EXHIBIT 2.1

ASSET PURCHASE AGREEMENT

BETWEEN

MERCER INTERNATIONAL INC.

AND

0706906 B.C. LTD.

AND

KPMG INC.

Dated November 22, 2004

SANGRA MOLLER

FASKEN MARTINEAU DUMOULIN LLP

TABLE OF CONTENTS

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

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ASSET PURCHASE AGREEMENT

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

BETWEEN:

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

("Mercer")

AND:

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

(the "Purchaser")

AND:

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

(the "Vendor")

WHEREAS:

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

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

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

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

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

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

1.     INTERPRETATION

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

1.1.1

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



1.1.2

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



1.1.3

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



1.1.4

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



1.1.5

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



1.1.6

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



1.1.7

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



1.1.8

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

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1.1.9

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



1.1.10

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



1.1.11

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



1.1.12

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



1.1.13

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



1.1.14

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



1.1.15

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

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1.1.16

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



1.1.17

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



1.1.18

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



1.1.19

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



1.1.20

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



1.1.21

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



1.1.22

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



1.1.23

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



1.1.24

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



1.1.25

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



1.1.26

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



1.1.27

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

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1.1.28

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



1.1.29

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



1.1.30

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



1.1.31

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



1.1.32

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



1.1.33

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



1.1.34

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



1.1.35

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



1.1.36

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

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



1.1.37

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



1.1.38

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



1.1.39

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



1.1.40

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



1.1.41

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



1.1.42

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

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1.1.43

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

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1.1.44

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



1.1.45

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



1.1.46

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



1.1.47

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



1.1.48

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



1.1.49

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



1.1.50

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



1.1.51

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



1.1.52

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



1.1.53

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

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



1.1.54

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



1.1.55

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



1.1.56

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



1.1.57

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



1.1.58

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



1.1.59

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



1.1.60

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



1.1.61

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

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



1.1.62

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



1.1.63

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



1.1.64

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

1.1.65

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

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



1.1.66

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



1.1.67

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



1.1.68

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



1.1.69

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



1.1.70

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



1.1.71

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



1.1.72

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



1.1.73

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

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1.1.74

"Permitted Encumbrances" means:

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1.1.75

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



1.1.76

"Personal Property" means:

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

1.1.77

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



1.1.78

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



1.1.79

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

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1.1.80

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



1.1.81

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



1.1.82

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

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but excluding the Excluded Assets.

1.1.83

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



1.1.84

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



1.1.85

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



1.1.86

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



1.1.87

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



1.1.88

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



1.1.89

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



1.1.90

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



1.1.91

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



1.1.92

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



1.1.93

"TSX" means the Toronto Stock Exchange.



1.1.94

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

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1.2.

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

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1.3.

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

1.4.

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

1.5.

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

1.5.1

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

1.5.2

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

1.6.

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

1.7.

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

1.8.

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

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

1.9.

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

1.10.

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

2.     PURCHASE AND SALE OF ASSETS

2.1.

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

2.2.

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

2.2.1

$210,000,000; and

2.2.2

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

2.2.3

the Assumed Obligations,

(collectively, the "Purchase Price").

2.3.

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

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2.3.1

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



2.3.2

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



2.3.3

the assumption by the Purchaser of the Assumed Obligations.

2.4.

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

2.5.

Determination of Estimated Working Capital.

2.5.1

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

2.5.2

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

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



2.5.3

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

2.6.

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

2.6.1

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

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2.6.2

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



2.6.3

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

2.7.

Closing Adjustments.

2.7.1

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

2.7.2

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

21

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

2.8.

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

2.9.

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

2.10.

Arbitration.

2.10.1

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

2.10.2

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

2.10.3

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

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

3.     CLOSING MATTERS

3.1.

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

3.2.

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

3.3.

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

3.3.1

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

3.3.2

the Current Liabilities;

3.3.3

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

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3.3.4

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

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

3.4.

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

3.4.1

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

3.4.2

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

3.4.3

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

3.4.4

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

3.4.5

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

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



3.4.6

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



3.4.7

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

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

3.5.

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

3.6.

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

3.7.

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

25

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

3.8.

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

3.9.

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

3.10.

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

3.10.1

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

3.10.2

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

26

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



3.10.3

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

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

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

4.     REPRESENTATIONS AND WARRANTIES

4.1.

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

4.2.

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

4.3.

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

27

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

4.4.

Purchaser's Acknowledgement.

4.4.1

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

4.4.2

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

4.5.

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

28

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



4.5.1

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



4.5.2

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



4.5.2.1

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



4.5.2.2

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



4.5.3

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



4.5.4

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



4.5.4.1

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

29

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



4.5.4.2

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



4.5.4.3

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

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

4.6.

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

5.     COVENANTS

5.1.

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

5.1.1

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

5.1.2

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

30

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



5.1.3

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

5.2.

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

5.3.

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

5.4.

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

5.4.1

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

31

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



5.4.2

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



5.4.3

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

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

5.5.

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

5.5.1

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

32

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

5.5.2

the Purchaser hereby covenants and agrees that:



5.5.2.1

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



5.5.2.2

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



5.5.2.3

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

5.6.

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

5.6.1

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

5.6.2

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

5.6.3

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

33

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



5.6.4

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



5.6.5

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



5.6.6

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



5.6.7

comply in all material respects with all Applicable Laws;



5.6.8

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



5.6.9

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



5.6.10

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



5.6.11

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

34

5.6.12

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



5.6.13

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

5.7.

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

5.7.1

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

5.7.2

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

5.7.3

except in the ordinary course of the Business:

5.7.3.1

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

35

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



5.7.3.2

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



5.7.3.3

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



5.7.4

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



5.7.5

dissolve, liquidate or wind-up;



5.7.6

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



5.7.7

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



5.7.8

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



5.7.9

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

5.8.

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

36

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



5.8.1

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



5.8.2

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



5.8.3

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

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

37

5.9.

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

5.10.

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

5.11.

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

5.12.

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

5.12.1

the Registration Rights Agreement; and

5.12.2

the Lock-up Agreement.

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

6.     CONDITIONS OF CLOSING

6.1.

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

6.1.1

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

38

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



6.1.2

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



6.1.3

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



6.1.4

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



6.1.4.1

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



6.1.4.2

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



6.1.5

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



6.1.6

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

39

6.1.7

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



6.1.8

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



6.1.9

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



6.1.10

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

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

6.2.

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

6.2.1

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

6.2.2

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

6.2.3

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

40

6.2.4

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



6.2.5

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



6.2.6

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

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

6.3.

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

6.3.1

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

6.3.2

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

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

6.4.

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

6.4.1

by mutual written agreement of the Parties;

6.4.2

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

41

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



6.4.3

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



6.4.4

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



6.4.5

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



6.4.6

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



6.4.7

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

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

6.5.

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

42

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

6.6.

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

7.     CLOSING MATTERS

7.1.

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

7.1.1

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

7.1.2

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

7.1.3

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

7.1.4

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

7.1.5

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

7.1.6

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

7.1.7

the SST Certificate;

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7.1.8

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



7.1.9

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



7.1.10

the Registration Rights Agreement;



7.1.11

the Lock-up Agreement;



7.1.12

the Assumption Agreement executed by the Vendor;



7.1.13

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



7.1.14

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

7.2.

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

7.2.1

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

7.2.2

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

7.2.3

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

7.2.4

evidence of the conditional approval of the listing on the TSX of the Mercer Shares to be issued pursuant to this Agreement and the filing of the notification form with the Nasdaq National Market;

7.2.5

a certified copy of resolutions of the trustees or directors, as the case may be, of Mercer and the Purchaser authorizing the purchase of the Purchased Assets as contemplated by this Agreement and the execution and delivery of this Agreement and all documents required to be executed by Mercer and the Purchaser, as the case may be, pursuant hereto;

7.2.6

a certificate of a senior officer of Mercer and the Purchaser certifying the accuracy as of the Closing Date of the representations and warranties of Mercer

44

and the Purchaser and the performance by Mercer and the Purchaser of their covenants to be performed at or before the Closing in each case in all material respects;



7.2.7

a written acknowledgement and agreement of the Purchaser addressed to the Union under the Collective Agreement that:



7.2.7.1

the Purchaser will not oppose an application which may be subsequently brought by the Union under the Collective Agreement before the British Columbia Labour Relations Board declaring the Purchaser to be a successor employer to the Company; and



7.2.7.2

the Purchaser is bound by the terms of the Collective Agreement, including the existing seniority of the employees in the bargaining unit;



7.2.8

the Tax Elections executed by the Purchaser;



7.2.9

the Registration Rights Agreement;



7.2.10

the Lock-up Agreement;



7.2.11

the Assumption Agreement executed by the Purchaser and Mercer;



7.2.12

such documents as the Vendor may reasonably require in order to reflect the assumption by the Purchaser and Mercer of the Contracts and Licences and Permits to be assigned to the Purchaser;



7.2.13

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



7.2.14

such other documents as may be requested by the Company and the Vendor, acting reasonably.

7.3.

Assignment of Lock-up Agreement and Registration Rights Agreement.    If prior to the Closing Date the Vendor directs Mercer to issue the Mercer Shares to be issued pursuant to Section 2.3.2 to the Banks, their Affiliates or the Vendor's Affiliates, then it shall be a condition of such direction and assignment that the Banks, their Affiliates and/or the Vendor's Affiliates, as applicable, enter into a new lock-up agreement and registration rights agreement in the same form as the Lock-up Agreement and the Registration Rights Agreement and deliver such agreements at Closing in replacement of the Lock-up Agreement and the Registration Rights Agreement signed by the Vendor. Upon such delivery, the Lock-up Agreement and the Registration Rights Agreement signed by the Vendor shall be null and void.

45

7.4.

Terms of Closing.    Closing shall not be completed, nor shall the documents tabled for delivery at Closing be delivered, until all conditions of Closing (including the deliveries contemplated by this Article 7 and the conditions set out in Article 6) have been fulfilled or waived and the Vesting Order transferring the Lands to the Purchaser, together with any other applicable releases of the Banks' security, have been deposited for application for registration in the appropriate Land Title Offices and receipt of satisfactory post-application index searches which indicate that in the normal course of Land Title Office routine title to the Lands will be issued to the Purchaser subject only to the Permitted Encumbrances or Encumbrances deriving from the Purchaser.

7.5.

Books and Records.    Following the Closing, the Vendor will deliver or make available to the Purchaser, all Books and Records in its possession, including without limitation:

7.5.1

records relating to the construction and maintenance and repair of the Purchased Assets;

7.5.2

books, purchase orders, invoices and other documents, files and records of or relating to the Business, including electronic or digital copies thereof and computer and information systems related thereto, wherever located; and

7.5.3

records relating to the original capital cost and tax classification of the Purchased Assets.

8.     EMPLOYEE MATTERS

8.1.

Definitions.    As used in this Article 8:

8.1.1

"Active Hourly Employees" means the individuals employed at the Pulp Mill in the Business on an hourly basis whose employment is governed by the terms and conditions of the Collective Agreement, who, as at the date of this Agreement, are those individuals listed in the Disclosure Letter;

8.1.2

"Active Salaried Employees" means the individuals employed at the Pulp Mill in the Business on a salaried basis, who, as at the date of this Agreement, are those individuals listed in the Disclosure Letter;

8.1.3

"Other Employees" means Other Hourly Employees and Other Salaried Employees;

8.1.4

"Other Hourly Employees" means the individuals, other than Active Hourly Employees as at the Closing Date, who at some time prior to the Closing Date were actively employed at the Pulp Mill in the Business on an hourly basis whose employment was governed by the terms and conditions of the Collective Agreement, who at the Closing Date:

46

8.1.4.1

are in receipt of benefits from a short-term or long-term disability program the Pulp Mill sponsors or in which the Pulp Mill participates;



8.1.4.2

are in receipt of Workers' Compensation benefits on account of such employment;



8.1.4.3

are on an unpaid leave of absence (including maternity or parental leave) from the Pulp Mill; or



8.1.4.4

are on layoff from the Pulp Mill;

and as at the date of this Agreement are, except with respect to those individuals referred to in Section 8.1.4.4, those individuals listed in the Disclosure Letter or,

8.1.4.5

retain on account of such employment a present or future entitlement to pension, post-retirement or other benefits provided through a pension or benefit program the Pulp Mill sponsors; and



8.1.5

"Other Salaried Employees" means the individuals, other than Active Salaried Employees as at the Closing Date, who at some time prior to the Closing Date were actively employed at the Pulp Mill in the Business on a salaried basis who at the Closing Date:



8.1.5.1

are in receipt of benefits from a short-term or long-term disability program the Pulp Mill sponsors or in which the Pulp Mill participates;



8.1.5.2

are in receipt of Workers' Compensation benefits on account of such employment;



8.1.5.3

are on an unpaid leave of absence (including maternity or parental leave) from the Pulp Mill; or



8.1.5.4

are considered "terminated with benefits" from the Pulp Mill;

and as at the date of this Agreement are those individuals listed in the Disclosure Letter; or

8.1.5.5

retain on account of such employment a present or future entitlement to pension, post-retirement or other benefits provided through a pension or benefit program the Pulp Mill sponsors.

8.2.

Hourly Employees.    Except as contemplated by Section 8.6, the Purchaser will, as at the Time of Closing, become bound by the Collective Agreement in respect of the Active Hourly Employees and the Other Hourly Employees (other than those who do not accept employment with the Purchaser) and shall assume all of the Vendor's obligations and liabilities under and in respect of the Collective Agreement which applies to any of such

47

Active Hourly Employees or Other Hourly Employees and the multi-employer pension or benefit plans in which any of the Active Hourly Employees or Other Hourly Employees participate on account of such employment as set forth in the Disclosure Letter. The Vendor will, at any time or times before the Closing Date comply with the Collective Agreement in respect of any requirements imposed by virtue of the Purchaser acquiring the Business and the Purchased Assets and succeeding to the future obligations thereunder.

8.3.

Salaried Employees.    The Parties will co-operate to effect an orderly transfer of employment of the Active Salaried Employees and Other Salaried Employees and in order to facilitate that transfer the Vendor will give or cause to be given notice of termination of employment effective the Closing Date to, and the Purchaser will concurrently on the Closing Date offer employment to, each Active Salaried Employee and Other Salaried Employee at the same salary and position and otherwise on substantially the same terms and conditions as that Employee was employed by the Vendor and the Purchaser shall assume all of the obligations and liabilities of the Vendor or the Company under the pension plans applicable to Active Salaried Employees and Other Salaried Employees as set forth in the Disclosure Letter. For greater certainty, the Purchaser shall recognize for all purposes all seniority or length of service rights or benefits previously enjoyed by each such Employee as an employee of the Vendor or the Company or predecessor companies.

8.4.

Labour Disputes.    All grievances, references and arbitrations under the Collective Agreement, applications, complaints, disputes, claims, actions, suits, demands or other proceedings relating to those Employees who become employees of the Purchaser at the Closing Date made, filed, commenced or instituted before or after the Closing Date, including those based substantially on events that occurred or were initiated before that date all as set forth in the Disclosure Letter, will be the sole responsibility of the Purchaser.

8.5.

Termination Compensation.    If the Purchaser at any time after the Time of Closing terminates without just cause the employment of an Active Salaried Employee or Other Salaried Employee who accepted an offer of employment under Section 8.3 and who was employed continuously with the Purchaser since the date such Employee became employed by the Purchaser, the Purchaser will recognize the continuous service of any such Employee with the Vendor or the Company in determining the appropriate reasonable notice period.

8.6.

Purchaser Not Responsible.    Notwithstanding the completion of the transactions contemplated hereby, the Purchaser will not be responsible for the payment and satisfaction of obligations in respect of:

8.6.1

any Active Hourly Employee or Other Hourly Employees who, under the Collective Agreement, was entitled to remain an employee of the Vendor or the Company in lieu of becoming an employee of the Purchaser and elected to do so; and

48

8.6.2

any Active Salaried Employee or Other Salaried Employees to whom the Purchaser is obliged to and does offer employment as contemplated by Section 8.3, but who does not accept employment with the Purchaser, except in respect of any rights which accrued prior to the Closing Date under the Defined Pension Plan for Active Salaried Employees or Other Salaried Employees.

8.7.

Purchaser Responsible.    In addition to any other obligations under this Article 8, the Purchaser shall be responsible for the Accrued Employee Liabilities for the periods prior to the Time of Closing.

8.8.

Employee Loans.    The Vendor agrees that all existing loans, if any, made by the Vendor or the Company to Employees are assets of the Business and will be transferred by the Vendor to the Purchaser in respect of those Employees who become employees of the Purchaser at the Time of Closing and are included in the Purchased Assets and the Purchase Price. With effect from the Time of Closing, the Vendor shall, to the extent not previously assigned to the Purchaser, assign to the Purchaser all of its right, title and interest in any loans then owing to the Vendor or the Company from any Employee who becomes an employee of the Purchaser at the Time of Closing, including those on account of home relocation assistance, automobile insurance premiums, computer purchase or lease arrangements.

8.9.

Payroll.    Notwithstanding any other provision herein, or the transfer of Employees, the Vendor shall be responsible for and make payment of the Payroll due to the Employees up to and including the period ending the day prior to the Closing Date.

9.     MERCER OBLIGATIONS

9.1.

Obligations of Mercer.    Mercer agrees and acknowledges that all of the obligations, covenants and liabilities of the Purchaser in this Agreement and in any other document or instrument delivered pursuant hereto shall be the joint and several obligations, covenants and liabilities of the Purchaser and Mercer.

10.   RISK OF LOSS

10.1.

Risk of Loss.    Until the Time of Closing, the Purchased Assets will be and remain at the sole risk of the Vendor.

10.2.

Pre-Closing Loss.    Subject to Section 10.3, if prior to the Closing Date any of the Purchased Assets are destroyed or damaged by fire or any other casualty or shall be expropriated or seized by any Governmental Authority, the proceeds of insurance or compensation for such destruction, damage, expropriation or seizure (other than proceeds of insurance described in Section 1.1.42.9 of the definition of "Excluded Assets" but including any such amounts payable with respect to any period after the Time of Closing) paid or payable to the Vendor shall, to the extent not applied to the repair or replacement of the subject Purchased Assets prior to the Closing Date, be deemed to be included in the

49

Purchased Assets without any adjustment to the Purchase Price and, except as provided in Section 10.3, the Purchaser shall accept such proceeds, or the right to recover the same, in replacement for the Purchased Assets so destroyed, damaged, expropriated or seized.

10.3.

Material Loss.    Notwithstanding Section 10.2, if prior to the Time of Closing, there occurs:

10.3.1

a Purchaser's Material Loss, then the Purchaser and/or Mercer shall in its sole election be entitled to terminate this Agreement pursuant to Section 6.4.7; or

10.3.2

a Vendor's Material Loss, then the Purchaser and/or Mercer or the Vendor shall in their sole election be entitled to terminate this Agreement pursuant to Section 6.4.7.

11.   POST-CLOSING MATTERS

11.1.

Possession Following Time of Closing.    From and after the Time of Closing the Purchaser will be entitled to take possession of and enjoy the Purchased Assets to the exclusion of the Vendor and the Company and the Purchased Assets will be at the risk of the Purchaser.

11.2.

Maintain Existence.    Except as otherwise consented to in writing by the Purchaser, the Vendor covenants that the Company will not, and will not permit the Company to, on or after the Closing Date, dissolve or wind-up within 90 days following the Closing Date.

11.3.

Post-Closing Access.    In addition to any other rights contemplated or provided herein, the Purchaser will provide to the Vendor full access to the Purchased Assets, including the Books and Records, and the Pulp Mill, as the Vendor may reasonably request at any time and from time to time after the Closing Date for the purposes of accounting, audit, tax, bank regulatory compliance, bankruptcy compliance or litigation matters pertaining to the Vendor, including completion of various adjustment calculations and other matters contemplated by this Agreement. Such post-Closing access shall be granted to the Vendor, and to its directors, officers, employees, agents and other authorized representatives designated in writing by the Vendor to the Purchaser from time to time for the purposes of such access, within a reasonable time after the Vendor has delivered written notice to the Purchaser specifying the type of access the Vendor desires and the Books and Records the Vendor wishes to have access to. The Vendor shall be responsible for the acts or omissions of itself and any of the aforesaid Persons in the course of such access and shall ensure that any and all said access does not disrupt the Purchaser or the operation of the Business. The Vendor shall be entitled to take extracts from the Books and Records in respect of periods prior to the Closing Date, but shall not be entitled to information relevant to periods from and after the Closing Date. The Vendor will bear the reasonable out-of-pocket costs and expenses of any such access and extracts of information requested from time to time. The Vendor covenants and agrees that it shall not, and shall cause its directors, officers, employees, agents and other representatives not to, disclose, divulge, furnish, publish or use for its benefit, or for the

50

direct or indirect benefit of any other Person, any confidential or proprietary information relating to the Business, the Purchased Assets or the Purchaser obtained by the Vendor or its directors, officers, employees, agents and other representatives in accordance with this Section 11.3. The Vendor shall restrict access to, and use of, such confidential and proprietary information to those Persons requiring such access and only to the extent of such requirement, and shall advise each such Person that such information is the proprietary property of the Purchaser and is highly confidential and that access thereto is restricted except as directly required for use in accordance with the terms of this Section 11.3.

11.4.

Transitional Services.    The Purchaser agrees to provide the Vendor with transitional services in relating to the Finished Goods retained by the Vendor, including storage and warehousing services, inventory control and shipping, for a period of three months following the Closing Date, provided that the Vendor shall reimburse the Purchaser for all reasonable actual costs and expenses relating to the provision of such services.

11.5.

Administration of Pension Plans.    The Purchaser will, with respect to the pension plans related to the non-union employees as identified in the Disclosure Letter of which the Vendor is the administrator, assume the role of administrator and responsibility for administering the said plans upon closing, and will notify the Superintendent in writing within 30 days as required by the Pension Benefits Standards Act (British Columbia). At the request of the Purchaser, the Vendor shall after the Closing provide such information and assistance as may reasonably be requested by the new administrator of the said pensions plans to assist with the transition of responsibilities to the new administrator.

12.   MISCELLANEOUS

12.1.

Amendment and Modification; Waiver.    This Agreement may only be amended or modified in writing, signed by all of the Parties. No waiver in writing of any provision of this Agreement shall constitute a waiver of any other provision nor shall any waiver of any provision of this Agreement constitute a continuing waiver unless otherwise expressly provided.

12.2.

Expenses.    Except as otherwise expressly provided in this Agreement, whether or not the transactions contemplated by this Agreement are consummated, the Parties shall bear their own respective expenses (including, but not limited to, all compensation and expenses of counsel, consultants, actuaries and independent accountants) incurred in connection with this Agreement and the transactions contemplated hereby.

12.3.

Public Disclosure.    Except as may be required to comply with the requirements of Applicable Law, no press release or similar public announcement or communication will be made or caused to be made concerning the execution, performance, terms and conditions of this Agreement unless specifically approved in advance by all Parties; provided, however, that to the extent that any Party to this Agreement is required by law, to make such a public disclosure, such public disclosure shall only be made after prior consultation with the other Parties to this Agreement. The Vendor shall and shall cause

51

the Company to continue to hold in confidence, in the same manner after Closing as before, all confidential information related to the Company, the Business and the Purchased Assets remaining in its possession after Closing including any information provided pursuant to Section 11.3.

12.4.

Assignment.    Subject to the following sentence, no Party to this Agreement may assign any of its rights or obligations under this Agreement without the prior written consent of the other Parties hereto. The Purchaser may assign its rights under this Agreement to any wholly-owned subsidiary of the Purchaser with the prior consent of the Vendor, such consent not to be unreasonably withheld or delayed, provided that the Purchaser and Mercer continue to be bound by their obligations under this Agreement.

12.5.

Entire Agreement.    This Agreement (including without limitation, the agreements and documents in writing contemplated to be delivered hereunder or herewith as of the date of this Agreement) contains the entire agreement between the Parties with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral or written, with respect to such matters, including the Letter Agreement, but excluding the Confidentiality Agreement which shall remain in full force and effect in accordance with its terms.

12.6.

Parties in Interest.    This Agreement shall enure to the benefit of and be binding upon the Parties and their respective successors and permitted assigns and, to the extent third parties are named as beneficiaries of a release, indemnity or other covenant hereunder or under any document or instrument delivered pursuant hereto, such third parties shall be entitled to enforce such provisions even though they are not a party hereto and any Party hereto may, with the consent of such third party, enforce such provisions on their behalf. Except as expressly provided in this Section 12.6, no third parties shall be beneficiaries of or have any interest in this Agreement.

12.7.

Further Assurances.    Prior to, on and following the Closing Date, each of the Parties agrees that it shall act in good faith with respect to the satisfaction of its obligations under this Agreement, and, at the reasonable request of the other Party, shall, at its own expense, take such actions and do such things and, as the case may be, execute and deliver or furnish such additional agreements, documents and instruments as may, from time to time, be necessary or reasonably desirable to better effectuate the transactions contemplated by this Agreement.

12.8.

Counterparts.    This Agreement and any amendments hereto may be executed in counterparts, each of which shall be deemed to be an original and all of which together shall be considered one and the same agreement. A signed facsimile or telecopied copy of this Agreement shall be effectual and valid proof of execution and delivery.

12.9.

Performance on Holidays.    If any action is required to be taken pursuant to this Agreement on or by a specified date which is not a Business Day, then such action shall be valid if taken on or by the next succeeding Business Day.

52

12.10.

Notices.    All notices hereunder shall be deemed given if in writing and delivered personally or sent by facsimile or by registered or certified mail (return receipt requested), but not by email, to the Parties at the following addresses (or at such other addresses as shall be specified by like notice):

12.10.1

if to Mercer and/or the Purchaser, to:

Mercer International Inc. and/or
0706906 B.C. Ltd.
1790 - 400 Burrard Street
Vancouver, B.C.
V6C 3A6

Attention: Jimmy S.H. Lee, Chief Executive Officer
Fax: (604) 684-1094

With a copy to:

Sangra Moller
1000 - 925 West Georgia Street
Vancouver, B.C.
V6C 3L2

Attention: H.S. Sangra
Fax: (604) 669-8803

if to the Vendor, to:

KPMG Inc.
P.O. Box 10426, Pacific Centre
900 - 777 Dunsmuir Street
Vancouver, B.C.
V7Y 1K3

Attention: Todd M. Martin
Fax: (604) 691-3031

53

With a copy to:

Fasken Martineau DuMoulin LLP
2100 - 1075 West Georgia Street
Vancouver, B.C.
V6E 3G2

Attention: Donald M. Dalik
Fax: (604) 631-3232

Any notice given by mail shall be effective, if mailed at any time other than during a general discontinuance of postal service due to strike, lockout or otherwise, on the fourth Business Day after the post-marked date thereof. Any notice given by facsimile shall be effective on the Business Day following the sending. Any notice delivered personally shall be effective at the time it is delivered to the applicable address noted above either to the individual designated above or to an individual at such address having apparent authority to accept deliveries on behalf of the addressee. In the event of a general discontinuance of postal service due to strike, lock-out or otherwise, notices and communications shall be delivered personally or by facsimile only.

54

12.11.

Governing Law.    This Agreement shall be governed by, and construed in accordance with, the laws of the Province of British Columbia and the laws of Canada applicable therein.

IN WITNESS WHEREOF, this Agreement has been signed on behalf of each of the Parties as of the date first written above.

KPMG INC., in its capacity as the receiver
of all the assets and undertaking of
Stone Venepal (Celgar) Pulp Inc.

55

EXHIBIT A

Representations and Warranties of the Vendor

The Vendor represents and warrants to the Purchaser and Mercer as follows:

1.

Status.    The Vendor is a corporation duly incorporated and validly subsisting in good standing under the laws of its jurisdiction of incorporation and the Vendor has all necessary corporate power, capacity and authority, and the power, capacity and authority as the Receiver, to enter into this Agreement and all other agreements, documents and instruments to be delivered by it hereunder (collectively, the "Other Transaction Documents"), and subject to the granting of the Vesting Order, to sell, assign and transfer the Purchased Assets to the Purchaser as set forth in this Agreement and to perform the transactions contemplated by this Agreement and the Other Transaction Documents to which it is a party.

2.

Due Authorization.    This Agreement and the Other Transaction Documents have been duly authorized by all necessary corporate action and all other requisite action of the Vendor in its capacity as the Receiver of the Company and this Agreement has been, and all of the Other Transaction Documents will be, duly executed and delivered by the Vendor and this Agreement constitutes and the Other Transaction Documents to which the Vendor is a party will constitute legal, valid and binding obligations of the Vendor enforceable in accordance with their terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general principles of equity. No other proceedings on the part of the Vendor are necessary to authorize the entering into of this Agreement or the Other Transaction Documents and the consummation of the transactions contemplated hereby and thereby, other than the granting of the Vesting Order.

3.

Absence of Legal Conflicts.    The execution and delivery of this Agreement by the Vendor and the Other Transaction Documents to which the Vendor is a party, do not and, subject to receipt of the Consents, the performance of the transactions contemplated by this Agreement and the Other Transaction Documents and the consummation by it of the transactions contemplated hereby and thereby will not:

3.1.

conflict with or violate the constating or organizational documents of the Vendor or any resolution of its directors or shareholders, as the case may be;

3.2.

to the best of the Vendor's knowledge, conflict with or violate any Applicable Laws or any permit (including the Licences and Permits), Order, judgment or decree applicable to or by which the Purchased Assets are bound or affected; or

3.3.

other than in connection with the indebtedness (and security related thereto) to be discharged on or before Closing, result in any breach of or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, or result in the creation of an Encumbrance (other than a

Permitted Encumbrance) on any of the Purchased Assets pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, licence, permit (including the Licences and Permits), franchise or other instrument or obligation to which the Company is a party or by which it is bound or affected.

4.

Books and Corporate Records.    To the best of the Vendor's knowledge, since January 1, 2000, all material financial transactions of the Company and the Business have, in all material respects, been properly recorded in the Books and Records.

5.

Purchased Assets and Leased Premises.    To the best of the knowledge of the Vendor, except as set out in the Disclosure Letter, the Vendor, the Trustee and/or the Company have good and valid legal, beneficial and marketable title to all of the Purchased Assets (including, with respect to the Lands, title in fee simple and except with respect to Encroached Lands), free and clear of all Encumbrances except for the Permitted Encumbrances or Encumbrances which will be discharged by the Vendor on or before the Closing Date. Since December 31, 2003, the Vendor, the Trustee and the Company have not, except as disclosed in the Financial Statements, transferred, assigned, sold or otherwise disposed of or created any Encumbrance (other than Permitted Encumbrances) on any of the Purchased Assets or the Leased Premises, other than in the ordinary course of the Business.

6.

Authority of the Vendor.    The Vendor has the requisite authority to sell, assign and transfer the Purchased Assets as contemplated under this Agreement, subject to the obtaining of the Consents and the Vesting Order, and is authorized to execute, on its own behalf and/or on behalf of the Company, as may be required, all such documents of transfer, bills of sale, assignments and other documents and instruments, as may be required to effect the sale, transfer and assignment of the Purchased Assets to the Purchaser free and clear of all Encumbrances other than the Permitted Encumbrances or Encumbrances which will be discharged by the Vendor on or before the Closing Date and the vesting of title.

7.

Intellectual Property.    To the best of the knowledge of the Vendor, neither the Vendor nor the Company has received notice during the Receivership Period of any charge, complaint, claim, or demand alleging any such interference, infringement, misappropriation, or violation including any claim that the Vendor and/or the Company must licence or refrain from using any intellectual property rights of any third party in connection with the Business which is still outstanding, except as set forth in the Disclosure Letter.

8.

Purchased Assets and Leased Premises Complete.    To the best of the knowledge of the Vendor, the Purchased Assets and the Leased Premises constitute all of the material assets, properties, rights and interests used in and required to conduct the Business consistent with past practice of the Vendor.

9.

Condition of Purchased Assets.    To the best of the knowledge of the Vendor, except as disclosed in the Disclosure Letter, there are no outstanding Orders, inspection notices or

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other notice of defect or non-compliance issued by any Governmental Authority with respect to any of the Purchased Assets, excluding any such Orders or notices arising out of or relating to Environmental Laws or Environmental Liabilities.

10.

Contracts.    As of the date of this Agreement the Vendor is not, and to the best of the knowledge of the Vendor, the Company is not, a party to, or bound by, any material contract, agreement or written commitment in connection with the Business which requires payment in excess of $250,000 per contract, agreement or written commitment or $1,000,000 in aggregate which is to be performed or as to which they may have any right or obligation after the Closing Date, other than:

10.1.

the Contracts, as listed in the Disclosure Letter;

10.2.

those entered into by the Vendor in connection with this Agreement and the transactions contemplated hereby; and

10.3.

those that require not more than thirty (30) days notice of termination.

11.

Notice of Default.    To the best of the knowledge of the Vendor, the Vendor has received no notice of any existing default, breach or violation of any of the Contracts by the Vendor and/or the Company nor, to the best of the knowledge of the Vendor, is there any existing default, breach or violation of any Contract by any of the other parties thereto, except for breaches, defaults or violations that have been cured or waived, nor any pending or threatened cancellation or default or any event or occurrence which after notice or lapse of time, or both, would constitute a default under any such Contracts nor any amendments or proposed amendments thereto, save and except in each of the foregoing cases matters which are not material, individually or in the aggregate.

12.

Encroachment and Buildings.    The list of Encroached Lands set forth in the Disclosure Letter comprises all encroachments by the Purchased Assets of which the Vendor has knowledge, and, except as may be set forth in the Disclosure Letter, the Vendor has not received any adverse notice from any third party regarding encroachments by the Purchased Assets, save and except minor encroachments which would not, singly or in the aggregate, adversely restrict the use of the Purchased Assets in connection with the Business.

13.

Expropriation.    No notice of any condemnation or expropriation proceeding which would preclude or impair the use of the Lands, the Leased Premises or the Purchased Assets for the operation of the Business has been received by the Vendor or, to the best of the Vendor's knowledge, is pending or threatened against any of the Lands, the Leased Premises or the Purchased Assets.

14.

Financial Statements.    Attached to the Disclosure Letter is a copy of the audited financial statements for the Company as at December 31, 2003 and the unaudited financial statements for the Company as at September 30, 2004 (collectively, with the notes thereto, if any, the "Financial Statements"). Each of the Financial Statements are accurate

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and complete in all material respects and present fairly the financial position, results of operations and cash flows of the Company as at the dates and for the periods indicated. For greater certainty, nothing contained in this paragraph 14 shall be construed as an audit opinion by the Vendor, which audit opinion has been provided by Deloitte & Touche LLP as auditors of the Company.

15.

Conduct of Business.    Since December 31, 2003:

15.1.

the Vendor has carried on the Business in the ordinary course in the receivership and bankruptcy context of the Vendor's operations;

15.2.

there has not been any change in the nature or condition of the Purchased Assets or the financial position or condition of the Business or the Company other than changes arising in the ordinary course of the Business, and such changes have not been or would not be, either individually or in the aggregate, Materially Adverse;

15.3.

as at the date of this Agreement there has not been any damage, destruction, loss, labour dispute or other event, development or condition of any character (whether or not covered by insurance) which has been or would be, either individually or in the aggregate, Materially Adverse; and

15.4.

there has not been any material change in the accounting principles, policies, practices or procedures of the Vendor or the Company relating to the Business, other than changes mandated by GAAP.

16.

GST.    With respect to the goods and services tax ("GST") under the Excise Tax Act (Canada), the Vendor is registered for GST purposes and the Vendor's registration number is 10427 9252 RT0002. All amounts of GST required to be collected by the Vendor in relation to the Business have been collected and all amounts of GST required to be remitted to the Receiver General for Canada by the Vendor related to the Business have been remitted, when due.

17.

Withholdings.    The Vendor has caused the Trustee to withhold, and the Vendor will cause the Trustee to, up to Closing withhold, from all payments made to any employees or former employees, officers, directors, shareholders and partners of the Business and to all such persons who are non-residents of Canada for the purposes of the Income Tax Act (Canada) all amounts required by Applicable Law in respect of the period commencing July 23, 1998, and have caused to be remitted or will by Closing cause to have been remitted such withheld amounts within the prescribed periods to the appropriate Governmental Authority. The Vendor has or will have, or will cause the Trustee to have, by Closing remitted to the proper Governmental Authority within the time required by Applicable Law, or made adequate provision therefore, all Canada Pension Plan contributions, employment insurance premiums, employer's health taxes and other Taxes payable in relation to the Business in respect of the employees employed at the Business after July 28, 1998 and the Vendor has charged, collected and remitted, or will, or will

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cause the Trustee to, by Closing remit on a timely basis, all Taxes as required by Applicable Law on any sale, supply or delivery whatsoever, made by it.

18.

Tax Status.    Neither the Vendor nor the Company are a non-resident of Canada, as defined in the Income Tax Act (Canada).

19.

Compliance with Laws.    To the best of the Vendor's knowledge, except as set out in the Disclosure Letter the Business is in compliance in all material respects with all Applicable Laws by which it is bound or affected, other than Environmental Laws.

20.

Litigation.    To the best of the Vendor's knowledge, except as disclosed in the Disclosure Letter, there are no claims, demands, actions, proceedings, suits, arbitrations, grievances, investigations or reviews outstanding, pending or, to the best of the knowledge of the Vendor, threatened by or against the Vendor or the Company related to the operation of the Business during the Receivership Period or otherwise in relation to the Business (including, without limitation, with respect to any labour and employment issues, terminations of employment or Benefit Plans), before any court, arbitrator or administrative or regulatory body or other Governmental Authority, domestic or foreign, nor is the Vendor aware of any reasonable basis for any such claim which would be Materially Adverse.

21.

Employees.    To the best of the Vendor's knowledge, the Disclosure Letter contains the names and titles or job classifications of all individuals, union and non-union, employed or engaged in the Business, the date each such Employee was hired, the rate of remuneration of each such Employee (including bonus and commission, if applicable), details of all Benefit Plans provided to each such Employee, a list of all Benefit Plans provided to each such Employee and the names of each Employee on long term disability, workers' compensation or leave of absence, whether paid or unpaid. Except as set out in the Disclosure Letter, there are no other Employees engaged or employed in the Business.

With respect to all such Employees and all former employees of the Business, as the case may be, to the best of the Vendor's knowledge:

21.1.

except as set out in the Disclosure Letter, no non-union Active Salaried Employee or Other Salaried Employee has any written or oral employment agreement which provides for a period of notice of termination of employment, or any severance payment in addition to or in lieu thereof, which is greater than that to which such Employee would reasonably be expected to have at common law or by statute;



21.2.

except pursuant to the Collective Agreement, there are no Benefit Plans existing in respect of or provided to the Employees, complete copies of all such written Benefit Plans or, where oral, written summaries of the material terms thereof, pursuant to the Collective Agreement, have been provided or made available to the Purchaser, together with all booklets, summaries or manuals prepared for or circulated to or written communications to Employees of a general nature concerning any such Benefit Plan, and there are no pending amendments,

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modifications or restatements of any such Benefit Plans, or any improvements in benefits promised;



21.3.

all contributions or premiums required to be paid in respect of each of the Benefit Plans relating to the Employees have been paid in a timely fashion in accordance with the terms thereof and all Applicable Laws;



21.4.

all data respecting each Employee's age, job classification, remuneration, length of service and entitlement to benefits under the Benefit Plans as specified in the Disclosure Letter is accurate in all material respects and there have been no changes thereto made or promised;



21.5.

to the extent required by Applicable Laws, the Benefit Plans are registered and have at all times been invested and administered, in all material respects, in accordance with such Applicable Laws and the terms of the said Benefit Plans;



21.6.

no insurance policy or other agreement affecting any Benefit Plan requires or permits a retroactive increase in premiums or payments due under the policy or other agreement and, to the best of the Vendor's knowledge, no event has occurred which would entitle any Person to terminate, to adversely affect the tax status of or to revoke the registration with any Governmental Authority (if registered) of any Benefit Plan;



21.7.

except as set out in the Disclosure Letter, all registered pension plans are funded in accordance with actuarial recommendations and Applicable Laws, and no notice of underfunding has been received by the Company or the Vendor; and



21.8.

except for the Collective Agreement, the Company and the Vendor are not, directly or indirectly, party to any collective or other agreement or understanding with any labour union or association of employees in relation to the Business and the Collective Agreement has not been amended except as described in the Disclosure Letter.

22.

Environmental Matters.    To the best of the Vendor's knowledge, except as disclosed in the Disclosure Letter:

22.1.

the Disclosure Letter includes a complete and accurate list of all Environmental Permits held by the Vendor or the Company in connection with the Business and the Purchased Assets. No proceeding is pending or threatened and no steps have been taken by any Governmental Authority to revoke, modify or limit any of such Environmental Permits. The Vendor has not received any notice that it or the Company fails to hold an Environmental Permit that is required in connection with the Business and/or the Purchased Assets;

22.2.

the Vendor has not received any notice of any outstanding, pending or threatened Orders, claims, actions, prosecutions or investigations against the Vendor with respect to the

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environmental condition of the Business or the Purchased Assets or alleging any breach of, default or liability under Environmental Laws with respect to the Business or the Purchased Assets or relating to the presence of any Contaminants, or a release or a threat of a release of any Contaminants on, at, from or to the Lands or the Leased Premises; and

22.3.

the Vendor has made available to the Purchaser all environmental reports, environmental site assessments, and environmental audits in the possession or control of the Vendor with respect to the Business and the Purchased Assets, a list of which is included in the Disclosure Letter.

23.

Environmental Compliance.

23.1.

For purposes of this paragraph 23, the following definitions apply:

"Compliance Period" means the period from November 15, 2003 to the Closing Date; and

"Environmental Requirements" means the following Environmental Laws as the same existed during the Compliance Period:

23.1.1

Canadian Environmental Protection Act (Canada);



23.1.2

Fisheries Act (Canada);



23.1.3

Hazardous Products Act (Canada);



23.1.4

Transportation of Dangerous Goods Act (Canada);



23.1.5

Transportation of Dangerous Goods Act (British Columbia);



23.1.6

Environmental Management Act (British Columbia), as amended;



23.1.7

Water, Land and Air Protection Statutes Amendment Act (British Columbia);



23.1.8

the regulations and rules promulgated under the legislation set forth in paragraphs 23.1.1 to 23.1.8 above.



23.2.

To the best of the Vendor's knowledge, except as disclosed in the Disclosure Letter, the Business and the Purchased Assets have been operated in compliance with all Environmental Requirements in all material respects during the Compliance Period.



23.3.

Paragraph 23.2 of this Exhibit A as it relates to the state of process equipment or control systems during the Compliance Period, does not relate to future requirements by Governmental Authorities to upgrade to best available control technology or similar standards.

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EXHIBIT B

Representations and Warranties of the Purchaser and Mercer

Mercer and the Purchaser jointly and severally represent and warrant to the Vendor as follows:

1.

Status.    Mercer is a Massachusetts business trust and the Purchaser is a corporation each of which is duly organized and validly subsisting in good standing under the laws of its respective jurisdiction of organization and have all necessary corporate power, capacity and authority to own their property and assets, to carry on their business as now conducted, to enter into this Agreement and all other agreements, documents and instruments to be delivered by Mercer and the Purchaser hereunder and to perform the transactions contemplated by this Agreement.

2.

Due Authorization.    This Agreement and all other agreements, documents and instruments required to be delivered by Mercer and the Purchaser hereunder, have been duly authorized and this Agreement has been, and all such other agreements, documents and instruments will be duly executed and delivered by Mercer and the Purchaser and constitute and will constitute legal, valid and binding obligations of Mercer and the Purchaser, enforceable in accordance with their terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. No other proceedings on the part of Mercer or the Purchaser, nor of any shareholders (to the best of Mercer's knowledge after reasonable inquiry), nor creditor of Mercer or the Purchaser are necessary to authorize the entering into of this Agreement and the consummation of the transactions contemplated hereby.

3.

Consents.    The execution, delivery and performance of this Agreement and the agreements and transactions contemplated hereby will not require Mercer or the Purchaser to obtain any consent, waiver, authorization, order or approval of, or make any filing with or give notice to, any Person, including any Governmental Authority, other than: (a) the Regulatory Approvals in connection with or in compliance with the Competition Act (Canada), the Investment Canada Act, the United States Hart-Scott-Rodino Antitrust Improvements Act of 1976 and securities laws in Canada and the United States; and (b) such consents, waivers, authorizations or approvals which the failure to obtain would not be reasonably likely to prohibit or materially delay Mercer's or the Purchaser's ability to perform its obligations under this Agreement.

4.

Absence of Legal Conflict.    Neither the execution and delivery of this Agreement by Mercer or the Purchaser, nor the performance of this Agreement by Mercer or the Purchaser and the consummation by them of the transactions contemplated by this Agreement will:

4.1.

conflict with or violate the constating documents of Mercer or the Purchaser or any resolution of either of their respective trustees, directors or shareholders;

4.2.

conflict with or violate any law, rule, regulation, permit, Order, judgment or decree applicable to Mercer or the Purchaser or by which their properties are bound or affected, the conflict with which or violation of which would prohibit or materially delay Mercer's or the Purchaser's ability to perform their obligations under this Agreement; or



4.3.

result in any breach of or constitute a default (or an event which with notice or lapse of time or both would become a default) under any agreement to which Mercer or the Purchaser is a party or by which Mercer or the Purchaser or any of its properties is bound or affected and which would prohibit or materially delay Mercer's or the Purchaser's ability to perform their obligations under this Agreement.

5.

Shares to be Issued.    All of the Mercer Shares to be issued to or to the order of the Vendor pursuant to this Agreement will be validly issued by Mercer at the Time of Closing as fully paid and non-assessable shares, free of pre-emptive rights, encumbrances, charges and liens.

6.

Public Listing.    The Mercer Shares are registered pursuant to Section 12(g) of the Exchange Act and are quoted on the Nasdaq National Market and posted and listed for trading on the TSX. Mercer has not received any notification that the SEC, the Nasdaq National Market or the TSX is contemplating terminating such registration or listing.

7.

Reporting Issuer.    Mercer is a reporting issuer, or its equivalent, under the securities laws of British Columbia, Alberta, Ontario and Quebec, is not in default of any material requirement of the applicable securities laws of such provinces and is not included on the list of defaulting reporting issuers maintained by the Securities Commissions or similar regulatory authorities in such provinces.

8.

Public Filings.    Since January 1, 2003, Mercer has timely filed all documents required to be filed with: (i) the SEC under the Exchange Act, and (ii) each Securities Commission of the jurisdictions in which it is a reporting issuer in Canada, except in each case where the failure to file any such documents would not have a Material Adverse Effect on Mercer (all such documents are collectively referred to as the "Mercer Publicly Filed Documents"). The Mercer Publicly Filed Documents, at the time filed, were complete, accurate and, in light of the circumstances under which they were made, not misleading in any material respect, and since the time of filing, there has been no Material Adverse change in the information contained in the Mercer Publicly Filed Documents which has not been publicly disclosed in accordance with applicable law and stock exchange requirements.

9.

GST.    The Purchaser is registered for GST purposes and the Purchaser's registration number is 84553 2548 RT0001.

10.

Capitalization.    The authorized capital of Mercer consists of an unlimited number of Mercer Shares and 50,000,000 preferred shares issuable in series, of which as of the date

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hereof, 18,074,229 Mercer Shares and no preferred shares have been duly issued and are outstanding.

11.

Options.    Except as disclosed in the Mercer Publicly Filed Documents and the financings referred to in Section 6.2.6, there are no options, warrants, conversion privileges, calls or other rights, agreements, arrangements, commitments or obligations of Mercer to issue, sell or acquire any securities of Mercer or securities or obligations of any kind convertible into or exchangeable for any securities of Mercer or any other person, nor, are there outstanding any stock appreciation rights, phantom equity or similar rights, agreements, arrangements or commitments based upon the share price, book value, income or any other attribute of Mercer and the debt securities referred to in Section 6.2.6 shall contain no such conversion or similar rights.

12.

Financial Statements.    Mercer's financial statements for the year ended December 31, 2003 have been prepared in accordance with U.S. GAAP, are accurate and complete in all material respects and present fairly the financial position, results of operations and cash flows of Mercer as at such date. Since such date and except as otherwise disclosed in the Mercer Publicly Filed Documents, there has been no change in the financial condition or position of Mercer other than changes arising in the ordinary course of its business, and such changes have not been or would not be, either individually or in the aggregate, Materially Adverse.

13.

Order Ceasing or Suspending Trading.    No order ceasing or suspending trading in securities of Mercer or prohibiting the sale of securities by Mercer has been issued and is in force as of the date hereof and, to the knowledge of Mercer, no proceedings for this purpose have been instituted, are pending, contemplated or threatened.

14.

Vendor's Representations.    To the best of the Purchaser's and Mercer's knowledge, neither the Purchaser nor Mercer is as of the date of this Agreement aware of any facts or circumstances relating the Business or the Purchased Assets which could reasonably form the basis for a claim by the Purchaser or Mercer based upon a breach of any of the representations and warranties of the Vendor contained in this Agreement.

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EXHIBIT C
FORM OF VESTING ORDER

[No. L001690]
Vancouver Registry

IN THE SUPREME COURT OF BRITISH COLUMBIA

THE APPLICATION of the Petitioners coming on for hearing at Vancouver, British Columbia on the    •     day of    •    ; and on hearing    •    , counsel for the Petitioners,    •    , counsel for KPMG Inc. in its capacity as Receiver of the undertaking and assets of Stone Venepal (Celgar) Pulp Inc. [Pate A Papier Stone Venepal (Celgar) Inc.] ("Celgar"), and no one appearing on behalf of the other parties to this proceeding although duly notified, and upon reading the Affidavit of    •    , sworn    •    and filed    •    ;

THIS COURT ORDERS THAT:

Security of the Petitioner

1.

The Petitioner, Computershare Trust Company of Canada, is the holder of fixed and specific mortgages and charges formerly held by Montreal Trust Company of Canada (collectively, the "Charge") pursuant to a deed of trust and mortgage between CITIC B.C. Inc. and Montreal Trust Company of Canada and a mortgage and deed of trust between Celgar and Montreal Trust Company of Canada, each dated January 31, 1991 (the "Indentures") against all of the undertaking, property and assets (the "Assets") of the Respondent, Celgar, and in particular, but in no way derogating from the generality of the foregoing:

(a)

a fixed and specific mortgage and charge against those lands and premises and interests in land situate in the Province of British Columbia, and more particularly described in Schedule A to this Order;

(b)

a fixed and specific mortgage and charge against all other property, including without limitation personal property of Celgar, including intangibles;

2.

The Charge ranks in priority to all encumbrances in favour of the Respondents against the Assets, but is subject to the Permitted Encumbrances Described in Schedule C hereto;

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Vesting of the Lands and Land Interests in the Purchaser

3.

In connection with an agreement of purchase and sale (the "Purchase Agreement") among the Petitioner, KPMG Inc., in its capacity as Receiver of Celgar (appointed as such under the Indentures) (the "Receiver"), 0706906 B.C. Ltd. (the "Purchaser") and Mercer International Inc. dated November 22, 2004, pursuant to which the Receiver has agreed to sell all or substantially all of the properties, assets, undertaking and rights, real and personal, tangible and intangible, of every kind and description secured by the Charge and vested in KPMG Inc. in its capacity as Trustee in Bankruptcy of Celgar (the "Trustee") owned or used by the Receiver, the Trustee or Celgar or to which the Receiver, the Trustee or Celgar is entitled, in connection with the conduct of the Business (as defined in the Purchase Agreement), with the exception of certain Excluded Assets (as defined in the Purchase Agreement) (the "Purchased Assets") to the Purchaser (the "Transaction"), at the Time of Closing on the Closing Date (each as defined in the Purchase Agreement) as set out in the Purchase Agreement (the "Closing"), all of the right, title and interest of Celgar, the Receiver and of the Trustee in and to those certain parcels or tracts of lands and premises and interests in land, including, without limitation, all interests in the statutory right-of-way, more particularly described in Column 2 of Schedule A to this Order (collectively, the "Lands") shall be transferred to and vest in the Purchaser, free and clear of all right, title, interest, encumbrances, liens, charges and equities of redemption of the Petitioners and the Respondents and their respective heirs, executors, administrators, successors and assigns and all persons claiming by, through or under them or any of them, including without limitation the charges to be discharged in accordance with paragraph 6(a) of this Order but specifically excluding the Permitted Encumbrances described in Parts 1 and 3 of Schedule C.

4.

Upon registration at the Kamloops/Nelson Land Title Office of a Court certified copy of this Order, together with a letter from Fasken Martineau DuMoulin LLP to such registry authorizing the registration and/or filing of this Order:

(a)

the lands described in Column 2 of Schedule A opposite items 1 to 11 (as the item numbers appear in Column 1 of Schedule A) inclusive in Schedule A shall be transferred to and vest in the Purchaser as registered owner in fee simple; and

(b)

the statutory right of way (the "SRW") described in Column 2 of Schedule A opposite items 12 to 14 (as the item numbers appear in Column 1 of Schedule A)

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inclusive in Schedule A, shall be transferred to and vest in the Purchaser as registered owner

without further instrument of transfer or discharge, free and clear of all right, title, interest, encumbrances, liens, charges and equities of redemption of the Petitioners and the Respondents and their respective heirs, executors, administrators, successors and assigns and all persons claiming by, through or under them or any of them, including without limitation the charges to be discharged in accordance with paragraph 6(a) of this Order but specifically excluding the Permitted Encumbrances described in Parts 1 and 3 of Schedule C hereto and, for the purposes of this paragraph 4 this Court directs the Registrar of the Kamloops/Nelson Land Title Office to register:

(c)

indefeasible title in favour of the Purchaser in the lands referenced in subparagraph (a) above; and



(d)

title in favour of the Purchaser in the SRW referenced in subparagraph (b) above,

and this Court declares that it has been proven to the satisfaction of the Court on investigation that the title of the Purchaser in and to those lands and in and to the SRW is a good, safe holding and marketable title.

Vesting of Personal Property in the Purchaser

5.

At the Time of Closing on the Closing Date, all of the right, title and interest of the Petitioners and the Respondents in and to the Purchased Assets, other than the Lands vesting in the Purchaser pursuant to paragraphs 3 and 4 of this Order, and other than the Excluded Assets described in Schedule E hereto which do not form part of the Purchased Assets (but for greater certainty including all personal property, including all equipment, inventory, goods, chattel paper, documents of title, accounts, receivables, intangible property, contractual rights, licences, permits, goodwill, intellectual property and books and records relating to the Business, excluding any such property comprising Excluded Assets described in Schedule E hereto), shall be transferred to and vest in the Purchaser as owner without further instrument of transfer or discharge, free and clear of all right, title, interest, encumbrances, liens, charges and equities of redemption of the Petitioners and the Respondents and their respective heirs, executors, administrators, successors and assigns and all persons claiming by, through or under them, with the exception of the Permitted Encumbrances described in Part 2 of Schedule C hereto, and upon receipt by the Registrar (the "PPR Registrar") of the British Columbia Personal Property Registry

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(the "PPR") of a Court Certified copy of this Order, in accordance with the procedures set out in paragraph 6 of this Order, the liens, charges and encumbrances registered in the PPR set forth in Schedule D hereto shall forthwith be removed, discharged and de-registered;

General Discharge Provision and Form of Order

6.

The Registrar of the Kamloops/Nelson Land Title Office, the PPR Registrar, and all other persons in control of any registry shall, except for the Permitted Encumbrances described in Schedule C hereto, forthwith remove, discharge and de-register those:

(a)

registrations against the Lands, or any of them, which are registered in the Kamloops/Nelson Land Title Office as set out in Schedule B to this Order; and

(b)

security interests registered in the PPR as described in Schedule D to this Order,

forthwith upon receipt by such persons of:

(c)

a letter from Fasken Martineau DuMoulin LLP to such registry authorizing the registration and/or filing of this Order; and



(d)

a Court certified copy of this Order, or facsimile version, or a photocopy of a facsimile version or a scanned and electronically transferred copy of a Court certified copy of this Order, which facsimile version, or photocopy of a facsimile version or scanned electronic version of a Court certified copy of this Order, this Court deems to be effective for the removal, discharge and de-registration described above as if it were an original Court certified copy of this Order;

Unassignable Contracts and interests

7.

If any rights, benefits or remedies (hereinafter collectively called the "Rights") under any Contract, Licence, Permit or Intellectual Property (each as defined in the Purchaser Agreement) assigned to or assumed by the Purchaser pursuant to the Purchase Agreement are not assignable by the Vendor (as defined in the Purchase Agreement) or Celgar to the Purchaser without the consent of one or more other parties thereto (hereinafter called a "Third Party") and such consent is not obtained prior to the Time of Closing (but the Transaction completes), such Rights will not vest at the Time of Closing but will be held by the Vendor for the benefit of the Purchaser in accordance with the Purchase Agreement, providing further that upon any such Third Party consent being obtained, such Rights shall automatically vest in the Purchaser without the requirement of any further action on the part of the Purchaser.

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Powers of Receiver

8.

As may be required to carry out the sale of the Purchased Assets, or any of them, by the Receiver, or as may otherwise be required to carry out the purpose and intent of this Order, the Receiver is authorized to execute, on its own behalf and/or on behalf of the Respondent Celgar or the Trustee, as may be required, all such documents of transfer, bills of sale, assignments and other documents and instruments, under the seal of Celgar or otherwise, as may be required to effect the sale, transfer and assignment of the Purchased Assets or any of them and the vesting of title, as ordered above, including without limitation any documents which may be required or that the Purchaser deems desirable to be registered at the Kamloops/Nelson Land Title Office, the PPR, the Canadian Trade-marks Office, and any other registry or office where registration may be required or desirable to record, evidence or carry out the transfer of the Assets or any of them;

9.

Upon the execution by the Receiver of the documents of transfer, bills of sale, assignments and other documents and instruments as aforesaid, and upon delivery of such documents of transfer, bills of sale, documents and instruments by the Receiver to the Purchaser, if such documents are required or desirable, all the right, title and interest of the Petitioners and the Respondents in and to the Purchased Assets and all interests which may be described or referenced in such documents of transfer, bills of sale, assignments, documents and instruments, to the extent that the transfer thereof had not previously been fully perfected by this Order, shall be transferred to and vest in the Purchaser, free and clear of all right, title and interest of the Petitioners and the Respondents and their respective heirs, executors, administrators, successors, assignees and all persons claiming by, through or under them or any of them;

10.

The Receiver is authorized to execute on behalf of any of the parties to this proceeding such financing statements, financing change statements, and such other documents, instruments and discharges, and to effect on behalf of such parties the registration of such financing statements, financing change statements and such other documents and instruments at the Kamloops/Nelson Land Title Office, the PPR, the Canadian Trade-marks Office, and any other registry or office where registration may be required or desirable to cancel any registration at such registry or registries in favour of any of the parties to this proceeding with respect to any assets or interests which may be described

C-6

or referenced in the above-referenced documents of transfer, bills of sale, assignments, documents and instruments or which may otherwise be transferred to the Purchaser pursuant to the terms of this Order or any instrument executed and delivered pursuant to this Order; and

11.

The Petitioners and the Purchaser shall be at liberty to apply for such further and other directions as may be necessary to carry out the terms of this Order.

BY THE COURT

DISTRICT REGISTRAR

APPROVED AS TO FORM:

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SCHEDULE A

DESCRIPTION OF LANDS, STATUTORY RIGHTS-OF-WAY AND REGISTERED INTERESTS TO BE TRANSFERRED BY COURT ORDER

C-A-2

C-A-3

C-A-4

C-A-5

SCHEDULE B

DESCRIPTION OF SPECIFIC CHARGES TO BE DISCHARGED FROM THE LANDS BY COURT ORDER

C-B-2

C-B-3

C-B-4

C-B-5

C-B-6

SCHEDULE C*

PERMITTED ENCUMBRANCES

1.     PERMITTED ENCUMBRANCES TO REMAIN REGISTERED AGAINST THE LANDS

C-C-2

C-C-3

C-C-4

2.     PERMITTED ENCUMBRANCES TO REMAIN REGISTERED AGAINST KPMG INC., AS TRUSTEE FOR CELGAR AND CELGAR

1.

Registered Against Stone Venepal (Celgar) Pulp Inc.

2.

Registered Against CITIC B.C. Inc.

C-C-5

3.

Registered Against Celgar Pulp Company

4.

Registered Against KPMG Inc., Trustee for Stone Venepal (Celgar) Pulp Inc.