Ts'kw'aylaxw Forestry Co. Ltd.

Letter of Intent for Ts'kw'aylaxw Forestry Co.

January 15, 2001

Box 609

Cache Creek, BC

V0K 1H0

Ainsworth Lumber Co. Ltd.

Box 49307

Bentall Four, suite 3194

1055 Dunsmuir St.

Vancouver, BC

V7X 1L3

This letter outlines the major components of a proposal to create a Joint Venture between Ainsworth Lumber Co. Ltd. (ALC) and Ts’kw’aylaxw Forest Company (TFC) - a corporation wholly owned by the Ts’kw’aylaxw First Nation. This non-legal document will set out the general agreed-to principles on which a Joint Venture will be based.

The formation of a Joint Venture is without prejudice to Ts’kw’aylaxw First Nation “Aboriginal Title”.

In keeping with the commitment as part of the Hala’w initiative, ALC will make available a portion of ALC’s accumulated undercut from Forest License A18700 to the Joint Venture.

 The intention is for the Joint Venture to obtain Non-Replaceable Forest Licenses (NRFL)   (5 years, 5000 m3/year (Kamloops), 5 year, 15,000 m3/year (Lillooet)) and to also obtain harvesting contracts (Forest License A18700, minimum 10,000 m3/year) with ALC; both of these to act as an initial catalyst for the development of a highly profitable, environmentally sensitive forestry Joint Venture.  It is the intent upon successful implementation of the initial licenses to make application for further longer-term licenses, if undercut volume or other tenure opportunities are available in the Lillooet and Kamloops Timber Supply Areas (TSAs). It is the expectations that these Forest License opportunities or harvesting contracts will be conducted within a 10-kilometer radius of the Pavilion community.

Business Structure:

A Limited Company will be formed and incorporated under the laws of British Columbia. The TFC will retain 51% of the Limited Company’s ownership and ALC will hold the residual 49%. Initial start-up financial resources (or equivalent “in-kind” resources) will subsequently be contributed in proportions equal to the level of ownership. The expectation is both partners will provide initial start-up costs of $5,000 each, with further financing to be identified in the completed business plan.

The Limited Company will be managed by a “board of directors” comprised of an equal number of representatives from the TFC and from ALC.  All management and financial decisions will be made through a consensus vote of these Limited Company directors. This means that each director has a veto power.

The initial task of the “board of directors” is to develop a business plan for the Limited Copmany that will clearly outline the short and long-term objectives as they relate to business growth, finances, employment, training and environmental standards.

Any distribution of profits back to shareholders will also be done in proportions equal to ownership. It is the intent that from time to time, based on a consensus vote of the “board of directors”, profits in excess of normal business growth will be allocated to the shareholders.

The formation of a Limited Company relationship between the two parties will in no way compromise the independence of each party.

Management Intent:

The intent is that the Limited Company will manage all aspects of NRFLs in the Lillooet and Kamloops TSAs and operation of a contract timber harvesting operation.

A operating plan will be developed each year by the Limited Company and approved by the “board of directors” which will identify total projected harvest volume, projected log flow, projected pricing, and company budget.  A minimum of two annual reviews of the operating plan (amendments) will be carried out with the members of the Ts’kw’aylaxw  community to ensure the plan addresses the financial, employment, environmental and historical interests of the community. As required subcommittees of Ts’kw’aylaxw community members will be set-up from time to time to address site specific areas to ensure activities are carried out in a way that is compatible with the traditional use of the land. 

The Limited Company will develop a fiber-flow agreement with ALC for the purchase of logs harvested by the Limited Company in a fashion that reflects changes in lumber and veneer markets and the inherent costs required to effectively manage a NRFL. The intent is for logs to be distributed to ALC at Limited Company break-even cost during poor markets and with accelerated levels of profitability during moderate and high markets. ALC would have the first right of refusal on the purchase of logs at the agreed-to pricing mechanism. If ALC waives it’s right, the logs could be sold freely in the open market.

Schedule “A” illustrates areas where the Ltd. Co. will have exclusive harvesting rights (either on a NRFL or ALC’s Forest License A18700) and areas where the Limited Company would have shared harvesting rights with other ALC contractors.

The intent is that the Limited Company will “ramp-up” both the volume harvested and the employment levels, as financial resources and experience is accumulated. Initial business development for the Limited Company will be to form and operate a log-harvesting venture.

ALC will provide in-kind advice and training to ensure the Limited Company is operated in a safe and efficient manner.    

Although the intent is to provide employment opportunities for the Ts’kw’aylaxw  community, subcontracts with local ALC contractors can be used from time to time at the discretion of the “board of directors” to assist in the initial ramp-up (expertise and financial).

At the discretion of the “board of directors”, and subject to the financial resources available, the Limited Company will, over time, strategically expand its business through the acquisition of other related opportunities. These may include but are not limited to:

·          Purchase of existing log harvesting and hauling businesses.

·          Purchase of existing timber tenures.

·          Make application, as the opportunity arises, for further crown tenures.

ALC recognizes and concurs with Ts’kw’aylaxw First Nation that it is necessary to maintain a balance between social, environmental, and economic values with regards to activities within the Ts’kw’aylaxw First Nation traditional territory (schedule B).

Limited Company will be an equal-opportunity employer, however one of the primary objectives will be to provide training and subsequent employment for members of the Ts’kw’aylaxw First Nation community. A key component of the business plan will be a multi-faceted long-term training plan. The resultant training programs would be either self-funded or will be funded through various government programs.

Party’s Interests:

The Ts’kw’aylaxw First Nation will fully retain its’ right to pursue long-standing jurisdictional disputes with the Provincial and Federal governments. The Ts’kw’aylaxw First Nation is free to exercise its’ fundamental rights to protect traditional values and archaeological features.

ALC retains its independent right to maintain a secure cost-effective log supply for its “core” business.

The business of the Limited Company must be developed in a fashion that will not displace existing contractors and/or staff.  The final business plan will be structured in a fashion that allows ALC to develop similar agreements with other local First Nation groups. 

This letter clearly outlines the fundamental principles of a proposed agreement, but is not intended to be a legal document. A positive business environment will be developed for both the short and long-term. For this reason, all letters of intent and agreements (both legal and non-legal) are intended to be dynamic and subject to amendment from time-to-time to ensure that the needs of all parties are being met.

_______________________

Ainsworth Lumber Co. Ltd.

__________________________

Ts’kw’aylaxw First Nation