PAGES WHERE CONFIDENTIAL TREATMENT HAS BEEN REQUESTED PURSUANT TO RULE 406 OF
THE SECURITIES ACT OF 1933, AS AMENDED, ARE MARKED "CONFIDENTIAL TREATMENT
REQUESTED PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED, AND
THE REDACTED MATERIAL HAS BEEN SEPARATELY FILED WITH THE COMMISSION" AND THE
CONFIDENTIAL SECTION HAS BEEN MARKED WITH A STAR (*)
AMENDED AND RESTATED
TIMBER HARVESTING MANAGEMENT AGREEMENT
BETWEEN
XXXXXXXX CHALLENGE CANADA LIMITED
AND
TIMBERWEST FOREST CORP.
TIMBERWEST FOREST COMPANY
JANUARY 1, 1999
AMENDED AND RESTATED
TIMBER HARVESTING MANAGEMENT AGREEMENT
TABLE OF CONTENTS
ARTICLE 1. INTERPRETATION..................................................................................2
1.1. Definitions.....................................................................................2
1.2. Confirmation of Known Factors...................................................................5
1.3. Currency........................................................................................5
1.4. References......................................................................................5
1.5. Construction....................................................................................5
1.6. Governing Law...................................................................................5
1.7. Schedules.......................................................................................5
ARTICLE 2. SUPPLY COMMITMENT...............................................................................6
2.1. Committed Volume................................................................................6
2.2. Term............................................................................................6
2.3. Species Mix and Quality.........................................................................6
2.4. Shake and Shingle Blocks........................................................................6
ARTICLE 3. PRICING.........................................................................................7
3.1. Offer Price.....................................................................................7
3.2. Arbitration of Offer Price......................................................................7
ARTICLE 4. FEE.............................................................................................8
4.1. TimberWest Fee..................................................................................8
4.2. Payment of Fee..................................................................................8
4.3. Review of Adjustment Factor.....................................................................8
ARTICLE 5. PRODUCTION REQUIREMENTS AND ADJUSTMENT FACTORS..................................................8
5.1. Anticipated Volume..............................................................................8
5.2. Quarterly Meetings..............................................................................8
5.3. Adjustment Information and Other Particulars (FCCL).............................................9
5.4. Adjustment Information and Other Particulars (TimberWest).......................................9
5.5. Timber Supply Area..............................................................................9
5.6. Standby Fee....................................................................................10
5.7. Shortfall Credits..............................................................................10
5.8. Basis of Annual Volume Calculation.............................................................10
5.9. Waiver by FCCL.................................................................................11
5.10. Priority of Deductions.........................................................................11
5.11. Transfer of Tree Farm Licences.................................................................11
ARTICLE 6. CONVERSION TO RIGHT TO PURCHASE................................................................11
6.1. Conversion Option..............................................................................11
6.2. Log Sale Commitment............................................................................12
6.3. Purchase Price.................................................................................12
6.4. Fee Payment....................................................................................12
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CONFIDENTIAL TREATMENT REQUESTED PURSUANT TO RULE 406 OF THE SECURITIES ACT OF
1933, AS AMENDED, AND THE REDACTED MATERIAL HAS BEEN SEPARATELY FILED WITH THE
COMMISSION - CONFIDENTIAL SECTION HAS BEEN MARKED WITH A STAR (*)
6.5. Applicable Conditions..........................................................................12
ARTICLE 7. DEFAULT........................................................................................13
7.1. Event of Default...............................................................................13
7.2. Remedies.......................................................................................13
7.3. Consequential Damages..........................................................................13
ARTICLE 8. FORCE MAJEURE AND CURTAILMENT..................................................................14
8.1. Affecting FCCL.................................................................................14
8.2. Credit to Shortfall............................................................................14
8.3. Affecting Fibre Suppliers......................................................................14
8.4. Alternative Disposition........................................................................15
8.5. Affecting TimberWest...........................................................................15
8.6. Advance Warning................................................................................15
ARTICLE 9. ARBITRATION....................................................................................16
9.1. Arbitration....................................................................................16
9.2. Timely Decisions...............................................................................17
ARTICLE 10. CO-OPERATION...................................................................................17
10.1. Mitigation.....................................................................................17
10.2. Preferred Sales................................................................................17
10.3. Review of Pricing Structure....................................................................17
10.4. Reductions in Allowable Annual Cut.............................................................18
ARTICLE 11. GENERAL........................................................................................18
11.1. Maintenance of Records.........................................................................18
11.2. Notices........................................................................................18
11.3. Time...........................................................................................19
11.4. Further Assurances.............................................................................19
11.5. Waivers........................................................................................19
11.6. Assignment by FCCL.............................................................................19
11.7. Confidentiality................................................................................20
11.8. Restatement of Original Agreement..............................................................21
11.9. Nature of Obligations..........................................................................21
11.10. Action by TimberWest Forest Corp...............................................................21
11.11. Enurement......................................................................................21
SCHEDULE A ADJUSTED AAC SUMMARY (1998)
SCHEDULE B FIBRE EXCHANGE AGREEMENTS
SCHEDULE C WEIGHTED AVERAGE * PRICE ALLOCATIONS
iii
SCHEDULE D FIBRE SUPPLIER FORCE MAJEURE CALCULATIONS
AMENDED AND RESTATED
TIMBER HARVESTING MANAGEMENT AGREEMENT
THIS AGREEMENT made as of the 1st day of January, 1999.
BETWEEN:
XXXXXXXX CHALLENGE CANADA LIMITED, a
British Columbia Company
with an office at 9th Floor, 000 Xxxx Xxxxxxx Xxxxxx,
Xxxxxxxxx, Xxxxxxx Xxxxxxxx
("FCCL")
OF THE FIRST PART,
AND:
TIMBERWEST FOREST CORP., a
British Columbia company and
TIMBERWEST FOREST COMPANY, a partnership of TIMBERWEST FOREST
CORP., TFL FOREST LTD. AND PFP FOREST LTD., each with an
office at 0000 - 0000 Xxxx Xxxxxxx Xxxxxx, Xxxxxxxxx, Xxxxxxx
Xxxxxxxx
(collectively "TimberWest")
OF THE SECOND PART.
WHEREAS:
A. FCCL has entered into, and will from time to time enter into,
arrangements with wood chip producers where FCCL has the right to
purchase wood chips from the producer and the producer has the right to
purchase sawlogs or shingle logs from FCCL;
B. By an agreement (the "Original Agreement") dated the 16th day of
December, 1993 entitled "
Timber Harvesting Management Agreement"
between FCCL and TimberWest Forest Limited (now TFL Forest Ltd."),
TimberWest Forest Limited agreed to make a certain volume of sawlogs
and shingle logs available in order to permit FCCL to facilitate its
arrangements with wood chip producers;
C. The parties have agreed to amend the Original Agreement as at January
1, 1998 by restating that agreement as amended as set forth in this
Agreement and to take into account the reorganization referred to in
Recital D;
D. Subsequent to January 1, 1998 the obligations of TimberWest Forest
Limited were assumed by TimberWest Forest Company, a partnership
consisting of TimberWest Forest Corp. as managing partner, TFL Forest
Ltd. (formerly named TimberWest Forest Limited) and PFP Forest Ltd;
2
CONFIDENTIAL TREATMENT REQUESTED PURSUANT TO RULE 406 OF THE SECURITIES ACT OF
1933, AS AMENDED, AND THE REDACTED MATERIAL HAS BEEN SEPARATELY FILED WITH THE
COMMISSION - CONFIDENTIAL SECTION HAS BEEN MARKED WITH A STAR (*)
NOW, THEREFORE THIS AGREEMENT WITNESSES that in consideration of the premises
and the mutual covenants hereafter set out, the parties agree as follows:
ARTICLE 1.
INTERPRETATION
1.1. DEFINITIONS
In this Agreement:
(a) "AAC BASED VOLUME" means, for any year, the product obtained
by multiplying * by a fraction, the numerator of which is the
Adjusted AAC for that year and the denominator of which is the
Adjusted AAC for 1998;
(b) "ADJUSTED AAC" means, with respect to any year, the aggregate
allowable annual cut for the Tree Farm Licences and the forest
licences held, directly or indirectly, by TimberWest in the
Timber Supply Areas as at the first day of the year, which
aggregate allowable annual cut for 1998 and a summary of that
calculation is set out in Schedule A;
(c) "ANNUAL VOLUME" means, for each year of any Four Year Period
the sum of:
(i) *; and
(ii) the applicable AAC Based Volume for that year
pursuant to Section 5.8;
(d) "AFFILIATE" has the meaning set out in the COMPANY ACT
(
British Columbia);
(e) "ALLOWABLE ANNUAL CUT" means allowable annual cut as defined
in the FOREST ACT as amended from time to time;
(f) "BASE FEE" means:
(i) for the Semi-annual Period which commences on January
1, 1994 and each Semi-annual Period thereafter where
the Weighted Average * Price for the previous
Semi-annual Period does not exceed the Current
Average Product Price by *; and
(ii) for each Semi-annual Period where the Weighted
Average * Price for the previous Semi-annual Period
exceeds the Current Average Product Price by *;
(g) "BUSINESS DAY" means a day that is not a Saturday, Sunday or
statutory holiday in
British Columbia;
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CONFIDENTIAL TREATMENT REQUESTED PURSUANT TO RULE 406 OF THE SECURITIES ACT OF
1933, AS AMENDED, AND THE REDACTED MATERIAL HAS BEEN SEPARATELY FILED WITH THE
COMMISSION - CONFIDENTIAL SECTION HAS BEEN MARKED WITH A STAR (*)
(h) "CURRENT AVERAGE PRODUCT PRICE" means the average price as at
December 15, 1993 for all products produced at the Crofton
pulp and paper mill and Elk Falls pulp and paper mill, net of
all discounts, rebates, commissions, freight, wharfage,
handling insurance and similar costs paid or allowed by FCCL
in respect of the sale of such products;
(i) "CURRENT FEE" means:
(i) for the Semi-annual Period which commences on January
1, 1994 *; and
(ii) for each Semi-annual Period thereafter, the Base Fee
multiplied by the Product Price Adjustment Factor;
(j) "FIBRE EXCHANGE AGREEMENTS" means the log for chip agreements
described in Schedule B as amended, renewed or replaced from
time to time and any similar agreements entered into by FCCL
from time to time during the term of this Agreement;
(k) "FIBRE SUPPLIER" means a party to a Fibre Exchange Agreement
which provides wood chips to FCCL pursuant to the Fibre
Exchange Agreement;
(l) "FOUR YEAR PERIOD" means the four year period commencing on
January 1, 1998 and ending on December 31, 2001 and each
consecutive four year period thereafter;
(m) "LOGS" means logs other than logs which are determined to be
pulplogs by the end use sort;
(n) "M(3)" means a cubic metre of logs,
British Columbia metric
scale as determined under the FOREST ACT;
(o) "MAXIMUM VOLUME" means, for any year, the Annual Volume for
that year less:
(i) the Purchased Volume Reduction Factor;
(ii) the amount of any volume reduction under Section 5.6;
and
(iii) the amount of any volume reduction under Subsection
5.9(a);
(p) "PARCEL" means a raft, boom, bag, barge, bundle, group of
bundles or other grouping of Logs commonly offered for sale as
a unit;
(q) "PRODUCT PRICE ADJUSTMENT FACTOR" means, for each Semi-annual
Period, a fraction, the numerator of which is the Weighted
Average * Price for the previous
4
Semi-annual Period and the denominator of which is the Current
Average Product Price;
(r) "PURCHASED VOLUME" means, for any year, the volume of Logs
which FCCL (and any of its Affiliates other than TimberWest
and its Subsidiaries) purchased and sold to Fibre Suppliers in
that year under Fibre Exchange Agreements other than:
(i) the volume of such Logs sold to TimberWest; and
(ii) any volume of such Logs purchased as a result of, or
in order to remedy, a default by TimberWest under
this Agreement;
(s) "PURCHASED VOLUME REDUCTION FACTOR" means, for the purposes of
calculating the Maximum Volume for any year, the Purchased
Volume in the year during the term of this Agreement in which
the Purchased Volume was the greatest;
(t) "SEMI-ANNUAL PERIOD" means the six month period beginning on
January 1, 1994 and ending on June 30, 1994 and each
succeeding six month period thereafter;
(u) "SUBSIDIARY" has the meaning set out in the COMPANY ACT
(
British Columbia);
(v) "TIMBER SUPPLY AREAS" means the Arrowsmith, Fraser, Kingcome,
Midcoast, North Coast, Queen Charlotte, Soo, Strathcona and
Sunshine Timber Supply Areas;
(w) "TREE FARM LICENCES" means Tree Farm Licence No. 46 and Tree
Farm Licence No. 47 and any extensions or replacements
thereof;
(x) "VANCOUVER LOG MARKET PRICE" means, at any time with respect
to a Parcel of Logs, the fair market value of such Parcel of
Logs determined with reference to:
(i) the volume, type and quality of Logs included in
such Parcel;
(iii) the competitive prices for equivalent volumes of Logs
of the volume, type and quality included in such
Parcel prevailing in the Vancouver log market at such
time without regard to non-arm's length sales,
distress sales or sales for export from
British
Columbia;
5
CONFIDENTIAL TREATMENT REQUESTED PURSUANT TO RULE 406 OF THE SECURITIES ACT OF
1933, AS AMENDED, AND THE REDACTED MATERIAL HAS BEEN SEPARATELY FILED WITH THE
COMMISSION - CONFIDENTIAL SECTION HAS BEEN MARKED WITH A STAR (*)
(y) "WEIGHTED AVERAGE * PRICE" means * a simple calculation of
which is attached as Schedule C;
(z) "YEAR" means a calendar year.
1.2. CONFIRMATION OF KNOWN FACTORS
The parties acknowledge and confirm that the Adjusted AAC for 1998
aggregates 1,325,976 m(3), as determined in accordance with Schedule A,
the Current Average Product Price * as determined in accordance with
Schedule C and the AAC Based Volume as at January 1, 1998 is *.
1.3. CURRENCY
All dollar amounts referred to in this Agreement are Canadian dollars.
1.4. REFERENCES
References to the singular or masculine used in this Agreement will be
deemed to include references to the plural, feminine or body corporate
as the context may require.
1.5. CONSTRUCTION
The division of this Agreement into articles and the insertion of
headings are for convenience of reference only and are not to affect
the construction or interpretation of this Agreement.
1.6. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with
the laws of the Province of
British Columbia and the federal laws of
Canada applicable therein.
1.7. SCHEDULES
The following are the schedules to this Agreement:
6
CONFIDENTIAL TREATMENT REQUESTED PURSUANT TO RULE 406 OF THE SECURITIES ACT OF
1933, AS AMENDED, AND THE REDACTED MATERIAL HAS BEEN SEPARATELY FILED WITH THE
COMMISSION - CONFIDENTIAL SECTION HAS BEEN MARKED WITH A STAR (*)
Schedule A Summary of Adjusted AAC
Schedule B Fibre Exchange Agreements
Schedule C Calculation of Weighted Average * Price
Schedule D Fibre Supplier Force Majeure Calculations
ARTICLE 2.
SUPPLY COMMITMENT
2.1. COMMITTED VOLUME
TimberWest will in each year of the term of this Agreement in
accordance with and subject to the terms of this Agreement, offer for
sale to Fibre Suppliers such volume as FCCL reasonably requires in
order to permit FCCL to acquire wood chips in accordance with the terms
of the Fibre Exchange Agreements, but not to exceed the Maximum Volume
for any year without TimberWest's consent.
2.2. TERM
This Agreement shall commence on the date hereof and continue in effect
until terminated by FCCL by notice to TimberWest to that effect on a
date specified in such notice that is not less than 12 months from the
date of such notice or until terminated by a party pursuant to Section
7.2.
2.3. SPECIES MIX AND QUALITY
In offering to sell Logs to Fibre Suppliers, TimberWest will comply
with the applicable requirements of the Fibre Exchange Agreements with
respect to such sales, including those relating to species mix and
quality and specifications of Logs (except that the obligation of
TimberWest to comply with the requirements of the Fibre Exchange
Agreement referred to in Item 2 of Schedule B as to source, species and
quality will be limited to using reasonable best efforts to do so) and
will use reasonable best efforts to meet any other requirements of
Fibre Suppliers in respect of those sales.
2.4. SHAKE AND SHINGLE BLOCKS
TimberWest will use all reasonable efforts to comply, on behalf of
FCCL, with the obligations of FCCL under Sections 5.1 and 5.2 of the
Fibre Exchange Agreement referred to in Item 6 of Schedule B.
7
ARTICLE 3.
PRICING
3.1. OFFER PRICE
TimberWest will offer Logs for sale to Fibre Suppliers in accordance
with this Agreement at the Vancouver Log Market Price and, whenever
such price is variable, TimberWest will act in the reasonable best
interests of FCCL in determining such price having regard to the fee
payable to TimberWest under this Agreement.
3.2. ARBITRATION OF OFFER PRICE
FCCL will, at the reasonable request of TimberWest, refer any price
dispute between TimberWest and any Fibre Supplier to arbitration under
the applicable Fibre Exchange Agreement. If the arbitration results in
any costs and expenses being awarded against FCCL, the payment of such
costs and expenses shall be the responsibility of TimberWest.
8
ARTICLE 4.
FEE
4.1. TIMBERWEST FEE
In consideration of the services provided by TimberWest under this
Agreement, FCCL will pay to TimberWest a fee for Logs which are
purchased by Fibre Suppliers from TimberWest pursuant to offers made by
TimberWest in accordance with this Agreement equal to the Current Fee
for the Semi-annual Period in which such Logs were delivered to Fibre
Suppliers.
4.2. PAYMENT OF FEE
FCCL will pay TimberWest, not later than the 11th Business Day
following FCCL's monthly cut-off time (currently 8:00 a.m. on the
Sunday immediately preceding the second-to-last Tuesday of each month),
the fee payable by FCCL under Section 4.1 in respect of Logs invoiced
to, and accepted by, Fibre Suppliers up to that cut-off time since the
previous cut-off time.
4.3. REVIEW OF ADJUSTMENT FACTOR
Once every five years either FCCL or TimberWest may by notice to the
other request that the continued use of the Product Price Adjustment
Factor as the appropriate fee adjustment factor be reviewed on the
basis that unanticipated events or circumstances have resulted in a
Current Fee that is contrary to the original intent of the parties
whereupon the parties will then make all reasonable efforts to reach
agreement on a revised fee structure or adjustment mechanism. Failing
agreement the matter may be referred to arbitration by either party.
ARTICLE5.
PRODUCTION REQUIREMENTS AND ADJUSTMENT FACTORS
5.1. ANTICIPATED VOLUME
Not later than 20 Business Days before the beginning of each calendar
quarter, FCCL will provide to TimberWest a schedule of FCCL's estimated
requirements for the sale of Logs to Fibre Suppliers based on
anticipated wood chip purchases from Fibre Suppliers in that calendar
quarter and the next three calendar quarters.
5.2. QUARTERLY MEETINGS
The parties will meet at least once in each calendar quarter to review
the volume and other particulars of Logs offered for sale by TimberWest
under this Agreement and to review the continuing requirements of FCCL
Suppliers for the next four calendar quarters.
9
CONFIDENTIAL TREATMENT REQUESTED PURSUANT TO RULE 406 OF THE SECURITIES
ACT OF 1933, AS AMENDED, AND THE REDACTED MATERIAL HAS BEEN SEPARATELY
FILED WITH THE COMMISSION - CONFIDENTIAL SECTION HAS BEEN MARKED WITH A
STAR (*)
5.3. ADJUSTMENT INFORMATION AND OTHER PARTICULARS (FCCL)
FCCL will provide to TimberWest:
(a) within 20 Business Days after the end of each Semi-annual
Period, a statement as to the Weighted Average * Price for
that Semi-annual Period; and
(b) within 20 Business Days after the end of each year, a
statement setting out the volume of Logs which FCCL (and any
of its Affiliates other than TimberWest and its Subsidiaries)
purchased and sold to Fibre Suppliers in that year.
5.4. ADJUSTMENT INFORMATION AND OTHER PARTICULARS (TIMBERWEST)
TimberWest will provide to FCCL:
(a) within 20 Business Days after the beginning of each year a
statement as to the Adjusted AAC for that year, the AAC Based
Volume for that year and particulars of the calculation
thereof;
(b) within 20 Business Days after the end of each month, a
statement setting out the following in respect of that month:
(i) the volume, price and other particulars of Logs
offered to each Fibre Supplier;
(ii) the volume, price and other particulars of Logs
purchased by each Fibre Supplier;
(iii) the volume, price and other particulars of Logs
declined by each Fibre Supplier; and
(c) copies of invoices to Fibre Suppliers in respect of Log sales
pursuant to offers made by TimberWest under this Agreement, at
the same time such invoices are provided to Fibre Suppliers.
5.5. TIMBER SUPPLY AREA
If any Timber Supply Area used in the determination of Adjusted AAC is
no longer designated pursuant to the FOREST ACT (
British Columbia) or
the area so designated at any time is significantly and materially
different from the area so designated at the date of this Agreement,
the parties will use reasonable efforts to mutually identify an
alternate area that, if designated as that Timber Supply Area, would
more accurately reflect the original intentions of the parties as
represented by the selection of the Timber Supply Area. If the parties
are unable to mutually identify such an area, the matter may be
referred to
10
CONFIDENTIAL TREATMENT REQUESTED PURSUANT TO RULE 406 OF THE SECURITIES ACT OF
1933, AS AMENDED, AND THE REDACTED MATERIAL HAS BEEN SEPARATELY FILED WITH THE
COMMISSION - CONFIDENTIAL SECTION HAS BEEN MARKED WITH A STAR (*)
arbitration and the area so identified by mutual agreement or
arbitration will thereafter be deemed to be that Timber Supply Area.
5.6. STANDBY FEE
If in any year FCCL Suppliers do not purchase the Maximum Volume for
that year and TimberWest was able to supply the Maximum Volume for that
year, FCCL will be entitled to pay to TimberWest, at any time within 20
Business Days after the end of that year, in respect of all or any part
of the difference as reduced by Section 5.7 (the "Shortfall"), a
standby fee calculated as follows:
(a) with respect to Shortfalls in the first, second and third
years of a Four Year Period,*;
(b) for the fourth year of a Four Year Period, *.
If FCCL elects not to pay a standby fee on all or any portion of the
Shortfall, the volume which is not the subject of such payment will be
deducted from the Maximum Volume that would otherwise be required for
each year which follows the year in which the Shortfall arose.
5.7. SHORTFALL CREDITS
The Shortfall in any year shall be subject to reduction as follows:
(a) the volume of any Logs purchased in that year by FCCL (and any
of its Affiliates other than TimberWest and its Subsidiaries)
as a result of, or in order to remedy, a default by TimberWest
under this Agreement;
(b) any credit to the Shortfall under Sections 8.2, 8.3 or 8.4 in
respect of that year; and
(c) at the option of FCCL, all or any part of the volume of Logs
which remains an outstanding obligation to Fibre Suppliers at
the end of that year in respect of wood chips purchased by
FCCL under the Fibre Exchange Agreements during that year.
5.8. BASIS OF ANNUAL VOLUME CALCULATION
The Annual Volume is based on a fixed component attributed to private
lands of * and a variable component attributed to Crown lands,
established at * for the 1998 calendar year, which varies based on
changes in the allowable annual cut of the Tree Farm Licences and the
forest licences held, directly or indirectly by TimberWest in the
Timber Supply Areas as set out in this Section. The AAC Based Volume
for each year of a Four Year Period will be determined in accordance
with the following:
11
(a) except as set out in Subsection 5.8(b) and Section 5.9, the
AAC Based Volume for each year of a Four Year Period will be
that determined for the first year of the Four Year Period;
(b) if through a change, or series of changes in Adjusted AAC
during a Four Year Period there is as at the commencement of
any year in the Four Year Period a difference of more than
20,000 m3 between the AAC Based Volume calculated for that
year and the AAC Based Volume then in effect for that Four
Year Period, then the AAC Based Volume calculated for that
year will be utilized for the calculation of Annual Volume for
that year and each subsequent year in the Four Year Period,
subject to the ability of TimberWest to waive all or any
portion of the reduction in the AAC Based Volume for the
remainder of the Four Year
Period by advising FCCL to that effect concurrently with
delivery of the statement under Subsection 5.4(a) which first
identifies such a reduction.
5.9. WAIVER BY FCCL
FCCL may at any time within 20 Business Days of receiving a statement
from TimberWest under Subsection 5.4(a), by notice to TimberWest:
(a) specify a reduction in the Maximum Volume as at the beginning
of the calendar year to which such statement relates;
(b) waive all or any portion of an increase in the AAC Based
Volume for the remainder of a Four Year Period under
Subsection 5.8(b).
Reductions in Maximum Volume under Subsection 5.9(a) will apply as a
permanent reduction unless FCCL accepts an offer by TimberWest to
reinstate all or any part of the reduction for a subsequent Four Year
Period.
5.10. PRIORITY OF DEDUCTIONS
Any reductions in Maximum Volume under Section 5.6 and Subsection
5.9(a) will be without duplication.
5.11. TRANSFER OF TREE FARM LICENCES
If TimberWest transfers all or any part of the Tree Farm Licences to
any transferee which does not enter into an agreement with FCCL, in
such form as FCCL may reasonably require, to be bound by the terms of
this Agreement with respect to the Tree Farm Licence or portion thereof
it acquires, then the Adjusted AAC under this Agreement shall continue
to be calculated as if such transfer had not occurred.
ARTICLE 6.
CONVERSION TO RIGHT TO PURCHASE
6.1. CONVERSION OPTION
12
CONFIDENTIAL TREATMENT REQUESTED PURSUANT TO RULE 406 OF THE SECURITIES ACT OF
1933, AS AMENDED, AND THE REDACTED MATERIAL HAS BEEN SEPARATELY FILED WITH THE
COMMISSION - CONFIDENTIAL SECTION HAS BEEN MARKED WITH A STAR (*)
FCCL may at any time during the term of this Agreement by notice to
TimberWest convert TimberWest's obligation to offer Logs to Fibre
Suppliers in accordance with Section 2.1 into an obligation to sell a
volume of Logs to FCCL in each year in accordance with this Article
effective on a date (the "Effective Date") specified in such notice
which is not less than 12 months from the giving of such notice in
which case, as of the Effective Date the obligation of TimberWest under
Section 2.1 will terminate and be replaced with the obligation under
Section 6.2.
6.2. LOG SALE COMMITMENT
TimberWest will sell to FCCL and FCCL will purchase from TimberWest in
each year, commencing with the remainder of the year in which the
Effective Date occurs, a volume of Logs as follows:
(a) for the balance of the year in which the Effective Date occurs
(the "Conversion Year") a volume of Logs equal to 1/2 of the
Maximum Volume for the Conversion Year, pro-rated to reflect a
partial year if necessary; and
(b) for each year thereafter, the sum of:
(i) *; and
(ii) 1/2 of the AAC Based Volume for that year pursuant to
Section 5.8.
6.3. PURCHASE PRICE
The purchase price payable for each Parcel of Logs purchased by FCCL
under this Agreement will be the Vancouver Log Market Price of such
Parcel calculated on a F.O.B. Point of Sale basis in a manner
consistent with Articles 8 and 9 of the current Chip and Pulplog Supply
Agreement between FCCL and TimberWest modified as necessary to reflect
the purchase and sale of Logs rather than Pulplogs.
6.4. FEE PAYMENT
The fee payable to TimberWest under Section 4.1 shall continue to apply
in respect of Logs purchased by FCCL under this Agreement and shall be
paid at the same time as the purchase price for the applicable Parcel
of Logs.
6.5. APPLICABLE CONDITIONS
The terms and conditions of this Agreement, other than Section 2.1,
Article 3, and Section 5.6, shall continue to apply to the purchase and
sale of Logs by FCCL under this Article with necessary changes to
reflect the purchase and sale under this Agreement.
13
ARTICLE 7.
DEFAULT
7.1. EVENT OF DEFAULT
An Event of Default will exist with respect to a party if such party
has committed a material default in the performance of its obligations
hereunder (for the purposes of this Section, the failure by a party to
make two successive payments required under this Agreement, other than
a failure arising from a bona fide dispute over the requirement to make
such payment, will be deemed to be a material default), notice has been
given to such party by the other party specifying the default, and:
(a) in respect of a failure to make two successive payments
required under this Agreement, more than 5 Business Days have
elapsed since the date that the notice is delivered to such
party;
(b) in any other case, more than 15 Business Days have elapsed
since the expiration of such period following the giving of
such notice during which such party might by the exercise of
reasonable diligence have remedied the default;
(c) in the case of a default that could not, by the exercise of
reasonable diligence, be remedied within the period described
in Subsection (b), the earlier of:
(i) the day on which the party fails or refuses to act
diligently to remedy the default; and
(ii) the day on which it becomes evident to the other
party, acting reasonably, that such default will not
be remedied in a reasonably timely manner regardless
of the actions taken by such party.
7.2. REMEDIES
At any time while an Event of Default exists with respect to a party,
the other party may exercise any right or remedy available to it, at
law or in equity, and may, without prejudice to any other right or
remedy, terminate this Agreement by notice to the other party to that
effect, effective on a date specified in such notice, which date shall
be not earlier than the date on which such notice is given.
7.3. CONSEQUENTIAL DAMAGES
Any liability of either party to the other for breach of this Agreement
or for negligence of its directors, officers, employees, agents and
contractors will not extend to, or include liability for, loss of
profits or contribution, loss of use of property or other consequential
damages.
14
ARTICLE 8.
FORCE MAJEURE AND CURTAILMENT
8.1. AFFECTING FCCL
If, at any time while this Agreement is in force:
(a) FCCL ceases or curtails purchases of wood chips from Fibre
Suppliers due to the shutdown or curtailment of the operation
of the pulp production facilities or wood chip unloading
facilities at any pulp mill or pulp and paper mill owned by
FCCL or any of its Affiliates (a "Pulp Mill") due to market
conditions in respect of the sale of pulp or paper, weather
conditions, fire, strike or other labour disruptions, lockout,
sabotage, shipwreck, riot, war, flood, extraordinary
breakdown, explosion, laws or regulations, Court order, act of
any government body or agency, act of God, blockade, civil
commotion or disobedience (lawful or unlawful), as a result of
excessive inventories or for any reason whether similar or
dissimilar to the foregoing which FCCL considers sufficient to
justify curtailing or shutting down such operations; or
(b) any of FCCL's Fibre Suppliers shut down or curtail the
operation of their sawmill facilities due to labour disputes,
adverse weather conditions, war, market conditions or other
events beyond their control affecting the coastal sawmill
industry in
British Columbia generally;
then FCCL may, without liability, direct TimberWest to discontinue, in
whole or in part, or reduce the applicable volume under, offers to
Fibre Suppliers in respect of a sale of Logs pursuant to this Agreement
for the period of such shutdown or curtailment.
8.2. CREDIT TO SHORTFALL
Where FCCL has directed a discontinuance or reduction under Section
8.1, the volume of Logs which TimberWest would have been required to
offer for sale to Fibre Suppliers if FCCL had not directed such
discontinuance or reduction shall be credited against and reduce the
Shortfall under Section 5.6.
8.3. AFFECTING FIBRE SUPPLIERS
If, at any time while this Agreement is in force in circumstances where
Subsection 8.1(b) does not apply, any of FCCL's Fibre Suppliers shut
down or curtail their sawmill operations due to market conditions,
weather conditions, fire, strike or other labour disruptions, lockout,
sabotage, shipwreck, riot, war, flood extraordinary breakdown,
explosion, laws or regulations, Court order, act of any government body
or agency, act of God, blockade, civil commotion or disobedience
(lawful or unlawful), as a result of excessive inventories or for any
other reason, condition or cause applicable to a Fibre Supplier which
results in the Fibre Supplier reducing the volume of Logs it requires
for its sawmill operations, then FCCL may, without liability, direct
TimberWest to discontinue, in whole or in part, or reduce the
applicable volume under, offers any such
15
Fibre Suppliers in respect of a sale of Logs pursuant to this Agreement
subject to the following:
(a) the volume of Logs which TimberWest would have been required
to offer for sale to an affected Fibre Supplier if FCCL had
not directed such continuance or reduction shall be credited
against the Shortfall under section 5.6 but only if:
(i) the event results in a reduction of more than 10% of
the volume which would otherwise have been offered to
the Fibre Supplier during that period; and
(ii) the Fibre Supplier does not make up the volume over
the remainder of the year in which the event ended;
(b) in the case of a closure of a sawmill facility by a Fibre
Supplier, the maximum period for the purpose of a calculation
under Subsection 8.3(a) will be six months. Closure for this
purpose means the date specified in a public announcement or
permanent closure of the sawmill facility or after the sawmill
facility has discontinued operations for six consecutive
months.
Sample calculations under this Section are set out in Schedule D.
8.4. ALTERNATIVE DISPOSITION
If FCCL has directed a discontinuance or reduction under Section 8.1 or
8.3, TimberWest may dispose of the Logs which would otherwise have been
offered for sale to Fibre Suppliers during such discontinuance or
reduction as it sees fit except that TimberWest will not enter into any
agreement concerning the disposition of Logs that would conflict with
FCCL's right to direct the resumption of offers to Fibre Suppliers in
respect of the sale of Logs by TimberWest under this Agreement.
8.5. AFFECTING TIMBERWEST
TimberWest shall not incur any liability to FCCL under this Agreement
if its ability to offer for sale, sell or deliver Logs to a Fibre
Supplier is delayed or prevented by any reason, condition or cause
which, under the terms of the applicable Fibre Exchange Agreement,
relieves FCCL from liability in connection with such delay or
prevention. The volume of Logs which TimberWest would have otherwise
been required to offer for sale to Fibre Suppliers if such reason,
condition or cause had not occurred shall be credited against and
reduce the Shortfall under Section 5.6.
8.6. ADVANCE WARNING
FCCL and TimberWest will each give to the other as much advance notice
as is reasonably possible of any event affecting its operations which
would adversely affect the sale of Logs to Fibre Suppliers as
contemplated by this Agreement, stating the nature, date of
commencement anticipated, duration and estimated effect of the event,
but it is acknowledged by each party that the inadvertent failure to
give such notice or the
16
inaccuracy of any estimate contained in such notice will not preclude a
party from receiving any relief or credit provided for in this Article.
ARTICLE 9.
ARBITRATION
9.1. ARBITRATION
Any dispute between the parties in respect of the determination or
calculation of the Current Fee or the Product Price Adjustment Factor,
an appropriate replacement fee structure or adjustment factor as
contemplated by Section 4.3, the determination or calculation of any
price for Logs purchased by FCCL hereunder, the determination or
calculation of any Shortfall or any other matter relating to the terms,
conditions or other requirements of any purchases and sales hereunder
(other than disputes in respect of the price payable by Fibre Suppliers
for Logs) will be submitted for determination by arbitration in
accordance with the following:
(a) arbitrations will be carried out by a single arbitrator agreed
to by the parties and if no agreement is reached within 2
Business Days after either party institutes such process by
notice to the other party:
(i) each party will, within 2 Business Days, select one
arbitrator, and a third arbitrator will promptly be
agreed to by the selected arbitrators and failing
agreement, by a Justice of the Supreme Court of
British Columbia; or
(ii) if either party fails to select an arbitrator, the
arbitrator selected by the other party will act as
the sole arbitrator;
(b) any dispute over the price of a particular Parcel of Logs will
be determined by each party submitting the price that such
party has determined to be accurate and the arbitrators or
arbitrator will select one of such prices and no other;
(c) any dispute over:
(i) a replacement fee structure or adjustment factor as
contemplated by Section 4.3; or
(ii) a revised pricing structure contemplated by Section
10.3;
will be determined by each party submitting its proposal and
the arbitrator or arbitrators will select one of such
proposals and no other;
(d) in resolving any dispute other than those referred to in
Subsections (b) and (c), including any dispute as to whether
TimberWest is entitled to request a review under Section 10.3,
the arbitrator or arbitrators shall not be constrained in the
manner contemplated by Subsections (b) and (c);
17
(e) the decision of a majority of the arbitrators or the sole
arbitrator, as the case may be, including any decision as to
costs, will be final and binding on the parties, but will not
be a precedent in any subsequent arbitration under this
Agreement.
Except as expressly provided herein, all arbitrations will be conducted
according to the laws governing commercial arbitrations in British
Columbia.
9.2. TIMELY DECISIONS
Any dispute referred to arbitration will be dealt with on an
expeditious basis with both parties using all commercially reasonably
efforts to obtain and implement a timely decision of the arbitrator who
will have the authority to award treble costs of the arbitration
proceedings against any party which does not, in the judgment of the
arbitrator, act in accordance with this Section.
ARTICLE 10.
CO-OPERATION
10.1. MITIGATION
The parties will use all reasonable efforts to minimize the financial
and other impacts on each other caused by variable supply and demand of
Logs from time to time including the carry over of any shortfalls or
excess deliveries to succeeding years in lieu of requiring a payment
under Section 5.6 or the recovery of damages as applicable where
Shortfalls or excess deliveries are not inconsistent with variation in
FCCL's arrangements under Fibre Exchange Agreements. FCCL will give
special consideration, to the extent that FCCL can reasonably
reorganize its fibre supply requirements, in situations where the costs
incurred by TimberWest in producing Logs sold to Fibre Suppliers under
the Fibre Exchange Agreements exceed the amounts payable to TimberWest
on account of the sale price therefor and the fee under Section 4.1.
10.2. PREFERRED SALES
TimberWest will use all reasonable efforts to the extent possible to
give preference to Fibre Suppliers in TimberWest's log sales program.
10.3. REVIEW OF PRICING STRUCTURE
At any time after December 15, 2008, but not more often than once every
10 years thereafter, TimberWest may request that the pricing structure
under this Agreement be reviewed if:
(a) for the previous eight consecutive calendar quarters,
TimberWest's variable cost on a cash basis of producing Logs
(expressed as an average cost per cubic metre for all Logs
harvested by TimberWest in the applicable quarter) exceeded
the average amount per cubic metre it received on account of
the fair market value of Logs sold to Fibre Suppliers (or to
FCCL if FCCL has exercised its conversion
18
option under Section 6.1) and the fee therefor under Section
4.1 for each such quarter;
(b) it can establish that the effect of this Agreement has caused,
and will in the future cause, a material adverse effect on its
business operations or financial integrity which is
significantly more severe than is otherwise being experienced
in the forest industry at that time by companies similar to
TimberWest; and
(c) such material adverse effect has not been mitigated in the
manner contemplated by Section 10.1.
If there is any dispute as to whether TimberWest is entitled to request
such a review, either party may refer that dispute to arbitration for
determination. If TimberWest is entitled to a review of the pricing
structure under this Section, the parties will then make all reasonable
efforts to reach agreement on a revised pricing structure which is
equitable to both parties in the circumstances, but failing agreement,
either party may refer the matter to arbitration.
10.4. REDUCTIONS IN ALLOWABLE ANNUAL CUT
If there is a significant reduction in Adjusted AAC from the Adjusted
AAC in the previous year, the parties will work co-operatively to
schedule volume availability in order to facilitate an orderly
termination or adjustment to Fibre Exchange Agreements which may be
required as a consequence of such reduction.
ARTICLE 11.
GENERAL
11.1. MAINTENANCE OF RECORDS
Each party will maintain detailed records of all particulars required
in order to carry out the calculations required under this Agreement
and all costs incurred by it for which it is, pursuant to this
Agreement, entitled to be reimbursed in whole or in party by the other
party and will make such records available to the other party for
inspection at all reasonable times.
11.2. NOTICES
Any notice, document or communication required or permitted to be given
hereunder shall be in writing and delivered by hand or facsimile
transmission to the party to which it is to be given as follows:
TO FCCL:
Xxxxxxxx Challenge Canada Limited
9th Floor - 000 Xxxx Xxxxxxx Xxxxxx
Xxxxxxxxx, Xxxxxxx Xxxxxxxx
Attention: Corporate Secretary
19
Facsimile No.: (000) 000-0000
TO TIMBERWEST:
TimberWest Forest Corp.
0000 - 0000 Xxxx Xxxxxxx Xxxxxx
Xxxxxxxxx, Xxxxxxx Xxxxxxxx
Attention: Corporate Secretary
Facsimile No.: (000) 000-0000
or to such other address as either party may in writing advise by
notice given in accordance with this Section. Any notice, document or
communication will be deemed to have been given, if delivered, on the
next Business Day after the day of delivery, and if sent by facsimile
transmission, on the first Business Day after the day of transmittal.
11.3. TIME
Time shall be of the essence of this Agreement.
11.4. FURTHER ASSURANCES
Each of the parties shall execute and deliver all such further
documents and do such further acts and things as may be reasonably
required from time to time to give effect to this Agreement.
11.5. WAIVERS
Failure by either party at any time to require strict performance by
the other of any term or provision hereof shall not be deemed to
constitute a waiver of breach of such or any other term or provision
hereof nor shall it constitute a waiver of any succeeding breach of
such or any other term or provision hereof.
11.6. ASSIGNMENT BY FCCL
FCCL may assign all or any portion of its interest in this Agreement,
without the prior written consent of TimberWest, in the following
circumstances:
(a) as a result of the granting by FCCL of a security interest
over all or substantially all of its assets; or
(b) to a purchaser of any material interest in a pulp or paper
mill owned by FCCL or one of its Affiliates if the purchaser
enters into an agreement with TimberWest confirming that the
purchaser is bound by this Agreement (with such changes as may
be required to contemplate the addition or substitution of the
purchaser as a party) to the extent of such assignment and
upon any assignment under this Subsection will be released
from its obligations to the extent they relate to the subject
matter of the assignment.
20
FCCL may not otherwise assign its interest in this Agreement without
the prior consent of TimberWest.
11.7. CONFIDENTIALITY
Neither party will disclose any terms or conditions of this Agreement
to any person who is not a director, officer employee or bona fide
authorized representative of the party without the prior written
consent of the other party except:
(a) if such party determines, acting reasonably, that disclosure
is required by law or during the course of its business; and
(b) if such disclosure is not required by law it is made under
terms that restrict further disclosure to the extent necessary
to protect the interests of the other party.
21
11.8. RESTATEMENT OF ORIGINAL AGREEMENT
The Agreement amends and restates the Original Agreement in its
entirety as at the 1st day of January, 1998 but the provisions of the
Original Agreement will continue in effect with respect to periods
prior to that date.
11.9. NATURE OF OBLIGATIONS
The obligations and liabilities of TimberWest Forest Corp. and each of
the partners of TimberWest Forest Company under this Agreement are
joint and several.
11.10. ACTION BY TIMBERWEST FOREST CORP.
TimberWest Forest Corp., TFL Forest Ltd. and PFP Forest Ltd. confirm
that TimberWest Forest Corp. as managing partner of TimberWest Forest
Company, has full power and authority to carry out the obligations, and
exercise the rights, of TimberWest Forest Company under this Agreement
and to execute and deliver agreements, notices or other documents on
behalf of TimberWest Forest Company.
11.11. ENUREMENT
This Agreement shall enure to the benefit of and be binding upon the
parties hereto and their respective successors and permitted assigns.
IN WITNESS WHEREOF the parties have executed this Agreement the day and year
written on the first page hereof.
XXXXXXXX CHALLENGE CANADA LIMITED
Per: /S/X. XXXXXXXX
Per: /S/X. XXXXXXXX
TIMBERWEST FOREST CORP.
(ON ITS OWN BEHALF AND AS MANAGING PARTNER
OF TIMBERWEST FOREST COMPANY)
Per: /S/B. PARK
Per: /S/X. XXXXXXXX
22
TFL FOREST LTD.
(FORMERLY TIMBERWEST FOREST LIMTED)
Per: /S/B. PARK
Per:__________________________
PFP FOREST LTD.
Per: /S/B. PARK
Per:__________________________
SCHEDULE A
ADJUSTED AAC SUMMARY (1998)
TIMBER PRIOR PRIVATE LAND 1998 ADJUSTED
LICENCE SUPPLY AREA AAC (m(3)) AAC REMOVAL (m(3)) AAC (m(3))
TFL 47 739,888 140,000 599,888
TFL 46 514,804 52,260(2) 462,544
FL A20913 Strathcona 28,380 28,380
FL A29159 Strathcona 42,904 42,904
---------
1,325,976 1,133,716(1)
=========
NOTE
(1) This AAC is calculated as if the sale of the Queen Charlotte Island
portion of TFL 47 and FL 16870 occurred on or before January 1, 1998.
Accordingly no adjustment will be made to this volume when that sale
occurs.
(2) TFL 46 AAC reduction estimated based on the removal of 7,500 hectares.
Accordingly no adjustment will be made to the 1998 Adjusted AAC for TFL
46 when that removal occurs.
CONFIDENTIAL TREATMENT REQUESTED PURSUANT TO RULE 406 OF THE SECURITIES ACT OF
1933, AS AMENDED, AND THE REDACTED MATERIAL HAS BEEN SEPARATELY FILED WITH THE
COMMISSION - CONFIDENTIAL SECTION HAS BEEN MARKED WITH A STAR (*)
SCHEDULE B
FIBRE EXCHANGE AGREEMENTS
1. * Purchase Agreement made * between * and *.
2. * Supply Agreement made * between * and *.
3. * Supply Agreement made * between * and *.
4. * Supply Agreement dated * among *and * and *.
5. Letter Agreement dated * between * and *.
6. * Agreement dated * between * and *.
7. Agreement dated * between * and *.
CONFIDENTIAL TREATMENT REQUESTED PURSUANT TO RULE 406 OF THE SECURITIES ACT OF
1933, AS AMENDED, AND THE REDACTED MATERIAL HAS BEEN SEPARATELY FILED WITH THE
COMMISSION - CONFIDENTIAL SECTION HAS BEEN MARKED WITH A STAR (*)
SCHEDULE C
WEIGHTED AVERAGE * PRICE CALCULATIONS
*
CONFIDENTIAL TREATMENT REQUESTED PURSUANT TO RULE 406 OF THE SECURITIES ACT OF
1933, AS AMENDED, AND THE REDACTED MATERIAL HAS BEEN SEPARATELY FILED WITH THE
COMMISSION - CONFIDENTIAL SECTION HAS BEEN MARKED WITH A STAR (*)
SCHEDULE D
FIBRE SUPPLIER FORCE MAJEURE CALCULATIONS
EXAMPLE 1 - *
- Notice of permanent shutdown provided November 1997.
- Section 8.3 applies to this shutdown for a maximum of six months (to
April 30, 1998).
- Equivalent annual logs from July 1996 to June 1997 (last two
Semi-Annual Periods prior to shutdown) was 97,500 m(3).
- Applicable force majeure for 1998 is Jan 1, 1998 to April 30, 1998 so
that Shortfall Credit for 1998 is 97,500 m(3) X 1/3 = 32,500 m(3).
EXAMPLE 2 - *
- Normal equivalent annual log volume for 1998 is 31,400 m(3) based on
normal production.
- Actual log volume equivalent for 1998 was 27,000 m(3) because of
curtailed production.
- Shortfall is 3,700 m(3) which is greater than 10% of normal equivalent
annual log volume (3,140 m(3)) so that Shortfall Credit is 3,700 m(3).
