Agreement are true and correct as though made on and as of the date hereof (except to the extent such representations and warranties specifically relate to an earlier date, in which case they were true and correct as of such earlier date). (d) The Company is entering into this Amendment on the basis of its own investigation and for its own reasons, without reliance upon the Agent, any of the Co-Agents, any Banks or any other Person. 2 4. AMENDMENT FEE. In consideration of the execution of this Amendment by the Agent and the Banks, the Company agrees to pay on the Effective Date to the Agent for the pro rata distribution to the Banks in accordance with their Commitments an amendment fee equal to 0.04% of the Aggregate Commitment. 5. EFFECTIVE DATE. This Amendment will become effective on the first Business Day (the "Effective Date") upon which the Agent has received (a) from the Company and the Required Banks a duly executed original of this Amendment with sufficient copies for each Bank and (b) from the Company payment of the amendment fee referred to in Section 4 of this Amendment in immediately available funds. 6. RESERVATION OF RIGHTS. The Company acknowledges and agrees that the execution and delivery by the Agent and the Banks of this Amendment shall not be deemed to create a course of dealing or otherwise obligate the Agent or the Banks to forbear or execute similar amendments under the same or similar circumstances in the future. 7. MISCELLANEOUS. (a) Except as herein expressly amended, all terms, covenants and provisions of the Credit Agreement are and shall remain in full force and effect and all references therein and in the other Loan Documents to the Credit Agreement shall henceforth refer to the Credit Agreement as amended by this Amendment. This Amendment shall be deemed incorporated into, and a part of, the Credit Agreement. (b) This Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. No third party beneficiaries are intended in connection with this Amendment. (c) This Amendment shall be governed by, and construed in accordance with, the law of the State of California; provided, however, that the Agent and the Banks shall retain all rights arising under federal law. (d) This Amendment may be executed in any number of counterparts, each of which when so executed shall be deemed an original, and all such counterparts taken together shall be deemed to constitute but one and the same instrument. (e) This Amendment, together with the Credit Agreement, contains the entire and exclusive agreement of the parties hereto with reference to the matters discussed herein and therein. This Amendment supersedes all prior drafts and communications with respect thereto. (f) If any term or provision of this Amendment shall be deemed prohibited by or invalid under any applicable law, such provision shall be invalidated without affecting the remaining provisions of this Amendment, or the Credit Agreement, respectively. 3 (g) The Company covenants to pay to or reimburse the Agent, upon demand, for all costs and expenses (including allocated costs of in-house counsel) incurred in connection with the development, preparation, negotiation, execution and delivery of this Amendment. 4 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their duly authorized officers as of the date first above written. CROWN PACIFIC LIMITED PARTNERSHIP, a Delaware limited partnership By: CROWN PACIFIC MANAGEMENT LIMITED PARTNERSHIP, a Delaware limited partnership,its general partner By: ---------------------------- Title: ---------------------------- BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent and as a Bank By: --------------------------------- Title: --------------------------------- ABN AMRO BANK N.V., as Co-Agent and as a Bank By: --------------------------------- Title: --------------------------------- By: --------------------------------- Title: --------------------------------- 5 SOCIETE GENERALE, as Co-Agent and as a Bank By: --------------------------------- Title: --------------------------------- BANK OF MONTREAL By: --------------------------------- Title: --------------------------------- THE BANK OF NOVA SCOTIA By: --------------------------------- Title: --------------------------------- BANQUE PARIBAS By: --------------------------------- Title: --------------------------------- By: --------------------------------- Title: --------------------------------- 6 UNION BANK OF CALIFORNIA, N.A. By: --------------------------------- Title: --------------------------------- KEYBANK NATIONAL ASSOCIATION By: --------------------------------- Title: --------------------------------- WELLS FARGO BANK, N.A. By: --------------------------------- Title: --------------------------------- 7 EX-10.10 6 EXHIBIT 10.10 EXHIBIT 10.10 CROWN PACIFIC MANAGEMENT LIMITED PARTNERSHIP 1997 DISTRIBUTION EQUIVALENT RIGHTS PLAN SECTION 1. ESTABLISHMENT, PURPOSE, AND EFFECTIVE DATE 1.1 ESTABLISHMENT OF PLAN. Crown Pacific Management Limited Partnership, a Delaware limited partnership (the "Manager"), hereby establishes the CROWN PACIFIC MANAGEMENT LIMITED PARTNERSHIP 1997 DISTRIBUTION EQUIVALENT RIGHTS PLAN (the "Plan"), for the benefit of certain key employees of the Manager. Subject to the terms and conditions provided herein, the Plan provides for rewarding participating key employees with a cash payment with respect to vested Distribution Equivalent Rights (as defined herein) granted hereunder, which are in tandem with the Participant's options ("Options") on Common Units in Crown Pacific Partners, L.P., a Delaware limited partnership (the "Partnership"), pursuant to the Crown Pacific Management Limited Partnership 1994 Unit Option Plan ("Option Plan"). 1.2 PURPOSE. The purpose of the Plan is to help attract and retain the services of participating key employees, and further to align their interests with the interests of the partners of the Partnership, and to encourage such employees to increase operating profitability, with the ultimate goal of surpassing distribution objectives with respect to the Partnership's Common Units and Subordinated Units. 1.3 EFFECTIVE DATE OF PLAN. The Plan shall be effective as of January 1, 1997. SECTION 2 DEFINITIONS 2.1 DEFINITIONS. When used in the Plan, the following terms shall have the meanings specified below: 2.1.1 "Account" means a ledger account established for a Participant which shall reflect, with respect to each year, the Distribution Amounts for such year that have not become vested and paid to the Participant. Distribution Amounts credited to an Account shall not be credited with interest. 2.1.2 "Beneficiary" means the person or entity determined to be a Participant's beneficiary pursuant to Section 9. 2.1.3 "Board" means the Board of Control of the Manager, as constituted in accordance with the agreement of limited partnership of the Manager. 2.1.4 "Common Unit" has the meaning assigned to such term in the Partnership Agreement. 2.1.5 "Compensation Committee" means the Compensation Committee of the Board. 2.1.6 "Disability" has the meaning assigned to such term in the Manager's long-term disability plan covering the Participant at the applicable time, or if no such plan exists, means a physical or mental disability that is reasonably expected to render the Participant incapable of performing his duties as an employee of the Manager for a period of six months within any twelve-month period. 2.1.7 "Distribution Amount" means, with respect to any year, an amount equal to the cash distributions made by the Partnership with respect to a Common Unit for such year. 2.1.8 "Distribution Equivalent Right" or "DER" means a right, in tandem with a specified Option, to receive a Distribution Amount. -2- 2.1.9 "Distribution Date" means the 45th day following the end of each calendar year or such other date as may be established by the Compensation Committee. 2.1.10 "Participant" means a key employee of the Manager designated as a Participant pursuant to Section 4. 2.1.11 "Plan" means the Crown Pacific Management Limited Partnership 1997 Distribution Equivalent Rights Plan, as set forth herein and as amended from time to time. 2.1.12 "Related Companies" means the Partnership, Crown Pacific Limited Partnership, a Delaware limited partnership, CP Air, Inc., an Oregon corporation, Yellowstone Trucking Limited Partnership, a Delaware limited partnership, and Klamath Northern Railway Co., an Oregon corporation, and any other entity in which the Partnership owns, directly or indirectly, now or in the future, 50% or more of the outstanding equity securities. The Manager shall not be treated as a Related Company. SECTION 3 ADMINISTRATION 3.1 ADMINISTRATION. The Compensation Committee shall be responsible for the administration of the Plan. The Compensation Committee is authorized (i) to designate the key employees of the Manager eligible to become Participants in the Plan, (ii) to designate the Options with respect to which Distribution Equivalent Rights are granted, so long as the Options were not issued prior to January 1, 1997, (iii) to interpret and construe any provision of the Plan, (iv) to determine eligibility and benefits under the Plan, (v) to prescribe, amend, and rescind rules and regulations relating to the Plan, (vi) to adopt such forms as it may deem appropriate for the administration of the Plan, (vii) to provide for conditions and assurances deemed necessary or advisable to protect the interests of the Manager, and (viii) to make all other determinations -3- necessary or advisable for the administration of the Plan, but only to the extent not contrary to the express provisions of the Plan. Determinations, interpretations, or other actions made or taken by the Compensation Committee under the Plan shall be final and binding for all purposes and upon all persons. A majority of the Compensation Committee shall constitute a quorum, and the acts of a majority of the members present at any meeting at which a quorum is present, or acts approved in writing by all members of the Compensation Committee, shall be deemed acts of the Compensation Committee. 3.2 INDEMNIFICATION OF COMPENSATION COMMITTEE. The Manager and the Partnership shall indemnify, protect, defend and hold harmless each member of the Compensation Committee (which, for purposes of this Section 3.2, includes any employee of the Manager or a Related Company to whom the Compensation Committee has delegated any responsibility in the administration of the Plan) against any and all claims, losses, damages, expenses, including, without limitation, counsel fees incurred by the Compensation Committee, and liability, including, without limitation, any amounts paid in settlement with the Manager's approval, arising from the member's or the Compensation Committee's determination, action or failure to act, except when the same is judicially determined to be attributable to the gross negligence or willful misconduct of such member. The right of indemnity described in the preceding sentence shall be conditioned upon (i) the timely receipt of notice by the Manager of any claim asserted against the Compensation Committee member, which notice, in the event of a lawsuit, shall be given within 10 days after receipt by the Compensation Committee member, and (ii) the timely receipt by the Manager of an offer from the Compensation Committee member of an opportunity for the Partnership to participate in the settlement or defense of such claim. -4- 3.3 RELIANCE BY COMPENSATION COMMITTEE. The Compensation Committee may employ such legal counsel, consultants and agents as it may deem desirable for the administration of the Plan and may rely upon any opinion received from any such counsel or consultant. Expenses incurred by the Compensation Committee in the engagement of such counsel, consultant, or agent shall be paid by the Partnership. No member or former member of the Compensation Committee shall be liable for any action or determination made in good faith with respect to the Plan or any rights granted herein. 3.4 COST. Although the Plan is maintained by the Manager for administrative convenience, all expenses and costs associated with the Plan, including, without limitation, the cost of administration and the cost of funding the benefits to be provided by the Plan, shall be borne by the Partnership. All economic benefits and burdens will accrue to and be incurred by the Partnership, and the Manager shall have no opportunity to profit from the operation of the Plan. SECTION 4 ELIGIBILITY AND PARTICIPATION 4.1 ELIGIBILITY. Any employee of the Manager or a Related Company who (i) is not a member of the Compensation Committee and (ii) has Options outstanding under the Option Plan shall be eligible to be a Participant. DERs may be granted to the same employee on more than one occasion. 4.2 GRANTS. Grants of DERs shall be made by the Compensation Committee to such eligible employees as it may determine from time to time and shall be evidenced by such form of agreement as the Compensation Committee may approve. Each grant shall specify the Option with respect to which the granted DER relates. -5- SECTION 5 TERMS OF DERS 5.1 VESTING/TERMINATION OF DERS. Each DER will be or become vested, as the case may be, to the same extent as the Option to which it relates is vested or becomes vested under the Option Plan. Each DER shall automatically terminate upon the earlier of the Distribution Date that coincides with or next follows the sixth anniversary of the grant date of the DER, or the date the tandem Option is exercised or terminates. 5.2 ANNUAL PAYMENT AND/OR CREDITING OF DER AMOUNTS. Subject to Section 5.4, on each Distribution Date each Participant who is an employee of the Manager or a Related Company on such date: (a) shall be immediately paid the vested portion of the Participant's Distribution Amounts for such year in cash; (b) shall have credited to the Participant's Account the nonvested portion of the Distribution Amounts for such year; and (c) shall be immediately paid in cash the portion of any Distribution Amount credited to the Participant's Account as of a previous Distribution Date that has become vested as of the current Distribution Date. 5.3 TERMINATION OF EMPLOYMENT. All DERs and all amounts credited to a Participant's Account shall be immediately canceled unpaid on the date the Participant ceases to be an employee of the Manager and its Related Companies, including as a result of death or Disability. 5.4 LIMITATIONS ON ANNUAL DISTRIBUTION AMOUNTS. Notwithstanding anything in this Plan to the contrary, no Distribution Amounts shall be paid to a Participant or credited to a Participant's Account on a Distribution Date unless the Available Cash (as defined in the Partnership Agreement) -6- of the Partnership with respect to the applicable year is sufficient to pay the sum of (1) all distributions with respect to the Common Units and Subordinated Units for such year in an amount equal to the distribution goal established by the Compensation Committee with respect to such year ("Unit Distributions") and (2) all Distribution Amounts for such year. In the event the Available Cash is sufficient to pay all Unit Distributions, but not all Distribution Amounts, the Distribution Amounts shall be reduced prorata for such year. 5.5 ELECTIVE DEFERRALS. A Participant may be given an election to defer all or part of a Distribution Amount otherwise payable on such terms as the Manager may from time to time determine. SECTION 6 DURATION OF PLAN Subject to Section 8, the Plan shall remain in effect until December 31, 2010. SECTION 7 WITHHOLDING OF TAXES The Manager and Related Companies shall withhold from any amounts payable to a Participant hereunder an amount sufficient to satisfy all federal, state, local and other withholding tax requirements. SECTION 8 TERMINATION AND AMENDMENT Except as specifically set forth herein, the Plan may be terminated at any time or amended from time to time in any respect by the Board. Notwithstanding anything to the contrary contained herein, no amendment or termination shall be made that would materially and adversely affect or diminish the rights of any Participant with respect to any DERs or amounts credited to his Account, without such Participant's prior written consent; provided that the Manager may amend the Plan from time to time in such a manner as may be necessary to avoid having the Plan being subject to -7- the Employment Retirement Income Security Act of 1974, as amended. A Participant's incurring any income tax liability as a result of an amendment or the termination of the Plan shall not be considered to materially and adversely affect or diminish the rights of a Participant. SECTION 9 BENEFICIARIES, PERMITTED TRANSFEREES, AND OTHER PAYEES 9.1 DESIGNATION OF BENEFICIARY. Each Participant shall have the right to designate in writing from time to time a Beneficiary by filing a written notice of such designation with the Compensation Committee. A Participant's designation of a Beneficiary may be revoked by filing with the Compensation Committee an instrument of revocation or a later designation. Any designation or revocation shall be effective when received by the Compensation Committee. In the event of the death of a Participant, any payment required to be made hereunder to such Participant shall be made to such Participant's Beneficiary. Unless the Participant's Beneficiary designation provides otherwise, no person shall be entitled to benefits upon the death of the Participant unless such person survives the Participant. If the Beneficiary designated by a Participant does not survive the Participant or if the Participant has not made a valid Beneficiary designation, the Participant's Beneficiary shall be the Participant's estate. 9.2 NONTRANSFERABILITY. Except as provided in Section 9.1, no DER or Account, any interest therein, or any other interest or right of a Participant under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated (except by will or by the applicable laws of descent and distribution), or in any matter be liable for or subject to the debts, contracts, liabilities, engagements or torts of a Participant or Beneficiary entitled thereto, or be subject to any lien, directly or indirectly, by operation of law or otherwise, including execution, levy, garnishment, attachment, and bankruptcy. -8- 9.3 INCAPACITY OF PARTICIPANT OR BENEFICIARY. If the Compensation Committee finds that any Participant or Beneficiary to whom a payment is payable under the Plan is unable to care for his or her affairs because of illness or accident or is under a legal disability, any payment due (unless a prior claim therefor shall have been made by a duly appointed legal representative) may, in the sole discretion of the Compensation Committee, be paid to the spouse, child, parent or brother or sister of such Participant or Beneficiary. Any such payment shall be a complete discharge of the obligations of the Manager under the provisions of the Plan. SECTION 10 RIGHTS OF EMPLOYMENT Nothing in this Plan shall interfere with or limit in any way the right of the Manager or any Related Company to terminate any Participant's employment at any time, nor confer upon any Participant any right to continue in the employ of the Manager or any Related Company. SECTION 11 REQUIREMENTS OF LAW AND GOVERNING LAW 11.1 REQUIREMENTS OF LAW. The transfer of Common Units issued under the Plan shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required. 11.2 GOVERNING LAW. The Plan and all agreements under the Plan shall be construed in accordance with and governed by the laws of the State of Oregon. CROWN PACIFIC MANAGEMENT LIMITED PARTNERSHIP, a Delaware limited partnership By: HS Corp. of Oregon, an Oregon corporation, general partner By: --------------------------------------- Roger L. Krage, Secretary -9- By: Fremont Timber, Inc., a Delaware corporation, general partner By: ------------------------------------- Title: ------------------------------------- -10- EX-10.14 7 EXHIBIT 10.14 EXHIBIT 10.14 AFTER RECORDING MAIL TO: Cindy Wenig, Esq. Chadbourne & Parke LLP 30 Rockefeller Plaza New York, New York 10112 - -------------------------------------------------------------------------------- GROUND LEASE AGREEMENT Dated as of December 19, 1997 between CROWN PACIFIC LIMITED PARTNERSHIP as Ground Lessor, and SELCO SERVICE CORPORATION, as Ground Lessee Port Angeles, Washington - -------------------------------------------------------------------------------- GROUND LEASE AGREEMENT (this "GROUND LEASE") dated as of December 19, 1997, between CROWN PACIFIC LIMITED PARTNERSHIP, a Delaware limited partnership, as Ground Lessor, and SELCO SERVICE CORPORATION, an Ohio corporation, as Ground Lessee. In consideration of the mutual agreements herein contained and other good and valuable consideration, receipt of which is hereby acknowledged, the parties hereto agree as follows: ARTICLE I DEFINITIONS Unless the context shall otherwise require, the capitalized terms used herein and not otherwise defined herein shall have the meanings assigned thereto in the Lease Agreement dated as of December 19, 1997 between the Ground Lessor, as lessee and construction agent, and the Ground Lessee, as lessor, with respect to the Facility, as amended from time to time (the "LEASE AGREEMENT"). ARTICLE II GRANT Section 2.01. LEASE OF PARCEL. Ground Lessor is the owner of the fee estate in and to a certain parcel of land located in Callam County, Washington, as more particularly described on Schedule A attached hereto (the "PARCEL"). Ground Lessor hereby leases the Parcel to Ground Lessee, and Ground Lessee hereby leases the Parcel from Ground Lessor, for the Ground Lease Term (hereinafter defined), subject to all the terms and conditions hereof, together with all rights of way or uses, licenses, easements, tenements, hereditaments and appurtenances now or hereafter belonging or pertaining to the Parcel. Effective from and after the date hereof, Ground Lessor waives and relinquishes any Lien or other right in the nature of a landlord's lien or privilege which it might now or hereafter otherwise have in or with respect to the Parcel or any part thereof. Section 2.02. PERSONAL PROPERTY. The parties hereto acknowledge that the title to the Facility and all Components now or hereafter constructed or installed on the Parcel by any party (including, without limitation, Ground Lessor or the Lessee under the Lease Agreement) during the Ground Lease Term (hereinafter defined) are and will be owned by the Ground Lessee. It is the intention of the parties that the separation of the title to the Parcel from the title to the Facility is to remain so separated throughout the Ground Lease Term. The Facility, to the greatest extent possible, shall for all purposes and at all times be and remain personal property under the laws of the state in which the Parcel and the Facility are located. ARTICLE III TERM Section 3.01. GROUND LEASE TERM. This Ground Lease shall be effective and the Parcel shall be subject to the terms and conditions of this Ground Lease from and after the date hereof and shall terminate with respect to the Parcel on the earlier to occur of (a) the date of Lessee's purchase of the Facility pursuant to SECTION 19(b) of the Lease Agreement or (b) December 19, 2047, unless sooner terminated as provided or permitted herein (the "GROUND LEASE TERM"). Section 3.02. ELECTION TO TERMINATE. Ground Lessee may elect to terminate this Ground Lease at any time upon the payment of $1 to Ground Lessor. Upon such termination, Ground Lessee's obligations hereunder shall terminate. ARTICLE IV PAYMENTS Ground Lessee shall pay to Ground Lessor One Hundred Dollars ($100) as rental payment for the Ground Lease Term, receipt of which is hereby acknowledged by Ground Lessor. ARTICLE V QUIET ENJOYMENT Ground Lessor represents and warrants that it has full right and authority to lease the Parcel pursuant to the terms of this Ground Lease and that it has good and marketable fee title to the Parcel free and clear of all Liens, except for those exceptions to title set forth on Title Commitment dated December 19, 1997 #NBG. No. 97-0719 of Chicago Title Insurance Company (the "PERMITTED ENCUMBRANCES"), and Ground Lessor represents and warrants that, at all times during the Ground Lease Term, it will defend and hold harmless Ground Lessee and its successors and assigns in their peaceable, quiet, exclusive and undisputed enjoyment of the Parcel against the claims of all Persons. 2 ARTICLE VI USE OF THE PARCEL Ground Lessee may use the Parcel for any legal business purpose, including, without limitation, the same purpose and business as Lessee may use the Parcel for under the Lease Agreement. ARTICLE VII ALTERATIONS During the Ground Lease Term, Ground Lessee, in its discretion, may from time to time alter or improve, or cause to be altered or improved, the Parcel or any part thereof, in any manner it deems necessary or desirable, to carry on any activity permitted hereunder, including the construction, addition, alteration, demolition and removal of any buildings, equipment, roads or other structures, items of personal property or fixtures and any grading or landscaping of the Parcel; PROVIDED, HOWEVER, that so long as the Lease Agreement is in effect, Ground Lessee shall refrain from any action permitted under this Article VII, except to the extent such action is undertaken by Ground Lessee in its capacity as Lessor under, and in accordance with, the Lease Agreement. ARTICLE VIII LIENS Ground Lessor shall not directly or indirectly create, incur, assume or suffer to exist any Lien on or with respect to the Parcel, the Facility, title thereto or any interest therein, except Permitted Liens, and Ground Lessor shall promptly, at its own expense, take such action as may be necessary to duly discharge any such Lien. If Ground Lessor shall fail to promptly discharge any such Lien, Ground Lessee, at its option, may cause the same to be so discharged, and sums expended by Ground Lessee in connection therewith shall be repaid by Ground Lessor to Ground Lessee on demand. ARTICLE IX TAXES AND CHARGES So long as the Lease Agreement is in effect, Ground Lessor acknowledges that the Lessee under the Lease Agreement shall be responsible for the payment of all Taxes due with respect to the Parcel and the Facility. If the Lease Agreement shall expire 3 or be terminated and this Ground Lease shall remain in effect, Ground Lessor shall pay or cause to be paid all Taxes due with respect to the Parcel and the Facility; PROVIDED, HOWEVER, that Ground Lessor shall not be required to make any such payments if Ground Lessor shall in good faith be contesting any such Taxes, so long as such contest does not involve any material danger of the sale, forfeiture or loss of any part of the Parcel, the Facility, title thereto or any interest of Ground Lessee therein. If Ground Lessor fails to make any payment required to be made by Ground Lessor, Ground Lessee at its option may pay the same and any moneys so paid by Ground Lessee shall be repaid on an After-Tax Basis by Ground Lessor to Ground Lessee on demand. ARTICLE X INSURANCE So long as the Lease Agreement is in effect, Ground Lessor acknowledges that the Lessee under the Lease Agreement shall be responsible for maintaining insurance coverage with respect to the Parcel and the Facility in accordance with SECTION 14 of the Lease Agreement. If the Lease Agreement shall expire or be terminated and this Ground Lease shall thereafter remain in effect, Ground Lessor shall, without cost to Ground Lessee, maintain or cause to be maintained in effect throughout the remaining Ground Lease Term, with insurers of recognized responsibility, insurance policies with respect to the Parcel and the Facility insuring against loss or damage to the person and property of Ground Lessee and others, all from such risks and in such amounts as owners of similar properties maintain with respect to such property, including liability insurance in an amount reasonably satisfactory to Ground Lessee; PROVIDED, HOWEVER, that Ground Lessor shall in no event be required to maintain any such insurance in amounts greater than is generally maintained by responsible owners of similar property. If the Ground Lessor shall fail to maintain such insurance during the remaining Ground Lease Term, the Ground Lessee may (but shall be under no obligation to) maintain or cause such insurance to be maintained at the sole cost and expense of the Ground Lessor. ARTICLE XI CASUALTY OR CONDEMNATION Any payment, including condemnation awards, received at any time by Ground Lessor or Ground Lessee from any Governmental Authority or other Person as a result of the occurrence of an Event of Loss or a Requisition of Use when the Lease Agreement is in effect shall be distributed in accordance with SECTION 13 of the Lease Agreement. Any such payment received by Ground Lessor or Ground Lessee after the Lease Agreement has expired or has been terminated shall be applied as follows: so much 4 of such payments as shall be necessary to pay in full all sums owing to Ground Lessee, as lessor under the Lease Agreement or under any other Operative Document shall be retained by, or paid over to, Ground Lessee, and the balance (if any) of such payments shall be retained by, or paid over to Ground Lessor. ARTICLE XII DEFAULT Notwithstanding anything to the contrary contained in this Ground Lease, no event, occurrence or failure to perform by (or on behalf of) Ground Lessee shall constitute a default or an event of default hereunder, and Ground Lessor shall have no right (whether conferred by statute or otherwise) to terminate this Ground Lease or to take possession of the Parcel, so long as any sums remain to be paid at any time by Lessee under the Lease Agreement or any other Operative Document. After the expiration or termination of the Lease Agreement, the following events shall constitute an event of default hereunder: (a) The Ground Lessee shall consent to the appointment of a receiver, trustee, liquidator, assignee, trustee, custodian, sequestrator (or similar official) of itself or for any substantial part of its property, or the Ground Lessee shall not pay or generally be unable to pay, or admit in writing its inability to pay, its debts generally as they come due, or shall make a general assignment for the benefit of creditors; (b) The Ground Lessee shall commence a voluntary case under any applicable bankruptcy, insolvency or other similar law (as now or hereafter in effect), or the Ground Lessee shall consent to the entry of an order for relief in an involuntary case under any such law; (c) An order, judgment or decree shall be entered by any court having jurisdiction in the premises for relief in respect of the Ground Lessee in an involuntary case under any applicable bankruptcy, insolvency or other similar law (as now or hereafter in effect), or appointing a receiver, liquidator, assignee, or for any substantial part of its property, or sequestering any substantial part of the property of the Ground Lessee, or, ordering the winding up or liquidating of the Ground Lessee's affairs, and any such order, judgment or decree shall remain in force undismissed, unstayed or unvacated for a period of sixty (60) days after the date of entry thereof; or (d) A petition against the Ground Lessee in a proceeding under applicable bankruptcy laws or other insolvency laws, as now or hereafter in effect, shall be filed and shall not be withdrawn or dismissed within ninety (90) days thereafter, or if, under the 5 provisions of any law providing for reorganization or liquidation of corporations which may apply to the Ground Lessee, any court of competent jurisdiction shall assume jurisdiction, custody or control of the Ground Lessee or of any substantial part of its property and such jurisdiction, custody or control shall remain in force unrelinquished, unstayed or unterminated for a period of sixty (60) days. Ground Lessor shall have the right, after the occurrence and during the continuance of an event of default hereunder (provided that the Lease Agreement has terminated or expired), to take possession of the Parcel or to terminate this Ground Lease by giving thirty (30) days written notice to Ground Lessee of Ground Lessor's election to terminate same. The remedies set forth above are exclusive of any other rights or remedies of Ground Lessor which exist at law or in equity. ARTICLE XIII SUBLEASE; ASSIGNMENT; SALE Section 13.01. BY GROUND LESSEE. Ground Lessee will not assign this Ground Lease or any of its rights or interests hereunder and will not sublease all or any portion of the Parcel, except that Ground Lessee may from time to time: (a) sublease all or any part of the Parcel and/or the Facility pursuant to the Lease Agreement; (b) sublease all or any part of the Parcel and/or the Facility or assign this Ground Lease or any interests of Ground Lessee hereunder to any Person after the termination or expiration of the Lease Agreement; and (c) assign Ground Lessee's interests hereunder in connection with an assignment of its interests as Lessor under the Lease Agreement. In addition, in the event the Ground Lessor enters into a new leasing arrangement pursuant to Section 19(a) of the Lease Agreement, the Ground Lessee shall assign its interests hereunder to the lessor under such new leasing arrangement. Any subletting or assignment permitted hereunder shall relieve Ground Lessee of its obligations hereunder. Section 13.02. BY GROUND LESSOR. So long as the Ground Lessee (including its successors and assigns) is also the Lessor under the Lease Agreement, Ground Lessor will not sell, transfer or convey the Parcel or any of its rights or interests in the Parcel or assign this Ground Lease or any rights or interests of Ground Lessor hereunder. 6 ARTICLE XIV NOTICES Unless otherwise specifically provided herein, all notices and other communications required or permitted hereunder shall be in writing and shall be addressed and become effective as provided in the Lease Agreement. ARTICLE XV BINDING EFFECT; SUCCESSORS AND ASSIGNS The terms and provisions of this Ground Lease and the respective rights and obligations of Ground Lessee and Ground Lessor hereunder shall be binding upon, and inure to the benefit of, their respective permitted successors and assigns. ARTICLE XVI POSSESSION UPON TERMINATION Upon termination of the Ground Lease Term, whether by lapse of time or because of any of the conditions or provisions contained herein, Ground Lessee will peaceably and quietly yield up and surrender possession of the Parcel to Ground Lessor without representation or warranty. ARTICLE XVII GROUND LESSOR'S BANKRUPTCY It is expressly understood and agreed that for purposes of Section 365(h) of the Bankruptcy Code, 11 U.S.C. Section 365(h), (a) Ground Lessee shall be deemed to be in possession of the Parcel by virtue of the possessory interest therein granted to Ground Lessee under this Ground Lease whether or not all or any part of the Parcel has been subleased by Ground Lessee and (b) in the event of any rejection or disaffirmance of this Ground Lease in any bankruptcy or similar proceeding relating to Ground Lessor, Ground Lessee may elect to remain in possession of the Parcel for the balance of the Ground Lease Term, including all extensions exercisable hereunder, at the option of Ground Lessee. 7 ARTICLE XVIII INDEMNIFICATION The Ground Lessor hereby agrees to indemnify, protect and keep harmless each Indemnified Person pursuant to the provisions of SECTION 23 of the Lease Agreement, which provisions are hereby incorporated herein by reference as if fully set forth herein. ARTICLE XIX THE LEASE AGREEMENT So long as the Lease Agreement remains in effect or the Lessee under the Lease Agreement is otherwise liable for amounts in respect thereof or under the other Operative Documents, Ground Lessor shall look solely to the Lessee under the Lease Agreement for the performance and discharge of Ground Lessee's obligations and liabilities under this Ground Lease (other than with respect to Lessor's Liens and the restrictions on Ground Lessee's rights of assignment and subleasing under Section 13.01) with the same force and effect as though Ground Lessee had performed the same, and Ground Lessee shall have no liability hereunder, no default or event of default shall arise hereunder and the rights of Ground Lessee hereunder shall not be affected, as a result of any failure of Ground Lessee to perform or discharge such liabilities or obligations notwithstanding (a) any continuation of any such failure after the end of the term of the Lease Agreement or (b) that such failure first became known or apparent after the end of the term of the Lease Agreement. No such performance or discharge by or on behalf of the Lessee under the Lease Agreement shall be deemed an acknowledgment by Ground Lessor of the Lessee under the Lease Agreement as Ground Lessee hereunder, or a merger of the Lease Agreement with this Ground Lease or a merger of the estate of Lessor under the Lease Agreement with the estate of the Lessee thereunder. ARTICLE XX PERSONAL LIABILITY/LIMITED RECOURSE Section 10.01. PERSONAL LIABILITY. No officer, director, stockholder or employee of the Ground Lessee shall become personally liable for the performance or observance of any agreements, obligations, covenants or conditions to be performed or observed by Ground Lessee under this Ground Lease, or any liabilities with respect thereto. 8 Section 10.02. LIMITED RECOURSE. Except as otherwise provided in the proviso to this SECTION 10.02, nothing contained in this Ground Lease or in the other Operative Documents shall be construed as creating any liability on the part of any past or present shareholder, limited partner or general partner of the Ground Lessor, the General Partner, or the MGP General Partners to pay any amount on account of the Ground Lessor's obligations hereunder or under any other Operative Document to which it is a party or to perform any covenant of the Ground Lessor contained herein or therein; provided, however, that nothing in this SECTION 10.02 shall be construed (i) to relieve any Person from liability for fraud, concealment, or other intentional wrongdoing for which such Person would otherwise be liable under any Applicable Law, either directly or on behalf of the Ground Lessor, (ii) to restrict the joinder in any action of any necessary party in order to seek enforcement of rights against the Ground Lessor or any other party to any Operative Document or to restrict injunctive relief against any Person to the extent necessary to obtain performance by the Ground Lessor of any of its obligations under any Operative Document, or (iii) to relieve any Person from liability for distributions, payments, or other transfers made to such Person in violation of the Operative Documents or in violation of or otherwise recoverable under any Applicable Law. ARTICLE XXI MISCELLANEOUS Section 21.01. SEVERABILITY. Any provision of this Ground Lease that shall be prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. Section 21.02. AMENDMENT. Neither this Ground Lease nor any of the terms hereof may be terminated, amended, supplemented, waived or modified orally, but only by an instrument in writing signed by the party against which the enforcement of the termination, amendment, supplement, waiver or modification shall be sought. Section 21.03. HEADINGS. The Table of Contents and headings of the various Articles and Sections of this Ground Lease are for convenience of reference only and shall not modify, define or limit any of the terms or provisions hereof. Section 21.04. COUNTERPARTS. This Ground Lease may be executed by the parties hereto in separate counterparts. All such counterparts shall together constitute but one and the same instrument. 9 Section 21.05. GOVERNING LAW. THIS GROUND LEASE SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF WASHINGTON APPLICABLE TO AGREEMENTS TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE. Section 21.06. RECORDING. This Ground Lease or a memorandum hereof may be recorded by either party hereto in the appropriate real estate records and Ground Lessor shall pay all costs of recording and all applicable recording or transfer taxes or related charges. Section 21.07. ESTOPPEL CERTIFICATES. Ground Lessor will execute, acknowledge and deliver to Ground Lessee, promptly upon request an estoppel certificate certifying (a) that this Ground Lease is unmodified and in full force and effect (or, if there have been modifications, that this Ground Lease is in full force and effect, as modified, and stating the date of each instrument so modifying this Ground Lease), (b) the dates, if any, to which rent has been paid and (c) whether any default exists hereunder known to it and, if any such default exists, specifying the nature and period of existence thereof and what action it is taking or proposes to take with respect thereto, and whether notice thereof has been given to Ground Lessee. Any such certificate may be relied upon by the Lessor, Ground Lessee and any prospective purchaser or transferee of Ground Lessee's interest under this Ground Lease or any part thereof. 10 IN WITNESS WHEREOF, the undersigned have each caused this Ground Lease to be duly executed and delivered and their corporate seals to be hereunto affixed and attested as of the day and year first above written. Ground Lessor: ------------- CROWN PACIFIC LIMITED PARTNERSHIP BY CROWN PACIFIC MANAGEMENT LIMITED PARTNERSHIP, its general partner By: -------------------------------- Name: Title: Ground Lessee: ------------- SELCO SERVICE CORPORATION By: -------------------------------- Name: Title: SCHEDULE A (the Parcel) EX-10.15 8 EXHIBIT 10.15 EXHIBIT 10.15 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- LEASE AGREEMENT Dated as of December 19, 1997 between SELCO SERVICE CORPORATION, as Lessor and CROWN PACIFIC LIMITED PARTNERSHIP, as Lessee and Construction Agent ----------------------- Port Angeles Sawmill Complex - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TABLE OF CONTENTS ----------------- Page ---- SECTION 1. DEFINITIONS; CONSTRUCTION OF REFERENCES. . . . . . . . . . 1 SECTION 2. LEASE OF THE LEASED PROPERTY . . . . . . . . . . . . . . . 14 SECTION 3. TERM AND RENT. . . . . . . . . . . . . . . . . . . . . . . 14 SECTION 4. CONSTRUCTION AGENT . . . . . . . . . . . . . . . . . . . . 15 SECTION 5. ACQUISITION OF COMPONENTS; FINANCING . . . . . . . . . . . 19 SECTION 6. CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . 19 SECTION 7. NET LEASE; NON-TERMINABILITY . . . . . . . . . . . . . . . 27 SECTION 8. RETURN OF THE LEASED PROPERTY. . . . . . . . . . . . . . . 28 SECTION 9. WARRANTY OF THE LESSOR . . . . . . . . . . . . . . . . . . 29 SECTION 10. LIENS. . . . . . . . . . . . . . . . . . . . . . . . . . . 31 SECTION 11. MAINTENANCE AND OPERATION; COMPLIANCE AND USE; REPLACEMENT PARTS; MODIFICATIONS. . . . . . . . . . . . 31 SECTION 12. INSPECTION REPORTS . . . . . . . . . . . . . . . . . . . . 34 SECTION 13. LOSS OR DESTRUCTION; REQUISITION OF USE. . . . . . . . . . 36 SECTION 14. INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . 38 SECTION 15. SUBLETTING; ASSIGNABILITY; AMENDMENT OF CONTRACTS. . . . . 41 SECTION 16. REPRESENTATIONS AND WARRANTIES OF LESSOR . . . . . . . . . 42 SECTION 17. REPRESENTATIONS AND WARRANTIES OF LESSEE . . . . . . . . . 43 SECTION 18. ADDITIONAL COVENANTS . . . . . . . . . . . . . . . . . . . 51 SECTION 19. OPTIONS UPON LEASE TERMINATION . . . . . . . . . . . . . . 55 SECTION 20. EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . . 56 SECTION 21. REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . 59 Page ---- SECTION 22. RIGHT TO PERFORM FOR LESSEE. . . . . . . . . . . . . . . . 61 SECTION 23. INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . 61 SECTION 24. NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . 64 SECTION 25. SUCCESSORS AND ASSIGNS . . . . . . . . . . . . . . . . . . 65 SECTION 26. AMENDMENTS AND MISCELLANEOUS . . . . . . . . . . . . . . . 65 EXHIBITS Exhibit A - Form of Lease Supplement Exhibit B - Form of Requisition Exhibit C - Approved Construction Budget Exhibit D - Form of Officer's Certificate for Final Completion Date Exhibit E - Terms of Single Investor Tax Lease Exhibit F - Credit Agreement SCHEDULES Schedule 1 - Parcel Schedule 6(a)(viii) - Permits ii LEASE AGREEMENT LEASE AGREEMENT dated as of December 19, 1997 between SELCO SERVICE CORPORATION, an Ohio corporation ("Lessor"), and CROWN PACIFIC LIMITED PARTNERSHIP, a Delaware limited partnership ("Lessee"). SECTION 1. DEFINITIONS; CONSTRUCTION OF REFERENCES. In this Lease, unless the context otherwise requires: (a) All references in this Lease to designated Sections and other subdivisions are to designated Sections and other subdivisions of this Lease, and the words "herein", "hereof" and "hereunder" and other words of similar import refer to this Lease as a whole and not to any particular Section or other subdivision. (b) The terms defined in this Section or elsewhere in this Lease shall, for purposes of this Lease and all Exhibits and Schedules hereto, have the meanings assigned to them in this Section or elsewhere herein and include the plural as well as the singular and the singular as well as the plural; except as otherwise indicated, all the agreements or instruments herein defined shall mean such agreements or instruments as the same may from time to time be supplemented or amended or the terms thereof waived or modified to the extent permitted by, and in accordance with, the terms hereof and thereof and of the other Operative Documents. (c) Where the character or amount of any asset or liability or item of income or expense is required to be determined or any consolidation or other accounting computation is required to be made for the purposes of this Lease, such determination or computation shall be done in accordance with GAAP at the time in effect, to the extent applicable, except where such principles are inconsistent with the requirements of this Lease. (d) The following terms shall have the following meanings for all purposes of this Lease: ACTUAL PROJECT COSTS shall mean, collectively, (i) all amounts paid or payable to finance the acquisition of the Components, (ii) all amounts paid or payable as costs for the construction, operation and maintenance of the Facility and (iii) amounts constituting interest, fees and expenses paid or payable with respect to the Facility as set forth in the Approved Construction Budget. AFFILIATE shall mean, as to a particular entity, a Person (i) which directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, such entity, (ii) which beneficially owns or holds 5% or more of any class of the Voting Stock of such entity or (iii) 5% or more of the Voting Stock (or in the case of a Person which is not a corporation, 5% or more of the equity interest) of which is beneficially owned or held by such entity. As used herein, the term control shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise, the terms "controlling," "controlled by" and "under common control with" shall have meanings correlative to the foregoing. AFTER-TAX BASIS shall mean on a basis such that any payment received or deemed to have been received by any Person shall, if necessary, be supplemented by a further payment to that Person so that the sum of the two payments shall, after deduction of all taxes, penalties, fines, interest, additions to tax and other charges (taking into account any related credits or deductions) resulting from the receipt (actual or constructive) of such payments imposed by or under any Federal, state, local or foreign law or taxing or governmental authority be equal to the payment received or deemed to have been received. APPLICABLE LAW shall mean all applicable laws, rules, codes, ordinances, permits, certificates, Orders, regulations and treaties of the United States of America and states, territories and political subdivisions thereof and of any other Governmental Authority. APPLICABLE PERMITS shall mean any Permit that is necessary to develop, build, improve, own, operate or use all or any part of the Leased Property or any part thereof in accordance with this Lease and the other Operative Documents. APPRAISAL shall have the meaning set forth in Section 6(a)(xiv) hereof. APPRAISER shall mean Independent Equipment Company. APPROVED CONSTRUCTION BUDGET shall mean the budget prepared by the Lessee, in form and substance satisfactory to the Lessor, attached as EXHIBIT C hereto, which budget specifies the estimated Actual Project Costs including: (a) all labor, materials and services necessary for the design, engineering and construction of the Facility, in accordance with the Construction Contract and the Construction Agreements, and (b) the expenses to be incurred in connection with the design, engineering and construction of the Facility, as the same may be amended from time to time in accordance with the provisions of Section 4 hereof and the other Operative Documents. 2 APPROVED CREDIT AGREEMENT ACTION shall mean any amendment or modification to, or waiver under, the Credit Agreement at such times that Key Bank National Association or any Affiliate of Key Bank National Association is a "Bank" party to the Credit Agreement. BASIC RENT shall have the meaning set forth in Section 3(b) hereof. BASIC RENT PAYMENT DATE shall have the meaning set forth in Section 3(b) hereof. BASIC RENT RATE shall mean, with respect to each Rental Period, an interest rate per annum equal to the sum of (i) the rate or interest at which deposits in U.S. dollars for a one month period are offered in the London interbank market as quoted on the Reuters Screen page "LIBO" at or about 11:00 A.M. (London time) on the second Business Day prior to the commencement of such Rental Period, or if such page on such screen ceases to display such information, such other page as may replace it on that screen for the purpose of displaying such information PLUS (ii) 125 basis points. BUSINESS DAY shall mean (a) a day of the year (other than a Saturday or a Sunday) on which banks are not required or authorized to close in New York City, Boston, Massachusetts, and San Francisco, California, and (b) if the applicable Business Day relates to the determination of the Basic Rent Rate, a day of the year (other than a Saturday or a Sunday) that is also a day on which dealings are carried on in the London interbank market and banks are open for business in London. CERCLIS shall mean the Comprehensive Environmental Response Compensation and Liability Information System, which is a list maintained by the United States Environmental Protection Agency of sites where there is a known or suspected release or potential release of hazardous materials which may require remediation. CLAIM shall mean all liabilities (including, without limitation, negligence, warranty, statutory, product, strict or absolute liability, liability in tort or otherwise), obligations, responsibilities, losses, damages, penalties, fines, sanctions, claims, Environmental Claims, actions, causes of action, suits, investigations, judgments, Liens (including any Lien in favor of any Governmental Authority for environmental liabilities and costs or violations of any Environmental Laws), Taxes, costs, expenses and disbursements, of any kind or nature, including, without limitation, reasonable legal fees and expenses and costs of investigation. CLOSING DATE shall mean December 19, 1997. 3 CODE shall mean the Internal Revenue Code of 1986, as amended. COMPONENTS shall mean all furniture, fixtures, equipment and other real or personal property to be constructed or installed on the Parcel on or after the Closing Date as set forth in detail in the Lease Supplements, and together shall constitute the Facility. CONSTRUCTION AGENT shall have the meaning set forth in Section 4(a) hereof. CONSTRUCTION AGREEMENTS shall have the meaning set forth in Section 4(c)(iv) hereof. CONSTRUCTION CONTRACT shall mean the Agreement dated as of July 22, 1997 between Lessee and HCMA relating to the construction of the Facility, as assigned to the Lessor pursuant to the Construction Contract Assignment. CONSTRUCTION CONTRACT ASSIGNMENT shall mean the Assignment Agreement dated as of December 19, 1997 among the Lessee, as assignor, the Lessor, as assignee, and HCMA. CONSTRUCTION SCHEDULE shall mean the Construction Schedule for the Facility, as the same may be amended or supplemented from time to time in accordance with Section 4 hereof. CONTRACTUAL OBLIGATION shall mean, as to any Person, any provision of any security issued by such Person or of any agreement, undertaking contract, indenture, mortgage, deed of trust or other instrument, document or agreement to which such Person is a party or by which it or any of its property is bound. CREDIT AGREEMENT shall mean the Amended and Restated Credit Agreement dated as of July 31, 1996, as amended October 15, 1996, March 31, 1997, and October 10, 1997, among the Lessee, Bank of America National Trust and Savings Association, as Agent, ABN AMRO Bank, N.V. and Societ Generale, as Co-Agents, and the other financial institutions party thereto, a copy of which is attached as EXHIBIT F hereto, as it may hereafter be amended or modified or any of its provisions may hereafter be waived pursuant to any Approved Credit Agreement Action. DEFAULT shall mean an event which, after the giving of notice or lapse of time, or both, would constitute an Event of Default. 4 ENVIRONMENTAL CLAIMS shall mean any Claim, action, cause of action, investigation or notice (in written form) by any Person or entity alleging potential liability (including, without limitation, potential liability for investigatory costs, cleanup costs, Remedial Action, Releases, governmental response costs, natural resources damages, property damages, personal injuries, or penalties) arising out of, based on or resulting from (a) the presence, release into the environment, of any Hazardous Material at any location, whether or not owned or operated by the Lessee or (b) circumstances forming the basis of any violation, or alleged violation, of any Environmental Law. ENVIRONMENTAL CONSULTANT shall mean Century West Engineering Corporation. ENVIRONMENTAL LAWS shall mean all applicable federal, state, foreign and local laws and regulations, and common law relating to pollution or protection of the environment (including, without limitation, ambient air, surface, water, groundwater, land surface or subsurface strata, wetlands, wildlife, aquatic species, vegetation and natural resources), including, without limitation, laws and regulations relating to emissions, discharges, Releases or threatened Releases of Hazardous Materials or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials. Environmental Laws include, but are not limited to, the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"); the Federal Insecticide, Fungicide, and Rodenticide Act ("FIFRA"); the Resource Conservation Recovery Act ("RCRA"); Oil Pollution Act of 1990 ("OPA"); the Superfund Amendments and Reauthorization Act of 1986 ("SARA"); the Toxic Substances Control Act ("TSCA"); the Hazardous Material Transportation Act; the Clean Air Act; the Federal Water Pollution Control Act; the Safe Drinking Water Act; and their state and local counterparts or equivalents. ENVIRONMENTAL PERMITS shall mean all Permits required under Environmental Laws. ERISA shall mean the Employee Retirement Income Security Act of 1974, as amended, and regulations promulgated thereunder. ERISA AFFILIATE shall mean any trade or business (whether or not incorporated) under common control with the Lessee within the meaning of Section 414(b) or 414(c) of the Code. ERISA EVENT shall mean (a) a Reportable Event with respect to a Pension Plan; (b) a withdrawal by the Lessee or any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer (as 5 defined in Section 4001(a)(2) of ERISA) or a cessation of operations which is treated as such a withdrawal under Section 4062(e) of ERISA; (c) the filing of a notice of intent to terminate the treatment of a plan amendment as a termination under Section 4041 or 4041A of ERISA or the commencement of proceedings by the PBGC to terminate a Pension Plan subject to Title IV of ERISA; (d) a failure by the Lessee or any ERISA Affiliate to make required contributions to a Pension Plan or other Plan subject to Section 412 of the Code; (e) an event or condition which might reasonably by expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan; (f) the imposition of any liability under Title IV of ERISA, other than PBGC premiums due but not delinquent under Section 4007 of ERISA, upon the Lessee; or (g) an application for a funding waiver or an extension of any amortization period pursuant to Section 412 of the Code with respect to any Pension Plan. EVENT OF DEFAULT shall have the meaning set forth in Section 20 hereof. EVENT OF LOSS shall mean with respect to the Facility any of the following events: (i) loss of the Facility or the use thereof due to theft, disappearance, destruction, damage beyond repair or rendition of the Facility permanently unfit for commercial operation for any reason whatsoever; (ii) any damage to the Facility which results in an insurance settlement with respect to the Facility on the basis of a total loss; (iii) the requisition of title to the Leased Property or any part thereof by the act of the United States government or any other Governmental Authority; (iv) the condemnation, confiscation or seizure of, or requisition of use ("Requisition of Use") of the Leased Property or any part thereof by the act of the United States Government or any other Governmental Authority which constitutes a total taking thereof, (v) the Requisition of Use of the Leased Property or any part thereof by the act of the United States Government or any other Governmental Authority which has rendered the operation of the Facility uneconomic to the Lessee. The date of such Event of Loss shall be the date of such theft, disappearance, destruction, damage, condemnation, confiscation, seizure, requisition of title, Requisition of Use or unfitness for use for the stated period. EXPECTED TAXES shall mean net income taxes imposed by any federal or state Governmental Authority on the Lessor with respect to any Rent received by the Lessor. FACILITY shall mean the sawmill facility to be constructed on the Parcel, as more fully described in the Construction Contract and the Construction Budget and shall be comprised of the Components. 6 FINAL COMPLETION DATE shall mean the date on and as of which the Lessee has delivered to the Lessor a fully executed Officer's Certificate in the form of EXHIBIT D hereto. FINAL SURVEY shall mean an ALTA/ACSM survey of the Parcel and any necessary easements, rights of way or similar property rights benefiting the Parcel, showing the location of all Components, easements, encroachments and other survey matters together with a certification from the surveyor, such survey and certification shall be in form and substance satisfactory to the Lessor. GAAP shall mean generally accepted accounting principals in the United States of America in effect from time to time. GENERAL PARTNER shall mean the general partner of the Lessee, Crown Pacific Management Limited Partnership, a Delaware limited partnership, or any successor general partner of the Lessee. GOVERNMENT ACTION shall mean all actions, authorizations, consents, approvals, waivers, exceptions, variances, franchises, filings, orders, permits, licenses, exemptions, publications, notices to and declarations of or with any Governmental Authority, including, without limitation, those pertaining to Environmental Laws and Environmental Permits. GOVERNMENTAL AUTHORITY shall mean and include any Federal, state, municipal or other governmental department, commission, board, bureau, court, legislature, agency, instrumentality or authority, domestic, foreign, transnational or international. GROUND LEASE shall mean the Ground Lease dated as of December 19, 1997 between the Ground Lessor and the Ground Lessee, conveying to the Lessor a leasehold estate in the Parcel. GROUND LESSEE shall mean the Lessor as ground lessee under the Ground Lease. GROUND LESSOR shall mean the Lessee as ground lessor under the Ground Lease. HCMA shall mean HCMA Consulting Group, Inc., an Oregon corporation. 7 HAZARDOUS MATERIALS shall mean (i) all substances defined as such in the National Oil and Hazardous Substances Pollution Contingency Plan, 40 C.F.R.(S)300.5, (ii) any substance that, whether by its nature or use, is subject to regulation under any Environmental Law or with respect to which any Federal, state or local Environmental Law of Governmental Authority requires environmental investigation, monitoring or remediation and (iii) all substances defined as such by, or regulated as such under, any Environmental Law. INDEMNIFIED PERSON shall mean the Lessor, its successors, assigns and affiliates, and the directors, officers, employees and agents of the foregoing. INDEPENDENT AUDITOR shall have the meaning set forth in Section 18(a)(i). INSURANCE REQUIREMENTS shall mean all of the insurance requirements set forth in Section 14(a) through (c) hereof. IRS shall mean the Internal Revenue Service, and any Governmental Authority succeeding to any of its principal functions. LAW shall mean any law (including, without limitation, any zoning law or ordinance, any Environmental Law or Legal Requirements), treaty, directive, statue, rule, regulation, ordination, order, directive, code, interpretation, judgment decree, injunction, writ, determination, award, Permit, license, authorization, direction, requirement or decision of or agreement with or by any Governmental Authority or any official or officer thereof having jurisdiction of the matter in question. LEASE shall mean this Lease and shall include each Lease Supplement entered into pursuant to the terms hereof. LEASE SUPPLEMENT shall mean a supplement to this Lease duly executed and delivered by the Lessor and the Lessee pursuant to, and in accordance with, the terms hereof, in the form of EXHIBIT A hereto. LEASE TERM shall mean the period commencing on the Closing Date and ending on the Lease Termination Date or such shorter period as may result from earlier termination as provided herein. LEASE TERMINATION DATE shall mean the earlier of (i) the Final Completion Date, (ii) September 30, 1998 and (iii) the date on which this Lease is terminated pursuant to the terms hereof. 8 LEASED PROPERTY shall mean the Parcel and the Facility. LEGAL REQUIREMENTS shall mean (i) all Laws, foreseen or unforeseen, ordinary or extraordinary, or arising from any restriction of record or otherwise, which now or at any time hereafter may be applicable to the Lessor, as owner of the Facility, the Lessee, as lessee hereunder, or the Leased Property or any part thereof, or any of the adjoining sidewalks, or the maintenance, management, ownership, construction, operation, mortgaging, occupancy, possessing, use, non-use or condition of the Leased Property or any part thereof; (ii) and any other governmental rules, orders and determinations now or hereafter enacted, made or issued, and applicable to the Lessor, as owner of the Facility, the Lessee, as lessee hereunder, or the Leased Property or any part thereof or to the maintenance, management, ownership, construction, operation, mortgaging, occupancy, possession, use, non-use or condition thereof whether or not presently contemplated; and (iii) all agreements, Permits, covenants, and restrictions applicable to the Leased Property or any part thereof or the maintenance, management, ownership, construction, operation, mortgaging, occupancy, possession, use, non-use or condition thereof. LESSEE shall mean Crown Pacific Limited Partnership, a Delaware limited partnership, and its permitted successors and assigns. LESSOR shall mean SELCO Service Corporation, an Ohio corporation, and its permitted successors and assigns. LESSOR'S LIENS shall mean any Lien on or against the Leased Property arising as a result of (i) Claims against the Lessor which are not related to the transactions contemplated by the Operative Documents, (ii) any act or omission of the Lessor which is not related to the transactions contemplated by the Operative Documents or is in violation of any of the terms of the Operative Documents or (iii) Claims against the Lessor with respect to Taxes or expenses against which the Lessee is not required to indemnify Lessor pursuant to any of the Operative Documents. LIEN shall mean any interest in property securing an obligation owed to, or claimed by, a Person other than the owner of the property, whether such interest is based on the common law, statute or contract, and including but not limited to any security interest, mortgage, encumbrance, pledge, conditional sale or trust receipt or a lease, consignment or bailment for security purposes; the term "Lien" shall include reservations, exceptions, encroachments, easements, rights-of-way, covenants, conditions, restrictions, leases and other title exceptions and encumbrances affecting property. 9 MANDATORY ALTERATION shall have the meaning set forth in Section 11(d) hereof. MATERIAL ADVERSE EFFECT shall mean (a) a material adverse change in, or a material adverse effect upon, the operations, business, properties, condition (financial or otherwise) or prospects of the Lessee; (b) a material impairment of the ability of the Lessee to perform under this Lease or any other Operative Document and to avoid any Event of Default; (c) a material adverse effect upon the legality, validity, binding effect or enforceability against the Lessee of any Operative Document or; (d) a material adverse effect on the continued economic operation of the Leased Property. MAXIMUM REQUISITION FUNDING AMOUNT shall mean $18,040,922.33. MEMORANDUM OF LEASE shall mean the Memorandum of Lease dated as of December 19, 1997 between the Lessor and the Lessee. MEMORANDUM OF GROUND LEASE shall mean the Memorandum of Ground Lease dated as of December 19, 1997 between the Ground Lessor and the Ground Lessee. MGP GENERAL PARTNERS shall mean, collectively, Freemont Timber, Inc., a Delaware corporation, and HS Corp. of Oregon, an Oregon corporation, the sole general partners of the General Partner, and any successor general partner of the General Partner. MODIFICATION shall mean any improvement, modification, alteration or addition to the Leased Property. NEW LEASE NOTIFICATION shall have the meaning set forth in Section 19(a) hereof. NONSEVERABLE MODIFICATION shall mean a Modification to the Leased Property which is not a Severable Modification. NPL shall mean the National Priorities List. OFFICER'S CERTIFICATE of any Person shall mean a certificate signed by a president, any vice president and/or any other duly authorized and responsible officer of such Person. OPERATIVE DOCUMENTS shall mean and include this Lease, the Lease Supplements, the Construction Contract, the Construction Contracts Assignment, the Ground Lease, the Memorandum of Lease and the Memorandum of Ground Lease. 10 ORDER shall mean and include any order, writ, injunction, decree, judgment, award, determination, direction or demand of any Governmental Authority. OVERDUE RATE shall mean a rate per annum equal to the greater of (i) 2% above the Basic Rent Rate then in effect, or for any period after the Lease Termination Date, the Basic Rent Rate for the last Rental Period or (ii) 2% above the Prime Rate. PARCEL shall mean the real property described on Schedule 1 hereto. PARTS shall mean all appliances, parts, instruments, appurtenances, accessories and other equipment of whatever nature, which may from time to time be incorporated or installed in or attached to and become a part of the Leased Property as originally constituted. PENSION PLAN shall mean a pension plan (as defined in Section 3(2) of ERISA) subject to Title IV of ERISA which the Lessee or any ERISA Affiliate sponsors, maintains, or to which it makes, is making, or is obligated to make contributions, or in the case of a multiple employer plan (as described in Section 4064(a) of ERISA) has made contributions at any time during the immediately preceding five (5) plans years. PERMIT shall mean any order, authorization, consent, approval, license, ruling, permit, certification, exemption, filing or registration by or with any Governmental Authority. PERMITTED ENCUMBRANCES shall have the meaning set forth in the Ground Lease. PERMITTED LIENS shall mean all Liens permitted by Section 10 hereof. PERSON shall mean any individual, partnership, corporation, limited liability company, limited liability partnership, joint stock company, trust, unincorporated association or organization or joint venture, a government or any department or agency thereof, or any other entity. PLAN shall mean an employee benefit plan (as defined in Section 3(3) of ERISA) which the Lessee or any ERISA Affiliate sponsors or maintains or to which the Lessee makes, is making, or is obligated to make contributions and includes any Pension Plan. PRIME RATE shall mean the rate of interest per annum publicly announced from time to time by Key Bank National Association as its prime rate in effect at its 11 principal office in Cleveland, Ohio; each change in the Prime Rate shall be effective from and including the date such change is publicly announced as being effective. RELEASE shall mean the release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching or migrating into the environment of any Hazardous Material through or in the air, soil, surface water or groundwater. REMEDIAL ACTION shall mean actions required to (i) clean up, remove, treat or in any other way address Hazardous Materials in the environment, (ii) prevent the Release or further Release or minimize the further Release of Hazardous Materials, or (iii) investigate and determine if a remedial response is needed, to design such a response and post-remedial investigation, monitoring, operation, maintenance and care. RENT shall have the meaning set forth in Section 3(c) hereof. RENTAL PERIOD shall mean the following periods: (i) the Closing Date through December 31, 1997 and (ii) each calendar month thereafter through the Lease Termination Date; PROVIDED, that with respect to the calendar month in which the Lease Termination Date occurs, the Rental Period for that month, if the Lease Termination Date is not the last day of such month, shall be the first day of such calendar month through the Lease Termination Date. REPLACEMENT PARTS shall have the meaning set forth in Section 11(c) hereof. REPORTABLE EVENT shall mean any of the events set forth in Section 4043(b) of ERISA or the regulations thereunder, other than any such event for which the 30-day notice requirement under ERISA has been waived in regulations issued by the PBGC. REQUISITION shall mean a requisition by the Lessee for Requisition Fundings substantially in the form of EXHIBIT B. REQUISITION FUNDING shall have the meaning set forth in Section 5(b) hereof. REQUISITION FUNDING CONDITIONS shall mean the conditions to each Requisition Funding set forth in Sections 6(b) and 6(c) hereof. REQUISITION FUNDING DATE shall mean the Closing Date and the first Business Day of any month thereafter through the Lease Termination Date. 12 REQUISITION OF USE shall have the meaning set forth in the definition of Event of Loss. SEVERABLE MODIFICATION shall mean any Modification to the Leased Property permitted hereunder which can be readily removed therefrom without impairing the current or residual value, utility or remaining useful life of the Leased Property. SUBSIDIARY of any Person shall mean any corporation, partnership, limited liability company, limited liability partnership, joint venture, trust or estate of which (or in which) more than 50% of (a) the Voting Stock of such corporation, (b) the interest in the capital or profits of such partnership, limited liability company, limited liability partnership, or joint venture or (c) the beneficial interest in such trust or estate is at the time directly or indirectly owned or controlled by such Person, by such Person and one or more of its other Subsidiaries or by one or more of such Person's other Subsidiaries. SUPPLEMENTAL RENT shall have the meaning set forth in Section 3(c) hereof. TAX or TAXES shall mean, without limitation, any fee (including license, filing, recording, transfer, mortgage and registration fees), foreign, Federal, state or local tax (including any income, gross receipts, withholding, franchise, excise, sales, use, value added, mortgage, real, personal, tangible or intangible property tax or any tax similar to any of the foregoing taxes), interest equalization, recording, transfer or stamp tax (including deed stamp tax), assessment (including any maintenance charge, owner association dues or charges), levy, impost, duty, charge or withholding of any kind or nature whatsoever, imposed or assessed by any foreign, Federal, state or local government or agency, or governmental authority, together with any addition to tax, penalty, fine or interest thereon, other than Expected Taxes. TITLE INSURANCE POLICY shall have the meaning set forth in Section 6(a)(vii). TOTAL FUNDINGS means an amount equal to all Requisition Fundings made by the Lessor hereunder. UNFUNDED PENSION LIABILITY shall mean the excess of a Pension Plan's benefit liabilities under Section 4001(a)(16) of ERISA, over the current value of that Pension Plan's assets, determined in accordance with the assumptions used for funding the Pension Plan pursuant to Section 412 of the Code for the applicable plan year. UPDATED TITLE POLICY shall mean an update of the Title Insurance Policy in form and substance satisfactory to the Lessor, including the removal of the survey exception. 13 VOTING STOCK shall mean, as to any corporation, all stock of any class or classes (however designated), or other securities of any kind, having ordinary voting rights for an election of a majority of the directors (or Persons performing similar functions) of such corporation, other than shares or securities having such power only by reason of the happening of a contingency. SECTION 2. LEASE OF THE LEASED PROPERTY. Upon the terms and subject to the conditions set forth in this Lease and each Lease Supplement, and in consideration for the rents and covenants herein stipulated to be performed by the Lessee, the Lessor hereby leases to the Lessee the Leased Property. This Lease shall be effective with respect to any Components described on Schedule 1 to each Lease Supplement executed and delivered by the Lessor and the Lessee from time to time. Such Components shall be subject to the terms and conditions of this Lease from and after the date on which a Lease Supplement relating to such Components is executed and delivered for the period commencing on the date of execution and delivery of such Lease Supplement. Simultaneously with the delivery of each Requisition pursuant to Section 5 hereof, the Lessee shall deliver to the Lessor an executed Lease Supplement with respect to the Components included in the Actual Project Costs described in such Requisition. SECTION 3. TERM AND RENT. (a) TERM. The term of this Lease shall begin on the Closing Date and shall end on the Lease Termination Date. (b) BASIC RENT. On the first Business Day immediately succeeding the last day of each Rental Period (each a "Basic Rent Payment Date"), the Lessee shall pay to the Lessor, as basic rent (herein referred to as "Basic Rent") for such Rental Period, an amount determined as follows: (i) an amount equal to the aggregate amount of Actual Project Costs advanced by the Lessor pursuant to Section 5 hereof from the date hereof through and including such Basic Rent Payment Date, MULTIPLIED BY (ii) the Basic Rent Rate, DIVIDED BY (iii) 360, and MULTIPLIED BY (iv) the actual number of days in such Rental Period. 14 The Lessee agrees not to prepay any payment of Basic Rent except as specifically provided by the terms hereof. (c) SUPPLEMENTAL RENT. The Lessee shall pay to the Lessor or such other Person as shall be entitled thereto the following amounts (herein referred to as "Supplemental Rent" and, together with all Basic Rent, as "Rent"): (i) on the date provided herein or in the applicable Operative Document or if no such date shall be so provided then on demand, any amount payable hereunder (other than Basic Rent) which the Lessee assumes the obligation to pay, or agrees to pay, under this Lease or any other Operative Document to the Lessor or others; and (ii) on demand, to the extent permitted by applicable law, interest (computed on the basis of a 360-day year and actual days elapsed) at the Overdue Rate on any payment of Rent not paid when due for any period during which the same shall be overdue. The expiration or other termination of the Lessee's obligation to pay Basic Rent hereunder shall not limit or modify the obligations of the Lessee with respect to Supplemental Rent. (d) PAYMENTS. All amounts payable by the Lessee hereunder shall be paid in lawful money of the United States of America and in immediately available funds by wire transfer by 2:00 p.m. (New York City time) on the applicable Basic Rent Payment Date or on the date when due, unless any such due date is not a Business Day, in which case payment shall be due and payable on the next succeeding Business Day, at an account designated by the Lessor or to such other Person in the United States of America or in such other manner as the Lessor from time to time may designate to the Lessee by written instructions. SECTION 4. CONSTRUCTION AGENT. (a) APPOINTMENT OF CONSTRUCTION AGENT. The Lessor hereby appoints the Lessee to act as the Lessor's agent (the Lessee, in such capacity, is herein called the "CONSTRUCTION AGENT"), and the Construction Agent hereby agrees to act as the Lessor's agent, to construct the Facility in a manner consistent with the Construction Contract, the Approved Construction Budget, the Construction Schedule and Construction Agreements and to undertake such other duties and obligations as are set forth herein. 15 (b) TERM OF AGENCY RELATIONSHIP. The agency relationship created herein between the Construction Agent and the Lessor shall commence as of the date hereof and shall end on the sooner to occur of: (i) the Lease Termination Date; (ii) the giving of notice by the Lessor of such termination upon the occurrence of an Event of Default; or (iii) the Final Completion Date. No termination of the agency relationship hereunder nor any failure on the part of the Lessor to perform its obligations under any Operative Document (other than its failure to make, or cause to make available, the proceeds of each Requisition Funding in accordance with the terms hereof) shall limit or otherwise affect the Lessor's rights against the Construction Agent for any breach or failure to perform hereunder. (c) DUTIES OF CONSTRUCTION AGENT. In connection with the construction of the Facility, the Construction Agent shall on the Lessor's behalf: (i) construct, and/or cause the renovation and construction of, the Facility in a good and workmanlike manner and in accordance with prudent industry practice and free and clear of all Liens (other than Permitted Liens) arising out of the same; (ii) cause such construction to be carried on (i) with diligence and continuity (subject to delays or interruptions resulting from adverse weather, labor or materials shortages, strikes or other labor difficulties, acts of God, or other similar circumstances beyond the reasonable control of the Lessee) so that the Final Completion Date is achieved by no later than September 30, 1998, (ii) substantially in accordance with the Construction Agreements, the Construction Contract, Approved Construction Budget and the Construction Schedule, (iii) in accordance in all material respects with all Legal Requirements and Applicable Permits and (iii) in accordance with all Insurance Requirements; (iii) pay, or cause to be paid, in accordance with prudent industry practice, all costs and expenses of such construction, including, without limitation, all Actual Project Costs, if any, in excess of an amount equal to the Maximum Requisition Funding Amount (without reimbursement by or other obligation of the Lessor), including, to the extent required, payment of all amounts owing to contractors and subcontractors, and perform all obligations arising out of such construction; (iv) subject to the provisions of paragraph (e) below, negotiate and enter into (on behalf of the Lessor) such design, construction contracts, subcontracts, change orders or amendments thereto (collectively, the "Construction Agreements") as the Construction Agent may deem necessary or 16 advisable in connection with the construction of the Facility; provided, that such Construction Agreements shall be with reputable contractors and subcontractors duly licensed (to the extent required by Applicable Law) to perform their obligations under such Construction Agreements and bonded by such reputable bonding companies, in such amounts, payable in favor of the Lessor, as are consistent with prudent industry standards and the Lessee's customary standards and practices; (v) subject to the limitations set forth in paragraph (e) below, prepare and adopt such modifications, amendments and supplements to the Approved Construction Budget and the Construction Schedule as the Construction Agent may deem necessary or advisable; (vi) apply for and procure, at its own cost and expense, any and all Applicable Permits required to be obtained, maintained or held by either the Construction Agent or the Lessor as and when required by any Legal Requirement to be obtained and maintain all such Permits in full force and effect to the extent required by Applicable Law; (vii) deliver to the Lessor monthly progress reports on the construction of the Facility no later than January 15, 1998 and on the 15th of each month thereafter, which reports shall set forth the status of the construction to date, including a statement setting forth the percentage of the Facility completed, and certify that the construction has been performed in a good and workmanlike manner, substantially in accordance with the Construction Agreements, the Approved Construction Budget and the Construction Schedule; (viii) at the cost and expense of the Construction Agent, allow the Lessor or its agent to examine and obtain copies of all Construction Agreements, Applicable Permits, invoices, purchase orders or receipts for Actual Project Costs, construction plans, requests for proposal, bids, and all other information related to the construction of the Facility as the Lessor may reasonably request; and (ix) deliver to the Lessor copies of any periodic reports prepared by, or provided to, the Lessee or the Construction Agent in connection with the construction and operation of the Facility. 17 (d) RIGHT TO RECEIVE CONSTRUCTION COSTS. (i) During the course of the construction of the Facility, the Construction Agent may, in compliance with the procedures set forth in Section 5 hereof, request payment by the Lessor of Actual Project Costs. (ii) Subject to and in accordance with Section 5 hereof, the Lessor shall make available, or cause to be made available, the proceeds of each Requisition Funding as directed by the Construction Agent in the Requisition relating thereto. The Construction Agent will use the proceeds of each Requisition Funding received by it only to pay the Actual Project Costs set forth in the Requisition for such Requisition Funding and title to the Components acquired with proceeds of each Requisition Funding shall be vested in the Lessor. (e) CERTAIN LIMITATIONS ON SCOPE OF AGENCY RELATIONSHIP. The Construction Agent: (i) may amend or revise the Approved Construction Budget to reflect amendments or revisions to the Construction Contract or Construction Schedule made in accordance with the terms hereof and thereof, PROVIDED, HOWEVER, that the Construction Agent shall not, without the prior written consent of the Lessor, amend or revise the Approved Construction Budget to increase the total actual and projected amount of the Actual Project Costs to an amount which exceeds the sum of the Maximum Requisition Funding Amount plus ten percent (10%) of the Maximum Requisition Funding Amount; and (ii) shall not, without the prior written consent of the Lessor, request or make any changes in the design, drawing, specifications, or construction of any part of the Facility that would (i) reduce the current or residual fair market value or useful life of the Facility; (ii) materially change the use of the Facility; or (iii) result in the failure to complete the construction the Facility (A) in a good and workmanlike manner and in accordance with prudent industry practice and free and clear of all Liens (other than Permitted Liens) arising out of the same and (B) in compliance with all applicable Legal Requirements, Applicable Permits and Insurance Requirements; and (iii) shall not amend or revise the Construction Schedule to extend the scheduled date for completion of the construction of the Facility beyond September 30, 1998. 18 SECTION 5. ACQUISITION OF COMPONENTS; FINANCING. (a) ACQUISITION. In order to finance the acquisition by the Lessor of the Components and to finance the cost of construction of the Facility, the Lessor, as more fully described below, will advance to the Construction Agent on behalf of the Lessor the Actual Project Costs. (b) REQUISITIONS. No more than ten (10) and no less than five (5) Business Days prior to each Requisition Funding Date, the Construction Agent shall submit to the Lessor a Requisition requesting an advance on the immediately succeeding Requisition Funding Date in an amount not to exceed the amount of Actual Project Costs incurred since the immediately preceding Requisition Funding Date (such amount, a "Requisition Funding"). Each Requisition shall constitute a representation and warranty by the Construction Agent and the Lessee that the conditions precedent to such Requisition Funding have been satisfied. (c) REQUISITION FUNDINGS. Subject to the satisfaction of the conditions set forth in Section 6(a) hereof, with respect to the Closing Date, and Sections 6(b) and, if applicable, 6(c) hereof with respect to each other Requisition Funding Date, the Lessor shall make a Requisition Funding on the applicable Requisition Funding Date; PROVIDED, HOWEVER, that the Lessor shall (i) not be obligated to make a Requisition Funding on the Closing Date in an amount in excess of $2,392,094.51 or a Requisition Funding on January 2, 1998 in an amount in excess of $1,000,000, unless prior to such applicable date the Lessor shall have received the Final Survey and the Updated Title Policy and (ii) not be obligated to make a Requisition Funding if after making such Requisition Funding the aggregate amount of the Total Fundings would exceed the Maximum Requisition Funding Amount. All Requisition Fundings shall be made to the Construction Agent in immediately available funds at the account or accounts designated in the Requisition submitted with respect to such Requisition Funding. SECTION 6. CONDITIONS PRECEDENT. (a) CONDITIONS PRECEDENT TO THE CLOSING DATE. The obligations set forth in Sections 2, 4 and 5 hereof shall be subject to the fulfillment, to the satisfaction of the Lessor, on or before the Closing Date, of the following conditions precedent: (i) DUE AUTHORIZATION, EXECUTION AND DELIVERY. The Operative Documents shall have been duly authorized, executed and delivered by all parties thereto and shall be in full force and effect. No condition or event shall exist or have occurred which would constitute a Default or Event of Default under any of 19 the Operative Documents by any party thereto and the Lessee shall have delivered an Officer's Certificate to such effect dated the Closing Date. (ii) REPRESENTATIONS. The representations and warranties of the Lessee set forth in the Operative Documents shall be true and correct on and as of the Closing Date, and the Lessee shall have delivered an Officer's Certificate dated the Closing Date to such effect. (iii) OPINIONS. The following opinions, dated the Closing Date and addressed to the Lessor, shall have been delivered to the Lessor: (A) an opinion of Ball Janik, LLP, special counsel to the Lessee, addressed to the Lessor in form and substance reasonably satisfactory to the Lessor and its counsel; and (B) an opinion of Davis Wright Tremaine LLP, Washington counsel, addressed to the Lessor, as to Washington law and in form and substance reasonably satisfactory to the Lessor and its counsel. (iv) PROCEEDINGS SATISFACTORY AND OTHER EVIDENCE. All partnership, corporate and other proceedings taken or to be taken in connection with the transactions contemplated by the Operative Documents and all documents, papers and authorizations relating thereto shall be reasonably satisfactory to the Lessor and its counsel. The Lessor and its counsel shall receive copies of such documents and papers as they have reasonably requested, in form and substance reasonably satisfactory to them, including but not limited to the Operative Documents. (v) SECRETARY'S CERTIFICATES; GOOD STANDING CERTIFICATES; ETC. The Lessor shall have received on or before the Closing Date the following, each dated the Closing Date (unless otherwise specified) in form and substance satisfactory to the Lessor: (A) copies of the resolutions of the board of directors of each MGP General Partner, as general partners of the General Partner, as general partner of the Lessee, and the executive committee of the Board of Control of the General Partner, in each case approving the execution, delivery and performance by the General Partner on behalf of the Lessee of the Operative Documents and the transactions contemplated thereby, certified as of the Closing Date by the Secretary or an Assistant Secretary 20 of such MGP General Partners and the General Partner, as the case may be; (B) a certificate of the Secretary or Assistant Secretary of the General Partner certifying the names and true signatures of the officers of the General Partner, as general partner of the Lessee, authorized to execute, deliver and perform, as applicable this Lease and the other Operative Documents on behalf of the Lessee; (C) the partnership certificate of the Lessee and the General Partner as in effect on the Closing Date, certified by the Secretary of State (or similar, applicable Governmental Authority) of the state of formation of such entities as of a recent date and by the Secretary or Assistant Secretary of the General Partner as of the Closing Date, and each of the Lessee's Partnership Agreement and the General Partner's Partnership Agreement as in effect on the Closing Date, certified by the Secretary or Assistant Secretary of the General Partner as of the Closing Date; (D) the articles or certificate of incorporation of each MGP General Partner as in effect on the Closing Date, certified by the Secretary of State (or similar, applicable Governmental Authority) of the state of incorporation of such MGP General Partner as of a recent date and by the Secretary or Assistant Secretary of such MGP General Partner as of the Closing Date, and the bylaws of each MGP General Partner as in effect on the Closing Date, certified by the Secretary or Assistant Secretary of such MGP General Partner as of the Closing Date; and (E) a good standing certificate for the Lessee, the General Partner and the MGP General Partners from the Secretary of State (or similar, applicable Governmental Authority) of its state of incorporation or formation, as applicable, and with respect to the Lessee, the States of Idaho, Washington and Oregon, as of a recent date, together with a bring-down certificate by facsimile, dated the Closing Date; (vi) CLOSING FEES. The Lessee shall have paid, or caused to be paid, accrued fees and expenses of the Lessor (including the reasonable fees and expenses of New York, Washington and Idaho counsels to the Lessor). (vii) TITLE AND SURVEY; FLOOD HAZARD. 21 (A) The Ground Lessor shall have granted to the Ground Lessee a good and marketable leasehold estate in the Parcel, free and clear of all Liens, except Permitted Encumbrances. The Ground Lessee shall have received from a title insurance company acceptable to the Ground Lessee (the "Title Company") an ALTA prepaid title insurance policy in a form acceptable to the Ground Lessee insuring the Ground Lessee's leasehold estate in the Parcel together with any necessary easements, rights-of-way or similar property rights in an amount not less than $18,040,922.33; subject only to such exceptions as shall be approved by the Ground Lessee, including a pending disbursements clause and containing all endorsements required by the Ground Lessee, including without limitation, a comprehensive endorsement, a contiguity endorsement, an endorsement providing mechanics' lien coverage and an endorsement insuring access to duly open public roads (the "Title Insurance Policy"). (B) The Lessor shall have received a preliminary survey of the Parcel. (C) Evidence that the Parcel is not in a flood hazard zone or evidence of flood hazard insurance. (viii) PERMITS AND CERTAIN PROPERTY MATTERS. All Permits that are or will become Applicable Permits (including, without limitation, those identified on Schedule 6(a)(viii), shall have been obtained, except Applicable Permits customarily obtained or which are permitted by Law to be obtained after the Closing Date (and the Lessee, having completed all appropriate due diligence in connection therewith, shall have no reason to believe that such Permits will not be granted in the usual course of business prior to the date that such Permits are required by Law). All such obtained Permits shall be in proper form, shall be in full force and effect and shall not be subject to any further appeal, consent or contest or to any unsatisfied condition that may allow modification or revocation. The Lessee shall have delivered an Officer's Certificate certifying satisfaction of the foregoing condition, together with a copy of each Permit required to be obtained as of the Closing Date pursuant to this Section 6(a)(viii). (ix) DOCUMENTS RELATING TO THE PARCEL. The Lessee shall deliver, or cause to be delivered, to the Lessor documentation with respect to the condition of the Parcel, the real estate Taxes applicable to the Parcel and such other documents and agreements relating to the construction and operation of the 22 Facility or any part thereof as the Lessor may reasonably request, in form and substance reasonably acceptable to the Lessor. (x) INSURANCE. The Lessee shall be in compliance with all Insurance Requirements and all insurance policies required by Section 14 hereof shall be in full force and effect. The Lessee shall deliver, or cause to be delivered, to the Lessor (a) certificates of insurance, applicable reinsurance cover notes or other satisfactory assurances, evidencing the coverage of such policies in compliance with the Insurance Requirements; and (b) copies of the exceptions to coverage of such policies. (xi) TAXES. Evidence of the Taxes payable for the Parcel shall be provided to the Lessor. All Taxes, fees and other charges which have become due and payable in connection with the execution and delivery of the Operative Documents shall have been paid by the Lessee and evidence shall be provided to the Lessor that the Parcel is a legally subdivided tax lot. (xii) ENVIRONMENTAL MATTERS. A Phase I and Phase II environmental audit of the Parcel by the Environmental Consultant shall have been conducted, at the sole cost and expense of the Lessee, and the Lessor shall have received a copy of the Environmental Consultant's report on its environmental audit, which (i) shall conclude that (A) no environmental hazards exist on the Parcel that are unacceptable to the Lessor and (B) neither the Parcel, the Components nor the Facility are likely to create any environmental hazards based upon anticipated and permitted practices and procedures and (ii) shall otherwise be in form and substance satisfactory to the Lessor (in its sole discretion). (xiii) NO EVENT OF DEFAULT. No event has occurred and no condition exists which, assuming that all Operative Documents had been signed prior to the Closing Date, would constitute a Default or an Event of Default. (xiv) APPRAISAL. The Lessee shall cause an appraisal of the Leased Property (the "APPRAISAL") to be delivered to the Lessor, which Appraisal shall be in form and substance satisfactory to the Lessor. The Appraisal shall be prepared by the Appraiser at the expense of the Lessee. (xv) NO MATERIAL ADVERSE CHANGE, ETC. No Applicable Law shall prohibit, and no litigation, governmental investigation or other proceeding shall be pending or threatened in which there is a reasonable possibility, in the reasonable judgment of the Lessor, of an unfavorable judgment, decree, order or 23 other determination which could prevent or make unlawful, or impose any material adverse condition upon, the Leased Property or any material part thereof or the acquisition, use, ownership, maintenance, management, operation or leasing thereof or the construction of the Facility or any transaction contemplated hereby or by any other Operative Document or the Lessee performance of its obligations hereunder or thereunder. Since December 31, 1996, there shall not have occurred any material adverse change in the Lessee's (i) business, financial position or results of operations or (ii) ability to perform its respective obligations under any Operative Document to which it is a party, and the Lessee shall have delivered an Officer's Certificate to such effect. (xvi) INITIAL REQUISITION. The Lessee shall have delivered a Requisition to the Lessor at least five (5) Business Days prior to the Closing Date. (xvii) RECORDING AND FILING. The Memorandum of Ground Lease, the Memorandum of Lease and a UCC precautionary financing statement shall have been duly recorded, published, registered and filed by the Lessee, in such manner and in such places as the Lessor and its counsel shall determine to be necessary or appropriate to publish notice thereof and protect the validity and effectiveness thereof and to establish, create, perfect, preserve and protect the rights of the parties thereto and their respective successors and assigns, and all Taxes, fees and other charges in connection with such recording, publishing, registration and filing thereof shall have been paid by the Lessee. (xviii) CONSENTS AND APPROVALS. All Governmental Actions which are required to have been taken, given, obtained, filed or recorded, as the case may be, on or prior to the Closing Date by, from or with any Governmental Authority, and all other consents, filings or approvals which are required to have been taken, given, obtained, filed or recorded, as the case may be, on or prior to the Closing Date by, from or with any other Person, in each case, (a) in connection with the transactions contemplated by the Operative Documents or to authorize the execution, delivery and performance by the Lessee or the Lessor and each of the Operative Documents to which it is a party, or the legality, validity, binding effect or enforceability thereof as against the Lessee, (b) in order that the Leased Property may be leased, used and operated for its intended purposes and the Facility may be constructed thereon as contemplated hereby, or (c) otherwise in connection with the transactions contemplated by the Operative Documents, shall have been duly taken, given, obtained, filed or recorded, as the case may be, and all such approvals shall have been duly taken, given, obtained, filed or recorded, as the case may be, shall be in full force and effect on the Closing Date, 24 shall not be subject to any pending proceedings or appeals (administrative, judicial or otherwise) and shall be adequate to authorize the consummation of the transactions contemplated by the Operative Documents and the performance by the Lessee of its obligations thereunder to which it is a party, except such as may be required to be taken, obtained, given, accomplished or renewed from time to time in connection with the maintenance or operation of the Leased Property or which are otherwise required in connection with the transactions contemplated by the Operative Documents which have been applied for but which cannot be obtained, or which are not normally applied for or taken, given or obtained, prior to the Closing Date, and which in the normal course would be granted; PROVIDED that the failure to obtain such Governmental Actions, consents or approvals by the Closing Date would not materially adversely affect the ability of the Lessee to perform its obligations under any Operative Document to which it is a party. (xix) SATISFACTION WITH CONTEMPLATED TRANSACTIONS. The Ground Lessee shall be satisfied, in its sole discretion, with its review of the Parcel and all material matters in connection with the leasing thereof by the Ground Lessee. (xx) ADDITIONAL DOCUMENTS. The Lessor shall have received such other approvals, certificates or documents as the Lessor may reasonably request to evidence satisfaction of the conditions set forth in this Section 6(a). (b) CONDITIONS PRECEDENT TO EACH REQUISITION FUNDING SUBSEQUENT TO THE CLOSING DATE. The obligations of the Lessor to make Requisition Fundings subsequent to the Closing Date as set forth in Section 5 hereof shall be subject to the fulfillment, to the satisfaction of the Lessor, by, on or as of the date of such requested Requisition Funding, of the following conditions: (i) REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Lessee set forth in the Operative Documents shall be true and correct as if made on and as of the date of such Requisition Funding. (ii) COMPLIANCE; NO DEFAULT, ETC. The Lessee shall be in compliance with its obligations under the Operative Documents on such date and there shall exist no Default or Event of Default under the Operative Documents. (iii) REQUISITION; USE OF PROCEEDS. The Lessor shall have received a timely and complete Requisition pursuant to and in compliance with Section 5(a). All proceeds of the Requisition Fundings shall have been applied solely to Actual Project Costs, and the Lessee shall certify the same in each 25 Requisition and provide such other evidence with respect to the use of such proceeds as may be reasonably requested by the Lessor. (iv) COMPLIANCE WITH LAW. The Leased Property, the construction, and operation of the Facility and the Lessee and the Construction Agent shall be in material compliance with all Laws including, without limitation, all building and construction Laws and Environmental Laws applicable to the Leased Property. (v) NO MATERIAL ADVERSE EVENT. No Applicable Law shall prohibit, and no litigation, governmental investigation or other proceeding shall be pending or threatened in which there is a reasonable possibility, in the judgment of the Lessor, of an unfavorable judgment, decree, order or other determination which could prevent or make unlawful, or impose any material adverse condition upon, the Leased Property or the construction or operation of the Facility or any transaction contemplated hereby or by any other Operative Document or the ability of the Lessee to perform its obligations hereunder or thereunder, and the Lessee shall certify the same in each Requisition. (vi) LEGALITY. The making of any Requisition Funding, and maintenance thereof, by the Lessor shall not be prohibited by any Applicable Law and shall not subject to any Tax, penalty, liability or other onerous condition under or pursuant to any Applicable Law. (vii) PERMITS. All Permits that are or will become Applicable Permits shall have been obtained, except Applicable Permits customarily obtained or which are permitted by Law to be obtained after the date of the requested Requisition Funding (and the Lessee, having completed all appropriate diligence in connection therewith, shall have no reason to believe that such Permits will not be granted in the usual course of business prior to the date that such Permits are required by Law). All such obtained Permits shall be in proper form, in full force and effect and not subject to any appeal, consent or further contest or to any unsatisfied condition (other than conditions relating to completion in the future) that may allow modification or revocation. (viii) NO PROPERTY DAMAGE. None of the Leased Property shall have suffered an Event of Loss, or any other damage or destruction which renders the Leased Property unusable in whole or in material part and, under Applicable Law, the Leased Property may be used for the purposes contemplated by the 26 Lessee in accordance with this Lease, and the Lessee shall certify the same in each Requisition. (ix) TITLE INSURANCE POLICY UPDATE. The Title Insurance Policy shall have been endorsed and re-dated as required by the Lessor to cover each Requisition Funding, including, without limitation, a mechanics lien endorsement, with no title exceptions objectionable to the Lessor. (x) ADDITIONAL DOCUMENTS. The Lessor shall have received such other approvals, certificates or documents as the Lessor may reasonably request to evidence satisfaction of the conditions set forth in this Section 6(b). (c) CONDITIONS PRECEDENT TO ANY REQUISITION FUNDING SUBSEQUENT TO JANUARY 1, 1998. The obligations of the Lessor to make Requisition Fundings subsequent to January 1, 1998 as set forth in Section 5 hereof shall be subject to the fulfillment, to the satisfaction of the Lessor, by, on or as of the date of such requested Requisition Funding, of the following conditions: (i) OTHER CONDITIONS. The Lessee shall have satisfied the conditions precedent set forth in Section 6(b) hereof. (ii) DELIVERY OF FINAL SURVEY AND UPDATED TITLE POLICY. The Lessor shall have received the Final Survey and the Updated Title Policy. SECTION 7. NET LEASE; NON-TERMINABILITY. (a) This Lease is a net lease and, except as otherwise expressly provided in this Lease, any present or future Law to the contrary notwithstanding, shall not terminate, nor shall the Lessee be entitled to any abatement, reduction, set-off, counterclaim, defense or deduction with respect to any Rent or other sum payable hereunder. Except as otherwise expressly provided in this Lease, the obligations of the Lessee shall not be affected by reason of: (i) any damage to or destruction of the Leased Property or any part thereof by any cause whatsoever (including, without limitation, by fire, Event of Loss or act of God or enemy or any other force majeure event); (ii) any Requisition of Use, including, without limitation, a temporary Requisition of Use of the Leased Property or any part thereof; (iii) any prohibition, limitation, restriction or prevention of the Lessee's use, occupancy or enjoyment of the Leased Property or any part thereof by any Person; (iv) any matter affecting title to the Leased Property or any part thereof; (v) any eviction of the Lessee from, or loss of possession by the Lessee of, the Leased Property or any part thereof, by reason of title paramount or otherwise; (vi) any default by the Lessor hereunder; (vii) the invalidity or unenforceability of any 27 provision hereof or in the other Operative Documents or the impossibility or illegality of performance by the Lessor or the Lessee or both; (viii) any action of any Governmental Authority; or (ix) any other cause or occurrence whatsoever, whether similar or dissimilar to the foregoing. The parties intend that the obligations of the Lessee hereunder shall continue unaffected unless such obligations shall have been modified or terminated pursuant to an express provision of this Lease. (b) The Lessee shall remain obligated under this Lease in accordance with its terms and shall not take any action to terminate, rescind or avoid this Lease, notwithstanding any bankruptcy, insolvency, reorganization, liquidation, dissolution or other proceeding affecting the Lessor or any action with respect to this Lease which may be taken by any trustee, receiver or liquidator or by any court. Except as expressly permitted in this Lease, the Lessee waives all rights to terminate or surrender this Lease, or to any abatement or deferment of Rent or other sums payable hereunder or under the other Operative Documents. The Lessee shall remain obligated under this Lease in accordance with its terms, and the Lessee hereby waives any and all rights now or hereafter conferred by Law or otherwise to modify or to avoid strict compliance with its obligations under this Lease. All payments made to or for the benefit of the Lessor hereunder as required hereby shall be final, and the Lessee shall not seek to recover any such payment or any part thereof for any reason whatsoever, absent manifest error. SECTION 8. RETURN OF THE LEASED PROPERTY. (a) RETURN. If upon the expiration or termination of this Lease, the Lessee or its designee has not purchased the Facility as provided in Section 19 hereof or the Lessee shall not have entered into new leasing arrangements pursuant to Section 19 hereof, the Lessee shall surrender the Leased Property and the Facility shall be surrendered in the operating condition, efficiency, utility and with the useful life the Facility had upon the completion of its construction, except as repaired, rebuilt, replaced, renovated, altered, added to or built as permitted or required hereby and except for ordinary wear and tear. To the extent that the Facility is not in compliance with the above, upon such expiration or termination (except as a consequence of a Event of Loss, as to which Section 13 hereof applies), the Lessee shall pay to Lessor (or on behalf of the Lessor) such additional amounts as are required to place it in compliance therewith. (b) NO LIENS. The Lessee shall also surrender the Leased Property to the Lessor free and clear of all Liens, easements, consents and restrictive covenants and agreements affecting the Leased Property (other than Lessor's Liens and Permitted Encumbrances). 28 (c) COMPLIANCE WITH ENVIRONMENTAL LAWS. The Lessee shall also surrender the Leased Property in a condition such that they are in compliance with all applicable Environmental Laws (irrespective of whether the deadline for such compliance would otherwise expire after the Lease Termination Date). Nothing contained in this Section 8 shall relieve or discharge or in any way affect the obligation of the Lessee to cure promptly pursuant to this Lease any violations of Legal Requirements referred to in this Lease, or to pay and discharge any Liens against the Leased Property. The Lessee shall cooperate, to the fullest extent, with the Lessor, its subsequent lessees, operators or purchasers to effect the transfer of all of Lessee's Applicable Permits for the Leased Property to such Persons. (d) REMOVAL AND REPAIR. The Lessee, at its sole cost and expense, shall remove from the Leased Property on or prior to such expiration or termination, all property situated thereon which is not owned by the Lessor and shall repair any damage caused by such removal and shall restore the Facility to the condition and working order (or reasonable equivalent thereof) in which it existed immediately prior to the installation of such property, except for ordinary wear and tear. Lessee shall indemnify and hold harmless the Lessor, its successors and assigns against any loss, liability, cost, expense, penalty or claim arising out of the Lessee's removal of such property from the Leased Property including, without limitation, any environmental liability arising therefrom. Any such property of the Lessee not so removed shall become the property of the Lessor, and the Lessor may cause such property to be removed from the Leased Property and disposed of, and the cost of any such removal and disposition of the Lessee's property and of repairing any damage caused by such removal and of the restoration of the Leased Property to the condition and working order (or reasonable equivalent thereof) in which the Leased Property existed immediately prior to the installation of such property, ordinary wear and tear excepted, shall be borne by the Lessee. (e) SURVIVAL. The obligations of the Lessee under this Section 8 shall survive the expiration or any termination of this Lease (whether by operation of Law or otherwise) for all matters described in this Section 8 which occur or arise prior to such expiration or termination or arise out of or result from facts, events, claims, liabilities, actions or conditions occurring, arising or existing on or before such expiration or termination. SECTION 9. WARRANTY OF THE LESSOR. (a) QUIET ENJOYMENT. During the term of this Lease, the Lessor covenants that, unless a Default or an Event of Default has occurred and is continuing, it will not, and will not permit any party claiming by or under the Lessor (subject to the 29 terms, covenants and provisions of the Ground Lease) to, (i) grant, create or suffer to exist any Lien upon the Leased Property (or any part thereof or interest therein) other than the Permitted Encumbrances (excluding therefrom any Lessor's Lien); or (ii) interfere with the peaceful and quiet possession and enjoyment of the Leased Property by the Lessee. (b) LIMITED LESSOR WARRANTY. The warranties set forth in paragraph (a) of this Section are in lieu of all other warranties of the Lessor, other than as specifically set forth in the other Operative Documents, whether written, oral or implied, with respect to this Lease or any of the Leased Property, and the Lessor shall not be deemed to have modified in any respect the obligations of the Lessee pursuant to Section 7 hereof, which obligations are absolute and unconditional. (c) THE LESSEE REPRESENTS, WARRANTS, ACKNOWLEDGES AND AGREES THAT (I) THE FACILITY IS OF THE SIZE, DESIGN, CAPACITY AND MANUFACTURE SELECTED BY THE LESSEE, (II) THE LESSEE IS SATISFIED THAT THE LEASED PROPERTY IS SUITABLE FOR ITS PURPOSES, (III) THE LESSOR IS NOT A MANUFACTURER OR A DEALER IN PROPERTY OF SUCH KIND AND (IV) THE LEASED PROPERTY IS LEASED HEREUNDER SUBJECT TO ALL APPLICABLE LAWS AND GOVERNMENTAL REGULATIONS NOW IN EFFECT OR HEREAFTER ADOPTED, WITHOUT REPRESENTATION OR WARRANTY OF ANY KIND BY THE LESSOR, EXPRESS OR IMPLIED, AS TO THE TITLE, MERCHANTABILITY, COMPLIANCE WITH SPECIFICATIONS, CONDITION, DESIGN, OPERATION, FREEDOM FROM PATENT OR TRADEMARK INFRINGEMENT, ABSENCE OF LATENT DEFECTS OR FITNESS FOR USE OF THE LEASED PROPERTY (OR ANY PART THEREOF), OR ANY OTHER REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO THE LEASED PROPERTY (OR ANY PART THEREOF), OTHER THAN AS SPECIFICALLY SET FORTH IN THE OPERATIVE DOCUMENTS. It is agreed that except as expressly provided herein all risks incident to the matters discussed in the preceding sentence, as between the Lessor and Lessee, are to be borne by the Lessee. Except to the extent otherwise expressly stated, the foregoing provisions are intended to be a complete exclusion and negation of any representations or warranties by the Lessor, express or implied, with respect to the Leased Property, or any part thereof, whether arising pursuant to the Uniform Commercial Code or any similar law now or hereafter in effect, or otherwise. The Lessor authorizes the Lessee, at the Lessee's expense, to assert for the Lessor's account, during the Lease Term, so long as no Event of Default shall have occurred and be continuing, all of the Lessor's rights under any applicable manufacturer's or contractor's warranty and the Lessor agrees to cooperate with the Lessee in asserting such rights; PROVIDED, HOWEVER, that the Lessee shall 30 indemnify and hold the Lessor harmless from and against any and all claims, and all costs, expenses, damages, losses and liabilities incurred or suffered by the Lessor in connection with, as a result of, or incidental to, any action by the Lessee pursuant to the above authorization. Any amount received by the Lessee as payment under any such warranty shall be applied to restore the Facility to the condition required by Section 11 hereof and any excess shall be paid to the Lessee. SECTION 10. LIENS. The Lessee will not directly or indirectly create, incur, assume or suffer to exist any Liens on or with respect to any of the Leased Property or any part thereof, the Lessor's title thereto or any interest of the Lessor therein (and the Lessee will promptly, at its own expense, take such action as may be necessary duly to discharge any such Lien), except (a) the respective rights of the Lessor and the Lessee as herein and in the other Operative Documents provided, (b) Lessor's Liens, (c) Liens for taxes either not yet due or being contested by the Lessee in good faith with due diligence and by appropriate proceedings (and with respect to which the Lessee shall have secured a stay of execution pending such contest and adequate reserves are maintained with respect thereto, in accordance with GAAP), provided that counsel for the Lessor shall have determined that the nonpayment of any such tax or the contest of any such payment in such proceedings does not, in the opinion of such counsel, adversely affect the title, property or rights of the Lessor in the Leased Property, (d) inchoate materialmen's, mechanics', workmen's, repairmen's, employees' or other like Liens arising in the ordinary course of business of the Lessee for amounts either not yet due or being contested by the Lessee in good faith with due diligence and by appropriate proceedings (and with respect to which the Lessee shall have secured a stay of execution pending such contest and adequate reserves are maintained with respect thereto, in accordance with GAAP), if counsel for the Lessor shall have determined that the contest of any such payment in such proceedings does not, in the opinion of such counsel, adversely affect the title, property or rights of the Lessor in the Leased Property, (e) easements, rights-of-way and other similar encumbrances arising in the ordinary course of the Lessee's business and necessary for the operation or the construction of the Facility which do not impose material financial obligations on the Lessee and which do not diminish the current or residual value or interfere with the ordinary intended use of the Leased Property, and (f) Permitted Encumbrances. SECTION 11. MAINTENANCE AND OPERATION; COMPLIANCE AND USE; REPLACEMENT PARTS; MODIFICATIONS. (a) MAINTENANCE AND OPERATION. The Lessee shall operate, maintain, inspect, service, repair and overhaul the Facility in accordance with prudent industry 31 practice and such operating standards as shall be applied by the Lessee or its Affiliates with respect to similar property owned or leased by the Lessee or its Affiliates and in any event shall keep the Facility in as good operating condition as when delivered to the Lessee hereunder, ordinary wear and tear excepted. Throughout the Lease Term, the possession, operation and maintenance of the Facility shall be at the sole risk and expense of the Lessee. (b) COMPLIANCE AND USE. The Lessee agrees that the maintenance, use and operation, as applicable, of the Leased Property will, in all material respects, be in compliance with all Applicable Laws. Subject to the provisions of Section 15 hereof, the Leased Property will at all times (i) be used solely in the conduct of the Lessee's business and (ii) be and remain in the possession and control of the Lessee. (c) REPLACEMENT PARTS. Except as otherwise provided in the succeeding paragraph (d) of this Section, the Lessee, at its own cost and expense, will promptly replace all Parts which may from time to time become worn out, lost, stolen, destroyed, seized, confiscated, damaged beyond repair or permanently rendered unfit for use (such replacement parts hereinafter called "Replacement Parts"). In addition, in the ordinary course of maintenance, service, repair, overhaul or testing, the Lessee may, at its own cost and expense, remove any Parts, whether or not worn out, lost, stolen, destroyed, seized, confiscated, damaged beyond repair or permanently rendered unfit for use, PROVIDED that the Lessee shall, at its own cost and expense, replace such Parts as promptly as practicable. All Replacement Parts shall be free and clear of all Liens and shall be in as good operating condition as, and shall have a value and utility at least equal to, the Parts replaced assuming such replaced Parts were in the condition and repair required to be maintained by the terms hereof. All Parts at any time removed from the Facility shall remain the property of the Lessor, no matter where located, until such time as such Parts shall be replaced by Replacement Parts which have been incorporated or installed in or attached to and become a part of the Facility and which meet the requirements for Replacement Parts specified above. Immediately upon any Replacement Part becoming incorporated or installed in or attached to and becoming a part of any of the Facility as above provided, without further act, (i) title to the removed Part shall thereupon vest in the Lessee, free and clear of all rights of the Lessor, and shall no longer be deemed a Part hereunder, (ii) title to such Replacement Part shall thereupon vest in the Lessor, and (iii) such Replacement Part shall become subject to this Lease and be deemed part of the Facility for all purposes hereof to the same extent as the Parts originally incorporated or installed in or attached to the Facility. The Lessee agrees to cooperate with the Lessor in the preparation, execution 32 and filing of such documents as may be reasonably required to create, perfect and maintain the Lessor's ownership in any such Replacement Part. The Lessee shall notify the Lessor of any Replacement Part or any series of related Replacement Parts (whether related by type or function) for any Leased Property installed and having a cost per Replacement Part or such series of related Replacement Parts, as the case may be, of $250,000 or more. (d) MODIFICATIONS. The Lessee may, without the prior written consent of the Lessor, but solely at Lessee's expense, either (i) repair the Facility by the installation of a Replacement Part, or (ii) affix, install or make any Nonseverable Modification or Severable Modification as the Lessee may deem desirable in the proper conduct of its business, PROVIDED, that no such Modification diminishes the current or residual value, utility, useful life or condition of the Facility below the current or residual value, utility, useful life or condition thereof immediately prior to the making, affixing or installing of such Modification, assuming the Facility was then of the value or utility and in the condition required to be maintained by the terms of this Lease. The Lessee shall, at its expense, make such Modifications to any of the Facility ("Mandatory Alteration") as may be required from time to time to meet the requirements of any Applicable Law or of any Governmental Authority having jurisdiction, or any applicable Permit, deed, conveyance, lease, agreement, easement or instrument. Title to each Nonseverable Modification and each Mandatory Alteration shall, upon installation or affixation to the Facility, vest in the Lessor and thereupon such Nonseverable Modification or Mandatory Alteration, as the case may be, shall become a part of the Facility for all purposes hereof and become subject to this Lease. Title to any Severable Modification (other than a Mandatory Alteration) shall remain in, and be acquired at the expense of, the Lessee. So long as no Event of Default shall have occurred and be continuing, the Lessee may remove any Severable Modification (other than a Mandatory Alteration) at any time prior to the expiration or termination of this Lease so long as such removal shall not materially reduce the current or residual value, utility, useful life or condition of the Facility below the current or residual value, utility, useful life or condition the Facility would have had at such time if such Severable Modification had not been made. Notwithstanding anything in this Lease to the contrary, upon the occurrence and during the continuance of an Event of Default, if this Lease shall be declared to be in default pursuant to Section 20 hereof, any interest of 33 the Lessee in any Severable Modification at such time shall, without further act, become the property of the Lessor. The Lessee shall notify the Lessor of any Mandatory Alterations, Nonseverable Modifications and Severable Modifications or any series of related Modifications (whether related by type or function) for the Facility installed and having an estimated cost per Modification or such series of related Modifications, as the case may be, in excess of $500,000. In the event any Nonseverable Modification or Mandatory Alteration or such series of related Modifications (whether related by type or function) shall have a cost per Modification or such series of related Modifications, as the case may be (including installation), in excess of $500,000, the Lessee at its sole cost and expense shall furnish the Lessor with a full warranty bill of sale, in form and substance satisfactory to the Lessor, conveying title to such Nonseverable Modification or Mandatory Alteration to the Lessor. (e) PROTECTION OF INTERESTS. The Lessee agrees to take such action as shall reasonably be required from time to time by the Lessor to protect the respective interests of the Lessor in the Leased Property. (f) ENCROACHMENTS. Except for Permitted Encumbrances, in the event that all or any part of the Facility or any Modification shall encroach upon any property or right-of-way adjoining or adjacent to the Leased Property or any part thereof, or shall violate any agreements or conditions affecting the Leased Property or any part thereof, or shall obstruct any easement or right-of-way to which the Leased Property or any part thereof may be subject, then the Lessee shall, at its sole cost and expense, either (i) contest such matter, (ii) obtain valid and effective Permits for or consents to such encroachments and/or violations (without any liability to the Lessor for which it is not indemnified by the Lessee) or waivers or settlements of all claims, liabilities and damages resulting therefrom, or (iii) make such changes, including alteration or removal, to the Facility or the Modification (as the case may be) and take such other action as shall be reasonably necessary to rectify such encroachments, violations, hindrances, obstructions or impairments, subject to the Lessor's consent if and to the extent required by paragraph (d) of this Section. SECTION 12. INSPECTION REPORTS. (a) INSPECTION. The Lessor shall have the right (which may be delegated to its consultants, representatives and agents), but not the duty, to inspect the Leased Property or any part thereof and records directly related to the construction and operation of the Leased Property or any part thereof and to discuss with the Construction 34 Agent, the general contractor, subcontractors and officers of the Lessee such of the affairs, finances, construction and accounts as are relevant to the Operative Documents or as are necessary or advisable for the Lessor to evaluate the progress, costs and quality of the construction of the Facility, in all cases, at reasonable times and in compliance with and subject to Lessee's and the Construction Agent's reasonable security and safety procedures, in effect from time to time. Any such inspection shall be made after advance written notice to the Lessee is given; PROVIDED, HOWEVER, that no advance written notice need be given if the Lessor, in its sole discretion, has reason to believe that a Default or Event of Default has occurred or other exigent or emergency conditions exist; and PROVIDED FURTHER, that all such inspections upon the occurrence and during the continuance of a Default or an Event of Default (i) shall be at the expense of the Lessee (and shall otherwise be at the expense of the Lessor) and (ii) shall be broad enough to provide the Lessor, its consultants, representatives and agents with access to the Leased Property or any part thereof and to the Lessor's books and records relating to the management, operation, use, construction, renovation or occupancy of the Leased Property or any part thereof as they may require for any purpose, including, without limitation, for marketing, selling, operating or otherwise disposing of the Leased Property or any part thereof. (b) LIABILITY; DAMAGE. The Lessee shall give prompt written notice to the Lessor of each accident likely to result in damages against the Lessee or, as the case may be, in excess of $750,000 in any way relating to or arising out of the alleged or apparent improper manufacture, financing, construction, purchase, acceptance, rejection, ownership, acquisition, delivery, nondelivery, lease, sublease, preparation, installation, storage, maintenance, repair, transportation, transfer of title, abandonment, possession, rental, use, operation, condition, sale, return, importation, exportation, or other disposition of the Leased Property or any portion thereof; promptly upon the Lessee becoming aware of same, and on request shall furnish to the Lessor information as to the time, place and nature thereof, the names and addresses of the parties involved, any Persons injured, witnesses and owners of any property damaged, and such other information as may be known to it and shall promptly upon request, if such request is deemed reasonable under the circumstances by the Lessee, furnish the Lessor with copies of all material correspondence, papers, notices and documents whatsoever received by the Lessee (not otherwise subject to the attorney-client privilege) in connection therewith. In any case, the Lessor, at its own expense, may inspect all correspondence, papers, notices and documents whatsoever received by the Lessee (not otherwise subject to the attorney-client privilege) in connection therewith. In addition, the Lessee shall give prompt written notice to the Lessor of any damage, loss of use or destruction of the Leased Property or any part thereof which, in the aggregate, exceed $750,000 and which would not otherwise constitute an Event of Loss with respect thereto. 35 (c) LIENS. Upon the attachment of an aggregate amount of $250,000 or more of Liens on all the Leased Property or any part thereof (in either case excluding any Liens for taxes not yet due and payable), the Lessee shall promptly (and in no event later than ten (10) Business Days after it shall have obtained knowledge thereof) notify the Lessor of the attachment of all such Liens and the full particulars thereof unless the same shall have been removed or discharged by the Lessee. (d) NOTICES OF NONCOMPLIANCE WITH APPLICABLE LAWS. The Lessee shall furnish to the Lessor, within five (5) days after receipt thereof, a copy of any notice or order of any Governmental Authority asserting that the Lessee is not in compliance with, or may be liable for contamination originating from or on the Parcel or the Facility under any Applicable Law, in any case in any respect material to the value of the Leased Property or any part thereof or the respective interests of the Lessor therein. (e) PLANS AND SPECIFICATIONS; OPERATING MANUALS. The Lessee shall maintain or cause its Affiliates to maintain throughout the Lease Term, and keep on file at its office, a complete set of plans and specifications, including "as-built" plans and specifications as and when available, with respect to the Facility (which shall reflect all material Parts incorporated or installed in or attached to the Facility and all material Modifications made pursuant to Section 11 hereof; PROVIDED, HOWEVER, that such plans and specifications shall as of any date not be required to reflect any such Parts so incorporated, installed or attached or any such Modification made within thirty (30) days prior to such date). Other than any part of the Leased Property which shall have been transferred to the Lessee pursuant to the terms hereof, upon the expiration of the Lease Term, the Lessee shall deliver to the Lessor or to the Lessor's designee a complete set, current as of the date of such return or retaking, of such plans and specifications and all work drawings and similar documents with respect to the Leased Property. SECTION 13. LOSS OR DESTRUCTION; REQUISITION OF USE. (a) EVENT OF LOSS. Upon the occurrence of an Event of Loss with respect to Leased Property or any part thereof, the Lessee shall within five (5) Business Days after the occurrence of such Event of Loss give the Lessor written notice thereof. If the remaining portion of the Leased Property not suffering such Event of Loss is not capable of functioning for its intended purpose, the Lessee shall pay to the Lessor on the next Rent Payment Date occurring after the occurrence of such Event of Loss as compensation for such Event of Loss an amount equal to the Total Fundings made by the Lessor from the date hereof through such Basic Rent Payment Date, together with (i) all Basic Rent due and owing on or prior to such date and (ii) all Supplemental Rent due and owing prior to such date and any other Supplemental Rent as to which there is no dispute 36 and which is agreed to become due and owing within 60 days of such date, whereupon (1) this Lease and the obligations of the Lessee hereunder shall terminate and (2) the Lessor shall transfer all right and interest of the Lessor in and to the Leased Property, as is and where is, to the Lessee, free and clear of Lessor's Liens but otherwise without representation or warranty, and the Lessor shall, at the Lessee's expense, execute and deliver to the Lessee a bill of sale or such other documents as the Lessee may reasonably request to evidence the valid consummation of such transfer. If, however, an Event of Loss has occurred with respect to the Leased Property or any part thereof and the portions thereof not suffering such Event of Loss are capable of functioning for their intended purpose, then the Lessee shall as promptly as possible rebuild or cause to be rebuilt (or replace or cause to be replaced) the portions of the Leased Property suffering such Event of Loss which such rebuilt Leased Property (or replacement) shall have at least the same current and residual value, utility and remaining useful life as it had prior to the Event of Loss (assuming such Leased Property has been maintained in accordance with the terms of this Lease). Any replacement portions of Leased Property shall be subject to this Lease and the Lessor shall have title thereto. In the case of a Requisition of Use with respect to any portion of the Leased Property which does not constitute an Event of Loss, such Requisition of Use shall not terminate this Lease with respect to such portion of the Leased Property and each and every obligation of the Lessee with respect thereto shall remain in full force and effect. So long as no Event of Default shall have occurred and be continuing under this Lease, the Lessee shall be entitled to all sums attributable to the period the Leased Property or any portion thereof is subject to this Lease, received by reason of any such Requisition of Use; PROVIDED that if the Lessor determines that as a result of such partial taking there is a reduction in the residual value of such Leased Property, the Lessee will pay to the Lessor that portion of such sums as shall compensate the Lessor for such reduction. All condemnation awards and other moneys received by the Lessee or the Lessor on account of an Event of Loss, other than insurance proceeds, shall be applied as follows: FIRST, to purchase any Components from the Lessor or rebuild or replace any Components contemplated by this Section 13(a) if not theretofore paid by the Lessee, or to reimburse the Lessee for the payment therefor; SECOND, to the Lessee to compensate it for the loss of the fair value of its leasehold interest under this Lease, if any; and THIRD, any balance remaining shall be remitted to the Lessor. The Lessor authorizes the Lessee, at the Lessee's expense, to assert for the Lessor's account, during the Lease Term, so long as no Event of Default shall have 37 occurred hereunder, all of the Lessor's rights and interests in the course of any condemnation or requisition proceedings and the Lessor agrees to cooperate with the Lessee in asserting such rights; PROVIDED, HOWEVER, that the Lessee shall indemnify and hold the Lessor harmless from and against any and all claims, and all costs, expenses, damages, losses and liabilities incurred or suffered by the Lessor in connection with, as a result of, or incidental to, any action by the Lessee pursuant to the above authorization. (b) RISK OF LOSS; NO RELEASE OF OBLIGATIONS. Except as provided in this Section, the Lessee shall bear the risk of loss and shall not be released from its obligations hereunder in the event of any damage to the Leased Property or any part thereof or any Event of Loss relating thereto. SECTION 14. INSURANCE. (a) The Lessee will purchase and maintain, or cause to be purchased and maintained, insurance with respect to the Leased Property of the following types and in the following amounts (or in such greater amounts as may become necessary from time to time to prevent the Lessor and the Lessee from becoming co-insurers of any loss), and in no event in amounts less than those maintained by the Lessee or its Affiliates for other similar facilities owned and/or operated by them: (i) PROPERTY INSURANCE: Property damage insurance on an "all risk" basis, boiler and machinery insurance, including coverage against damage or loss caused by fire, earthquake, earth movement, flood, subsidence and collapse and providing (1) coverage equal to one hundred percent (100%) of the full replacement cost value of the Leased Property and the Lessee's leasehold interest (with only those deductibles approved by the Lessor, and, if required by the Lessor, an agreed amount endorsement), (2) transit coverage during the construction of the Facility and (3) coverage for foundations and other property below the surface of the ground; (ii) GENERAL LIABILITY INSURANCE: Comprehensive general liability (including contractual, completed operations and product liability) insurance against claims for bodily injury (including death), personal injury and property damage occurring on, in or in respect of the Leased Property or resulting from activities on or related to the Leased Property, in the minimum combined single limit amount of $15,000,000, for each occurrence for bodily injury (or death) and/or property damage; 38 (iii) WORKERS' COMPENSATION INSURANCE: Workers' compensation insurance at statutory levels and employers' liability insurance or self-insurance as permitted by Law; (iv) BUILDER'S RISK INSURANCE: During the construction of the Facility, builder's "all risks" and "general risks" insurance or equivalent coverage (with sublimits and deductibles as are acceptable to Lessor), including fire, earth movement, earthquake, flood, subsidence and collapse, business interruption/extra expense and testing and commissioning coverage with respect to the Leased Property and any on-site and off-site work and materials related thereto protecting the Lessee, the Lessor and all contractors and subcontractors in an amount not less than the full replacement cost of such on-site and off-site work; (v) FLOOD INSURANCE: To the extent that any portion of the Parcel may lie in a flood zone, flood insurance in the maximum available amount; (vi) BUSINESS INTERRUPTION INSURANCE: Business interruption insurance to cover loss resulting from delay of the completion of the Facility and, after completion, loss of use, total or partial, of the Leased Property or any part thereof in an amount sufficient at all times to pay Basic Rent with respect to the Leased Property for a period adequate to cover the period of loss of use of the Leased Property or any part thereof plus any other amounts payable by the Lessee to the Lessor during such period in connection with the transactions contemplated by the Operative Documents. Such policy shall provide that the amount payable thereunder shall not be less than the Base Rent and such other amounts during the entire Lease Term. (vii) OTHER INSURANCE: Such other insurance, including automobile liability, in such amounts and against such risks, as is either (x) customarily carried by companies owning, operating or leasing property or conducting businesses similar and/or similarly situated to the Leased Property and/or the Lessee, or (y) reasonably requested from time to time by Lessor to the extent available on commercially reasonable terms. Such insurance shall be written by companies which have a Best Insurance Guide rating of "A-XI" or better (or an equivalent rating from another publication of a similar nature as shall be in current use by the Lessor and the Lessee) or as otherwise agreed to by the Lessor, selected by the Lessee, and all policies of property insurance shall name the Lessor as loss payee and all liability policies (other than the policies referred to in clause (vii) above) shall name the Lessor as additional insured and shall 39 identify the Lessor as the owner of the Facility. In addition, all insurance required hereunder shall be in form and with coverage and deductibles satisfactory to the Lessor. Notwithstanding the foregoing, in no event will the Lessee be required to maintain coverage in amounts in excess of those maintained for businesses similar in size and nature to the Lessee. (b) The insurance referred to in Sections 14(a)(i) and (iv) for the Leased Property (as appropriate) may be a blanket policy and shall (i) at all times be in an amount at least equal to one hundred percent (100%) of the full replacement cost value of the Leased Property (as appropriate) and the Lessee's leasehold interest; (ii) provide that the interests of the Lessor shall be insured regardless of any intentional or willful breach or violation by the Lessee of any warranties, declarations or conditions contained in such insurance; (iii) provide that such insurance shall not be invalidated by any act, omission or negligence of the Lessee or the Lessor, nor by any foreclosure or other proceedings or notices thereof relating to the Leased Property (as appropriate) or any part thereof, nor by legal title to, or ownership of the Leased Property or any part thereof being or becoming vested in or by Lessor or its agents, nor by occupancy or use of the Leased Property or any part thereof for purposes more hazardous than permitted by such policy; and (iv) provide that all partial loss insurance claims in excess of $10,000,000 pertaining to the Leased Property (as appropriate) or any part thereof shall be adjusted by the insurers thereunder with the Lessor. All policies of insurance required to be maintained pursuant to Section 14(a)(ii) which cover liability for bodily injury or property damage shall provide that all provisions of such insurance, except the limits of liability (which shall be applicable to all insureds as a group) and liability premiums (which shall be solely a liability of the Lessee), shall operate in the same manner as if there were a separate policy covering each such insured and/or additional insured, without right of contribution from any other insurance which may be carried by an insured and/or additional insured. Every policy required under Section 14(a) shall (i) expressly provide that it will not be canceled or terminated except upon thirty (30) days' written notice to the Lessor and the Lessee; (ii) include a waiver of all rights of subrogation against the Lessor and any recourse against the Lessor for payment of any premiums or assessments under any policy; (iii) not contain a provision relieving the insurer thereunder of liability for any loss by reason of the existence of other policies of insurance covering the Leased Property or any part thereof against the peril involved, whether collectible or not; and (iv) provide that no claims shall be paid thereunder without ten (10) days' advance written notice to the Lessor. The Lessee shall advise the Lessor promptly of any policy cancellation or any change adversely affecting the coverage provided thereby. 40 (c) The Lessee shall deliver to the Lessor the certificates of insurance and any other documentation required by the Lessor evidencing the existence of all insurance which is required to be maintained by the Lessee hereunder including descriptions of the previously mentioned Insurance Requirements, such delivery to be made (i) within thirty (30) days after the issuance of any additional policies or amendments or supplements to any of such insurance, and (ii) at least thirty (30) days prior to the expiration date of any such insurance. The Lessee shall notify the Lessor of any nonrenewal of any policy required hereunder and shall cause each insurer under each policy required hereunder to give the Lessor notice of any lapse under any such policy. The Lessee shall not obtain or carry separate insurance concurrent in form, or contributing in the event of loss, with that required by this Section 14 unless the Lessor is named as loss payee therein. The Lessee shall immediately notify the Lessor whenever any such separate insurance is obtained and shall deliver to the Lessor the certificates of insurance and any other documentation (other than blanket policies) required by Lessor evidencing the same as is required hereunder. All insurance policies and endorsements shall be fully prepaid and nonassessable. (d) The requirements of this Section 14 shall not be construed to negate or modify the Lessee's obligations under Section 23 hereof. SECTION 15. SUBLETTING; ASSIGNABILITY; AMENDMENT OF CONTRACTS. (a) The Lessee shall not sublet the Leased Property, or any part thereof, unless (i) at the time of any such sublease, no Default or Event of Default or shall have occurred and be continuing; (ii) any such sublease shall by its terms be expressly made subject and subordinate to the terms of this Lease (and the Ground Lease) and shall expire on or before the Lease Termination Date; (iii) the Lessee shall provide the Lessor with notice of such sublease sixty (60) days prior to the effective date of such sublease; (iv) the Lessee shall provide the Lessor ten (10) Business Days prior to the effective date of such sublease with a conformed copy of the instrument creating such sublease; (v) the Lessor has consented to such sublease, which consent shall not be unreasonably withheld; and (vi) such sublease shall be made on commercially reasonable terms. (b) No sublease pursuant to this Section 15 shall modify or limit any right or power of the Lessor hereunder or affect or reduce any obligation of the Lessee hereunder, and all such obligations of the Lessee shall continue in full force and effect as obligations of a principal and not of a guarantor or surety, as though no subletting had been made or occupancy permitted. 41 (c) If the Lessee shall request, in connection with any sublease, that the Lessor execute an attornment and non-disturbance agreement with respect to such sublease, the Lessor shall consider each such sublease on a case-by-case basis and may in its sole discretion consent to its execution and delivery of an attornment and non-disturbance agreement. (d) Except as permitted in Section 15(a), the Lessee shall not mortgage, pledge, assign or otherwise encumber its interest in and to this Lease or in and to any sublease or the rentals payable thereunder without the prior written consent of the Lessor, except that the Lessee may assign its right to purchase the Facility pursuant to Section 19 without the consent of the Lessor so long as the Lessee remains liable for the performance and payment of the purchase obligation. (e) Any sublease made, and any mortgage, pledge or assignment of the Lessee's interest hereunder or under any such sublease granted, otherwise than as expressly permitted by this Section 15, shall be null and void and of no force or effect. SECTION 16. REPRESENTATIONS AND WARRANTIES OF LESSOR. The Lessor represents and warrants to the Lessee that on the Closing Date: (a) DUE ORGANIZATION. The Lessor is a corporation duly organized, validly existing and in good standing under the laws of the State of Ohio and has the corporate power and authority to enter into and perform its obligations under this Lease and each other Operative Document to which it is a party. (b) AUTHORIZATION; EXECUTION; ENFORCEABILITY. The execution, delivery and performance by the Lessor of this Lease and each other Operative Document to which it is a party and of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action on the part of the Lessor and do not and will not require the consent or approval of any shareholder of the Lessor. This Lease and each other Operative Document to which the Lessor is a party have been duly authorized, executed and delivered by the Lessor and, assuming the due authorization, execution and delivery hereof and thereof by the other parties hereto and thereto, are legal, valid and binding obligations of the Lessor, enforceable against the Lessor in accordance with their respective terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, liquidation, moratorium or similar laws affecting creditors' rights generally and by the application of general equitable principles which may limit the availability of certain remedies. 42 (c) NO VIOLATION. The execution and delivery by the Lessor of this Lease and each other Operative Document to which it is a party do not and will not, and the performance by the Lessor of its obligations hereunder and thereunder do not and will not, (i) violate or be inconsistent with or in violation of its charter documents or by-laws, (ii) contravene any provision of any Applicable Law or Governmental Action applicable to it or require any Governmental Action or (iii) contravene any provision of, or constitute any default or require any consent under, any provision of any material indenture, mortgage, contract or other instrument to which the Lessor is a party or by which it or any of its property is bound. SECTION 17. REPRESENTATIONS AND WARRANTIES OF LESSEE. The Lessee represents and warrants to the Lessor that on the Closing Date: (a) DUE ORGANIZATION. The Lessee is a limited partnership, duly organized, validly existing and in good standing under the laws of the State of Delaware and has the power and authority to carry on its business as presently conducted and as it is contemplated to be conducted in connection with the Leased Property, to own or hold under lease its property, and to enter into and perform its obligations under this Lease and each other Operative Document to which it is a party. The Lessee is qualified to do business in and is in good standing under the laws of the States of Washington, Idaho and Oregon and has not failed to qualify to do business in any jurisdiction where failure so to qualify could reasonably be expected to materially adversely affect its ability to conduct its business as it is presently conducted and as it is contemplated to be conducted in connection with the Leased Property, to own or hold under lease its property or to perform any of its obligations under this Lease or any other Operative Document to which it is a party. (b) AUTHORIZATION. The execution, delivery and performance by the Lessee of this Lease and each other Operative Document to which it is a party and of the transactions contemplated hereby and thereby have been duly authorized by all necessary partnership action on the part of the Lessee and do not and will not require the consent or approval of any trustee or holder of any indebtedness or other obligation of the Lessee. (c) EXECUTION; ENFORCEABILITY. This Lease and each other Operative Document to which the Lessee is a party have been duly executed and delivered by the Lessee and, assuming the due authorization, execution and delivery hereof and thereof by the other parties hereto and thereto, are legal, valid and binding obligations of the Lessee, enforceable against the Lessee in accordance with their respective terms, except as such 43 enforceability may be limited by applicable bankruptcy, insolvency, reorganization, liquidation, moratorium or similar laws affecting creditors' or lessors' rights generally and by the application of general equitable principles which may limit the availability of certain remedies. (d) NO VIOLATION. The execution and delivery by the Lessee of this Lease and each other Operative Document to which it is a party do not and will not, and the performance by the Lessee of its obligations hereunder and thereunder do not and will not, (i) violate or be inconsistent with its partnership agreement or any other organizational documents, (ii) contravene any Applicable Law or Governmental Action applicable to it; (iii) contravene any provision of, or constitute a default under, any material indenture, mortgage, contract or other agreement or instrument to which the Lessee is a party or by which it or any of its property are bound, and (iv) result in or, require the creation or imposition of any Lien (other than Permitted Liens) upon any of its property or assets. (e) CONSENTS AND APPROVALS. All Governmental Actions which are required to have been taken, given, obtained, filed or recorded, as the case may be, on or prior to the Closing Date by, from or with any Governmental Authority and all other consents, filings or approvals which are required to have been taken, given, obtained, filed or recorded, as the case may be, on or prior to the Closing Date by, from or with any other Person, in each case, (i) in connection with the transactions contemplated by the Operative Documents, or to authorize the execution, delivery and performance by the Lessee of the Operative Documents to which it is a party, or the legality, validity, binding effect or enforceability thereof as against the Lessee, or (ii) in order that the Leased Property may be leased, used and operated for its intended purpose and the Facility may be construed thereon as contemplated hereby (including, without limitation, all Environmental Permits and all approvals, certificates, permits, authorizations, licenses or other actions relating to the construction of the Facility), shall have been duly taken, given, obtained, filed or recorded, as the case may be, and are in full force and effect, are not subject to any pending proceedings or appeals (administrative, judicial or otherwise) and are adequate to authorize the consummation by the Lessee of the transactions contemplated by the Operative Documents and the performance by the Lessee of its obligations thereunder to which it is a party, except (A) such as may be required to be taken, obtained, given, accomplished or renewed from time to time after the Closing Date in connection with the maintenance or operation of the Leased Property or (B) which are otherwise required in connection with the transactions contemplated by the Operative Documents which have been applied for but which cannot be obtained, or which are not normally applied for or taken, given or obtained, prior to the Closing Date, and which in the normal course would be granted, PROVIDED that the failure to obtain such 44 Governmental Actions, consents, filings and approvals by the Closing Date could not materially adversely affect the ability of the Lessee to perform its obligations under this Lease or any other Operative Document to which it is a party. (f) LITIGATION. There is no action, suit, investigation or proceeding pending or, to the knowledge of the Lessee, threatened against the Lessee or affecting Lessee or its property or rights before any Governmental Authority that questions the validity of any Operative Document or which, individually or in the aggregate, is reasonably likely (i) materially and adversely to affect the consummation of the transactions under this Lease or any other Operative Document to which it is a party or (ii) to have a Material Adverse Effect. The Lessee is not in default with respect to any order of any Governmental Authority, where such default could reasonably be expected to have a Material Adverse Effect or could result in the creation or imposition of any Lien (other than a Permitted Lien) upon the Leased Property. (g) NO DEFAULT. No Default or Event of Default has occurred and is continuing. As of the Closing Date, neither the Lessee nor any of its Subsidiaries is in default under with respect to any Contractual Obligation in any respect which, individually or together with all such defaults, could reasonably be expected to have a Material Adverse Effect or could result in the creation or imposition of a Lien (other than a Permitted Lien) upon the Leased Property. (h) EVENT OF LOSS. No Event of Loss has occurred, and the Leased Property may be used for the purposes contemplated by the Lessee in accordance with this Lease and the other Operative Documents. (i) ENVIRONMENTAL COMPLIANCE. (i) The Leased Property complies in all material respects with all Environmental Laws; all necessary Environmental Permits have been obtained and are in effect for the Leased Property and to the best of the Lessee's knowledge, no circumstances exist that could be reasonably expected to (A) form the basis of an Environmental Action against the Leased Property that could reasonably be expected to have a Material Adverse Effect or (B) cause the Leased Property to be subject to any restrictions on ownership, occupancy, use or transferability under any Environmental Law. (ii) Neither the Leased Property nor any part thereof is listed or, to the knowledge of the Lessee, proposed for listing on the NPL or on CERCLIS or any analogous state list of sites requiring investigation or cleanup. (iii) No Hazardous Materials that have been generated at or transported from the Leased Property or any part thereof have been disposed at 45 any location that is listed or, to the best of the Lessee's knowledge, proposed for listing on the NPL or on the CERCLIS or any analogous state list, and all Hazardous Materials generated, used, treated, handled or stored at or transported to or from the Leased Property or any part thereof and any property currently or formerly owned or operated by the Lessee have been disposed of in compliance in all material respects with all Environmental Laws and applicable Environmental Permits. (iv) The Lessee has not received any written or other notice, mandate, order, Lien or request which remains pending under an Environmental Law concerning any of the Leased Property or any part thereof or relating to an alleged violation of an Environmental Law concerning the Leased Property or any part thereof or relating to any potential adverse action in any way involving environmental, health or safety matters affecting the Leased Property or any part thereof. (v) There is no proceeding pending or, to the knowledge of the Lessee, threatened against the Lessee by any Federal, state, or local court, tribunal, administrative agency, department, commission, board or other authority or instrumentality with respect to the presence or release of any Hazardous Material from the Leased Property or any part thereof. (vi) To the knowledge of the Lessee, no Hazardous Materials have been Released from or on the Leased Property or any part thereof for which remedial action could be required under any Environmental Law or may be necessary to prevent or eliminate a significant risk to human health or the environment. (j) ERISA COMPLIANCE. (i) Each Plan is in compliance with the applicable provisions of ERISA, the Code and other federal or state law, except for such non-compliance which would not reasonably be expected to have a Material Adverse Effect. Each Plan is intended to qualify under Section 401(a) of the Code has received a favorable determination letter from the IRS or an application for such a determination letter will be submitted no later than the expiration of the remedial amendment period for effecting amendments required by reason of Section 1140 of the Tax Reform Act of 1986, as amended, and to the Lessee's knowledge, nothing has occurred which would cause the loss of such qualification. 46 (ii) There are no pending, or to the Lessee's knowledge, threatened Claims by any Governmental Authority, with respect to any Plan which has resulted or could reasonably be expected to result in a Material Adverse Effect. There has been no prohibited transaction or other violation of the fiduciary responsibility rule with respect to any Plan which could reasonably result in a Material Adverse Effect. (iii) No ERISA Event has occurred or is reasonably expected to occur with respect to any Pension Plan. (iv) No Pension Plan (other than the multiemployer plans within the meaning of Section 3(38) of ERISA) has any Unfunded Pension Liability. (v) Neither the Lessee nor any ERISA Affiliate has incurred, nor does it reasonably except to incur, any liability under Title IV of ERISA with respect to any Pension Plan (other than premiums due and no delinquent under Section 4007 of ERISA). (vi) Neither the Lessee nor any ERISA Affiliate has transferred any Unfunded Pension Liability to any Person or otherwise engaged in a transaction that could be subject to Section 4069 of ERISA. (k) DESCRIPTION OF COMPONENTS. The descriptions set forth in Schedule 1 to each of the Lease Supplements are true and accurate descriptions in all material respects of each Component described therein. (l) CERTAIN DOCUMENTS. True, correct and complete copies of the Operative Documents have been delivered to the Lessor. Each of the Operative Documents is in full force and effect, and no material breach thereof by the Lessee or, to the Lessee's knowledge, by any other party thereto, has occurred and is continuing. (m) PAYMENT OF TAXES, ETC. All Taxes, fees and other charges due and payable in connection with the execution, delivery and filing of all documents and instruments, including the Operative Documents, and the performance of the transactions contemplated by the Operative Documents, have been paid in full. (n) INVESTMENT COMPANY ACT. The Lessee is not an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended. 47 (o) HOLDING COMPANY. The Lessee is not subject to regulation as a "holding company," an "affiliate" of a "holding company," or a "subsidiary company" of a "holding company," within the meaning of the Public Utility Holding Company Act of 1935, as amended. (p) NO MATERIAL ADVERSE CHANGE; ADVERSE CONDITIONS. There has not occurred a material adverse change in the business, operations or financial condition of the Lessee since December 31, 1996. No Applicable Law prohibits, and no litigation, governmental investigation or other proceeding is pending or overtly threatened in which there is a reasonable possibility of an unfavorable judgment, decree, order or other determination which could prevent or make unlawful, or impose any material adverse condition upon, the acquisition, construction, installation, use, ownership, operation or leasing of, or the Lessor's ownership of, the Leased Property or any part thereof. (q) INSURANCE. The Lessee is in compliance with all Insurance Requirements, and all insurance policies required by Section 14 hereof are in full force and effect. (r) COMPLIANCE. The Leased Property and each part thereof is in material compliance with all Applicable Laws. (s) NO MATERIAL MISSTATEMENTS. No information, report, financial statement, exhibit or schedule furnished by or on behalf of the Lessee to the Lessor in connection with the negotiation of this Lease or any other Operative Document or any transaction contemplated hereby or thereby, contains or will contain any material misstatement of fact or omitted, omits or will omit to state any material fact necessary to make the statements therein, taken as a whole and taken in the light of the circumstances under which they were, are or will be made, not misleading. (t) TITLE AND INTEREST. The Lessor has a good and indefeasible leasehold interest in the Parcel and good and marketable title to the Facility (together with any necessary easements or rights-of-way or similar property rights), free and clear of all Liens and deed restrictions except Permitted Encumbrances, in the case of the Parcel, and Permitted Liens, in the case of the Facility. (u) COMPLIANCE WITH LAW. The Lessee is not in violation of any Law (including any Environmental Law) with respect to the Leased Property or any part thereof, with respect to the construction of the Facility or installation of any of the Components, or with respect to its leasing, ownership or operation of the Leased Property or any part thereof, or with respect to the conduct of its business relating to the Leased Property or any part thereof or with respect to its assets which, individually or in the 48 aggregate, would be reasonably likely to result in a Material Adverse Effect. The Lessee has not received any notice of, or citation for, any violation of any Law which has not been resolved, which notice or citation relates to the ownership, leasing or operation of the Leased Property or any part thereof or the construction of the Facility. (v) RECORDATION AND FILING. The Memorandum of Ground Lease and the Memorandum of Lease have been duly recorded, published, registered and filed and are in a form sufficient to publish notice of the interests purported to be created by the Ground Lease and this Lease, respectively. Upon the recordation of the Memorandum of Ground Lease in Clallam County, Washington, the Memorandum of Ground Lease will have been recorded or filed in such place in which recording or filing is required to publish notice, under Applicable Law, of the interests created by the Ground Lease and to protect the validity and effectiveness thereof, and all Taxes, fees and other public charges payable in connection with the filing and recordation of the Ground Lease have been paid. Upon the recordation of the Memorandum of Lease in Clallam County, Washington, the Memorandum of Lease will have been recorded or filed in such place in which recording or filing is required to publish notice, under Applicable Law, of the interests created by this Lease and to protect the validity and effectiveness thereof, and all Taxes, fees and other public charges payable in connection with the filing and recordation of the Memorandum of Lease have been paid. (w) RIGHTS TO PROPERTY, ETC. (i) The Ground Lease grants to the Ground Lessee all rights-of-way, easements and real property licenses, environmental allowances, rights in real property (including, without limitation, fixtures and appurtenances), utilities and other services necessary for the day-to-day operation of the Facility when constructed or installed on the Parcel and (A) such rights-of-way, easements, licenses, environmental allowances, utilities and other services are valid and in full force and effect and all consents from third parties necessary to enter into the Ground Lease and the Lease Agreement have been obtained, (B) there is presently no default by the Ground Lessor or, to the Ground Lessor's knowledge, by any other party thereto with respect to any such rights-of-way, easements, licenses, utilities and other services, which would materially and adversely affect such services and (C) all utility services necessary for the construction of each of the applicable Components and for the operation of the Facility for its intended purposes are installed and operational. (ii) None of the Permitted Encumbrances will interfere in any material respect with the use or possession of the Leased Property or any part thereof or any other asset used in connection therewith or the use of or the exercise by the Lessor of its rights either under any Operative Document or to the Leased Property. 49 (iii) The Lessee has given any and all notices required to be given in connection with the construction of the Facility pursuant to any easements, right-of-way, licenses or other agreements affecting the Parcel. (iv) Each of the Components, when constructed or installed, will be situated wholly within the boundary lines of the Parcel and do not and will not encroach upon any contiguous or adjoining property; except as disclosed in writing, neither the Parcel nor any part thereof is considered part of a larger tax lot; none of the Components when constructed or installed will violate any rights granted under any easements or rights of way or any covenants or restrictions affecting the Parcel or any part thereof, and any future violation will not result in a reversion or forfeiture of title, right of re-entry or power of termination; and the easements, rights-of-way, covenants and restrictions affecting the Parcel or any part thereof do not and will not interfere in any material respect with the use or occupancy of the Leased Property or any part thereof, or any asset owned or used in connection therewith, nor will the exercise of rights or remedies thereunder result in any damage to the Leased Property or any part thereof or diminution of value of the Leased Property or any part thereof. (x) CONSTRUCTION BUDGET AND RELATED MATTERS. The Construction Budget has been prepared in good faith on the basis of reasonable assumptions and accurately includes all Actual Project Costs currently anticipated to be incurred in connection with achieving completion of the Facility by the Final Completion Date. The Construction Schedule accurately describes estimated dates of completion of the stages of construction of the Facility. (y) TRADE SECRETS AND PATENTS. (i) The leasing of the Parcel by Lessor, the ownership of the Facility by the Lessor and the leasing and operation of the Facility by the Lessee, including the construction or installation and the proposed operation of the Facility, do not and will not conflict with, infringe on, or otherwise violate any copyright, trademark, trade name, trade secret or patent rights of any other Person. (ii) The Lessee has all rights to all patents, patent applications, trademarks (whether registered or not), trademark applications, trade names, proprietary computer software, "know-how" and copyrights used or to be used in the ordinary course of the operation of the Facility (the "INTELLECTUAL PROPERTY RIGHTS") that are necessary for the operation thereof, including the right to assign the Intellectual Property Rights. There is no judicial proceeding pending or, to the knowledge of the Lessee, threatened, involving any claim of any infringement, misuse or misappropriation by the Lessee or any Affiliate thereof of any patent, 50 trademark, trade name, copyright, license or similar intellectual property right owned by any third party related to the Intellectual Property Rights. (z) CREDIT AGREEMENT. Attached hereto as EXHIBIT F is a true, correct and complete copy of the Credit Agreement as in effect on the Closing Date. (aa) FLOOD ZONE. The Parcel is not in a flood hazard zone. (bb) NO FARMING OR AGRICULTURAL USE . The Leased Property is not and will not be used principally for farming or agricultural purposes. SECTION 18. ADDITIONAL COVENANTS. The Lessee covenants and agrees that: (a) FINANCIAL STATEMENTS. The Lessee shall deliver to the Lessor, in form and detail satisfactory to the Lessor: (i) as soon as available, but not later than 90 days after the end of each fiscal year, a copy of the audited consolidated balance sheet of the Lessee and its Subsidiaries as at the end of such year and the related consolidated statements of income or operations, partners' equity and cash flows for such year, setting forth in each case in comparative form the figures for the previous fiscal year, identifying any material change in accounting policies or financial reporting practices by the Lessee or any of its consolidated Subsidiaries, and accompanied by the opinion of Price Waterhouse LLP or another nationally-recognized independent public accounting firm ("INDEPENDENT AUDITOR") which report shall state that such consolidated financial statements present fairly the financial position for the periods indicated in conformity with GAAP applied on a basis consistent with prior years. Such opinion shall not be qualified or limited because of a restricted or limited examination by the Independent Auditor of any material portion of the Lessee's or any Subsidiary's records; (ii) as soon as available, but not later than 60 days after the end of each of the first three fiscal quarters of each fiscal year, a copy of the unaudited consolidated balance sheet of the Lessee and its Subsidiaries as of the end of such quarter and the related consolidated statements of income, partners' equity and cash flows for the period commencing on the first day and ending on the last day of such quarter, identifying any material change in accounting policies or financial reporting practices by the Lessee or any of its consolidated Subsidiaries, and certified by a General Partner as fairly presenting, in accordance with GAAP 51 (subject to ordinary, good faith year-end audit adjustments), the financial position and the results of operations of the Lessee and its Subsidiaries; (iii) as soon as available, but not later than 90 days after the end of each fiscal year, a copy of an unaudited consolidating balance sheet of the Lessee and its Subsidiaries as at the end of such year and the related consolidating statement of income for such year, certified by a General Partner as having been developed and used in connection with the preparation of the financial statements referred to in clause (i), above; (iv) as soon as available, but not later than 60 days after the end of each of the first three fiscal quarters of each fiscal year, a copy of the unaudited consolidating balance sheets of the Lessee and its Subsidiaries, and the related consolidating statements of income for such quarter, all certified by a General Partner as having been developed and used in connection with the preparation of the financial statements referred to in clause (ii), above. (b) NOTICES. The Lessee shall promptly notify the Lessor: (i) of the occurrence of any Default or Event of Default, and of the occurrence or existence of any event or circumstance that foreseeably will become a Default or Event of Default; (ii) of any matter that has resulted or if adversely determined would reasonably be expected to result in a Material Adverse Effect, including (A) breach or non-performance of, or any default under, a Contractual Obligation of the Lessee, (B) any dispute, litigation, investigation, proceeding or suspension which may exist at any time between the Lessee and any Governmental Authority; or (C) the commencement of, or any material development in, any litigation or proceeding affecting the Lessee, including pursuant to any applicable Environmental Laws; (iii) any Material Adverse Effect subsequent to the date of the most recent audited financial statements of the Lessee delivered to the Lessor pursuant to Section 18(a)(i); (iv) of any material labor controversy resulting in or threatening to result in any strike, work stoppage, boycott, shutdown or other labor disruption against or involving the Lessee, or any of its Subsidiaries; or 52 (v) of any assertion or determination by any Governmental Authority that the Lessee shall no longer be classified as a partnership not taxable as a corporation under the Code. Each notice under this Section shall be accompanied by a written statement by the General Partner setting forth details of the occurrence referred to therein, and stating what action the Lessee or any affected Subsidiary proposes to take with respect thereto and at what time. Each notice under clause (b)(i) above shall describe with particularity any and all clauses or provisions of this Lease or other Operative Document that have been (or foreseeably will be) breached or violated. (c) CREDIT AGREEMENT. The Lessee shall comply, and shall cause each of its Subsidiaries to comply, with all covenants of the Lessee or such Subsidiary in the Credit Agreement, and all notices, certificates, reports and other documents required to be delivered by the Lessee thereunder shall be simultaneously delivered to the Lessor. Such covenants (together will any applicable defined terms) shall constitute, and are hereby expressly made, a part of this Lease; PROVIDED that if there is any conflict between the terms of this Lease and the terms of the Credit Agreement, then the terms of this Lease shall govern. (d) FURTHER ASSURANCES. The Lessee shall (i) ensure that all written information, exhibits and reports prepared by the Lessee, and (ii) use its best efforts to ensure that all written information, exhibits and reports not prepared by the Lessee and, in each case, furnished to the Lessor do not and will not contain any untrue statement of a material fact and do not and will not omit to state any material fact or any fact necessary to make the statements contained therein not misleading in light of the circumstances in which made, and will promptly disclose to the Lessor and correct any defect or error that may be discovered in this Lease or any other Operative Document or in the execution, acknowledgment or recordation hereof or thereof. (e) "AS-BUILT" SURVEY. Not less than ten (10) days prior to the end of the Lease Term, the Lessee shall deliver an "as-built" survey of the Parcel showing the Facility, together with an updated surveyor's certification in form and substance satisfactory to the Lessor. (f) ENVIRONMENTAL EVENT. The Lessee shall promptly, but in any case within five (5) Business Days, notify the Lessor if (i) any environmental event has occurred or any environmental condition is discovered in, on, from or involving the Leased Property or any part thereof (including, but not limited to, the presence, emission or release of Hazardous Materials or the violation of any applicable Environmental Law) 53 that could reasonably be anticipated to result in penalties or other liabilities in excess of $500,000 or (ii) the Lessee has received notification that it, the Leased Property or any part thereof is the subject of a proceeding that could reasonably be expected to result in any ordered remediation or corrective action or other liability related to an environmental event or condition with respect to the Leased Property or any part thereof the cost of which liability is reasonably expected to exceed $500,000 (each of (i) and (ii) an "Environmental Event"). Following the receipt of a notice pursuant to the immediately preceding paragraph, the Lessor, may require the Lessee to conduct, or cause to be conducted, an environmental study by an environmental consultant reasonably satisfactory to the Lessor (the cost and expenses of such environmental consultant shall be borne by the Lessee) of the Leased Property or any applicable part thereof on which such Environmental Event or release shall have occurred, the scope of which study shall be limited to confirming the magnitude and anticipated cost of the liability resulting in the Environmental Event and to provide a copy of the environmental consultant's report on its audit to the Lessor. Notwithstanding the foregoing, if a pattern, in the opinion of the Lessor, of such Environmental Events exists, the Lessor may conduct a more comprehensive environmental study of the Leased Property or the applicable part thereof to determine the scope and nature of such pattern. If it is the opinion of the Lessor that an Environmental Event has occurred or exists and a Permitted Remediation (as defined below) is not available or the Environmental Event cannot be cured through a Permitted Remediation or the Environmental Event will result in the cessation of operation of the Facility or the applicable part thereof for 30 days or more such Environmental Event shall constitute an Environmental Trigger with respect to the Leased Property or the applicable part thereof and shall, at the option of the Lessor, be deemed an Event of Loss with respect to the Leased Property or the applicable part thereof (an "Environmental Trigger"). A "Permitted Remediation" means any remediation of an Environmental Event (a) the cost of which remediation is not anticipated, in the sole opinion of the Lessor, to exceed $5,000,000, (b) during and after which such Environmental Event could not be expected to result in any additional environmental liability incurred by the Lessor for which the Lessor has not received additional indemnification in an amount and from a Person satisfactory to the Lessor, in its sole and absolute discretion and (c) permitted and effected in compliance with all applicable Environmental Laws. Irrespective of whether an Environmental Trigger has occurred, the Lessee shall immediately initiate, at its sole cost and expense, such actions as may be necessary to comply in all material respects with all applicable Environmental Laws and to alleviate any significant risk to human health or the environment if the same arises from a condition on or in respect of the Leased Property or any part thereof, whether existing 54 prior to, on or after the date of this Lease. Once the Lessee commences such actions, the Lessee shall thereafter diligently and expeditiously proceed to comply materially and in a timely manner with all Environmental Laws and to eliminate any significant risk to human health or the environment. SECTION 19. OPTIONS UPON LEASE TERMINATION. (a) NEW LEASE TRANSACTION. Within 60 days prior to the Lease Termination Date, the Lessee shall notify (the "New Lease Notification") the Lessor in writing that it desires to enter into a new lease with respect to the Facility in the form of either (i) a single investor tax lease on substantially the terms set forth on EXHIBIT E hereto or (ii) a leverage tax lease with financial institutions arranged by Key Global Finance on terms to be agreed to between the Lessee and such financial institutions. Upon receipt of such New Lease Notification, the Lessee and the Lessor or Key Global Finance shall negotiate in good faith with respect to such new leasing arrangement. The New Lease Notification shall be irrevocable; PROVIDED that if the Lessee and the lessor, in the case of a single investor tax lease, or the financial institutions arranged by Key Global Finance, in the case of a leverage tax lease, are unable to reach agreement on the terms of the new leasing arrangement, neither party shall have any obligation to enter into such arrangement. (b) PURCHASE OF FACILITY. (i) If the Lessee fails to provide the Lessor with a New Lease Notification in accordance with paragraph (a) above, or if, after delivery of a New Lease Notification, the Lessee and the Lessor (in the case of a single investor tax lease) or the financial institutions arranged by Key Global Finance, Ltd. (in the case of a leverage tax lease), are unable to reach agreement on the terms of the new leasing arrangement, the Lessee may, within 30 days prior to the Lease Termination Date, irrevocably notify the Lessor that the Lessee desires to purchase from the Lessor, and the Lessor shall sell to the Lessee, the Facility. If the Lessee elects to purchase the Facility from the Lessor, then on the Lease Termination Date the Lessor shall sell, transfer and convey all of its right, title and interest in to the Facility and under the Ground Lease, as is and where is, to the Lessee, free and clear of any Lessor Liens but otherwise without any representation or warranty, upon payment in immediately available funds by the Lessee to the Lessor of a purchase price therefor equal to the Total Fundings made by the Lessor from the date hereof through the date of purchase, together with (i) all Basic Rent due and owing on or prior to such date of purchase and (ii) all Supplemental Rent due and owing prior to such date of purchase and any other Supplemental Rent as to which there is no dispute and which is agreed to become due and owing within 60 days of such date. Subject to the foregoing, 55 on the date of such purchase and sale the Lessor shall, at the expense of the Lessee, execute and deliver to the Lessee a bill of sale or assignment and such other documents as the Lessee may reasonably request to evidence the valid consummation of such transfer. (ii) If after delivery of a New Lease Notification, the Lessee and the Lessor, in the case of a single investor tax lease, or the financial institutions arranged by Key Global Finance, in the case of a leverage tax lease, are unable to reach agreement on the terms of the new leasing arrangement, the Lessor may, within 10 days prior to the Lease Termination Date, notify the Lessee that the Lessor desires to sell to the Lessee, and the Lessee shall purchase from the Lessor, the Facility. If the Lessor elects to sell the Facility to the Lessee, then on the Lease Termination Date the Lessor shall sell, transfer and convey all of its right, title and interest in to the Facility and under the Ground Lease, as is and where is, to the Lessee, free and clear of any Lessor Liens but otherwise without any representation or warranty, upon payment in immediately available funds to the Lessor of a purchase price therefor equal to the Total Fundings made by Lessor from the date hereof through the date of purchase, together with (i) all Basic Rent due and owing on or prior to such date of purchase and (ii) all Supplemental Rent due and owing prior to such date of purchase and any other Supplemental Rent as to which there is no dispute and which is agreed to become due and owing within 60 days of such date. Subject to the foregoing, on the date of such sale and purchase the Lessor shall, at the expense of the Lessee, execute and deliver to the Lessee a bill of sale or assignment and such other documents as the Lessee may reasonably request to evidence the valid consummation of such transfer. (c) RETURN OF FACILITY. In the event that the transactions contemplated in paragraph (a) above are not consummated on or before the Lease Termination Date, and in the event that the Lessee does not elect to purchase the Facility from the Lessor or the Lessor does not elect to sell the Facility to the Lessee pursuant to paragraph (b) above, the Lessee shall return the Facility to the Lessor according to the terms and conditions set forth in Section 8 hereof. Upon the return of the Facility to the Lessor in accordance with Section 8 hereof, the Lessee shall have no obligation to pay any amount to the Lessor with respect to Total Fundings made by the Lessor hereunder. SECTION 20. EVENTS OF DEFAULT. Any of the following shall constitute an "Event of Default": (a) NON-PAYMENT. The Lessee shall fail to pay (i) when and as required to be paid herein, any amount of Rent or (ii) within 5 days after the same becomes due, any amount of Supplemental Rent; 56 (b) REPRESENTATIONS AND WARRANTIES. Any representation or warranty made or deemed made by the Lessee set forth herein or in any other Operative Document to which the Lessee is a party, or any representation, warranty, statement or information contained in any written report, certificate, financial statement or other instrument furnished in connection with or pursuant hereto to any other Operative Document, shall prove to have been false in any material respect when so made or furnished; (c) COVENANT DEFAULTS. The Lessee shall fail to perform or observe any other term or covenant contained in this Lease or any other Operative Document or any other document or certificate delivered pursuant hereto or thereto, and such failure shall continue unremedied for a period of thirty (30) days after the earlier of (i) the date upon which the General Partner knew or reasonably should have known of such failure or (ii) the date upon which written notice thereof is given to the Lessee by the Lessor; PROVIDED, HOWEVER, that, if such failure is capable of being cured and provided the Lessee is diligently pursuing such cure, the time with which such failure may be cured shall be extended for such period as is reasonably necessary to complete curing thereof with diligence; (d) BANKRUPTCY; INSOLVENCY. The Lessee or any of its Subsidiaries shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against the Lessee or any of its Subsidiaries seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for it or for any substantial part of its property and, in the case of any such proceeding instituted against it (but not instituted by it), either such proceeding shall remain undismissed or unstayed for a period of 60 days, or any of the actions sought in such proceeding (including, without limitation, the entry of an order for relief against, or the appointment of a receiver, trustee, custodian or other similar official for, it or for any substantial part of its property) shall occur; or the Lessee or any of its Subsidiaries shall take any corporate action to authorize any of the actions set forth above in this paragraph (d); (e) MONETARY JUDGMENTS. One or more non-interlocutory judgments, non-interlocutory orders, decrees or arbitration awards is entered against the Lessee or any of its Subsidiaries involving in the aggregate a liability (to the extent not covered by independent third-party insurance as to which the insurer does not dispute coverage) as to any single or related series of transactions, incidents or conditions, of $5,000,000 or 57 more, and the same shall remain unsatisfied, unvacated and unstayed pending appeal for a period of 30 consecutive days after the entry thereof; (f) NON-MONETARY JUDGMENTS. Any non-monetary judgment, order or decree is entered against the Lessee or any of its Subsidiaries which does or could reasonably be expected to have a Material Adverse Effect, and there shall be any period of 30 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; (g) GOVERNMENTAL ACTION. The Lessee shall be prevented or relieved by any Governmental Authority from performing or observing any monetary payment or repayment obligation evidenced by this Lease or any other Operative Documents; (h) UNENFORCEABILTY OF OPERATIVE DOCUMENTS. Any Operative Document shall for any reason no longer be in full force and effect in accordance with its terms; (i) ABANDONMENT. The Lessee shall have abandoned the Leased Property or any part thereof; (j) CREDIT AGREEMENT EVENT OF DEFAULT. An "Event of Default" under the Credit Agreement shall have occurred and shall not have been waived in accordance with the terms of the Credit Agreement pursuant to an Approved Credit Agreement Action; (k) REPUDIATION OF OPERATIVE DOCUMENTS. Any Operative Document or any obligation of the Lessee thereunder shall be revoked or repudiated or attempted to be revoked or repudiated by the Lessee; (l) UNAUTHORIZED REMOVAL, TRANSFER. The Lessee shall (except as expressly permitted by the provision of this Lease) attempt to remove, sell, transfer, encumber, part with possession of, assign or sublet the Leased Property or any part thereof; (m) FAILURE TO MAINTAIN INSURANCE. The Lessee shall fail to be in compliance with the Insurance Requirements, and all other insurance policies required by Section 14 shall fail to be in full force and effect; (n) FAILURE TO PURCHASE FACILITY. The Lessee shall fail to purchase the Facility as and when required pursuant to Section 19(b) hereof; 58 (o) DELIVERY OF FINAL SURVEY AND UPDATED TITLE POLICY. The Lessee shall fail to deliver to the Lessor the Final Survey and the Updated Title Policy on or prior to January 31, 1998. SECTION 21. REMEDIES. If any Event of Default shall have occurred and be continuing, then and in every such case, (A) in the case of an Event of Default set forth in Sections 20(d), (m) and (n) hereof, this Lease shall be in default without further act or notice of any kind (all of which are hereby waived), which for all purposes hereof and of the other Operative Documents shall be deemed to be a declaration of default hereunder, and (B) in the case of any other Event of Default, the Lessor may, at its option, declare this Lease to be in default by written notice to such effect given to the Lessee, and in either case at any time thereafter, the Lessor may exercise one or more of the following remedies, as the Lessor in its sole discretion shall lawfully elect: (a) the Lessor may demand that the Lessee, and the Lessee shall upon receipt of written demand of the Lessor, deliver the Leased Property promptly to the Lessor in the manner and condition required by, and otherwise in accordance with all the provisions of, Section 8 hereof as if the Leased Property was being returned at the end of the Lease Term and the Lessor shall not be liable for the reimbursement of the Lessee for any costs and expenses incurred by the Lessee in connection therewith; or the Lessor may enter upon the premises of the Leased Property and take immediate possession of (to the exclusion of the Lessee) the Leased Property by summary proceedings or otherwise, all without liability to the Lessor for or by reason of such entry or taking of possession, whether for the restoration of damage to property caused by such taking or otherwise; (b) the Lessor may sell all or any part of the Facility and assign all or any part of its rights under the Ground Lease at public or private sale, as the Lessor may determine, in a commercially reasonable manner, free and clear of any rights of the Lessee and without any duty to account to the Lessee with respect to such action or inaction or any proceeds with respect thereto (except to the extent provided in paragraph (d) of this Section if the Lessor shall elect to exercise its rights thereunder), in which event the Lessee's obligation to pay Basic Rent hereunder for periods commencing after the date of such sale and assignment shall terminate (except to the extent that Basic Rent is to be included in computations under paragraph (d) of this Section if the Lessor shall elect to exercise its rights thereunder); (c) the Lessor may hold, keep idle or lease to others all or any part of the Facility as the Lessor in its sole discretion may determine, free and clear of any rights 59 of the Lessee and without any duty to account to the Lessee with respect to such action or inaction or for any periods with respect to such action or inaction, except that the Lessee's obligation to pay Basic Rent hereunder for periods commencing after the Lessee shall have been deprived of use of the Facility pursuant to this paragraph (c) shall be reduced by the net proceeds, if any, received by the Lessor from leasing the Facility to any Person other than the Lessee for the same period or any portion thereof; (d) the Lessor may, whether or not the Lessor shall have exercised or shall thereafter at any time exercise any of its rights under paragraph (a), (b) or (c) of this Section, demand that the Lessee pay to the Lessor, and the Lessee shall pay to the Lessor, on the Basic Rent Date specified in such demand, (A) any unpaid Basic Rent due hereunder prior to such Basic Rent Date plus (B) an amount equal to the Total Fundings made from the date hereof through and including such Basic Rent Date (together with interest on such amounts at the Overdue Rate from such Basic Rent Date to the date of actual payment); and upon such payment of all amounts then due and payable by the Lessee hereunder or under any other Operative Document, the Lessor shall transfer to the Lessee its title and interest in and to the Facility without recourse or warranty (except as to absence of any Lessor's Liens); or (e) the Lessor may rescind or terminate this Lease or may exercise any other right or remedy which may be available to it under Applicable Law or proceed by appropriate court action to enforce the terms hereof or to recover damages for the breach hereof; PROVIDED, HOWEVER, that any termination of the Lease pursuant to the exercise of any such rights and remedies shall not in any way be deemed to be a release or a waiver by the Lessor of the Lessee's obligation to pay the sums provided to be paid by the Lessee under this Section. No termination of this Lease, in whole or in part, or repossession of all or any part of the Leased Property or exercise of any remedy under this Section shall, except as specifically provided herein, relieve the Lessee of any of its liabilities and obligations hereunder, all of which shall survive such termination, repossession or exercise of remedy. In addition, the Lessee shall be liable, except as otherwise provided above, for any and all unpaid Rent due hereunder before, after or during the exercise of any of the foregoing remedies, including all reasonable legal fees and other costs and expenses incurred by the Lessor by reason of the occurrence of any Event of Default or the exercise of the Lessor's remedies with respect thereto, and including all reasonable costs and expenses of whatsoever kind incurred in connection with the return of the Facility (including the costs of dismantling and storage) in the manner and condition required by, and otherwise in accordance with the provisions of, Section 8 hereof as if the Facility were being returned at the end of the Lease Term. At any sale of the Facility or any part 60 thereof or the Lessor's interest in the Ground Lease pursuant to this Section 21, the Lessor may bid for and purchase the Facility or such interest in the Ground Lease. To the extent permitted by, and subject to the mandatory requirements of, Applicable Law, and except as otherwise expressly provided in this Section, each and every right, power and remedy herein specifically given to the Lessor or otherwise in this Lease shall be cumulative and shall be in addition to every other right, power and remedy herein specifically given or now or hereafter existing at Law, in equity or by statute, and each and every right, power and remedy whether specifically herein given or otherwise existing may be exercised from time to time and as often and in such order as may be deemed expedient by the Lessor, and the exercise or the beginning of the exercise of any power or remedy shall not be construed to be a waiver of the right to exercise at the same time or thereafter any other right, power or remedy. No delay or omission by the Lessor in the exercise of any right, remedy or power or in the pursuit of any remedy shall impair any such right, remedy or power or be construed to be a waiver of any default on the part of the Lessee or to be an acquiescence therein. No express or implied waiver by the Lessor of any Event of Default shall in any way be, or be construed to be, a waiver of any future or subsequent Event of Default. SECTION 22. RIGHT TO PERFORM FOR LESSEE. If the Lessee fails to make any payment of Rent required to be made by it hereunder or fails to perform or comply with any of its agreements contained herein, the Lessor may make such payment or perform or comply with such agreement, without any notice to or demand upon Lessee, in each case without waiving any default hereunder or releasing the Lessee from any obligation; PROVIDED, HOWEVER, that any such payment or performance by the Lessor shall not constitute a cure of such Event of Default for purposes of this Lease. The amount of such payment and the amount of the reasonable expenses incurred in connection with such agreement, as the case may be, together with interest thereon at the Overdue Rate, shall constitute Supplemental Rent hereunder, payable upon demand to the Lessor. SECTION 23. INDEMNIFICATION. (a) INDEMNIFICATION. The Lessee agrees to assume liability for, and to indemnify, protect, save and keep harmless each Indemnified Person, on an After-Tax Basis, from and against any and all Claims that may be imposed on, incurred by or asserted against any Indemnified Person (whether because of an action or omission by such Indemnified Person or otherwise and whether or not such Indemnified Person shall also be indemnified as to any such Claim by any other Person), in any way relating to or 61 arising out of (i) the Leased Property or any part thereof, (ii) the Operative Documents or the transactions contemplated thereby, payments made pursuant to any thereof or the enforcement by any Indemnified Person of any of its rights under the Operative Documents, or any other transaction contemplated by the Operative Documents, including the negotiation, execution and delivery of amendments thereto, (iii) the manufacture, financing, refinancing, design, construction, inspection, purchase, ownership, acquisition, acceptance, rejection, delivery, nondelivery, possession, transportation, sublease, sub-sublease, sub-sub-sublease, mortgaging, granting of a security interest in, preparation, installation, condition, transfer of title, rental, use, operation, storage, maintenance, modification, alteration, repair, assembly, sale, return, registration, abandonment or other application or disposition of all or any part of the Leased Property or any interest therein, including, without limitation, (A) Claims or penalties arising from any violation of Law or liability in tort (strict or otherwise), (B) loss of or damage to any property or the environment (including, without limitation, all Claims associated with remediation, response, removal, corrective action, clean-up, Remedial Action, treatment, compliance, restoration, abatement, encapsulation, containment, revegetation, monitoring, sampling, investigation, assessment, financial assurance, natural resource damages, the protection of wildlife and aquatic and vegetation, the interference with or contamination of any wetland or body of water (whether surface or subsurface) or aquifer, and any relevant mitigative action under any Environmental Law and any Claims resulting from or relating to the existence or presence of any Hazardous Material at, in, or under the Leased Property, or any parts thereof, or the Release, emission or discharge of any Hazardous Material into the environment (including air, water vapor, surface water, ground water, and land (whether surface or subsurface)) or death or injury to any Person, (C) latent or other defects, whether or not discoverable, and (D) any claim for patent, trademark or copyright infringement, (iv) any breach of or failure to perform or observe, or any other breach of or failure to perform or observe, or any other non-compliance with, any covenant, condition or agreement or other obligation to be performed by the Lessee under any Operative Document, or the falsity of any representation or warranty of the Lessee in any of the Operative Documents or in any certificate delivered by the Lessee, (v) the imposition of any Lien (other than Permitted Liens) on the Leased Property, or (vi) any violation of any Applicable Law with respect to the Lessee or the Leased Property; PROVIDED, HOWEVER, that the Lessee shall not be required to indemnify any Indemnified Person under this Section 23 for any Claim to the extent resulting from the willful misconduct or gross negligence of such Indemnified Person (other than willful misconduct or gross negligence imputed to such Indemnified Person solely by reason of its interest in the Leased Property). The obligation to provide indemnities in accordance with the terms of this Section 23 shall survive the termination of this Lease. 62 (b) NOTICES. If the Lessee shall obtain knowledge of any action, suit, proceeding or written notice of any Claim indemnified against under this Section 23, the Lessee shall give prompt notice thereof to the appropriate Indemnified Person or Indemnified Persons, as the case may be, and if any Indemnified Person shall obtain any such knowledge, such Indemnified Person shall give prompt notice thereof to the Lessee, PROVIDED that the failure of such Indemnified Person to so notify the Lessee shall not affect the Lessee's indemnification obligations under this Section 23 to such Indemnified Person, except to the extent, if any, that the Lessee demonstrates that defense of the Claim is prejudiced by the Indemnified Person's failure to give such notice. (c) CONTESTS. Subject to the rights of insurers under policies of insurance maintained pursuant to Section 14, the Lessee shall have the right, at its sole cost and expense, to investigate, and the right in its sole discretion to defend or contest by appropriate proceedings or compromise, any Claim for which indemnification is sought under this Section 23, and the Indemnified Person shall cooperate, at the Lessee's expense, with all reasonable requests of the Lessee in connection therewith, PROVIDED that the Lessee shall not have the right without the consent of the Indemnified Person to defend, contest or compromise any Claim with respect to such Indemnified Person (i) if an Event of Default shall have occurred and be continuing, (ii) if such proceeding involves any material danger of the sale, forfeiture or loss of the Leased Property or any part thereof, or (iii) if such Claim involves a realistic possibility of criminal sanctions or allegations by a Governmental Authority of criminal liability to such Indemnified Person, in which event the Indemnified Person shall be entitled to control and assume responsibility for the defense of such Claim at the expense of the Lessee. The Lessee shall keep the Indemnified Person which is the subject of such proceeding fully apprised of the status of such proceeding and shall provide such Indemnified Person with all information with respect to such proceeding as such Indemnified Person shall reasonably request. In the event an Indemnified Person has assumed control of any such proceeding, it shall keep the Lessee fully apprised of the status of such proceeding and shall provide the Lessee with all information, including the receipt of all settlement offers, with respect to such proceeding as such Indemnified Person shall reasonably request. Where the Lessee or the insurers under a policy of insurance maintained by the Lessee undertake the defense of an Indemnified Person with respect to a Claim, no additional legal fees or expenses of such Indemnified Person in connection with the defense of such Claim shall be indemnified hereunder unless such fees or expenses were incurred at the request of the Lessee or such insurers; PROVIDED that, if (i) in the written opinion of counsel to such Indemnified Person an actual or potential conflict of interest exists where it is advisable for such Indemnified Person to be represented by separate counsel or (ii) such Indemnified Person has been indicted or otherwise charged in a criminal complaint in connection with an indemnifiable Claim and such Indemnified Person informs the Lessee 63 that such Indemnified Person desires to be represented by separate counsel, the reasonable fees and expenses of such separate counsel shall be borne by the Lessee. Subject to the requirements of any policy of insurance, an Indemnified Person may participate at its own expense in any judicial proceeding controlled by the Lessee pursuant to the preceding provisions and such participation shall not constitute a waiver of the right to receive the indemnification provided in this Section 23. Notwithstanding anything to the contrary contained herein, during the continuance of an Event of Default, the Lessee shall not compromise any Claim without the consent of the applicable Indemnified Person unless such Claim is simultaneously discharged fully and unconditionally as to such Indemnified Person, such consent not to be unreasonably withheld. (d) SUBROGATION. Upon payment in full of any Claim by the Lessee pursuant to this Section 23 to or on behalf of an Indemnified Person, the Lessee, without any further action, shall be subrogated to any and all claims that such Indemnified Person may have in respect of the matters against which such indemnity was given (other than claims under any insurance policies maintained by such Indemnified Person). Such Indemnified Person agrees to cooperate with the Lessee and to execute such further instruments to permit the Lessee, at the Lessee's expense, to pursue such claims, to the extent reasonably requested by the Lessee. (e) PAYMENTS. Any amount payable to any Indemnified Person pursuant to this Section 23 shall be paid to such Indemnified Person promptly upon receipt of a written demand therefor from such Indemnified Person, accompanied by a written statement describing the basis for such indemnity and the amount so payable. SECTION 24. NOTICES. All communications, demands, consents and notices provided for herein shall be in writing, by fax (receipt confirmed), by tested telex or by personal delivery and shall become effective if given by fax, telex or personal delivery, when received, and if given by mail five (5) days after deposit in the United States mail with proper postage for first-class mail prepaid, addressed (a) if to the Lessor, at c/o KeyCorp Leasing, 54 State Street, Albany, New York 12207, Attention: Sandra Mariano, telephone (518) 486-8186, fax (518) 486-8172, with a copy to Key Global Finance, 30 Federal Street, Boston, Massachusetts 02110, Attention: Chief Credit Officer, telephone (617) 654-2700, fax (617) 654-2727, and (b) if to the Lessee, at 121 S.W. Morrison Street, Suite 1500, Portland, Oregon 97204, Attention: Roger L. Krage, telephone ((503) 274-2300), fax ((503) 228-4875), or, in each case, at such other address as any of the foregoing Persons 64 may from time to time designate by notice duly given in accordance with the provisions of this Section to such other Person. SECTION 25. SUCCESSORS AND ASSIGNS. This Lease, including all agreements, covenants, representations and warranties, shall be binding upon and inure to the benefit of, and may be enforced by, (a) the Lessor and its successors, assigns and agents, and, where the context so requires, (i) each Indemnified Person, and (ii) the successors, assigns and agents of such Indemnified Person, and (b) the Lessee and its successors and, to the extent permitted hereby, assigns. SECTION 26. AMENDMENTS AND MISCELLANEOUS. (a) AMENDMENTS. The terms of this Lease shall not be waived, altered, modified, amended, supplemented or terminated in any manner whatsoever except by written agreement signed by the Lessor and the Lessee. (b) SURVIVAL OF AGREEMENTS. All agreements, indemnities, representations and warranties contained in this Lease or any agreement, document or certificate delivered pursuant hereto or in connection herewith shall survive the execution and delivery of this Lease and the expiration or other termination of this Lease. (c) ENFORCEMENT. Any provision of this Lease which may be determined by competent authority to be prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. To the extent permitted by Applicable Law, the Lessee hereby waives any provision of law which renders any provision hereof prohibited or unenforceable in any respect. (d) ENTIRE AGREEMENT. This Lease represents the entire agreement of the parties hereto with respect to the subject matter hereof and supersedes any and all prior understandings. This Lease shall constitute an agreement of lease and nothing herein shall be construed as conveying to the Lessee any right, title or interest in or to the Improvements, except as lessee only. (e) BINDING EFFECT. All provisions contained in this Lease shall be binding upon, inure to the benefit of and be enforceable by, the respective permitted successors and assigns of the Lessor and the Lessee to the same extent as if each successor and assignee were named as a party hereto. 65 (f) COUNTERPARTS. The parties may sign this Lease in any number of counterparts and on separate counterparts, each of which shall be an original but all of which when taken together shall constitute one and the same instrument, except that, if this Lease constitutes "chattel paper" within the meaning of the Uniform Commercial Code only one counterpart stamped or marked "COUNTERPART NUMBER ONE" or "COUNTERPART NUMBER 1" shall constitute, to the extent applicable, "chattel paper" or other "collateral" within the meaning of the Uniform Commercial Code in effect in any jurisdiction. (g) GOVERNING LAW. This Lease shall be governed by, and construed in accordance with, the laws of the State of Washington. (h) SECTIONS, HEADINGS. The division of this Lease into sections, the provision of a table of contents and the insertion of headings are for the convenience of reference only and shall not affect the construction or interpretation of this Lease. (i) NO MERGER OF TITLE. There shall be no merger of this Lease nor of the leasehold estate created by this Lease with the fee ownership of the Parcel, the Facility or the Modifications by reason of the fact that the same Person may acquire, own or hold, directly or indirectly, this Lease or the leasehold estate created by this Lease or any interest in this Lease or interest in the fee or leasehold ownership of the Parcel, the Facility or the Modifications and no such merger shall occur unless and until all Persons having any interest in (x) the leasehold estate created by this Lease and (y) the ownership of the Parcels, the Facility or the Modifications, or any part thereof shall join in a written instrument effecting such merger and shall duly record the same. (j) WAIVER OF TRIAL BY JURY. IN ANY ACTION OR PROCEEDING UNDER OR RELATED TO THIS AGREEMENT, THE OPERATIVE DOCUMENTS OR ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION WITH THE FOREGOING, THE LESSOR AND THE LESSEE HEREBY AGREE THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY, IRRESPECTIVE OF WHICH PARTY COMMENCES SUCH ACTION OR PROCEEDING. (k) TRUE LEASE. The Lessee intends to treat this Lease, for accounting purposes, as an operating lease. If a court of competent jurisdiction determines that the transaction represented by this Lease and the other Operative Documents will be treated as a financing transaction, then in such event it is the intention of the parties hereto (i) that this Lease be treated as a mortgage and security agreement and fixture filing, or 66 other similar instrument with a power of sale (the "LESSEE MORTGAGE") from Lessee, as mortgagor, encumbering the Leased Property, and that the Lessee, as mortgagor, shall be deemed to have hereby granted a security interest and mortgage to the Lessor in the Leased Property now owned or hereafter acquired for the purpose of securing the Lessee's payment and performance obligations under this Lease and the other Operative Documents, (ii) that the Lessor shall have, as a result of such determination, all of the rights, powers and remedies of a secured party and mortgage available under Applicable Law to take possession of and sell (whether by foreclosure, power of sale or otherwise) the Leased Property, (iii) that the effective date of the Lessee Mortgage shall be the effective date of this Lease, (iv) that the recording of an instrument referencing this provision shall be deemed to be the recording of the Lessee Mortgage and (v) that the Lessee Mortgage shall secure the obligations of the Lessee under this Lease. (l) NO CLAIMS AGAINST LESSOR, ETC. Nothing contained in this Lease shall constitute any consent or request by the Lessor, express or implied, for the performance of any labor or services or the furnishing of any materials or other property in respect of the Leased Property or any part thereof, nor as giving the Lessee any right, power or authority to contract for or permit the performance of any labor or services or the furnishing of any materials or other property in such fashion as would permit the making of any claim against the Lessor in respect thereof. Notice is hereby given that the Lessor shall not be liable for any labor or services performed or any materials or other property furnished in respect of the Leased Property or any part thereof and that no mechanic's or other lien for any such labor, services, materials or other property shall attach to or affect the interest of the Lessor in the Leased Property. (m) LIMITED RECOURSE. Except as otherwise provided in the proviso to this Section, nothing contained in this Lease or in the other Operative Documents shall be construed as creating any liability on the part of any past or present shareholder, limited partner or general partner of the Lessee, the General Partner, or the MGP General Partners to pay any amount on account of the Lessee's obligations hereunder or under any other Operative Document to which it is a party or to perform any covenant of the Lessee contained herein or therein; PROVIDED, HOWEVER, that nothing in this Section 26(m) shall be construed (i) to relieve any Person from liability for fraud, concealment, or other intentional wrongdoing for which such Person would otherwise be liable under any Applicable Law, either directly or on behalf of the Lessee, (ii) to restrict the joinder in any action of any necessary party in order to seek enforcement of rights against the Lessee or any other party to any Operative Document or to restrict injunctive relief against any Person to the extent necessary to obtain performance by the Lessee of any of its obligations under any Operative Document, or (iii) to relieve any Person from liability for distributions, payments, or other transfers made to such Person in violation of the 67 Operative Documents or in violation of or otherwise recoverable under any Applicable Law. 68 IN WITNESS WHEREOF, the parties hereto have each caused this Lease to be duly executed by their respective officers thereunto duly authorized on the date first written above. SELCO SERVICE CORPORATION, as Lessor By ------------------------------------------ Name: Andrew G. Mesches Title: Vice President CROWN PACIFIC LIMITED PARTNERSHIP, as Lessee and as Construction Agent By CROWN PACIFIC MANAGEMENT LIMITED PARTNERSHIP, its General Partner By ------------------------------------------ Name: Title: EXHIBIT A TO THE LEASE AGREEMENT FORM OF LEASE SUPPLEMENT This LEASE SUPPLEMENT dated [ ], 199__, is made by and between SELCO SERVICE CORPORATION, an Ohio corporation, as lessor (the "Lessor"), and CROWN PACIFIC L.P., a Delaware limited partnership, as lessee (the "Lessee"). W I T N E S S E T H : WHEREAS, the Lessor and the Lessee have heretofore entered into the Lease Agreement dated as of December 19, 1997 (hereinafter the "Lease"; unless otherwise defined herein, the terms defined therein being used herein with the same meaning) and to which this Lease Supplement is a supplement; WHEREAS, the Lease provides for the execution and delivery of a Lease Supplement for the purposes and otherwise as set forth in Section 2 thereof. NOW, THEREFORE, in consideration of the mutual covenants and agreements confirmed in the Lease and other good and valuable consideration, receipt of which is hereby acknowledged, the Lessor and the Lessee hereby agree as follows: (1) The Lessor does hereby lease to the Lessee, and the Lessee does hereby lease from the Lessor, the Components described in the Description of Components attached hereto on Schedule 1. (2) The Lessee hereby confirms to the Lessor that the Lessee has unconditionally accepted the Components for all purposes hereof and of the Lease. (3) The Lessee hereby confirms that the Components conform to specifications, are in good working order and repair and without defect in title, condition, design, operation or fitness for purpose, and are free and clear of all Liens except Liens permitted by Section 10 of the Lease Agreement; PROVIDED, HOWEVER, that nothing contained herein or in the Lease shall in any way diminish or otherwise affect any right which the Lessee or the Lessor may have with respect to the Components or any portion thereof against any seller, contractor, subcontractor, manufacturer or installer thereof or others. (4) This Lease Supplement may be executed in any number of counterparts and on separate counterparts, each of which shall be an original but all of which when taken together shall constitute one and the same instrument, except that, if this Lease Supplement constitutes "chattel paper" within the meaning of the Uniform Commercial Code, only one counterpart stamped or marked "COUNTERPART ONE" or "COUNTERPART NUMBER 1" shall constitute, to the extent applicable, "chattel paper" or other "collateral" within the meaning of the Uniform Commercial Code in effect in any jurisdiction. (5) All the terms and provisions of the Lease are hereby incorporated by reference in this Lease Supplement to the same extent as if fully set forth herein. Without limiting the generality of the foregoing, the representations and warranties of the Lessee that are set forth in the Lease shall be deemed incorporated by reference herein with the same effect as though such representations and warranties are made on and as of the date hereof. (6) The Lessee hereby represents and warrants as of the date hereof that no Default or Event of Default has occurred and is continuing under the Lease. IN WITNESS WHEREOF, the Lessor and the Lessee have each caused this Lease Supplement to be duly executed as of the date first written above. SELCO SERVICE CORPORATION, as Lessor By ------------------------------------------- Name: Andrew G. Mesches Title: Vice President CROWN PACIFIC LIMITED PARTNERSHIP, as Lessee By CROWN PACIFIC MANAGEMENT LIMITED PARTNERSHIP, its General Partner By ------------------------------------------- Name: Title: A-2 SCHEDULE 1 to Lease Supplement DESCRIPTION OF COMPONENTS The Components shall consist of the following: EXHIBIT B TO THE LEASE AGREEMENT FORM OF REQUISITION To: SELCO Service Corporation CROWN PACIFIC LIMITED PARTNERSHIP CERTIFIED CONSTRUCTION REQUISITION NO.__ DATED , 199 -------------------------- The undersigned, [Name], [Title*] of Crown Pacific Limited Partnership, acting as construction agent (the "CONSTRUCTION AGENT") for SELCO Service Corporation, the lessor (the "LESSOR") pursuant to the Lease Agreement dated as of December [ ], 1997 (the "LEASE AGREEMENT"), and acting as lessee (the "LESSEE") thereunder, submits this irrevocable Requisition and certifies, on behalf of the Lessee the following: 1. The total amount of the Actual Project Costs for which a Requisition Funding is hereby requested is _______ Dollars ($_____). The Lessor is hereby requested to make available the proceeds of a Requisition Funding on [at least 5 Business Days after the submission date] ______ , 199_, [must be a Requisition Funding Date] subject to the satisfaction or waiver (as specified in Item 8 below) of all Requisition Funding Conditions. The Requisition Funding shall be made at [bank], account number [ ]. 2. The proceeds of the Requisition Funding requested herein shall be used solely to pay Actual Project Costs. 3. No part of the Actual Project Costs paid with the funds advanced under any previous Requisition is a basis for this Requisition, and none of the Actual Project Costs which are the subject of this Requisition was included in any prior Requisition. 4. Attached to this Requisition is a copy of each invoice, purchase order, receipt or other such document (not previously delivered with a prior Requisition) (the "INVOICES") for Actual Project Costs, which Invoices will be, or - ----------------------------- * To be an "Officer", as defined in the Lease Agreement. have been, paid with the proceeds of this Requisition Funding, or, as applicable, the previous Requisition Fundings. 5. There has been no material change in the estimated time of completion of the construction of the Facility and the Construction Agent has no reason to believe that (i) the Final Completion Date cannot be achieved by September 30, 1998 or (ii) the Actual Project Costs of the construction of the Facility will exceed the Maximum Requisition Funding Amount. 6. No Applicable Law prohibits, and no litigation, governmental investigation or other proceeding is pending or threatened in which there is a reasonable possibility of an unfavorable judgment, decree, order or other determination which could prevent or make unlawful, or impose any material adverse condition upon, the Leased Property or the construction or operation thereof or any transaction contemplated hereby or by any other Operative Document or the ability of the Lessee to perform its obligations hereunder or thereunder. 7. [NOT APPLICABLE TO INITIAL REQUISITION] All amounts previously advanced pursuant to previous Requisitions were or will be paid to the parties entitled thereto as specified in such Requisitions. 8. [Except as set forth in this item 8,] all Requisition Funding Conditions required to be satisfied prior to the Requisition Funding requested herein have been satisfied. [Identify unfulfilled conditions, the actions being taken by the Construction Agent and the Lessee to satisfy such conditions and the date(s) by which the Construction Agent plans to satisfy such conditions]. 9. All of the representations and warranties of the Lessee set forth in the Operative Documents are true and correct on and as of the date hereof. The Lessee is in compliance with all of its obligations under the Operative Documents and there exists no Default or Event of Default under the Operative Documents. B-2 All terms used herein but not defined herein shall have the meanings assigned to such terms in the Lease. Dated this ___ day of ______, 199_. CROWN PACIFIC LIMITED PARTNERSHIP, as Lessee and Construction Agent By CROWN PACIFIC MANAGEMENT LIMITED PARTNERSHIP, its General Partner By: ------------------------------------- Name: Title: B-3 EXHIBIT C TO THE LEASE AGREEMENT APPROVED CONSTRUCTION BUDGET [Crown to Provide] EXHIBIT D TO THE LEASE AGREEMENT [FORM OF FINAL COMPLETION CERTIFICATE] OFFICER'S CERTIFICATE This Officer's Certificate is being furnished pursuant to the requirements of the Lease Agreement, dated as of December 19, 1997, among SELCO Service Corporation, an Ohio corporation (the "Lessor"), and Crown Pacific Limited Partnership, a Delaware limited partnership (the "LESSEE" and the "CONSTRUCTION AGENT") (as the same may be amended, modified or supplemented from time to time, the "LEASE"). Capitalized terms used but not otherwise defined herein shall have the meanings set forth in the Lease. The undersigned, on behalf of the Lessee, hereby certifies that: 1. Completion of the Components as contemplated by the Lease as a whole has taken place in all respects and the Facility has been constructed. A permanent certificate of occupancy (the "PCO") for the Facility has been issued by the applicable Governmental Authority having responsibility for such issuance and the same is in proper form and not subject to any appeal or contest or to any unsatisfied conditions (other than conditions relating to completion in the future) that may allow modification or revocation. 2. All Permits that are or will become Applicable Permits have been obtained, except Applicable Permits required by Law to be obtained after the Final Completion Date (as to which the Construction Agent, having completed all appropriate diligence, has no reason to believe that such Permits will not be granted in the usual course of business prior to the date that such Permits are required by Law, and the Lessee has applied for such Permits and satisfied all legal requirements necessary to authorize continued operation while the Permit application is pending). All such obtained Permits are in proper form, in full force and effect and not subject to any appeal or contest or to any unsatisfied conditions (other than conditions relating to completion in the future) that may allow modification or revocation. 3. The Leased Property is in compliance in all material respects with all Applicable Laws. The construction and operation of the Facility is in accordance in all material respects with all Applicable Laws and all representations set forth in, or made in connection with, all Permits, as required for occupancy and operation thereof. 4. The Lessee is in compliance with all Insurance Requirements and all insurance policies required under Section 14 of the Lease are in force and effect. 5. The representations and warranties of the Lessee as set forth in the Operative Documents are true and correct in all material respects as if made on and as of the date hereof. 6. The Facility is complete and is ready and available for its intended use by Lessee. 7. Attached hereto as SCHEDULE A is a true and correct list, as of the date hereof, of all furniture, fixtures and equipment located on the Parcel. Dated this ____ day of ______ , 199_. CROWN PACIFIC LIMITED PARTNERSHIP, as Construction Agent By CROWN PACIFIC MANAGEMENT LIMITED PARTNERSHIP, its General Partner By: --------------------------------- Name: Title: D-2 EXHIBIT E TO THE LEASE AGREEMENT TERMS OF SINGLE INVESTOR TAX LEASE [To Follow] EXHIBIT F TO THE LEASE AGREEMENT CREDIT AGREEMENT SCHEDULE 1 TO LEASE AGREEMENT DESCRIPTION OF PARCEL SCHEDULE 6(a)(viii) TO LEASE AGREEMENT PERMITS EX-10.16 9 EXHIBIT 10.16 EXHIBIT 10.16 AFTER RECORDING MAIL TO: Cindy Wenig, Esq. Chadbourne & Parke LLP 30 Rockefeller Plaza New York, New York 10112 - -------------------------------------------------------------------------------- GROUND LEASE AGREEMENT Dated as of December 19, 1997 between CROWN PACIFIC LIMITED PARTNERSHIP as Ground Lessor, and SELCO SERVICE CORPORATION, as Ground Lessee Bonners Ferry, Idaho - -------------------------------------------------------------------------------- GROUND LEASE AGREEMENT (this "GROUND LEASE") dated as of December 19, 1997, between CROWN PACIFIC LIMITED PARTNERSHIP, a Delaware limited partnership, as Ground Lessor, and SELCO SERVICE CORPORATION, an Ohio corporation, as Ground Lessee. In consideration of the mutual agreements herein contained and other good and valuable consideration, receipt of which is hereby acknowledged, the parties hereto agree as follows: ARTICLE I DEFINITIONS Unless the context shall otherwise require, the capitalized terms used herein and not otherwise defined herein shall have the meanings assigned thereto in the Lease Agreement dated as of December 19, 1997 between the Ground Lessor, as lessee and construction agent, and the Ground Lessee, as lessor, with respect to the Facility, as amended from time to time (the "LEASE AGREEMENT"). ARTICLE II GRANT Section 2.01. LEASE OF PARCEL. Ground Lessor is the owner of the fee estate in and to a certain parcel of land located in Boundary County, Idaho, as more particularly described on Schedule A attached hereto (the "PARCEL"). Ground Lessor hereby leases the Parcel to Ground Lessee, and Ground Lessee hereby leases the Parcel from Ground Lessor, for the Ground Lease Term (hereinafter defined), subject to all the terms and conditions hereof, together with all rights of way or uses, licenses, easements, tenements, hereditaments and appurtenances now or hereafter belonging or pertaining to the Parcel. Effective from and after the date hereof, Ground Lessor waives and relinquishes any Lien or other right in the nature of a landlord's lien or privilege which it might now or hereafter otherwise have in or with respect to the Parcel or any part thereof. Section 2.02. PERSONAL PROPERTY. The parties hereto acknowledge that the title to the Facility and all Components now or hereafter constructed or installed on the Parcel by any party (including, without limitation, Ground Lessor or the Lessee under the Lease Agreement) during the Ground Lease Term (hereinafter defined) are and will be owned by the Ground Lessee. It is the intention of the parties that the separation of the title to the Parcel from the title to the Facility is to remain so separated throughout the Ground Lease Term. The Facility, to the greatest extent possible, shall for all purposes and at all times be and remain personal property under the laws of the state in which the Parcel and the Facility are located. ARTICLE III TERM Section 3.01. GROUND LEASE TERM. This Ground Lease shall be effective and the Parcel shall be subject to the terms and conditions of this Ground Lease from and after the date hereof and shall terminate with respect to the Parcel on the earlier to occur of (a) the date of Lessee's purchase of the Facility pursuant to SECTION 19(b) of the Lease Agreement or (b) December 19, 2047, unless sooner terminated as provided or permitted herein (the "GROUND LEASE TERM"). Section 3.02. ELECTION TO TERMINATE. Ground Lessee may elect to terminate this Ground Lease at any time upon the payment of $1 to Ground Lessor. Upon such termination, Ground Lessee's obligations hereunder shall terminate. ARTICLE IV PAYMENTS Ground Lessee shall pay to Ground Lessor One Hundred Dollars ($100) as rental payment for the Ground Lease Term, receipt of which is hereby acknowledged by Ground Lessor. ARTICLE V QUIET ENJOYMENT Ground Lessor represents and warrants that it has full right and authority to lease the Parcel pursuant to the terms of this Ground Lease and that it has good and marketable fee title to the Parcel free and clear of all Liens, except for those exceptions to title set forth on Title Commitment dated December 19. 1997 #NBG. No. 97-0720 of Chicago Title Insurance Company (the "PERMITTED ENCUMBRANCES"), and Ground Lessor represents and warrants that, at all times during the Ground Lease Term, it will defend and hold harmless Ground Lessee and its successors and assigns in their peaceable, quiet, exclusive and undisputed enjoyment of the Parcel against the claims of all Persons. 2 ARTICLE VI USE OF THE PARCEL Ground Lessee may use the Parcel for any legal business purpose, including, without limitation, the same purpose and business as Lessee may use the Parcel for under the Lease Agreement. ARTICLE VII ALTERATIONS During the Ground Lease Term, Ground Lessee, in its discretion, may from time to time alter or improve, or cause to be altered or improved, the Parcel or any part thereof, in any manner it deems necessary or desirable, to carry on any activity permitted hereunder, including the construction, addition, alteration, demolition and removal of any buildings, equipment, roads or other structures, items of personal property or fixtures and any grading or landscaping of the Parcel; PROVIDED, HOWEVER, that so long as the Lease Agreement is in effect, Ground Lessee shall refrain from any action permitted under this Article VII, except to the extent such action is undertaken by Ground Lessee in its capacity as Lessor under, and in accordance with, the Lease Agreement. ARTICLE VIII LIENS Ground Lessor shall not directly or indirectly create, incur, assume or suffer to exist any Lien on or with respect to the Parcel, the Facility, title thereto or any interest therein, except Permitted Liens, and Ground Lessor shall promptly, at its own expense, take such action as may be necessary to duly discharge any such Lien. If Ground Lessor shall fail to promptly discharge any such Lien, Ground Lessee, at its option, may cause the same to be so discharged, and sums expended by Ground Lessee in connection therewith shall be repaid by Ground Lessor to Ground Lessee on demand. ARTICLE IX TAXES AND CHARGES So long as the Lease Agreement is in effect, Ground Lessor acknowledges that the Lessee under the Lease Agreement shall be responsible for the payment of all Taxes due with respect to the Parcel and the Facility. If the Lease Agreement shall expire 3 or be terminated and this Ground Lease shall remain in effect, Ground Lessor shall pay or cause to be paid all Taxes due with respect to the Parcel and the Facility; PROVIDED, HOWEVER, that Ground Lessor shall not be required to make any such payments if Ground Lessor shall in good faith be contesting any such Taxes, so long as such contest does not involve any material danger of the sale, forfeiture or loss of any part of the Parcel, the Facility, title thereto or any interest of Ground Lessee therein. If Ground Lessor fails to make any payment required to be made by Ground Lessor, Ground Lessee at its option may pay the same and any moneys so paid by Ground Lessee shall be repaid on an After-Tax Basis by Ground Lessor to Ground Lessee on demand. ARTICLE X INSURANCE So long as the Lease Agreement is in effect, Ground Lessor acknowledges that the Lessee under the Lease Agreement shall be responsible for maintaining insurance coverage with respect to the Parcel and the Facility in accordance with SECTION 14 of the Lease Agreement. If the Lease Agreement shall expire or be terminated and this Ground Lease shall thereafter remain in effect, Ground Lessor shall, without cost to Ground Lessee, maintain or cause to be maintained in effect throughout the remaining Ground Lease Term, with insurers of recognized responsibility, insurance policies with respect to the Parcel and the Facility insuring against loss or damage to the person and property of Ground Lessee and others, all from such risks and in such amounts as owners of similar properties maintain with respect to such property, including liability insurance in an amount reasonably satisfactory to Ground Lessee; PROVIDED, HOWEVER, that Ground Lessor shall in no event be required to maintain any such insurance in amounts greater than is generally maintained by responsible owners of similar property. If the Ground Lessor shall fail to maintain such insurance during the remaining Ground Lease Term, the Ground Lessee may (but shall be under no obligation to) maintain or cause such insurance to be maintained at the sole cost and expense of the Ground Lessor. ARTICLE XI CASUALTY OR CONDEMNATION Any payment, including condemnation awards, received at any time by Ground Lessor or Ground Lessee from any Governmental Authority or other Person as a result of the occurrence of an Event of Loss or a Requisition of Use when the Lease Agreement is in effect shall be distributed in accordance with SECTION 13 of the Lease Agreement. Any such payment received by Ground Lessor or Ground Lessee after the Lease Agreement has expired or has been terminated shall be applied as follows: so much 4 of such payments as shall be necessary to pay in full all sums owing to Ground Lessee, as lessor under the Lease Agreement or under any other Operative Document shall be retained by, or paid over to, Ground Lessee, and the balance (if any) of such payments shall be retained by, or paid over to Ground Lessor. ARTICLE XII DEFAULT Notwithstanding anything to the contrary contained in this Ground Lease, no event, occurrence or failure to perform by (or on behalf of) Ground Lessee shall constitute a default or an event of default hereunder, and Ground Lessor shall have no right (whether conferred by statute or otherwise) to terminate this Ground Lease or to take possession of the Parcel, so long as any sums remain to be paid at any time by Lessee under the Lease Agreement or any other Operative Document. After the expiration or termination of the Lease Agreement, the following events shall constitute an event of default hereunder: (a) The Ground Lessee shall consent to the appointment of a receiver, trustee, liquidator, assignee, trustee, custodian, sequestrator (or similar official) of itself or for any substantial part of its property, or the Ground Lessee shall not pay or generally be unable to pay, or admit in writing its inability to pay, its debts generally as they come due, or shall make a general assignment for the benefit of creditors; (b) The Ground Lessee shall commence a voluntary case under any applicable bankruptcy, insolvency or other similar law (as now or hereafter in effect), or the Ground Lessee shall consent to the entry of an order for relief in an involuntary case under any such law; (c) An order, judgment or decree shall be entered by any court having jurisdiction in the premises for relief in respect of the Ground Lessee in an involuntary case under any applicable bankruptcy, insolvency or other similar law (as now or hereafter in effect), or appointing a receiver, liquidator, assignee, or for any substantial part of its property, or sequestering any substantial part of the property of the Ground Lessee, or, ordering the winding up or liquidating of the Ground Lessee's affairs, and any such order, judgment or decree shall remain in force undismissed, unstayed or unvacated for a period of sixty (60) days after the date of entry thereof; or (d) A petition against the Ground Lessee in a proceeding under applicable bankruptcy laws or other insolvency laws, as now or hereafter in effect, shall be filed and shall not be withdrawn or dismissed within ninety (90) days thereafter, or if, under the 5 provisions of any law providing for reorganization or liquidation of corporations which may apply to the Ground Lessee, any court of competent jurisdiction shall assume jurisdiction, custody or control of the Ground Lessee or of any substantial part of its property and such jurisdiction, custody or control shall remain in force unrelinquished, unstayed or unterminated for a period of sixty (60) days. Ground Lessor shall have the right, after the occurrence and during the continuance of an event of default hereunder (provided that the Lease Agreement has terminated or expired), to take possession of the Parcel or to terminate this Ground Lease by giving thirty (30) days written notice to Ground Lessee of Ground Lessor's election to terminate same. The remedies set forth above are exclusive of any other rights or remedies of Ground Lessor which exist at law or in equity. ARTICLE XIII SUBLEASE; ASSIGNMENT; SALE Section 13.01. BY GROUND LESSEE. Ground Lessee will not assign this Ground Lease or any of its rights or interests hereunder and will not sublease all or any portion of the Parcel, except that Ground Lessee may from time to time: (a) sublease all or any part of the Parcel and/or the Facility pursuant to the Lease Agreement; (b) sublease all or any part of the Parcel and/or the Facility or assign this Ground Lease or any interests of Ground Lessee hereunder to any Person after the termination or expiration of the Lease Agreement; and (c) assign Ground Lessee's interests hereunder in connection with an assignment of its interests as Lessor under the Lease Agreement. In addition, in the event the Ground Lessor enters into a new leasing arrangement pursuant to Section 19(a) of the Lease Agreement, the Ground Lessee shall assign its interests hereunder to the lessor under such new leasing arrangement. Any subletting or assignment permitted hereunder shall relieve Ground Lessee of its obligations hereunder. Section 13.02. BY GROUND LESSOR. So long as the Ground Lessee (including its successors and assigns) is also the Lessor under the Lease Agreement, Ground Lessor will not sell, transfer or convey the Parcel or any of its rights or interests in the Parcel or assign this Ground Lease or any rights or interests of Ground Lessor hereunder. 6 ARTICLE XIV NOTICES Unless otherwise specifically provided herein, all notices and other communications required or permitted hereunder shall be in writing and shall be addressed and become effective as provided in the Lease Agreement. ARTICLE XV BINDING EFFECT; SUCCESSORS AND ASSIGNS The terms and provisions of this Ground Lease and the respective rights and obligations of Ground Lessee and Ground Lessor hereunder shall be binding upon, and inure to the benefit of, their respective permitted successors and assigns. ARTICLE XVI POSSESSION UPON TERMINATION Upon termination of the Ground Lease Term, whether by lapse of time or because of any of the conditions or provisions contained herein, Ground Lessee will peaceably and quietly yield up and surrender possession of the Parcel to Ground Lessor without representation or warranty. ARTICLE XVII GROUND LESSOR'S BANKRUPTCY It is expressly understood and agreed that for purposes of Section 365(h) of the Bankruptcy Code, 11 U.S.C. Section 365(h), (a) Ground Lessee shall be deemed to be in possession of the Parcel by virtue of the possessory interest therein granted to Ground Lessee under this Ground Lease whether or not all or any part of the Parcel has been subleased by Ground Lessee and (b) in the event of any rejection or disaffirmance of this Ground Lease in any bankruptcy or similar proceeding relating to Ground Lessor, Ground Lessee may elect to remain in possession of the Parcel for the balance of the Ground Lease Term, including all extensions exercisable hereunder, at the option of Ground Lessee. 7 ARTICLE XVIII INDEMNIFICATION The Ground Lessor hereby agrees to indemnify, protect and keep harmless each Indemnified Person pursuant to the provisions of SECTION 23 of the Lease Agreement, which provisions are hereby incorporated herein by reference as if fully set forth herein. ARTICLE XIX THE LEASE AGREEMENT So long as the Lease Agreement remains in effect or the Lessee under the Lease Agreement is otherwise liable for amounts in respect thereof or under the other Operative Documents, Ground Lessor shall look solely to the Lessee under the Lease Agreement for the performance and discharge of Ground Lessee's obligations and liabilities under this Ground Lease (other than with respect to Lessor's Liens and the restrictions on Ground Lessee's rights of assignment and subleasing under Section 13.01) with the same force and effect as though Ground Lessee had performed the same, and Ground Lessee shall have no liability hereunder, no default or event of default shall arise hereunder and the rights of Ground Lessee hereunder shall not be affected, as a result of any failure of Ground Lessee to perform or discharge such liabilities or obligations notwithstanding (a) any continuation of any such failure after the end of the term of the Lease Agreement or (b) that such failure first became known or apparent after the end of the term of the Lease Agreement. No such performance or discharge by or on behalf of the Lessee under the Lease Agreement shall be deemed an acknowledgment by Ground Lessor of the Lessee under the Lease Agreement as Ground Lessee hereunder, or a merger of the Lease Agreement with this Ground Lease or a merger of the estate of Lessor under the Lease Agreement with the estate of the Lessee thereunder. ARTICLE XX PERSONAL LIABILITY/LIMITED RECOURSE Section 10.01. PERSONAL LIABILITY. No officer, director, stockholder or employee of the Ground Lessee shall become personally liable for the performance or observance of any agreements, obligations, covenants or conditions to be performed or observed by Ground Lessee under this Ground Lease, or any liabilities with respect thereto. 8 Section 10.02. LIMITED RECOURSE. Except as otherwise provided in the proviso to this SECTION 10.02, nothing contained in this Ground Lease or in the other Operative Documents shall be construed as creating any liability on the part of any past or present shareholder, limited partner or general partner of the Ground Lessor, the General Partner, or the MGP General Partners to pay any amount on account of the Ground Lessor's obligations hereunder or under any other Operative Document to which it is a party or to perform any covenant of the Ground Lessor contained herein or therein; provided, however, that nothing in this SECTION 10.02 shall be construed (i) to relieve any Person from liability for fraud, concealment, or other intentional wrongdoing for which such Person would otherwise be liable under any Applicable Law, either directly or on behalf of the Ground Lessor, (ii) to restrict the joinder in any action of any necessary party in order to seek enforcement of rights against the Ground Lessor or any other party to any Operative Document or to restrict injunctive relief against any Person to the extent necessary to obtain performance by the Ground Lessor of any of its obligations under any Operative Document, or (iii) to relieve any Person from liability for distributions, payments, or other transfers made to such Person in violation of the Operative Documents or in violation of or otherwise recoverable under any Applicable Law. ARTICLE XXI MISCELLANEOUS Section 21.01. SEVERABILITY. Any provision of this Ground Lease that shall be prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. Section 21.02. AMENDMENT. Neither this Ground Lease nor any of the terms hereof may be terminated, amended, supplemented, waived or modified orally, but only by an instrument in writing signed by the party against which the enforcement of the termination, amendment, supplement, waiver or modification shall be sought. Section 21.03. HEADINGS. The Table of Contents and headings of the various Articles and Sections of this Ground Lease are for convenience of reference only and shall not modify, define or limit any of the terms or provisions hereof. Section 21.04. COUNTERPARTS. This Ground Lease may be executed by the parties hereto in separate counterparts. All such counterparts shall together constitute but one and the same instrument. 9 Section 21.05. GOVERNING LAW. THIS GROUND LEASE SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF IDAHO APPLICABLE TO AGREEMENTS TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE. Section 21.06. RECORDING. This Ground Lease or a memorandum hereof may be recorded by either party hereto in the appropriate real estate records and Ground Lessor shall pay all costs of recording and all applicable recording or transfer taxes or related charges. Section 21.07. ESTOPPEL CERTIFICATES. Ground Lessor will execute, acknowledge and deliver to Ground Lessee, promptly upon request an estoppel certificate certifying (a) that this Ground Lease is unmodified and in full force and effect (or, if there have been modifications, that this Ground Lease is in full force and effect, as modified, and stating the date of each instrument so modifying this Ground Lease), (b) the dates, if any, to which rent has been paid and (c) whether any default exists hereunder known to it and, if any such default exists, specifying the nature and period of existence thereof and what action it is taking or proposes to take with respect thereto, and whether notice thereof has been given to Ground Lessee. Any such certificate may be relied upon by the Lessor, Ground Lessee and any prospective purchaser or transferee of Ground Lessee's interest under this Ground Lease or any part thereof. 10 IN WITNESS WHEREOF, the undersigned have each caused this Ground Lease to be duly executed and delivered and their corporate seals to be hereunto affixed and attested as of the day and year first above written. GROUND LESSOR: CROWN PACIFIC LIMITED PARTNERSHIP BY CROWN PACIFIC MANAGEMENT LIMITED PARTNERSHIP, its general partner By: ------------------------------ Name: Title: GROUND LESSEE: SELCO SERVICE CORPORATION By: ------------------------------ Name: Title: SCHEDULE A (the Parcel) EX-10.17 10 EXHIBIT 10.17 EXHIBIT 10.17 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- LEASE AGREEMENT Dated as of December 19, 1997 between SELCO SERVICE CORPORATION, as Lessor and CROWN PACIFIC LIMITED PARTNERSHIP, as Lessee and Construction Agent --------------------- Bonners Ferry Circle Mill - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TABLE OF CONTENTS Page ---- SECTION 1. DEFINITIONS; CONSTRUCTION OF REFERENCES . . . . . . . . . . . . 1 SECTION 2. LEASE OF THE LEASED PROPERTY. . . . . . . . . . . . . . . . . .14 SECTION 3. TERM AND RENT . . . . . . . . . . . . . . . . . . . . . . . . .15 SECTION 4. CONSTRUCTION AGENT. . . . . . . . . . . . . . . . . . . . . . .16 SECTION 5. ACQUISITION OF COMPONENTS; FINANCING. . . . . . . . . . . . . .19 SECTION 6. CONDITIONS PRECEDENT. . . . . . . . . . . . . . . . . . . . . .20 SECTION 7. NET LEASE; NON-TERMINABILITY. . . . . . . . . . . . . . . . . .28 SECTION 8. RETURN OF THE LEASED PROPERTY . . . . . . . . . . . . . . . . .29 SECTION 9. WARRANTY OF THE LESSOR. . . . . . . . . . . . . . . . . . . . .30 SECTION 10. LIENS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31 SECTION 11. MAINTENANCE AND OPERATION; COMPLIANCE AND USE; REPLACEMENT PARTS; MODIFICATIONS. . . . . . . . . . . . . . .32 SECTION 12. INSPECTION REPORTS. . . . . . . . . . . . . . . . . . . . . . .35 SECTION 13. LOSS OR DESTRUCTION; REQUISITION OF USE . . . . . . . . . . . .37 SECTION 14. INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . .38 SECTION 15. SUBLETTING; ASSIGNABILITY; AMENDMENT OF CONTRACTS . . . . . . .42 SECTION 16. REPRESENTATIONS AND WARRANTIES OF LESSOR. . . . . . . . . . . .43 SECTION 17. REPRESENTATIONS AND WARRANTIES OF LESSEE. . . . . . . . . . . .44 SECTION 18. ADDITIONAL COVENANTS. . . . . . . . . . . . . . . . . . . . . .52 SECTION 19. OPTIONS UPON LEASE TERMINATION. . . . . . . . . . . . . . . . .55 SECTION 20. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . .57 SECTION 21. REMEDIES. . . . . . . . . . . . . . . . . . . . . . . . . . . .59 Page ---- SECTION 22. RIGHT TO PERFORM FOR LESSEE . . . . . . . . . . . . . . . . . .62 SECTION 23. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . .62 SECTION 24. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . .65 SECTION 25. SUCCESSORS AND ASSIGNS. . . . . . . . . . . . . . . . . . . . .65 SECTION 26. AMENDMENTS AND MISCELLANEOUS. . . . . . . . . . . . . . . . . .66 EXHIBITS -------- Exhibit A - Form of Lease Supplement Exhibit B - Form of Requisition Exhibit C - Approved Construction Budget Exhibit D - Form of Officer's Certificate for Final Completion Date Exhibit E - Terms of Single Investor Tax Lease Exhibit F - Credit Agreement SCHEDULES --------- Schedule 1 - Parcel Schedule 6(a)(viii) - Permits ii LEASE AGREEMENT LEASE AGREEMENT dated as of December 19, 1997 between SELCO SERVICE CORPORATION, an Ohio corporation ("Lessor"), and CROWN PACIFIC LIMITED PARTNERSHIP, a Delaware limited partnership ("Lessee"). SECTION 1. DEFINITIONS; CONSTRUCTION OF REFERENCES. In this Lease, unless the context otherwise requires: (a) All references in this Lease to designated Sections and other subdivisions are to designated Sections and other subdivisions of this Lease, and the words "herein", "hereof" and "hereunder" and other words of similar import refer to this Lease as a whole and not to any particular Section or other subdivision. (b) The terms defined in this Section or elsewhere in this Lease shall, for purposes of this Lease and all Exhibits and Schedules hereto, have the meanings assigned to them in this Section or elsewhere herein and include the plural as well as the singular and the singular as well as the plural; except as otherwise indicated, all the agreements or instruments herein defined shall mean such agreements or instruments as the same may from time to time be supplemented or amended or the terms thereof waived or modified to the extent permitted by, and in accordance with, the terms hereof and thereof and of the other Operative Documents. (c) Where the character or amount of any asset or liability or item of income or expense is required to be determined or any consolidation or other accounting computation is required to be made for the purposes of this Lease, such determination or computation shall be done in accordance with GAAP at the time in effect, to the extent applicable, except where such principles are inconsistent with the requirements of this Lease. (d) The following terms shall have the following meanings for all purposes of this Lease: ACTUAL PROJECT COSTS shall mean, collectively, (i) all amounts paid or payable to finance the acquisition of the Components, (ii) all amounts paid or payable as costs for the construction, operation and maintenance of the Facility and (iii) amounts constituting interest, fees and expenses paid or payable with respect to the Facility as set forth in the Approved Construction Budget. AFFILIATE shall mean, as to a particular entity, a Person (i) which directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, such entity, (ii) which beneficially owns or holds 5% or more of any class of the Voting Stock of such entity or (iii) 5% or more of the Voting Stock (or in the case of a Person which is not a corporation, 5% or more of the equity interest) of which is beneficially owned or held by such entity. As used herein, the term control shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise, the terms "controlling," "controlled by" and "under common control with" shall have meanings correlative to the foregoing. AFTER-TAX BASIS shall mean on a basis such that any payment received or deemed to have been received by any Person shall, if necessary, be supplemented by a further payment to that Person so that the sum of the two payments shall, after deduction of all taxes, penalties, fines, interest, additions to tax and other charges (taking into account any related credits or deductions) resulting from the receipt (actual or constructive) of such payments imposed by or under any Federal, state, local or foreign law or taxing or governmental authority be equal to the payment received or deemed to have been received. APPLICABLE LAW shall mean all applicable laws, rules, codes, ordinances, permits, certificates, Orders, regulations and treaties of the United States of America and states, territories and political subdivisions thereof and of any other Governmental Authority. APPLICABLE PERMITS shall mean any Permit that is necessary to develop, build, improve, own, operate or use all or any part of the Leased Property or any part thereof in accordance with this Lease and the other Operative Documents. APPRAISAL shall have the meaning set forth in Section 6(a)(xiv) hereof. APPRAISER shall mean Independent Equipment Company. APPROVED CONSTRUCTION BUDGET shall mean the budget prepared by the Lessee, in form and substance satisfactory to the Lessor, attached as EXHIBIT C hereto, which budget specifies the estimated Actual Project Costs including: (a) all labor, materials and services necessary for the design, engineering and construction of the Facility, in accordance with the Construction Contract and the Construction Agreements, and (b) the expenses to be incurred in connection with the design, engineering and construction of the Facility, as the same may be amended from time to time in accordance with the provisions of Section 4 hereof and the other Operative Documents. 2 APPROVED CREDIT AGREEMENT ACTION shall mean any amendment or modification to, or waiver under, the Credit Agreement at such times that Key Bank National Association or any Affiliate of Key Bank National Association is a "Bank" party to the Credit Agreement. BASIC RENT shall have the meaning set forth in Section 3(b) hereof. BASIC RENT PAYMENT DATE shall have the meaning set forth in Section 3(b) hereof. BASIC RENT RATE shall mean, with respect to each Rental Period, an interest rate per annum equal to the sum of (i) the rate or interest at which deposits in U.S. dollars for a one month period are offered in the London interbank market as quoted on the Reuters Screen page "LIBO" at or about 11:00 A.M. (London time) on the second Business Day prior to the commencement of such Rental Period, or if such page on such screen ceases to display such information, such other page as may replace it on that screen for the purpose of displaying such information PLUS (ii) 125 basis points. BILL OF SALE shall mean the Bill of Sale by the Ground Lessor in favor of the Ground Lessee dated the Closing Date, pursuant to which the Lessee transferred and sold to the Lessor certain Components described therein. BUSINESS DAY shall mean (a) a day of the year (other than a Saturday or a Sunday) on which banks are not required or authorized to close in New York City, Boston, Massachusetts, and San Francisco, California, and (b) if the applicable Business Day relates to the determination of the Basic Rent Rate, a day of the year (other than a Saturday or a Sunday) that is also a day on which dealings are carried on in the London interbank market and banks are open for business in London. CERCLIS shall mean the Comprehensive Environmental Response Compensation and Liability Information System, which is a list maintained by the United States Environmental Protection Agency of sites where there is a known or suspected release or potential release of hazardous materials which may require remediation. CLAIM shall mean all liabilities (including, without limitation, negligence, warranty, statutory, product, strict or absolute liability, liability in tort or otherwise), obligations, responsibilities, losses, damages, penalties, fines, sanctions, claims, Environmental Claims, actions, causes of action, suits, investigations, judgments, Liens (including any Lien in favor of any Governmental Authority for environmental liabilities and costs or violations of any Environmental Laws), Taxes, costs, expenses and 3 disbursements, of any kind or nature, including, without limitation, reasonable legal fees and expenses and costs of investigation. CLOSING DATE shall mean December 19, 1997. CODE shall mean the Internal Revenue Code of 1986, as amended. COMPONENTS shall mean all furniture, fixtures, equipment and other real or personal property to be constructed or installed on the Parcel on or after the Closing Date, along with the real and personal property described in the Warranty Deed and the Bill of Sale, as set forth in detail in the Lease Supplements, and together shall constitute the Facility. CONSTRUCTION AGENT shall have the meaning set forth in Section 4(a) hereof. CONSTRUCTION AGREEMENTS shall have the meaning set forth in Section 4(c)(iv) hereof. CONSTRUCTION CONTRACT shall mean the Agreement dated as of July 22, 1997 between Lessee and HCMA relating to the construction of the Facility, as assigned to the Lessor pursuant to the Construction Contract Assignment. CONSTRUCTION CONTRACT ASSIGNMENT shall mean the Assignment Agreement dated as of December 19, 1997 among the Lessee, as assignor, the Lessor, as assignee, and HCMA. CONSTRUCTION SCHEDULE shall mean the Construction Schedule for the Facility, as the same may be amended or supplemented from time to time in accordance with Section 4 hereof. CONTRACTUAL OBLIGATION shall mean, as to any Person, any provision of any security issued by such Person or of any agreement, undertaking contract, indenture, mortgage, deed of trust or other instrument, document or agreement to which such Person is a party or by which it or any of its property is bound. CREDIT AGREEMENT shall mean the Amended and Restated Credit Agreement dated as of July 31, 1996, as amended October 15, 1996, March 31, 1997, and October 10, 1997, among the Lessee, Bank of America National Trust and Savings Association, as Agent, ABN AMRO Bank, N.V. and Societ, Generale, as Co-Agents, and the other financial institutions party thereto, a copy of which is attached as EXHIBIT F 4 hereto, as it may hereafter be amended or modified or any of its provisions may hereafter be waived pursuant to any Approved Credit Agreement Action. DEFAULT shall mean an event which, after the giving of notice or lapse of time, or both, would constitute an Event of Default. ENVIRONMENTAL CLAIMS shall mean any Claim, action, cause of action, investigation or notice (in written form) by any Person or entity alleging potential liability (including, without limitation, potential liability for investigatory costs, cleanup costs, Remedial Action, Releases, governmental response costs, natural resources damages, property damages, personal injuries, or penalties) arising out of, based on or resulting from (a) the presence, release into the environment, of any Hazardous Material at any location, whether or not owned or operated by the Lessee or (b) circumstances forming the basis of any violation, or alleged violation, of any Environmental Law. ENVIRONMENTAL CONSULTANT shall mean Century West Engineering Corporation. ENVIRONMENTAL LAWS shall mean all applicable federal, state, foreign and local laws and regulations, and common law relating to pollution or protection of the environment (including, without limitation, ambient air, surface, water, groundwater, land surface or subsurface strata, wetlands, wildlife, aquatic species, vegetation and natural resources), including, without limitation, laws and regulations relating to emissions, discharges, Releases or threatened Releases of Hazardous Materials or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials. Environmental Laws include, but are not limited to, the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"); the Federal Insecticide, Fungicide, and Rodenticide Act ("FIFRA"); the Resource Conservation Recovery Act ("RCRA"); Oil Pollution Act of 1990 ("OPA"); the Superfund Amendments and Reauthorization Act of 1986 ("SARA"); the Toxic Substances Control Act ("TSCA"); the Hazardous Material Transportation Act; the Clean Air Act; the Federal Water Pollution Control Act; the Safe Drinking Water Act; and their state and local counterparts or equivalents. ENVIRONMENTAL PERMITS shall mean all Permits required under Environmental Laws. ERISA shall mean the Employee Retirement Income Security Act of 1974, as amended, and regulations promulgated thereunder. 5 ERISA AFFILIATE shall mean any trade or business (whether or not incorporated) under common control with the Lessee within the meaning of Section 414(b) or 414(c) of the Code. ERISA EVENT shall mean (a) a Reportable Event with respect to a Pension Plan; (b) a withdrawal by the Lessee or any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation of operations which is treated as such a withdrawal under Section 4062(e) of ERISA; (c) the filing of a notice of intent to terminate the treatment of a plan amendment as a termination under Section 4041 or 4041A of ERISA or the commencement of proceedings by the PBGC to terminate a Pension Plan subject to Title IV of ERISA; (d) a failure by the Lessee or any ERISA Affiliate to make required contributions to a Pension Plan or other Plan subject to Section 412 of the Code; (e) an event or condition which might reasonably by expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan; (f) the imposition of any liability under Title IV of ERISA, other than PBGC premiums due but not delinquent under Section 4007 of ERISA, upon the Lessee; or (g) an application for a funding waiver or an extension of any amortization period pursuant to Section 412 of the Code with respect to any Pension Plan. EVENT OF DEFAULT shall have the meaning set forth in Section 20 hereof. EVENT OF LOSS shall mean with respect to the Facility any of the following events: (i) loss of the Facility or the use thereof due to theft, disappearance, destruction, damage beyond repair or rendition of the Facility permanently unfit for commercial operation for any reason whatsoever; (ii) any damage to the Facility which results in an insurance settlement with respect to the Facility on the basis of a total loss; (iii) the requisition of title to the Leased Property or any part thereof by the act of the United States government or any other Governmental Authority; (iv) the condemnation, confiscation or seizure of, or requisition of use ("Requisition of Use") of the Leased Property or any part thereof by the act of the United States Government or any other Governmental Authority which constitutes a total taking thereof, (v) the Requisition of Use of the Leased Property or any part thereof by the act of the United States Government or any other Governmental Authority which has rendered the operation of the Facility uneconomic to the Lessee. The date of such Event of Loss shall be the date of such theft, disappearance, destruction, damage, condemnation, confiscation, seizure, requisition of title, Requisition of Use or unfitness for use for the stated period. 6 EXPECTED TAXES shall mean net income taxes imposed by any federal or state Governmental Authority on the Lessor with respect to any Rent received by the Lessor. FACILITY shall mean the sawmill facility to be constructed on the Parcel, as more fully described in the Construction Contract and the Construction Budget and shall be comprised of the Components and the existing planner and tray sorter facility and dry kiln facility located on the Parcel. FINAL COMPLETION DATE shall mean the date on and as of which the Lessee has delivered to the Lessor a fully executed Officer's Certificate in the form of EXHIBIT D hereto. FINAL SURVEY shall mean an ALTA/ACSM survey of the Parcel and any necessary easements, rights of way or similar property rights benefiting the Parcel, showing the location of all Components, easements, encroachments and other survey matters together with a certification from the surveyor, such survey and certification shall be in form and substance satisfactory to the Lessor. GAAP shall mean generally accepted accounting principals in the United States of America in effect from time to time. GENERAL PARTNER shall mean the general partner of the Lessee, Crown Pacific Management Limited Partnership, a Delaware limited partnership, or any successor general partner of the Lessee. GOVERNMENT ACTION shall mean all actions, authorizations, consents, approvals, waivers, exceptions, variances, franchises, filings, orders, permits, licenses, exemptions, publications, notices to and declarations of or with any Governmental Authority, including, without limitation, those pertaining to Environmental Laws and Environmental Permits. GOVERNMENTAL AUTHORITY shall mean and include any Federal, state, municipal or other governmental department, commission, board, bureau, court, legislature, agency, instrumentality or authority, domestic, foreign, transnational or international. GROUND LEASE shall mean the Ground Lease dated as of December 19, 1997 between the Ground Lessor and the Ground Lessee, conveying to the Lessor a leasehold estate in the Parcel. 7 GROUND LESSEE shall mean the Lessor as ground lessee under the Ground Lease. GROUND LESSOR shall mean the Lessee as ground lessor under the Ground Lease. HCMA shall mean HCMA Consulting Group, Inc., an Oregon corporation. HAZARDOUS MATERIALS shall mean (i) all substances defined as such in the National Oil and Hazardous Substances Pollution Contingency Plan, 40 C.F.R.(S)300.5, (ii) any substance that, whether by its nature or use, is subject to regulation under any Environmental Law or with respect to which any Federal, state or local Environmental Law of Governmental Authority requires environmental investigation, monitoring or remediation and (iii) all substances defined as such by, or regulated as such under, any Environmental Law. INDEMNIFIED PERSON shall mean the Lessor, its successors, assigns and affiliates, and the directors, officers, employees and agents of the foregoing. INDEPENDENT AUDITOR shall have the meaning set forth in Section 18(a)(i). INSURANCE REQUIREMENTS shall mean all of the insurance requirements set forth in Section 14(a) through (c) hereof. IRS shall mean the Internal Revenue Service, and any Governmental Authority succeeding to any of its principal functions. LAW shall mean any law (including, without limitation, any zoning law or ordinance, any Environmental Law or Legal Requirements), treaty, directive, statue, rule, regulation, ordination, order, directive, code, interpretation, judgment decree, injunction, writ, determination, award, Permit, license, authorization, direction, requirement or decision of or agreement with or by any Governmental Authority or any official or officer thereof having jurisdiction of the matter in question. LEASE shall mean this Lease and shall include each Lease Supplement entered into pursuant to the terms hereof. LEASE SUPPLEMENT shall mean a supplement to this Lease duly executed and delivered by the Lessor and the Lessee pursuant to, and in accordance with, the terms hereof, in the form of EXHIBIT A hereto. 8 LEASE TERM shall mean the period commencing on the Closing Date and ending on the Lease Termination Date or such shorter period as may result from earlier termination as provided herein. LEASE TERMINATION DATE shall mean the earlier of (i) the Final Completion Date, (ii) September 30, 1998 and (iii) the date on which this Lease is terminated pursuant to the terms hereof. LEASED PROPERTY shall mean the Parcel and the Facility. LEGAL REQUIREMENTS shall mean (i) all Laws, foreseen or unforeseen, ordinary or extraordinary, or arising from any restriction of record or otherwise, which now or at any time hereafter may be applicable to the Lessor, as owner of the Facility, the Lessee, as lessee hereunder, or the Leased Property or any part thereof, or any of the adjoining sidewalks, or the maintenance, management, ownership, construction, operation, mortgaging, occupancy, possessing, use, non-use or condition of the Leased Property or any part thereof; (ii) and any other governmental rules, orders and determinations now or hereafter enacted, made or issued, and applicable to the Lessor, as owner of the Facility, the Lessee, as lessee hereunder, or the Leased Property or any part thereof or to the maintenance, management, ownership, construction, operation, mortgaging, occupancy, possession, use, non-use or condition thereof whether or not presently contemplated; and (iii) all agreements, Permits, covenants, and restrictions applicable to the Leased Property or any part thereof or the maintenance, management, ownership, construction, operation, mortgaging, occupancy, possession, use, non-use or condition thereof. LESSEE shall mean Crown Pacific Limited Partnership, a Delaware limited partnership, and its permitted successors and assigns. LESSOR shall mean SELCO Service Corporation, an Ohio corporation, and its permitted successors and assigns. LESSOR'S LIENS shall mean any Lien on or against the Leased Property arising as a result of (i) Claims against the Lessor which are not related to the transactions contemplated by the Operative Documents, (ii) any act or omission of the Lessor which is not related to the transactions contemplated by the Operative Documents or is in violation of any of the terms of the Operative Documents or (iii) Claims against the Lessor with respect to Taxes or expenses against which the Lessee is not required to indemnify Lessor pursuant to any of the Operative Documents. 9 LIEN shall mean any interest in property securing an obligation owed to, or claimed by, a Person other than the owner of the property, whether such interest is based on the common law, statute or contract, and including but not limited to any security interest, mortgage, encumbrance, pledge, conditional sale or trust receipt or a lease, consignment or bailment for security purposes; the term "Lien" shall include reservations, exceptions, encroachments, easements, rights-of-way, covenants, conditions, restrictions, leases and other title exceptions and encumbrances affecting property. MANDATORY ALTERATION shall have the meaning set forth in Section 11(d) hereof. MATERIAL ADVERSE EFFECT shall mean (a) a material adverse change in, or a material adverse effect upon, the operations, business, properties, condition (financial or otherwise) or prospects of the Lessee; (b) a material impairment of the ability of the Lessee to perform under this Lease or any other Operative Document and to avoid any Event of Default; (c) a material adverse effect upon the legality, validity, binding effect or enforceability against the Lessee of any Operative Document or; (d) a material adverse effect on the continued economic operation of the Leased Property. MAXIMUM REQUISITION FUNDING AMOUNT shall mean $16,959,077.67. MEMORANDUM OF LEASE shall mean the Memorandum of Lease dated as of December 19, 1997 between the Lessor and the Lessee. MEMORANDUM OF GROUND LEASE shall mean the Memorandum of Ground Lease dated as of December 19, 1997 between the Ground Lessor and the Ground Lessee. MGP GENERAL PARTNERS shall mean, collectively, Freemont Timber, Inc., a Delaware corporation, and HS Corp. of Oregon, an Oregon corporation, the sole general partners of the General Partner, and any successor general partner of the General Partner. MODIFICATION shall mean any improvement, modification, alteration or addition to the Leased Property. NEW LEASE NOTIFICATION shall have the meaning set forth in Section 19(a) hereof. NONSEVERABLE MODIFICATION shall mean a Modification to the Leased Property which is not a Severable Modification. NPL shall mean the National Priorities List. 10 OFFICER'S CERTIFICATE of any Person shall mean a certificate signed by a president, any vice president and/or any other duly authorized and responsible officer of such Person. OPERATIVE DOCUMENTS shall mean and include this Lease, the Lease Supplements, the Construction Contract, the Construction Contracts Assignment, the Ground Lease, the Memorandum of Lease, the Memorandum of Ground Lease, the Bill of Sale and the Warranty Deed. ORDER shall mean and include any order, writ, injunction, decree, judgment, award, determination, direction or demand of any Governmental Authority. OVERDUE RATE shall mean a rate per annum equal to the greater of (i) 2% above the Basic Rent Rate then in effect, or for any period after the Lease Termination Date, the Basic Rent Rate for the last Rental Period or (ii) 2% above the Prime Rate. PARCEL shall mean the real property described on Schedule 1 hereto. PARTS shall mean all appliances, parts, instruments, appurtenances, accessories and other equipment of whatever nature, which may from time to time be incorporated or installed in or attached to and become a part of the Leased Property as originally constituted. PENSION PLAN shall mean a pension plan (as defined in Section 3(2) of ERISA) subject to Title IV of ERISA which the Lessee or any ERISA Affiliate sponsors, maintains, or to which it makes, is making, or is obligated to make contributions, or in the case of a multiple employer plan (as described in Section 4064(a) of ERISA) has made contributions at any time during the immediately preceding five (5) plans years. PERMIT shall mean any order, authorization, consent, approval, license, ruling, permit, certification, exemption, filing or registration by or with any Governmental Authority. PERMITTED ENCUMBRANCES shall have the meaning set forth in the Ground Lease. PERMITTED LIENS shall mean all Liens permitted by Section 10 hereof. PERSON shall mean any individual, partnership, corporation, limited liability company, limited liability partnership, joint stock company, trust, unincorporated 11 association or organization or joint venture, a government or any department or agency thereof, or any other entity. PLAN shall mean an employee benefit plan (as defined in Section 3(3) of ERISA) which the Lessee or any ERISA Affiliate sponsors or maintains or to which the Lessee makes, is making, or is obligated to make contributions and includes any Pension Plan. PRIME RATE shall mean the rate of interest per annum publicly announced from time to time by Key Bank National Association as its prime rate in effect at its principal office in Cleveland, Ohio; each change in the Prime Rate shall be effective from and including the date such change is publicly announced as being effective. PURCHASE PRICE shall mean $2,453,200 which represents the amount paid by the Lessor to the Lessee for the real and personal property described in the Bill of Sale and the Warranty Deed. RELEASE shall mean the release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching or migrating into the environment of any Hazardous Material through or in the air, soil, surface water or groundwater. REMEDIAL ACTION shall mean actions required to (i) clean up, remove, treat or in any other way address Hazardous Materials in the environment, (ii) prevent the Release or further Release or minimize the further Release of Hazardous Materials, or (iii) investigate and determine if a remedial response is needed, to design such a response and post-remedial investigation, monitoring, operation, maintenance and care. RENT shall have the meaning set forth in Section 3(c) hereof. RENTAL PERIOD shall mean the following periods: (i) the Closing Date through December 31, 1997 and (ii) each calendar month thereafter through the Lease Termination Date; PROVIDED, that with respect to the calendar month in which the Lease Termination Date occurs, the Rental Period for that month, if the Lease Termination Date is not the last day of such month, shall be the first day of such calendar month through the Lease Termination Date. REPLACEMENT PARTS shall have the meaning set forth in Section 11(c) hereof. 12 REPORTABLE EVENT shall mean any of the events set forth in Section 4043(b) of ERISA or the regulations thereunder, other than any such event for which the 30-day notice requirement under ERISA has been waived in regulations issued by the PBGC. REQUISITION shall mean a requisition by the Lessee for Requisition Fundings substantially in the form of EXHIBIT B. REQUISITION FUNDING shall have the meaning set forth in Section 5(b) hereof. REQUISITION FUNDING CONDITIONS shall mean the conditions to each Requisition Funding set forth in Sections 6(b) and 6(c) hereof. REQUISITION FUNDING DATE shall mean the Closing Date and the first Business Day of any month thereafter through the Lease Termination Date. REQUISITION OF USE shall have the meaning set forth in the definition of Event of Loss. SEVERABLE MODIFICATION shall mean any Modification to the Leased Property permitted hereunder which can be readily removed therefrom without impairing the current or residual value, utility or remaining useful life of the Leased Property. SUBSIDIARY of any Person shall mean any corporation, partnership, limited liability company, limited liability partnership, joint venture, trust or estate of which (or in which) more than 50% of (a) the Voting Stock of such corporation, (b) the interest in the capital or profits of such partnership, limited liability company, limited liability partnership, or joint venture or (c) the beneficial interest in such trust or estate is at the time directly or indirectly owned or controlled by such Person, by such Person and one or more of its other Subsidiaries or by one or more of such Person's other Subsidiaries. SUPPLEMENTAL RENT shall have the meaning set forth in Section 3(c) hereof. TAX or TAXES shall mean, without limitation, any fee (including license, filing, recording, transfer, mortgage and registration fees), foreign, Federal, state or local tax (including any income, gross receipts, withholding, franchise, excise, sales, use, value added, mortgage, real, personal, tangible or intangible property tax or any tax similar to any of the foregoing taxes), interest equalization, recording, transfer or stamp tax (including deed stamp tax), assessment (including any maintenance charge, owner association dues or charges), levy, impost, duty, charge or withholding of any kind or nature whatsoever, imposed or assessed by any foreign, Federal, state or local 13 government or agency, or governmental authority, together with any addition to tax, penalty, fine or interest thereon, other than Expected Taxes. TITLE INSURANCE POLICY shall have the meaning set forth in Section 6(a)(vii). TOTAL FUNDINGS means an amount equal to all Requisition Fundings made by the Lessor hereunder plus the Purchase Price. UNFUNDED PENSION LIABILITY shall mean the excess of a Pension Plan's benefit liabilities under Section 4001(a)(16) of ERISA, over the current value of that Pension Plan's assets, determined in accordance with the assumptions used for funding the Pension Plan pursuant to Section 412 of the Code for the applicable plan year. UPDATED TITLE POLICY shall mean an update of the Title Insurance Policy in form and substance satisfactory to the Lessor, including the removal of the survey exception. VOTING STOCK shall mean, as to any corporation, all stock of any class or classes (however designated), or other securities of any kind, having ordinary voting rights for an election of a majority of the directors (or Persons performing similar functions) of such corporation, other than shares or securities having such power only by reason of the happening of a contingency. WARRANTY DEED shall mean the Warranty Deed by the Ground Lessor in favor of the Ground Lessee dated the Closing Date, pursuant to which the Lessee transferred and sold to the Lessor certain Components described therein. SECTION 2. LEASE OF THE LEASED PROPERTY. Upon the terms and subject to the conditions set forth in this Lease and each Lease Supplement, and in consideration for the rents and covenants herein stipulated to be performed by the Lessee, the Lessor hereby leases to the Lessee the Leased Property. This Lease shall be effective with respect to any Components described on Schedule 1 to each Lease Supplement executed and delivered by the Lessor and the Lessee from time to time and as described in the Bill of Sale and the Warranty Deed. Such Components shall be subject to the terms and conditions of this Lease from and after the date on which a Lease Supplement relating to such Components is executed and delivered for the period commencing on the date of execution and delivery of such Lease Supplement. Simultaneously with the delivery of each Requisition pursuant to Section 5 hereof, the Lessee shall deliver to the Lessor an executed Lease Supplement with respect to the Components included in the Actual Project Costs described in such Requisition. 14 SECTION 3. TERM AND RENT. (a) TERM. The term of this Lease shall begin on the Closing Date and shall end on the Lease Termination Date. (b) BASIC RENT. On the first Business Day immediately succeeding the last day of each Rental Period (each a "Basic Rent Payment Date"), the Lessee shall pay to the Lessor, as basic rent (herein referred to as "Basic Rent") for such Rental Period, an amount determined as follows: (i) an amount equal to the aggregate amount of Actual Project Costs advanced by the Lessor pursuant to Section 5 hereof from the date hereof through and including such Basic Rent Payment Date, MULTIPLIED BY (ii) the Basic Rent Rate, DIVIDED BY (iii) 360, and MULTIPLIED BY (iv) the actual number of days in such Rental Period. The Lessee agrees not to prepay any payment of Basic Rent except as specifically provided by the terms hereof. (c) SUPPLEMENTAL RENT. The Lessee shall pay to the Lessor or such other Person as shall be entitled thereto the following amounts (herein referred to as "Supplemental Rent" and, together with all Basic Rent, as "Rent"): (i) on the date provided herein or in the applicable Operative Document or if no such date shall be so provided then on demand, any amount payable hereunder (other than Basic Rent) which the Lessee assumes the obligation to pay, or agrees to pay, under this Lease or any other Operative Document to the Lessor or others; and (ii) on demand, to the extent permitted by applicable law, interest (computed on the basis of a 360-day year and actual days elapsed) at the Overdue Rate on any payment of Rent not paid when due for any period during which the same shall be overdue. The expiration or other termination of the Lessee's obligation to pay Basic Rent hereunder shall not limit or modify the obligations of the Lessee with respect to Supplemental Rent. 15 (d) PAYMENTS. All amounts payable by the Lessee hereunder shall be paid in lawful money of the United States of America and in immediately available funds by wire transfer by 2:00 p.m. (New York City time) on the applicable Basic Rent Payment Date or on the date when due, unless any such due date is not a Business Day, in which case payment shall be due and payable on the next succeeding Business Day, at an account designated by the Lessor or to such other Person in the United States of America or in such other manner as the Lessor from time to time may designate to the Lessee by written instructions. SECTION 4. CONSTRUCTION AGENT. (a) APPOINTMENT OF CONSTRUCTION AGENT. The Lessor hereby appoints the Lessee to act as the Lessor's agent (the Lessee, in such capacity, is herein called the "CONSTRUCTION AGENT"), and the Construction Agent hereby agrees to act as the Lessor's agent, to construct the Facility in a manner consistent with the Construction Contract, the Approved Construction Budget, the Construction Schedule and Construction Agreements and to undertake such other duties and obligations as are set forth herein. (b) TERM OF AGENCY RELATIONSHIP. The agency relationship created herein between the Construction Agent and the Lessor shall commence as of the date hereof and shall end on the sooner to occur of: (i) the Lease Termination Date; (ii) the giving of notice by the Lessor of such termination upon the occurrence of an Event of Default; or (iii) the Final Completion Date. No termination of the agency relationship hereunder nor any failure on the part of the Lessor to perform its obligations under any Operative Document (other than its failure to make, or cause to make available, the proceeds of each Requisition Funding in accordance with the terms hereof) shall limit or otherwise affect the Lessor's rights against the Construction Agent for any breach or failure to perform hereunder. (c) DUTIES OF CONSTRUCTION AGENT. In connection with the construction of the Facility, the Construction Agent shall on the Lessor's behalf: (i) construct, and/or cause the renovation and construction of, the Facility in a good and workmanlike manner and in accordance with prudent industry practice and free and clear of all Liens (other than Permitted Liens) arising out of the same; (ii) cause such construction to be carried on (i) with diligence and continuity (subject to delays or interruptions resulting from adverse weather, labor or materials shortages, strikes or other labor difficulties, acts of God, or other similar circumstances beyond the reasonable control of the Lessee) so that the Final Completion Date is achieved by no later than September 30, 1998, 16 (ii) substantially in accordance with the Construction Agreements, the Construction Contract, Approved Construction Budget and the Construction Schedule, (iii) in accordance in all material respects with all Legal Requirements and Applicable Permits and (iii) in accordance with all Insurance Requirements; (iii) pay, or cause to be paid, in accordance with prudent industry practice, all costs and expenses of such construction, including, without limitation, all Actual Project Costs, if any, in excess of an amount equal to the Maximum Requisition Funding Amount (without reimbursement by or other obligation of the Lessor), including, to the extent required, payment of all amounts owing to contractors and subcontractors, and perform all obligations arising out of such construction; (iv) subject to the provisions of paragraph (e) below, negotiate and enter into (on behalf of the Lessor) such design, construction contracts, subcontracts, change orders or amendments thereto (collectively, the "Construction Agreements") as the Construction Agent may deem necessary or advisable in connection with the construction of the Facility; provided, that such Construction Agreements shall be with reputable contractors and subcontractors duly licensed (to the extent required by Applicable Law) to perform their obligations under such Construction Agreements and bonded by such reputable bonding companies, in such amounts, payable in favor of the Lessor, as are consistent with prudent industry standards and the Lessee's customary standards and practices; (v) subject to the limitations set forth in paragraph (e) below, prepare and adopt such modifications, amendments and supplements to the Approved Construction Budget and the Construction Schedule as the Construction Agent may deem necessary or advisable; (vi) apply for and procure, at its own cost and expense, any and all Applicable Permits required to be obtained, maintained or held by either the Construction Agent or the Lessor as and when required by any Legal Requirement to be obtained and maintain all such Permits in full force and effect to the extent required by Applicable Law; (vii) deliver to the Lessor monthly progress reports on the construction of the Facility no later than January 15, 1998 and on the 15th of each month thereafter, which reports shall set forth the status of the construction to date, including a statement setting forth the percentage of the Facility completed, 17 and certify that the construction has been performed in a good and workmanlike manner, substantially in accordance with the Construction Agreements, the Approved Construction Budget and the Construction Schedule; (viii) at the cost and expense of the Construction Agent, allow the Lessor or its agent to examine and obtain copies of all Construction Agreements, Applicable Permits, invoices, purchase orders or receipts for Actual Project Costs, construction plans, requests for proposal, bids, and all other information related to the construction of the Facility as the Lessor may reasonably request; and (ix) deliver to the Lessor copies of any periodic reports prepared by, or provided to, the Lessee or the Construction Agent in connection with the construction and operation of the Facility. (d) RIGHT TO RECEIVE CONSTRUCTION COSTS. (i) During the course of the construction of the Facility, the Construction Agent may, in compliance with the procedures set forth in Section 5 hereof, request payment by the Lessor of Actual Project Costs. (ii) Subject to and in accordance with Section 5 hereof, the Lessor shall make available, or cause to be made available, the proceeds of each Requisition Funding as directed by the Construction Agent in the Requisition relating thereto. The Construction Agent will use the proceeds of each Requisition Funding received by it only to pay the Actual Project Costs set forth in the Requisition for such Requisition Funding and title to the Components acquired with proceeds of each Requisition Funding shall be vested in the Lessor. (e) CERTAIN LIMITATIONS ON SCOPE OF AGENCY RELATIONSHIP. The Construction Agent: (i) may amend or revise the Approved Construction Budget to reflect amendments or revisions to the Construction Contract or Construction Schedule made in accordance with the terms hereof and thereof, PROVIDED, HOWEVER, that the Construction Agent shall not, without the prior written consent of the Lessor, amend or revise the Approved Construction Budget to increase the total actual and projected amount of the Actual Project Costs to an amount which exceeds the sum of the Maximum Requisition Funding Amount plus ten percent (10%) of the Maximum Requisition Funding Amount; and 18 (ii) shall not, without the prior written consent of the Lessor, request or make any changes in the design, drawing, specifications, or construction of any part of the Facility that would (i) reduce the current or residual fair market value or useful life of the Facility; (ii) materially change the use of the Facility; or (iii) result in the failure to complete the construction the Facility (A) in a good and workmanlike manner and in accordance with prudent industry practice and free and clear of all Liens (other than Permitted Liens) arising out of the same and (B) in compliance with all applicable Legal Requirements, Applicable Permits and Insurance Requirements; and (iii) shall not amend or revise the Construction Schedule to extend the scheduled date for completion of the construction of the Facility beyond September 30, 1998. SECTION 5. ACQUISITION OF COMPONENTS; FINANCING. (a) ACQUISITION. In order to finance the acquisition by the Lessor of the Components and to finance the cost of construction of the Facility, the Lessor, as more fully described below, will advance to the Construction Agent on behalf of the Lessor the Actual Project Costs. (b) REQUISITIONS. No more than ten (10) and no less than five (5) Business Days prior to each Requisition Funding Date, the Construction Agent shall submit to the Lessor a Requisition requesting an advance on the immediately succeeding Requisition Funding Date in an amount not to exceed the amount of Actual Project Costs incurred since the immediately preceding Requisition Funding Date (such amount, a "Requisition Funding"). Each Requisition shall constitute a representation and warranty by the Construction Agent and the Lessee that the conditions precedent to such Requisition Funding have been satisfied. (c) REQUISITION FUNDINGS. Subject to the satisfaction of the conditions set forth in Section 6(a) hereof, with respect to the Closing Date, and Sections 6(b) and, if applicable, 6(c) hereof with respect to each other Requisition Funding Date, the Lessor shall make a Requisition Funding on the applicable Requisition Funding Date; PROVIDED, HOWEVER, that the Lessor shall (i) not be obligated to make a Requisition Funding on the Closing Date in an amount in excess of $3,588,567.11 or a Requisition Funding on January 2, 1998 in an amount in excess of $1,000,000, unless prior to such applicable date the Lessor shall have received the Final Survey and the Updated Title Policy and (ii) not be obligated to make a Requisition Funding if after making such Requisition Funding the aggregate amount of the Total Fundings less the Purchase Price would exceed 19 the Maximum Requisition Funding Amount. All Requisition Fundings shall be made to the Construction Agent in immediately available funds at the account or accounts designated in the Requisition submitted with respect to such Requisition Funding. SECTION 6. CONDITIONS PRECEDENT. (a) CONDITIONS PRECEDENT TO THE CLOSING DATE. The obligations set forth in Sections 2, 4 and 5 hereof shall be subject to the fulfillment, to the satisfaction of the Lessor, on or before the Closing Date, of the following conditions precedent: (i) DUE AUTHORIZATION, EXECUTION AND DELIVERY. The Operative Documents shall have been duly authorized, executed and delivered by all parties thereto and shall be in full force and effect. No condition or event shall exist or have occurred which would constitute a Default or Event of Default under any of the Operative Documents by any party thereto and the Lessee shall have delivered an Officer's Certificate to such effect dated the Closing Date. (ii) REPRESENTATIONS. The representations and warranties of the Lessee set forth in the Operative Documents shall be true and correct on and as of the Closing Date, and the Lessee shall have delivered an Officer's Certificate dated the Closing Date to such effect. (iii) OPINIONS. The following opinions, dated the Closing Date and addressed to the Lessor, shall have been delivered to the Lessor: (A) an opinion of Ball Janik, LLP, special counsel to the Lessee, addressed to the Lessor in form and substance reasonably satisfactory to the Lessor and its counsel; and (B) an opinion of Davis Wright Tremaine LLP, Idaho counsel, addressed to the Lessor, as to matters of Idaho law, and in form and substance reasonably satisfactory to the Lessor and its counsel. (iv) PROCEEDINGS SATISFACTORY AND OTHER EVIDENCE. All partnership, corporate and other proceedings taken or to be taken in connection with the transactions contemplated by the Operative Documents and all documents, papers and authorizations relating thereto shall be reasonably satisfactory to the Lessor and its counsel. The Lessor and its counsel shall receive copies of such documents and papers as they have reasonably requested, in form and substance reasonably satisfactory to them, including but not limited to the Operative Documents. 20 (v) SECRETARY'S CERTIFICATES; GOOD STANDING CERTIFICATES; ETC. The Lessor shall have received on or before the Closing Date the following, each dated the Closing Date (unless otherwise specified) in form and substance satisfactory to the Lessor: (A) copies of the resolutions of the board of directors of each MGP General Partner, as general partners of the General Partner, as general partner of the Lessee, and the executive committee of the Board of Control of the General Partner, in each case approving the execution, delivery and performance by the General Partner on behalf of the Lessee of the Operative Documents and the transactions contemplated thereby, certified as of the Closing Date by the Secretary or an Assistant Secretary of such MGP General Partners and the General Partner, as the case may be; (B) a certificate of the Secretary or Assistant Secretary of the General Partner certifying the names and true signatures of the officers of the General Partner, as general partner of the Lessee, authorized to execute, deliver and perform, as applicable this Lease and the other Operative Documents on behalf of the Lessee; (C) the partnership certificate of the Lessee and the General Partner as in effect on the Closing Date, certified by the Secretary of State (or similar, applicable Governmental Authority) of the state of formation of such entities as of a recent date and by the Secretary or Assistant Secretary of the General Partner as of the Closing Date, and each of the Lessee's Partnership Agreement and the General Partner's Partnership Agreement as in effect on the Closing Date, certified by the Secretary or Assistant Secretary of the General Partner as of the Closing Date; (D) the articles or certificate of incorporation of each MGP General Partner as in effect on the Closing Date, certified by the Secretary of State (or similar, applicable Governmental Authority) of the state of incorporation of such MGP General Partner as of a recent date and by the Secretary or Assistant Secretary of such MGP General Partner as of the Closing Date, and the bylaws of each MGP General Partner as in effect on the Closing Date, certified by the Secretary or Assistant Secretary of such MGP General Partner as of the Closing Date; and 21 (E) a good standing certificate for the Lessee, the General Partner and the MGP General Partners from the Secretary of State (or similar, applicable Governmental Authority) of its state of incorporation or formation, as applicable, and with respect to the Lessee, the States of Idaho, Washington and Oregon, as of a recent date, together with a bring-down certificate by facsimile, dated the Closing Date; (vi) CLOSING FEES. The Lessee shall have paid, or caused to be paid, accrued fees and expenses of the Lessor (including the reasonable fees and expenses of New York, Washington and Idaho counsels to the Lessor). (vii) TITLE AND SURVEY; FLOOD HAZARD. (A) The Ground Lessor shall have granted to the Ground Lessee a good and marketable leasehold estate in the Parcel, free and clear of all Liens, except Permitted Encumbrances. The Ground Lessee shall have received from a title insurance company acceptable to the Ground Lessee (the "Title Company") an ALTA prepaid title insurance policy in a form acceptable to the Ground Lessee insuring the Ground Lessee's leasehold estate in the Parcel together with any necessary easements, rights-of-way or similar property rights in an amount not less than $19,459,077.67; subject only to such exceptions as shall be approved by the Ground Lessee, including a pending disbursements clause and containing all endorsements required by the Ground Lessee, including without limitation, a comprehensive endorsement, a contiguity endorsement, an endorsement providing mechanics' lien coverage and an endorsement insuring access to duly open public roads (the "Title Insurance Policy"). (B) The Lessor shall have received a preliminary survey of the Parcel. (C) Evidence that the Parcel is not in a flood hazard zone or evidence of flood hazard insurance. (viii) PERMITS AND CERTAIN PROPERTY MATTERS. All Permits that are or will become Applicable Permits (including, without limitation, those identified on Schedule 6(a)(viii), shall have been obtained, except Applicable Permits customarily obtained or which are permitted by Law to be obtained after the Closing Date (and the Lessee, having completed all appropriate due diligence in connection therewith, shall have no reason to believe that such Permits will not be 22 granted in the usual course of business prior to the date that such Permits are required by Law). All such obtained Permits shall be in proper form, shall be in full force and effect and shall not be subject to any further appeal, consent or contest or to any unsatisfied condition that may allow modification or revocation. The Lessee shall have delivered an Officer's Certificate certifying satisfaction of the foregoing condition, together with a copy of each Permit required to be obtained as of the Closing Date pursuant to this Section 6(a)(viii). (ix) DOCUMENTS RELATING TO THE PARCEL. The Lessee shall deliver, or cause to be delivered, to the Lessor documentation with respect to the condition of the Parcel, the real estate Taxes applicable to the Parcel and such other documents and agreements relating to the construction and operation of the Facility or any part thereof as the Lessor may reasonably request, in form and substance reasonably acceptable to the Lessor. (x) INSURANCE. The Lessee shall be in compliance with all Insurance Requirements and all insurance policies required by Section 14 hereof shall be in full force and effect. The Lessee shall deliver, or cause to be delivered, to the Lessor (a) certificates of insurance, applicable reinsurance cover notes or other satisfactory assurances, evidencing the coverage of such policies in compliance with the Insurance Requirements; and (b) copies of the exceptions to coverage of such policies. (xi) TAXES. Evidence of the Taxes payable for the Parcel shall be provided to the Lessor. All Taxes, fees and other charges which have become due and payable in connection with the execution and delivery of the Operative Documents shall have been paid by the Lessee and evidence shall be provided to the Lessor that the Parcel is a legally subdivided tax lot. (xii) ENVIRONMENTAL MATTERS. A Phase I and Phase II environmental audit of the Parcel by the Environmental Consultant shall have been conducted, at the sole cost and expense of the Lessee, and the Lessor shall have received a copy of the Environmental Consultant's report on its environmental audit, together with an update thereof, which (i) shall conclude that (A) no environmental hazards exist on the Parcel that are unacceptable to the Lessor and (B) neither the Parcel, the Components nor the Facility are likely to create any environmental hazards based upon anticipated and permitted practices and procedures and (ii) shall otherwise be in form and substance satisfactory to the Lessor (in its sole discretion). 23 (xiii) NO EVENT OF DEFAULT. No event has occurred and no condition exists which, assuming that all Operative Documents had been signed prior to the Closing Date, would constitute a Default or an Event of Default. (xiv) APPRAISAL. The Lessee shall cause an appraisal of the Leased Property (the "APPRAISAL") to be delivered to the Lessor, which Appraisal shall be in form and substance satisfactory to the Lessor. The Appraisal shall be prepared by the Appraiser at the expense of the Lessee. (xv) NO MATERIAL ADVERSE CHANGE, ETC. No Applicable Law shall prohibit, and no litigation, governmental investigation or other proceeding shall be pending or threatened in which there is a reasonable possibility, in the reasonable judgment of the Lessor, of an unfavorable judgment, decree, order or other determination which could prevent or make unlawful, or impose any material adverse condition upon, the Leased Property or any material part thereof or the acquisition, use, ownership, maintenance, management, operation or leasing thereof or the construction of the Facility or any transaction contemplated hereby or by any other Operative Document or the Lessee performance of its obligations hereunder or thereunder. Since December 31, 1996, there shall not have occurred any material adverse change in the Lessee's (i) business, financial position or results of operations or (ii) ability to perform its respective obligations under any Operative Document to which it is a party, and the Lessee shall have delivered an Officer's Certificate to such effect. (xvi) INITIAL REQUISITION. The Lessee shall have delivered a Requisition to the Lessor at least five (5) Business Days prior to the Closing Date. (xvii) RECORDING AND FILING. The Memorandum of Ground Lease, the Memorandum of Lease and a UCC precautionary financing statement shall have been duly recorded, published, registered and filed by the Lessee, in such manner and in such places as the Lessor and its counsel shall determine to be necessary or appropriate to publish notice thereof and protect the validity and effectiveness thereof and to establish, create, perfect, preserve and protect the rights of the parties thereto and their respective successors and assigns, and all Taxes, fees and other charges in connection with such recording, publishing, registration and filing thereof shall have been paid by the Lessee. (xviii) CONSENTS AND APPROVALS. All Governmental Actions which are required to have been taken, given, obtained, filed or recorded, as the case may be, on or prior to the Closing Date by, from or with any Governmental 24 Authority, and all other consents, filings or approvals which are required to have been taken, given, obtained, filed or recorded, as the case may be, on or prior to the Closing Date by, from or with any other Person, in each case, (a) in connection with the transactions contemplated by the Operative Documents or to authorize the execution, delivery and performance by the Lessee or the Lessor and each of the Operative Documents to which it is a party, or the legality, validity, binding effect or enforceability thereof as against the Lessee, (b) in order that the Leased Property may be leased, used and operated for its intended purposes and the Facility may be constructed thereon as contemplated hereby, or (c) otherwise in connection with the transactions contemplated by the Operative Documents, shall have been duly taken, given, obtained, filed or recorded, as the case may be, and all such approvals shall have been duly taken, given, obtained, filed or recorded, as the case may be, shall be in full force and effect on the Closing Date, shall not be subject to any pending proceedings or appeals (administrative, judicial or otherwise) and shall be adequate to authorize the consummation of the transactions contemplated by the Operative Documents and the performance by the Lessee of its obligations thereunder to which it is a party, except such as may be required to be taken, obtained, given, accomplished or renewed from time to time in connection with the maintenance or operation of the Leased Property or which are otherwise required in connection with the transactions contemplated by the Operative Documents which have been applied for but which cannot be obtained, or which are not normally applied for or taken, given or obtained, prior to the Closing Date, and which in the normal course would be granted; PROVIDED that the failure to obtain such Governmental Actions, consents or approvals by the Closing Date would not materially adversely affect the ability of the Lessee to perform its obligations under any Operative Document to which it is a party. (xix) SATISFACTION WITH CONTEMPLATED TRANSACTIONS. The Ground Lessee shall be satisfied, in its sole discretion, with its review of the Parcel and all material matters in connection with the leasing thereof by the Ground Lessee. (xx) ADDITIONAL DOCUMENTS. The Lessor shall have received such other approvals, certificates or documents as the Lessor may reasonably request to evidence satisfaction of the conditions set forth in this Section 6(a). 25 (b) CONDITIONS PRECEDENT TO EACH REQUISITION FUNDING SUBSEQUENT TO THE CLOSING DATE. The obligations of the Lessor to make Requisition Fundings subsequent to the Closing Date as set forth in Section 5 hereof shall be subject to the fulfillment, to the satisfaction of the Lessor, by, on or as of the date of such requested Requisition Funding, of the following conditions: (i) REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Lessee set forth in the Operative Documents shall be true and correct as if made on and as of the date of such Requisition Funding. (ii) COMPLIANCE; NO DEFAULT, ETC. The Lessee shall be in compliance with its obligations under the Operative Documents on such date and there shall exist no Default or Event of Default under the Operative Documents. (iii) REQUISITION; USE OF PROCEEDS. The Lessor shall have received a timely and complete Requisition pursuant to and in compliance with Section 5(a). All proceeds of the Requisition Fundings shall have been applied solely to Actual Project Costs, and the Lessee shall certify the same in each Requisition and provide such other evidence with respect to the use of such proceeds as may be reasonably requested by the Lessor. (iv) COMPLIANCE WITH LAW. The Leased Property, the construction, and operation of the Facility and the Lessee and the Construction Agent shall be in material compliance with all Laws including, without limitation, all building and construction Laws and Environmental Laws applicable to the Leased Property. (v) NO MATERIAL ADVERSE EVENT. No Applicable Law shall prohibit, and no litigation, governmental investigation or other proceeding shall be pending or threatened in which there is a reasonable possibility, in the judgment of the Lessor, of an unfavorable judgment, decree, order or other determination which could prevent or make unlawful, or impose any material adverse condition upon, the Leased Property or the construction or operation of the Facility or any transaction contemplated hereby or by any other Operative Document or the ability of the Lessee to perform its obligations hereunder or thereunder, and the Lessee shall certify the same in each Requisition. (vi) LEGALITY. The making of any Requisition Funding, and maintenance thereof, by the Lessor shall not be prohibited by any Applicable Law and shall not subject to any Tax, penalty, liability or other onerous condition under or pursuant to any Applicable Law. 26 (vii) PERMITS. All Permits that are or will become Applicable Permits shall have been obtained, except Applicable Permits customarily obtained or which are permitted by Law to be obtained after the date of the requested Requisition Funding (and the Lessee, having completed all appropriate diligence in connection therewith, shall have no reason to believe that such Permits will not be granted in the usual course of business prior to the date that such Permits are required by Law). All such obtained Permits shall be in proper form, in full force and effect and not subject to any appeal, consent or further contest or to any unsatisfied condition (other than conditions relating to completion in the future) that may allow modification or revocation. (viii) NO PROPERTY DAMAGE. None of the Leased Property shall have suffered an Event of Loss, or any other damage or destruction which renders the Leased Property unusable in whole or in material part and, under Applicable Law, the Leased Property may be used for the purposes contemplated by the Lessee in accordance with this Lease, and the Lessee shall certify the same in each Requisition. (ix) TITLE INSURANCE POLICY UPDATE. The Title Insurance Policy shall have been endorsed and re-dated as required by the Lessor to cover each Requisition Funding, including, without limitation, a mechanics lien endorsement, with no title exceptions objectionable to the Lessor. (x) ADDITIONAL DOCUMENTS. The Lessor shall have received such other approvals, certificates or documents as the Lessor may reasonably request to evidence satisfaction of the conditions set forth in this Section 6(b). (c) CONDITIONS PRECEDENT TO ANY REQUISITION FUNDING SUBSEQUENT TO JANUARY 1, 1998. The obligations of the Lessor to make Requisition Fundings subsequent to January 1, 1998 as set forth in Section 5 hereof shall be subject to the fulfillment, to the satisfaction of the Lessor, by, on or as of the date of such requested Requisition Funding, of the following conditions: (i) OTHER CONDITIONS. The Lessee shall have satisfied the conditions precedent set forth in Section 6(b) hereof. (ii) DELIVERY OF FINAL SURVEY AND UPDATED TITLE POLICY. The Lessor shall have received the Final Survey and the Updated Title Policy. 27 SECTION 7. NET LEASE; NON-TERMINABILITY. (a) This Lease is a net lease and, except as otherwise expressly provided in this Lease, any present or future Law to the contrary notwithstanding, shall not terminate, nor shall the Lessee be entitled to any abatement, reduction, set-off, counterclaim, defense or deduction with respect to any Rent or other sum payable hereunder. Except as otherwise expressly provided in this Lease, the obligations of the Lessee shall not be affected by reason of: (i) any damage to or destruction of the Leased Property or any part thereof by any cause whatsoever (including, without limitation, by fire, Event of Loss or act of God or enemy or any other force majeure event); (ii) any Requisition of Use, including, without limitation, a temporary Requisition of Use of the Leased Property or any part thereof; (iii) any prohibition, limitation, restriction or prevention of the Lessee's use, occupancy or enjoyment of the Leased Property or any part thereof by any Person; (iv) any matter affecting title to the Leased Property or any part thereof; (v) any eviction of the Lessee from, or loss of possession by the Lessee of, the Leased Property or any part thereof, by reason of title paramount or otherwise; (vi) any default by the Lessor hereunder; (vii) the invalidity or unenforceability of any provision hereof or in the other Operative Documents or the impossibility or illegality of performance by the Lessor or the Lessee or both; (viii) any action of any Governmental Authority; or (ix) any other cause or occurrence whatsoever, whether similar or dissimilar to the foregoing. The parties intend that the obligations of the Lessee hereunder shall continue unaffected unless such obligations shall have been modified or terminated pursuant to an express provision of this Lease. (b) The Lessee shall remain obligated under this Lease in accordance with its terms and shall not take any action to terminate, rescind or avoid this Lease, notwithstanding any bankruptcy, insolvency, reorganization, liquidation, dissolution or other proceeding affecting the Lessor or any action with respect to this Lease which may be taken by any trustee, receiver or liquidator or by any court. Except as expressly permitted in this Lease, the Lessee waives all rights to terminate or surrender this Lease, or to any abatement or deferment of Rent or other sums payable hereunder or under the other Operative Documents. The Lessee shall remain obligated under this Lease in accordance with its terms, and the Lessee hereby waives any and all rights now or hereafter conferred by Law or otherwise to modify or to avoid strict compliance with its obligations under this Lease. All payments made to or for the benefit of the Lessor hereunder as required hereby shall be final, and the Lessee shall not seek to recover any such payment or any part thereof for any reason whatsoever, absent manifest error. 28 SECTION 8. RETURN OF THE LEASED PROPERTY. (a) RETURN. If upon the expiration or termination of this Lease, the Lessee or its designee has not purchased the Facility as provided in Section 19 hereof or the Lessee shall not have entered into new leasing arrangements pursuant to Section 19 hereof, the Lessee shall surrender the Leased Property and the Facility shall be surrendered in the operating condition, efficiency, utility and with the useful life the Facility had upon the completion of its construction, except as repaired, rebuilt, replaced, renovated, altered, added to or built as permitted or required hereby and except for ordinary wear and tear. To the extent that the Facility is not in compliance with the above, upon such expiration or termination (except as a consequence of a Event of Loss, as to which Section 13 hereof applies), the Lessee shall pay to Lessor (or on behalf of the Lessor) such additional amounts as are required to place it in compliance therewith. (b) NO LIENS. The Lessee shall also surrender the Leased Property to the Lessor free and clear of all Liens, easements, consents and restrictive covenants and agreements affecting the Leased Property (other than Lessor's Liens and Permitted Encumbrances). (c) COMPLIANCE WITH ENVIRONMENTAL LAWS. The Lessee shall also surrender the Leased Property in a condition such that they are in compliance with all applicable Environmental Laws (irrespective of whether the deadline for such compliance would otherwise expire after the Lease Termination Date). Nothing contained in this Section 8 shall relieve or discharge or in any way affect the obligation of the Lessee to cure promptly pursuant to this Lease any violations of Legal Requirements referred to in this Lease, or to pay and discharge any Liens against the Leased Property. The Lessee shall cooperate, to the fullest extent, with the Lessor, its subsequent lessees, operators or purchasers to effect the transfer of all of Lessee's Applicable Permits for the Leased Property to such Persons. (d) REMOVAL AND REPAIR. The Lessee, at its sole cost and expense, shall remove from the Leased Property on or prior to such expiration or termination, all property situated thereon which is not owned by the Lessor and shall repair any damage caused by such removal and shall restore the Facility to the condition and working order (or reasonable equivalent thereof) in which it existed immediately prior to the installation of such property, except for ordinary wear and tear. Lessee shall indemnify and hold harmless the Lessor, its successors and assigns against any loss, liability, cost, expense, penalty or claim arising out of the Lessee's removal of such property from the Leased Property including, without limitation, any environmental liability arising therefrom. Any such property of the Lessee not so removed shall become the property of the Lessor, 29 and the Lessor may cause such property to be removed from the Leased Property and disposed of, and the cost of any such removal and disposition of the Lessee's property and of repairing any damage caused by such removal and of the restoration of the Leased Property to the condition and working order (or reasonable equivalent thereof) in which the Leased Property existed immediately prior to the installation of such property, ordinary wear and tear excepted, shall be borne by the Lessee. (e) SURVIVAL. The obligations of the Lessee under this Section 8 shall survive the expiration or any termination of this Lease (whether by operation of Law or otherwise) for all matters described in this Section 8 which occur or arise prior to such expiration or termination or arise out of or result from facts, events, claims, liabilities, actions or conditions occurring, arising or existing on or before such expiration or termination. SECTION 9. WARRANTY OF THE LESSOR. (a) QUIET ENJOYMENT. During the term of this Lease, the Lessor covenants that, unless a Default or an Event of Default has occurred and is continuing, it will not, and will not permit any party claiming by or under the Lessor (subject to the terms, covenants and provisions of the Ground Lease) to, (i) grant, create or suffer to exist any Lien upon the Leased Property (or any part thereof or interest therein) other than the Permitted Encumbrances (excluding therefrom any Lessor's Lien); or (ii) interfere with the peaceful and quiet possession and enjoyment of the Leased Property by the Lessee. (b) LIMITED LESSOR WARRANTY. The warranties set forth in paragraph (a) of this Section are in lieu of all other warranties of the Lessor, other than as specifically set forth in the other Operative Documents, whether written, oral or implied, with respect to this Lease or any of the Leased Property, and the Lessor shall not be deemed to have modified in any respect the obligations of the Lessee pursuant to Section 7 hereof, which obligations are absolute and unconditional. (c) THE LESSEE REPRESENTS, WARRANTS, ACKNOWLEDGES AND AGREES THAT (I) THE FACILITY IS OF THE SIZE, DESIGN, CAPACITY AND MANUFACTURE SELECTED BY THE LESSEE, (II) THE LESSEE IS SATISFIED THAT THE LEASED PROPERTY IS SUITABLE FOR ITS PURPOSES, (III) THE LESSOR IS NOT A MANUFACTURER OR A DEALER IN PROPERTY OF SUCH KIND AND (IV) THE LEASED PROPERTY IS LEASED HEREUNDER SUBJECT TO ALL APPLICABLE LAWS AND GOVERNMENTAL REGULATIONS NOW IN EFFECT OR HEREAFTER ADOPTED AND, WITH 30 RESPECT TO ANY COMPONENTS CONVEYED TO THE LESSOR ON THE CLOSING DATE, IN THE SAME STATE AND CONDITION AS WHEN TITLE THERETO WAS FIRST CONVEYED, TRANSFERRED AND ASSIGNED TO THE LESSOR (NORMAL WEAR AND TEAR EXCEPTED), WITHOUT REPRESENTATION OR WARRANTY OF ANY KIND BY THE LESSOR, EXPRESS OR IMPLIED, AS TO THE TITLE, MERCHANTABILITY, COMPLIANCE WITH SPECIFICATIONS, CONDITION, DESIGN, OPERATION, FREEDOM FROM PATENT OR TRADEMARK INFRINGEMENT, ABSENCE OF LATENT DEFECTS OR FITNESS FOR USE OF THE LEASED PROPERTY (OR ANY PART THEREOF), OR ANY OTHER REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO THE LEASED PROPERTY (OR ANY PART THEREOF), OTHER THAN AS SPECIFICALLY SET FORTH IN THE OPERATIVE DOCUMENTS. It is agreed that except as expressly provided herein all risks incident to the matters discussed in the preceding sentence, as between the Lessor and Lessee, are to be borne by the Lessee. Except to the extent otherwise expressly stated, the foregoing provisions are intended to be a complete exclusion and negation of any representations or warranties by the Lessor, express or implied, with respect to the Leased Property, or any part thereof, whether arising pursuant to the Uniform Commercial Code or any similar law now or hereafter in effect, or otherwise. The Lessor authorizes the Lessee, at the Lessee's expense, to assert for the Lessor's account, during the Lease Term, so long as no Event of Default shall have occurred and be continuing, all of the Lessor's rights under any applicable manufacturer's or contractor's warranty and the Lessor agrees to cooperate with the Lessee in asserting such rights; PROVIDED, HOWEVER, that the Lessee shall indemnify and hold the Lessor harmless from and against any and all claims, and all costs, expenses, damages, losses and liabilities incurred or suffered by the Lessor in connection with, as a result of, or incidental to, any action by the Lessee pursuant to the above authorization. Any amount received by the Lessee as payment under any such warranty shall be applied to restore the Facility to the condition required by Section 11 hereof and any excess shall be paid to the Lessee. SECTION 10. LIENS. The Lessee will not directly or indirectly create, incur, assume or suffer to exist any Liens on or with respect to any of the Leased Property or any part thereof, the Lessor's title thereto or any interest of the Lessor therein (and the Lessee will promptly, at its own expense, take such action as may be necessary duly to discharge any such Lien), except (a) the respective rights of the Lessor and the Lessee as herein and in the other Operative Documents provided, (b) Lessor's Liens, (c) Liens for taxes either not yet due or being contested by the Lessee in good faith with due diligence and by appropriate proceedings (and with respect to which the Lessee shall have secured a stay of execution 31 pending such contest and adequate reserves are maintained with respect thereto, in accordance with GAAP), provided that counsel for the Lessor shall have determined that the nonpayment of any such tax or the contest of any such payment in such proceedings does not, in the opinion of such counsel, adversely affect the title, property or rights of the Lessor in the Leased Property, (d) inchoate materialmen's, mechanics', workmen's, repairmen's, employees' or other like Liens arising in the ordinary course of business of the Lessee for amounts either not yet due or being contested by the Lessee in good faith with due diligence and by appropriate proceedings (and with respect to which the Lessee shall have secured a stay of execution pending such contest and adequate reserves are maintained with respect thereto, in accordance with GAAP), if counsel for the Lessor shall have determined that the contest of any such payment in such proceedings does not, in the opinion of such counsel, adversely affect the title, property or rights of the Lessor in the Leased Property, (e) easements, rights-of-way and other similar encumbrances arising in the ordinary course of the Lessee's business and necessary for the operation or the construction of the Facility which do not impose material financial obligations on the Lessee and which do not diminish the current or residual value or interfere with the ordinary intended use of the Leased Property, and (f) Permitted Encumbrances. SECTION 11. MAINTENANCE AND OPERATION; COMPLIANCE AND USE; REPLACEMENT PARTS; MODIFICATIONS. (a) MAINTENANCE AND OPERATION. The Lessee shall operate, maintain, inspect, service, repair and overhaul the Facility in accordance with prudent industry practice and such operating standards as shall be applied by the Lessee or its Affiliates with respect to similar property owned or leased by the Lessee or its Affiliates and in any event shall keep the Facility in as good operating condition as when delivered to the Lessee hereunder, ordinary wear and tear excepted. Throughout the Lease Term, the possession, operation and maintenance of the Facility shall be at the sole risk and expense of the Lessee. (b) COMPLIANCE AND USE. The Lessee agrees that the maintenance, use and operation, as applicable, of the Leased Property will, in all material respects, be in compliance with all Applicable Laws. Subject to the provisions of Section 15 hereof, the Leased Property will at all times (i) be used solely in the conduct of the Lessee's business and (ii) be and remain in the possession and control of the Lessee. (c) REPLACEMENT PARTS. Except as otherwise provided in the succeeding paragraph (d) of this Section, the Lessee, at its own cost and expense, will promptly replace all Parts which may from time to time become worn out, lost, stolen, 32 destroyed, seized, confiscated, damaged beyond repair or permanently rendered unfit for use (such replacement parts hereinafter called "Replacement Parts"). In addition, in the ordinary course of maintenance, service, repair, overhaul or testing, the Lessee may, at its own cost and expense, remove any Parts, whether or not worn out, lost, stolen, destroyed, seized, confiscated, damaged beyond repair or permanently rendered unfit for use, PROVIDED that the Lessee shall, at its own cost and expense, replace such Parts as promptly as practicable. All Replacement Parts shall be free and clear of all Liens and shall be in as good operating condition as, and shall have a value and utility at least equal to, the Parts replaced assuming such replaced Parts were in the condition and repair required to be maintained by the terms hereof. All Parts at any time removed from the Facility shall remain the property of the Lessor, no matter where located, until such time as such Parts shall be replaced by Replacement Parts which have been incorporated or installed in or attached to and become a part of the Facility and which meet the requirements for Replacement Parts specified above. Immediately upon any Replacement Part becoming incorporated or installed in or attached to and becoming a part of any of the Facility as above provided, without further act, (i) title to the removed Part shall thereupon vest in the Lessee, free and clear of all rights of the Lessor, and shall no longer be deemed a Part hereunder, (ii) title to such Replacement Part shall thereupon vest in the Lessor, and (iii) such Replacement Part shall become subject to this Lease and be deemed part of the Facility for all purposes hereof to the same extent as the Parts originally incorporated or installed in or attached to the Facility. The Lessee agrees to cooperate with the Lessor in the preparation, execution and filing of such documents as may be reasonably required to create, perfect and maintain the Lessor's ownership in any such Replacement Part. The Lessee shall notify the Lessor of any Replacement Part or any series of related Replacement Parts (whether related by type or function) for any Leased Property installed and having a cost per Replacement Part or such series of related Replacement Parts, as the case may be, of $250,000 or more. (d) MODIFICATIONS. The Lessee may, without the prior written consent of the Lessor, but solely at Lessee's expense, either (i) repair the Facility by the installation of a Replacement Part, or (ii) affix, install or make any Nonseverable Modification or Severable Modification as the Lessee may deem desirable in the proper conduct of its business, PROVIDED, that no such Modification diminishes the current or residual value, utility, useful life or condition of the Facility below the current or residual value, utility, useful life or condition thereof immediately prior to the making, affixing or installing of such Modification, assuming the Facility was then of the value or utility and in the condition required to be maintained by the terms of this Lease. 33 The Lessee shall, at its expense, make such Modifications to any of the Facility ("Mandatory Alteration") as may be required from time to time to meet the requirements of any Applicable Law or of any Governmental Authority having jurisdiction, or any applicable Permit, deed, conveyance, lease, agreement, easement or instrument. Title to each Nonseverable Modification and each Mandatory Alteration shall, upon installation or affixation to the Facility, vest in the Lessor and thereupon such Nonseverable Modification or Mandatory Alteration, as the case may be, shall become a part of the Facility for all purposes hereof and become subject to this Lease. Title to any Severable Modification (other than a Mandatory Alteration) shall remain in, and be acquired at the expense of, the Lessee. So long as no Event of Default shall have occurred and be continuing, the Lessee may remove any Severable Modification (other than a Mandatory Alteration) at any time prior to the expiration or termination of this Lease so long as such removal shall not materially reduce the current or residual value, utility, useful life or condition of the Facility below the current or residual value, utility, useful life or condition the Facility would have had at such time if such Severable Modification had not been made. Notwithstanding anything in this Lease to the contrary, upon the occurrence and during the continuance of an Event of Default, if this Lease shall be declared to be in default pursuant to Section 20 hereof, any interest of the Lessee in any Severable Modification at such time shall, without further act, become the property of the Lessor. The Lessee shall notify the Lessor of any Mandatory Alterations, Nonseverable Modifications and Severable Modifications or any series of related Modifications (whether related by type or function) for the Facility installed and having an estimated cost per Modification or such series of related Modifications, as the case may be, in excess of $500,000. In the event any Nonseverable Modification or Mandatory Alteration or such series of related Modifications (whether related by type or function) shall have a cost per Modification or such series of related Modifications, as the case may be (including installation), in excess of $500,000, the Lessee at its sole cost and expense shall furnish the Lessor with a full warranty bill of sale, in form and substance satisfactory to the Lessor, conveying title to such Nonseverable Modification or Mandatory Alteration to the Lessor. (e) PROTECTION OF INTERESTS. The Lessee agrees to take such action as shall reasonably be required from time to time by the Lessor to protect the respective interests of the Lessor in the Leased Property. 34 (f) ENCROACHMENTS. Except for Permitted Encumbrances, in the event that all or any part of the Facility or any Modification shall encroach upon any property or right-of-way adjoining or adjacent to the Leased Property or any part thereof, or shall violate any agreements or conditions affecting the Leased Property or any part thereof, or shall obstruct any easement or right-of-way to which the Leased Property or any part thereof may be subject, then the Lessee shall, at its sole cost and expense, either (i) contest such matter, (ii) obtain valid and effective Permits for or consents to such encroachments and/or violations (without any liability to the Lessor for which it is not indemnified by the Lessee) or waivers or settlements of all claims, liabilities and damages resulting therefrom, or (iii) make such changes, including alteration or removal, to the Facility or the Modification (as the case may be) and take such other action as shall be reasonably necessary to rectify such encroachments, violations, hindrances, obstructions or impairments, subject to the Lessor's consent if and to the extent required by paragraph (d) of this Section. SECTION 12. INSPECTION REPORTS. (a) INSPECTION. The Lessor shall have the right (which may be delegated to its consultants, representatives and agents), but not the duty, to inspect the Leased Property or any part thereof and records directly related to the construction and operation of the Leased Property or any part thereof and to discuss with the Construction Agent, the general contractor, subcontractors and officers of the Lessee such of the affairs, finances, construction and accounts as are relevant to the Operative Documents or as are necessary or advisable for the Lessor to evaluate the progress, costs and quality of the construction of the Facility, in all cases, at reasonable times and in compliance with and subject to Lessee's and the Construction Agent's reasonable security and safety procedures, in effect from time to time. Any such inspection shall be made after advance written notice to the Lessee is given; PROVIDED, HOWEVER, that no advance written notice need be given if the Lessor, in its sole discretion, has reason to believe that a Default or Event of Default has occurred or other exigent or emergency conditions exist; and PROVIDED FURTHER, that all such inspections upon the occurrence and during the continuance of a Default or an Event of Default (i) shall be at the expense of the Lessee (and shall otherwise be at the expense of the Lessor) and (ii) shall be broad enough to provide the Lessor, its consultants, representatives and agents with access to the Leased Property or any part thereof and to the Lessor's books and records relating to the management, operation, use, construction, renovation or occupancy of the Leased Property or any part thereof as they may require for any purpose, including, without limitation, for marketing, selling, operating or otherwise disposing of the Leased Property or any part thereof. 35 (b) LIABILITY; DAMAGE. The Lessee shall give prompt written notice to the Lessor of each accident likely to result in damages against the Lessee or, as the case may be, in excess of $750,000 in any way relating to or arising out of the alleged or apparent improper manufacture, financing, construction, purchase, acceptance, rejection, ownership, acquisition, delivery, nondelivery, lease, sublease, preparation, installation, storage, maintenance, repair, transportation, transfer of title, abandonment, possession, rental, use, operation, condition, sale, return, importation, exportation, or other disposition of the Leased Property or any portion thereof; promptly upon the Lessee becoming aware of same, and on request shall furnish to the Lessor information as to the time, place and nature thereof, the names and addresses of the parties involved, any Persons injured, witnesses and owners of any property damaged, and such other information as may be known to it and shall promptly upon request, if such request is deemed reasonable under the circumstances by the Lessee, furnish the Lessor with copies of all material correspondence, papers, notices and documents whatsoever received by the Lessee (not otherwise subject to the attorney-client privilege) in connection therewith. In any case, the Lessor, at its own expense, may inspect all correspondence, papers, notices and documents whatsoever received by the Lessee (not otherwise subject to the attorney-client privilege) in connection therewith. In addition, the Lessee shall give prompt written notice to the Lessor of any damage, loss of use or destruction of the Leased Property or any part thereof which, in the aggregate, exceed $750,000 and which would not otherwise constitute an Event of Loss with respect thereto. (c) LIENS. Upon the attachment of an aggregate amount of $250,000 or more of Liens on all the Leased Property or any part thereof (in either case excluding any Liens for taxes not yet due and payable), the Lessee shall promptly (and in no event later than ten (10) Business Days after it shall have obtained knowledge thereof) notify the Lessor of the attachment of all such Liens and the full particulars thereof unless the same shall have been removed or discharged by the Lessee. (d) NOTICES OF NONCOMPLIANCE WITH APPLICABLE LAWS. The Lessee shall furnish to the Lessor, within five (5) days after receipt thereof, a copy of any notice or order of any Governmental Authority asserting that the Lessee is not in compliance with, or may be liable for contamination originating from or on the Parcel or the Facility under any Applicable Law, in any case in any respect material to the value of the Leased Property or any part thereof or the respective interests of the Lessor therein. (e) PLANS AND SPECIFICATIONS; OPERATING MANUALS. The Lessee shall maintain or cause its Affiliates to maintain throughout the Lease Term, and keep on file at its office, a complete set of plans and specifications, including "as-built" plans and specifications as and when available, with respect to the Facility (which shall reflect all 36 material Parts incorporated or installed in or attached to the Facility and all material Modifications made pursuant to Section 11 hereof; PROVIDED, HOWEVER, that such plans and specifications shall as of any date not be required to reflect any such Parts so incorporated, installed or attached or any such Modification made within thirty (30) days prior to such date). Other than any part of the Leased Property which shall have been transferred to the Lessee pursuant to the terms hereof, upon the expiration of the Lease Term, the Lessee shall deliver to the Lessor or to the Lessor's designee a complete set, current as of the date of such return or retaking, of such plans and specifications and all work drawings and similar documents with respect to the Leased Property. SECTION 13. LOSS OR DESTRUCTION; REQUISITION OF USE. (a) EVENT OF LOSS. Upon the occurrence of an Event of Loss with respect to Leased Property or any part thereof, the Lessee shall within five (5) Business Days after the occurrence of such Event of Loss give the Lessor written notice thereof. If the remaining portion of the Leased Property not suffering such Event of Loss is not capable of functioning for its intended purpose, the Lessee shall pay to the Lessor on the next Rent Payment Date occurring after the occurrence of such Event of Loss as compensation for such Event of Loss an amount equal to the Total Fundings made by the Lessor from the date hereof through such Basic Rent Payment Date, together with (i) all Basic Rent due and owing on or prior to such date and (ii) all Supplemental Rent due and owing prior to such date and any other Supplemental Rent as to which there is no dispute and which is agreed to become due and owing within 60 days of such date, whereupon (1) this Lease and the obligations of the Lessee hereunder shall terminate and (2) the Lessor shall transfer all right and interest of the Lessor in and to the Leased Property, as is and where is, to the Lessee, free and clear of Lessor's Liens but otherwise without representation or warranty, and the Lessor shall, at the Lessee's expense, execute and deliver to the Lessee a bill of sale or such other documents as the Lessee may reasonably request to evidence the valid consummation of such transfer. If, however, an Event of Loss has occurred with respect to the Leased Property or any part thereof and the portions thereof not suffering such Event of Loss are capable of functioning for their intended purpose, then the Lessee shall as promptly as possible rebuild or cause to be rebuilt (or replace or cause to be replaced) the portions of the Leased Property suffering such Event of Loss which such rebuilt Leased Property (or replacement) shall have at least the same current and residual value, utility and remaining useful life as it had prior to the Event of Loss (assuming such Leased Property has been maintained in accordance with the terms of this Lease). Any replacement portions of Leased Property shall be subject to this Lease and the Lessor shall have title thereto. 37 In the case of a Requisition of Use with respect to any portion of the Leased Property which does not constitute an Event of Loss, such Requisition of Use shall not terminate this Lease with respect to such portion of the Leased Property and each and every obligation of the Lessee with respect thereto shall remain in full force and effect. So long as no Event of Default shall have occurred and be continuing under this Lease, the Lessee shall be entitled to all sums attributable to the period the Leased Property or any portion thereof is subject to this Lease, received by reason of any such Requisition of Use; PROVIDED that if the Lessor determines that as a result of such partial taking there is a reduction in the residual value of such Leased Property, the Lessee will pay to the Lessor that portion of such sums as shall compensate the Lessor for such reduction. All condemnation awards and other moneys received by the Lessee or the Lessor on account of an Event of Loss, other than insurance proceeds, shall be applied as follows: FIRST, to purchase any Components from the Lessor or rebuild or replace any Components contemplated by this Section 13(a) if not theretofore paid by the Lessee, or to reimburse the Lessee for the payment therefor; SECOND, to the Lessee to compensate it for the loss of the fair value of its leasehold interest under this Lease, if any; and THIRD, any balance remaining shall be remitted to the Lessor. The Lessor authorizes the Lessee, at the Lessee's expense, to assert for the Lessor's account, during the Lease Term, so long as no Event of Default shall have occurred hereunder, all of the Lessor's rights and interests in the course of any condemnation or requisition proceedings and the Lessor agrees to cooperate with the Lessee in asserting such rights; PROVIDED, HOWEVER, that the Lessee shall indemnify and hold the Lessor harmless from and against any and all claims, and all costs, expenses, damages, losses and liabilities incurred or suffered by the Lessor in connection with, as a result of, or incidental to, any action by the Lessee pursuant to the above authorization. (b) RISK OF LOSS; NO RELEASE OF OBLIGATIONS. Except as provided in this Section, the Lessee shall bear the risk of loss and shall not be released from its obligations hereunder in the event of any damage to the Leased Property or any part thereof or any Event of Loss relating thereto. SECTION 14. INSURANCE. (a) The Lessee will purchase and maintain, or cause to be purchased and maintained, insurance with respect to the Leased Property of the following types and in the following amounts (or in such greater amounts as may become necessary from time to time to prevent the Lessor and the Lessee from becoming co-insurers of any loss), and 38 in no event in amounts less than those maintained by the Lessee or its Affiliates for other similar facilities owned and/or operated by them: (i) PROPERTY INSURANCE: Property damage insurance on an "all risk" basis, boiler and machinery insurance, including coverage against damage or loss caused by fire, earthquake, earth movement, flood, subsidence and collapse and providing (1) coverage equal to one hundred percent (100%) of the full replacement cost value of the Leased Property and the Lessee's leasehold interest (with only those deductibles approved by the Lessor, and, if required by the Lessor, an agreed amount endorsement), (2) transit coverage during the construction of the Facility and (3) coverage for foundations and other property below the surface of the ground; (ii) GENERAL LIABILITY INSURANCE: Comprehensive general liability (including contractual, completed operations and product liability) insurance against claims for bodily injury (including death), personal injury and property damage occurring on, in or in respect of the Leased Property or resulting from activities on or related to the Leased Property, in the minimum combined single limit amount of $15,000,000, for each occurrence for bodily injury (or death) and/or property damage; (iii) WORKERS' COMPENSATION INSURANCE: Workers' compensation insurance at statutory levels and employers' liability insurance or self-insurance as permitted by Law; (iv) BUILDER'S RISK INSURANCE: During the construction of the Facility, builder's "all risks" and "general risks" insurance or equivalent coverage (with sublimits and deductibles as are acceptable to Lessor), including fire, earth movement, earthquake, flood, subsidence and collapse, business interruption/extra expense and testing and commissioning coverage with respect to the Leased Property and any on-site and off-site work and materials related thereto protecting the Lessee, the Lessor and all contractors and subcontractors in an amount not less than the full replacement cost of such on-site and off-site work; (v) FLOOD INSURANCE: To the extent that any portion of the Parcel may lie in a flood zone, flood insurance in the maximum available amount; (vi) BUSINESS INTERRUPTION INSURANCE: Business interruption insurance to cover loss resulting from delay of the completion of the Facility and, after completion, loss of use, total or partial, of the Leased Property or any part thereof in an amount sufficient at all times to pay Basic Rent with respect to the 39 Leased Property for a period adequate to cover the period of loss of use of the Leased Property or any part thereof plus any other amounts payable by the Lessee to the Lessor during such period in connection with the transactions contemplated by the Operative Documents. Such policy shall provide that the amount payable thereunder shall not be less than the Base Rent and such other amounts during the entire Lease Term. (vii) OTHER INSURANCE: Such other insurance, including automobile liability, in such amounts and against such risks, as is either (x) customarily carried by companies owning, operating or leasing property or conducting businesses similar and/or similarly situated to the Leased Property and/or the Lessee, or (y) reasonably requested from time to time by Lessor to the extent available on commercially reasonable terms. Such insurance shall be written by companies which have a Best Insurance Guide rating of "A-XI" or better (or an equivalent rating from another publication of a similar nature as shall be in current use by the Lessor and the Lessee) or as otherwise agreed to by the Lessor, selected by the Lessee, and all policies of property insurance shall name the Lessor as loss payee and all liability policies (other than the policies referred to in clause (vii) above) shall name the Lessor as additional insured and shall identify the Lessor as the owner of the Facility. In addition, all insurance required hereunder shall be in form and with coverage and deductibles satisfactory to the Lessor. Notwithstanding the foregoing, in no event will the Lessee be required to maintain coverage in amounts in excess of those maintained for businesses similar in size and nature to the Lessee. (b) The insurance referred to in Sections 14(a)(i) and (iv) for the Leased Property (as appropriate) may be a blanket policy and shall (i) at all times be in an amount at least equal to one hundred percent (100%) of the full replacement cost value of the Leased Property (as appropriate) and the Lessee's leasehold interest; (ii) provide that the interests of the Lessor shall be insured regardless of any intentional or willful breach or violation by the Lessee of any warranties, declarations or conditions contained in such insurance; (iii) provide that such insurance shall not be invalidated by any act, omission or negligence of the Lessee or the Lessor, nor by any foreclosure or other proceedings or notices thereof relating to the Leased Property (as appropriate) or any part thereof, nor by legal title to, or ownership of the Leased Property or any part thereof being or becoming vested in or by Lessor or its agents, nor by occupancy or use of the Leased Property or any part thereof for purposes more hazardous than permitted by such policy; and (iv) provide that all partial loss insurance claims in excess of $10,000,000 pertaining to the 40 Leased Property (as appropriate) or any part thereof shall be adjusted by the insurers thereunder with the Lessor. All policies of insurance required to be maintained pursuant to Section 14(a)(ii) which cover liability for bodily injury or property damage shall provide that all provisions of such insurance, except the limits of liability (which shall be applicable to all insureds as a group) and liability premiums (which shall be solely a liability of the Lessee), shall operate in the same manner as if there were a separate policy covering each such insured and/or additional insured, without right of contribution from any other insurance which may be carried by an insured and/or additional insured. Every policy required under Section 14(a) shall (i) expressly provide that it will not be canceled or terminated except upon thirty (30) days' written notice to the Lessor and the Lessee; (ii) include a waiver of all rights of subrogation against the Lessor and any recourse against the Lessor for payment of any premiums or assessments under any policy; (iii) not contain a provision relieving the insurer thereunder of liability for any loss by reason of the existence of other policies of insurance covering the Leased Property or any part thereof against the peril involved, whether collectible or not; and (iv) provide that no claims shall be paid thereunder without ten (10) days' advance written notice to the Lessor. The Lessee shall advise the Lessor promptly of any policy cancellation or any change adversely affecting the coverage provided thereby. (c) The Lessee shall deliver to the Lessor the certificates of insurance and any other documentation required by the Lessor evidencing the existence of all insurance which is required to be maintained by the Lessee hereunder including descriptions of the previously mentioned Insurance Requirements, such delivery to be made (i) within thirty (30) days after the issuance of any additional policies or amendments or supplements to any of such insurance, and (ii) at least thirty (30) days prior to the expiration date of any such insurance. The Lessee shall notify the Lessor of any nonrenewal of any policy required hereunder and shall cause each insurer under each policy required hereunder to give the Lessor notice of any lapse under any such policy. The Lessee shall not obtain or carry separate insurance concurrent in form, or contributing in the event of loss, with that required by this Section 14 unless the Lessor is named as loss payee therein. The Lessee shall immediately notify the Lessor whenever any such separate insurance is obtained and shall deliver to the Lessor the certificates of insurance and any other documentation (other than blanket policies) required by Lessor evidencing the same as is required hereunder. All insurance policies and endorsements shall be fully prepaid and nonassessable. 41 (d) The requirements of this Section 14 shall not be construed to negate or modify the Lessee's obligations under Section 23 hereof. SECTION 15. SUBLETTING; ASSIGNABILITY; AMENDMENT OF CONTRACTS. (a) The Lessee shall not sublet the Leased Property, or any part thereof, unless (i) at the time of any such sublease, no Default or Event of Default or shall have occurred and be continuing; (ii) any such sublease shall by its terms be expressly made subject and subordinate to the terms of this Lease (and the Ground Lease) and shall expire on or before the Lease Termination Date; (iii) the Lessee shall provide the Lessor with notice of such sublease sixty (60) days prior to the effective date of such sublease; (iv) the Lessee shall provide the Lessor ten (10) Business Days prior to the effective date of such sublease with a conformed copy of the instrument creating such sublease; (v) the Lessor has consented to such sublease, which consent shall not be unreasonably withheld; and (vi) such sublease shall be made on commercially reasonable terms. (b) No sublease pursuant to this Section 15 shall modify or limit any right or power of the Lessor hereunder or affect or reduce any obligation of the Lessee hereunder, and all such obligations of the Lessee shall continue in full force and effect as obligations of a principal and not of a guarantor or surety, as though no subletting had been made or occupancy permitted. (c) If the Lessee shall request, in connection with any sublease, that the Lessor execute an attornment and non-disturbance agreement with respect to such sublease, the Lessor shall consider each such sublease on a case-by-case basis and may in its sole discretion consent to its execution and delivery of an attornment and non-disturbance agreement. (d) Except as permitted in Section 15(a), the Lessee shall not mortgage, pledge, assign or otherwise encumber its interest in and to this Lease or in and to any sublease or the rentals payable thereunder without the prior written consent of the Lessor, except that the Lessee may assign its right to purchase the Facility pursuant to Section 19 without the consent of the Lessor so long as the Lessee remains liable for the performance and payment of the purchase obligation. (e) Any sublease made, and any mortgage, pledge or assignment of the Lessee's interest hereunder or under any such sublease granted, otherwise than as expressly permitted by this Section 15, shall be null and void and of no force or effect. 42 SECTION 16. REPRESENTATIONS AND WARRANTIES OF LESSOR. The Lessor represents and warrants to the Lessee that on the Closing Date: (a) DUE ORGANIZATION. The Lessor is a corporation duly organized, validly existing and in good standing under the laws of the State of Ohio and has the corporate power and authority to enter into and perform its obligations under this Lease and each other Operative Document to which it is a party. (b) AUTHORIZATION; EXECUTION; ENFORCEABILITY. The execution, delivery and performance by the Lessor of this Lease and each other Operative Document to which it is a party and of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action on the part of the Lessor and do not and will not require the consent or approval of any shareholder of the Lessor. This Lease and each other Operative Document to which the Lessor is a party have been duly authorized, executed and delivered by the Lessor and, assuming the due authorization, execution and delivery hereof and thereof by the other parties hereto and thereto, are legal, valid and binding obligations of the Lessor, enforceable against the Lessor in accordance with their respective terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, liquidation, moratorium or similar laws affecting creditors' rights generally and by the application of general equitable principles which may limit the availability of certain remedies. (c) NO VIOLATION. The execution and delivery by the Lessor of this Lease and each other Operative Document to which it is a party do not and will not, and the performance by the Lessor of its obligations hereunder and thereunder do not and will not, (i) violate or be inconsistent with or in violation of its charter documents or by-laws, (ii) contravene any provision of any Applicable Law or Governmental Action applicable to it or require any Governmental Action or (iii) contravene any provision of, or constitute any default or require any consent under, any provision of any material indenture, mortgage, contract or other instrument to which the Lessor is a party or by which it or any of its property is bound. 43 SECTION 17. REPRESENTATIONS AND WARRANTIES OF LESSEE. The Lessee represents and warrants to the Lessor that on the Closing Date: (a) DUE ORGANIZATION. The Lessee is a limited partnership, duly organized, validly existing and in good standing under the laws of the State of Delaware and has the power and authority to carry on its business as presently conducted and as it is contemplated to be conducted in connection with the Leased Property, to own or hold under lease its property, and to enter into and perform its obligations under this Lease and each other Operative Document to which it is a party. The Lessee is qualified to do business in and is in good standing under the laws of the States of Washington, Idaho and Oregon and has not failed to qualify to do business in any jurisdiction where failure so to qualify could reasonably be expected to materially adversely affect its ability to conduct its business as it is presently conducted and as it is contemplated to be conducted in connection with the Leased Property, to own or hold under lease its property or to perform any of its obligations under this Lease or any other Operative Document to which it is a party. (b) AUTHORIZATION. The execution, delivery and performance by the Lessee of this Lease and each other Operative Document to which it is a party and of the transactions contemplated hereby and thereby have been duly authorized by all necessary partnership action on the part of the Lessee and do not and will not require the consent or approval of any trustee or holder of any indebtedness or other obligation of the Lessee. (c) EXECUTION; ENFORCEABILITY. This Lease and each other Operative Document to which the Lessee is a party have been duly executed and delivered by the Lessee and, assuming the due authorization, execution and delivery hereof and thereof by the other parties hereto and thereto, are legal, valid and binding obligations of the Lessee, enforceable against the Lessee in accordance with their respective terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, liquidation, moratorium or similar laws affecting creditors' or lessors' rights generally and by the application of general equitable principles which may limit the availability of certain remedies. (d) NO VIOLATION. The execution and delivery by the Lessee of this Lease and each other Operative Document to which it is a party do not and will not, and the performance by the Lessee of its obligations hereunder and thereunder do not and will not, (i) violate or be inconsistent with its partnership agreement or any other organizational documents, (ii) contravene any Applicable Law or Governmental Action 44 applicable to it; (iii) contravene any provision of, or constitute a default under, any material indenture, mortgage, contract or other agreement or instrument to which the Lessee is a party or by which it or any of its property are bound, and (iv) result in or, require the creation or imposition of any Lien (other than Permitted Liens) upon any of its property or assets. (e) CONSENTS AND APPROVALS. All Governmental Actions which are required to have been taken, given, obtained, filed or recorded, as the case may be, on or prior to the Closing Date by, from or with any Governmental Authority and all other consents, filings or approvals which are required to have been taken, given, obtained, filed or recorded, as the case may be, on or prior to the Closing Date by, from or with any other Person, in each case, (i) in connection with the transactions contemplated by the Operative Documents, or to authorize the execution, delivery and performance by the Lessee of the Operative Documents to which it is a party, or the legality, validity, binding effect or enforceability thereof as against the Lessee, or (ii) in order that the Leased Property may be leased, used and operated for its intended purpose and the Facility may be construed thereon as contemplated hereby (including, without limitation, all Environmental Permits and all approvals, certificates, permits, authorizations, licenses or other actions relating to the construction of the Facility), shall have been duly taken, given, obtained, filed or recorded, as the case may be, and are in full force and effect, are not subject to any pending proceedings or appeals (administrative, judicial or otherwise) and are adequate to authorize the consummation by the Lessee of the transactions contemplated by the Operative Documents and the performance by the Lessee of its obligations thereunder to which it is a party, except (A) such as may be required to be taken, obtained, given, accomplished or renewed from time to time after the Closing Date in connection with the maintenance or operation of the Leased Property or (B) which are otherwise required in connection with the transactions contemplated by the Operative Documents which have been applied for but which cannot be obtained, or which are not normally applied for or taken, given or obtained, prior to the Closing Date, and which in the normal course would be granted, PROVIDED that the failure to obtain such Governmental Actions, consents, filings and approvals by the Closing Date could not materially adversely affect the ability of the Lessee to perform its obligations under this Lease or any other Operative Document to which it is a party. (f) LITIGATION. There is no action, suit, investigation or proceeding pending or, to the knowledge of the Lessee, threatened against the Lessee or affecting Lessee or its property or rights before any Governmental Authority that questions the validity of any Operative Document or which, individually or in the aggregate, is reasonably likely (i) materially and adversely to affect the consummation of the transactions under this Lease or any other Operative Document to which it is a party or 45 (ii) to have a Material Adverse Effect. The Lessee is not in default with respect to any order of any Governmental Authority, where such default could reasonably be expected to have a Material Adverse Effect or could result in the creation or imposition of any Lien (other than a Permitted Lien) upon the Leased Property. (g) NO DEFAULT. No Default or Event of Default has occurred and is continuing. As of the Closing Date, neither the Lessee nor any of its Subsidiaries is in default under with respect to any Contractual Obligation in any respect which, individually or together with all such defaults, could reasonably be expected to have a Material Adverse Effect or could result in the creation or imposition of a Lien (other than a Permitted Lien) upon the Leased Property. (h) EVENT OF LOSS. No Event of Loss has occurred, and the Leased Property may be used for the purposes contemplated by the Lessee in accordance with this Lease and the other Operative Documents. (i) ENVIRONMENTAL COMPLIANCE. (i) The Leased Property complies in all material respects with all Environmental Laws; all necessary Environmental Permits have been obtained and are in effect for the Leased Property and to the best of the Lessee's knowledge, no circumstances exist that could be reasonably expected to (A) form the basis of an Environmental Action against the Leased Property that could reasonably be expected to have a Material Adverse Effect or (B) cause the Leased Property to be subject to any restrictions on ownership, occupancy, use or transferability under any Environmental Law. (ii) Neither the Leased Property nor any part thereof is listed or, to the knowledge of the Lessee, proposed for listing on the NPL or on CERCLIS or any analogous state list of sites requiring investigation or cleanup. (iii) No Hazardous Materials that have been generated at or transported from the Leased Property or any part thereof have been disposed at any location that is listed or, to the best of the Lessee's knowledge, proposed for listing on the NPL or on the CERCLIS or any analogous state list, and all Hazardous Materials generated, used, treated, handled or stored at or transported to or from the Leased Property or any part thereof and any property currently or formerly owned or operated by the Lessee have been disposed of in compliance in all material respects with all Environmental Laws and applicable Environmental Permits. (iv) The Lessee has not received any written or other notice, mandate, order, Lien or request which remains pending under an Environmental 46 Law concerning any of the Leased Property or any part thereof or relating to an alleged violation of an Environmental Law concerning the Leased Property or any part thereof or relating to any potential adverse action in any way involving environmental, health or safety matters affecting the Leased Property or any part thereof. (v) There is no proceeding pending or, to the knowledge of the Lessee, threatened against the Lessee by any Federal, state, or local court, tribunal, administrative agency, department, commission, board or other authority or instrumentality with respect to the presence or release of any Hazardous Material from the Leased Property or any part thereof. (vi) To the knowledge of the Lessee, no Hazardous Materials have been Released from or on the Leased Property or any part thereof for which remedial action could be required under any Environmental Law or may be necessary to prevent or eliminate a significant risk to human health or the environment. (j) ERISA COMPLIANCE. (i) Each Plan is in compliance with the applicable provisions of ERISA, the Code and other federal or state law, except for such non-compliance which would not reasonably be expected to have a Material Adverse Effect. Each Plan is intended to qualify under Section 401(a) of the Code has received a favorable determination letter from the IRS or an application for such a determination letter will be submitted no later than the expiration of the remedial amendment period for effecting amendments required by reason of Section 1140 of the Tax Reform Act of 1986, as amended, and to the Lessee's knowledge, nothing has occurred which would cause the loss of such qualification. (ii) There are no pending, or to the Lessee's knowledge, threatened Claims by any Governmental Authority, with respect to any Plan which has resulted or could reasonably be expected to result in a Material Adverse Effect. There has been no prohibited transaction or other violation of the fiduciary responsibility rule with respect to any Plan which could reasonably result in a Material Adverse Effect. (iii) No ERISA Event has occurred or is reasonably expected to occur with respect to any Pension Plan. (iv) No Pension Plan (other than the multiemployer plans within the meaning of Section 3(38) of ERISA) has any Unfunded Pension Liability. 47 (v) Neither the Lessee nor any ERISA Affiliate has incurred, nor does it reasonably except to incur, any liability under Title IV of ERISA with respect to any Pension Plan (other than premiums due and no delinquent under Section 4007 of ERISA). (vi) Neither the Lessee nor any ERISA Affiliate has transferred any Unfunded Pension Liability to any Person or otherwise engaged in a transaction that could be subject to Section 4069 of ERISA. (k) DESCRIPTION OF COMPONENTS. The descriptions set forth in Schedule 1 to each of the Lease Supplements are true and accurate descriptions in all material respects of each Component described therein. (l) CERTAIN DOCUMENTS. True, correct and complete copies of the Operative Documents have been delivered to the Lessor. Each of the Operative Documents is in full force and effect, and no material breach thereof by the Lessee or, to the Lessee's knowledge, by any other party thereto, has occurred and is continuing. (m) PAYMENT OF TAXES, ETC. All Taxes, fees and other charges due and payable in connection with the execution, delivery and filing of all documents and instruments, including the Operative Documents, and the performance of the transactions contemplated by the Operative Documents, have been paid in full. (n) INVESTMENT COMPANY ACT. The Lessee is not an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended. (o) HOLDING COMPANY. The Lessee is not subject to regulation as a "holding company," an "affiliate" of a "holding company," or a "subsidiary company" of a "holding company," within the meaning of the Public Utility Holding Company Act of 1935, as amended. (p) NO MATERIAL ADVERSE CHANGE; ADVERSE CONDITIONS. There has not occurred a material adverse change in the business, operations or financial condition of the Lessee since December 31, 1996. No Applicable Law prohibits, and no litigation, governmental investigation or other proceeding is pending or overtly threatened in which there is a reasonable possibility of an unfavorable judgment, decree, order or other determination which could prevent or make unlawful, or impose any material adverse condition upon, the acquisition, construction, installation, use, ownership, operation or leasing of, or the Lessor's ownership of, the Leased Property or any part thereof. 48 (q) INSURANCE. The Lessee is in compliance with all Insurance Requirements, and all insurance policies required by Section 14 hereof are in full force and effect. (r) COMPLIANCE. The Leased Property and each part thereof is in material compliance with all Applicable Laws. (s) NO MATERIAL MISSTATEMENTS. No information, report, financial statement, exhibit or schedule furnished by or on behalf of the Lessee to the Lessor in connection with the negotiation of this Lease or any other Operative Document or any transaction contemplated hereby or thereby, contains or will contain any material misstatement of fact or omitted, omits or will omit to state any material fact necessary to make the statements therein, taken as a whole and taken in the light of the circumstances under which they were, are or will be made, not misleading. (t) TITLE AND INTEREST. The Lessor has a good and indefeasible leasehold interest in the Parcel and good and marketable title to the Facility (together with any necessary easements or rights-of-way or similar property rights), free and clear of all Liens and deed restrictions except Permitted Encumbrances, in the case of the Parcel, and Permitted Liens, in the case of the Facility. (u) COMPLIANCE WITH LAW. The Lessee is not in violation of any Law (including any Environmental Law) with respect to the Leased Property or any part thereof, with respect to the construction of the Facility or installation of any of the Components, or with respect to its leasing, ownership or operation of the Leased Property or any part thereof, or with respect to the conduct of its business relating to the Leased Property or any part thereof or with respect to its assets which, individually or in the aggregate, would be reasonably likely to result in a Material Adverse Effect. The Lessee has not received any notice of, or citation for, any violation of any Law which has not been resolved, which notice or citation relates to the ownership, leasing or operation of the Leased Property or any part thereof or the construction of the Facility. (v) RECORDATION AND FILING. The Memorandum of Ground Lease and the Memorandum of Lease have been duly recorded, published, registered and filed and are in a form sufficient to publish notice of the interests purported to be created by the Ground Lease and this Lease, respectively. Upon the recordation of the Memorandum of Ground Lease in Boundary County, Idaho, the Memorandum of Ground Lease will have been recorded or filed in such place in which recording or filing is required to publish notice, under Applicable Law, of the interests created by the Ground Lease and to protect the validity and effectiveness thereof, and all Taxes, fees and other public charges 49 payable in connection with the filing and recordation of the Ground Lease have been paid. Upon the recordation of the Memorandum of Lease in Boundary County, Idaho, the Memorandum of Lease will have been recorded or filed in such place in which recording or filing is required to publish notice, under Applicable Law, of the interests created by this Lease and to protect the validity and effectiveness thereof, and all Taxes, fees and other public charges payable in connection with the filing and recordation of the Memorandum of Lease have been paid. (w) RIGHTS TO PROPERTY, ETC. (i) The Ground Lease grants to the Ground Lessee all rights-of-way, easements and real property licenses, environmental allowances, rights in real property (including, without limitation, fixtures and appurtenances), utilities and other services necessary for the day-to-day operation of the Facility when constructed or installed on the Parcel and (A) such rights-of-way, easements, licenses, environmental allowances, utilities and other services are valid and in full force and effect and all consents from third parties necessary to enter into the Ground Lease and the Lease Agreement have been obtained, (B) there is presently no default by the Ground Lessor or, to the Ground Lessor's knowledge, by any other party thereto with respect to any such rights-of-way, easements, licenses, utilities and other services, which would materially and adversely affect such services and (C) all utility services necessary for the construction of each of the applicable Components and for the operation of the Facility for its intended purposes are installed and operational. (ii) None of the Permitted Encumbrances will interfere in any material respect with the use or possession of the Leased Property or any part thereof or any other asset used in connection therewith or the use of or the exercise by the Lessor of its rights either under any Operative Document or to the Leased Property. (iii) The Lessee has given any and all notices required to be given in connection with the construction of the Facility pursuant to any easements, right-of-way, licenses or other agreements affecting the Parcel. (iv) Each of the Components, when constructed or installed, will be situated wholly within the boundary lines of the Parcel and do not and will not encroach upon any contiguous or adjoining property; except as disclosed in writing, neither the Parcel nor any part thereof is considered part of a larger tax lot; none of the Components when constructed or installed will violate any rights granted under any easements or rights of way or any covenants or restrictions affecting the Parcel or any part thereof, and any future violation will not result in a reversion or forfeiture of title, right of re-entry or power of termination; and the 50 easements, rights-of-way, covenants and restrictions affecting the Parcel or any part thereof do not and will not interfere in any material respect with the use or occupancy of the Leased Property or any part thereof, or any asset owned or used in connection therewith, nor will the exercise of rights or remedies thereunder result in any damage to the Leased Property or any part thereof or diminution of value of the Leased Property or any part thereof. (x) CONSTRUCTION BUDGET AND RELATED MATTERS. The Construction Budget has been prepared in good faith on the basis of reasonable assumptions and accurately includes all Actual Project Costs currently anticipated to be incurred in connection with achieving completion of the Facility by the Final Completion Date. The Construction Schedule accurately describes estimated dates of completion of the stages of construction of the Facility. (y) TRADE SECRETS AND PATENTS. (i) The leasing of the Parcel by Lessor, the ownership of the Facility by the Lessor and the leasing and operation of the Facility by the Lessee, including the construction or installation and the proposed operation of the Facility, do not and will not conflict with, infringe on, or otherwise violate any copyright, trademark, trade name, trade secret or patent rights of any other Person. (ii) The Lessee has all rights to all patents, patent applications, trademarks (whether registered or not), trademark applications, trade names, proprietary computer software, "know-how" and copyrights used or to be used in the ordinary course of the operation of the Facility (the "INTELLECTUAL PROPERTY RIGHTS") that are necessary for the operation thereof, including the right to assign the Intellectual Property Rights. There is no judicial proceeding pending or, to the knowledge of the Lessee, threatened, involving any claim of any infringement, misuse or misappropriation by the Lessee or any Affiliate thereof of any patent, trademark, trade name, copyright, license or similar intellectual property right owned by any third party related to the Intellectual Property Rights. (z) CREDIT AGREEMENT. Attached hereto as EXHIBIT F is a true, correct and complete copy of the Credit Agreement as in effect on the Closing Date. (aa) FLOOD ZONE. The Parcel is not in a flood hazard zone. 51 SECTION 18. ADDITIONAL COVENANTS. The Lessee covenants and agrees that: (a) FINANCIAL STATEMENTS. The Lessee shall deliver to the Lessor, in form and detail satisfactory to the Lessor: (i) as soon as available, but not later than 90 days after the end of each fiscal year, a copy of the audited consolidated balance sheet of the Lessee and its Subsidiaries as at the end of such year and the related consolidated statements of income or operations, partners' equity and cash flows for such year, setting forth in each case in comparative form the figures for the previous fiscal year, identifying any material change in accounting policies or financial reporting practices by the Lessee or any of its consolidated Subsidiaries, and accompanied by the opinion of Price Waterhouse LLP or another nationally-recognized independent public accounting firm ("INDEPENDENT AUDITOR") which report shall state that such consolidated financial statements present fairly the financial position for the periods indicated in conformity with GAAP applied on a basis consistent with prior years. Such opinion shall not be qualified or limited because of a restricted or limited examination by the Independent Auditor of any material portion of the Lessee's or any Subsidiary's records; (ii) as soon as available, but not later than 60 days after the end of each of the first three fiscal quarters of each fiscal year, a copy of the unaudited consolidated balance sheet of the Lessee and its Subsidiaries as of the end of such quarter and the related consolidated statements of income, partners' equity and cash flows for the period commencing on the first day and ending on the last day of such quarter, identifying any material change in accounting policies or financial reporting practices by the Lessee or any of its consolidated Subsidiaries, and certified by a General Partner as fairly presenting, in accordance with GAAP (subject to ordinary, good faith year-end audit adjustments), the financial position and the results of operations of the Lessee and its Subsidiaries; (iii) as soon as available, but not later than 90 days after the end of each fiscal year, a copy of an unaudited consolidating balance sheet of the Lessee and its Subsidiaries as at the end of such year and the related consolidating statement of income for such year, certified by a General Partner as having been developed and used in connection with the preparation of the financial statements referred to in clause (i), above; 52 (iv) as soon as available, but not later than 60 days after the end of each of the first three fiscal quarters of each fiscal year, a copy of the unaudited consolidating balance sheets of the Lessee and its Subsidiaries, and the related consolidating statements of income for such quarter, all certified by a General Partner as having been developed and used in connection with the preparation of the financial statements referred to in clause (ii), above. (b) NOTICES. The Lessee shall promptly notify the Lessor: (i) of the occurrence of any Default or Event of Default, and of the occurrence or existence of any event or circumstance that foreseeably will become a Default or Event of Default; (ii) of any matter that has resulted or if adversely determined would reasonably be expected to result in a Material Adverse Effect, including (A) breach or non-performance of, or any default under, a Contractual Obligation of the Lessee, (B) any dispute, litigation, investigation, proceeding or suspension which may exist at any time between the Lessee and any Governmental Authority; or (C) the commencement of, or any material development in, any litigation or proceeding affecting the Lessee, including pursuant to any applicable Environmental Laws; (iii) any Material Adverse Effect subsequent to the date of the most recent audited financial statements of the Lessee delivered to the Lessor pursuant to Section 18(a)(i); (iv) of any material labor controversy resulting in or threatening to result in any strike, work stoppage, boycott, shutdown or other labor disruption against or involving the Lessee, or any of its Subsidiaries; or (v) of any assertion or determination by any Governmental Authority that the Lessee shall no longer be classified as a partnership not taxable as a corporation under the Code. Each notice under this Section shall be accompanied by a written statement by the General Partner setting forth details of the occurrence referred to therein, and stating what action the Lessee or any affected Subsidiary proposes to take with respect thereto and at what time. Each notice under clause (b)(i) above shall describe with particularity any and all clauses or provisions of this Lease or other Operative Document that have been (or foreseeably will be) breached or violated. 53 (c) CREDIT AGREEMENT. The Lessee shall comply, and shall cause each of its Subsidiaries to comply, with all covenants of the Lessee or such Subsidiary in the Credit Agreement, and all notices, certificates, reports and other documents required to be delivered by the Lessee thereunder shall be simultaneously delivered to the Lessor. Such covenants (together will any applicable defined terms) shall constitute, and are hereby expressly made, a part of this Lease; PROVIDED that if there is any conflict between the terms of this Lease and the terms of the Credit Agreement, then the terms of this Lease shall govern. (d) FURTHER ASSURANCES. The Lessee shall (i) ensure that all written information, exhibits and reports prepared by the Lessee, and (ii) use its best efforts to ensure that all written information, exhibits and reports not prepared by the Lessee and, in each case, furnished to the Lessor do not and will not contain any untrue statement of a material fact and do not and will not omit to state any material fact or any fact necessary to make the statements contained therein not misleading in light of the circumstances in which made, and will promptly disclose to the Lessor and correct any defect or error that may be discovered in this Lease or any other Operative Document or in the execution, acknowledgment or recordation hereof or thereof. (e) "AS-BUILT" SURVEY. Not less than ten (10) days prior to the end of the Lease Term, the Lessee shall deliver an "as-built" survey of the Parcel showing the Facility, together with an updated surveyor's certification in form and substance satisfactory to the Lessor. (f) ENVIRONMENTAL EVENT. The Lessee shall promptly, but in any case within five (5) Business Days, notify the Lessor if (i) any environmental event has occurred or any environmental condition is discovered in, on, from or involving the Leased Property or any part thereof (including, but not limited to, the presence, emission or release of Hazardous Materials or the violation of any applicable Environmental Law) that could reasonably be anticipated to result in penalties or other liabilities in excess of $500,000 or (ii) the Lessee has received notification that it, the Leased Property or any part thereof is the subject of a proceeding that could reasonably be expected to result in any ordered remediation or corrective action or other liability related to an environmental event or condition with respect to the Leased Property or any part thereof the cost of which liability is reasonably expected to exceed $500,000 (each of (i) and (ii) an "Environmental Event"). Following the receipt of a notice pursuant to the immediately preceding paragraph, the Lessor, may require the Lessee to conduct, or cause to be conducted, an environmental study by an environmental consultant reasonably satisfactory to the Lessor 54 (the cost and expenses of such environmental consultant shall be borne by the Lessee) of the Leased Property or any applicable part thereof on which such Environmental Event or release shall have occurred, the scope of which study shall be limited to confirming the magnitude and anticipated cost of the liability resulting in the Environmental Event and to provide a copy of the environmental consultant's report on its audit to the Lessor. Notwithstanding the foregoing, if a pattern, in the opinion of the Lessor, of such Environmental Events exists, the Lessor may conduct a more comprehensive environmental study of the Leased Property or the applicable part thereof to determine the scope and nature of such pattern. If it is the opinion of the Lessor that an Environmental Event has occurred or exists and a Permitted Remediation (as defined below) is not available or the Environmental Event cannot be cured through a Permitted Remediation or the Environmental Event will result in the cessation of operation of the Facility or the applicable part thereof for 30 days or more such Environmental Event shall constitute an Environmental Trigger with respect to the Leased Property or the applicable part thereof and shall, at the option of the Lessor, be deemed an Event of Loss with respect to the Leased Property or the applicable part thereof (an "Environmental Trigger"). A "Permitted Remediation" means any remediation of an Environmental Event (a) the cost of which remediation is not anticipated, in the sole opinion of the Lessor, to exceed $5,000,000, (b) during and after which such Environmental Event could not be expected to result in any additional environmental liability incurred by the Lessor for which the Lessor has not received additional indemnification in an amount and from a Person satisfactory to the Lessor, in its sole and absolute discretion and (c) permitted and effected in compliance with all applicable Environmental Laws. Irrespective of whether an Environmental Trigger has occurred, the Lessee shall immediately initiate, at its sole cost and expense, such actions as may be necessary to comply in all material respects with all applicable Environmental Laws and to alleviate any significant risk to human health or the environment if the same arises from a condition on or in respect of the Leased Property or any part thereof, whether existing prior to, on or after the date of this Lease. Once the Lessee commences such actions, the Lessee shall thereafter diligently and expeditiously proceed to comply materially and in a timely manner with all Environmental Laws and to eliminate any significant risk to human health or the environment. SECTION 19. OPTIONS UPON LEASE TERMINATION. (a) NEW LEASE TRANSACTION. Within 60 days prior to the Lease Termination Date, the Lessee shall notify (the "New Lease Notification") the Lessor in writing that it desires to enter into a new lease with respect to the Facility in the form of either (i) a single investor tax lease on substantially the terms set forth on EXHIBIT E 55 hereto or (ii) a leverage tax lease with financial institutions arranged by Key Global Finance on terms to be agreed to between the Lessee and such financial institutions. Upon receipt of such New Lease Notification, the Lessee and the Lessor or Key Global Finance shall negotiate in good faith with respect to such new leasing arrangement. The New Lease Notification shall be irrevocable; PROVIDED that if the Lessee and the lessor, in the case of a single investor tax lease, or the financial institutions arranged by Key Global Finance, in the case of a leverage tax lease, are unable to reach agreement on the terms of the new leasing arrangement, neither party shall have any obligation to enter into such arrangement. (b) PURCHASE OF FACILITY. (i) If the Lessee fails to provide the Lessor with a New Lease Notification in accordance with paragraph (a) above, or if, after delivery of a New Lease Notification, the Lessee and the Lessor (in the case of a single investor tax lease) or the financial institutions arranged by Key Global Finance, Ltd. (in the case of a leverage tax lease), are unable to reach agreement on the terms of the new leasing arrangement, the Lessee may, within 30 days prior to the Lease Termination Date, irrevocably notify the Lessor that the Lessee desires to purchase from the Lessor, and the Lessor shall sell to the Lessee, the Facility. If the Lessee elects to purchase the Facility from the Lessor, then on the Lease Termination Date the Lessor shall sell, transfer and convey all of its right, title and interest in to the Facility and under the Ground Lease, as is and where is, to the Lessee, free and clear of any Lessor Liens but otherwise without any representation or warranty, upon payment in immediately available funds by the Lessee to the Lessor of a purchase price therefor equal to the Total Fundings made by the Lessor from the date hereof through the date of purchase, together with (i) all Basic Rent due and owing on or prior to such date of purchase and (ii) all Supplemental Rent due and owing prior to such date of purchase and any other Supplemental Rent as to which there is no dispute and which is agreed to become due and owing within 60 days of such date. Subject to the foregoing, on the date of such purchase and sale the Lessor shall, at the expense of the Lessee, execute and deliver to the Lessee a bill of sale or assignment and such other documents as the Lessee may reasonably request to evidence the valid consummation of such transfer. (ii) If after delivery of a New Lease Notification, the Lessee and the Lessor, in the case of a single investor tax lease, or the financial institutions arranged by Key Global Finance, in the case of a leverage tax lease, are unable to reach agreement on the terms of the new leasing arrangement, the Lessor may, within 10 days prior to the Lease Termination Date, notify the Lessee that the Lessor desires to sell to the Lessee, and the Lessee shall purchase from the Lessor, the Facility. If the Lessor elects to sell the Facility to the Lessee, then on the Lease Termination Date the Lessor shall sell, transfer 56 and convey all of its right, title and interest in to the Facility and under the Ground Lease, as is and where is, to the Lessee, free and clear of any Lessor Liens but otherwise without any representation or warranty, upon payment in immediately available funds to the Lessor of a purchase price therefor equal to the Total Fundings made by Lessor from the date hereof through the date of purchase, together with (i) all Basic Rent due and owing on or prior to such date of purchase and (ii) all Supplemental Rent due and owing prior to such date of purchase and any other Supplemental Rent as to which there is no dispute and which is agreed to become due and owing within 60 days of such date. Subject to the foregoing, on the date of such sale and purchase the Lessor shall, at the expense of the Lessee, execute and deliver to the Lessee a bill of sale or assignment and such other documents as the Lessee may reasonably request to evidence the valid consummation of such transfer. (c) RETURN OF FACILITY. In the event that the transactions contemplated in paragraph (a) above are not consummated on or before the Lease Termination Date, and in the event that the Lessee does not elect to purchase the Facility from the Lessor or the Lessor does not elect to sell the Facility to the Lessee pursuant to paragraph (b) above, the Lessee shall return the Facility to the Lessor according to the terms and conditions set forth in Section 8 hereof. Upon the return of the Facility to the Lessor in accordance with Section 8 hereof, the Lessee shall have no obligation to pay any amount to the Lessor with respect to Total Fundings made by the Lessor hereunder. SECTION 20. EVENTS OF DEFAULT. Any of the following shall constitute an "Event of Default": (a) NON-PAYMENT. The Lessee shall fail to pay (i) when and as required to be paid herein, any amount of Rent or (ii) within 5 days after the same becomes due, any amount of Supplemental Rent; (b) REPRESENTATIONS AND WARRANTIES. Any representation or warranty made or deemed made by the Lessee set forth herein or in any other Operative Document to which the Lessee is a party, or any representation, warranty, statement or information contained in any written report, certificate, financial statement or other instrument furnished in connection with or pursuant hereto to any other Operative Document, shall prove to have been false in any material respect when so made or furnished; (c) COVENANT DEFAULTS. The Lessee shall fail to perform or observe any other term or covenant contained in this Lease or any other Operative Document or any other document or certificate delivered pursuant hereto or thereto, and such failure shall continue unremedied for a period of thirty (30) days after the earlier of (i) the date 57 upon which the General Partner knew or reasonably should have known of such failure or (ii) the date upon which written notice thereof is given to the Lessee by the Lessor; PROVIDED, HOWEVER, that, if such failure is capable of being cured and provided the Lessee is diligently pursuing such cure, the time with which such failure may be cured shall be extended for such period as is reasonably necessary to complete curing thereof with diligence; (d) BANKRUPTCY; INSOLVENCY. The Lessee or any of its Subsidiaries shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against the Lessee or any of its Subsidiaries seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for it or for any substantial part of its property and, in the case of any such proceeding instituted against it (but not instituted by it), either such proceeding shall remain undismissed or unstayed for a period of 60 days, or any of the actions sought in such proceeding (including, without limitation, the entry of an order for relief against, or the appointment of a receiver, trustee, custodian or other similar official for, it or for any substantial part of its property) shall occur; or the Lessee or any of its Subsidiaries shall take any corporate action to authorize any of the actions set forth above in this paragraph (d); (e) MONETARY JUDGMENTS. One or more non-interlocutory judgments, non-interlocutory orders, decrees or arbitration awards is entered against the Lessee or any of its Subsidiaries involving in the aggregate a liability (to the extent not covered by independent third-party insurance as to which the insurer does not dispute coverage) as to any single or related series of transactions, incidents or conditions, of $5,000,000 or more, and the same shall remain unsatisfied, unvacated and unstayed pending appeal for a period of 30 consecutive days after the entry thereof; (f) NON-MONETARY JUDGMENTS. Any non-monetary judgment, order or decree is entered against the Lessee or any of its Subsidiaries which does or could reasonably be expected to have a Material Adverse Effect, and there shall be any period of 30 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; 58 (g) GOVERNMENTAL ACTION. The Lessee shall be prevented or relieved by any Governmental Authority from performing or observing any monetary payment or repayment obligation evidenced by this Lease or any other Operative Documents; (h) UNENFORCEABILTY OF OPERATIVE DOCUMENTS. Any Operative Document shall for any reason no longer be in full force and effect in accordance with its terms; (i) ABANDONMENT. The Lessee shall have abandoned the Leased Property or any part thereof; (j) CREDIT AGREEMENT EVENT OF DEFAULT. An "Event of Default" under the Credit Agreement shall have occurred and shall not have been waived in accordance with the terms of the Credit Agreement pursuant to an Approved Credit Agreement Action; (k) REPUDIATION OF OPERATIVE DOCUMENTS. Any Operative Document or any obligation of the Lessee thereunder shall be revoked or repudiated or attempted to be revoked or repudiated by the Lessee; (l) UNAUTHORIZED REMOVAL, TRANSFER. The Lessee shall (except as expressly permitted by the provision of this Lease) attempt to remove, sell, transfer, encumber, part with possession of, assign or sublet the Leased Property or any part thereof; (m) FAILURE TO MAINTAIN INSURANCE. The Lessee shall fail to be in compliance with the Insurance Requirements, and all other insurance policies required by Section 14 shall fail to be in full force and effect; (n) FAILURE TO PURCHASE FACILITY. The Lessee shall fail to purchase the Facility as and when required pursuant to Section 19(b) hereof; (o) DELIVERY OF FINAL SURVEY AND UPDATED TITLE POLICY. The Lessee shall fail to deliver to the Lessor the Final Survey and the Updated Title Policy on or prior to January 31, 1998. SECTION 21. REMEDIES. If any Event of Default shall have occurred and be continuing, then and in every such case, (A) in the case of an Event of Default set forth in Sections 20(d), (m) and (n) hereof, this Lease shall be in default without further act or notice of any kind (all 59 of which are hereby waived), which for all purposes hereof and of the other Operative Documents shall be deemed to be a declaration of default hereunder, and (B) in the case of any other Event of Default, the Lessor may, at its option, declare this Lease to be in default by written notice to such effect given to the Lessee, and in either case at any time thereafter, the Lessor may exercise one or more of the following remedies, as the Lessor in its sole discretion shall lawfully elect: (a) the Lessor may demand that the Lessee, and the Lessee shall upon receipt of written demand of the Lessor, deliver the Leased Property promptly to the Lessor in the manner and condition required by, and otherwise in accordance with all the provisions of, Section 8 hereof as if the Leased Property was being returned at the end of the Lease Term and the Lessor shall not be liable for the reimbursement of the Lessee for any costs and expenses incurred by the Lessee in connection therewith; or the Lessor may enter upon the premises of the Leased Property and take immediate possession of (to the exclusion of the Lessee) the Leased Property by summary proceedings or otherwise, all without liability to the Lessor for or by reason of such entry or taking of possession, whether for the restoration of damage to property caused by such taking or otherwise; (b) the Lessor may sell all or any part of the Facility and assign all or any part of its rights under the Ground Lease at public or private sale, as the Lessor may determine, in a commercially reasonable manner, free and clear of any rights of the Lessee and without any duty to account to the Lessee with respect to such action or inaction or any proceeds with respect thereto (except to the extent provided in paragraph (d) of this Section if the Lessor shall elect to exercise its rights thereunder), in which event the Lessee's obligation to pay Basic Rent hereunder for periods commencing after the date of such sale and assignment shall terminate (except to the extent that Basic Rent is to be included in computations under paragraph (d) of this Section if the Lessor shall elect to exercise its rights thereunder); (c) the Lessor may hold, keep idle or lease to others all or any part of the Facility as the Lessor in its sole discretion may determine, free and clear of any rights of the Lessee and without any duty to account to the Lessee with respect to such action or inaction or for any periods with respect to such action or inaction, except that the Lessee's obligation to pay Basic Rent hereunder for periods commencing after the Lessee shall have been deprived of use of the Facility pursuant to this paragraph (c) shall be reduced by the net proceeds, if any, received by the Lessor from leasing the Facility to any Person other than the Lessee for the same period or any portion thereof; (d) the Lessor may, whether or not the Lessor shall have exercised or shall thereafter at any time exercise any of its rights under paragraph (a), (b) or (c) of this 60 Section, demand that the Lessee pay to the Lessor, and the Lessee shall pay to the Lessor, on the Basic Rent Date specified in such demand, (A) any unpaid Basic Rent due hereunder prior to such Basic Rent Date plus (B) an amount equal to the Total Fundings made from the date hereof through and including such Basic Rent Date (together with interest on such amounts at the Overdue Rate from such Basic Rent Date to the date of actual payment); and upon such payment of all amounts then due and payable by the Lessee hereunder or under any other Operative Document, the Lessor shall transfer to the Lessee its title and interest in and to the Facility without recourse or warranty (except as to absence of any Lessor's Liens); or (e) the Lessor may rescind or terminate this Lease or may exercise any other right or remedy which may be available to it under Applicable Law or proceed by appropriate court action to enforce the terms hereof or to recover damages for the breach hereof; PROVIDED, HOWEVER, that any termination of the Lease pursuant to the exercise of any such rights and remedies shall not in any way be deemed to be a release or a waiver by the Lessor of the Lessee's obligation to pay the sums provided to be paid by the Lessee under this Section. No termination of this Lease, in whole or in part, or repossession of all or any part of the Leased Property or exercise of any remedy under this Section shall, except as specifically provided herein, relieve the Lessee of any of its liabilities and obligations hereunder, all of which shall survive such termination, repossession or exercise of remedy. In addition, the Lessee shall be liable, except as otherwise provided above, for any and all unpaid Rent due hereunder before, after or during the exercise of any of the foregoing remedies, including all reasonable legal fees and other costs and expenses incurred by the Lessor by reason of the occurrence of any Event of Default or the exercise of the Lessor's remedies with respect thereto, and including all reasonable costs and expenses of whatsoever kind incurred in connection with the return of the Facility (including the costs of dismantling and storage) in the manner and condition required by, and otherwise in accordance with the provisions of, Section 8 hereof as if the Facility were being returned at the end of the Lease Term. At any sale of the Facility or any part thereof or the Lessor's interest in the Ground Lease pursuant to this Section 21, the Lessor may bid for and purchase the Facility or such interest in the Ground Lease. To the extent permitted by, and subject to the mandatory requirements of, Applicable Law, and except as otherwise expressly provided in this Section, each and every right, power and remedy herein specifically given to the Lessor or otherwise in this Lease shall be cumulative and shall be in addition to every other right, power and remedy herein specifically given or now or hereafter existing at Law, in equity or by statute, and each and every right, power and remedy whether specifically herein given or otherwise 61 existing may be exercised from time to time and as often and in such order as may be deemed expedient by the Lessor, and the exercise or the beginning of the exercise of any power or remedy shall not be construed to be a waiver of the right to exercise at the same time or thereafter any other right, power or remedy. No delay or omission by the Lessor in the exercise of any right, remedy or power or in the pursuit of any remedy shall impair any such right, remedy or power or be construed to be a waiver of any default on the part of the Lessee or to be an acquiescence therein. No express or implied waiver by the Lessor of any Event of Default shall in any way be, or be construed to be, a waiver of any future or subsequent Event of Default. SECTION 22. RIGHT TO PERFORM FOR LESSEE. If the Lessee fails to make any payment of Rent required to be made by it hereunder or fails to perform or comply with any of its agreements contained herein, the Lessor may make such payment or perform or comply with such agreement, without any notice to or demand upon Lessee, in each case without waiving any default hereunder or releasing the Lessee from any obligation; PROVIDED, HOWEVER, that any such payment or performance by the Lessor shall not constitute a cure of such Event of Default for purposes of this Lease. The amount of such payment and the amount of the reasonable expenses incurred in connection with such agreement, as the case may be, together with interest thereon at the Overdue Rate, shall constitute Supplemental Rent hereunder, payable upon demand to the Lessor. SECTION 23. INDEMNIFICATION. (a) INDEMNIFICATION. The Lessee agrees to assume liability for, and to indemnify, protect, save and keep harmless each Indemnified Person, on an After-Tax Basis, from and against any and all Claims that may be imposed on, incurred by or asserted against any Indemnified Person (whether because of an action or omission by such Indemnified Person or otherwise and whether or not such Indemnified Person shall also be indemnified as to any such Claim by any other Person), in any way relating to or arising out of (i) the Leased Property or any part thereof, (ii) the Operative Documents or the transactions contemplated thereby, payments made pursuant to any thereof or the enforcement by any Indemnified Person of any of its rights under the Operative Documents, or any other transaction contemplated by the Operative Documents, including the negotiation, execution and delivery of amendments thereto, (iii) the manufacture, financing, refinancing, design, construction, inspection, purchase, ownership, acquisition, acceptance, rejection, delivery, nondelivery, possession, transportation, sublease, sub-sublease, sub-sub-sublease, mortgaging, granting of a security interest in, preparation, installation, condition, transfer of title, rental, use, 62 operation, storage, maintenance, modification, alteration, repair, assembly, sale, return, registration, abandonment or other application or disposition of all or any part of the Leased Property or any interest therein, including, without limitation, (A) Claims or penalties arising from any violation of Law or liability in tort (strict or otherwise), (B) loss of or damage to any property or the environment (including, without limitation, all Claims associated with remediation, response, removal, corrective action, clean-up, Remedial Action, treatment, compliance, restoration, abatement, encapsulation, containment, revegetation, monitoring, sampling, investigation, assessment, financial assurance, natural resource damages, the protection of wildlife and aquatic and vegetation, the interference with or contamination of any wetland or body of water (whether surface or subsurface) or aquifer, and any relevant mitigative action under any Environmental Law and any Claims resulting from or relating to the existence or presence of any Hazardous Material at, in, or under the Leased Property, or any parts thereof, or the Release, emission or discharge of any Hazardous Material into the environment (including air, water vapor, surface water, ground water, and land (whether surface or subsurface)) or death or injury to any Person, (C) latent or other defects, whether or not discoverable, and (D) any claim for patent, trademark or copyright infringement, (iv) any breach of or failure to perform or observe, or any other breach of or failure to perform or observe, or any other non-compliance with, any covenant, condition or agreement or other obligation to be performed by the Lessee under any Operative Document, or the falsity of any representation or warranty of the Lessee in any of the Operative Documents or in any certificate delivered by the Lessee, (v) the imposition of any Lien (other than Permitted Liens) on the Leased Property, or (vi) any violation of any Applicable Law with respect to the Lessee or the Leased Property; PROVIDED, HOWEVER, that the Lessee shall not be required to indemnify any Indemnified Person under this Section 23 for any Claim to the extent resulting from the willful misconduct or gross negligence of such Indemnified Person (other than willful misconduct or gross negligence imputed to such Indemnified Person solely by reason of its interest in the Leased Property). The obligation to provide indemnities in accordance with the terms of this Section 23 shall survive the termination of this Lease. (b) NOTICES. If the Lessee shall obtain knowledge of any action, suit, proceeding or written notice of any Claim indemnified against under this Section 23, the Lessee shall give prompt notice thereof to the appropriate Indemnified Person or Indemnified Persons, as the case may be, and if any Indemnified Person shall obtain any such knowledge, such Indemnified Person shall give prompt notice thereof to the Lessee, PROVIDED that the failure of such Indemnified Person to so notify the Lessee shall not affect the Lessee's indemnification obligations under this Section 23 to such Indemnified Person, except to the extent, if any, that the Lessee demonstrates that defense of the Claim is prejudiced by the Indemnified Person's failure to give such notice. 63 (c) CONTESTS. Subject to the rights of insurers under policies of insurance maintained pursuant to Section 14, the Lessee shall have the right, at its sole cost and expense, to investigate, and the right in its sole discretion to defend or contest by appropriate proceedings or compromise, any Claim for which indemnification is sought under this Section 23, and the Indemnified Person shall cooperate, at the Lessee's expense, with all reasonable requests of the Lessee in connection therewith, PROVIDED that the Lessee shall not have the right without the consent of the Indemnified Person to defend, contest or compromise any Claim with respect to such Indemnified Person (i) if an Event of Default shall have occurred and be continuing, (ii) if such proceeding involves any material danger of the sale, forfeiture or loss of the Leased Property or any part thereof, or (iii) if such Claim involves a realistic possibility of criminal sanctions or allegations by a Governmental Authority of criminal liability to such Indemnified Person, in which event the Indemnified Person shall be entitled to control and assume responsibility for the defense of such Claim at the expense of the Lessee. The Lessee shall keep the Indemnified Person which is the subject of such proceeding fully apprised of the status of such proceeding and shall provide such Indemnified Person with all information with respect to such proceeding as such Indemnified Person shall reasonably request. In the event an Indemnified Person has assumed control of any such proceeding, it shall keep the Lessee fully apprised of the status of such proceeding and shall provide the Lessee with all information, including the receipt of all settlement offers, with respect to such proceeding as such Indemnified Person shall reasonably request. Where the Lessee or the insurers under a policy of insurance maintained by the Lessee undertake the defense of an Indemnified Person with respect to a Claim, no additional legal fees or expenses of such Indemnified Person in connection with the defense of such Claim shall be indemnified hereunder unless such fees or expenses were incurred at the request of the Lessee or such insurers; PROVIDED that, if (i) in the written opinion of counsel to such Indemnified Person an actual or potential conflict of interest exists where it is advisable for such Indemnified Person to be represented by separate counsel or (ii) such Indemnified Person has been indicted or otherwise charged in a criminal complaint in connection with an indemnifiable Claim and such Indemnified Person informs the Lessee that such Indemnified Person desires to be represented by separate counsel, the reasonable fees and expenses of such separate counsel shall be borne by the Lessee. Subject to the requirements of any policy of insurance, an Indemnified Person may participate at its own expense in any judicial proceeding controlled by the Lessee pursuant to the preceding provisions and such participation shall not constitute a waiver of the right to receive the indemnification provided in this Section 23. Notwithstanding anything to the contrary contained herein, during the continuance of an Event of Default, the Lessee shall not compromise any Claim without the consent of the applicable Indemnified Person unless such Claim is simultaneously discharged fully and 64 unconditionally as to such Indemnified Person, such consent not to be unreasonably withheld. (d) SUBROGATION. Upon payment in full of any Claim by the Lessee pursuant to this Section 23 to or on behalf of an Indemnified Person, the Lessee, without any further action, shall be subrogated to any and all claims that such Indemnified Person may have in respect of the matters against which such indemnity was given (other than claims under any insurance policies maintained by such Indemnified Person). Such Indemnified Person agrees to cooperate with the Lessee and to execute such further instruments to permit the Lessee, at the Lessee's expense, to pursue such claims, to the extent reasonably requested by the Lessee. (e) PAYMENTS. Any amount payable to any Indemnified Person pursuant to this Section 23 shall be paid to such Indemnified Person promptly upon receipt of a written demand therefor from such Indemnified Person, accompanied by a written statement describing the basis for such indemnity and the amount so payable. SECTION 24. NOTICES. All communications, demands, consents and notices provided for herein shall be in writing, by fax (receipt confirmed), by tested telex or by personal delivery and shall become effective if given by fax, telex or personal delivery, when received, and if given by mail five (5) days after deposit in the United States mail with proper postage for first-class mail prepaid, addressed (a) if to the Lessor, at c/o KeyCorp Leasing, 54 State Street, Albany, New York 12207, Attention: Sandra Mariano, telephone (518) 486-8186, fax (518) 486-8172, with a copy to Key Global Finance, 30 Federal Street, Boston, Massachusetts 02110, Attention: Chief Credit Officer, telephone (617) 654-2700, fax (617) 654-2727, and (b) if to the Lessee, at 121 S.W. Morrison Street, Suite 1500, Portland, Oregon 97204, Attention: Roger L. Krage, telephone ((503) 274-2300), fax ((503) 228-4875), or, in each case, at such other address as any of the foregoing Persons may from time to time designate by notice duly given in accordance with the provisions of this Section to such other Person. SECTION 25. SUCCESSORS AND ASSIGNS. This Lease, including all agreements, covenants, representations and warranties, shall be binding upon and inure to the benefit of, and may be enforced by, (a) the Lessor and its successors, assigns and agents, and, where the context so requires, (i) each Indemnified Person, and (ii) the successors, assigns and agents of such Indemnified Person, and (b) the Lessee and its successors and, to the extent permitted hereby, assigns. 65 SECTION 26. AMENDMENTS AND MISCELLANEOUS. (a) AMENDMENTS. The terms of this Lease shall not be waived, altered, modified, amended, supplemented or terminated in any manner whatsoever except by written agreement signed by the Lessor and the Lessee. (b) SURVIVAL OF AGREEMENTS. All agreements, indemnities, representations and warranties contained in this Lease or any agreement, document or certificate delivered pursuant hereto or in connection herewith shall survive the execution and delivery of this Lease and the expiration or other termination of this Lease. (c) ENFORCEMENT. Any provision of this Lease which may be determined by competent authority to be prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. To the extent permitted by Applicable Law, the Lessee hereby waives any provision of law which renders any provision hereof prohibited or unenforceable in any respect. (d) ENTIRE AGREEMENT. This Lease represents the entire agreement of the parties hereto with respect to the subject matter hereof and supersedes any and all prior understandings. This Lease shall constitute an agreement of lease and nothing herein shall be construed as conveying to the Lessee any right, title or interest in or to the Improvements, except as lessee only. (e) BINDING EFFECT. All provisions contained in this Lease shall be binding upon, inure to the benefit of and be enforceable by, the respective permitted successors and assigns of the Lessor and the Lessee to the same extent as if each successor and assignee were named as a party hereto. (f) COUNTERPARTS. The parties may sign this Lease in any number of counterparts and on separate counterparts, each of which shall be an original but all of which when taken together shall constitute one and the same instrument, except that, if this Lease constitutes "chattel paper" within the meaning of the Uniform Commercial Code only one counterpart stamped or marked "COUNTERPART NUMBER ONE" or "COUNTERPART NUMBER 1" shall constitute, to the extent applicable, "chattel paper" or other "collateral" within the meaning of the Uniform Commercial Code in effect in any jurisdiction. 66 (g) GOVERNING LAW. This Lease shall be governed by, and construed in accordance with, the laws of the State of Idaho. (h) SECTIONS, HEADINGS. The division of this Lease into sections, the provision of a table of contents and the insertion of headings are for the convenience of reference only and shall not affect the construction or interpretation of this Lease. (i) NO MERGER OF TITLE. There shall be no merger of this Lease nor of the leasehold estate created by this Lease with the fee ownership of the Parcel, the Facility or the Modifications by reason of the fact that the same Person may acquire, own or hold, directly or indirectly, this Lease or the leasehold estate created by this Lease or any interest in this Lease or interest in the fee or leasehold ownership of the Parcel, the Facility or the Modifications and no such merger shall occur unless and until all Persons having any interest in (x) the leasehold estate created by this Lease and (y) the ownership of the Parcels, the Facility or the Modifications, or any part thereof shall join in a written instrument effecting such merger and shall duly record the same. (j) WAIVER OF TRIAL BY JURY. IN ANY ACTION OR PROCEEDING UNDER OR RELATED TO THIS AGREEMENT, THE OPERATIVE DOCUMENTS OR ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION WITH THE FOREGOING, THE LESSOR AND THE LESSEE HEREBY AGREE THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY, IRRESPECTIVE OF WHICH PARTY COMMENCES SUCH ACTION OR PROCEEDING. (k) TRUE LEASE. The Lessee intends to treat this Lease, for accounting purposes, as an operating lease. If a court of competent jurisdiction determines that the transaction represented by this Lease and the other Operative Documents will be treated as a financing transaction, then in such event it is the intention of the parties hereto (i) that this Lease be treated as a mortgage and security agreement and fixture filing, or other similar instrument with a power of sale (the "LESSEE MORTGAGE") from Lessee, as mortgagor, encumbering the Leased Property, and that the Lessee, as mortgagor, shall be deemed to have hereby granted a security interest and mortgage to the Lessor in the Leased Property now owned or hereafter acquired for the purpose of securing the Lessee's payment and performance obligations under this Lease and the other Operative Documents, (ii) that the Lessor shall have, as a result of such determination, all of the rights, powers and remedies of a secured party and mortgage available under Applicable Law to take possession of and sell (whether by foreclosure, power of sale or otherwise) the Leased Property, (iii) that the effective date of the Lessee Mortgage shall be the 67 effective date of this Lease, (iv) that the recording of an instrument referencing this provision shall be deemed to be the recording of the Lessee Mortgage and (v) that the Lessee Mortgage shall secure the obligations of the Lessee under this Lease. (l) NO CLAIMS AGAINST LESSOR, ETC. Nothing contained in this Lease shall constitute any consent or request by the Lessor, express or implied, for the performance of any labor or services or the furnishing of any materials or other property in respect of the Leased Property or any part thereof, nor as giving the Lessee any right, power or authority to contract for or permit the performance of any labor or services or the furnishing of any materials or other property in such fashion as would permit the making of any claim against the Lessor in respect thereof. Notice is hereby given that the Lessor shall not be liable for any labor or services performed or any materials or other property furnished in respect of the Leased Property or any part thereof and that no mechanic's or other lien for any such labor, services, materials or other property shall attach to or affect the interest of the Lessor in the Leased Property. (m) LIMITED RECOURSE. Except as otherwise provided in the proviso to this Section, nothing contained in this Lease or in the other Operative Documents shall be construed as creating any liability on the part of any past or present shareholder, limited partner or general partner of the Lessee, the General Partner, or the MGP General Partners to pay any amount on account of the Lessee's obligations hereunder or under any other Operative Document to which it is a party or to perform any covenant of the Lessee contained herein or therein; PROVIDED, HOWEVER, that nothing in this Section 26(m) shall be construed (i) to relieve any Person from liability for fraud, concealment, or other intentional wrongdoing for which such Person would otherwise be liable under any Applicable Law, either directly or on behalf of the Lessee, (ii) to restrict the joinder in any action of any necessary party in order to seek enforcement of rights against the Lessee or any other party to any Operative Document or to restrict injunctive relief against any Person to the extent necessary to obtain performance by the Lessee of any of its obligations under any Operative Document, or (iii) to relieve any Person from liability for distributions, payments, or other transfers made to such Person in violation of the Operative Documents or in violation of or otherwise recoverable under any Applicable Law. 68 IN WITNESS WHEREOF, the parties hereto have each caused this Lease to be duly executed by their respective officers thereunto duly authorized on the date first written above. SELCO SERVICE CORPORATION, as Lessor By ----------------------------------------- Name: Andrew G. Mesches Title: Vice President CROWN PACIFIC LIMITED PARTNERSHIP, as Lessee and as Construction Agent By CROWN PACIFIC MANAGEMENT LIMITED PARTNERSHIP, its General Partner By ----------------------------------------- Name: Title: EXHIBIT A TO THE LEASE AGREEMENT FORM OF LEASE SUPPLEMENT This LEASE SUPPLEMENT dated [ ], 199__, is made by and between SELCO SERVICE CORPORATION, an Ohio corporation, as lessor (the "Lessor"), and CROWN PACIFIC L.P., a Delaware limited partnership, as lessee (the "Lessee"). W I T N E S S E T H : WHEREAS, the Lessor and the Lessee have heretofore entered into the Lease Agreement dated as of December 19, 1997 (hereinafter the "Lease"; unless otherwise defined herein, the terms defined therein being used herein with the same meaning) and to which this Lease Supplement is a supplement; WHEREAS, the Lease provides for the execution and delivery of a Lease Supplement for the purposes and otherwise as set forth in Section 2 thereof. NOW, THEREFORE, in consideration of the mutual covenants and agreements confirmed in the Lease and other good and valuable consideration, receipt of which is hereby acknowledged, the Lessor and the Lessee hereby agree as follows: (1) The Lessor does hereby lease to the Lessee, and the Lessee does hereby lease from the Lessor, the Components described in the Description of Components attached hereto on Schedule 1. (2) The Lessee hereby confirms to the Lessor that the Lessee has unconditionally accepted the Components for all purposes hereof and of the Lease. (3) The Lessee hereby confirms that the Components conform to specifications, are in good working order and repair and without defect in title, condition, design, operation or fitness for purpose, and are free and clear of all Liens except Liens permitted by Section 10 of the Lease Agreement; PROVIDED, HOWEVER, that nothing contained herein or in the Lease shall in any way diminish or otherwise affect any right which the Lessee or the Lessor may have with respect to the Components or any portion thereof against any seller, contractor, subcontractor, manufacturer or installer thereof or others. (4) This Lease Supplement may be executed in any number of counterparts and on separate counterparts, each of which shall be an original but all of which when taken together shall constitute one and the same instrument, except that, if this Lease Supplement constitutes "chattel paper" within the meaning of the Uniform Commercial Code, only one counterpart stamped or marked "COUNTERPART ONE" or "COUNTERPART NUMBER 1" shall constitute, to the extent applicable, "chattel paper" or other "collateral" within the meaning of the Uniform Commercial Code in effect in any jurisdiction. (5) All the terms and provisions of the Lease are hereby incorporated by reference in this Lease Supplement to the same extent as if fully set forth herein. Without limiting the generality of the foregoing, the representations and warranties of the Lessee that are set forth in the Lease shall be deemed incorporated by reference herein with the same effect as though such representations and warranties are made on and as of the date hereof. (6) The Lessee hereby represents and warrants as of the date hereof that no Default or Event of Default has occurred and is continuing under the Lease. IN WITNESS WHEREOF, the Lessor and the Lessee have each caused this Lease Supplement to be duly executed as of the date first written above. SELCO SERVICE CORPORATION, as Lessor By ---------------------------------------- Name: Andrew G. Mesches Title: Vice President CROWN PACIFIC LIMITED PARTNERSHIP, as Lessee By CROWN PACIFIC MANAGEMENT LIMITED PARTNERSHIP, its General Partner By ---------------------------------------- Name: Title: A-2 SCHEDULE 1 to Lease Supplement DESCRIPTION OF COMPONENTS The Components shall consist of the following: FORM OF REQUISITION To: Selco Service Corporation CROWN PACIFIC LIMITED PARTNERSHIP CERTIFIED CONSTRUCTION REQUISITION NO.___ DATED____________ , 199____ The undersigned, [Name], [Title*] of Crown Pacific Limited Partnership, acting as construction agent (the "CONSTRUCTION AGENT") for SELCO Service Corporation, the lessor (the "LESSOR") pursuant to the Lease Agreement dated as of December [ ], 1997 (the "LEASE AGREEMENT"), and acting as lessee (the "LESSEE") thereunder, submits this irrevocable Requisition and certifies, on behalf of the Lessee the following: 1. The total amount of the Actual Project Costs for which a Requisition Funding is hereby requested is _________ Dollars ($______). The Lessor is hereby requested to make available the proceeds of a Requisition Funding on [at least 5 Business Days after the submission date] ____________, 199_, [must be a Requisition Funding Date] subject to the satisfaction or waiver (as specified in Item 8 below) of all Requisition Funding Conditions. The Requisition Funding shall be made at [bank], account number [ ]. 2. The proceeds of the Requisition Funding requested herein shall be used solely to pay Actual Project Costs. 3. No part of the Actual Project Costs paid with the funds advanced under any previous Requisition is a basis for this Requisition, and none of the Actual Project Costs which are the subject of this Requisition was included in any prior Requisition. 4. Attached to this Requisition is a copy of each invoice, purchase order, receipt or other such document (not previously delivered with a prior Requisition) (the "INVOICES") for Actual Project Costs, which Invoices will be, or - -------------------------------------- * To be an "Officer", as defined in the Lease Agreement. have been, paid with the proceeds of this Requisition Funding, or, as applicable, the previous Requisition Fundings. 5. There has been no material change in the estimated time of completion of the construction of the Facility and the Construction Agent has no reason to believe that (i) the Final Completion Date cannot be achieved by September 30, 1998 or (ii) the Actual Project Costs of the construction of the Facility will exceed the Maximum Requisition Funding Amount. 6. No Applicable Law prohibits, and no litigation, governmental investigation or other proceeding is pending or threatened in which there is a reasonable possibility of an unfavorable judgment, decree, order or other determination which could prevent or make unlawful, or impose any material adverse condition upon, the Leased Property or the construction or operation thereof or any transaction contemplated hereby or by any other Operative Document or the ability of the Lessee to perform its obligations hereunder or thereunder. 7. [NOT APPLICABLE TO INITIAL REQUISITION] All amounts previously advanced pursuant to previous Requisitions were or will be paid to the parties entitled thereto as specified in such Requisitions. 8. [Except as set forth in this item 8,] all Requisition Funding Conditions required to be satisfied prior to the Requisition Funding requested herein have been satisfied. [Identify unfulfilled conditions, the actions being taken by the Construction Agent and the Lessee to satisfy such conditions and the date(s) by which the Construction Agent plans to satisfy such conditions]. 9. All of the representations and warranties of the Lessee set forth in the Operative Documents are true and correct on and as of the date hereof. The Lessee is in compliance with all of its obligations under the Operative Documents and there exists no Default or Event of Default under the Operative Documents. B-2 All terms used herein but not defined herein shall have the meanings assigned to such terms in the Lease. Dated this ____ day of _________, 199_. CROWN PACIFIC LIMITED PARTNERSHIP, as Lessee and Construction Agent By CROWN PACIFIC MANAGEMENT LIMITED PARTNERSHIP, its General Partner By: ----------------------------- Name: Title: B-3 EXHIBIT C TO THE LEASE AGREEMENT APPROVED CONSTRUCTION BUDGET [Crown to Provide] [FORM OF FINAL COMPLETION CERTIFICATE] OFFICER'S CERTIFICATE This Officer's Certificate is being furnished pursuant to the requirements of the Lease Agreement, dated as of December 19, 1997, among SELCO Service Corporation, an Ohio corporation (the "Lessor"), and Crown Pacific Limited Partnership, a Delaware limited partnership (the "LESSEE" and the "CONSTRUCTION AGENT") (as the same may be amended, modified or supplemented from time to time, the "LEASE"). Capitalized terms used but not otherwise defined herein shall have the meanings set forth in the Lease. The undersigned, on behalf of the Lessee, hereby certifies that: 1. Completion of the Components as contemplated by the Lease as a whole has taken place in all respects and the Facility has been constructed. A permanent certificate of occupancy (the "PCO") for the Facility has been issued by the applicable Governmental Authority having responsibility for such issuance and the same is in proper form and not subject to any appeal or contest or to any unsatisfied conditions (other than conditions relating to completion in the future) that may allow modification or revocation. 2. All Permits that are or will become Applicable Permits have been obtained, except Applicable Permits required by Law to be obtained after the Final Completion Date (as to which the Construction Agent, having completed all appropriate diligence, has no reason to believe that such Permits will not be granted in the usual course of business prior to the date that such Permits are required by Law, and the Lessee has applied for such Permits and satisfied all legal requirements necessary to authorize continued operation while the Permit application is pending). All such obtained Permits are in proper form, in full force and effect and not subject to any appeal or contest or to any unsatisfied conditions (other than conditions relating to completion in the future) that may allow modification or revocation. 3. The Leased Property is in compliance in all material respects with all Applicable Laws. The construction and operation of the Facility is in accordance in all material respects with all Applicable Laws and all representations set forth in, or made in connection with, all Permits, as required for occupancy and operation thereof. 4. The Lessee is in compliance with all Insurance Requirements and all insurance policies required under Section 14 of the Lease are in force and effect. 5. The representations and warranties of the Lessee as set forth in the Operative Documents are true and correct in all material respects as if made on and as of the date hereof. 6. The Facility is complete and is ready and available for its intended use by Lessee. 7. Attached hereto as SCHEDULE A is a true and correct list, as of the date hereof, of all furniture, fixtures and equipment located on the Parcel. Dated this day of , 199 . CROWN PACIFIC LIMITED PARTNERSHIP, as Construction Agent By CROWN PACIFIC MANAGEMENT LIMITED PARTNERSHIP, its General Partner By: ------------------------------ Name: Title: D-2 EXHIBIT E TO THE LEASE AGREEMENT TERMS OF SINGLE INVESTOR TAX LEASE [To Follow] EXHIBIT F TO THE LEASE AGREEMENT CREDIT AGREEMENT SCHEDULE 1 TO LEASE AGREEMENT DESCRIPTION OF PARCEL SCHEDULE 6(a)(viii) TO LEASE AGREEMENT PERMITS EX-10.18 11 EXHIBIT 10.18 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- EXHIBIT 10.18 CROWN PACIFIC LIMITED PARTNERSHIP ------------------------------ NOTE PURCHASE AGREEMENT Dated as of December 15, 1997 ------------------------------ Re: $95,000,000 Senior Notes, Series A, B and C Due 2010 - 2018 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TABLE OF CONTENTS SECTION HEADING PAGE SECTION 1. DESCRIPTION OF NOTES AND COMMITMENT. . . . . . . . . . . . . 1 Section 1.1. Description of the Transaction; Notes. . . . . . . . . . 1 Section 1.2. Commitment, Closing Date . . . . . . . . . . . . . . . . 2 Section 1.3. Failure to Deliver . . . . . . . . . . . . . . . . . . . 2 Section 1.4. Expenses . . . . . . . . . . . . . . . . . . . . . . . . 2 Section 1.5. Several Commitments. . . . . . . . . . . . . . . . . . . 3 Section 1.6. Pre-funding of Commitment. . . . . . . . . . . . . . . . 3 SECTION 2. REPRESENTATIONS. . . . . . . . . . . . . . . . . . . . . . . 4 Section 2.1. Representations of the Company . . . . . . . . . . . . . 4 Section 2.2. Representations of the Managing General Partner. . . . . 4 Section 2.3. Representations of the Purchasers. . . . . . . . . . . . 4 SECTION 3. CLOSING CONDITIONS . . . . . . . . . . . . . . . . . . . . . 6 Section 3.1. Execution of Agreement and Notes . . . . . . . . . . . . 6 Section 3.2. Closing Certificates . . . . . . . . . . . . . . . . . . 6 Section 3.3. Opinions of Counsel. . . . . . . . . . . . . . . . . . . 6 Section 3.4. Legal Existence and Authority. . . . . . . . . . . . . . 6 Section 3.5. Insurance. . . . . . . . . . . . . . . . . . . . . . . . 7 Section 3.6. Environmental Audit. . . . . . . . . . . . . . . . . . . 7 Section 3.7. Appraisals . . . . . . . . . . . . . . . . . . . . . . . 7 Section 3.8. Related Transactions . . . . . . . . . . . . . . . . . . 7 Section 3.9. Acquisition Facility; Working Capital Facility . . . . . 7 Section 3.10. Legality . . . . . . . . . . . . . . . . . . . . . . . . 7 Section 3.11. Payment of Special Counsel Fees. . . . . . . . . . . . . 8 Section 3.12. Private Placement Number . . . . . . . . . . . . . . . . 8 Section 3.13. [Intentionally Reserved] . . . . . . . . . . . . . . . . 8 Section 3.14. Satisfactory Proceedings . . . . . . . . . . . . . . . . 8 SECTION 4. COMPANY COVENANTS. . . . . . . . . . . . . . . . . . . . . . 8 Section 4.1. Legal Existence, Etc . . . . . . . . . . . . . . . . . . 8 Section 4.2. Insurance. . . . . . . . . . . . . . . . . . . . . . . . 9 Section 4.3. Taxes, Claims for Labor and Materials, Compliance with Laws; Environmental and Natural Resource Matters. . 9 Section 4.4. Maintenance, Etc . . . . . . . . . . . . . . . . . . . .12 Section 4.5. Nature of Business . . . . . . . . . . . . . . . . . . .12 Section 4.6. Limitations on Current Debt and Funded Debt. . . . . . .12 Section 4.7. Distributions. . . . . . . . . . . . . . . . . . . . . .13 Section 4.8. Investments. . . . . . . . . . . . . . . . . . . . . . .13 Section 4.9. Mergers and Consolidations . . . . . . . . . . . . . . .15 Section 4.10. Sales of Assets. . . . . . . . . . . . . . . . . . . . .16 Section 4.11. Sale of Equity Interests in Restricted Subsidiaries. . .18 Section 4.12. Limitation on Harvesting . . . . . . . . . . . . . . . .19 Section 4.13. Payment of Dividends by Restricted Subsidiaries. . . . .20 Section 4.14. Guaranties . . . . . . . . . . . . . . . . . . . . . . .20 Section 4.15. Transactions with Affiliates . . . . . . . . . . . . . .20 Section 4.16. Multiemployer Plan Liability and Termination of Pension Plans. . . . . . . . . . . . . . . . . . . . . .20 Section 4.17. Reports and Rights of Inspection.. . . . . . . . . . . .21 Section 4.18. Changes in Status of Subsidiaries. . . . . . . . . . . .23 Section 4.19. Repurchase of Notes. . . . . . . . . . . . . . . . . . .24 Section 4.20. Liens. . . . . . . . . . . . . . . . . . . . . . . . . .24 Section 4.21. Ratings. . . . . . . . . . . . . . . . . . . . . . . . .26 SECTION 5. PREPAYMENT OF NOTES. . . . . . . . . . . . . . . . . . . . .26 Section 5.1. Required Prepayments . . . . . . . . . . . . . . . . . .26 Section 5.2. Optional Prepayment With Premium . . . . . . . . . . . .27 Section 5.3. Notice of Optional Prepayments . . . . . . . . . . . . .27 Section 5.4. Application of Prepayments . . . . . . . . . . . . . . .28 Section 5.5. Direct Payment . . . . . . . . . . . . . . . . . . . . .28 SECTION 6. EVENTS OF DEFAULT AND REMEDIES THEREFOR. . . . . . . . . . .28 Section 6.1. Events of Default. . . . . . . . . . . . . . . . . . . .28 Section 6.2. Notice to Holders. . . . . . . . . . . . . . . . . . . .30 Section 6.3. Acceleration of Maturities . . . . . . . . . . . . . . .30 -3- Section 6.4. Rescission of Acceleration . . . . . . . . . . . . . . .31 SECTION 7. AMENDMENTS, WAIVERS AND CONSENTS . . . . . . . . . . . . . .31 Section 7.1. Consent Required . . . . . . . . . . . . . . . . . . . .31 Section 7.2. Solicitation of Holders. . . . . . . . . . . . . . . . .32 Section 7.3. Effect of Amendment or Waiver. . . . . . . . . . . . . .32 SECTION 8. INTERPRETATION OF AGREEMENT; DEFINITIONS . . . . . . . . . .32 Section 8.1. Definitions. . . . . . . . . . . . . . . . . . . . . . .32 Section 8.2. Accounting Principles. . . . . . . . . . . . . . . . . .50 Section 8.3. Directly or Indirectly . . . . . . . . . . . . . . . . .50 SECTION 9. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . .50 Section 9.1. Registered Notes . . . . . . . . . . . . . . . . . . . .50 Section 9.2. Exchange of Notes. . . . . . . . . . . . . . . . . . . .51 Section 9.3. Loss, Theft, Etc. of Notes . . . . . . . . . . . . . . .51 Section 9.4. Powers and Rights Not Waived; Remedies Cumulative. . . .51 Section 9.5. Notices. . . . . . . . . . . . . . . . . . . . . . . . .51 Section 9.6. Reproduction of Documents. . . . . . . . . . . . . . . .52 Section 9.7. Survival . . . . . . . . . . . . . . . . . . . . . . . .52 Section 9.8. Successors and Assigns . . . . . . . . . . . . . . . . .52 Section 9.9. Governing Law. . . . . . . . . . . . . . . . . . . . . .52 Section 9.10. Submission to Jurisdiction . . . . . . . . . . . . . . .52 Section 9.11. Limitations of Liability . . . . . . . . . . . . . . . .53 Section 9.12. Severability . . . . . . . . . . . . . . . . . . . . . .53 Section 9.13. Captions . . . . . . . . . . . . . . . . . . . . . . . .53 Section 9.14. Duplicate Originals. . . . . . . . . . . . . . . . . . .53 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .54 ATTACHMENTS TO NOTE PURCHASE AGREEMENT: SCHEDULE I -- Names and Commitments of Purchasers SCHEDULE II -- Investments EXHIBIT A-1 -- Form of 7.76% Senior Notes, Series A EXHIBIT A-2 -- Form of 7.76% Senior Notes, Series B -4- EXHIBIT A-3 -- Form of 7.93% Senior Notes, Series C EXHIBIT B-1 -- Closing Certificate of the Company EXHIBIT B-2 -- Closing Certificate of the Managing General Partner EXHIBIT C -- Description of Closing Opinion of Counsel to the Company EXHIBIT D -- Description of Closing Opinion of Special Counsel to the Company EXHIBIT E -- [Intentionally Reserved] EXHIBIT F -- Description of Closing Opinion of Special Counsel to the Purchasers EXHIBIT G -- Subordination Provisions EXHIBIT H -- Pre-Funding Agreement -5- CROWN PACIFIC LIMITED PARTNERSHIP 121 S.W. Morrison Street Portland, Oregon 97204 NOTE PURCHASE AGREEMENT Re: $95,000,000 Senior Notes, Series A, B and C Due 2010 - 2018 ---------------------------------------- Dated as of December 15, 1997 To the Purchasers named in Schedule I to this Agreement Gentlemen: CROWN PACIFIC LIMITED PARTNERSHIP, a Delaware limited partnership (together with any Person who succeeds to all or substantially all Crown Pacific Limited Partnership's assets and business, the "COMPANY"), agrees with the Purchasers named on Schedule I to this Agreement (the "PURCHASERS") as follows: SECTION 1. DESCRIPTION OF NOTES AND COMMITMENT. SECTION 1.1. DESCRIPTION OF THE TRANSACTION; NOTES. The Company has duly authorized the issuance and sale of its Senior Notes due 2010 - 2018 in an aggregate principal amount not to exceed $95,000,000, to be comprised of Series A Notes in an aggregate principal amount of $15,000,000, Series B Notes in an aggregate principal amount of $55,000,000 and Series C Notes in an aggregate principal amount of $25,000,000. The Notes (such term and all other capitalized terms not otherwise defined herein shall have the respective meanings assigned thereto in Section 8) Are to be dated the date of issue, to bear interest at the rate of 7.76%, in the case of the Series A Notes, 7.76%, in the case of the Series B Notes and 7.93%, in the case of the Series C Notes, per annum prior to maturity payable semiannually in arrears on February 1 and August 1 in each year (commencing February 1, 1998) until the principal amount thereof shall be due and payable, to bear interest on overdue principal (including any overdue prepayment of principal) and premium, if any, and (to the extent permitted by law) on any overdue installment of interest at the Overdue Rate, to be expressed to mature on February 1, 2012, in the case of the Series A Notes, February 1, 2013, in the case of the Series B Notes and February 1, 2018, in the case of the Series C Notes, and to be substantially in the respective forms attached hereto as Exhibits A-1, A-2 and A-3. Interest on the Notes will be computed on the basis of a 360-day year of twelve 30-day months. The Notes are not subject to prepayment or redemption at the option of the Company prior to their expressed maturity dates except on the terms and conditions and in the amounts and with the premium, if any, set forth in Section 5. SECTION 1.2. COMMITMENT, CLOSING DATE. Subject to the terms and conditions hereof and on the basis of the representations and warranties hereinafter set forth, the Company agrees to issue and sell to each Purchaser, and such Purchaser agrees to purchase from the Company, on the closing date specified below such Purchaser's name in Schedule I, or in the event that the Company cannot perform all of the conditions set forth in Section 3 by such date, then such other Business Day not later than the commitment expiration date specified below such Purchaser's name in Schedule I as such conditions can be satisfied or such other Business Day as the Company and the Purchasers shall specifically agree upon (the "CLOSING DATES"), the Notes specified opposite such Purchaser's name in Schedule I at a price of 100% of the principal amount thereof. Delivery of the Notes to be purchased on each Closing Date will be made at the offices of Chapman and Cutler, 111 W. Monroe Street, Chicago, Illinois 60603 at or about 12:00, noon, Chicago, Illinois time, on such Closing Date against payment therefor in Federal funds or other immediately available funds at the principal office of Bank of America National Trust and Savings -7- Association, San Francisco, ABA# 121000358, Account Name, Crown Pacific Limited Partnership, Account No. 12330-26768, in the amount of the purchase price. The Note to be delivered to each Purchaser on such Closing Date will be delivered to such Purchaser in the form of a single registered Note of each series to be purchased by such Purchaser on such Closing Date in the form attached hereto as Exhibit A-1, A-2 and/or A-3, as the case may be, for the full amount of such Purchaser's purchase of such series (unless different denominations are specified by such Purchaser), registered in such Purchaser's name or in the name of such Purchaser's nominee specified in Schedule I. SECTION 1.3. FAILURE TO DELIVER. If, on any Closing Date, the Company fails to tender to any Purchaser the Notes to be issued to such Purchaser on such Closing Date or if the conditions specified in Section 3 hereof have not been fulfilled, such Purchaser may thereupon elect to be relieved of all further obligations under this Agreement; PROVIDED that such election shall not relieve the Company from any of its obligations hereunder or waive any of such Purchaser's rights against the Company. Without limiting the foregoing, if the conditions specified in Section 3 hereof for any Closing Date have not been fulfilled, each Purchaser purchasing Notes on such Closing Date may waive compliance by the Company with any such condition to such extent as such Purchaser in its sole discretion may determine. SECTION 1.4. EXPENSES. Whether or not the transactions herein contemplated shall be consummated, the Company agrees to pay all expenses relating to the transactions contemplated by this Agreement, including but not limited to: (a) the cost of reproducing this Agreement, the Notes and all other documents required or contemplated hereunder; (b) the reasonable fees and expenses of Chapman and Cutler, special counsel to the Purchasers; (c) reasonable out-of-pocket expenses of the Purchasers; -8- (d) the cost of delivering to each Purchaser at its home office, insured to its satisfaction, the Notes purchased thereby on the Closing Dates; (e) all reasonable fees and expenses (including, without limitation, reasonable attorney's fees) incurred by any Holder in connection with the enforcement of the obligations of the Company under this Agreement or the Notes; and (f) all expenses (including reasonable attorney's fees) in connection with any amendments, waivers or consents requested or agreed to by the Company in connection with this Agreement or the Notes (whether or not the same are actually executed and delivered), including, without limitation, any amendments, waivers, or consents resulting from any work-out, renegotiation or restructuring relating to the performance by the Company of its obligations under this Agreement and the Notes; PROVIDED that each Person that has incurred or incurs expenses related to the subject matter of this Agreement shall use its best efforts to submit promptly to the Company invoices with respect to such expenses. The Company also agrees that it will pay and save the Purchasers harmless against any and all liability with respect to stamp and other taxes (except for taxes on any Purchaser's gross or net income), if any, which may be payable or which may be determined to be payable in connection with the execution and delivery of this Agreement or the Notes, whether or not any Notes are then outstanding. The Company agrees to protect and indemnify the Purchasers against any liability for any and all brokerage fees and commissions payable or claimed to be payable to any Person in connection with the transactions contemplated by this Agreement. Each Purchaser hereby represents and warrants that it has not engaged any investment banker or broker in connection with its purchase of the Notes, it being understood that BancAmerica Robertson Stephens has acted as placement agent of the Company. -9- The obligations of the Company under this Section 1.4 shall survive the payment or prepayment of the Notes and the termination of this Agreement. SECTION 1.5. SEVERAL COMMITMENTS. The obligations of each Purchaser shall be several and not joint and no Purchaser shall be liable or responsible for the acts or defaults of any other Purchaser. The obligation of the Company to consummate the sale of the Notes on each Closing Date is contingent upon the purchase by the Purchasers of 100% of the aggregate principal amount of the Notes scheduled to be purchased on such Closing Date pursuant to this Agreement. SECTION 1.6. PRE-FUNDING OF COMMITMENT. In order to facilitate an orderly closing on each Closing Date, each Purchaser purchasing Notes on such Closing Date agrees that upon the request of the Company made at least 5 days prior to such Closing Date, such Purchaser shall make its funds required to purchase the Notes to be purchased by it on such Closing Date available to Bank of America National Trust and Savings Association, as funding agent (the "FUNDING AGENT"), at or prior to 12:00, noon, Chicago, Illinois time, on the Business Day prior to such Closing Date, in Federal funds or other immediately available funds. The foregoing obligation of each Purchaser to so make its funds available shall be subject to the condition precedent that it shall have received a Pre-Funding Agreement executed by the Company and the Funding Agent in substantially the form attached hereto as Exhibit H. Each Purchaser agrees by its execution hereof that funds so made available by it may be invested by the Funding Agent as provided in said Pre-Funding Agreement. SECTION 2. REPRESENTATIONS. SECTION 2.1. REPRESENTATIONS OF THE COMPANY. The Company represents and warrants that all representations set forth in the form of Closing Certificate attached hereto as Exhibit B-1 are true and correct as of the date hereof and are incorporated herein by reference with the same force and effect as though herein set forth in full. -10- SECTION 2.2. REPRESENTATIONS OF THE MANAGING GENERAL PARTNER. Crown Pacific Management Limited Partnership, a Delaware limited partnership (together with any Person who succeeds to all or substantially all of Crown Pacific Management Limited Partnership's assets and business, the "MANAGING GENERAL PARTNER"), represents and warrants that all representations set forth in the form of Closing Certificate attached hereto as Exhibit B-2 are true and correct as of the date hereof and are incorporated herein by reference with the same force and effect as though herein set forth in full. SECTION 2.3. REPRESENTATIONS OF THE PURCHASERS. Each Purchaser represents and warrants to the Company that such Purchaser is acquiring the Notes for the purpose of investment and not with a view to the distribution thereof, and that such Purchaser has no present intention of selling, negotiating or otherwise disposing of the Notes; it being understood, however, that the disposition of such Purchaser's Property shall at all times be and remain within its control. Each Purchaser further represents and warrants to the Company that such Purchaser has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of investing in the Notes and is aware that the Notes have not been registered under the Securities Act or the securities laws of any state, and that the sale of each Note is predicated upon such sale being exempt from registration as an exempt transaction under applicable federal and state securities laws, and that no state or federal governmental authorities have made any finding or determination relating to the Notes, and that no state or federal governmental authority has or will recommend or endorse the Notes. Each Purchaser further represents and warrants to the Company that at least one of the following statements is an accurate representation as to the source of funds to be used by such Purchaser to pay the purchase price of the Notes purchased by it hereunder (respectively, the "SOURCE"): (a) The Source is an "insurance company general account" within the meaning of Department of Labor Prohibited Transaction Exemption ("PTE") 95-60 (issued July 12, 1995), and there is no employee benefit plan -11- (treating as a single plan, all employee benefit plans maintained by the same employer or employee organization) with respect to which the amount of the general account reserves and liabilities for all contracts held by or on behalf of such employee benefit plan exceed ten percent (10%) of the total reserves and liabilities of such general account (exclusive of separate account liabilities) plus surplus, as set forth in the NAIC Annual Statement filed with such Purchaser's state of domicile; (b) The Source is one or more separate accounts, trusts or a commingled pension trust maintained by the Purchaser within the meaning of PTE 90-1 (issued January 29, 1990) and the Purchaser has disclosed to the Company the names of such employee benefit plans whose assets in such separate account or accounts or pension trusts exceed 10% of the total assets or are expected to exceed 10% of the total assets of such account or accounts or trusts as of the date of such purchase (for the purpose of this clause (b), all employee benefit plans maintained by the same employer or employee organization are deemed to be a single plan); (c) The Source is a bank collective investment fund maintained by the Purchaser within the meaning of PTE 91-38 (issued July 12, 1991) and the Purchaser has disclosed to the Company the names of such employee benefit plans whose assets in such collective investment fund exceed 10% of the total assets or are expected to exceed 10% of the total assets of such fund as of the date of such purchase (for the purpose of this clause (c), all employee benefit plans maintained by the same employer or employee organization are deemed to be a single plan); (d) The Source is one or more employee benefit plans, each of which has been identified to the Company in writing; (e) The Source is one or more pension funds, trust funds or agency accounts, each of which is a "governmental plan" as defined in Section 3(32) of ERISA; -12- (f) The Source is an "investment fund" managed by a "qualified professional asset manager" or "QPAM" (as defined in Part V of PTE 84-14, issued March 13, 1984), provided that no other party to the transactions described in this Agreement and no "affiliate" of such other party (as defined in Section V(c) of PTE 84-14) has at this time, and during the immediately preceding one year has exercised the authority to appoint or terminate said QPAM as manager of the assets of any plan identified in writing pursuant to this clause (f) or to negotiate the terms of said QPAM's management agreement on behalf of any such identified plans; or (g) The Source consists of funds which do not constitute "plan assets". The Company shall deliver a certificate on each Closing Date which certificate shall either state that (i) it is neither a "party in interest" (as defined in Title I, Section 3(14) of ERISA) nor a "disqualified person" (as defined in Section 4975(e)(2) of the Internal Revenue Code of 1986, as amended), with respect to any plan identified pursuant to clauses (b), (c) or (d) above, or (ii) with respect to any plan identified pursuant to clause (f) above, neither it nor any "affiliate" (as defined in Section V(c) of PTE 84-14) is described in the proviso to said clause (f). As used in this Section 2.3, the term "SEPARATE ACCOUNT" shall have the meaning assigned thereto in ERISA, the term "PLAN ASSETS" shall have the meaning assigned thereto in Department of Labor Regulation 29 C.F.R. Section 2510.3-101 and the term "EMPLOYEE BENEFIT PLAN" shall have the meaning assigned thereto in ERISA and shall also include a plan as defined in Section 4975(e)(1) of the Internal Revenue Code of 1986, as amended. The representations contained in such certificate shall be made in reliance upon and subject to the accuracy of the representation of the Purchasers in this Section 2.3 as to the source of funds to be used by the Purchasers to pay the purchase price of the Notes to be purchased by the Purchasers. SECTION 3. CLOSING CONDITIONS. -13- The obligation of each Purchaser to purchase the Notes to be purchased by such Purchaser on each Closing Date shall be subject to the performance by the Company of its agreements hereunder which, by the terms hereof, are to be performed at or prior to the time of delivery of the Notes and of the following further conditions precedent: SECTION 3.1. EXECUTION OF AGREEMENT AND NOTES. On or prior to such Closing Date this Agreement and the Notes shall have been duly authorized, executed and delivered by the Company and shall be in full force and effect and no Default or Event of Default shall exist in the performance by the Company of any of its obligations thereunder. SECTION 3.2. CLOSING CERTIFICATES. On such Closing Date, each Purchaser purchasing Notes on such Closing Date shall have received (i) from the Company a certificate dated the Closing Date, substantially in the form attached hereto as Exhibit B-1, and (ii) from the Managing General Partner a certificate dated such Closing Date, substantially in the form attached hereto as Exhibit B-2, the truth and accuracy of each of which shall be a condition to such Purchaser's obligation to purchase the Notes proposed to be sold to such Purchaser. SECTION 3.3. OPINIONS OF COUNSEL. On such Closing Date, each Purchaser purchasing Notes on such Closing Date shall have received the written opinions, dated in each case as of such Closing Date, from Ball Janik LLP, counsel to the Company and the Managing General Partner, from Andrews & Kurth L.L.P., special counsel to the Company, and from Chapman and Cutler, special counsel to the Purchasers, their respective opinions substantially described in Exhibits C, D and F hereto, reasonably satisfactory in form and substance to such Purchaser. SECTION 3.4. LEGAL EXISTENCE AND AUTHORITY. On such Closing Date, each Purchaser purchasing Notes on such Closing Date shall have received, in form and substance reasonably satisfactory to such Purchaser and such Purchaser's special counsel, such documents and evidence with respect to the Company and the Managing General Partner as such Purchaser or such Purchaser's -14- special counsel may reasonably request in order to establish the existence and good standing of the Company and the Managing General Partner, the authorization of the transactions contemplated by this Agreement, the taking of all appropriate proceedings in connection therewith and compliance with the conditions set forth in this Section 3. SECTION 3.5. INSURANCE. Prior to such Closing Date, each Purchaser purchasing Notes on such Closing Date shall have received from the Company a certificate of the Company evidencing compliance with the provisions of Section 4.2. SECTION 3.6. ENVIRONMENTAL AUDIT. Prior to such Closing Date, each Purchaser purchasing Notes on such Closing Date shall have received from the Company reasonably requested environmental information with respect to the Properties owned by the Company or to be owned by the Company after giving effect to the issuance of the Notes and the consummation of the transactions described in Section 3.8 (including environmental information with respect to the conversion facilities and endangered species). SECTION 3.7. APPRAISALS. Prior to such Closing Date, each Purchaser purchasing Notes on such Closing Date shall have received existing appraisal reports reasonably requested by the Purchasers with respect to the timberlands owned by the Company or to be owned by the Company after giving effect to the issuance of the Notes. SECTION 3.8. RELATED TRANSACTIONS. Concurrently with the issuance and sale of the Notes to the Purchasers on such Closing Date: (i) the Company shall consummate the sale of the entire aggregate principal amount of the Notes scheduled to be sold on such Closing Date (and in the case of the second Closing Date, the sale of the Notes scheduled to be sold on the first Closing Date shall also have been consummated) pursuant to this Agreement; and -15- (ii) The net proceeds of the sale of the Notes pursuant to this Agreement shall be applied by the Company to repay indebtedness in connection with the acquisitions of timberlands and other Property and to the payment, or provision for payment, of expenses in consummating the transactions contemplated by this Agreement. SECTION 3.9. ACQUISITION FACILITY; WORKING CAPITAL FACILITY. On or prior to such Closing Date, the Company shall have executed and delivered and there shall be in full force and effect an Amended and Restated Credit Agreement dated as of July 31, 1996, as amended (the "ACQUISITION CREDIT AGREEMENT"), with Bank of America National Trust and Savings Association and the other banks named therein, pursuant to which there shall from time to time be available to the Company (subject to certain conditions precedent set forth therein) not less than $150,000,000 to fund future acquisitions by the Company of timberlands and related assets (the "ACQUISITION FACILITY"), and the Company shall have executed and delivered and there shall be in full force and effect an Amended and Restated Facility B Credit Agreement dated as of July 31, 1996, as amended (the "WORKING CAPITAL CREDIT AGREEMENT"), with Bank of America National Trust and Savings Association and the other banks named therein, pursuant to which there shall from time to time be available to the Company (subject to certain conditions precedent set forth therein) not less than $40,000,000 for working capital and general partnership purposes of the Company. SECTION 3.10. LEGALITY. On such Closing Date, the purchase by each Purchaser of the Notes proposed to be sold to such Purchaser on such Closing Date shall not be prohibited by any applicable law or governmental regulation, shall not be subject to any penalty or other onerous condition under or pursuant to any applicable law or governmental regulation, and such Purchaser shall have received from the Company such certificates or other evidence as to matters of fact as such Purchaser may reasonably request to establish compliance with this condition. SECTION 3.11. PAYMENT OF SPECIAL COUNSEL FEES. On such Closing Date, the Company shall have paid the reasonable fees and -16- expenses of Chapman and Cutler, special counsel to the Purchasers, in connection with the purchase of the Notes by the Purchasers on such Closing Date. SECTION 3.12. PRIVATE PLACEMENT NUMBER. Prior to such Closing Date, the appropriate filings shall have been duly made with Standard & Poor's CUSIP Service Bureau, as agent for the National Association of Insurance Commissioners, in order to obtain a private placement number for each series of the Notes. SECTION 3.13. [INTENTIONALLY RESERVED]. SECTION 3.14. SATISFACTORY PROCEEDINGS. All proceedings taken in connection with the transactions contemplated by this Agreement and all documents necessary to the consummation thereof, shall have been taken or delivered, as the case may be, shall be satisfactory in form and substance to special counsel to the Purchasers, and each Purchaser shall have received a copy (executed or certified as may be appropriate) of all legal documents or proceedings taken in connection with the consummation of said transactions. SECTION 4. COMPANY COVENANTS. From and after the first Closing Date and continuing so long as any amount remains unpaid on any Note: SECTION 4.1. LEGAL EXISTENCE, ETC. The Company will preserve and keep in force and effect its legal existence as a limited partnership not taxable as a corporation, and will cause each Restricted Subsidiary to preserve and keep in force and effect, its legal existence as a limited partnership, general partnership or corporation, as the case may be, and all material licenses, franchises and permits necessary to the proper conduct of its business, PROVIDED that the foregoing shall not prevent any transaction permitted by Section 4.9; and PROVIDED FURTHER that the Company shall not be obligated to preserve its status as a partnership not taxable as a corporation if (i) the Company's failure to preserve such status shall be the result of an amendment to the tax laws enacted by the Congress of the United -17- States and (ii) after giving effect to the loss of such status the ratio of Consolidated Cash Flow for the immediately preceding Four Quarter Period to Pro Forma Maximum Debt Service, determined as of the date of the loss of such status, would be greater than 1.1 to 1.0, assuming, for the purposes of the computation of Consolidated Cash Flow, that Consolidated Cash Flow would be reduced by taxes at the applicable tax rate of the Company for such period had the Company been taxable as a corporation. SECTION 4.2. INSURANCE. The Company will maintain, and will cause each Restricted Subsidiary to maintain, insurance coverage by financially sound and reputable insurers in such forms and amounts (including such deductibles and self insurance) and against such risks as are customary for companies of established reputation engaged in the same or similar business activities and owning and operating similar Properties. SECTION 4.3. TAXES, CLAIMS FOR LABOR AND MATERIALS, COMPLIANCE WITH LAWS; ENVIRONMENTAL AND NATURAL RESOURCE MATTERS. (a) The Company will promptly pay and discharge, and will cause each Restricted Subsidiary promptly to pay and discharge, all lawful taxes, assessments and governmental charges or levies imposed upon the Company or such Restricted Subsidiary, respectively, or upon or in respect of all or any part of the Property or business of the Company or such Restricted Subsidiary, all trade accounts payable in accordance with usual and customary business terms, and all claims for work, labor or materials, which if unpaid would become a Lien or charge upon any Property of the Company or such Restricted Subsidiary, PROVIDED that the Company or such Restricted Subsidiary shall not be required to pay any such tax, assessment, charge, levy, account payable or claim if (i) the validity, applicability or amount thereof is being contested in good faith by appropriate actions or proceedings which will prevent the forfeiture or sale of any Property of the Company or such Restricted Subsidiary or any material interference with the use thereof by the Company or such Restricted Subsidiary, and (ii) the Company or such Restricted Subsidiary shall set aside on its books, reserves deemed by it to be adequate with respect thereto. The Company will promptly comply, and will cause each Subsidiary to comply, with all laws, -18- ordinances or governmental rules and regulations to which it is subject, including without limitation, ERISA, the violation of which would materially and adversely affect the Properties, business, profits or condition of the Company and its Restricted Subsidiaries, taken as a whole, or would result in any Lien not permitted under Section 4.20. (b) (1) The Company and its Subsidiaries and their Properties shall comply in all material respects with any applicable Environmental and Natural Resource Law; (2) The Company and its Subsidiaries shall obtain and maintain in good standing all material Governmental Approvals required for their operations and their Properties by any applicable Environmental and Natural Resource Law; (3) The Company and its Subsidiaries shall not, and shall not permit any Person to, own or operate on any of its Properties any (i) landfill or dump or (ii) hazardous waste treatment, storage or disposal facility as defined pursuant to RCRA or any comparable state law; the Company and its Subsidiaries shall not use, generate, treat, store, release or dispose of Hazardous Materials at or on any of its Properties in quantities materially greater than that which is customary for operations similar to those of the Company and its Subsidiaries; (4) The Company and its Subsidiaries shall within ten Business Days notify the Holders in writing of, and specify the action the Company is taking and proposes to take with respect thereto and provide any reasonably requested documents upon learning of, any of the following: (A) any material liability for response or corrective action, natural resource damage or other harm pursuant to CERCLA, RCRA or any comparable state law; (B) any material Environmental and Natural Resource Claim arising from the Company and its -19- Subsidiaries, their operations, their Properties or any other Property previously owned or operated by the Company or its Subsidiaries or their predecessors; (C) any conditions or occurrences at the Properties of the Company and its Subsidiaries which could reasonably form the basis for a material Environmental and Natural Resource Claim against the Company or its Subsidiaries or their Properties; (D) any material and actual or imminent restriction on the ownership, occupancy, use, productivity or transferability of the Properties of the Company or its Subsidiaries (i) arising in connection with any Release, threatened Release or disposal of a Hazardous Material, or any Environmental and Natural Resource Law or (ii) as a consequence of any Harvest/Yield Restriction; or (E) any other environmental, natural resource, health or safety condition, which could materially and adversely affect the ability of the Company to perform its obligations under this Agreement or the Notes; (5) At its sole expense (but without thereby waiving any claims it may have against third parties), the Company and its Subsidiaries will conduct any investigation, study, sampling and testing, and undertake any cleanup, removal, remedial or other response action necessary to remove, clean up or abate any material quantity of Hazardous Material which is Released or disposed of at or on the Properties in accordance with any applicable Environmental and Natural Resource Law and any order or directive from a Governmental Authority having jurisdiction, except to the extent the Company or its Subsidiaries are diligently contesting any applicable Environmental and Natural Resource Law or any order or directive from a Governmental Authority, so long as such contest is in good faith and by appropriate proceedings and as to which reserves deemed by the Company to be adequate are maintained and no forfeiture or material -20- interference with the use of the Properties of the Company and its Restricted Subsidiaries will result from a failure to comply with the contested requirement; (6) (A) The Company agrees, at its sole cost and expense, to defend (with attorneys reasonably satisfactory to the Holders holding at least a majority in aggregate principal amount of outstanding Notes), protect, indemnify and hold harmless the Purchasers, and any Holder, and their respective officers, directors, trustees, employees and agents (the "INDEMNITEES") from and against any and all liabilities, obligations (including removal and remedial actions), losses, damages (including foreseeable and unforeseeable consequential damages and punitive damages, which consequential or punitive damages do not result from an Indemnitee's gross negligence or willful misconduct), penalties, actions, judgments, suits, orders (whether administrative or judicial), consent decrees, claims, costs, expenses and disbursements (including reasonable consultants' fees and disbursements and including all reasonable attorneys' fees whether incurred in a suit or action or any appeals from a judgment or decree therein or in connection with non-judicial action) of any kind or nature whatsoever that may at any time be incurred by, imposed on or asserted against the Indemnitees, the Company or its Subsidiaries directly or indirectly based on, or arising or resulting from (i) the actual or alleged presence or Release of any Hazardous Material on the Properties of the Company or its Subsidiaries or the removal, handling, transportation, disposal or storage of such Hazardous Material, (ii) any Environmental and Natural Resource Claim with respect to the Properties of the Company or its Subsidiaries, or (iii) any failure to comply, and the resulting cost to come into compliance, with any applicable Environmental and Natural Resource Laws with respect to the Properties of the Company or its Subsidiaries and the requirements of any permits issued under such Environmental and Natural Resource Laws (collectively, the "INDEMNIFIED MATTERS"), regardless of when such Indemnified Matters arise, but excluding as to any Indemnitee any Indemnified -21- Matter resulting directly from gross negligence or willful misconduct by such Indemnitee or its representative. To the extent that this indemnity is unenforceable because it violates any law or public policy, the Company agrees to contribute the maximum portion that it is permitted to contribute under applicable law to the payment and satisfaction of all Indemnified Matters; (B) The Company hereby waives, releases and covenants not to bring any demand, claim, cost recovery action or lawsuit it may now or hereafter have or accrue against any Indemnitee arising from the subject matter of an Indemnified Matter, except as a direct result of the gross negligence or willful misconduct of such Indemnitee; (C) The Company agrees to reimburse each Indemnitee for all sums paid and costs incurred by each Indemnitee with respect to any Indemnified Matter, within ten (10) Business Days following written demand therefor, with interest thereon at the Overdue Rate from the initial date of such written demand, if not paid within such ten (10) Business Day period; and (D) Should any Indemnitee institute any action or proceeding at law or in equity, or in arbitration, to enforce any provision of the above indemnification (including an action for declaratory relief or for damages by reason of an alleged breach of any provision of the above indemnification) or otherwise in connection with the above indemnification, it shall be entitled to recover from the Company its reasonable fees and disbursements incurred in connection therewith if it is the prevailing party in such action or proceeding. SECTION 4.4. MAINTENANCE, ETC. The Company will maintain, preserve and keep, and will cause each Restricted Subsidiary to maintain, preserve and keep, its Properties (other than timber) which are used or useful in the conduct of its business (whether owned in fee or a leasehold interest) in good repair and working order and from time to time will make all necessary repairs, -22- replacements, renewals and additions so that at all times such Properties shall remain usable in the Company's business. The Company will follow, and will cause each Restricted Subsidiary to follow, prudent industry management standards with respect to its timber and timber Properties, including the growing and harvesting of its timber. Nothing in this Section 4.4 shall be construed to (i) limit the Company's ability to sell or otherwise dispose of assets in accordance with Section 4.10, or (ii) prevent the Company from ceasing to operate any sawmill or other conversion facility if the Board of Control determines in good faith that such cessation is in the best interest of the Company. The Company shall engage in prudent management practices with respect to any acquisition of assets, including conducting any environmental investigation as is prudent under the circumstances. The Company shall deliver to each Holder a copy of any environmental report obtained by the Company in connection with any such acquisition. SECTION 4.5. NATURE OF BUSINESS. Neither the Company nor any Restricted Subsidiary will engage in any business if, as a result, the general nature of the business, taken on a consolidated basis, which would then be engaged in by the Company and its Restricted Subsidiaries would be substantially changed from the growing and harvesting of timber and manufacture and sale of lumber, plywood and wood products and related businesses engaged in by the Company and its Restricted Subsidiaries on the date of this Agreement and described in the Private Placement Memorandum and other businesses incidental or reasonably related thereto. Section 4.6. Limitations on Current Debt and Funded Debt. (a) The Company will not, and will not permit any Restricted Subsidiary to, create, assume, incur, guarantee or in any manner be or become liable in respect of any Current Debt or Funded Debt, except: (1) Funded Debt evidenced by the Notes; -23- (2) Funded Debt of the Company outstanding on the first Closing Date and described in Part II of Annex C to Exhibit B-1; (3) Current Debt and Funded Debt of the Company incurred under the Working Capital Facility, PROVIDED that the aggregate principal amount of such Current Debt and Funded Debt outstanding at any one time shall not exceed $40,000,000; (4) Additional Current Debt and Funded Debt of the Company and Funded Debt of a Restricted Subsidiary secured by Liens permitted by Section 4.20(g), PROVIDED that on the date that any such Current Debt or Funded Debt is incurred and after giving effect to the application of the proceeds thereof: (i) the ratio of Consolidated Cash Flow for the immediately preceding Four Quarter Period to Pro Forma Interest Expense for such period is greater than 2.5 to 1.0; and (ii) the ratio of Consolidated Cash Flow for the immediately preceding Four Quarter Period to Pro Forma Maximum Debt Service is greater than 1.25 to 1.0; (5) unsecured Subordinated Funded Debt of the Company to the Managing General Partner or any Affiliate of the Managing General Partner, PROVIDED that the aggregate principal amount of such Subordinated Funded Debt outstanding at any one time shall not exceed $10,000,000; and (6) Current Debt or Funded Debt of a Restricted Subsidiary to the Company or to a Wholly-owned Restricted Subsidiary. (b) The renewal, extension or refunding of any Current Debt or Funded Debt issued, incurred or outstanding pursuant to Section 4.6(a) shall constitute the issuance of additional Current Debt -24- or Funded Debt which is, in turn, subject to the limitations of the applicable provisions of this Section 4.6, PROVIDED that, except to the extent of any increase in the outstanding principal amount thereof, the commencement of a new interest period for any Current Debt or Funded Debt as to which interest is computed with reference to the London Interbank Offered Rate or any other base rate or the conversion of the base rate used for any such interest computation shall not be considered a renewal, extension, or refunding of such Current Debt or Funded Debt for purposes of this Section 4.6. (c) Any business entity which becomes a Restricted Subsidiary after the date hereof shall for all purposes of this Section 4.6 be deemed to have created, assumed or incurred at the time it becomes a Restricted Subsidiary all Current Debt and Funded Debt of such business entity existing immediately after it becomes a Restricted Subsidiary. SECTION 4.7. DISTRIBUTIONS. The Company will not make any Distribution if at the time of such Distribution and after giving effect thereto a Default or Event of Default shall have occurred and be continuing. In addition, the Company will not authorize or make any Distribution (i) on any date other than a Business Day, (ii) in Property other than cash, (iii) which is payable more than 60 days after the date of authorization or declaration, or (iv) in an amount which, together with all previous Distributions made by the Company for the quarterly fiscal period most recently ended prior to the date of such Distribution, exceeds the amount of Available Cash for such quarterly fiscal period. SECTION 4.8. INVESTMENTS. The Company will not, and will not permit any Restricted Subsidiary to, make any Investments in any Person, except: (a) Investments by the Company and its Restricted Subsidiaries in and to Restricted Subsidiaries, including any Investment in a business entity which, after giving effect to such Investment, becomes a Restricted Subsidiary; -25- (b) Investments in commercial paper maturing in 270 days or less from the date of issuance which, at the time of acquisition by the Company or any Restricted Subsidiary, is rated at least A-1 by Standard & Poor's Ratings Group, a division of McGraw-Hill, Inc., or P-1 by Moody's Investors Service, Inc. or, if such commercial paper is not rated by either Standard & Poor's Ratings Group, a division of McGraw-Hill, Inc., or Moody's Investors Service, Inc., the highest rating of another nationally recognized credit rating agency of similar standing approved in writing by the Holders holding at least 66-2/3% in aggregate principal amount of outstanding Notes; (c) Investments in direct obligations of the United States of America or any agency or instrumentality of the United States of America, the payment or guarantee of which constitutes a full faith and credit obligation of the United States of America, in either case, maturing in twelve months or less from the date of acquisition thereof; (d) Investments in certificates of deposit maturing within one year from the date of origin, issued by a bank or trust company organized under the laws of the United States or any state thereof, having capital, surplus and undivided profits aggregating at least $250,000,000 and having unsecured Funded Debt outstanding and rated at least AA by Standard & Poor's Ratings Group, a division of McGraw-Hill, Inc., or Aa by Moody's Investors Service, Inc. or, if such unsecured Funded Debt is not rated by either Standard & Poor's Ratings Group, a division of McGraw-Hill, Inc., or Moody's Investors Service, Inc., a comparable rating by another nationally recognized credit rating agency of similar standing approved in writing by the Holders holding at least 66-2/3% in aggregate principal amount of outstanding Notes; (e) receivables arising from the sale of goods and services in the ordinary course of business of the Company and its Restricted Subsidiaries, and prepayments, advances or deposits made by the Company or any Restricted Subsidiary -26- to any Person in the ordinary course of business in connection with contracts for timber harvesting or the acquisition of stumpage entered into in the ordinary course of business; (f) loans or advances in the usual and ordinary course of business to officers, directors and employees of the Managing General Partner or the Company for expenses (including moving expenses related to a transfer) incidental to carrying on the business of the Company or any Restricted Subsidiary; (g) Investments in bankers acceptances maturing within 180 days from the issuance thereof, accepted by a bank or trust company organized under the laws of the United States or any state thereof, having capital, surplus and undivided profits aggregating at least $500,000,000 and having unsecured Funded Debt outstanding and rated at least AA by Standard & Poor's Ratings Group, a division of McGraw-Hill, Inc., or Aa by Moody's Investors Service, Inc. or, if such unsecured Funded Debt is not rated by either Standard & Poor's Ratings Group, a division of McGraw-Hill, Inc., or Moody's Investors Service, Inc., a comparable rating by another nationally recognized credit rating agency of similar standing approved in writing by the Holders holding at least 66-2/3% in aggregate principal amount of outstanding Notes; (h) Investments by the Company and its Restricted Subsidiaries existing on the date of this Agreement and described in Schedule II hereto; (i) Investments in any Subsidiary or any other Person organized under the laws of the United States or Canada or any state or province thereof which conducts substantially all of its business and has substantially all of its assets within the United States or Canada and which is engaged in substantially the same business as the Company, PROVIDED that the aggregate amount of all such Investments made pursuant to this clause (i) shall not exceed $10,000,000 in -27- any twelve-month period ending on the date of such Investment or $52,900,000 from and after the first Closing Date (adjusting each such amount annually for the percentage increase or decrease from the prior calendar year in the Consumer Price Index); and (j) Guaranties issued in compliance with Section 4.14 constituting an obligation, warranty or indemnity of the Company, not guaranteeing Indebtedness of any Person, which is undertaken or made in the ordinary course of business. SECTION 4.9. MERGERS AND CONSOLIDATIONS. The Company will not, and will not permit any Restricted Subsidiary to, consolidate with, or be a party to a merger with, or sell, lease or otherwise dispose of all or substantially all of its assets to, any other Person; PROVIDED, HOWEVER, that: (1) any Restricted Subsidiary may merge or consolidate with or into, or sell, lease or otherwise dispose of all or substantially all of its assets to, the Company or any Wholly-owned Restricted Subsidiary so long as in any merger or consolidation involving the Company, the Company shall be the surviving or continuing entity; and (2) the Company may consolidate or merge with, or sell all or substantially all of its assets to, any business entity if: (i) the surviving or continuing entity or the entity to which all or substantially all of the Company's assets are sold (the "SURVIVING ENTITY") shall be either the Company or an entity organized under the laws of the United States or any state thereof which conducts substantially all of its business and has substantially all of its assets within the United States, and in the case of any such consolidation or merger in which the Company is not the Surviving Entity or in the case of any such sale, the Surviving Entity shall (x) expressly assume in writing the due and punctual payment of the principal of, -28- premium, if any, and the interest on all of the Notes outstanding according to their tenor and the due and punctual performance and observance of all of the covenants in the Notes and this Agreement to be performed or observed by the Company, and (y) furnish to the Holders an opinion of independent counsel to the effect that the instrument of assumption has been duly authorized, executed and delivered and constitutes the legal, valid and binding contract and agreement of the Surviving Entity enforceable in accordance with its terms, which counsel and opinion shall be satisfactory to Holders holding at least 66-2/3% in aggregate principal amount of the then outstanding Notes; (ii) at the time of such consolidation or merger or such sale and after giving effect thereto (a) no Default or Event of Default shall have occurred and be continuing and (b) the Consolidated Net Worth of the Surviving Entity shall not be less than the Consolidated Net Worth of the Company immediately prior to such consolidation or merger or such sale; and (iii) after giving effect to such consolidation or merger or such sale, the Surviving Entity would be permitted to incur at least $1.00 of additional Funded Debt under the provisions of Section 4.6(a)(4). SECTION 4.10. SALES OF ASSETS. (a) The Company will not, and will not permit any Restricted Subsidiary to sell, lease or otherwise dispose of all or any substantial part (as defined in paragraph (b) of this Section 4.10) of the assets of the Company and its Restricted Subsidiaries, except as permitted by Section 4.9; PROVIDED, HOWEVER, that: (1) any Restricted Subsidiary may sell, lease or otherwise dispose of any substantial part of its assets to the Company or any Wholly-owned Restricted Subsidiary; (2) the Company or any Restricted Subsidiary may sell Properties constituting a substantial part of the assets of -29- the Company and its Restricted Subsidiaries if (i) such sale shall be for an amount not less than the fair market value (as determined in good faith by the Board of Control) of such Properties; (ii) after giving effect to such sale, no Default or Event of Default shall have occurred and be continuing; (iii) the Net Proceeds of the sale of such Properties (to the extent that the Net Proceeds of such sale exceed the minimum amount required to define a substantial part pursuant to Section 4.10(b)) are either: (A) applied within the Application Period to pay Senior Funded Debt of the Company or any Restricted Subsidiary (other than Senior Funded Debt of a Restricted Subsidiary to the Company or another Restricted Subsidiary) selected by the Company, which in the case of the Notes shall be applied if and to the extent a prepayment pursuant to Section 5.1 is required to be made within such Application Period then in accordance with Section 5.1 and otherwise pursuant to Section 5.2; PROVIDED, HOWEVER, in the event that a Lien encumbering the Property that is the subject of the sale was given to secure Indebtedness incurred in connection with the acquisition thereof, the Net Proceeds of such sale may be applied first to the payment of such Indebtedness and any remaining Net Proceeds shall be applied as set forth above, or (B) deposited and held in a separate trust account with a bank or trust company satisfactory to the Holders holding at least a majority in aggregate principal amount of the outstanding Notes (which account may be invested in Investments of the type described in Section 4.8(b), (c), or (d)) and such Net Proceeds shall be either (x) applied within such Application Period to the acquisition of productive assets useful in the Company's business, or (y) committed, pursuant to a binding written contract entered into by the Company during such Application Period, to be applied to the acquisition of productive assets useful in the Company's business (in either -30- case, having a fair market value, determined in good faith by the Board of Control, but excluding in the case of any timberlands any value based on a higher or better use thereof) not less than the amount of such Net Proceeds so applied, PROVIDED that the acquisition contemplated by such binding contract shall be consummated substantially in accordance with the terms thereof within 90 days after the end of such Application Period, and PROVIDED, FURTHER, that the Net Proceeds of the sale of any Property shall be considered to have been applied to an acquisition of Property although the acquisition occurred prior to the sale of Property giving rise to such Net Proceeds so long as such acquisition and sale were a series of related transactions occurring within a 180-day period; and (iv) within ten Business Days after any sale pursuant to this clause (2), the Company shall have delivered to the Holders a certificate of the Board of Control certifying that such sale was for fair market value received by the Company and that after giving effect to such sale no Default or Event of Default has occurred and is continuing, and within ten Business Days after the earlier to occur of (a) the application pursuant to this clause (2) of the Net Proceeds of any sale or (b) the last day of any Application Period with respect to any sale, the Company shall have delivered to the Holders a certificate of the Board of Control certifying as to the application of the Net Proceeds of such sale and establishing compliance with the requirements of this clause (2); (3) the Company may sell timberlands in a like-kind exchange for a like interest in other timberlands having a fair market value (determined in good faith by the Board of Control, but excluding any value based on a higher and better use thereof) of at least the fair market value of the timberlands so sold, PROVIDED that 30 days prior to any like-kind exchange, the Company shall have delivered to the -31- Holders a description of such exchange in sufficient detail to establish compliance with the foregoing requirements; and (4) the Company may sell not more than 25,000 acres in the aggregate of timberlands owned by the Company designated in good faith by a Responsible Officer for a higher and better use, PROVIDED that ten Business Days after any such sale, the Company shall have delivered to the Holders a certificate of a Responsible Officer notifying the Holders of such sale and certifying as to the number of acres sold pursuant to this clause (4) and the amount of gross proceeds from such sale and establishing compliance herewith. (b) As used in this Section 4.10, a sale, lease or other disposition of assets (other than timber harvested and sold and inventory sold, in each case, in the ordinary course of business) shall be deemed to be a "SUBSTANTIAL PART" of the assets of the Company and its Restricted Subsidiaries if the book value of such assets, when added to the book value of all other assets sold, leased or otherwise disposed of by the Company and its Restricted Subsidiaries (other than pursuant to clauses (1) through (4) above) (x) during the 12-month period ending with the date of such sale, lease or other disposition, exceeds $10,000,000 or (y) since December 22, 1994, exceeds $52,900,000, PROVIDED that each such amount shall be adjusted annually from the first Closing Date for the percentage increase or decrease from the prior calendar year in the Consumer Price Index. Section 4.11. SALE OF EQUITY INTERESTS IN RESTRICTED SUBSIDIARIES. (a) The Company will not permit any Restricted Subsidiary to issue or sell any Equity Interest (including as "Equity Interest" for the purposes of this Section 4.11, any warrants, rights or options to purchase or otherwise acquire an Equity Interest or other Securities exchangeable for or convertible into an Equity Interest) of such Restricted Subsidiary to any Person other than the Company or a Wholly-owned Restricted Subsidiary, except for the purpose of qualifying directors, or except in satisfaction of the validly pre-existing preemptive rights of minority shareholders in connection with the simultaneous issuance of stock to the Company and/or a Restricted Subsidiary -32- whereby the Company and/or such Restricted Subsidiary maintain their same proportionate interest in such Restricted Subsidiary. (b) The Company will not sell, transfer or otherwise dispose of any Equity Interest in any Restricted Subsidiary (except to qualify directors) or any Indebtedness of any Restricted Subsidiary, and will not permit any Restricted Subsidiary to sell, transfer or otherwise dispose of (except to the Company or a Wholly-owned Restricted Subsidiary) any Equity Interest in or any Indebtedness of any other Restricted Subsidiary, unless: (1) simultaneously with such sale, transfer, or disposition, all the Equity Interests and all Indebtedness of such Restricted Subsidiary at the time owned by the Company and by every other Restricted Subsidiary shall be sold, transferred or disposed of as an entirety; (2) the Board of Control shall have determined, as evidenced by a resolution thereof, that the proposed sale, transfer or disposition of said Equity Interest and Indebtedness is in the best interests of the Company; (3) said Equity Interest and Indebtedness are sold, transferred or otherwise disposed of to a Person, for a cash consideration and on terms reasonably deemed by the Board of Control to be adequate and satisfactory; (4) the Restricted Subsidiary being disposed of shall not have any continuing Investment in the Company or any other Restricted Subsidiary not being simultaneously disposed of; and (5) such sale or other disposition is not prohibited by Section 4.10. SECTION 4.12. LIMITATION ON HARVESTING. The Company will not, and will not permit any Restricted Subsidiary to, harvest timber on its or such Restricted Subsidiary's timberlands in excess in the aggregate of the following limitations: -33- 150% of the Planned Volume during any fiscal year of the Company, 140% of the Planned Volume during any period of two consecutive fiscal years of the Company, 130% of the Planned Volume during any period of three consecutive fiscal years of the Company, and 120% of the Planned Volume during any period of four consecutive fiscal years of the Company; PROVIDED, HOWEVER, that the Company and its Restricted Subsidiaries may harvest timber from their timberlands exceeding the limitations set forth above (the "EXCESS HARVEST") if (i) after giving effect to such Excess Harvest, no Default or Event of Default shall have occurred and be continuing, (ii) the Net Proceeds of the sale of such Excess Harvest (based upon the average price received by the Company and its Restricted Subsidiaries for timber sold during such period) are either: (A) applied within the Application Period to pay Senior Funded Debt of the Company or any Restricted Subsidiary (other than Senior Funded Debt of a Restricted Subsidiary to the Company or another Restricted Subsidiary) selected by the Company, which in the case of the Notes shall be applied if and to the extent a prepayment pursuant to Section 5.1 is required to be made within such Application Period then in accordance with Section 5.1 and otherwise pursuant to Section 5.2, or (B) deposited and held in a separate trust account with the bank or trust company satisfactory to the Holders holding at least a majority in aggregate principal amount of the outstanding Notes (which account may be invested in Investments of the type described in Section 4.8(b), (c), or (d)) and such Net Proceeds shall be either (x) applied by the Company within the Application Period to the acquisition of timber or timberland or (y) committed, pursuant to a binding written contract entered into by the Company during such -34- Application Period, to be applied to the acquisition of timber or timberland (in either case, having a fair market value, determined in good faith by the Board of Control, but excluding any value based on a higher or better use thereof) not less than the amount of such Net Proceeds so applied, PROVIDED that the acquisition contemplated by such binding contract shall be consummated substantially in accordance with the terms thereof within 90 days after the end of such Application Period, and (iii) within ten Business Days after any Excess Harvest, the Company shall have delivered to the Holders a certificate of the Board of Control certifying that after giving effect to such Excess Harvest no Default or Event of Default has occurred and is continuing, and within ten Business Days after the earlier to occur of (a) the application of the Net Proceeds as set forth clause (ii) of this Section 4.12 or (b) the last day of any Application Period with respect to any Excess Harvest, the Company shall have delivered to the Holders a certificate of the Board of Control certifying as to the application of the Net Proceeds of such Excess Harvest and establishing compliance with the requirements of clause (ii) of this Section 4.12. SECTION 4.13. PAYMENT OF DIVIDENDS BY RESTRICTED SUBSIDIARIES. The Company will not and will not permit any Restricted Subsidiary to enter into any agreement which restricts the ability of any Restricted Subsidiary to declare any dividend or to make any distribution on any Equity Interest of such Restricted Subsidiary, PROVIDED that the limited partnership agreement of any Restricted Subsidiary which is a limited partnership may limit the amount of any distribution by such Restricted Subsidiary to the amount of available cash for such Restricted Subsidiary (calculated on the same basis as Available Cash hereunder) for the period in respect of which such distribution is being made. SECTION 4.14. GUARANTIES. The Company will not and will not permit any Restricted Subsidiary to become or be liable in respect of any Guaranty except (i) Guaranties by the Company which are limited in amount to a stated maximum dollar exposure, -35- (ii) Guaranties of obligations incurred by any Restricted Subsidiary in compliance with the provisions of this Agreement and (iii) bonds posted by the Company or a Restricted Subsidiary in the ordinary course of business in connection with timber harvest contracts, permits for road construction or work in respect of environmental remediation. SECTION 4.15. TRANSACTIONS WITH AFFILIATES. The Company will not, and will not permit any Restricted Subsidiary to, enter into or be a party to any transaction or arrangement with any Affiliate (including without limitation, the purchase from, sale to or exchange of Property with, or the rendering of any service by or for, any Affiliate), except in the ordinary course of, and pursuant to the reasonable requirements of, the Company's or such Restricted Subsidiary's business and upon fair and reasonable terms no less favorable to the Company or such Restricted Subsidiary than would be obtained in a comparable arm's-length transaction with a Person other than an Affiliate; PROVIDED, HOWEVER, the Company shall be entitled to reimburse the Managing General Partner for Specified Expenses. The Managing General Partner shall determine the Specified Expenses that are allocable to the Company in any reasonable manner determined by the Managing General Partner. SECTION 4.16. MULTIEMPLOYER PLAN LIABILITY AND TERMINATION OF PENSION PLANS. The Company will not and will not permit any ERISA Affiliate to withdraw from any Multiemployer Plan if such withdrawal would result in withdrawal liability (as described in Part 1 of Subtitle E of Title IV of ERISA) that could reasonably be expected to have a material adverse effect on the business, profits or financial condition of the Company and its Restricted Subsidiaries, taken as a whole. The Company will not and will not permit any ERISA Affiliate to permit any employee benefit plan maintained by it to be terminated in a manner which could result in the imposition of a Lien on any Property of the Company or any Subsidiary pursuant to Section 4068 of ERISA. SECTION 4.17. REPORTS AND RIGHTS OF INSPECTION. The Company will keep, and will cause each Subsidiary to keep, proper books of record and account in which full and correct entries will be -36- made of all dealings or transactions of or in relation to the business and affairs of the Company or such Subsidiary, in accordance with GAAP consistently applied (except for changes disclosed in the financial statements furnished to the Holders pursuant to this Section 4.17 and concurred in by the independent public accountants referred to in Section 4.17(b) hereof), and will furnish to each Holder of any Note (in duplicate if so specified below or otherwise requested), and in the case of the financial statements delivered pursuant to Section 4.17(b), to the Securities Valuation Office, National Association of Insurance Commissioners, 195 Broadway, Suite 1903, New York, New York 10007: (a) QUARTERLY STATEMENTS. As soon as available and in any event within 60 days after the end of each quarterly fiscal period (except the last) of each fiscal year, duplicate copies of: (1) consolidated balance sheets of the Company and its Restricted Subsidiaries as of the close of such quarter setting forth in comparative form the amount as of the close of the corresponding period of the preceding fiscal year and the amount as of the close of said preceding fiscal year, and (2) consolidated statements of income and cash flows of the Company and its Restricted Subsidiaries for such quarterly period and the year to date period setting forth in comparative form the amount for the corresponding periods of the preceding fiscal year, all in reasonable detail and certified as complete and correct, by an authorized financial officer of the Company; (b) ANNUAL STATEMENTS. As soon as available and in any event within 120 days after the close of each fiscal year of the Company, duplicate copies of: (1) consolidated balance sheets of the Company and its Restricted Subsidiaries as of the close of such fiscal year, and -37- (2) consolidated statements of income and cash flows of the Company and its Restricted Subsidiaries for such fiscal year, in each case setting forth in comparative form the consolidated figures for the preceding fiscal year, all in reasonable detail and accompanied by an opinion thereon of a firm of independent public accountants of recognized national standing selected by the Company to the effect that the consolidated financial statements have been prepared in accordance with GAAP consistently applied (except for changes in application in which such accountants concur) and present fairly the financial condition and results of operations of the Company and its Restricted Subsidiaries and that the examination of such accountants in connection with such financial statements has been made in accordance with generally accepted auditing standards and accordingly, includes such tests of the accounting records and such other auditing procedures as were considered necessary in connection therewith; (c) SEC AND OTHER REPORTS. Promptly upon their becoming available, one copy of each financial statement, report, notice or proxy statement sent by the Company to all holders of Equity Interests in the Company generally and of each regular or periodic report, and any registration statement or prospectus filed by the Company, any Subsidiary or the Partnership with any securities exchange or the Securities and Exchange Commission or any successor agency, and copies of any orders in any proceedings to which the Company or any of its Subsidiaries is a party, issued by any governmental agency, Federal or state, having jurisdiction over the Company or any of its Subsidiaries, other than reports or licenses granted by any such governmental agency with respect to the timber; (d) REQUESTED INFORMATION. With reasonable promptness, such other data and information as any Holder may reasonably request including, without limitation, any information required to be provided to such Holder or a -38- prospective purchaser of the Notes by Rule 144A(d)(4) under the Securities Act; (e) OFFICER'S CERTIFICATES. Within the periods provided in paragraphs (a) and (b) above, a certificate signed by the chief financial officer of the Company stating that such officer has reviewed the provisions of this Agreement and setting forth: (i) the information and computations (in sufficient detail) required in order to establish whether the Company was in compliance with the requirements of Section 4.6 through Section 4.12, inclusive, and Section 4.20 at the end of the period covered by the financial statements then being furnished (including with respect to Section 4.10(a)(2) and Section 4.12, a certification as to the application of any Net Proceeds during such period and the amount of Net Proceeds remaining to be applied in accordance with each such Section as of such date) and (ii) whether there existed as of the date of such financial statements and whether, to the best of his knowledge, there exists on the date of the certificate or existed at any time during the period covered by such financial statements any Default or Event of Default and, if any such condition or event exists on the date of the certificate, specifying the nature and period of existence thereof and the action the Company is taking and proposes to take with respect thereto; (f) ACCOUNTANT'S CERTIFICATES. Within the period provided in paragraph (b) above, a letter, addressed to the Holders, of the accountants who render an opinion with respect to such financial statements, stating that they have reviewed this Agreement and stating further that nothing came to their attention that caused them to believe that the Company was not in compliance with any of the provisions of Section 4.6 through Section 4.12, both inclusive, or Section 4.20 insofar as said provisions relate to accounting matters, and if any non-compliance has come to their attention specifying the nature and period of existence thereof, PROVIDED that such accountants may state that their audit was not directed primarily toward obtaining knowledge of any noncompliance by -39- the Company with any of the terms or provisions of this Agreement; (g) ERISA REPORTING. Prompt written notice, and in any event within five Business Days upon learning of its occurrence, of the following and the action the Company has taken, is taking or proposes to take with respect thereto and, when known, any action taken or threatened by the Internal Revenue Service, Department of Labor or the Pension Benefit Guaranty Corporation ("PBGC") with respect thereto: (i) a Reportable Event with respect to any employee benefit plan; (ii) the institution of any steps by the Company, any ERISA Affiliate, the PBGC or any other Person to terminate any employee benefit plan pursuant to Sections 4041(c) or 4042 of ERISA; (iii) the institution of any steps by the Company or any ERISA Affiliate to withdraw from any Multiemployer Plan, within the meaning of ERISA which would result in a material adverse effect on the business, profits or financial condition of the Company and its Restricted Subsidiaries taken as a whole; (iv) a "prohibited transaction" within the meaning of Section 406 of ERISA in connection with any employee benefit plan which would result in a material adverse effect on the business, profits or financial condition of the Company and its Restricted Subsidiaries, taken as a whole; or (v) any increase in the liability of the Company or any Subsidiary with respect to any post-retirement welfare benefits which would result in a material adverse effect on the business, profits or financial condition of the Company and its Restricted Subsidiaries, taken as a whole; and (h) NOTICE OF LITIGATION. Prompt written notice, and in any event within five Business Days after the Company first obtains knowledge thereof, with respect to the institution of any suit or proceeding against the Company or any Restricted Subsidiary which if determined adversely could, individually or in the aggregate with other suits and proceedings, reasonably be expected to have a material adverse effect on the business, profits, Properties or -40- financial condition of the Company or any Restricted Subsidiary. Without limiting the foregoing, the Company will permit each Holder (or such Persons as such Holder may designate) to visit and inspect any of the Properties of the Managing General Partner, the Company or any Subsidiary, to examine all their books of account, records, reports and other papers, to make copies and extracts therefrom, and to discuss their respective affairs, finances and accounts with their respective officers, employees, and independent public accountants (and by this provision the Company authorizes said accountants to discuss with such Holder or Person so designated the finances and affairs of the Company and its Subsidiaries with or without an officer or employee of the Company or any of its Subsidiaries being present) all at such reasonable times and as often as may be reasonably requested; PROVIDED that unless a Default or Event of Default shall have occurred and shall be continuing, such Holders shall give the Company at least 10 days' prior written notice of any such visit. The Company shall not be required to pay or reimburse any Holder for expenses which it may incur in connection with any such visitation or inspection except in the case of any such visitation or inspection which shall occur while a Default or Event of Default shall have occurred and shall be continuing. SECTION 4.18. CHANGES IN STATUS OF SUBSIDIARIES. So long as no Default or Event of Default shall have occurred and be continuing, the Board of Control may at any time and from time to time, upon not less than 30 days' prior written notice given to each Holder, designate a previously Unrestricted Subsidiary as a Restricted Subsidiary, PROVIDED that immediately after such designation and after giving effect thereto (i) no Default or Event of Default shall have occurred and be continuing and (ii) the Company could incur at least $1.00 of additional Funded Debt under the provisions of Section 4.6(a)(4). Any notice of designation pursuant to this Section 4.18 shall be accompanied by a certificate signed by the chief financial officer of the Company stating that the provisions of this Section 4.18 -41- have been complied with in connection with such designation and setting forth the name of each other Subsidiary (if any) which has or will become a Restricted Subsidiary, as the case may be, as a result of such designation. SECTION 4.19. REPURCHASE OF NOTES. Neither the Company nor any Restricted Subsidiary, directly or indirectly or through any Affiliate, may repurchase or make any offer to repurchase any Notes unless an offer has been made to repurchase Notes, PRO RATA, from all Holders at the same time and upon the same terms (without regard to the different maturities but taking into account the interest rates applicable to each series of Notes). In case the Company repurchases or otherwise acquires any Notes, such Notes shall immediately thereafter be cancelled and no Notes shall be issued in substitution therefor. Without limiting the foregoing, upon the repurchase or other acquisition of any Notes by the Company, any Restricted Subsidiary or any Affiliate, such Notes shall no longer be outstanding for purposes of any section of this Agreement relating to the taking by the Holders of any actions with respect hereto, including, without limitation, SECTIONS 6.3, 6.4 and 7.1. SECTION 4.20. LIENS. The Company will not, and will not permit any Restricted Subsidiary to, create or incur, or suffer to be incurred or to exist, any Lien on its or their Property, whether now owned or hereafter acquired, or upon any income or profits therefrom, or transfer any Property for the purpose of subjecting the same to the payment of obligations in priority to the payment of its or their general creditors, or acquire or agree to acquire, or permit any Restricted Subsidiary to acquire, any Property upon conditional sales agreements or other title retention devices, except: (a) Liens for property taxes and assessments or governmental charges or levies and Liens securing claims or demands of carriers, loggers, mechanics and materialmen incurred in the ordinary course of business, PROVIDED that payment thereof is not at the time required by SECTION 4.3(a); -42- (b) Liens of or resulting from any judgment or award, the time for the appeal or petition for rehearing of which shall not have expired, or in respect of which the Company or a Restricted Subsidiary shall at any time in good faith be prosecuting an appeal or proceeding for a review, and in respect of which a stay of execution pending such appeal or proceeding for review shall have been secured; (c) Liens incidental to the conduct of business or the ownership of Properties (including Liens in connection with worker's compensation, unemployment insurance and other like laws, warehousemen's and attorneys' liens and statutory landlords' liens) and Liens to secure the performance of bids, tenders or trade contracts, or to secure statutory obligations, surety or appeal bonds or other Liens of like general nature incurred in the ordinary course of business and not in connection with the borrowing of money; PROVIDED in each case, the obligation secured is not overdue or, if overdue, is being contested in good faith by appropriate actions or proceedings which will prevent the forfeiture or sale of any Property of the Company or such Restricted Subsidiary or any material interference with the use thereof by the Company or such Restricted Subsidiary; (d) minor survey exceptions or minor encumbrances, easements or reservations, rights of others for rights-of-way, utilities and other similar purposes, zoning or other restrictions as to the use of real properties, and leases and subleases thereof, in each case, which (i) are necessary or appropriate for the conduct of the activities of the Company and its Restricted Subsidiaries or customarily exist on Properties of business entities engaged in similar activities and similarly situated and (ii) do not in any event materially impair the use of such real property in the operation of the business of the Company and its Restricted Subsidiaries; (e) Liens securing Indebtedness of a Restricted Subsidiary to the Company or to a Wholly-owned Restricted Subsidiary; -43- (f) Liens on inventory and receivables securing Indebtedness incurred pursuant to the Working Capital Facility, PROVIDED that the aggregate outstanding principal amount so secured shall not exceed $40,000,000 at any time; (g) Liens incurred in connection with the acquisition of any fixed asset useful and intended to be used in carrying on the business of the Company or a Restricted Subsidiary, including Liens existing on such fixed asset at the time of acquisition by the Company or a Restricted Subsidiary of any business entity then owning such fixed asset, whether or not such existing Liens were given to secure the payment of the purchase price of the fixed asset to which they attach so long as they were not incurred, extended or renewed in contemplation of such acquisition, PROVIDED in any case that (i) the Lien shall attach solely to the fixed asset acquired or purchased, (ii) at the time of acquisition of such fixed asset, the amount remaining unpaid on all Indebtedness secured by Liens on such fixed asset whether or not assumed by the Company or a Restricted Subsidiary shall not exceed an amount equal to 85% (or 100% in the case of Capitalized Leases) of the total purchase price of such fixed asset, and the aggregate amount remaining unpaid on all Indebtedness secured by Liens on fixed assets acquired or purchased subsequent to the first Closing Date (including such fixed asset) shall not exceed the following amounts: On or before November 30, 1999 $25,000,000 December 1, 1999 to November 30, $50,000,000 2004 December 1, 2004 and thereafter $100,000,000, (iii) all such Indebtedness shall have been incurred within the applicable limitations provided in SECTION 4.6, and (iv) after giving effect to such acquisition no Default or Event of Default shall have occurred and be continuing; and -44- (h) Liens existing on the first Closing Date and described in Part II of Annex C to Exhibit B-1. In the event that any Property of the Company or its Restricted Subsidiaries is subjected to a Lien in violation of this Section 4.20 (an "EXCESS LIEN"), (1) the Company or such Restricted Subsidiary shall make or cause to be made provision whereby the obligations of the Company under the Notes and this Agreement will be secured equally and ratably with all other obligations secured by such Excess Lien pursuant to security arrangements reasonably satisfactory in form, scope and substance to the Holders holding not less than 66-2/3% in aggregate principal amount of the outstanding Notes and (2) the Company or such Restricted Subsidiary shall deliver an opinion of counsel satisfactory to the Holders holding not less than 66-2/3% in aggregate principal amount of the outstanding Notes regarding the validity of such security interest and to the effect that the Notes are secured equally and ratably with such other obligations; PROVIDED, HOWEVER, that satisfaction of the conditions set forth in clauses (1) and (2) above does not remedy the Event of Default resulting from such Excess Lien. In the case of any Excess Lien, said obligations of the Company under the Notes and this Agreement shall have the benefit, to the full extent that the Holders may be entitled thereto under applicable law, of an equitable lien on such Property subject to the Excess Lien. SECTION 4.21. RATINGS. Upon receipt of a request from any Holder, the Company will, and will cause its Subsidiaries to, provide such information as shall be reasonably requested for the purpose of maintaining any rating applicable to the Notes, whether by a governmental authority or private association; and, if requested, the Company shall make a presentation relevant to the maintenance of any such rating to such authority or association, PROVIDED that the Company shall not be obligated to maintain any specific rating with respect to the Notes with any such authority or association. SECTION 5. PREPAYMENT OF NOTES. -45- SECTION 5.1. REQUIRED PREPAYMENTS. The Company agrees that it will prepay and apply and there shall become due and payable on the principal indebtedness evidenced by the Series B Notes on each of the following dates an amount equal to the lesser of (i) the amount set forth opposite such date or (ii) the principal amount of the Series B Notes then outstanding: February 1, 2010 $ 8,250,000 February 1, 2011 $ 8,250,000 February 1, 2012 $19,250,000 The entire remaining principal amount of the Series B Notes shall become due and payable on February 1, 2013. No premium shall be payable in connection with a required prepayment made pursuant to this Section 5.1. For purposes of this Section 5.1, any prepayment of less than all of the outstanding Series B Notes pursuant to Section 5.2 shall reduce the principal amount of the Series B Notes required to be prepaid on February 1 in each subsequent year to and including the stated maturity of the Series B Notes in the same proportion as the aggregate principal amount of the Series B Notes outstanding immediately prior to such prepayment has been reduced by such prepayment. SECTION 5.2. OPTIONAL PREPAYMENT WITH PREMIUM. In addition to the payments required by Section 5.1, upon compliance with Section 5.3 the Company shall have the privilege, at any time and from time to time, of prepaying the outstanding Notes of all series, either in whole or in part (but if in part then in an aggregate minimum principal amount of $1,000,000 or such lesser amount as permitted in connection with a sale of assets under Section 4.10 or an excess harvest under Section 4.12) by payment of the outstanding principal amount of the Notes or portion thereof to be prepaid, and accrued interest thereon to the date of such prepayment, together with a premium equal to the Make-Whole Amount, determined as of three Business Days prior to the date of such prepayment pursuant to this Section 5.2. SECTION 5.3. NOTICE OF OPTIONAL PREPAYMENTS. The Company will give notice of any prepayment of the Notes pursuant to Section 5.2 -46- to each Holder thereof not less than 10 days nor more than 30 days before the date fixed for such optional prepayment specifying (i) such date (which shall be a Business Day), (ii) the outstanding principal amount of the Holder's Notes to be prepaid on such date, (iii) that a premium may be payable, (iv) the date when such premium will be calculated, (v) the estimated premium, and (vi) the accrued interest applicable to the prepayment. Such notice of prepayment shall also certify all facts, if any, which are conditions precedent to any such prepayment. Notice of prepayment having been so given, the aggregate principal amount of the Notes to be prepaid specified in such notice, together with accrued interest thereon and the premium, if any, payable with respect thereto shall become due and payable on the prepayment date specified in said notice. Not later than two Business Days prior to the prepayment date specified in such notice, the Company shall provide written notice by facsimile communication followed by delivery on the next succeeding Business Day by overnight air courier to each Holder of Notes to be prepaid of the amount of premium, if any, payable in connection with such prepayment and, whether or not any premium is payable, a reasonably detailed computation of the Make-Whole Amount. In the event the Company shall incorrectly compute the Make-Whole Amount payable in connection with any Note to be prepaid pursuant to Section 5.2, or declared to be immediately due and payable pursuant to Section 6.3, the Holder shall not be bound by such incorrect computation, but instead shall be entitled to receive an amount equal to the correct Make-Whole Amount, if any, computed in compliance with the terms of this Agreement. SECTION 5.4. APPLICATION OF PREPAYMENTS. All partial prepayments of the Notes of a series pursuant to Section 5.1 shall be applied on all outstanding Notes of such series ratably in accordance with the unpaid principal amounts thereof. All partial prepayments of the Notes pursuant to Section 5.2 shall be applied on all outstanding Notes ratably in accordance with the unpaid principal amounts thereof. SECTION 5.5. DIRECT PAYMENT. Notwithstanding anything to the contrary contained in this Agreement or the Notes, in the case of any note owned by a Purchaser or any Purchaser's nominee or owned -47- by any subsequent Holder which has given written notice to the Company requesting that the provisions of this Section 5.5 shall apply, the Company will punctually pay when due the principal thereof, interest thereon and premium, if any, due with respect to said principal, without any presentment thereof, directly to such Purchaser, to its nominee or to such subsequent Holder at its address or such nominee's address set forth herein or such other address as such Purchaser, its nominee or such subsequent Holder may from time to time designate in writing to the Company or, if a bank account with a United States bank is so designated for such Holder, the Company will make such payments in immediately available funds to such bank account no later than 10:00 A.M. Portland, Oregon time on the date due, marked for attention as indicated, or in such other manner or to such other account in any United States bank as such Purchaser, its nominee or any such subsequent Holder may from time to time direct in writing. Such payments will be made without notations being made on such Note, except that (a) any such Note so paid or prepaid in full (including the payment of all interest accrued to the date of such payment or prepayment and premium, if any) shall be surrendered to the Company within a reasonable time after such payment or prepayment in full, and (b) before any sale or other transfer by any Holder of any Note in respect of which any principal payments have been made in the manner provided in this Agreement, such Holder will make appropriate notation of such payments on such Note. SECTION 6. EVENTS OF DEFAULT AND REMEDIES THEREFOR. SECTION 6.1. EVENTS OF DEFAULT. Any one or more of the following shall constitute an "EVENT OF DEFAULT" as such term is used herein: (a) Default shall occur in the payment of interest on any Note when the same shall have become due and such default shall continue for more than five Business Days; or (b) Default shall occur in the making of any required prepayment on any of the Notes as provided in Section 5.1; or -48- (c) Default shall occur in the making of any other payment of the principal of any Note or premium, if any, thereon at the expressed or any accelerated maturity date or at any date fixed for prepayment; or (d) Default continuing beyond the period of grace, if any, allowed with respect thereto shall be made in the payment when due (whether by lapse of time, by declaration, by call for redemption or otherwise) of the principal of or interest on any Funded Debt (other than the Notes) or Current Debt of the Company or any Restricted Subsidiary, and, individually or in the aggregate, the principal amount of such Funded Debt and Current Debt shall be in excess of $5,000,000; or (e) Default or the happening of any event shall occur under any indenture, agreement or other instrument under which any Funded Debt or Current Debt of the Company or any Restricted Subsidiary may be or has been issued and, individually or in the aggregate, the aggregate principal amount of such Funded Debt and Current Debt which has been issued or may be issued thereunder shall be in excess of $5,000,000, and such default or event shall continue for a period of time sufficient to permit the acceleration of the maturity of such Funded Debt or Current Debt; or (f) Default shall occur in the observance or performance of any covenant or agreement contained in Section 4.6 through Section 4.12, both inclusive; or (g) Default shall occur in the observance or performance of the covenant contained in Section 4.20 which is not remedied within ten days after the earlier of (i) the day on which the Company first obtains knowledge of such default, or (ii) the day on which written notice thereof is given to the Company by any Holder; or (h) Default shall occur in the observance or performance of any other provision of this Agreement which is not remedied within 30 days after the earlier of (i) the -49- day on which the Company first obtains knowledge of such default, or (ii) the day on which written notice thereof is given to the Company by any Holder; or (i) Any representation or warranty made by the Company or the Managing General Partner herein, or by the Company or the Managing General Partner in any statement or certificate furnished by the Company or the Managing General Partner in connection with the consummation of the issuance and delivery of the Notes or furnished by the Company or the Managing General Partner pursuant hereto, is untrue in any material respect as of the date of the issuance or making thereof; or (j) Final judgment or judgments for the payment of money aggregating in excess of $5,000,000 is or are outstanding against the Company or any Restricted Subsidiary or against any Property of either and such judgment or judgments have remained unpaid, unvacated, unbonded or unstayed by appeal or otherwise for a period of 60 consecutive days from the date of its entry; or (k) The Company, or any Person on behalf of the Company, shall contest or deny the validity or enforceability of this Agreement or the Notes or its obligations hereunder and thereunder; or (l) An order or decree requiring a split-up or divestiture of the Company is outstanding against the Company and such order or decree remains unstayed and in effect for more than 30 consecutive days; or (m) A custodian, liquidator, trustee, receiver or similar official is appointed for the Company or any Restricted Subsidiary or for the major part of the Property of either and is not discharged within 60 days after such appointment; or (n) The Company, any Restricted Subsidiary or the Managing General Partner becomes insolvent or bankrupt, is -50- generally not paying its debts as they become due or makes an assignment for the benefit of creditors, or the Company or any Restricted Subsidiary or the Managing General Partner applies for or consents to the appointment of a custodian, liquidator, trustee, receiver or similar official for the Company, such Restricted Subsidiary or the Managing General Partner or for the major part of the Property of any of them; or (o) Bankruptcy, reorganization, arrangement or insolvency proceedings, or other proceedings for relief under any bankruptcy or similar law or laws for the relief of debtors, are instituted by or against the Company, any Restricted Subsidiary or the Managing General Partner and, if instituted against the Company, any Restricted Subsidiary or the Managing General Partner, are consented to or are not dismissed within 60 days after such institution. SECTION 6.2. NOTICE TO HOLDERS. When any Default or Event of Default described in the foregoing Section 6.1 has occurred, or if the holder of any Note or of any other evidence of Indebtedness of the Company or any Restricted Subsidiary gives any notice or takes any other action with respect to a claimed default, the Company agrees to give notice within three Business Days of such event to all Holders. SECTION 6.3. ACCELERATION OF MATURITIES. When any Event of Default described in paragraph (a), (b) or (c) of Section 6.1 has happened and is continuing, any Holder may, by notice to the Company, declare the entire principal, premium, if any, and all interest accrued on the Note or Notes held by such Holder to be, and such Note or Notes shall thereupon become forthwith due and payable, without any presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived. When any Event of Default described in paragraphs (a) through (l), inclusive, of Section 6.1 has happened and is continuing, the Holders holding not less than 50% of the principal amount of the outstanding Notes may, by notice to the Company, declare the entire principal, premium, if any, and all interest accrued on all Notes to be, and all Notes shall thereupon become, forthwith -51- due and payable, without any presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived. When any Event of Default described in paragraph (m), (n) or (o) of Section 6.1 has occurred, then all outstanding Notes shall immediately become due and payable without presentment, demand or notice of any kind, all of which are hereby expressly waived. Upon any Notes becoming due and payable as a result of any Event of Default as aforesaid, the Company will forthwith pay to the Holders of such Notes the entire principal and interest accrued on the Notes so accelerated and, in the case of an Event of Default specified in paragraphs (a) through (l), inclusive of Section 6.1, to the extent not prohibited by applicable law, the Company will pay an amount as liquidated damages for the loss of the bargain evidenced hereby (and not as a penalty) equal to the Make-Whole Amount, determined as of the date on which such Notes shall so become due and payable. No course of dealing on the part of the Holders nor any delay or failure on the part of any Holder to exercise any right shall operate as a waiver of such right or otherwise prejudice such Holder's rights, powers and remedies. The Company further agrees, to the extent permitted by law, to pay to the Holders all costs and expenses incurred by them in the collection of any Notes upon any default hereunder or thereon, including reasonable compensation to such Holders' attorneys and financial advisors for all services rendered in connection therewith. SECTION 6.4. RESCISSION OF ACCELERATION. The provisions of Section 6.3 are subject to the condition that if the principal of, premium, if any, and accrued interest on all or any outstanding Notes have been declared immediately due and payable by reason of the occurrence of any Event of Default described in paragraphs (a) through (l), inclusive, of Section 6.1, the Holders holding 66-2/3% in aggregate principal amount of the Notes then outstanding may, by written instrument filed with the Company, rescind and annul such declaration and the consequences thereof, PROVIDED that at the time such declaration is annulled and rescinded: -52- (a) no judgment or decree has been entered for the payment of any monies due pursuant to the Notes or this Agreement; (b) all arrears of interest upon all the Notes and all other sums payable under the Notes and under this Agreement (except any principal, interest or premium on the Notes which has become due and payable solely by reason of such declaration under Section 6.3) shall have been duly paid; and (c) each and every other Default and Event of Default shall have been made good, cured or waived pursuant to Section 7.1; and PROVIDED FURTHER, that no such rescission and annulment shall extend to or affect any subsequent Default or Event of Default or impair any right consequent thereto. SECTION 7. AMENDMENTS, WAIVERS AND CONSENTS. SECTION 7.1. CONSENT REQUIRED. Any term, covenant, agreement or condition of this Agreement may, with the consent of the Company, be amended or compliance therewith may be waived (either generally or in a particular instance and either retroactively or prospectively) if the Company shall have obtained the consent in writing of the Holders holding at least 55% in aggregate principal amount of outstanding Notes, PROVIDED that without the written consent of the Holders holding all of the Notes then outstanding, no such amendment or waiver shall be effective (i) which will change the time of payment (including any prepayment required by Section 5.1) of the principal of or the interest on any Note or change the principal amount thereof or change the rate of interest thereon, (ii) which will change any of the provisions with respect to optional prepayments, (iii) which will change the percentage of Holders required to consent to any such amendment or waiver of any of the provisions of Section 6 or this Section 7 or (iv) which will change any provision of Section 4.19 or Section 7.2. SECTION 7.2. SOLICITATION OF HOLDERS. So long as there are any Notes outstanding, the Company will not solicit, request or negotiate for or with respect to any proposed waiver or amendment -53- of any of the provisions of this Agreement or the Notes unless each Holder (irrespective of the amount of Notes then owned by it) shall be informed thereof by the Company and shall be afforded the opportunity of considering the same and shall be supplied by the Company with sufficient information to enable it to make an informed decision with respect thereto. The Company will not, directly or indirectly, pay or cause to be paid any remuneration, whether by way of supplemental or additional interest, fee or otherwise, to any Holder as consideration for or as an inducement to entering into by any Holder of any waiver or amendment of any of the terms and provisions of this Agreement or the Notes unless such remuneration is concurrently paid, on the same terms, ratably to the Holders. SECTION 7.3. EFFECT OF AMENDMENT OR WAIVER. Any such amendment or waiver shall apply equally to all of the Holders and shall be binding upon them, upon each future Holder and upon the Company, whether or not such Note shall have been marked to indicate such amendment or waiver. No such amendment or waiver shall extend to or affect any obligation not expressly amended or waived or impair any right consequent thereon. SECTION 8. INTERPRETATION OF AGREEMENT; DEFINITIONS. SECTION 8.1. DEFINITIONS. Unless the context shall otherwise require, the terms hereinafter set forth when used herein shall have the following meanings and the following definitions shall be equally applicable to both the singular and plural forms of any of the terms herein defined: "ACQUISITION" means any transaction in which the Company or any Restricted Subsidiary acquires (through an asset acquisition, merger, stock acquisition or other form of investment) control over all or a portion of the Properties or business of another Person for the purpose of increasing the operating capacity of the Company and its Restricted Subsidiaries, taken as a whole, from the operating capacity of the Company and its Restricted Subsidiaries, taken as a whole, existing immediately prior to such transaction. -54- "ACQUISITION CREDIT AGREEMENT" AND "ACQUISITION FACILITY" are defined in Section 3.9. "AFFILIATE" shall mean any Person (other than a Wholly-owned Restricted Subsidiary) (i) which directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, the Company, (ii) which beneficially owns or holds 5% or more of the Voting Equity Interest of the Company or (iii) 5% or more of the Voting Equity Interest of which is beneficially owned or held by the Company or a Subsidiary. The term "CONTROL" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of Voting Equity Interest, by contract or otherwise. "APPLICATION PERIOD" shall mean, with respect to any sale of assets pursuant to Section 4.10(a)(2), the 180-day period following the date of such sale; and, with respect to any sale of harvested timber subject to Section 4.12, the 180-day period following the last day of the fiscal year of the Company in which such Excess Harvest occurred. "AVAILABLE CASH" shall mean, with respect to any fiscal quarter of the Company and without duplication, (a) the sum of: (i) all cash receipts of the Company during such quarter from all sources, (ii) any reduction with respect to such quarter in a cash reserve previously established pursuant to clause (b)(ii) below (either by reversal or utilization) from the level of such reserve at the end of the prior quarter, and (iii) any utilization with respect to such quarter of the Working Capital Reserve; LESS -55- (b) the sum of: (i) all cash disbursements of the Company during such quarter; and (ii) any cash reserves established with respect to such quarter, and any increase with respect to such quarter in a cash reserve established pursuant to this clause (b)(ii) from the level of such reserve at the end of the prior quarter, in such amounts as the Managing General Partner determines in its reasonable discretion to be necessary or appropriate (A) to provide for the proper conduct of the business of the Company, (B) to comply with the provisions of the Partnership Agreement, (C) to provide funds for distributions to Partners in respect of any one or more of the next four quarters or (D) because the distribution of such amounts would be prohibited by applicable law or by any loan agreement, security agreement, mortgage, debt instrument or other agreement or obligation to which the Company is a party or by which any of its assets are subject, PROVIDED that Available Cash shall reflect (x) in each fiscal quarter a reserve equal to at least 50% of the aggregate amount of all interest to be paid in respect of the Notes, the 1994 Notes, the 1995 Notes and the 1996 Notes on the next interest payment date, and (y) in the third fiscal quarter immediately preceding each fiscal quarter in which any scheduled principal payment is due with respect to the Notes, the 1994 Notes, the 1995 Notes and/or the 1996 Notes (a "PRINCIPAL PAYMENT QUARTER"), a reserve equal to at least 25% of the aggregate amount of all principal to be paid in respect of such Notes, 1994 Notes, 1995 Notes and 1996 Notes in such principal payment quarter; in the second calendar quarter immediately preceding a principal payment quarter, a reserve equal to at least 50% of the aggregate amount of all principal to be paid in respect of such Notes, 1994 Notes, 1995 Notes and 1996 Notes in such principal payment quarter; and in the calendar -56- quarter immediately preceding a principal payment quarter, a reserve equal to at least 75% of the aggregate amount of all principal to be paid in respect of such Notes, 1994 Notes, 1995 Notes and 1996 Notes in such principal payment quarter. So long as the Company is not a taxpaying entity, taxes paid by the Company on behalf of, or amounts withheld with respect to, all or less than all of the Partners shall not be considered cash disbursements of the Company that reduce Available Cash, but the payment or withholding thereof shall be deemed to be a distribution of Available Cash to such Partners. Alternatively, in the discretion of the Managing General Partner, so long as the Company is not a taxpaying entity, such taxes (if pertaining to all Partners) may be considered to be cash disbursements of the Company which reduce Available Cash, but the payment or withholding thereof shall not be deemed to be a distribution of Available Cash to such Partners. "BOARD OF CONTROL" shall mean the Board of Control of the Managing General Partner. "BUSINESS DAY" shall mean any day other than a Saturday, Sunday or a day on which banks in the States of New York, California or Oregon are authorized or permitted to be closed in the observance of a legal holiday. "CAPITAL ADDITIONS AND IMPROVEMENTS" means (i) additions or improvements to the capital assets owned by the Company or any Restricted Subsidiary or (ii) the acquisition of existing or the construction of new capital assets (including, without limitation, timberlands and timber processing and manufacturing facilities and related assets) made to increase the operating capacity of the Company and its Restricted Subsidiaries, taken as a whole, from the operating capacity of the Company and its Restricted Subsidiaries, taken as a whole, existing immediately prior to such addition, improvement, acquisition or construction. -57- "CAPITALIZED LEASE" shall mean any lease the obligation for Rentals with respect to which is required to be capitalized on a balance sheet of the lessee in accordance with GAAP. "CAPITALIZED RENTALS" of any Person shall mean as of the date of any determination the amount at which the aggregate Rentals due and to become due under all Capitalized Leases under which such Person is a lessee would be reflected as a liability on a consolidated balance sheet of such Person in accordance with GAAP. "CERCLA" shall mean the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C. Sections 9601 ET SEQ., and any future amendments. "CLOSING DATE" is defined in Section 1.2. "COMPANY" is defined in the introductory paragraph of this Agreement. "CONSOLIDATED CASH FLOW" for any period shall mean Operations Cash for such period adjusted to include (a) in the case of any acquisition of timber or timberland by the Company or a Restricted Subsidiary during such period, an amount equal to the projected cash flow of the timber or timberland so acquired, based on the harvest plan for the first harvest year, PROVIDED that such harvest plan shall not include more than 8-1/3% of the total volume of merchantable timber so acquired, and PROVIDED, FURTHER, that in determining projected cash flow from acquired timber or timberlands, prices shall be assumed to equal the average price realized by the Company for comparable timber sold during such period, and (b) in the case of any acquisition of any other productive asset by the Company or a Restricted Subsidiary during such period, an amount equal to 80% of the average annual cash flow of the productive asset so acquired for the preceding two years, which amount will be increased if and to the extent a Responsible Officer of the Company shall certify in writing to the Holders (x) specified cost savings that can be effected by the Company in the operation of such productive asset or (y) the -58- net additional resources to be allocated to increase productivity of such asset, PLUS (to the extent deducted in determining Operations Cash) (i) all cash debt service payments of the Company and its Restricted Subsidiaries during such period, (ii) all cash capital expenditures (except capital expenditures relating to Acquisitions and Capital Additions and Improvements) of the Company and its Restricted Subsidiaries during such period, and (iii) the amount deducted from Operations Cash as a result of the increase in any reserve for the future cash payment of items of the type referred to in the foregoing clauses (i) or (ii). "CONSOLIDATED NET WORTH" of any Person shall mean, as of the date of any determination, the amount by which the total assets of such Person and its subsidiaries appearing on a balance sheet of such Person and its subsidiaries prepared in accordance with GAAP on a consolidated basis exceeds the total liabilities of such Person and its subsidiaries appearing on a balance sheet of such Person and its subsidiaries prepared in accordance with GAAP on a consolidated basis, in each case after eliminating all intercompany transactions. "CONSUMER PRICE INDEX" shall mean the consumer price index for goods and services for the United States, as published by the U. S. Bureau of Labor Statistics, or if such index is no longer printed, its successor publications. "CONTROLLING GENERAL PARTNERSHIP INTEREST" shall mean a General Partnership Interest which permits the owner of such General Partnership Interest to direct the management of a general partnership or a limited partnership. "CP INLAND" shall mean Crown Pacific Inland Limited Partnership, an Oregon limited partnership, previously merged into the Company. "CP INLAND LUMBER" is defined in Exhibit C. "CPLP" shall mean Crown Pacific Limited Partnership, an Oregon limited partnership, previously merged into the Company. -59- "CREDIT AGREEMENTS" means the Acquisition Credit Agreement and the Working Capital Credit Agreement. "CURRENT DEBT" of any Person shall mean, as of the date of any determination thereof, (i) all Indebtedness of such Person for borrowed money or for the acquisition of assets, other than Funded Debt of such Person and (ii) Guaranties by such Person of Current Debt of others. "DAW" is defined in Exhibit B. "DEFAULT" shall mean any event or condition the occurrence of which would, with the lapse of time or the giving of notice, or both, constitute an Event of Default. "DISTRIBUTION" in respect of the Company shall mean: (a) dividends, distributions or other payments of any kind whatsoever on or in respect of the Partnership Interests (except distributions payable solely in Partnership Interests or in rights or options to acquire Partnership Interests); (b) the redemption or acquisition of Partnership Interests or of rights or other options to purchase Partnership Interests; and (c) any payment of or on account of Subordinated Funded Debt owed to the Managing General Partner or any payment on account of the purchase, redemption or other retirement thereof. "ENVIRONMENTAL AND NATURAL RESOURCE CLAIM" shall mean any administrative, regulatory or judicial action, judgment, order, consent decree, suit, demand, demand letter, claim, Lien, notice of non-compliance or violation, investigation or other proceeding arising (a) pursuant to any Environmental and Natural Resource Law or Governmental Approval issued under any such Environmental and Natural Resource Law, (b) from the presence, use, generation, storage, treatment, Release, threatened Release, disposal, -60- remediation or other existence of any Hazardous Material, (c) from any removal, remedial, corrective or other response action pursuant to an Environmental and Natural Resource Law or the order of a Governmental Authority, (d) from any third party seeking damages, contribution, indemnification, cost recovery, compensation, injunctive or other relief in connection with a Hazardous Material or arising from alleged injury or threat of injury to health, safety, natural resources or the environment, or (e) from any Lien against the Properties of the Company or any Subsidiary in favor of a Governmental Authority in connection with a Release, threatened Release or disposal of a Hazardous Material. "ENVIRONMENTAL AND NATURAL RESOURCE LAW" shall mean any statute, law, regulation, ordinance, order, consent decree, judgment, permit, license, code, common law, treaty, convention or other requirement of a Governmental Authority, pertaining to protection of the environment, health or safety of persons, natural resources, forestry, conservation, wildlife, waste management, hazardous substances or wastes, and pollution (including, without limitation, regulation of releases and disposals to air, land, water and groundwater), now or hereafter enacted, and includes, without limitation, the Idaho Reforestation Law, Idaho Code Sections 38-201, ET SEQ., Idaho Forest Practices Act, Idaho Code Sections 38-1301 ET SEQ., Idaho Hazardous Substances Emergency Response Act, Idaho Code Sections 39-7101 ET SEQ., Montana Timber Resources Code, Mont. Code Ann. Sections 76-13-101 ET SEQ., Montana Environmental Protection Code, Mont. Code Ann. Sections 75-1-101 ET SEQ., Oregon Forest Practices Act, Or. Rev. Stat. Sections 527.610 ET SEQ., Oregon Hazardous Waste and Hazardous Materials Code, Or. Rev. Stat. Sections 465.003 ET SEQ., Washington Forest Practice Code, Wash. Rev. Code Sections 76.09.010 ET SEQ., Washington Model Toxic Control Act, Wash. Rev. Code Sections 70.105D.010 ET SEQ., Endangered Species Act of 1973, 16 U.S.C. Sections 1531 ET SEQ., Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C. Sections 9601 ET SEQ., Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act of 1976 and Hazardous and Solid Waste Amendments of 1984, 42 U.S.C. Sections 6901 ET SEQ., Federal Water Pollution Control -61- Act, as amended by the Clean Water Act of 1977, 33 U.S.C. Sections 1251 ET SEQ., Clean Air Act of 1966, as amended, 42 U.S.C. Sections 7401 ET SEQ., Toxic Substances Control Act of 1976, 15 U.S.C. Sections 2601 ET SEQ., Occupational Safety and Health Act of 1970, as amended, 29 U.S.C. Sections 651 ET SEQ., Oil Pollution Act of 1990, 33 U.S.C. Sections 2701 ET SEQ., Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C. Sections 11001 ET SEQ., National Environmental Policy Act of 1975, 42 U.S.C. Sections 4321 ET SEQ., Safe Drinking Water Act of 1974, as amended, 42 U.S.C. Sections 300(f) ET SEQ., and all similar or implementing laws, rules, regulations, approvals, guidance documents and amendments promulgated thereunder. "EQUITY INTEREST" shall mean, in the case of a corporation, stock of any class, and in the case of a partnership or a limited partnership, a General Partnership Interest or Limited Partnership Interest. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and any successor statute of similar import, together with the regulations thereunder, in each case as in effect from time to time. References to sections of ERISA shall be construed to also refer to any successor sections. "ERISA AFFILIATE" shall mean any corporation, trade or business that is, along with the Company, a member of a controlled group of corporations or a controlled group of trades or businesses, as described in Section 414(b) and 414(c), respectively, of the Internal Revenue Code of 1986, as amended, or Section 4001 of ERISA. "EVENT OF DEFAULT" is defined in Section 6.1. "EXCESS HARVEST" is defined in Section 4.12. "EXCESS LIEN" is defined in Section 4.20. "FOUR QUARTER PERIOD" shall mean a period of four full consecutive quarterly fiscal periods of the Company, taken together as one accounting period. -62- "FUNDED DEBT" of any Person shall mean (i) all Indebtedness of such Person for borrowed money or which has been incurred in connection with the acquisition of assets in each case having a final maturity of one or more than one year from the date of origin thereof (or which is renewable or extendible at the option of the obligor for a period or periods more than one year from the date of origin), including all payments in respect thereof that are required to be made within one year from the date of any determination of Funded Debt, (ii) all Capitalized Rentals of such Person, and (iii) all Guaranties by such Person of Funded Debt of others. "FUNDING AGENT" is defined in Section 1.6. "GAAP" shall mean generally accepted accounting principles at the time in the United States. "GENERAL PARTNERSHIP INTEREST" shall mean the interest of a general partner in a general partnership and the interest of a general partner in a limited partnership. "GOVERNMENTAL APPROVAL" shall mean any written permit, license, variance, certification, consent, no-action letter, clearance, exemption or other approval granted by a Governmental Authority. "GOVERNMENTAL AUTHORITY" shall mean any international, foreign, federal, state, regional, county, local or other body or authority of a governmental entity. "GUARANTIES" by any Person shall mean all obligations (other than endorsements in the ordinary course of business of negotiable instruments for deposit or collection) of such Person guaranteeing or in effect guaranteeing any Indebtedness, dividend or other obligation, of any other Person (the "PRIMARY OBLIGOR") in any manner, whether directly or indirectly, including, without limitation, all obligations incurred through an agreement, contingent or otherwise (including, without limitation, such obligations that arise as a matter of law including obligations of a joint venturer in connection with a -63- joint venture and of a partner in connection with a partnership), by such Person: (i) to purchase such Indebtedness or obligation or any Property constituting security therefor, (ii) to advance or supply funds (x) for the purchase or payment of such Indebtedness or obligation or (y) to maintain working capital or other balance sheet condition or otherwise to advance or make available funds for the purchase or payment of such Indebtedness or obligation, (iii) to lease Property or to purchase Securities or other Property or services primarily for the purpose of assuring the owner of such Indebtedness or obligation of the ability of the primary obligor to make payment of the Indebtedness or obligation, or (iv) otherwise to assure the owner of the Indebtedness or obligation of the primary obligor against loss in respect thereof. For the purposes of all computations made under this Agreement, a Guaranty in respect of any Indebtedness for borrowed money shall be deemed to be Indebtedness equal to the principal amount of such Indebtedness for borrowed money which has been guaranteed, and a Guaranty in respect of any other obligation or liability or any dividend shall be deemed to be Indebtedness equal to the maximum aggregate amount of such obligation, liability or dividend. "HARVEST/YIELD RESTRICTION" shall mean any restriction, limitation, prohibition, constraint, event, occurrence or condition which materially impairs the cultivation, harvest or yield of timber at a property, including but not limited to the following conditions or an Environmental and Natural Resource Law concerning such following conditions: (1) natural phenomena, including fire, drought, disease or pests; (2) threatened or endangered species of wildlife, fish or flora; (3) protected or sensitive habitats (including brooding, nesting, feeding and sheltering areas) of sensitive, threatened, endangered or other species of wildlife or fish; -64- (4) critical natural resources (including soil, water, wetlands, riparian areas, forestland and visually sensitive areas); (5) cultural resource sites (including Properties of historic, archaeological or tribal significance); (6) condemnation or other regulation of forestland for public uses (such as for recreation, wilderness or park purposes); (7) timber export; (8) agrichemicals (including fertilizers and pesticides); (9) environmental quality standards (including non-point source best management practices); (10) access and transportation factors (including road construction and improvement and riparian logging crossings); and (11) forest practices (including harvest rates, clear cuts and reforestation). "HAZARDOUS MATERIAL" shall mean any hazardous or toxic chemical, waste, byproduct, pollutant, contaminant, compound, product or substance, including, without limitation, asbestos, polychlorinated biphenyls, petroleum (including crude oil or any fraction thereof), and any material the exposure to, or manufacture, possession, presence, use, generation, storage, transportation, treatment, release, disposal, abatement, cleanup, removal, remediation or handling of which, is prohibited, controlled or regulated by any Environmental and Natural Resource Law. "HOLDER" shall mean any Person which is, at the time of reference, the registered holder of any outstanding Note. -65- "HS CORP." is defined in Exhibit C. "INDEBTEDNESS" of any Person shall mean and include all obligations of such Person which in accordance with GAAP shall be classified upon a balance sheet of such Person as liabilities of such Person and in any event shall include all (i) obligations of such Person for borrowed money, (ii) obligations secured by any Lien or other charge upon Property owned by such Person, even though such Person has not assumed or become liable for the payment of such obligations, (iii) obligations created or arising under any conditional sale or other title retention agreement with respect to Property acquired by such Person, notwithstanding the fact that the rights and remedies of the seller, lender or lessor under such agreement in the event of default are limited to repossession or sale of Property, PROVIDED that the preceding provisions of this clause (iii) shall not include obligations of such Person in respect of Operating Leases, (iv) Capitalized Rentals of such Person, and (v) Guaranties by such Person of Indebtedness of others. "INDEMNIFIED MATTERS" is defined in Section 4.3(b)(6)(A). "INDEMNITEES" is defined in Section 4.3(b)(6)(A). "INSTITUTIONAL HOLDER" shall mean any insurance company, bank, savings and loan association, trust company, investment company, charitable foundation, broker or dealer registered under the Securities Exchange Act of 1934, as amended, employee benefit plan (as defined in ERISA) or other institutional investor or financial institution, including, without limitation, each Purchaser. "INTEREST EXPENSE" for any period shall mean all interest (including the interest component of Rentals payable by the Company and its Restricted Subsidiaries on Capitalized Leases) and all amortization of debt discount and expense expensed during such period in accordance with GAAP on any Indebtedness of the Company and its Restricted Subsidiaries for which such calculations are being made. -66- "INTERIM CAPITAL TRANSACTIONS" means (i) borrowings, refinancings or refundings of Current Debt and Funded Debt of the Company or any Restricted Subsidiary and sales of debt securities (other than for working capital purposes and other than for items purchased on open account in the ordinary course of business) by the Company or any Restricted Subsidiary, (ii) sales of Equity Interests by the Company and (iii) sales or other voluntary or involuntary dispositions of any assets of the Company or any Restricted Subsidiary (other than (x) sales or other dispositions of inventory, accounts receivable and other assets in the ordinary course of business, including the exchange of timber or real property for other timber or real property, to the extent that the timber or real property received in exchange is of equal or greater value, or the sale of timber or real property, to the extent the proceeds from which are invested within 180 days in other timber or real property, and (y) sales or other dispositions of assets as a part of normal retirements or replacements), other than in the context of the commencement of the dissolution and liquidation of the Company. "INVESTMENTS" shall mean all investments, in cash or by delivery of Property made, directly or indirectly in any Person, whether by acquisition of shares of capital stock, indebtedness or other obligations or Securities or by loan, advance, capital contribution or otherwise. "LIEN" shall mean any interest in Property securing an obligation owed to, or a claim by, a Person other than the owner of the Property, whether such interest is based on the common law, statute or contract, and including but not limited to the security interest lien arising from a mortgage, encumbrance, pledge, conditional sale or trust receipt or a lease, consignment or bailment for security purposes. The term "Lien" shall include reservations, exceptions, encroachments, easements, rights-of-way, covenants, conditions, restrictions, leases and other title exceptions and encumbrances (including, with respect to stock, stockholder agreements, voting trust agreements, buy-back agreements and all similar arrangements) affecting Property. For the purposes of this Agreement, the Company or a Restricted Subsidiary shall be deemed to be the owner of any Property which -67- it has acquired or holds subject to a conditional sale agreement, Capitalized Lease or other arrangement pursuant to which title to the Property has been retained by or vested in some other Person for security purposes, and such retention or vesting shall constitute a Lien. "LIMITED PARTNERSHIP INTEREST" shall mean the interest of a limited partner in a limited partnership. "MAKE-WHOLE AMOUNT" shall mean in connection with any prepayment or acceleration of the Notes of a series the excess, if any, of (i) the aggregate present value as of the date of such prepayment or acceleration of each dollar of principal being prepaid or accelerated of the Notes of such series (taking into account the application of such prepayment required by Section 5.1) and the amount of interest (exclusive of interest accrued to the date of prepayment or acceleration) that would have been payable in respect of such dollar if such prepayment or acceleration had not been made, determined by discounting on a semiannually compounded basis such amounts at the Reinvestment Rate from the respective dates on which they would have been payable, over (ii) 100% of the principal amount of the outstanding Notes of the series being prepaid. The Make-Whole Amount shall not be less than zero. For purposes of any determination of the Make-Whole Amount: "REINVESTMENT RATE" shall mean (a) the sum of 0.50%, plus the yield reported at 10:00 A.M. (New York time) on the date of determination of the Make-Whole Amount by the Dow Jones Markets, a Division of Dow Jones & Company (formerly known as Telerate Access Service) on the display designated "Page 5" for United States government Securities having a maturity (rounded to the nearest month) corresponding to the remaining Weighted Average Life to Maturity of the principal of such series being prepaid or accelerated (taking into account the application of such prepayment required by Section 5.1), or (b) in the event that such Dow Jones Markets is no longer available or such yield is not reported as of such time, "REINVESTMENT RATE" shall mean the sum of 0.50%, plus the arithmetic mean of the two yields under the heading "WEEK ENDING" published in the Statistical Release under -68- the caption "TREASURY CONSTANT MATURITIES" for the maturity (rounded to the nearest month) corresponding to the Weighted Average Life to Maturity of the principal of such series being prepaid or accelerated (taking into account the application of such prepayment required by Section 5.1). If no maturity exactly corresponds to such Weighted Average Life to Maturity, yields for the maturity next longer than the Weighted Average Life to Maturity and for the maturity next shorter than the Weighted Average Life to Maturity shall be calculated and the Reinvestment Rate shall be interpolated from such yields on a straight-line basis, rounding in each of such relevant periods to the nearest month. For the purposes of calculating the Reinvestment Rate pursuant to clause (b), the most recent Statistical Release published prior to the date of determination of the Make-Whole Amount shall be used. "STATISTICAL RELEASE" shall mean the statistical release designated "H.15(519)" or any successor publication which is published weekly by the Federal Reserve System and which establishes yields on actively traded United States government Securities adjusted to constant maturities or, if such statistical release is not published at the time of any determination hereunder, then such other reasonably comparable index which shall be designated by the Holders holding 66-2/3% in aggregate principal amount of the outstanding Notes. "WEIGHTED AVERAGE LIFE TO MATURITY" of the principal amount of the Notes of a series being prepaid or accelerated shall mean, as of the time of any determination thereof, the number of years obtained by dividing the then Remaining Dollar-Years of such principal by the aggregate amount of such principal. The term "REMAINING DOLLAR-YEARS" of such principal shall mean the amount obtained by (i) multiplying (x) the remainder of (1) the amount of principal of such series that would have become due on each scheduled payment date if such prepayment or acceleration and the application thereof in accordance with the provisions of Section 5.1 had not been made, less (2) the amount of principal on the Notes of -69- such series being prepaid or accelerated scheduled to become due on such date after giving effect to such prepayment or acceleration, by (y) the number of years (calculated to the nearest one-twelfth) which will elapse between the date of determination and such scheduled payment date, and (ii) totaling the products obtained in (i). "MANAGING GENERAL PARTNER" is defined in Section 2.2. "MULTIEMPLOYER PLAN" shall have the same meaning as in ERISA. "NET PROCEEDS" shall mean the gross proceeds of the disposition or sale of Property, LESS (i) all reasonable expenses incurred in connection with such disposition or sale of such Property and (ii) with respect to any Excess Harvest, all reasonable expenses properly allocable to the harvesting of the timber constituting the Excess Harvest and other costs incidental thereto. "1994 NOTES" shall mean the $275,000,000 9.78% Senior Notes due December 1, 2009 of the Company issued under and pursuant to the Note Purchase Agreement dated as of December 1, 1994 among the Company and the purchasers listed in Schedule I thereto. "1995 NOTES" shall mean the $25,000,000 9.60% Senior Notes due December 1, 2009 of the Company issued under and pursuant to the Note Purchase Agreement dated as of March 15, 1995 among the Company and the purchasers listed in Schedule I thereto. "1996 NOTES" shall mean the $91,000,000 Senior Notes due 2006 to 2013 of the Company issued under and pursuant to the Note Purchase Agreement dated as of August 1, 1996 among the Company and the purchasers listed in Schedule I thereto. "NOTE" shall mean each Series A Note, Series B Note and Series C Note. -70- "OPERATING LEASE" shall mean, with respect to any Person, any lease which is not a Capitalized Lease pursuant to which such Person shall lease real or personal Property. "OPERATIONS CASH" for any period shall mean the sum of all cash receipts of the Company and its Restricted Subsidiaries during such period, on a cumulative basis and without duplication (including cash receipts from operations of Restricted Subsidiaries prior to the acquisition thereof by the Company; but excluding (a) cash proceeds from Interim Capital Transactions, and (b) net cash receipts from operations in respect of assets sold during such period), LESS the sum of: (1) all cash operating expenditures of the Company and its Restricted Subsidiaries during such period (including, without limitation, (x) cash operating expenditures of Restricted Subsidiaries prior to the acquisition thereof by the Company, (y) taxes, if any, paid by the Company as an entity and by its Restricted Subsidiaries, and (z) amounts owed to the Managing General Partner as reimbursement for Specified Expenses); (2) all cash debt service payments of the Company and its Restricted Subsidiaries during such period (other than payments or prepayments of principal and premium (x) required by reason of loan agreements (including, without limitation, covenants and default provisions therein) or by lenders, in each case, in connection with sales or other dispositions of assets or (y) made in connection with refinancings or refundings of Indebtedness with the proceeds from new Indebtedness or from the sale of Equity Interests, PROVIDED, that any payment or prepayment of principal and premium, whether or not then due, shall be deemed, at the election and in the discretion of the Managing General Partner, to be refunded or refinanced by any Indebtedness incurred or to be incurred by the Company simultaneously with or within 180 days prior to or after such payment or prepayment to the extent of the principal amount of such Indebtedness so incurred); -71- (3) all cash capital expenditures of the Company and its Restricted Subsidiaries during such period, except capital expenditures (including associated transaction costs) relating to (x) Acquisitions, (y) Capital Additions and Improvements and (z) Interim Capital Transactions; (4) the amount, if any, by which cash reserves outstanding as of the end of such period that the Managing General Partner has determined in its reasonable discretion to be necessary or appropriate in order to provide funds for the future cash payment of items of the type referred to in clauses (1) through (3) above exceeds such cash reserves outstanding at the beginning of such period; (5) the amount, if any, by which any cash reserves outstanding at the end of such period that the Managing General Partner has determined in its reasonable discretion to be necessary or appropriate in order to provide funds for Distributions in respect of any one or more of the four consecutive fiscal quarters following the end of such period exceeds such cash reserves outstanding at the beginning of the such period; and (6) any cash receipts of any Restricted Subsidiary which for any reason (including pursuant to its organizational documents) is unavailable for distribution to the Company or any other Restricted Subsidiary, all determined on a consolidated basis. Where cash capital expenditures are made in part in respect of Acquisitions or Capital Additions and Improvements and in part for other purposes, the Managing General Partner's good faith allocation thereof between the portion made for Acquisitions or Capital Additions and Improvements and the portion made for other purposes shall be conclusive. So long as the Company is not a taxpaying entity, taxes paid by the Company on behalf of, or amounts withheld with respect to, all or less than all of the Partners shall not be considered cash operating expenditures of the Company that reduce Operations -72- Cash, but the payment or withholding thereof shall be deemed to be a distribution of Available Cash to such Partners. Alternatively, in the discretion of the Managing General Partner, so long as the Company is not a taxpaying entity, such taxes (if pertaining to all Partners) may be considered to be cash operating expenditures of the Company which reduce Operations Cash, but the payment or withholding thereof shall not be deemed to be a distribution of Available Cash to such Partners. "OVERDUE RATE" with respect to each series of Notes shall mean a rate per annum equal to the lesser of (i) the maximum rate of interest allowable by law and (ii) the rate of interest then borne by the Notes of such series plus 2%. "PARTNERS" shall mean the Managing General Partner and each other Person owning a Partnership Interest in the Company. "PARTNERSHIP" shall mean Crown Pacific Partners, L.P., a Delaware limited partnership, together with any Person who succeeds to all, or substantially all Crown Pacific Partners, L.P.'s assets and business. "PARTNERSHIP AGREEMENT" shall mean the Amended and Restated Agreement of Limited Partnership of the Company dated as of December 22, 1994 between the Managing General Partner and the Partnership, as the same may from time to time be supplemented, amended, or restated as permitted thereby. "PARTNERSHIP INTEREST" shall mean Limited Partnership Interests and General Partnership Interests. "PBGC" is defined in Section 4.17(g). "PERSON" shall mean an individual, partnership, corporation, trust or limited liability company or other unincorporated organization, and a government or agency or political subdivision thereof. "PLAN" shall mean a "pension plan," as such term is defined in ERISA and which is covered by Title IV of ERISA, other -73- than a Multiemployer Plan, established or maintained by the Company or any ERISA Affiliate or as to which the Company or any ERISA Affiliate contributed or is a member or otherwise may have any liability. "PLANNED VOLUME" shall mean as of the first Closing Date 325,000,000 board feet per annum of timber, and shall be adjusted for any Annual Timber Increase, as of the Effective Date for such Annual Timber Increase, by increasing such per annum amount by an amount equal to 8-1/3% of such Annual Timber Increase. In addition, such per annum amount shall, if there shall be an Annual Timber Decrease in any Determination Period, be permanently (with respect to such Annual Timber Decrease) adjusted, effective as of the Effective Date for such Annual Timber Decrease, by decreasing such per annum amount in the same proportion that the Predisposition Timber Amount in respect of such Annual Timber Decrease is reduced by such Annual Timber Decrease; PROVIDED that such adjustment shall not be made if the percentage decrease represented by such adjustment would be less than 5% and if the Asset Coverage Ratio as of the last day of such Determination Period is at least 2:1. For purposes of the foregoing: "ANNUAL TIMBER INCREASE" shall mean, for any Determination Period, the amount, in board feet, by which the number of board feet of timber acquired by the Company and its Restricted Subsidiaries during such Determination Period shall exceed the number of board feet of timber sold or otherwise disposed of by the Company and its Restricted Subsidiaries during such Determination Period; and "ANNUAL TIMBER DECREASE" shall mean, for any Determination Period, the amount, in board feet, by which the number of board feet of timber sold or otherwise disposed of by the Company and its Restricted Subsidiaries during such Determination Period shall exceed the number of board feet of timber acquired by the Company and its Restricted Subsidiaries during such Determination Period; PROVIDED that, neither such calculation shall include timber acquired with the Net Proceeds of an Excess Harvest pursuant to Section 4.12. -74- "ASSET COVERAGE RATIO" shall mean, as of the date of determination, the ratio of (a) the fair market value (determined in good faith by a Responsible Officer, but excluding any value based on a higher and better use thereof) of the timberlands owned by the Company and its Restricted Subsidiaries on such determination date to (b) Funded Debt of the Company and its Restricted Subsidiaries on a consolidated basis on such determination date. "DETERMINATION PERIOD" shall mean the period from and including the first Closing Date to and including December 31, 1998 and each calendar year thereafter. "EFFECTIVE DATE" for any Annual Timber Increase or Annual Timber Decrease shall be July 1 of the Determination Period for which such Annual Timber Increase or Annual Timber Decrease, as the case may be, occurs. "PREDISPOSITION TIMBER AMOUNT" with respect to any Annual Timber Decrease shall mean the amount of timber owned by the Company and its Restricted Subsidiaries as of the first day of the Determination Period for which such Annual Timber Decrease occurred. "PREDECESSOR PARTNERSHIPS" shall mean CPLP and CP Inland. "PRIVATE PLACEMENT MEMORANDUM" shall mean the Placement Memorandum, dated November, 1997, prepared by the Company with the assistance of BancAmerica Robertson Stephens. "PRO FORMA INTEREST EXPENSE" for any Four Quarter Period shall mean the Interest Expense payable by the Company and its Restricted Subsidiaries during such Four Quarter Period on all Current Debt and Funded Debt of the Company and its Restricted Subsidiaries on a consolidated basis, PLUS the Interest Expense which would have been payable during such Four Quarter Period in respect of (i) any Current Debt and Funded Debt to be issued on the date of determination of Pro Forma Interest Expense and (ii) the Current Debt or Funded Debt issued after the end of such Four Quarter Period and prior to such date of determination, in each -75- case, giving effect as of the beginning of such Four Quarter Period (y) to the incurrence of all such Current Debt and Funded Debt described in clauses (i) and (ii), and (z) to the application of any such Funded Debt or Current Debt to the substantially concurrent repayment of any other Current Debt or Funded Debt outstanding during such Four Quarter Period. Computations of Pro Forma Interest Expense for Current Debt and Funded Debt having a variable interest rate shall be calculated at the rate in effect on the date of such determination. "PRO FORMA MAXIMUM DEBT SERVICE" shall mean, as of any date of determination, the highest total amount payable by the Company and its Restricted Subsidiaries on a consolidated basis, during any Four Quarter Period, commencing with the fiscal quarter in which such date of determination occurs and ending on March 31, 2018, in respect of scheduled principal payments and all Interest Expense with respect to all Current Debt and Funded Debt of the Company and its Restricted Subsidiaries outstanding on such date of determination, after giving effect to any Current Debt and Funded Debt proposed to be incurred on such date and to the substantially concurrent repayment of any other Current Debt and Funded Debt (i) assuming, in the case of Current Debt or Funded Debt having a variable interest rate, that the rate in effect on the date of determination will remain in effect throughout such period, (ii) including only actual interest payments with respect to the Current Debt and Funded Debt incurred pursuant to the Working Capital Facility during the most recent Four Quarter Period and (iii) treating the principal amount of all Current Debt and Funded Debt outstanding as of such date of determination under a revolving credit or similar agreement (other than the Working Capital Facility) as maturing and becoming due and payable on the scheduled maturity date or dates thereof (including the maturity of any payment required by any commitment reduction or similar amortization provision), without regard to any provision permitting such maturity date to be extended; PROVIDED, HOWEVER, that for purposes of the foregoing clause (iii), the Company shall be deemed to have elected to have any amount outstanding under the Acquisition Facility to be amortized in the manner and over the period -76- provided for therein commencing at the expiration of the period during which the Acquisition Facility is revolving in nature. "PROPERTY" shall mean any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible. "PTE" is defined in Section 2.3(a). "PURCHASERS" is defined in the introductory paragraph to this Agreement. "RCRA" shall mean the Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act of 1976 and Hazardous and Solid Waste Amendments of 1984, 42 U.S.C. Sections 6901 ET SEQ., and any future amendments. "RELEASE" shall mean any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, or disposing into the environment, including, without limitation, the abandonment or discarding of barrels, drums, containers, tanks and other receptacles containing or previously containing any Hazardous Material. "RENTALS" of any Person shall mean and include as of the date of determination thereof all fixed payments (including as such all payments which the lessee is obligated to make to the lessor on termination of the lease or surrender of the Property) payable by such Person, as lessee or sublessee under a lease of real or personal Property, but shall be exclusive of any amounts required to be paid by such Person (whether or not designated as rents or additional rents) on account of maintenance, repairs, insurance, taxes and similar charges. Fixed rents under any so-called "percentage leases" shall be computed solely on the basis of the minimum rents, if any, required to be paid by the lessee regardless of sales volume or gross revenues. "REPORTABLE EVENT" shall mean a "reportable event" as described in Section 4043 of ERISA for which the notice requirement to the PBGC has not been waived, PROVIDED that the -77- loss of qualification of a Plan and the failure to meet the minimum funding standard of Section 412 of the Internal Revenue Code of 1986, as amended, or Section 302 of ERISA shall be a Reportable Event regardless of the issuance of any waiver of the reporting requirement by the PBGC. "RESPONSIBLE OFFICER" shall mean any of the Chief Executive Officer, President, Chief Financial Officer, General Counsel and any Executive Vice President of the Managing General Partner. "RESTRICTED SUBSIDIARY" shall mean any Subsidiary (i) which is organized under the laws of the United States or Canada or any state or province thereof; (ii) which conducts substantially all of its business and has substantially all of its assets within the United States or Canada; (iii) of which (A) in the case of any corporation, more than 50% of the Voting Stock is beneficially owned, directly or indirectly by the Company, or (B) in the case of any partnership, more than 50% of each of the Limited Partnership Interest and the General Partnership Interest is beneficially owned, directly or indirectly by the Company; and (iv) which is designated as a Restricted Subsidiary in the most recent written notice with respect to such Subsidiary given by the Company pursuant to Section 4.18. "SECURITIES ACT" shall mean the Securities Act of 1933, as amended. "SECURITY" shall have the same meaning as in Section 2(1) of the Securities Act. "SENIOR FUNDED DEBT" shall mean all Funded Debt other than Subordinated Funded Debt. "SERIES A NOTE" shall mean each 7.76% Senior Note, Series A, due February 1, 2012 issued under and pursuant to this Agreement, including any Note issued in substitution therefor or replacement thereof pursuant to Section 9.1, Section 9.2, or Section 9.3. -78- "SERIES B NOTE" shall mean each 7.76% Senior Note, Series B, due February 1, 2013 issued under and pursuant to this Agreement, including any Note issued in substitution therefor or replacement thereof pursuant to Section 9.1, Section 9.2, or Section 9.3. "SERIES C NOTE" shall mean each 7.93% Senior Note, Series C, due February 1, 2018 issued under and pursuant to this Agreement, including any Note issued in substitution therefor or replacement thereof pursuant to Section 9.1, Section 9.2, or Section 9.3. "SOURCE" is defined in Section 2.3. "SPECIFIED EXPENSES" shall mean (i) all reasonable direct and indirect expenses the Managing General Partner incurs or payments it makes on behalf of the Company (including, without limitation, salary, bonus, incentive compensation, and other amounts paid to any Person to perform services for the Company or for the Managing General Partner in the discharge of its duties to the Company), and (ii) all other necessary or appropriate reasonable expenses allocable to the Company or otherwise reasonably incurred by the Managing General Partner in connection with operating the Company's business (including without limitation reasonable expenses allocated to the Managing General Partner by its affiliates and, for so long as Fremont Group, Inc. owns an interest in the Managing General Partner, an annual fee of $100,000, payable semi-annually in arrears in consideration of management services). "SUBORDINATED FUNDED DEBT" shall mean all unsecured Funded Debt of the Company which shall contain or have applicable thereto subordination provisions substantially in the form set forth in Exhibit G attached hereto providing for the subordination thereof to other Funded Debt of the Company, including, without limitation, the Notes. "SUBSIDIARY" shall mean, as to any particular parent business entity, any business entity of which such parent business entity and/or one or more business entities which are themselves subsidiaries of such parent business entity, (i) in the case of any corporation, own more than 50% of the Voting -79- Stock, or (ii) in the case of any partnership, own more than 50% of the Limited Partnership Interest, or own a Controlling General Partnership Interest. "SUBSIDIARY" shall mean a subsidiary of the Company. "SURVIVING ENTITY" is defined in Section 4.9(2)(i). "UNRESTRICTED SUBSIDIARY" shall mean any Subsidiary other than a Restricted Subsidiary. "VOTING EQUITY INTEREST" shall mean Voting Stock and General Partnership Interests. "VOTING STOCK" of any Person shall mean Securities of any class or classes, the holders of which are entitled at such time to elect a majority of the corporate directors of such Person (or Persons performing similar functions). "W-I" is defined in Exhibit B. "WHOLLY-OWNED" when used in connection with any Subsidiary shall mean (i) in the case of a corporation, a Subsidiary of which all the issued and outstanding shares of stock (except shares required as directors' qualifying shares) and all Indebtedness shall be owned by the Company and/or one or more of its Wholly-owned Subsidiaries, and (ii) in the case of any partnership shall mean a Subsidiary of which all of the outstanding General Partnership Interests are owned by the Managing General Partner and all of the Limited Partnership Interests and all Indebtedness shall be owned by the Company and/or one or more of its Wholly-owned Subsidiaries. "WORKING CAPITAL CREDIT AGREEMENT" is defined in Section 3.9. "WORKING CAPITAL FACILITY" shall mean the facility made available to the Company for working capital and general partnership purposes pursuant to the Working Capital Credit Agreement, as from time to time renewed, extended, amended and supplemented and any other credit agreement from time to time -80- entered into by the Company for purposes of obtaining working capital financing, PROVIDED that such facility or facilities shall not be for an amount in excess of $40,000,000 in the aggregate. "WORKING CAPITAL RESERVE" shall mean the amount, if any, available to be borrowed at the time of determination under the Working Capital Facility, up to a maximum of $40,000,000. SECTION 8.2. ACCOUNTING PRINCIPLES. Where the character or amount of any asset or liability or item of income or expense is required to be determined or any consolidation or other accounting computation is required to be made for the purposes of this Agreement the same shall be done in accordance with GAAP, to the extent applicable, except (i) that audit adjustments shall be effective as of the related period and not as of the period made, and (ii) where such principles are inconsistent with the requirements of this Agreement. SECTION 8.3. DIRECTLY OR INDIRECTLY. Where any provision of this Agreement refers to action to be taken by any Person, or which such Person is prohibited from taking, such provision shall be applicable whether such action is taken directly or indirectly by such Person. SECTION 9. MISCELLANEOUS. SECTION 9.1. REGISTERED NOTES. The Company shall cause to be kept at its principal office a register for the registration and transfer of the Notes and the Company will register or transfer or cause to be registered or transferred as hereinafter provided any Note issued pursuant to this Agreement, PROVIDED that nothing in this Section 9.1 shall be construed to require the Company to register the Notes under the Securities Act or the United States Securities Exchange Act of 1934, as amended. At any time and from time to time the registered Holder holding any Note which has been duly registered as hereinabove provided may transfer such Note upon surrender thereof at the principal office of the Company duly endorsed or accompanied by a -81- written instrument of transfer duly executed by the registered Holder or its attorney duly authorized in writing. Any transferee of a Note shall, by its acceptance of such Note, be deemed to have made the same representations to the Company regarding the purchase of the Note as the original Purchaser made pursuant to Section 2.3; PROVIDED, HOWEVER, that with respect to the representation made in the third sentence of Section 2.3, such transferee will not be deemed to have chosen the options set forth in Section 2.3(b), (c), (d) or (f) unless such transferee shall have made the disclosures referred to therein at least ten Business Days prior to its acceptance of such Note and shall have received prior to its acceptance of such Note written confirmation from the Company to the effect set forth in the first sentence of Paragraph 20 of Exhibit B-1 hereto. The Company shall exercise such reasonable due diligence as is necessary to respond to any such disclosure, PROVIDED THAT, if the Company shall not respond within 10 Business Days following receipt of any such disclosure, it shall be deemed to have made such confirmation. The Person in whose name any registered Note shall be registered shall be deemed and treated as the owner and Holder thereof for all purposes of this Agreement. Payment of or on account of the principal, premium, if any, and interest on any registered Note shall be made to or upon the written order of such registered Holder. SECTION 9.2. EXCHANGE OF NOTES. At any time and from time to time, upon not less than ten days' notice to that effect given by the Holder holding any Note initially delivered or of any Note substituted therefor pursuant to Section 9.1, this Section 9.2 or Section 9.3, and, upon surrender of such Note at its office, the Company will deliver in exchange therefor, without expense to such Holder, except as set forth below, a Note of the same series and for the same aggregate principal amount as the then unpaid principal amount of the Note so surrendered, or Notes of the same series in the denomination of $1,000,000 or any amount in excess thereof as such Holder shall specify, dated as of the date to which interest has been paid on the Note so surrendered or, if such surrender is prior to the payment of any interest thereon, then dated as of -82- the date of issue, registered in the name of such Person or Persons as may be designated by such Holder, and otherwise of the same form and tenor as the Notes so surrendered for exchange. The Company may require the payment of a sum sufficient to cover any stamp tax or governmental charge imposed upon such exchange or transfer. SECTION 9.3. LOSS, THEFT, ETC. OF NOTES. Upon receipt of evidence satisfactory to the Company of the loss, theft, mutilation or destruction of any Note, and in the case of any such loss, theft or destruction upon delivery of a bond of indemnity in such form and amount as shall be reasonably satisfactory to the Company, or in the event of such mutilation upon surrender and cancellation of the Note, the Company will make and deliver without expense to the Holder thereof, a new Note, of the same series and of like tenor, in lieu of such lost, stolen, destroyed or mutilated Note. If the Purchaser or any subsequent Institutional Holder is the owner of any such lost, stolen or destroyed Note, then the affidavit of an authorized officer of such owner, setting forth the fact of loss, theft or destruction and of its ownership of such Note at the time of such loss, theft or destruction shall be accepted as satisfactory evidence thereof and no further indemnity shall be required as a condition to the execution and delivery of a new Note other than the written agreement of such owner to indemnify the Company. SECTION 9.4. POWERS AND RIGHTS NOT WAIVED; REMEDIES CUMULATIVE. No delay or failure on the part of any Holder in the exercise of any power or right shall operate as a waiver thereof; nor shall any single or partial exercise of the same preclude any other or further exercise thereof, or the exercise of any other power or right, and the rights and remedies of any Holder are cumulative to, and are not exclusive of, any rights or remedies any such Holder would otherwise have, and no waiver or consent shall extend to or affect any obligation or right not expressly waived or consented to. SECTION 9.5. NOTICES. (a) All communications under this Agreement shall be in writing and shall be mailed by registered -83- or certified mail, postage prepaid or shall be sent by overnight courier: (1) If to any Purchaser, at such Purchaser's address appearing on Schedule I hereto, marked for attention as there indicated, or at such other address as such Purchaser or any subsequent Holder may have furnished to the Company in writing; or (2) If to the Company, at its address beneath its signature at the foot of this Agreement, or at such other address as it may have furnished in writing to each Holder. (b) Any notice so addressed and mailed by registered or certified mail to any Holder shall be deemed to be given when delivered to such Holder and any notice so addressed and sent by overnight courier to any Holder shall be deemed to be given when delivered to such Holder. SECTION 9.6. REPRODUCTION OF DOCUMENTS. This Agreement and all documents relating thereto including, without limitation, (a) consents, waivers and modifications which may hereafter be executed, (b) documents received by each Purchaser at the closing of its purchase of the Notes (except the Notes themselves), and (c) financial statements, certificates and other information previously or hereafter furnished to such Purchaser, may be reproduced by such Purchaser by any photographic, photostatic, microfilm, micro-card, miniature photographic or other similar process and such Purchaser may destroy any original document so reproduced. The Company agrees and stipulates that any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding (whether or not the original is in existence and whether or not such reproduction was made by such Purchaser in the regular course of business) and that any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence. SECTION 9.7. SURVIVAL. All warranties, representations and covenants made by the Company herein or on any certificate or -84- other instrument delivered by it or on its behalf under this Agreement shall be considered to have been relied upon by each Purchaser and shall survive the delivery to such Purchaser of the Notes regardless of any investigation made by such Purchaser or on its behalf. All representations made by the Purchasers in Section 2.3 shall be considered to have been relied upon by the Company and shall survive the delivery to the Company of the purchase price of the Notes regardless of any investigation made by the Company or on its behalf. All statements in any such certificate or other instrument shall constitute warranties and representations by the Company hereunder. SECTION 9.8. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties. The provisions of this Agreement are intended to be for the benefit of all Holders, from time to time, and shall be enforceable by any such Holder, whether or not an express assignment to such Holder of rights under this Agreement has been made by any Purchaser or its successor or assign. SECTION 9.9. GOVERNING LAW. This Agreement and the Notes shall be governed by and construed in accordance with the laws of the State of New York. SECTION 9.10. SUBMISSION TO JURISDICTION. The Company hereby irrevocably submits to the jurisdiction of the courts of the State of New York and of the courts of the United States of America having jurisdiction in the State of New York for the purpose of any legal action or proceeding in any such court with respect to, or arising out of, this Agreement. The Company designates and appoints Prentice Hall Legal & Financial Services, 15 Columbus Circle, New York, New York 10023 and its successors as the Company's lawful agent in the United States of America upon which may be served and which may accept and acknowledge, for and on behalf of the Company all process in any action, suit or proceedings that may be brought against the Company in any of the courts referred to in this Section 9.10, and agrees that such service of process, or the acceptance or acknowledgment thereof by said agent, shall be valid, effective and binding in every -85- respect; PROVIDED, HOWEVER, that if said agency shall cease for any reason whatsoever, the Company hereby designates and appoints, without power or revocation, the Secretary of State of the State of New York to serve as its agent for service of process. If any Holder shall cause process to be served upon the Company by being served upon such agent, a copy of such process shall also be mailed to the Company by registered mail, first class postage prepaid, at the Company's address set forth at the foot of this Agreement. Nothing contained in this Section 9.10 shall limit the right of any Holders to take proceedings against the Company in any other court of competent jurisdiction nor, by virtue of anything contained herein, shall the taking of proceedings in one or more jurisdictions preclude the taking of proceedings in any other jurisdiction whether concurrently or not. SECTION 9.11. LIMITATIONS OF LIABILITY. Anything in this Agreement to the contrary notwithstanding, neither the Holders nor the successors or assigns thereof shall have any claim, remedy or right to proceed against (i) the Managing General Partner or (ii) any past, present or future partner, employee, director, officer, stockholder or incorporator of the Managing General Partner, the Partnership or any subsidiary thereof (other than the Company) for the payment of any deficiency or any other sum owing on account of the Indebtedness evidenced by the Notes or for the payment of any liability resulting from the breach of any covenant, agreement, warranty or representation of any nature whatsoever in this Agreement or in any certificate delivered pursuant hereto, except with respect to CP Acquisition Co. pursuant to the Collection Guaranty dated as of January 2, 1998 relating to the Series A Notes. Nothing herein contained shall limit, restrict or impair the rights of the Holders to accelerate the maturity of the Notes upon an Event of Default, to bring suit and obtain a judgment against the Company on the Notes, to execute any such judgment on the Company's Properties or to exercise all other rights and remedies against the Company provided under this Agreement. SECTION 9.12. SEVERABILITY. Should any part of this Agreement for any reason be declared invalid, such decision shall not -86- affect the validity of any remaining portion, which remaining portion shall remain in force and effect as if this Agreement had been executed with the invalid portion thereof eliminated. SECTION 9.13. CAPTIONS. The descriptive headings of the various Sections or parts of this Agreement are for convenience only and shall not affect the meaning or construction of any of the provisions hereof. SECTION 9.14. DUPLICATE ORIGINALS. Two or more counterparts of this Agreement may be signed by the parties, each of which shall be an original but all of which together shall constitute one and the same instrument. -87- The execution hereof by the Purchasers shall constitute a contract among the Company and the Purchasers for the uses and purposes hereinabove set forth. CROWN PACIFIC LIMITED PARTNERSHIP, a Delaware limited partnership By: CROWN PACIFIC MANAGEMENT LIMITED PARTNERSHIP, a Delaware limited partnership Its General Partner By: HS Corp. of Oregon, an Oregon corporation Its General Partner By ----------------------- Its Crown Pacific Limited Partnership 121 S.W. Morrison Street Portland, Oregon 97204 Attention: Roger L. Krage Telefacsimile number: (503) 228-4875 Confirmation number: (503) 274-2300 Acknowledged (as to representations made pursuant to Section 2.2) by: CROWN PACIFIC MANAGEMENT -88- LIMITED PARTNERSHIP, a Delaware limited partnership As Managing General Partner By: HS Corp. of Oregon, an Oregon corporation Its General Partner By ------------------ Its Crown Pacific Management Limited Partnership 121 S.W. Morrison Street Portland, Oregon 97204 Attention: Roger L. Krage Telefacsimile number: (503) 228-4875 Confirmation number: (503) 274-2300 -89- Accepted as of December 15, 1997: JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY By Its -90- Accepted as of December 15, 1997: JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY By Its -91- Accepted as of December 15, 1997: TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA By Its -92- Accepted as of December 15, 1997: PROVIDENT LIFE AND ACCIDENT INSURANCE COMPANY By: Provident Investment Management, LLC Its Agent By Its Vice President -93- Accepted as of December 15, 1997 CONNECTICUT GENERAL LIFE INSURANCE COMPANY By CIGNA Investments, Inc. By Name: Title: -94- Accepted as of December 15, 1997 CONNECTICUT GENERAL LIFE INSURANCE COMPANY, on behalf of one or more _________ separate accounts By CIGNA Investments, Inc. By Name: Title: -95- Accepted as of December 15, 1997 GENERAL ELECTRIC CAPITAL ASSURANCE COMPANY By Its -96- Accepted as of December 15, 1997 THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY By MIMLIC Asset Management Company By Its -97- Accepted as of December 15, 1997 MUTUAL TRUST LIFE INSURANCE COMPANY By MIMLIC Asset Management Company By Its -98- Accepted as of December 15, 1997 OHIO NATIONAL LIFE ASSURANCE CORPORATION By Its -99-
NAME AND ADDRESS PRINCIPAL AMOUNT OF OF PURCHASERS NOTES TO BE PURCHASED JOHN HANCOCK MUTUAL LIFE INSURANCE Series A Series B Series C COMPANY -------- -------- John Hancock Place $5,000,000 $6,000,000 $15,000,000 200 Clarendon Street (Two Notes: (Two Notes: (Three Notes: Boston, Massachusetts 02117 $500,000 $1,500,000 $7,000,000 $4,500,000) $4,500,000) $5,000,000 $3,000,000)
Payments All payments on or in respect of the Notes to be by bank wire transfer of Federal or other immediately available funds (identifying each payment as "Crown Pacific Limited Partnership, 7.76% Senior Notes, Series A, due February 1, 2012, PPN 22844# AH 3, 7.76% Senior Notes, Series B, due February 1, 2013, PPN 22844# AJ 9, 7.93% Senior Notes, Series C, due February 1, 2018, PPN 22844# AK 6, as the case may be, principal or interest") to: Bank Boston ABA #011000390 Boston, Massachusetts 02110 For the account of: John Hancock Mutual Life Insurance Company Private Placement Collection Account Account Number 541-55417 On Order of: Crown Pacific Limited Partnership, [Applicable PPN] Notices Contemporaneous with the above wire transfer, advice setting forth (1) the full name, interest rate and maturity date of the Notes or other obligations; (2) allocation of payment between principal and interest and any special payment; and (3) name and SCHEDULE I (to Note Purchase Agreement) address of Bank (or Trustee) from which wire transfer was sent, shall be delivered or mailed to: John Hancock Mutual Life Insurance Company 200 Clarendon Street Boston, Massachusetts 02117 Attention: Marie Mazzulli, Investment Accounting Division T-10 All notices with respect to prepayments, both scheduled and unscheduled, whether partial or in full, and notice of maturity shall be delivered or mailed to: John Hancock Mutual Life Insurance Company John Hancock Place 200 Clarendon Street Boston, Massachusetts 02117 Attention: Marie Mazzulli, Investment Accounting Division T-10 All other communications which shall include, but not be limited to, financial statements and certificates of compliance with financial covenants, shall be delivered or mailed to: John Hancock Mutual Life Insurance Company John Hancock Place 200 Clarendon Street Boston, Massachusetts 02117 Attention: Bond and Corporate Finance Department, T-57 and John Hancock Bond and Corporate Finance Group Paper and Forest Products Team 1900 Point West Way, Suite 188 Sacramento, California 95818 Attention: Whit Hill, Assistant Investment Officer Phone: (916) 922-6554 I-101 Fax: (916) 922-4777 and a copy of any notices relating to change in issuer's name, address or principal place of business and a copy of any legal opinions shall be delivered or mailed to: John Hancock Mutual Life Insurance Company John Hancock Place 200 Clarendon Street Boston, Massachusetts 02117 Attention: Investment Law Division, T-50 Name of Nominee in which Notes are to be issued: None Taxpayer I.D. Number: 04-1414660 Closing Date: December 30, 1997 for Series A Notes Commitment Expiration Date: December 31, 1997 for Series A Notes Closing Date: January 13, 1998 for Series B and C Notes Commitment Expiration Date: January 30, 1998 for Series B and C Notes
PRINCIPAL AMOUNT OF NAME AND ADDRESS NOTES TO BE PURCHASED OF PURCHASERS JOHN HANCOCK VARIABLE LIFE INSURANCE Series A Series B Series C COMPANY -------- -------- John Hancock Place $1,000,000 -0- -0- 200 Clarendon Street Boston, Massachusetts 02117
Payments All payments on or in respect of the Notes to be by bank wire transfer of immediately available funds for credit, not later than 12 noon, Boston time, (identifying each payment as "Crown Pacific Limited Partnership, 7.76% Senior Notes, Series A, due February 1, 2012, PPN 22844# AH 3, 7.76% Senior Notes, Series B, I-102 due February 1, 2013, PPN 22844# AJ 9, 7.93% Senior Notes, Series C, due February 1, 2018, PPN 22844# AK 6, as the case may be, principal or interest") to: Bank Boston ABA #011000390 Boston, Massachusetts 02110 For the account of: John Hancock Mutual Life Insurance Company Private Placement Collection Account Account Number 541-55417 On Order of: Crown Pacific Limited Partnership, [Applicable PPN] Notices Contemporaneous with the above wire transfer, advice setting forth (1) the full name, interest rate and maturity date of the Notes or other obligations; (2) allocation of payment between principal and interest and any special payment; and (3) name and address of Bank (or Trustee) from which wire transfer was sent, shall be delivered or mailed to: John Hancock Mutual Life Insurance Company John Hancock Place 200 Clarendon Street Boston, Massachusetts 02117 Attention: Marie Mazzulli, Investment Accounting Division T-10 All notices with respect to prepayments, both scheduled and unscheduled, whether partial or in full, and notice of maturity shall be delivered or mailed to: John Hancock Mutual Life Insurance Company John Hancock Place 200 Clarendon Street Boston, Massachusetts 02117 I-103 Attention: Marie Mazzulli, Investment Accounting Division T-10 All other communications which shall include, but not be limited to, financial statements and certificates of compliance with financial covenants, shall be delivered or mailed to: John Hancock Mutual Life Insurance Company John Hancock Place 200 Clarendon Street Boston, Massachusetts 02117 Attention: Bond and Corporate Finance Department, T-57 and John Hancock Bond and Corporate Finance Group Paper and Forest Products Team 1900 Point West Way, Suite 188 Sacramento, California 95818 Attention: Whit Hill, Assistant Investment Officer Phone: (916) 922-6554 Fax: (916) 922-4777 and a copy of any notices relating to change in issuer's name, address or principal place of business and a copy of any legal opinions shall be delivered or mailed to: John Hancock Mutual Life Insurance Company John Hancock Place 200 Clarendon Street Boston, Massachusetts 02117 Attention: Investment Law Division, T-50 Name of Nominee in which Notes are to be issued: None Taxpayer I.D. Number: 04-2664016 Closing Date: December 30, 1997 for Series A Notes Commitment Expiration Date: December 31, 1997 for Series A Notes I-104
NAME AND ADDRESS PRINCIPAL AMOUNT OF OF PURCHASERS NOTES TO BE PURCHASED TEACHERS INSURANCE AND ANNUITY Series A Series B Series C ASSOCIATION OF AMERICA -------- -------- -------- 730 Third Avenue $9,000,000 -0- -0- New York, New York 10017-3263 Attention: Angela Brock-Kyle, Securities Division, Private Placements Telephone Number: (212) 916-5724 or (212) 490-9000 (general number) Facsimile Number: (212) 916-6901
Payments All payments on account of the Series A Notes shall be made in immediately available funds at the opening of business on the due date by electronic funds transfer through the Automated Clearing House System to: Chase Manhattan Bank New York, New York ABA No. 021-000-021 Account Number: 900-9-000200 For Further Credit to the TIAA Account Number: G07040 Reference: PPN 22844# AH 3; Crown Pacific Limited Partnership; Maturity Date: February 1, 2012; Interest Rate: 7.76% per annum; P&I breakdown Notices Contemporaneous with the above electronic funds transfer, mail or send by facsimile written confirmation of each such payment to be addressed as set forth below including the following information: I-105 (1) the full name, private placement number, interest rate, series and maturity date of the Notes; (2) the allocation of payment between principal, interest, premium and any special payment; and (3) the name and address of the bank from which such electronic funds transfer was sent to: Teachers Insurance and Annuity Association of America 730 Third Avenue New York, NY 10017 Attention: Securities Accounting Division Telephone Number: (212) 916-4188 Facsimile Number: (212) 916-6955 All other notices and communications to be addressed as first provided above. Name of Nominee in which Notes are to be issued: None Taxpayer I.D. Number: 13-1624203 Closing Date: December 30, 1997 Commitment Expiration Date: December 31, 1997
PRINCIPAL AMOUNT OF NOTES NAME AND ADDRESS TO BE PURCHASED OF PURCHASERS PROVIDENT LIFE AND ACCIDENT INSURANCE Series A Series B Series C COMPANY -------- -------- -0- -0- $10,000,000 (1) All payments on account of the Notes shall be made by wire transfer of immediately available funds to: CUDD & CO. c/o The Chase Manhattan Bank, N.A. New York, NY ABA No. 021 000 021 SSG Private Income Processing A/C #900-9-000200
I-106 Custodial Account No. G06704 Please reference: Issuer: Crown Pacific Limited Partnership PPN: 22844# AK 6 Coupon: 7.93% Maturity: February 1, 2018 Principal=$__________ Interest=$___________ (2) Address all communications with respect to payments and all other communications to: Provident Investment Management, LLC Private Placements One Fountain Square Chattanooga, Tennessee 37402 Telephone: (423) 755-1365 Fax: (423) 755-3351 (3) Tax Identification Number: 13-6022143 Name of Nominee in which Notes are to be issued: (CUDD & CO.) Closing Date: January 13, 1998 Closing Expiration Date: January 30, 1998
PRINCIPAL AMOUNT OF NAME AND ADDRESS NOTES TO BE PURCHASED OF PURCHASERS CONNECTICUT GENERAL LIFE INSURANCE Series A Series B Series C COMPANY -------- -------- c/o CIGNA Investments, Inc. -0- $6,200,000 -0- 900 Cottage Grove Road (Two Notes: $3,200,000 and $3,000,000) Hartford, Connecticut 06152-2307 Attention: Private Securities Division - S-307 Fax: 860-726-7203
I-107 Payments All payments on or in respect of the Notes to be by Federal Funds Wire Transfer to: Chase NYC/CTR/ BNF=CIGNA Private Placements/AC=9009001802 ABA #021000021 OBI=Crown Pacific Limited Partnership, Series B Senior Notes, 7.76%, due February 1, 2013, PPN 22844# AJ 9, (as among principal, premium and interest of the payment being made); contact name and phone. Address for Notices Related to Payments: CIG & Co. c/o CIGNA Investments, Inc. Attention: Securities Processing S-309 900 Cottage Grove Road Hartford, Connecticut 06152-2309 CIG & Co. c/o CIGNA Investments, Inc. Attention: Private Securities - S-307 Operations Group 900 Cottage Grove Road Hartford, Connecticut 06152-2307 Fax: 860-726-7203 with a copy to: Chase Manhattan Bank, N.A. Private Placement Servicing P. O. Box 1508 Bowling Green Station New York, New York 10081 Attention: CIGNA Private Placements Fax: 212-552-3107/1005 Address for All Other Notices: I-108 CIG & Co. c/o CIGNA Investments, Inc. Attention: Private Securities Division - S-307 900 Cottage Grove Road Hartford, Connecticut 06152-2307 Fax: 860-726-7203 Name of Nominee in which Notes are to be issued: CIG & Co. Taxpayer I.D. Number for CIG & Co.: 13-3574027 Taxpayer I.D. Number for Connecticut General Life Insurance Company: 06-0303370 Closing Date: January 13, 1998 Commitment Expiration Date: January 30, 1998
PRINCIPAL AMOUNT OF NAME AND ADDRESS NOTES TO BE PURCHASED OF PURCHASERS Series A Series B Series C -------- -------- CONNECTICUT GENERAL LIFE INSURANCE COMPANY, on behalf of one or more separate -0- $13,800,000 -0- accounts c/o CIGNA Investments, Inc. (Three Notes: $6,000,000, 900 Cottage Grove Road $4,212,000, and $3,588,000) Hartford, Connecticut 06152-2307 Attention: Private Securities Division - S-307 Fax: 860-726-7203
Payments All payments on or in respect of the notes to be by Federal Funds Wire Transfer to: I-109 Chase NYC/CTR/ BNF=CIGNA Private Placements/AC=9009001802 ABA #021000021 OBI=Crown Pacific Limited Partnership, Series B Senior Notes, 7.76%, due February 1, 2013, PPN 22844# AJ 9, (as among principal, premium and interest of the payment being made); contact name and phone. Address for Notices Related to Payments: CIG & Co. c/o CIGNA Investments, Inc. Attention: Securities Processing S-309 900 Cottage Grove Road Hartford, Connecticut 06152-2309 CIG & Co. c/o CIGNA Investments, Inc. Attention: Private Securities - S-307 Operations Group 900 Cottage Grove Road Hartford, Connecticut 06152-2307 Fax: 860-726-7203 with a copy to: Chase Manhattan Bank, N.A. Private Placement Servicing P. O. Box 1508 Bowling Green Station New York, New York 10081 Attention: CIGNA Private Placements Fax: 212-552-3107/1005 Address for All Other Notices: CIG & Co. c/o CIGNA Investments, Inc. Attention: Private Securities Division - S-307 900 Cottage Grove Road I-110 Hartford, Connecticut 06152-2307 Fax: 860-726-7203 Name of Nominee in which Notes are to be issued: CIG & Co. Taxpayer I.D. Number for CIG & Co.: 13-3574027 Taxpayer I.D. Number for Connecticut General Life Insurance Company, on behalf of one or more separate accounts: 06-0303370 Closing Date: January 13, 1998 Commitment Expiration Date: January 30, 1998
PRINCIPAL AMOUNT OF NAME AND ADDRESS NOTES TO BE PURCHASED OF PURCHASERS GENERAL ELECTRIC CAPITAL ASSURANCE Series A Series B Series C COMPANY -------- -------- -------- c/o GE Financial Assurance -0- $15,000,000 -0- Two Union Square, 601 Union Street Seattle, Washington 98101 Attn: Investment Dept., S. De Motto Telephone No.: (206) 516-4614 Fax No.: (206) 516-4998
Payments All payments on or in respect of the Notes to be by bank wire transfer of Federal or other immediately available funds (identifying each payment as "Crown Pacific Limited Partnership, 7.76% Senior Notes, Series B, due February 1, 2013, PPN 22844# AJ 9, as the case may be, principal or interest") to: Bankers Trust Company 16 Wall Street I-111 New York, New York 10015 ABA 021001033 Attention: 99-911-145 Account Number 097817 Notices All notices and communications, including notices with respect to payments and written confirmation of each such payment, to be addressed to: General Electric Capital Assurance Company c/o GE Financial Assurance Two Union Square, 601 Union Street Seattle, Washington 98101 Attn: Investment Accounting, 14th Floor Telephone No.: (206) 516-2871 Fax No.: (206) 516-4740 Name of Nominee in which Notes are to be issued: SALKELD & CO. Taxpayer I.D. Number: 91-6027719 Closing Date: January 13, 1998 Commitment Expiration Date: January 30, 1998
PRINCIPAL AMOUNT OF NAME AND ADDRESS NOTES TO BE PURCHASED OF PURCHASERS Series A Series B Series C -------- -------- -------- THE MINNESOTA MUTUAL LIFE INSURANCE COMPANY 400 Robert Street North -0- $8,000,000 -0- St. Paul, Minnesota 55101 Attention: MIMLIC Asset Management Company
Payments I-112 All payments on or in respect of the notes to be by bank wire transfer of Federal or other immediately available funds (identifying each payment as "Crown Pacific Limited Partnership, 7.76% Senior Notes, Series B, due February 1, 2013, PPN 22844# AJ 9, as the case may be, principal or interest") to: First Bank National Association Minneapolis, Minnesota ABA #091000022 BNF The Minnesota Mutual Life Insurance Company Account number 1801-10-00600-4 Notices All notices and communications, including notices with respect to payments and written confirmation of each such payment, to be addressed as first provided above. Name of Nominee in which Notes are to be issued: None Taxpayer I.D. Number: 41-0417830 Closing Date: January 13, 1998 Commitment Expiration Date: January 30, 1998
PRINCIPAL AMOUNT OF NAME AND ADDRESS NOTES TO BE PURCHASED OF PURCHASERS Series A Series B Series C -------- -------- -------- MUTUAL TRUST LIFE INSURANCE COMPANY c/o MIMLIC Asset Management Company -0- $1,000,000 -0- 400 Robert Street North St. Paul, Minnesota 55101 Attn: Client Administrator
Payments I-113 All payments on or in respect of the Notes to be by bank wire transfer of Federal or other immediately available funds (identifying each payment as "Crown Pacific Limited Partnership, 7.76% Senior Notes, Series B, due February 1, 2013, PPN 22844# AJ 9, as the case may be, principal or interest") to: The Northern Chgo/Trust ABA #071-000-152 For credit to: Account Number: 5186041000 For further credit to: Mutual Trust Life Insurance Company Account Number: 26-00621 Attn: MBS Department Notices All notices and communications, including notices with respect to payments and written confirmation of each such payment, to be addressed as first provided above. Name of Nominee in which Notes are to be issued: ELL & Co. Taxpayer I.D. Number: 36-1516780 Closing Date: January 13, 1998 Commitment Expiration Date: January 30, 1998
PRINCIPAL AMOUNT OF NAME AND ADDRESS NOTES TO BE PURCHASED OF PURCHASERS Series A Series B Series C -------- -------- -------- OHIO NATIONAL LIFE ASSURANCE CORPORATION P. O. BOX 237 -0- $5,000,000 -0- Cincinnati, Ohio 45201 Attention: Investment Department Facsimile: (513) 794-4506
I-114 Overnight Delivery Address: [One Financial Way Cincinnati, Ohio 45242] Payments All payments on or in respect of the Notes to be by bank wire transfer of Federal or other immediately available funds (identifying each payment as "Crown Pacific Limited Partnership, 7.76% Senior Notes, Series B, due February 1, 2013, PPN 22844# AJ 9, as the case may be, principal or interest") to: Star Bank, N.A. (ABA #042-0000-13) Fifth and Walnut Streets Cincinnati, Ohio 45202 for credit to: Ohio National Life Assurance Corporation Account Number 865-215-8 Notices All notices and communications, including notices with respect to payments and written confirmation of each such payment, to be addressed as first provided above. Name of Nominee in which Notes are to be issued: None Taxpayer I.D. Number: 31-0962495 Closing Date: January 13, 1998 Commitment Expiration Date: January 30, 1998 I-115 INVESTMENTS Following the closing of the transactions contemplated by the Agreement, the Company will have the following Investments: 1. Purchase money promissory note executed by J.S. & P.H. Bewick, with an outstanding principal balance of approximately $49,444.53 as of November 30, 1997. 2. Purchase money promissory note executed by M. & C. Ruland, with an outstanding principal balance of approximately $2,109.00 as of November 30, 1997. SCHEDULE II (to Note Purchase Agreement) CROWN PACIFIC LIMITED PARTNERSHIP 7.76% SENIOR NOTE, SERIES A, DUE FEBRUARY 1, 2012 PPN: 22844# AH 3 NO. R-A- ____________, 19___ $ CROWN PACIFIC LIMITED PARTNERSHIP, a Delaware Limited partnership (the "COMPANY"), for value received, hereby promises to pay to or registered assigns on the first day of February, 2012 the principal amount of DOLLARS and to pay interest (computed on the basis of a 360-day year of twelve 30-day months) on the principal amount from time to time remaining unpaid hereon at the rate of 7.76% per annum from the date hereof until maturity, payable semiannually on the first day of February and August in each year commencing February 1, 1998, and at maturity. The Company agrees to pay interest (computed on the same basis) on overdue principal (including any overdue optional prepayment of principal) and premium, if any, and (to the extent legally enforceable) on any overdue installment of interest, at the Overdue Rate (as defined in the Note Purchase Agreement referred to below) after the date due, whether by acceleration or otherwise, until paid. The principal hereof, premium, if any, and interest hereon are payable at the principal office of the Company in Portland, Oregon in coin or currency of the United States of America which at the time of payment shall be legal tender for the payment of public and private debts. EXHIBIT A-1 (to Note Purchase Agreement) This Note is one of the 7.76% Senior Notes, Series A, due February 1, 2012 of the Company in the aggregate principal amount of $15,000,000, which along with the 7.76% Senior Notes, Series B, due February 1, 2013 of the Company in the aggregate principal amount of $55,000,000 and the 7.93% Senior Notes, Series C, due February 1, 2018 of the Company in the aggregate principal amount of $25,000,000 (such Series A Notes, Series B Notes and Series C Notes of the Company being herein referred to as the "NOTES"), are issued or to be issued under and pursuant to the terms and provisions of the Note Purchase Agreement dated as of December 15, 1997 (the "NOTE PURCHASE AGREEMENT"), entered into by the Company with the original purchasers therein referred to and this Note and the holder hereof are entitled equally and ratably with the holders of all other Notes outstanding under the Note Purchase Agreement to all the benefits provided for thereby or referred to therein, to which Note Purchase Agreement reference is hereby made for the statement thereof. This Note and the other Notes outstanding under the Note Purchase Agreement may be declared or otherwise become due prior to their expressed maturity dates, all in the events, on the terms and in the manner and amounts as provided in the Note Purchase Agreement. The Notes are not subject to prepayment or redemption at the option of the Company prior to their expressed maturity dates except on the terms and conditions and in the amounts and with the premium, if any, set forth in the Note Purchase Agreement. This Note is registered on the books of the Company and is transferable only by surrender thereof at the principal office of the Company duly endorsed or accompanied by a written instrument of transfer duly executed by the registered holder of this Note or its attorney duly authorized in writing. Payment of or on account of principal, premium, if any, and interest on this Note shall be made only to or upon the order in writing of the registered holder. A-1-118 Any holder of this Note shall, by its acceptance of this Note, be deemed to have made the representations to the Company regarding the purchase of this Note pursuant to Section 2.3 of the Note Purchase Agreement; PROVIDED, HOWEVER, that with respect to the representation made in the third sentence of Section 2.3, such holder will not be deemed to have chosen the options set forth in Section 2.3(b), (c), (d) or (f) of the Note Purchase Agreement unless such holder shall have made the disclosures referred to therein at least ten Business Days (as defined in the Note Purchase Agreement) prior to its acceptance of this Note and shall have received prior to its acceptance of this Note written confirmation from the Company to the effect set forth in the first sentence of Paragraph 20 of Exhibit B-1 to the Note Purchase Agreement. A-1-119 This Note and the Note Purchase Agreement are governed by the laws of the State of New York. CROWN PACIFIC LIMITED PARTNERSHIP, a Delaware limited partnership By: CROWN PACIFIC MANAGEMENT LIMITED PARTNERSHIP, a Delaware limited partnership Its General Partner By: HS Corp. of Oregon, an Oregon corporation Its General Partner By ------------------------------------------- Its A-1-120 CROWN PACIFIC LIMITED PARTNERSHIP 7.76% SENIOR NOTE, SERIES B, DUE FEBRUARY 1, 2013 PPN: 22844# AJ 9 NO. R-B- ____________, 19___ $ CROWN PACIFIC LIMITED PARTNERSHIP, a Delaware limited partnership (the "COMPANY"), for value received, hereby promises to pay to or registered assigns on the first day of February, 2013 the principal amount of DOLLARS and to pay interest (computed on the basis of a 360-day year of twelve 30-day months) on the principal amount from time to time remaining unpaid hereon at the rate of 7.76% per annum from the date hereof until maturity, payable semiannually on the first day of February and August in each year commencing February 1, 1998, and at maturity. The Company agrees to pay interest (computed on the same basis) on overdue principal (including any overdue optional prepayment of principal) and premium, if any, and (to the extent legally enforceable) on any overdue installment of interest, at the Overdue Rate (as defined in the Note Purchase Agreement referred to below) after the date due, whether by acceleration or otherwise, until paid. The principal hereof, premium, if any, and interest hereon are payable at the principal office of the Company in Portland, Oregon in coin or currency of the United States of America which at the time of payment shall be legal tender for the payment of public and private debts. EXHIBIT A-2 (to Note Purchase Agreement) This Note is one of the 7.76% Senior Notes, Series B, due February 1, 2013 of the Company in the aggregate principal amount of $55,000,000, which along with the 7.76% Senior Notes, Series A, due February 1, 2012 of the Company in the aggregate principal amount of $15,000,000 and the 7.93% Senior Notes, Series C, due February 1, 2018 of the Company in the aggregate principal amount of $25,000,000 (such Series A Notes, Series B Notes and Series C Notes of the Company being herein referred to as the "NOTES"), are issued or to be issued under and pursuant to the terms and provisions of the Note Purchase Agreement dated as of December 15, 1997 (the "NOTE PURCHASE AGREEMENT"), entered into by the Company with the original purchasers therein referred to and this Note and the holder hereof are entitled equally and ratably with the holders of all other Notes outstanding under the Note Purchase Agreement to all the benefits provided for thereby or referred to therein, to which Note Purchase Agreement reference is hereby made for the statement thereof. This Note and the other Notes outstanding under the Note Purchase Agreement may be declared or otherwise become due prior to their expressed maturity dates and certain prepayments are required to be made thereon by the Company, all in the events, on the terms and in the manner and amounts as provided in the Note Purchase Agreement. The Notes are not subject to prepayment or redemption at the option of the Company prior to their expressed maturity dates except on the terms and conditions and in the amounts and with the premium, if any, set forth in the Note Purchase Agreement. This Note is registered on the books of the Company and is transferable only by surrender thereof at the principal office of the Company duly endorsed or accompanied by a written instrument of transfer duly executed by the registered holder of this Note or its attorney duly authorized in writing. Payment of or on account of principal, premium, if any, and interest on this Note shall be made only to or upon the order in writing of the registered holder. A-2-122 Any holder of this Note shall, by its acceptance of this Note, be deemed to have made the representations to the Company regarding the purchase of this Note pursuant to Section 2.3 of the Note Purchase Agreement; PROVIDED, HOWEVER, that with respect to the representation made in the third sentence of Section 2.3, such holder will not be deemed to have chosen the options set forth in Section 2.3(b), (c), (d) or (f) of the Note Purchase Agreement unless such holder shall have made the disclosures referred to therein at least ten Business Days (as defined in the Note Purchase Agreement) prior to its acceptance of this Note and shall have received prior to its acceptance of this Note written confirmation from the Company to the effect set forth in the first sentence of Paragraph 20 of Exhibit B-1 to the Note Purchase Agreement. A-2-123 This Note and the Note Purchase Agreement are governed by the laws of the State of New York. CROWN PACIFIC LIMITED PARTNERSHIP, a Delaware limited partnership By: CROWN PACIFIC MANAGEMENT LIMITED PARTNERSHIP, a Delaware limited partnership Its General Partner By: HS Corp. of Oregon, an Oregon corporation Its General Partner By ------------------------------------------- Its A-2-124 CROWN PACIFIC LIMITED PARTNERSHIP 7.93% SENIOR NOTE, SERIES C, DUE FEBRUARY 1, 2018 PPN: 22844# AK 6 NO. R-C- ____________, 19___ $ CROWN PACIFIC LIMITED PARTNERSHIP, a Delaware limited partnership (the "COMPANY"), for value received, hereby promises to pay to or registered assigns on the first day of February, 2018 the principal amount of DOLLARS and to pay interest (computed on the basis of a 360-day year of twelve 30-day months) on the principal amount from time to time remaining unpaid hereon at the rate of 7.93% per annum from the date hereof until maturity, payable semiannually on the first day of February and August in each year commencing February 1, 1998, and at maturity. The Company agrees to pay interest (computed on the same basis) on overdue principal (including any overdue optional prepayment of principal) and premium, if any, and (to the extent legally enforceable) on any overdue installment of interest, at the Overdue Rate (as defined in the Note Purchase Agreement referred to below) after the date due, whether by acceleration or otherwise, until paid. The principal hereof, premium, if any, and interest hereon are payable at the principal office of the Company in Portland, Oregon in coin or currency of the United States of America which at the time of payment shall be legal tender for the payment of public and private debts. This Note is one of the 7.93% Senior Notes, Series C, due February 1, 2018 of the Company in the aggregate principal amount EXHIBIT A-3 (to Note Purchase Agreement) of $25,000,000, which along with the 7.76% Senior Notes, Series A, due February 1, 2012 of the Company in the aggregate principal amount of $15,000,000 and the 7.76% Senior Notes, Series B, due February 1, 2013 of the Company in the aggregate principal amount of $55,000,000 (such Series A Notes, Series B Notes and Series C Notes of the Company being herein referred to as the "NOTES"), are issued or to be issued under and pursuant to the terms and provisions of the Note Purchase Agreement dated as of December 15, 1997 (the "NOTE PURCHASE AGREEMENT"), entered into by the Company with the original purchasers therein referred to and this Note and the holder hereof are entitled equally and ratably with the holders of all other Notes outstanding under the Note Purchase Agreement to all the benefits provided for thereby or referred to therein, to which Note Purchase Agreement reference is hereby made for the statement thereof. This Note and the other Notes outstanding under the Note Purchase Agreement may be declared or otherwise become due prior to their expressed maturity dates, all in the events, on the terms and in the manner and amounts as provided in the Note Purchase Agreement. The Notes are not subject to prepayment or redemption at the option of the Company prior to their expressed maturity dates except on the terms and conditions and in the amounts and with the premium, if any, set forth in the Note Purchase Agreement. This Note is registered on the books of the Company and is transferable only by surrender thereof at the principal office of the Company duly endorsed or accompanied by a written instrument of transfer duly executed by the registered holder of this Note or its attorney duly authorized in writing. Payment of or on account of principal, premium, if any, and interest on this Note shall be made only to or upon the order in writing of the registered holder. Any holder of this Note shall, by its acceptance of this Note, be deemed to have made the representations to the Company regarding the purchase of this Note pursuant to Section 2.3 of the Note A-3-126 Purchase Agreement; PROVIDED, HOWEVER, that with respect to the representation made in the third sentence of Section 2.3, such holder will not be deemed to have chosen the options set forth in Section 2.3(b), (c), (d) or (f) of the Note Purchase Agreement unless such holder shall have made the disclosures referred to therein at least ten Business Days (as defined in the Note Purchase Agreement) prior to its acceptance of this Note and shall have received prior to its acceptance of this Note written confirmation from the Company to the effect set forth in the first sentence of Paragraph 20 of Exhibit B-1 to the Note Purchase Agreement. A-3-127 This Note and the Note Purchase Agreement are governed by the laws of the State of New York. CROWN PACIFIC LIMITED PARTNERSHIP, a Delaware limited partnership By: CROWN PACIFIC MANAGEMENT LIMITED PARTNERSHIP, a Delaware limited partnership Its General Partner By: HS Corp. of Oregon, an Oregon corporation Its General Partner By --------------------------------- Its A-3-128 CROWN PACIFIC LIMITED PARTNERSHIP CLOSING CERTIFICATE To the Purchasers named in Schedule I attached hereto Gentlemen: This certificate is delivered to you in compliance with the requirements of the Note Purchase Agreement dated as of December 15, 1997 (the "AGREEMENT") entered into by the undersigned, Crown Pacific Limited Partnership, a Delaware limited partnership (the "COMPANY"), with the Purchasers named therein, and as an inducement to and as part of the consideration for your several purchases on this date of the Senior Notes (the "NOTES") of the Company to be purchased by you on the date hereof pursuant to the Agreement. The capitalized terms used herein shall have the same meanings as in the Agreement. The Company hereby represents and warrants to you on the date hereof as follows: (1) SUBSIDIARIES. The Company has no Subsidiaries. (2) ORGANIZATION AND AUTHORITY. (a) The Company: (i) is a limited partnership duly organized, validly existing and in good standing under the laws of the State of Delaware; (ii) has all requisite power and authority and all necessary licenses and permits to own and operate its Properties and to carry on its business as described in the Private Placement Memorandum; (iii) is duly licensed or qualified and is in good standing as a foreign partnership (to the extent qualification as a foreign partnership is permitted by EXHIBIT B-1 (to Note Purchase Agreement) statute) in each jurisdiction wherein the failure to be so qualified would have a material adverse effect on the business, operations or financial condition of the Company; and (iv) does not believe that the inability of the Company to qualify as a foreign partnership in any state in which such qualification is not permitted by law will have a material adverse effect on the business, operations or financial condition of the Company. (b) Annex A attached hereto states the name of each Person holding either a General Partnership Interest or Limited Partnership Interest in the Company. (3) REPRESENTATIONS AND WARRANTIES OF MANAGING GENERAL PARTNER. The representations and warranties of the Managing General Partner given to you in its Certificate of even date herewith are true and correct. (4) BUSINESS AND PROPERTY. The Private Placement Memorandum sets forth a substantially accurate and complete description of the business conducted and proposed to be conducted by the Company and the principal Properties of the Company. (5) FINANCIAL STATEMENTS. (a) The unaudited pro forma combined balance sheet of the Partnership as of September 30, 1994 and the unaudited pro forma combined statement of operations of the Partnership for the year ended December 31, 1993 and the nine-month period ended September 30, 1994 attached hereto as Annex B have been prepared in accordance with GAAP, are correct and complete and present fairly the pro forma financial position of the Partnership as of September 30, 1994 and the pro forma results of its operations for the year ended December 31, 1993 and the nine-month period ended September 30, 1994. The combined balance sheets of the predecessors of the Partnership as of December 31, 1992 and December 31, 1993 and the combined statements of operations and changes in partners' and B-1-130 shareholders' equity and in cash flows for the fiscal years ended on December 31, 1991, 1992 and 1993, and the combined balance sheet of the predecessors of the Partnership as of September 30, 1994 and the combined statement of operations and changes in partners' and shareholders' equity and in cash flows for the nine-month period ended on said date, all as attached hereto as Annex B, accompanied by a report thereon containing an opinion unqualified as to scope imposed by the Partnership or its predecessors and otherwise without qualification except as therein noted, by Price Waterhouse LLP, have been prepared in accordance with GAAP consistently applied except as therein noted, are correct and complete and present fairly the financial position of the predecessors of the Partnership as of such dates and the results of their operations and cash flows for such periods. The consolidated balance sheets of CPLP as of December 31 in each of the years 1991 to 1993, both inclusive, and CP Inland as of December 31, 1993, and the statements of operations, changes in partners' equity and cash flows for the fiscal years ended on said dates, each as attached hereto as Annex B and each accompanied by a report thereon containing an opinion unqualified as to scope limitations imposed by the Predecessor Partnerships and otherwise without qualification except as therein noted, by Price Waterhouse LLP, have been prepared in accordance with GAAP consistently applied except as therein noted, are correct and complete and present fairly the financial position of the Predecessor Partnerships and their respective subsidiaries as of such dates and the results of their operations and cash flows for such periods. The statement of operations and changes in partners' equity and in cash flows for each of DAW Forest Products Company, L.P., a Delaware limited partnership ("DAW"), and W-I Forest Products Limited Partnership, a Washington limited partnership ("W-I"), for the fiscal year ended on December 31, 1992 and for the period from January 1, 1993 to October 28, 1993, each as attached hereto as Annex B and each accompanied by a report thereon containing an opinion unqualified as to scope limitations imposed by the Company, its predecessors or DAW or W-I, respectively, and otherwise without qualification except as therein noted, by Price Waterhouse LLP, have, to the knowledge of the Company, been prepared in accordance with GAAP consistently applied except as B-1-131 therein noted, to the knowledge of the Company (x) are correct and complete and (y) present fairly the financial position of DAW and W-I, respectively, as of such dates and the results of their operations and cash flows for such periods. The combined balance sheets of the Company as of December 31 in each of the years 1994 and 1995 and the balance sheet of the Company as of December 31, 1996 and the statements of income (or of operations, as the case may be), of changes in partners' and shareholders' equity and of cash flows for the fiscal years ended on said dates (combined in the case of 1994 and 1995), each attached hereto as Annex B and each accompanied by a report thereon containing an opinion unqualified as to scope limitations imposed by the Company and otherwise without qualification except as therein noted, by Price Waterhouse LLP, have been prepared in accordance with GAAP consistently applied except as therein noted, are correct and complete and present fairly the financial position of the Company and its affiliates as of such dates and the results of their combined operations and combined cash flows for such periods. The unaudited balance sheet of the Company as of September 30, 1997, and the statement of income, of cash flows and of changes in partners' capital for the nine-month period ended on said date, attached hereto as Annex B, have been prepared in accordance with GAAP consistently applied except as therein noted, are correct and complete and present fairly the financial position of the Company as of such date and the results of its operations and cash flows for such period, subject only for year-end audit adjustments in the ordinary course. (b) Since December 31, 1996, there has been no change in the condition, financial or otherwise, of the Company as shown on the balance sheet of the Company as of such date, except changes in the ordinary course of business, none of which individually or in the aggregate has been materially adverse. (6) INDEBTEDNESS. Annex C attached hereto correctly describes all Funded Debt (other than Capitalized Rentals), Current Debt and Capitalized Rentals of the Company outstanding as of the first Closing Date. B-1-132 (7) FULL DISCLOSURE. The Private Placement Memorandum, the financial statements referred to in paragraph 5, the Agreement and all other written statements furnished by or on behalf of the Company to you in connection with the negotiation of the sale of the Notes, do not, taken as a whole, contain any untrue statement of a material fact or omit a material fact necessary to make the statements contained therein or herein not misleading. There is no fact peculiar to the Company which the Company has not disclosed to you in writing which materially affects adversely nor, so far as the Company can now foresee, will materially affect adversely the business, Properties, profits or financial condition of the Company or the ability of the Company to perform its obligations under the Agreement or the sale and issuance of the Notes. (8) PENDING LITIGATION. There are no proceedings pending, or to the knowledge of the Company threatened, against or affecting the Company or the Managing General Partner in any court or before any governmental authority or arbitration board or tribunal which if adversely determined would materially and adversely affect the business, profits or financial condition of the Company or the ability of the Company to perform the Agreement or to issue and sell the Notes. The Company is not in default with respect to any order of any court, governmental authority or arbitration board or tribunal. (9) TITLE TO PROPERTIES. The Company has good and marketable title in fee simple (or its equivalent under applicable law) to all material parcels of real property it purports to own and has good and marketable title to all the other Property it purports to own subject to no Liens other than Liens permitted by the Agreement. (10) SALE IS LEGAL AND AUTHORIZED. The sale of the Notes and compliance by the Company with all of the provisions of the Agreement and of the Notes: (a) are within the partnership powers of the Company; B-1-133 (b) will not result in the violation of any provisions of any law or any order of any court or governmental authority or agency and will not conflict with or result in any breach of any of the terms, conditions or provisions of, or constitute a default under, or result in the creation of any Lien upon any Property of the Company under the provisions of, any agreement or any indenture or other instrument to which the Company is a party or by which it may be bound; and the Agreement and the Notes delivered to the Purchasers on the date hereof have been duly authorized by proper action on the part of the Company, executed and delivered by the Company and constitute the legal, valid and binding obligations, contracts and agreements of the Company enforceable in accordance with their respective terms, subject to bankruptcy, insolvency, fraudulent conveyance, and similar laws affecting creditors' rights generally, and to general principles of equity (regardless of whether the application of such principles is considered in equity or at law). (11) NO DEFAULTS. No Default or Event of Default has occurred and is continuing. The Company is not in default in the payment of principal or interest on any Indebtedness, is not in violation in any respect of any terms of the Partnership Agreement and is not in default, and no event of default has occurred, under any instrument or instruments or agreements (i) under and subject to which any Current Debt or Funded Debt has been issued, or (ii) pursuant to which the Company has any material obligations; and no event has occurred and is continuing under the provisions of any such instrument or agreement which with the lapse of time or the giving of notice, or both, would constitute an event of default thereunder. (12) NO MATERIALLY ADVERSE CONTRACTS. The Company is not a party to, or bound or affected by, any contract or agreement or subject to any judgment, order, writ, injunction, rule or regulation or decree or other action of any court or other governmental authority or agency, or the award of any arbitrator, or any charter or contractual restriction that materially B-1-134 adversely affects or in the future may (so far as the Company can now reasonably foresee based on facts known to the Company) materially adversely affect the business, Properties, profits, or financial condition of the Company. (13) GOVERNMENTAL CONSENT. Neither the nature of the Company or of any of its business or Properties, nor any relationship between the Company and any other Person, nor any circumstance in connection with the offer, issue, sale or delivery of the Notes or the execution and delivery of the Agreement is such as to require a consent, approval or authorization of, or filing, registration or qualification with, any regulatory body, state, Federal or local on the part of the Company as a condition to the execution and delivery of the Agreement or the offer, issue, sale or delivery of the Notes. (14) USE OF PROCEEDS. The net proceeds from the sale of the Notes will be used by the Company to repay indebtedness incurred in connection with acquisitions of timberlands and other Property and expenses in consummating the transactions contemplated by the Agreement. None of the transactions contemplated in the Agreement (including, without limitation thereof, the use of the proceeds from the sale of the Notes) will violate or result in a violation of Section 7 of the Securities Exchange Act of 1934, as amended, or any regulations issued pursuant thereto including, without limitation, Regulation G, T or X of the Board of Governors of the Federal Reserve System, 12 C.F.R., Chapter II. The Company does not own or intend to carry or purchase any "MARGIN STOCK" within the meaning of said Regulation G. None of the proceeds from the sale of the Notes will be used to purchase, or refinance any borrowing, the proceeds of which were used to purchase any "SECURITY" within the meaning of the Securities Exchange Act of 1934, as amended. (15) PRIVATE OFFERING. Neither the Company, directly or indirectly, nor any agent on its behalf has offered or will offer the Notes or any similar Security or has solicited or will solicit an offer to acquire the Notes or any similar Security from or has otherwise approached or negotiated or will approach or negotiate in respect of the Notes or any similar Security with B-1-135 any Person other than you and not more than 30 other institutional investors, each of whom was offered a portion of the Notes at private sale for investment. Neither the Company, directly or indirectly, nor any agent on its behalf has offered or will offer the Notes or any similar Security or has solicited or will solicit an offer to acquire the Notes or any similar Security from any Person so as to bring the issuance and sale of the Notes within the provisions of Section 5 of the Securities Act. (16) TAXES. All tax returns required to be filed by the Company or the Predecessor Partnerships in any jurisdiction have, in fact, been filed, and all taxes, assessments, fees and other governmental charges upon the Company or the Predecessor Partnerships or upon any of their respective Properties, income or franchises, which are shown to be due and payable in such returns have been paid. The Company does not know of any material proposed additional tax assessment against it or the Predecessor Partnerships for which adequate provision has not been made on its accounts and no material controversy in respect of additional income taxes due is pending or to the knowledge of the Company threatened. The provisions for taxes on the books of the Company are adequate for all open years, and for its current fiscal period. (17) COMPLIANCE WITH LAW. The Company: (a) is not, to the knowledge of the Company after due inquiry, in violation of any laws, ordinances, governmental rules or regulations to which it is subject, or (b) has not failed to obtain any license, permit, franchise or other governmental authorization (and in the case of any temporary permits, application for permanent permits have been made and are pending) necessary to the ownership or operation of its Property or to the conduct of its business, B-1-136 which violation or failure to obtain would materially adversely affect the business, profits, Properties or financial condition of the Company or the issuance and sale of the Notes. (18) RESTRICTIONS ON COMPANY. The Company is not a party to or bound by any security, contract, indenture, agreement, instrument, order of any court or governmental agency, law or rule or regulation which restricts the right or ability of the Company to incur Indebtedness, other than the Agreement and the Credit Agreements and the Note Purchase Agreement dated as of December 1, 1994, the Note Purchase Agreement dated as of March 1, 1995, the Note Purchase Agreement dated as of August 1, 1996 in each case between the Company and the Note Purchasers named therein, the $55,000,000 Purchase Price Note issued by the Company to Trillium Corporation on October 15, 1997, the $52,500,000 Purchase Price Note issued by the Company to Trillium Corporation on October 15, 1997, the Lease Agreement dated as of December 19, 1997 between SELCO Service Corporation, as lessor, and the Company, as lessee and construction agent, relating to the Port Angeles Sawmill Complex, and the Lease Agreement dated as of December 19, 1997 between SELCO Service Corporation, as lessor, and the Company, as lessee and construction agent, relating to the Bonners Ferry Circle Mill. (19) PATENTS AND TRADEMARKS. The Company owns or possesses all the patents, trademarks, trade names, service marks, copyrights, licenses and rights with respect to the foregoing necessary for the present and planned future conduct of its business, without any known conflict with the rights of others. (20) EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974. The consummation of the transactions provided for in the Agreement and compliance by the Company with the provisions thereof and the Notes issued thereunder will not involve any prohibited transaction within the meaning of ERISA or Section 4975 of the Internal Revenue Code of 1986, as amended. The representation of the Company in the preceding sentence is made in reliance upon and subject to the accuracy of the representation of each Purchaser in Section 2.3 of the Agreement as to the source of funds to be used by such Purchaser to pay the purchase price of the Notes B-1-137 to be purchased by such Purchaser. Each Plan complies in all material respects with all applicable statutes and governmental rules and regulations, and (a) no Reportable Event has occurred and is continuing with respect to any Plan, (b) neither the Company nor any ERISA Affiliate has withdrawn from any Multiemployer Plan or instituted steps to do so, and (c) no steps have been instituted to terminate any Plan. No condition exists or event or transaction has occurred in connection with any Plan which could result in the incurrence by the Company or any ERISA Affiliate of any material liability, fine or penalty. No Plan maintained by the Company or any ERISA Affiliate, nor any trusts created thereunder, have incurred any "ACCUMULATED FUNDING DEFICIENCY" as defined in Section 302 of ERISA nor does the present value of all benefits vested under all Plans exceed, as of the last annual valuation date, the value of the assets of the Plans allocable to such vested benefits. Neither the Company nor any ERISA Affiliate has any contingent liability with respect to any post-retirement "WELFARE BENEFIT PLAN" (as such term is defined in ERISA) that could reasonably be expected to have a material adverse affect on the business, profits or financial condition of the Company. (21) ENVIRONMENTAL AND NATURAL RESOURCE MATTERS. Except as disclosed in the reports listed on Annex D attached hereto, none of which disclosures could materially adversely affect the business, profits, Properties or financial condition of the Company, to the knowledge of the Company after due inquiry: (a) neither the Company nor its Properties are in material violation of any applicable Environmental and Natural Resource Law; (b) the Company has obtained all material Governmental Approvals required for its current operations and its Properties by any applicable Environmental and Natural Resource Law; (c) there is no and has never been a material Release or threatened material Release or disposal of any Hazardous Material at the Properties of the Company; to the knowledge B-1-138 of the Company, its Properties are not adversely affected by any Release or threatened Release originating or emanating from any other Property; (d) the Properties of the Company do not contain and have not contained any: (i) underground storage tank, (ii) material amounts of asbestos containing building material, (iii) any landfills or dumps, (iv) hazardous waste treatment, storage or disposal facility as defined pursuant to RCRA or any comparable state law, or (v) site on or nominated for the National Priority List promulgated pursuant to CERCLA or any state priority list promulgated pursuant to any comparable state law; (e) the Company is not subject to any material liability for response or corrective action, natural resource damage or other harm pursuant to CERCLA, RCRA or any comparable state law; the Company is not subject to, has no notice or knowledge of and is not required to give any notice of any Environmental and Natural Resource Claim arising from the Company, its operations, its Properties or any other property previously owned or operated by the Company or its predecessors (including without limitation the Predecessor Partnerships, but excluding predecessors of the Company only with respect to title to such property); there are no conditions or occurrences at the Properties of the Company which could reasonably form the basis for an Environmental and Natural Resource Claim against the Company or its Properties; (f) the Properties of the Company are not subject to, and the Company has no knowledge of any imminent, material restriction on its ownership, occupancy, use, productivity or transferability (i) in connection with any Release, threatened Release or disposal of a Hazardous Material, or Environmental and Natural Resource Law or (ii) as a consequence of any Harvest/Yield Restriction; (g) in connection with any acquisition of real properties by the Company or its predecessors, the Company B-1-139 or its predecessors (including without limitation the Predecessor Partnerships, but excluding predecessors of the Company only with respect to title to such property) conducted due and diligent inquiry of any environmental liability of, compliance with any applicable Environmental and Natural Resource Law of and the environmental condition of such acquired Properties, which due and diligent inquiry (i) constituted at the time of such acquisition all appropriate inquiry into the previous ownership and uses of such Property consistent with good commercial or customary practice in an effort to minimize liability, and (ii) constituted at the time of such acquisition the due diligence a reasonable and prudent purchaser would have conducted as to environmental, health and safety matters, when acquiring similar Properties. (22) The obligations of the Company under the Agreement and the Notes rank PARI PASSU in priority of payment with the Indebtedness incurred or to be incurred pursuant to the Working Capital Facility, the Acquisition Facility, the 1994 Notes, the 1995 Notes and the 1996 Notes. Dated: CROWN PACIFIC LIMITED PARTNERSHIP, a Delaware limited partnership By: CROWN PACIFIC MANAGEMENT LIMITED PARTNERSHIP, a Delaware limited partnership Its General Partner By: HS Corp. of Oregon, an Oregon corporation B-1-140 Its General Partner By ------------------------------------------ Its B-1-141 SCHEDULE I NOTE PURCHASERS (1) - ------------------------ (1) The Purchasers purchasing Notes on such Closing Date SCHEDULE I (to Company Closing Certificate) GENERAL PARTNER AND LIMITED PARTNER OF THE COMPANY GENERAL PARTNER: Crown Pacific Management Limited Partnership, a Delaware limited partnership, which owns a 1.0101% Equity Interest in the Company LIMITED PARTNER: Crown Pacific Partners, L.P., a Delaware limited partnership, which owns directly or indirectly a 98.9899% Equity Interest in the Company ANNEX A (to Company Closing Certificate) FINANCIAL STATEMENTS OF THE COMPANY AND ITS PREDECESSORS [Financial Statements delivered separately and as a Part of the Company Closing Certificate delivered on each Closing Date] ANNEX B (to Company Closing Certificate) CURRENT DEBT AND FUNDED DEBT AND CAPITALIZED RENTALS OF THE COMPANY PART I. The Current Debt and Funded Debt (other than Capitalized Rentals) and Capitalized Rentals of the Company as of the first Closing Date but immediately prior to the funding of the Notes is as follows:
Item Principal Amount ($000) ---- ----------------------- CURRENT DEBT: Purchase Price Note payable to Trillium Corporation $ 55,000 FUNDED DEBT (other than Capitalized Rentals): Working Capital $ 16,500 Facility $275,000 9.78% Senior Notes $ 25,000 9.60% Senior Notes $ 6,490 8.01% Senior Notes $ 50,000 8.16% Senior Notes $ 19,510 8.21% Senior Notes $ 15,000 8.25% Senior Notes $ 59,000 Acquisition Facility Purchase Price Note $ 52,500 payable to Trillium Corporation
CAPITALIZED RENTALS: CAPITALIZED LEASE DATE PARTY AMOUNT ($000) ----- ---- ----- ------------- ANNEX C (to Company Closing Certificate) NONE C-146 PART II. The Current Debt and Funded Debt (other than Capitalized Rentals) and Capitalized Rentals of the Company (including any Current Debt and Funded Debt and Capitalized Rentals to which the Properties distributed to the Company on the first Closing Date are subject) as of the first Closing Date but immediately after the funding of the Notes (2) is as follows:
Item Principal Amount ($000) ---- ----------------------- CURRENT DEBT: Purchase Price Note payable to Trillium Corporation $ 55,000(3) FUNDED DEBT (other than Capitalized Rentals): Working capital $ 16,500 Facility $275,000 9.78% Senior Notes $ 25,000 9.60% Senior Notes $ 6,490 8.01% Senior Notes $ 50,000 8.16% Senior Notes $ 19,510 8.21% Senior Notes $ 15,000 8.25% Senior Notes $ 59,000 Acquisition Facility Purchase Price Note $ 52,500 payable to Trillium Corporation
CAPITALIZED RENTALS: - --------------------- (2) Funded Debt and Current Debt which is to be incurred on the Closing Date and which is specifically permitted by Section 4.6(a)(1) and (3) is not reflected in this Part II. (3) To be refinanced with the proceeds of the Series B and C Notes. C-147 CAPITALIZED RENTALS: CAPITALIZED LEASE DATE PARTY AMOUNT ($000) ----- ---- ----- ------------- NONE EXISTING LIENS: NONE C-148 ENVIRONMENTAL REPORTS ANNEX D (to Company Closing Certificate) CROWN PACIFIC MANAGEMENT LIMITED PARTNERSHIP CLOSING CERTIFICATE To the Purchasers named in Schedule I attached hereto Ladies and Gentlemen: This certificate is delivered to you in compliance with the requirements of the Note Purchase Agreement dated as of December 15, 1997 (the "AGREEMENT") entered into by Crown Pacific Limited Partnership, a Delaware limited partnership (the "COMPANY"), with the Purchasers named therein, and as an inducement to and as part of the consideration for your several purchases on this date of the Senior Notes (the "NOTES") of the Company to be purchased by you on the date hereof pursuant to the Agreement. The capitalized terms used herein shall have the same meanings as in the Agreement. Crown Pacific Management Limited Partnership, a Delaware limited partnership and the managing general partner of the Company (the "MANAGING GENERAL PARTNER") hereby represents and warrants to you on the date hereof as follows: (1) SUBSIDIARIES. The Managing General Partner has no subsidiaries. (2) ORGANIZATION AND AUTHORITY. (a) The Managing Partner: (i) is a limited partnership duly organized, validly existing and in good standing under the laws of the State of Delaware; (ii) has all requisite power and authority and all necessary licenses and permits to own and operate its Properties and to carry on its present business as now conducted and as presently proposed to be conducted; EXHIBIT B-2 (to Note Purchase Agreement) (iii) is duly licensed or qualified and is in good standing as a foreign partnership (to the extent qualification as a foreign partnership is permitted by statute) in each jurisdiction wherein the failure to be so qualified would have a material adverse effect on the Properties, business, prospects, profits or financial condition of the Managing General Partner; and (iv) has the power and authority under the Partnership Agreement of the Company to execute and deliver on behalf of the Company the Agreement, the Notes and the other certificates and agreements to be delivered by the Company in connection with the transactions contemplated by the Agreement. (b) Annex A attached hereto states the name of each Person holding either a General Partnership Interest or a Limited Partnership Interest in the Managing General Partner. (3) NO CONFLICTS. The execution and delivery by the Managing General Partner on behalf of the Company of the Agreement, the Notes and the other certificates and agreements to be delivered by the Company in connection with the transactions contemplated by the Agreement do not and will not contravene any law or any order of any court or governmental authority or agency applicable to or binding on the Managing General Partner or contravene the provisions of, or constitute a default under, its limited partnership agreement or any indenture, mortgage, contract or any agreement or instrument to which the Managing General Partner is a party or by which it or any of its Property may be bound or affected. (4) PENDING LITIGATION. There are no proceedings pending, or to the knowledge of the Managing General Partner threatened, against or affecting the Managing General Partner, in any court or before any governmental authority or arbitration board or tribunal which if adversely determined would materially and adversely affect the Properties, business, profits or financial B-2-151 condition of the Managing General Partner. The Managing General Partner is not in default with respect to any order of any court, governmental authority or arbitration board or tribunal. (5) NO DEFAULTS. The Managing General Partner is not in default in the payment of principal or interest on any Indebtedness, is not in violation in any respect of any terms of its limited partnership agreement and is not in default under any instrument or instruments or agreements under and subject to which any Indebtedness has been issued and no event has occurred and is continuing under the provisions of any such instrument or agreement which with the lapse of time or the giving of notice, or both, would constitute an event of default thereunder. (6) COMPLIANCE WITH LAWS. The Managing General Partner: (a) is not in violation of any laws, ordinances, governmental rules or regulations to which it is subject, and (b) has not failed to obtain any license, permit, franchise or other governmental authorization (and in the case of any temporary permits, application for permanent permits have been made and are pending) necessary to the ownership or operation of its Property or to the conduct of its business, which violation or failure to obtain might materially adversely affect the Properties, business, profits or financial condition of the Managing General Partner. Dated: CROWN PACIFIC MANAGEMENT LIMITED PARTNERSHIP By: HS Corp. of Oregon, an Oregon B-2-152 corporation Its General Partner By ---------------------------- Its B-2-153 SCHEDULE I NOTE PURCHASERS(4) - --------------------- (4) The Purchasers purchasing Notes on such Closing Date. SCHEDULE I (to Managing General Partner Closing Certificate) GENERAL PARTNERS AND LIMITED PARTNERS OF THE MANAGING GENERAL PARTNER GENERAL PARTNERS: Fremont Timber, Inc., a Delaware corporation HS Corp. of Oregon, an Oregon corporation LIMITED PARTNERS: Fremont Timber, Inc., a Delaware Corporation Peter W. Stott Roger L. Krage ANNEX A (to Managing General Partner Closing Certificate) DESCRIPTION OF CLOSING OPINION OF COUNSEL TO THE COMPANY The closing opinion of Ball Janik LLP, counsel for the Company, which is called for on each Closing Date by section 3.3 of the Agreement, shall be dated such Closing Date and addressed to the Purchasers purchasing Notes on such Closing Date, shall be satisfactory in form and substance to the purchasers, and shall be to the effect that: 1. The Company is a limited partnership, duly organized, validly existing and in good standing under the laws of the State of Delaware and has full power and authority to enter into and perform its obligations under the Agreement and to issue the Notes; 2. The Company (i) has full power and authority to own or hold under lease its property, and (ii) is duly authorized to conduct the activities in which it is now engaged and (iii) is duly licensed or qualified and is in good standing as a foreign limited partnership in each jurisdiction in which such qualification is permitted by law and in which the failure to so qualify would reasonably be expected to have a material adverse effect on the business, operations or financial condition of the company; and the inability of the Company to qualify as a foreign limited partnership in any state in which such qualification is not permitted by law would not reasonably be expected to have a material adverse effect on the business, operations or financial condition of the Company; 3. The Managing General Partner is a limited partnership, duly organized, validly existing and in good standing under the laws of the State of Delaware and has full power and authority, in its capacity as the sole general partner of the Company, to execute and deliver the Agreement and the Notes on behalf of the Company; 4. The execution and delivery of the Agreement and the Notes by the Managing General Partner on behalf of the EXHIBIT C (to Note Purchase Agreement) Company do not conflict with or result in a breach of any provision of the Partnership Agreement; 5. The Agreement has been duly authorized, executed and delivered by HS Corp. of Oregon, an Oregon corporation ("HS CORP."), acting in its capacity as a general partner of the Managing General Partner, acting in its capacity as the sole general partner of, and on behalf of, the Company, and constitutes the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, subject to (i) bankruptcy, insolvency, fraudulent conveyance and similar laws affecting creditors' rights generally, (ii) limitations on enforceability resulting from public policy and the judicial imposition of an implied covenant of good faith and fair dealing, (iii) limitations on the enforceability of equitable rights and remedies resulting from equitable defenses and judicial discretion, and (iv) to general principles of equity (regardless of whether the application of such principles is considered in a proceeding in equity or at law); 6. The Notes delivered on the date hereof have been duly authorized, executed and delivered by HS Corp., acting in its capacity as a general partner of the Managing General Partner, acting in its capacity as the sole general partner of, and on behalf of, the Company, and constitute the legal, valid and binding obligations of the Company enforceable in accordance with their terms, subject to (i) bankruptcy, insolvency, fraudulent conveyance and similar laws affecting creditors' rights generally, (ii) limitations on enforceability resulting from public policy and the judicial imposition of an implied covenant of good faith and fair dealing, (iii) limitations on the enforceability of equitable rights and remedies resulting from equitable defenses and judicial discretion, and (iv) to general principles of equity (regardless of whether the application of such principles is considered in a proceeding in equity or law); C-157 7. No approval, consent or withholding of objection on the part of, or filing, registration or qualification with, any Federal, state or local governmental body is necessary in connection with the execution, delivery and performance of the Agreement or the Notes by the Company; 8. The issuance and sale of the Notes and the execution, delivery and performance by the Company of the Agreement do not (i) contravene any law, governmental rule or regulation or any order of any court or governmental authority or agency known to such counsel after due inquiry and applicable to or binding on the Company, or (ii) conflict with, result in any breach of any of the provisions of, constitute a default under, or result in the creation or imposition of any lien or encumbrance upon any of the Property of the Company pursuant to any agreement or other instrument known to such counsel to which the Company is a party or by which the Company or any of its Property is bound; 9. To the knowledge of such counsel, there are no proceedings pending or threatened against or affecting the Company or the Managing General Partner in any court or before any governmental authority or arbitration board or tribunal which, if determined adversely to the Company or the Managing General Partner, would reasonably be expected to have a materially adverse effect on the business, operations or financial condition of the Company or the ability of the Company to perform its obligations under the Agreement. To the knowledge of such counsel, neither the Company nor the Managing General Partner is in default with respect to any order of any court, governmental authority or arbitration board or tribunal and, to the knowledge of such counsel, neither the Company nor the Managing Partner has received any notice of any such default; 10. Neither the purchase of the Notes nor the use by the Company of all or any portion of the proceeds of the sale of the Notes in the manner provided in the Agreement C-158 will violate Regulation G, T or X of the Board of Governors of the Federal Reserve System (12 C.F.R. Chapter II); 11. The Company is not an "investment company," a company controlled by an "investment company" or an "affiliated person" thereof, as such terms are defined in the Investment Company Act of 1940, as amended; and 12. HS Corp. is a corporation, duly organized, validly existing, and in good standing under the laws of the state of Oregon and has full power and authority, in its capacity as a general partner of the Managing General Partner, to execute and deliver the Agreement and the Notes on behalf of the Managing General Partner, acting in its capacity as the sole general partner of the Company. The opinion of Ball Janik LLP shall cover such other matters relating to the sale of the Notes as the Purchasers may reasonably request. With respect to matters of fact on which such opinion is based, such counsel shall be entitled to rely on appropriate certificates of public officials and officers of the Managing General Partner and the Company. Such counsel may assume that the laws of the State of New York are the same as the laws of the State of Oregon. In rendering an opinion on the qualification of the Company as a foreign limited partnership under the laws of any jurisdiction (other than the State of Oregon), such counsel may rely on appropriate certificates of such public official or officials as may be responsible for certifying as to such qualification. C-159 DESCRIPTION OF CLOSING OPINION OF SPECIAL COUNSEL TO THE COMPANY The closing opinion of Andrews & Kurth L.L.P., special counsel for the Company, which is called for on each Closing Date by Section 3.3 of the Agreement, shall be dated such Closing Date and addressed to the Purchasers purchasing Notes on such Closing Date, shall be satisfactory in form and substance to the Purchasers, and shall be to the effect that: 1. The issuance, sale and delivery of the Notes under the circumstances contemplated by the Agreement do not, under existing law, require the registration of the Notes under the Securities Act, or the qualification of an indenture under the Trust Indenture Act of 1939, as amended; and 2. The Company shall be taxed as a partnership for Federal income tax purposes. EXHIBIT D (to Note Purchase Agreement) [INTENTIONALLY RESERVED] EXHIBIT E (to Note Purchase Agreement) DESCRIPTION OF CLOSING OPINION OF SPECIAL COUNSEL TO THE PURCHASERS The closing opinion of Chapman and Cutler, special counsel to the Purchasers, which is called for on each Closing Date by Section 3.3 of the Agreement, shall be dated such Closing Date and addressed to the Purchasers purchasing Notes on such Closing Date, shall be satisfactory in form and substance to the Purchasers and shall be to the effect that: 1. The Company is a limited partnership, validly existing under the laws of the State of Delaware and has the power to enter into and perform the Agreement and to issue the Notes; 2. The Managing General Partner is a limited partnership, validly existing under the laws of the State of Delaware and has the power to execute and deliver the Agreement and the Notes on behalf of the Company; 3. The issuance and sale of the Notes and the execution and delivery of the Agreement by the Managing General Partner on behalf of the Company do not conflict with or result in a breach of any provision of the Partnership Agreement; 4. The Agreement has been duly authorized, executed and delivered by the Managing General Partner on behalf of the Company and constitutes the legal valid and binding contract of the Company enforceable in accordance with its terms, subject to bankruptcy, insolvency, fraudulent conveyance and similar laws affecting creditors' rights generally, and to general principles of equity (regardless of whether the application of such principles is considered in a proceeding in equity or at law); 5. The Notes delivered on the date hereof have been duly authorized, executed and delivered by the Managing EXHIBIT F (to Note Purchase Agreement) General Partner on behalf of the Company and constitute the legal, valid and binding obligations of the Company enforceable in accordance with their terms, subject to bankruptcy, insolvency, fraudulent conveyance and similar laws affecting creditors' rights generally, and to general principles of equity (regardless of whether the application of such principles is considered in a proceeding in equity or at law); and 6. The issuance, sale and delivery of the Notes under the circumstances contemplated by the Agreement do not, under existing law, require the registration of the Notes under the Securities Act, or the qualification of an indenture under the Trust Indenture Act of 1939, as amended. The opinion of Chapman and Cutler shall also state that the opinions of Ball Janik LLP and Andrews & Kurth L.L.P. are satisfactory in scope and form to Chapman and Cutler and that, in their opinion, the Purchasers are justified in relying thereon. With respect to matters of fact upon which such opinion is based, Chapman and Cutler may rely on appropriate certificates of public officials and officers of the Managing General Partner and the Company and upon the representations of the Managing General Partner, the Company and the Purchasers delivered in connection with the issuance and sale of the Notes. In rendering the opinion set forth in paragraphs 1 and 3 above, Chapman and Cutler may rely, as to matters referred to in paragraphs 1 and 3, solely upon an examination of the Partnership Agreement certified by the Managing General Partner, and a certificate of limited partnership and certificate of existence of the Company certified by the Secretary of State of the State of Delaware. In rendering the opinion set forth in paragraph 2 above, Chapman and Cutler may rely, as to matters referred to in paragraph 2, solely upon an examination of the limited partnership agreement of the Managing General Partner certified by a general partner thereof, and a certificate of limited partnership and a certificate of existence of the Managing General Partner certified by the Secretary of State of the State of Delaware. In rendering the opinions set forth in paragraphs 4 F-2 and 5 above as to the due authorization, execution and delivery of the Agreement and the Notes by the Managing General Partner on behalf of the Company, Chapman and Cutler may state that they have not examined the business records of the Managing General Partner or the Company but have relied on the certificates of appropriate officers of the Managing General Partner and the Company. The opinion of Chapman and Cutler is limited to the laws of the State of New York, the limited partnership law of the State of Delaware and the Federal laws of the United States. F-2 SUBORDINATION PROVISIONS APPLICABLE TO SUBORDINATED FUNDED DEBT (a) The indebtedness evidenced by the subordinated notes(5) and any renewals or extensions thereof, shall at all times be - ----------------- (5) Or debentures or other designation as may be EXHIBIT G (to Note Agreement) wholly subordinate and junior in right of payment to any and all indebtedness of the Company [here insert description of indebtedness to which Subordinated Funded Debt is subordinated which in all events must include the Notes] (herein called "SUPERIOR INDEBTEDNESS"), in the manner and with the force and effect hereafter set forth: (1) In the event of any liquidation, dissolution or winding up of the Company, or of any execution, sale, receivership, insolvency, bankruptcy, liquidation, readjustment, reorganization or other similar proceeding relative to the Company or its property, all principal and interest owing on all Superior Indebtedness shall first be irrevocably paid in full before any payment is made upon the indebtedness evidenced by the subordinated notes; and in any such event any payment or distribution of any kind or character, whether in cash, property or securities (other than in securities, including equity securities, or other evidences of indebtedness, the payment of which is subordinated to the payment of all Superior Indebtedness which may at the time be outstanding) which shall be made upon or in respect of the subordinated notes shall be paid over to the holders of such Superior Indebtedness, PRO RATA, for application in payment thereof unless and until such Superior Indebtedness shall have been paid or satisfied in full; (2) In the event that the subordinated notes are declared or become due and payable because of the occurrence of any event of default thereunder (or under the agreement or indenture, as appropriate) or otherwise than at the option of the Company, under circumstances when the foregoing clause (l) shall not be applicable, the holders of the subordinated notes shall be entitled to payments only after there shall first have been paid in full all Superior Indebtedness outstanding at the time the subordinated notes so become due and payable because of any such event, or payment shall have been provided for in a manner satisfactory to the holders of such Superior Indebtedness; and G-166 (3) During the continuance of any default with respect to any Superior Indebtedness which would permit the holders thereof to accelerate the maturity of such Superior Indebtedness, no payment of principal, premium or interest shall be made on the subordinated notes, if written notice of such default (a "DEFAULT NOTICE") has been given to the Company by any holder or holders of any Superior Indebtedness. Upon receipt of any Default Notice from the holders of Superior Indebtedness pursuant to this clause (3), the Company shall forthwith send a copy thereof to each holder of the subordinated notes at the time outstanding. Any payment or distribution of any kind or character, whether in cash, property or securities made with respect to any subordinated note after receipt by the Company of a Default Notice shall be held by the holder of such subordinated note in trust for the benefit of, and shall be paid over to, the holders of such Superior Indebtedness for application on a PRO RATA basis to the payment of such Superior Indebtedness unless and until such Superior Indebtedness shall have been paid or satisfied in full; and (b) The holder of each subordinated note undertakes and agrees for the benefit of each holder of Superior Indebtedness to execute, verify, deliver and file any proofs of claim which any holder of Superior Indebtedness may at any time require in order to prove and realize upon any rights or claims pertaining to the subordinated notes and to effectuate the full benefit of the subordination contained herein; and upon failure of the holder of any subordinated note so to do, any such holder of Superior Indebtedness shall be deemed to be irrevocably appointed the agent and attorney-in-fact of the holder of such note to execute, verify, deliver and file any such proofs of claim. (c) No right of any holder of any Superior Indebtedness to enforce subordination as herein provided shall at any time or in any way be affected or impaired by any failure to act on the part of the Company or the holders of Superior Indebtedness, or by any noncompliance by the Company with any of the terms, provisions and covenants of the subordinated notes or the agreement under G-167 which they are issued, regardless of any knowledge thereof that any such holder of Superior Indebtedness may have or be otherwise charged with. (d) The Company agrees, for the benefit of the holders of Superior Indebtedness, that in the event that any subordinated note is declared due and payable before its expressed maturity because of the occurrence of a default hereunder, the Company will give prompt notice in writing of such happening to the holders of Superior Indebtedness. (e) The foregoing provisions are solely for the purpose of defining the relative rights of the holders of Superior Indebtedness on the one hand, and the holders of the subordinated notes on the other hand, and nothing herein shall impair, as between the Company and the holders of the subordinated notes, the obligation of the Company which is unconditional and absolute, to pay the principal, premium, if any, and interest on the subordinated notes in accordance with their terms, nor shall anything herein prevent the holders of the subordinated notes from exercising all remedies otherwise permitted by applicable law or hereunder upon default hereunder, subject to the rights of the holders of Superior Indebtedness as herein provided for. G-168 PRE-FUNDING AGREEMENT --------------------- To the Purchasers Listed on the Attached Schedule Re: $95,000,000 Senior Notes, Series A, B and C Due 2010 - 2018 of CROWN PACIFIC LIMITED PARTNERSHIP Ladies and Gentlemen: In connection with the above-referenced transaction and in consideration of each of you, as purchasers of the above-captioned Notes (the "PURCHASERS"), depositing your respective commitments in escrow in a separate trust account on _______________ (the "FUNDING DATE") with Bank of America National Trust and Savings Association, as funding agent (the "FUNDING AGENT"), in anticipation of, and in order to facilitate, a closing on ______________ (the "CLOSING DATE"), the undersigned, Crown Pacific Limited Partnership, a Delaware limited partnership (the "COMPANY"), agrees to reimburse each of you, whether or not your funds are invested hereunder, for (i) any loss of principal you may suffer as a result of such deposit, and (ii) the loss of the use of your funds by paying to you (with respect only to the loss referred to in this clause (ii)) a sum equal to interest at the rate per annum (computed on the basis of a 360-day year) borne by the series of Notes to be purchased with such funds so advanced by you on the amount of such funds for the period from and including such Funding Date to but excluding, as the case may be, (x) the Closing Date, if such EXHIBIT H (to Note Purchase Agreement) closing occurs on such date, (y) such other Business Day not more than two calendar days after the Closing Date on which the closing occurs (the "RESCHEDULED CLOSING DATE") or (z) the Business Day on which your funds are returned if the wire transfer of such funds is initiated by the Funding Agent by 10:00 a.m. Houston, Texas time or the next following Business Day if such return is not made by such time. The Company shall pay such amounts referred to in clauses (i) and (ii) of the preceding sentence to the Funding Agent on behalf of the Purchasers in immediately available funds by wire transfer to be received by the Funding Agent no later than 9:00 a.m. Houston, Texas time on the last day of the period in respect of which interest is payable, and the Funding Agent shall pay each Purchaser its respective amount due in immediately available funds by wire transfer on such day to the account specified for such Purchaser on Schedule I to the Note Purchase Agreement dated as of December 15, 1997 (the "NOTE AGREEMENT") pursuant to which the above-captioned Notes are to be issued or to such other account specified by such Purchaser in writing to the Company and the Funding Agent. "BUSINESS DAY" means any day other than a Saturday, Sunday or a day on which banks in the States of Texas or California are authorized or permitted to be closed in observance of a legal holiday. The funds furnished by you shall be held in a separate trust account and shall be invested upon the instruction of the Company by the Funding Agent on your behalf in obligations of the United States of America or obligations fully guaranteed as to principal and interest by the United States of America, in either case having a stated maturity not later than one week from the date of acquisition, PROVIDED that, any of such investments may be made through a repurchase agreement in commercially reasonable form with the Funding Agent or any other bank or other financial institution having capital, surplus and undivided profits of at least $500,000,000 so long as title to the underlying obligations shall pass to the Funding Agent, and that such underlying obligations shall be segregated in a custodial or trust account of, or for the benefit of, the Funding Agent for your further benefit and such account shall be overcollateralized by 102% (such investments being hereinafter referred to as H-170 "INVESTMENTS"). All income and profits on the Investments not in excess of the sums payable to you pursuant to clause (ii) of the first sentence of the preceding paragraph shall be for your respective accounts (such income and profits to be credited against the obligation of the Company to reimburse each of you for the loss of use of funds made available to the Funding Agent) and all other income and profits shall be for the account of the Company. All losses on the Investments shall be borne by the Company and the Company shall reimburse the Funding Agent therefor for your ratable benefit pursuant to the preceding paragraph. Your execution of the Note Agreement shall indicate your acceptance of the terms and conditions of this letter and your authorization to the Funding Agent to invest the funds provided by you as specified herein. Very truly yours, CROWN PACIFIC LIMITED PARTNERSHIP, a Delaware limited partnership By: CROWN PACIFIC MANAGEMENT LIMITED PARTNERSHIP, a Delaware limited partnership Its General Partner By: HS Corp. of Oregon, an Oregon corporation Its General Partner By --------------------------------- Its: H-171 The undersigned, as Funding Agent, hereby acknowledges the foregoing and agrees (i) to hold such funds in a separate trust account pursuant to the terms of which such funds may not be commingled with assets of the Funding Agent and may not be withdrawn unless and until verbal instructions (the "INSTRUCTIONS") are received from Robert P. Davis, Esq., Richard F. Klein, Esq., Thomas G. Park, Esq. or Demetria E. Vong-Spillan of the law firm of Chapman and Cutler, Chicago, Illinois to withdraw such funds and apply such funds as described in either clause (iii)(x) or (iii)(y) as specified, (ii) prior to receiving such Instructions, to invest, if possible, said funds on behalf of each of the Purchasers in Investments at the instruction of the Company, (iii) immediately following receipt of such Instructions, (x) if a closing shall have occurred on the Closing Date or the Rescheduled Closing Date, to withdraw such funds and pay and apply the same to or upon the instructions of the Company in accordance with the terms of the Note Agreement, and to disburse all income and profits on the Investments not in excess of the sums payable to the respective Purchasers in accordance with the provisions of the foregoing letter and all other income and profits actually earned thereon to the Company, and (y) if a closing shall not have occurred on the Closing Date or the Rescheduled Closing Date, to deliver to each of the Purchasers in immediately available funds by wire transfer to the account specified in the foregoing letter any funds which are to be returned to such Purchasers, including any amounts furnished by the Company to reimburse the Purchasers for losses, if any, incurred on the Investments. The Funding Agent agrees to initiate a wire transfer to each of the Purchasers by 10:00 a.m. Chicago, Illinois time of funds it receives from the Company prior to 9:00 a.m. Chicago, Illinois time. BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By Its: H-172 SCHEDULE PURCHASER AMOUNT OF COMMITMENT --------- -------------------- EX-23 12 EXHIBIT 23 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 33-94118) of Crown Pacific Partners, L.P. of our report dated January 26, 1998 appearing on page F-1 of this Annual Report on Form 10-K. /s/ PRICE WATERHOUSE LLP - ----------------------------- PRICE WATERHOUSE LLP Portland, Oregon March 30, 1998 EX-27 13 EXHIBIT 27
5 1,000 YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 22,384 0 55,033 447 44,914 130,961 70,241 22,916 839,144 55,777 575,500 0 0 2,093 206,146 839,144 505,588 505,588 413,085 413,085 24,070 309 39,083 27,683 0 27,683 0 0 0 27,683 1.01 1.01
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