<PAGE>   1
                                                                     Exhibit 4.1


                                LOAN AGREEMENT

This Agreement is dated December 15, 1997, is among Pope & Talbot, Inc., a
Delaware corporation (the "Borrower"), Pope & Talbot, Wis., Inc. ("Wis"), Pope &
Talbot International, Ltd., a British Columbia corporation ("Intl"), Pope &
Talbot, Ltd., a British Columbia corporation ("Ltd"), and U.S. Bank National
Association ("USB").

Recitals

A.    The Borrower, USB, and certain banks and financial institutions are
      parties to a Credit Agreement dated as of May 6, 1992, as modified and
      extended, and certain notes, security agreements, and guaranties related
      thereto (the "1992 credit documents"), under which USB and the other banks
      and financial institutions provide a $75 million revolving line of credit
      to the Borrower and its subsidiaries.

B.    The purpose of this Agreement and the notes, guaranties, and security
      documents related to this Agreement is to replace the credit facilities
      provided in 1992 with a new $75 million line of credit and a $10 million
      swingline subfacility.

C.    On the date of this Agreement, the Borrower's only domestic subsidiary is
      Wis and the Borrower's only foreign subsidiaries are Intl and its
      subsidiary, Ltd.

NOW, THEREFORE, it is agreed that:

1.    Definitions, Etc.

      (a)   Specific Definitions.  As used in this Agreement:

            "Advance" means a loan or extension of credit or the renewal of an
            outstanding loan or extension of credit by the Lenders to the
            Borrower under the Line of Credit.

            "Agent" means USB when USB is the only Lender and USB when acting in
            its capacity as administrative agent for the Lenders when there is
            another Lender or Lenders in addition to USB.

            "Agreement" means this Agreement, including all modifications,
            supplements, and restatements.

            "Availability" means the positive difference between $75 million and
            the aggregate amount of all Advances and Swingline Loans outstanding
            when Availability is being determined.

            "BPS" means basis points. A basis point is equal to 1/100th of 1%
            per annum.


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            "Collateral" means all present and after-acquired inventory
            (including supplies, materials, work in progress, finished goods,
            and returned and repossessed goods) and receivables (accounts,
            chattel paper, documents, instruments, distributions on account of
            investment property, deposit accounts into which proceeds have been
            deposited, rights to proceeds of written letters of credit, and all
            entitlements and things in action related thereto) of the Borrower
            and the Guarantors and all records and documents related thereto.

            "Commitment Fee" means the annual fee that is to be paid by the
            Borrower to the Lenders quarterly in arrears under this Agreement
            for the Line of Credit. The fee is calculated by multiplying the
            relevant BPS in the Pricing Matrix times the maximum amount of the
            Line of Credit ($75 million unless reduced under Subsection 4(c)(7).

            "Default Rate" means a rate or rates of interest equal to 2% per
            annum in excess of the rate or rates of interest in effect at the
            time of a default (including any subsequent fluctuations in the
            prime rate) that will be payable on accrued but unpaid interest as
            well as principal from the date of such default until the notes are
            paid in full or the Lenders accept a tendered cure of the default
            and restore in writing the pre-default rate of interest. When no
            specific rate is then in effect, the Default Rate will equal the
            Agent's publicly announced prime rate of interest plus 2% per annum.

            "Expiry Date" means April 15, 1999, unless extended by mutual
            agreement.

            "Federal Funds Rate" means the weighted average of the rates of
            interest (rounded upward to the nearest .1%) per annum at which
            non-interest-bearing deposits held by member banks at the Federal
            Reserve ("federal funds") are traded on an overnight basis among
            such member banks through brokers in federal funds as published by
            the Federal Reserve Bank of New York.

            "Financing Statement" means any financing statement, amendment, or
            continuation statement to be filed in order to perfect, amend, or
            continue the security interest granted in the Collateral under the
            Security Agreements.

            "Guarantor" means each domestic and foreign Subsidiary who executes
            a Guaranty under this Agreement. As of the date of this Agreement,
            the only Subsidiary that can execute a Guaranty under this Agreement
            is Wis.

            "Guaranty" means the guaranty to be executed under this Agreement in
            the form attached as Exhibit 1.

            "Interest Coverage Ratio" means the ratio of the Borrower's
            consolidated net income before deduction of interest, income taxes,
            depreciation, and amortization expenses to interest expense on debt,
            measured as of the end of each quarter on a four-quarter rolling
            basis.

            "Lender" means USB and any other lender who is a party to this
            Agreement.


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            "Lender's Share" means the percentage interest of a Lender
            calculated by dividing the dollar amount of such Lender's individual
            commitment by $75 million.

            "Leverage Ratio" means the ratio of Total Funded Debt to Tangible
            Net Worth.

            "LIBOR Advance" means an Advance based on the LIBOR.

            "LIBOR Interest Period" means a period of 1, 2, 3, or 6 months as
            selected by the Borrower for each LIBOR Advance.

            "LIBOR" means an interest rate equal to the London interbank offered
            market rate for Eurodollars (U.S. dollar denominated deposits) as
            publicly quoted by USB as of 8:30 a.m. each banking day for a
            interest period beginning on the second banking day after the day of
            quotation, including any applicable reserve requirement costs, FDIC
            insurance premiums, and related costs, and rounded to the nearest
            1/16th of 1% per annum. If permitted by USB's Funds Management
            Division, the Reuters or Telerate screens will be used in
            determining the applicable LIBOR.

            "Line of Credit" means the $75 million revolving line of credit
            being provided by the Lenders to the Borrower under this Agreement.

            "Line of Credit Note" means the note that the Borrower issues to
            each Lender in the form attached as Exhibit 2.

            "Loan Documents" means this Agreement, the Line of Credit Notes, the
            Swingline Note, the Guaranties, and the Security Agreements,
            including all modifications, supplements, and restatements.

            "Material Adverse Effect" means a material adverse change in or
            effect on the operations, business properties, condition (financial
            or otherwise), of the Borrower and the Subsidiaries taken as a whole
            or a material adverse effect on the legality, validity, binding
            effect, or enforceability of Loan Documents against the Borrower or
            any Subsidiary.

            "Notice of Borrowing" means a written notice from the Borrower to
            USB in the form attached as Exhibit 3 requesting an Advance.

            "Pricing Matrix" means:

<TABLE>
<CAPTION>
                     Level I             Level II             Level III
                   -----------       ---------------      ----------------
<S>                <C>               <C>                  <C>
Leverage Ratio      (*).50           (**).50 (***).80     (**).80 (***)1.0
Prime Margin             0                 0                    0
LIBOR Margin         43.75 BPS         50.00 BPS            62.50 BPS
Commitment Fee       15.00 BPS         18.75 BPS            20.00 BPS
Unused Fee            5.00 BPS          6.25 BPS             8.50 BPS
</TABLE>

(*)    Non-EDGAR symbol meaning LESS THAN

(**)   Non-EDGAR symbol meaning GREATER THAN OR EQUAL TO

(**)   Non-EDGAR symbol meaning LESS THAN OR EQUAL TO

            "Prime Rate Advance" means an Advance at the prime rate.


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            "Prime Rate" means a fluctuating rate of interest per annum which is
            equal to the higher of (1) the rate of interest which the Agent
            publicly announces from time to time as its prime or base rate for
            loans to commercial borrowers or (2) the Federal Funds Rate, plus a
            margin of 1/2% per annum. The Prime Rate will change at the same
            time and to the full extent of any changes in the Agent's publicly
            announced prime rate. The use of the word prime does not constitute
            an express or implied representation that the rate is the lowest or
            best rate of interest available to the most creditworthy customers
            of the Agent or any Lender.

            "Security Agreement" means the security agreement that the Borrower
            and each Guarantor will execute in the form attached as Exhibit 4 to
            grant a security interest in the Collateral to secure performance of
            their obligations to the Lenders.

            "Subsidiary" means any present or future subsidiary of the
            Borrower.

            "Swingline" means a revolving line of credit of up to $10 million
            that USB will provide to assist the Borrower with its day-to-day
            management of cash.

            "Swingline Loan" is a loan made by USB to the Borrower under the
            Swingline.

            "Swingline Note" means the note that the Borrower issues to USB in
            the form attached as exhibit 5.

            "Tangible Net Worth" means as of any date and on a LIFO basis
            shareholders' equity (including any minority interest) less
            goodwill, loans and advances to shareholders, officers, directors,
            and employees that exceed $250,000 in the aggregate, surplus from
            write-up of assets, and general intangibles.

            "Total Funded Debt" means all liabilities for borrowed money plus
            all capital lease obligations.

            "Unused Fee" means a fee that is to be paid by the Borrower to the
            Lenders quarterly in arrears under this Agreement for the average
            amount of the Line of Credit that is not used in a quarter. The fee
            is calculated by multiplying the relevant BPS in the Pricing Matrix
            times the average amount of the Line of Credit that is unused in a
            quarter. Swingline Loans will not be counted as Advances for the
            purpose of calculating the Unused Fee.

            "Yield Maintenance Charge" means p x (i - y) x f where "p" equals
            the prepaid principal amount, "i" equals the margined LIBOR then
            being paid on the amount prepaid, "y" equals the margined LIBOR most
            recently quoted by the Agent with a term most closely matching the
            remainder of the LIBOR Interest Period, and "f" is a fraction of
            which the numerator is the number of days remaining in the LIBOR
            Interest Period and the denominator is 360, plus any processing fee
            and/or redeployment costs charged or incurred by a Lender.


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      (b)   General Definitions. As used in the Loan Documents:

            "Affiliate" means any person that directly or indirectly through one
            or more intermediaries controls, or is controlled by, or under
            common control with, another person through the ownership of equity
            securities or beneficial interests, relationship, control,
            management of property or otherwise.

            "Banking day" means a day, other than a Saturday or Sunday, on which
            (a) the Lenders are open at their principal offices for carrying on
            substantially all of their banking functions, and (b) with respect
            to LIBOR loans also a day when dealers in the London interbank
            market are quoting rates for Eurodollar deposits.

            "Cancel" means to put an end to a contract because of the default
            of the other party.

            "Claim" means the right to damages and/or an equitable remedy, such
            as specific enforcement, whether or not such right is reduced to
            judgment, liquidated, unliquidated, fixed, contingent, matured,
            unmatured, disputed, undisputed, legal, equitable, secured, or
            unsecured.

            "Clean-up" means the activities necessary to reduce, remove,
            remediate and/or dispose of hazardous materials, including the
            studies, reports, and plans necessary for such activities.

            "Contract" means indenture, agreement, contract, guaranty, lease,
            mortgage, trust deed, security agreement, pledge agreement, and like
            documents.

            "Control" means the direct or indirect power to direct the
            management and policies of a person, or the use or disposition of
            that person's property, whether through the ownership of voting
            securities, beneficial interests, contract or otherwise.

            "Costs" means all reasonable costs and expenses, including attorney
            fees, that are related to administration, extension, modification,
            collection, and enforcement of the Loan Documents, and miscellaneous
            charges such as photocopy and express mail expenses, documentary and
            transfer taxes, and revenue stamps.

            "Debt" means a liability for borrowed money, including liability
            under capital leases, contingent liabilities arising from guaranties
            of the debts or liabilities of another person. Debt includes
            contingent liability for immediate reimbursement of drafts honored
            under letters of credit, banker's acceptances, and for immediate
            reimbursement for checks, drafts, and other deposit account items
            when the issuer has insufficient funds on deposit to cover such
            items.

            "Distribution" means a direct or indirect transfer of money or other
            property or incurring debt by an entity to or for the benefit of its
            owners in respect of any of its securities or other ownership
            interests, including the declaration or


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<PAGE>   6

            payment of cash or stock dividends, options, or warrants, a
            purchase, redemption, or other acquisition of shares, or a
            distribution of debt.

            "Entity" or "organization" means a corporation, limited liability
            company, partnership, business trust, estate, trust, association,
            two or more persons having a joint or common interest, or any other
            legal or commercial entity.

            "Environmental laws" means the Comprehensive Environmental Response,
            Compensation and Liability Act of 1980 ("CERCLA"), the Superfund
            Amendments and Reauthorization Act of 1986 ("SARA"), the Resource
            Conservation and Recovery Act of 1976 ("RCRA"), the National
            Environmental Policy Act ("EPA"), the Clean Water Act, the Clean Air
            Act, the Toxic Substances Control Act ("TSCA") and all other Laws
            applicable to the generation, storage, release, discharge,
            transportation, and clean-up of hazardous material, solid waste, or
            air contaminates.

            "Execute" means, when referring to execution of documents, to
            subscribe, acknowledge where appropriate for recording/filing, and
            deliver to the person or persons entitled thereto.

            "Financial statements" means balance sheets and statements of income
            and of cash flows prepared in reasonable detail, on a comparative
            basis and in accordance with GAAP, including footnotes and
            management explanations in annual financial statements, for the
            periods required by this Agreement.

            "Fiscal year" means the 12-month period starting on January 1 of a
            calendar year and ending on December 31 of the same calendar year
            and any particular fiscal year is identified by the coincidental
            calendar year, i.e., the fiscal year that ends on December 31, 1997,
            is the "1997 fiscal year."

            "GAAP" means generally accepted accounting principles and
            practices consistently applied.

            "Governmental unit" means the United States, any foreign state or
            nation, any state or commonwealth, district, territory or
            municipality, or any department, agency, court, tribunal, or other
            instrumentality thereof.

            "Hazardous material" means any waste, substance, mixture, pollutant
            or contaminant defined as hazardous, toxic, or radioactive under any
            environmental laws and includes, whether or not so defined,
            petroleum and natural gas products, polychlorinated biphenyls, and
            asbestos-containing materials.

            "Insolvent" means a financial condition such that either the
            person's total liabilities are greater than the fair value of all of
            the person's assets or the person is unable to pay its liabilities
            in the ordinary course of business as they become due.

            "Insolvency proceedings" means an assignment for the benefit of
            creditors or other proceeding intended to liquidate or
            rehabilitate the estate of the person


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<PAGE>   7

            involved, involving all or substantially all of a person's property,
            as well as any liquidation and reorganization proceeding under the
            Bankruptcy Code.

            "Judicial lien" means a lien obtained by judgment, levy,
            sequestration, or other legal or equitable process or proceeding.

            "Law" means an existing or future constitution, statute, ordinance,
            code, regulation, rule, or similar legislative imposition of any
            federal, state or local governmental unit, including any amendments
            thereto.

            "Liability" means an obligation for the payment of money whether
            reduced to judgment, liquidated, unliquidated, fixed, contingent,
            matured, disputed, undisputed, legal, equitable, secured or
            unsecured.

            "Lien" means a charge against or an interest in property to secure
            payment or performance of an obligation including a security
            interest, judicial lien, and statutory lien.

            "Material" means that which in reasonable and objective
            contemplation will or realistically is likely to affect the business
            or property of a person taken as a whole, or the person's
            creditworthiness as to such business or property, in a significant
            manner.

            "Obligation" means a duty imposed on a person by law, promise,
            contract or otherwise, including liabilities and debts.

            "Order" means any order, injunction, judgment, writ, decree,
            license, or permit.

            "Per annum" means, for the purpose of calculating fees and interest,
            the actual number of days elapsed over a denominator of 360 days.

            "Person" means an individual, entity, or governmental unit.

            "Pro rata" means in accordance with the percentage interests of each
            Lender calculated by dividing the dollar amount of such Lender's
            individual commitment by the total commitment of all of the Lenders.

            "Prospective default" means the occurrence of an event that would be
            a default but for the giving of notice, the passage of time, or
            both.

            "Records and documents" means correspondence, memoranda, tapes,
            computer databases and operating systems, papers, books and other
            documents.

            "Securities" means notes, stock, warrants, options, subscription or
            conversion rights, treasury stock, bonds, debentures, evidences of
            debt, or other certificates of interest or participation, all stock
            dividends and distributions in respect thereof, and all entitlements
            related thereto.


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<PAGE>   8

            "Statutory lien" means a lien arising solely by force of a statute
            on specified circumstances or conditions.

            "Subsidiary" means an entity that is owned (50% or more of the
            outstanding voting shares) or controlled by a "parent" if the
            results of their operations and financial position should be
            presented on a consolidated basis under GAAP.

            "Taxes" means all taxes, assessments, charges, license fees, levies,
            and like governmental impositions charged against a person or such
            person's property.

            "Third party" means any person who is not a party to the Loan
            Documents except future Subsidiaries and Lenders.

            "Transfer" means every mode, direct or indirect, absolute or
            conditional, voluntary or involuntary, of disposing of or parting
            with property or any part thereof or interest therein.

      (c)   Additional References

            (1)   Accounting Terms. Accounting terms that are not specifically
                  defined in this Agreement will be defined or interpreted and
                  all reporting practices will be performed, in accordance with
                  GAAP unless the Agent has given its prior written consent to a
                  different accounting definition, interpretation or practice.
                  Without thereby limiting the generality of the foregoing, all
                  financial statements and calculations which are based on
                  financial condition or results of operations as of specific
                  dates or for specific periods (including compliance with
                  financial covenants) will be calculated on a consolidated
                  basis (as defined by Accounting Research Bulletin No. 51, as
                  amended) unless otherwise specified. Whenever this Agreement
                  calls for a payment to be made or an event to occur annually
                  or quarterly, the reference is to a fiscal year and a fiscal
                  quarter.

             (2)  Legal Terms. The definitions and substantive terms of the
                  Uniform Commercial Code, the Uniform Fraudulent Transfer Act,
                  and the Bankruptcy Code will be used as additional aids to
                  construction of the Loan Documents before resort to any other
                  source. Unless otherwise specifically stated, all dollar
                  amounts refer to U.S. dollars. The Borrower will be deemed to
                  borrow when a loan or extension of credit is made to or for
                  the account of the Borrower.

            (3)   Date/Time. Whenever a date or time is specified in the Loan
                  Documents, it means such date or time in Portland, Oregon.

            (4)   Schedules/Exhibits. The schedules and exhibits, if any, that
                  are attached to this Agreement are incorporated into this
                  Agreement by this reference.

            (5)   Gender; Number. The Loan Documents are intended to be gender
                  neutral and the neuter pronoun can refer not only to an entity
                  but also to an individual. Use of the singular can include the
                  plural and vice


                                      -8-
<PAGE>   9

                  versa. Where the singular refers to several persons, the
                  liability of such persons is joint and several except as
                  otherwise specifically noted.

            (6)   Conflicts. The terms and conditions of the Loan Documents are
                  intended to complement and supplement each other and are to be
                  construed so as to be consistent and complimentary. In the
                  event that a conflict of terms cannot be reconciled, the terms
                  and conditions of this Agreement will govern over any
                  conflicting terms or conditions in any other Loan Document.

            (7)   Captions. Captions and headings are merely for convenience and
                  substantively are not a part of any Loan Document.

            (8)   Governing Law. Construction, performance, and enforcement of
                  the Loan Documents will be governed by the substantive
                  provisions (i.e., without regard to the rules for conflict of
                  laws) of Oregon law, but if any Lender or Agent has greater
                  rights or remedies under federal, then such rights and
                  remedies under federal law also will be available to such
                  party.

            (9)   Complete Agreement. The Loan Documents are the complete,
                  final, and exclusive agreement of the parties as to the terms
                  and conditions of the credit facilities. No term or condition
                  can or will be explained, supplemented, waived, or modified by
                  conduct or oral agreement either before, at, or after signing
                  and delivery of the Loan Documents. The terms and conditions
                  of the Loan Documents will govern over any conflicting term or
                  condition contained in any commitment letter or term sheet.

2.    Representations & Warranties.

      (a)   Original Inducement. To induce the Lenders to enter into this
            Agreement, the Borrower and each Subsidiary represents and warrants
            that:

            (1)   Organization. The Borrower and Wis are Delaware corporations
                  that are duly incorporated, organized, and qualified to
                  transact business in all other countries, states, and
                  provinces where the nature of its business operations or the
                  ownership of assets require such qualification except if no
                  Material Adverse Effect results. Each Subsidiary other than
                  Wis is duly incorporated, organized, and qualified to transact
                  business in all other countries, states, and provinces where
                  the nature of its business operations or the ownership of
                  assets require such qualification except if no Material
                  Adverse Effect results.

            (2)   Government Authority. The Borrower and each Subsidiary has all
                  material permits and governmental approvals that are necessary
                  to operate their businesses.


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<PAGE>   10

            (3)   Authorization. The Borrower and each Subsidiary is authorized
                  to execute the Loan Documents and to perform their obligations
                  thereunder.

            (4)   Due Execution and Delivery. A duly authorized representative
                  of the Borrower and each existing Subsidiary will execute this
                  Agreement and each of the other Loan Documents to which such
                  entity is a party.

            (5)   Legally Binding Documents. The Loan Documents are the legally
                  valid and binding contractual obligations of the Borrower and
                  the Subsidiaries, and are enforceable against the entities
                  that are parties thereto in accordance with their respective
                  terms except as such enforcement may be limited by insolvency
                  laws affecting the rights and remedies of creditors generally,
                  general principles of equity, whether applied by a court of
                  law or equity, and other generally applicable rules of law.

            (6)   Guarantors, Etc. The only Subsidiaries that cannot guarantee
                  performance of the Borrower's obligations to the Lenders or
                  grant a security interest in the items of the Collateral owned
                  by them are Intl and Ltd. The only direct Subsidiary of the
                  Borrower in which the Borrower may pledge less than 100% of
                  the stock is Intl. The Borrower may pledge 66% of the stock of
                  Intl to the Agent.

            (7)   Accurate Financial Statements. The consolidated financial
                  statements of the Borrower and the Subsidiaries that have been
                  provided to the Lenders fairly present the consolidated
                  financial position and results of operations of the Borrower
                  and the Subsidiaries.

            (8)   No Violations. Neither the execution of the Loan Documents nor
                  the borrowing or repayment by the Borrower or a Guarantor of
                  loans and extensions of credit under the Loan Documents
                  violates any law or constitutes a breach or repudiation of any
                  significant contract to which the Borrower or any Subsidiary
                  is a party or by which its assets are bound, except for any
                  consent required by Wachovia Bank of Georgia, N.A.
                  ("Wachovia").

            (9)   No Legal Proceedings or Matters.  There are no civil,
                  criminal, or administrative proceedings or matters now
                  pending or overtly threatened in writing against the
                  Borrower, a Subsidiary, or their assets that are not
                  disclosed in writing to the Lenders before the date of this
                  Agreement except for such matters that the Borrower
                  believes will not have a Material Adverse Effect.

            (10)  No Breach or Default. Neither the Borrower nor any Subsidiary
                  is in non-technical breach of or default under any employee
                  pension benefit plan or employee benefit plan (as those terms
                  are defined by Section 3 of the Employee Retirement Income
                  Security Act of 1974, as amended) to which such entity is a
                  party or sponsor or is in breach of or default under any other
                  significant contract to which it is a party


                                      -10-
<PAGE>   11

                  or by which its assets are bound except for such matters that
                  the Borrower believes will not have a Material Adverse Effect.

            (11)  Tax Returns. The Borrower and each Subsidiary has filed all
                  material tax returns that it is required by law to file and
                  has paid all taxes owed by it when due except for taxes now
                  being contested by such party in good faith, by appropriate
                  means and with adequate reserves being maintained for payment
                  in the event of an outcome of such contest adverse to such
                  party.

            (12)  Compliance with Law and Order. The Borrower and each
                  Subsidiary are in substantial compliance with all laws and
                  orders that are applicable to such persons except for such
                  matters that the Borrower believes will not have a Material
                  Adverse Effect.

            (13)  Hazardous Materials. To the best knowledge of the Borrower and
                  each Subsidiary, neither the Borrower nor any Subsidiary has
                  released any hazardous materials into the environment in
                  violation of any applicable laws or orders or owns or operates
                  any facility at which any hazardous materials are stored in
                  violation of applicable law or have been released in
                  quantities or concentrations that are reportable to
                  governmental agencies but have not yet been so reported except
                  for such matters that the Borrower believes will not have a
                  Material Adverse Effect.

            (14)  Solvency. The Borrower and each Guarantor will have the
                  ability to pay and perform their obligations to USB as they
                  become due in the ordinary course of business. The Borrower
                  and each Guarantor will have assets that at fair value exceed
                  its liabilities. Neither the Borrower nor any Subsidiary is
                  the subject of any insolvency proceedings.

            (15)  Material Adverse Change. No material adverse change has
                  occurred in the financial condition, business operations, or
                  business prospects of the Borrower or any Subsidiary since the
                  Borrower provided financial information in connection with its
                  application for the credit facilities being provided under
                  this Agreement.

            (16)  Security Interest. The security interests granted by the
                  Borrower and each Guarantor to the Lenders in the Collateral
                  is valid and prior to any other lien, security interest, or
                  adverse claim except the security interests that were granted
                  to USB and the other lenders under the 1992 loan documents and
                  the security interest of Wachovia, that is acknowledged in an
                  intercreditor and agency agreement dated January 22, 1996, to
                  secure the liability of Wis and the guarantor liability of the
                  Borrower to reimburse Wachovia for amounts paid by Wachovia on
                  account of $18.8 million in City of Eau Claire, Wisconsin,
                  Tax-Exempt Adjustable Mode Solid Waste Disposal Revenue Bonds.

                  The Agent will cause the old security interests to be
                  terminated when the security interests granted under this
                  Agreement have been


                                      -11-
<PAGE>   12

                  perfected and the priority thereof confirmed by the
                  governmental units having jurisdiction or by private UCC
                  search agencies. The Agent's existing Financing Statements may
                  be used temporarily to perfect such security interests.

      (b)   Reaffirmation. The Borrower and reach Subsidiary will be deemed to
            reaffirm the foregoing representations and warranties each time that
            the Borrower requests a loan or extension of credit under this
            Agreement but the representations and warranties regarding financial
            statements will be deemed to refer to the last day of the most
            recent interim and annual fiscal period for which financial
            statements then have been delivered.

3.    Conditions Precedent. The following are conditions precedent that must be
      satisfied by the Borrower or waived by the Agent before any Lender is
      obligated to make a loan or otherwise extend credit to the Borrower under
      the Loan Documents:

      (a)   Formation & Qualification.  The Borrower and Wis have furnished
            certificates of existence and qualification to Agent that establish
            to Agent's reasonable satisfaction that each such party exists, is
            organized, and is authorized to transact business in Delaware,
            Oregon, Wisconsin and Pennsylvania.  On or before 12/31/97, each
            foreign Subsidiary will deliver public authority documents to the
            Agent establishing that each foregin Subsidiary is duly
            incorporated, existing, and in good standing in the state or
            province of its incorporation and its principal place of business.

      (b)   Organization & Authority documents.  The Borrower and Wis have
            furnished to the Agent certified copies of each such entity's
            articles or certificate of incorporation, its bylaws, the
            resolutions of its board of directors that authorizes it to enter
            into and perform its obligations under the Loan Documents, and an
            incumbency certificate that (1) names the representatives who are
            authorized to execute documents and, in the case of the Borrower,
            to request loans and extensions of credit under the Loan
            Documents and (2) contains a specimen of each such
            representative's signature.  On or before 12/31/97, each foreign
            Subsidiary will deliver such organization and authority documents
            to the Agent.  The Lenders may continue to rely on such
            organization and authority documents until revoked or modified by
            a similar document.

      (c)   Financial Statements & Business Plan. The Borrower and each
            Subsidiary has each furnished to the Agent certified copies of its
            annual financial statements for each of the preceding three fiscal
            years -- or the period of its existence if it has been in existence
            less than three years--and its business plan for the 1998 fiscal
            year.

      (d)   Representations and Warranties. The representations and warranties
            of the Borrower and the Subsidiaries in this Agreement are true,
            complete and correct in all significant respects.

      (e)   Loan Documents. The Borrower and the Subsidiaries have executed this
            Agreement, the Borrower has issued the Line of Credit Note(s) and
            the Swingline Note, the Borrower has executed the Security
            Agreement, and


                                      -12-
<PAGE>   13

            each Guarantor has executed the Guaranty and the Security
            Agreement. The Borrower has paid the facility fee agreed to in a
            private letter agreement between the Borrower and USB.

      (f)   Perfection of Security Interests. The Agent has filed the Financing
            Statements and has confirmed the first priority of such security
            interests subject only to the security interests that were granted
            under the 1992 credit documents and that will be terminated upon
            such filing and priority confirmation.

            If it is necessary to replace the existing intercreditor and agency
            agreement, the Agent will enter into a new intercreditor and agency
            agreement with Wachovia, the Borrower, and Wis, under which the
            Agent will acknowledge that Wachovia will share with the Lenders in
            the Collateral on a pari passu basis and that the Agent will act as
            the collateral agent for both the Lenders and Wachovia.

      (g)   Legal Opinion. The Borrower's counsel (who must be reasonably
            acceptable to the Agent) have rendered an opinion to the Agent for
            the Lenders that covers the following points as of the date of this
            Agreement.(1)

            (1)   The Borrower has been duly incorporated, organized, and
                  qualified to do business in Delaware and Oregon. Wis has been
                  duly incorporated, organized, and qualified to do business in
                  Delaware, Wisconsin, and Pennsylvania.

            (2)   The Borrower and Wis have been authorized to execute the Loan
                  Documents to which it is a party and the representative or
                  representatives signing and delivering the documents for each
                  such party has or have been authorized to take such action.

            (3)   To the knowledge of the opinion giver, neither the Borrower
                  nor Wis is the subject of any litigation or governmental
                  proceeding that is pending or overtly threatened in writing
                  but not disclosed by the Borrower to the Agent in writing.

            (4)   To the knowledge of the opinion giver, neither the execution
                  of the Loan Documents nor the performance by the Borrower and
                  Wis of their obligations under such documents violates any
                  applicable law or order or breaches or will result in an event
                  of default under any material contract to which the Borrower
                  or Wis is a party.

      (h)   No Change in Circumstances. In the opinion of the Agent, there has
            been no material adverse change in the financial condition, business
            operations, or business prospects of the Borrower, any Subsidiary,
            or the Collateral since the date of the Borrower's application for
            the credit facilities being provided under this Agreement.


--------

(1)   The Borrower also will provide a similar opinion for each of its foreign
      Subsidiaries when requested by the Agent.


                                      -13-
<PAGE>   14

      (i)   Legal Matters. All other legal matters relating to the Borrower, the
            Subsidiaries, the Collateral, and the Loan Documents are
            satisfactory to the Agent's lawyer.

4.    The Credit Facilities.

      (a)   Line of Credit.

            (1)   Commitment. Subject to the continuing compliance by the
                  Borrower and the Subsidiaries with the terms and conditions of
                  this Agreement, each Lender commits (promises) to make
                  Advances to the Borrower under this Agreement from time to
                  time in an aggregate amount that does not exceed such Lender's
                  Share of $75 million or the Availability. Notwithstanding any
                  other term or condition, no Lender is obligated to make an
                  Advance to the Borrower when or if (1) an uncured event of
                  default or prospective default then exists or (2) the
                  requested Advance plus all Advances and Swingline Loans then
                  outstanding will exceed $75 million. Each Lender's commitment
                  to fund Advances will automatically expire on the Expiry Date
                  unless such commitment is renewed or extended by the written
                  agreement of the Borrower and such Lender.

            (2)   Nature of Commitment. Each Lender's individual commitment is
                  separate and distinct from the individual commitments of the
                  other Lenders. The amount of each Lender's commitment will be
                  stated opposite its signature at the end of this Agreement or
                  in the supplement making such Lender a party to this
                  Agreement. No Lender will be liable for the failure of another
                  party to this Agreement to perform such other party's
                  obligations under this Agreement.

            (3)   Revolving Nature. The Line of Credit is revolving in nature.
                  Accordingly, the Borrower may borrow (that is, obtain an
                  Advance) at any time and from time to time until the Expiry
                  Date as long as there is Availability at that time and the
                  Borrower satisfies the requirements of this Agreement for such
                  a borrowing. Also, the Borrower may repay Advances at any time
                  without penalty or premium except for Yield Maintenance Charge
                  that is payable in connection with prepayment of LIBOR
                  Advances.

            (4)   Use of Proceeds. The Borrower may use Advances only for
                  general corporate purposes such as working capital financing,
                  debt repayment, and acquisitions permitted under this
                  Agreement. The first Advance must be used to pay and discharge
                  or acquire the Borrower's outstanding debt under the line of
                  credit provided under 1992 credit documents. An agreed amount
                  of the Line of Credit may be used to purchase securities
                  issued by Corporation X (as identified in a private letter
                  agreement between the Borrower and USB) if the Borrower owns
                  51% of the outstanding voting securities of Corporation X
                  after such purchase.


                                      -14-
<PAGE>   15

            (5)   Restrictions on LIBOR Advances. Each LIBOR Advance will be in
                  the minimum amount of $1 million and in multiples of $100,000
                  in excess of the minimum amount. The Borrower may not have
                  more than eight separate LIBOR Advances outstanding at any one
                  time. The Borrower may not select a LIBOR Interest Period that
                  extends beyond the Expiry Date and may not select the LIBOR as
                  the applicable interest rate when a default or prospective
                  default exists. LIBOR Advances may be repaid or renewed only
                  on the last day of a LIBOR Interest Period.

            (6)   Notice of Borrowing. The Borrower must request each Advance by
                  giving a Notice of Borrowing signed by an authorized
                  representative to the Agent not later than 8 a.m. on the
                  banking day of a Prime Rate Advance and not later than 8 a.m.
                  on the third banking day before the banking day on which a
                  LIBOR Advance is to be made or renewed. The Notice of
                  Borrowing must specify the date upon which the intended
                  Advance is to be made, the amount of the Advance, the interest
                  rate option to be applicable and, if the LIBOR has been
                  selected, the LIBOR Interest Period.

            (7)   Oral Requests. In exigent circumstances, the Borrower may
                  request an Advance orally but any such oral request must be
                  confirmed in writing within 24 hours or such Advance will be
                  due and payable on the Agent's demand.

            (8)   Reliance on Notice of Borrowing. Each Lender will be entitled
                  to immediately match fund upon receipt by the Agent of a
                  Notice of Borrowing. The Agent will be entitled to fund all or
                  any part of an Advance based on a Notice of Borrowing and
                  without first receiving funds from the Lenders.

            (9)   Revoking Notice of Borrowing. The Borrower may revoke a Notice
                  of Borrowing before the Advance is funded as long as the
                  Borrower pays all reasonable costs and expenses (including the
                  Yield Maintenance Charge in the case of a LIBOR Advance)
                  incurred by each Lender in reliance on such Notice of
                  Borrowing.

            (10)  Notice to the Lenders; Funding by Lenders. The Agent will
                  promptly deliver a copy of the Notice of Borrowing to each
                  Lender and each Lender will wire transfer its Share of the
                  Advance requested in the Notice of Borrowing to the Agent in
                  time for the Agent to fund the requested Advance on the date
                  requested. Any Lender who fails to fund its Share of an
                  Advance in a timely manner will pay the Agent interest at the
                  Federal Funds Rate plus -1/2 of 1% per annum from the due date
                  of such funding until the funding actually occurs.

            (11)  Funding. The Agent will deposit each Advance into the
                  Borrower's general corporate checking account.

            (12)  Interest. The Borrower will pay interest on all outstanding
                  Advances at either the Prime Rate plus the margin applicable
                  under the Pricing


                                      -15-
<PAGE>   16

                  Matrix or, if properly selected by the Borrower in the Notice
                  of Borrowing and then available, the LIBOR plus the margin
                  applicable under the Pricing Matrix. The Borrower will pay
                  interest at the Default Rate from the date of an event of
                  default until the default is cured or all debts of the
                  Borrower to the Lenders are repaid. As an illustration, if the
                  Borrower's consolidated Leverage Ratio as of the end of a
                  quarter is equal to or more than .50 but less than .80, then
                  the Borrower will pay a Commitment Fee of 18.75 BPS, an Unused
                  Fee of 6.25 BPS and a LIBOR Margin of 50 BPS during the next
                  quarter.

            (13)  Notes; Promise of Repayment. The Borrower will issue a Credit
                  Line Note to each Lender in the amount of such Lender's
                  individual commitment and will repay Advances, plus interest
                  and costs, in accordance with the terms of such note.

      (b)   Swingline Facility.

            (1)   Commitment. Subject to the continuing compliance of the
                  Borrower and the Subsidiaries with the terms and conditions of
                  this Agreement, USB commits to make Swingline Loans to the
                  Borrower under this Agreement from time to time in an
                  aggregate amount that does not exceed the lesser of (a) $10
                  million or (b) Availability. Outstanding Swingline Loans count
                  toward determining Availability.

            (2)   Revolving Nature. The Swingline Facility is revolving in
                  nature. As a consequence, the Borrower may borrow and repay at
                  any time and from time to time without penalty or premium
                  subject to the terms and conditions of this Agreement and the
                  Swingline Note. The first Swingline Loan must be used to pay
                  and discharge any swingline loan outstanding under the
                  swingline provided under the 1992 credit documents.

            (3)   Note; Promise of Repayment. The Borrower promises and agrees
                  to issue the Swingline Note to USB and to repay all Swingline
                  Loans, plus interest and costs, to USB in accordance with the
                  terms of such note. Each Swingline Loan will be made at an
                  interest rate and fee and for a term agreed to by the Borrower
                  and USB at the time of such loan.


                                      -16-
<PAGE>   17

      (c)   General

            (1)   Disbursement of Proceeds; Payments.

                  (A)   All disbursements, payments, and recoveries will be made
                        in immediately available U. S. dollars. All payments and
                        recoveries on the Line of Credit will be made to the
                        Lenders in accordance with their Shares.

                  (B)   Any payment received by the Agent after 10 a.m. will be
                        deemed to have been made on the next following banking
                        day and interest will accrue to that day.

                  (C)   In the event that the date specified for payment is
                        not a banking day, then interest will accrue to and
                        the payment will be made on the next following
                        banking day; provided, however, that if the loan is a
                        LIBOR Advance and the next banking day following the
                        maturity of a LIBOR Interest Period is in the
                        following calendar month, then payment will be due on
                        the last banking day which precedes the last day of
                        the LIBOR Interest Period.  All payments will be
                        applied, to the extent amounts are due, to costs,
                        fees, accrued interest, and then principal.

                  (D)   The Borrower will give the Agent notice of its intention
                        to make any payment by 9 a.m. at least one banking day
                        in advance of the banking day upon which the payment is
                        made.

            (2)   Yield Maintenance Charge. The Borrower may prepay a LIBOR
                  Advance only upon three days' prior written notice and upon
                  payment of the Yield Maintenance Charge related thereto.

            (3)   Terminating LIBOR. The LIBOR interest rate is made available
                  to the Borrower under this Agreement on the assumption that
                  there will continue to be an active interbank market in
                  Eurodollars. If that match-funding market ceases to exist or
                  if it otherwise becomes illegal or impractical for a Lender to
                  fund LIBOR Advances with reference to this source of funds or
                  if a Lender determines that the pricing being quoted on the
                  interbank offered rate markets for Eurodollars no longer
                  adequately reflects such Lender's true cost of funds, then the
                  LIBOR option provided by such Lender will be unavailable to
                  the Borrower immediately upon notice to the Borrower and any
                  Notice of Borrowing will be deemed withdrawn. Absent notice to
                  the contrary from the Borrower, it will be deemed to have
                  requested an Advance or renewal of any outstanding LIBOR
                  Advance as a Prime Rate Advance in the same amount.

            (4)   Increased Costs. In the event that any introduction of or
                  change in any law, order, or interpretation, guideline, policy
                  or directive (whether or not having the force of law) by any
                  governmental unit or central


                                      -17-
<PAGE>   18

                  bank that requires a Lender to increase its reserves or
                  regulatory capital, to pay taxes, duties, or other charges, or
                  changes the basis of taxation of the payments to a Lender by
                  the Borrower (other than overall corporate income taxes) in
                  connection with the Advances or Swingline Loans, and such
                  increase in reserves or regulatory capital or taxes have the
                  effect of increasing the costs of the Lender (or its parent
                  organization) and thereby reducing its margin of profit
                  hereunder, then the Borrower will reimburse to the Lender (or
                  its parent organization) on demand all such increased costs as
                  estimated in writing with reasonable particularity by the
                  Lender.

            (5)   Mitigation. Each Lender agrees that as promptly as practicable
                  after it becomes aware of the occurrence or existence of an
                  event that would give rise to a claim of illegality,
                  impracticality, or increased cost, it will use reasonable
                  efforts to make, fund, or maintain the affected loans (or
                  relevant part thereof) through another lending or booking
                  office if that action will avoid such illegality or
                  impracticality or materially reduce the additional cost to the
                  Borrower.

            (6)   Replacing Affected Lender. The Borrower reserves the right to
                  repay all outstanding loans and extensions of credit made by a
                  Lender who is unable to make Advances at the LIBOR or who has
                  incurred additional costs that are to reimbursed by the
                  Borrower under subpart (4) above and to replace that Lender
                  with another lender who is able to make Advances at the LIBOR
                  plus the LIBOR Margin and who is willing to become a party to
                  this Agreement.

            (7)   Reducing Amount of Line of Credit. The Borrower will have the
                  right at any time upon three days' advance written notice to
                  the Lenders to irrevocably terminate in whole or to reduce the
                  unused portion of the Line of Credit in the minimum amount of
                  $5 million and in multiples of $500,000 above the minimum
                  amount.

            (8)   Fees. The Borrower will pay the Commitment Fee and the Unused
                  Fee quarterly in arrears on the last banking day of each
                  quarter. The Borrower will pay the Late Payment Fee when and
                  if payable.

            (9)   Special Purpose Corporation Funding. Each Lender will have the
                  right at any time and from time to time to cause a special
                  purpose funding vehicle ("SPC") to fund all or part of its
                  individual commitment. Nothing in the foregoing sentence will
                  constitute an assignment to the SPC, obligate the SPC to make
                  any Advance or Swingline Loan, or relieve the Lender of the
                  duty to fund Advances and Swingline Loans. When requested by
                  the Lender, the Borrower will sign a designation agreement in
                  the form provided by the SPC that entitles the SPC to fund
                  Advances and Swingline Loans and to receive repayment of such
                  Advances and Swingline Loans, including related interest,
                  fees, and costs.

                  The Borrower may continue to deal directly and solely with the
                  Lender even though such Lender's Share of an Advance or USB's
                  duty to


                                      -18-
<PAGE>   19

                  make a Swingline Loan was funded through an SPC. Each Lender
                  will be conclusively presumed to have made arrangements with
                  the SPC regarding relative rights, remedies, and duties. No
                  SPC will be a party to this Agreement. All rights, remedies,
                  and duties of an SPC will be derived from the rights,
                  remedies, and duties of the Lender using such SPC. No SPC will
                  have any direct rights or remedies, including voting rights,
                  as a Lender under this Agreement. Each arrangement between a
                  Lender and its SPC will prohibit the SPC from disclosing any
                  non-public information about the Borrower or the Subsidiaries
                  that it obtains through a Lender under this Agreement.

                  The Agent, any Lender using an SPC, and the Borrower and the
                  Subsidiaries agree that they will not attempt directly or
                  indirectly to recover any payment made to an SPC under this
                  Agreement as a preference or fraudulent transfer in any action
                  or proceeding, including an insolvency proceeding, against the
                  Borrower or otherwise. To the fullest extent allowed by law,
                  the Agent, the Lender using an SPC, the Borrower and the
                  Subsidiaries agree to indemnify, defend, and hold harmless the
                  SPC from any loss, cost, damage, or expense, including
                  attorney fees, costs, and disbursements, that results from
                  recovery of such payments if such party caused the recovery
                  action or proceeding to be commenced. This indemnity will
                  survive the termination of this Agreement.

5.    Guaranty; Negative Pledge; Pledge of Subsidiary Stock.

      (a)   Guaranty.  Each Subsidiary will execute a Guaranty and thereby
            become a Guarantor unless the effect of such Subsidiary doing so
            will be to trigger substantial income tax liability for the
            Borrower as dividend income under Section 956 of the Internal
            Revenue Code.  Each Subsidiary will execute a Security Agreement
            unless the effect of such Subsidiary doing so will be to trigger
            substantial income tax liability for the Borrower as dividend
            income under Section 956 of the Internal Revenue Code.

      (b)   Negative Pledge.  Each Subsidiary who cannot execute a Guaranty
            or Security Agreement promises that it will not transfer any
            significant or essential part of its property to any third party,
            including the grant of a security interest or allowing a lien or
            other claim to be charged against such property, or incur any
            additional debts or liabilities in any significant amount unless
            such transfer or incurrence of additional debt occurs in the
            ordinary course of business, is permitted by this Agreement, or
            has been approved in advance by the Agent.  Each Subsidiary who
            cannot execute a Guaranty or Security Agreement hereby
            subordinates each and every claim and securities entitlement, and
            all rights and remedies related thereto, that it may have against
            the Borrower and against any other Subsidiaries to the claims and
            related rights and remedies of the Lenders against the Borrower
            and any other Subsidiaries to ensure that the claims of the
            Lenders are completely discharged through payment before it
            receives any payment, dividend, distribution, or other transfer
            on account of its claims and securities entitlements.


                                      -19-
<PAGE>   20

      (c)   Subsidiary Stock.  The Borrower pledges to the Agent the stock of
            each direct Subsidiary and the securities entitlements, voting
            rights, distributions, and certificates related thereto (the
            "Pledged Stock") as additional security for performance of the
            Borrower's obligations under the Loan Documents to the full
            extent that the Borrower may do so without triggering substantial
            income tax liability for the Borrower as dividend income under
            Section 956 of the Internal Revenue Code.  Prior to the
            Borrower's default under this Agreement, the Borrower may
            exercise all ordinary rights and entitlements with respect to the
            Pledged Stock but will not vote any Pledged Stock to approve any
            corporate acquisition, merger, share exchange, sale of assets,
            dissolution, business combination, or insolvency proceeding
            involving a Subsidiary without the Agent's prior written
            consent.  The Borrower will deliver the certificates representing
            the Pledged Stock and related stock powers in blank to the
            Agent.  Upon the Borrower's default under this Agreement, only
            the Agent may exercise any rights and entitlements with respect
            to the Pledged Stock and the Agent may, upon 30 days' prior
            written notice to the Borrower, dispose of any or all of the
            Pledged Stock in one or more private or public sales pursuant to
            UCC Article 9.

6.    Covenants.

      (a)   Affirmative Covenants. Until the Borrower has been paid and
            discharged its obligations to USB under the Loan Documents and the
            commitments of the Lenders under this Agreement have expired or been
            terminated, the Borrower promises and agrees that:

            (1)   Preserving Existence. The Borrower and each Subsidiary will
                  preserve its legal status and its material franchise, permits,
                  and governmental approvals, pay all fees and charges in
                  connection therewith, and perform all actions required
                  thereunder except for fees, charges, and actions being
                  contested in good faith, by appropriate means and with an
                  adequate reserve being maintained for payment in the event of
                  an adverse outcome.

            (2)   Compliance with Law and Order. The Borrower and each
                  Subsidiary will comply in all material respects with all laws
                  and orders applicable to it or its assets specifically
                  including, but not limited to, environmental laws, the Fair
                  Labor Standards Act, and the Employee Retirement Income
                  Security Act of 1974, as amended, if noncompliance may have a
                  Material Adverse Effect.

            (3)   Conducting Business. The Borrower and each Subsidiary will
                  conduct its business and affairs in the ordinary course of
                  business without material change in nature or emphasis.

            (4)   Insurance. The Borrower and each Subsidiary will obtain and
                  maintain with responsible carriers at its expense such
                  workers' compensation, fire with extended coverage
                  endorsement, public liability and property damage, business
                  interruption, and such other insurance in such coverage
                  amounts, deductibles and terms as may be consistent with
                  industry practices and as may be reasonably


                                      -20-
<PAGE>   21

                  acceptable to the Lenders, and will provide evidence of such
                  insurance and payment of premiums to the Lenders on an annual
                  basis.

            (5)   Performance of Obligations to Lenders. The Borrower and each 
                  Subsidiary will pay and perform when due (subject to
                  applicable grace periods) its obligations to the Lenders under
                  the Loan Documents.

            (6)   Performance of Other Obligations. The Borrower and each 
                  Subsidiary will pay and perform when due all material
                  obligations owed by it to all third parties except for those
                  obligations being contested by it in good faith, by
                  appropriate means and with an adequate reserve being
                  maintained for payment in the event of an outcome adverse to
                  it.

            (7)   Records. The Borrower and each Subsidiary will keep accurate
                  and complete records and documents, including accounting and
                  financial records, relating to its assets and liabilities,
                  income and expense, cash flows, changes in equity, management
                  and employees, production, marketing, operations, performance,
                  and earnings.

            (8)   Tax Returns and Taxes. The Borrower and each Subsidiary will
                  file all tax returns required by law to be filed and pay all
                  taxes when due except for those taxes being contested by it in
                  good faith, by appropriate means and with an adequate reserve
                  being maintained for payment in the event of an outcome
                  adverse to it.

            (9)   Subsidiary Execution of Documents. The Borrower will cause the
                  Subsidiaries to execute this Agreement, each new Subsidiary to
                  execute a supplement to this Agreement in which such
                  Subsidiary agrees to perform and be bound by the terms and
                  conditions of this Agreement, and each Guarantor to execute
                  the Guaranty and the Security Agreement.

            (10)  Financial Statements. The Borrower will deliver to the Agent
                  and directly to each Lender:

                  (A)   quarterly internally-prepared, consolidated and
                        consolidating financial statements within 45 days
                        following the end of the first three fiscal quarters for
                        the preceding quarter, and

                  (B)   annual consolidated and consolidating financial
                        statements within 90 days following the end of each
                        fiscal year, audited by certified public accountants
                        selected by the Borrower and reasonably satisfactory to
                        the Agent, and accompanied by (i) copies of the
                        unqualified audit opinion and, if requested by the
                        Agent, management letters issued by the auditors and
                        (ii) the certificate of the auditors addressed to the
                        Agent that states that the auditors, after reviewing the
                        audited financial statements and this Agreement, are not
                        aware of any default by the Borrower or any Subsidiary
                        under this Agreement or


                                      -21-
<PAGE>   22

                        specifying such events of default with reasonable
                        particularity. The auditors will be under no obligation
                        to go beyond the bounds of generally accepted auditing
                        procedures for the purpose of certifying the financial
                        statements.

            (11)  Additional Information; Compliance Certificates. The Borrower
                  and each Subsidiary will deliver to the Agent and directly to
                  each Lender:

                  (A)   such additional information as to the financial
                        condition, business operations, business opportunities,
                        assets, or organization, management, or ownership of the
                        Borrower or any Subsidiary within a reasonable time
                        after being requested in writing by the Agent,

                  (B)   reports listing the nature, amount, value, location, and
                        aging of the inventory and the receivables included in
                        the Collateral, including account debtor information, if
                        requested by the Agent,

                  (C)   notice of any default or prospective default by the
                        Borrower or any Subsidiary under this Agreement and of
                        any material adverse change in the financial condition,
                        management, property, or business operations of the
                        Borrower or any Subsidiary promptly after senior
                        management of the Borrower becomes aware of such event,
                        and

                  (D)   the following:

                        (i)   periodic (and not less than annual) reports of all
                              pending and threatened claims, litigation, and
                              governmental proceedings against the Borrower or
                              any Subsidiary that if adversely determined would
                              more likely than not involve an aggregate
                              liability of more than $1,000,000, and

                        (ii)  compliance certificates with the interim and
                              annual financial statements that are signed by
                              a duly authorized representative of the
                              Borrower and set forth in reasonable detail the
                              Borrower's calculations showing whether or not
                              the Borrower and the Subsidiaries are in
                              compliance with the financial covenants and
                              either (A) certifies that there is no default
                              or prospective default as of the date of the
                              certificate to the knowledge of the
                              representative or (B) specifies with reasonable
                              particularity any events of default or
                              prospective default then existing and known to
                              the representative and outlines the Borrower's
                              plan for cure thereof.


                                      -22-
<PAGE>   23

            (12)  Inspection Rights. The Borrower and each Subsidiary will allow
                  the Lenders to take the following action at any and all
                  reasonable times:

                  (A)   Inspect the records (specifically including financial
                        statement information) and documents of the Borrower and
                        each Subsidiary.

                  (B)   Discuss such records and documents with accounting
                        employees and outside accountants at any time. All such
                        persons are hereby authorized to discuss such matters
                        with the Lenders and to provide such additional records
                        and information as may be reasonably requested by the
                        Lenders in connection therewith. The Lenders will give
                        prior notice to the Borrower of the intention to discuss
                        such matters with outside accountants so as to provide
                        the opportunity to the Borrower and the relevant
                        Subsidiary to be present at such discussions.

                  (C)   Upon prior notice to the Borrower (unless the Borrower
                        is in default) verify inventory and receivables
                        information directly with third parties.

                  (D)   Inspect the facilities of the Borrower and each
                        Subsidiary.

      (b)   Financial Covenants. The Borrower and the Subsidiaries promise to
            maintain as of the end of each annual and interim financial
            accounting period on a consolidated basis:

            (1)   Tangible Net Worth of at least $160 million as of the end of
                  the 1997 fiscal year, increasing by 50% of quarterly net
                  income thereafter, with no adjustment for losses.

            (2)   An Interest Coverage Ratio of at least 3.00 to 1.

            (3)   A Leverage Ratio of no more than 1.00 to 1.

      (c)   Negative Covenants. Until the Borrower has been paid and discharged
            its obligations to the Lenders under the Loan Documents and the
            commitments of the Lenders have expired or been terminated, the
            Borrower promises and agrees none of the following things will be
            done without the prior written consent of the Agent:

            (1)   Transfers. Neither the Borrower nor any Subsidiary will
                  directly or indirectly transfer any essential part of or
                  interest in its assets or more than five percent of its assets
                  to any third party, including the grant of any security
                  interest or the imposition of any lien, except for (A) sales
                  of inventory in the ordinary course of business, (B) sales of
                  surplus or obsolete equipment for reasonably equivalent value,
                  (C) collection of accounts in the ordinary course of business,
                  (D) the existing trust deed lien and security interest against
                  the Halsey mill (the Borrower's pulp processing mill at 30480
                  American Drive, Halsey, Oregon) to


                                      -23-
<PAGE>   24

                  secure repayment of a loan from the Oregon Department of
                  Energy, (E) the liens permitted on the attached schedule of
                  permitted liens.

            (2)   Business Combinations. Neither the Borrower nor any Subsidiary
                  will directly or indirectly merge, issue or exchange shares as
                  part of a business combination, consolidate, or otherwise
                  engage in any other type of business combination with any
                  third party other than mergers and other consolidations in
                  which the Borrower or a Subsidiary is the surviving entity and
                  no default or prospective default occurs in connection with or
                  as a result of the merger or consolidation.

            (3)   Loans. Neither the Borrower nor any Subsidiary will directly
                  or indirectly make any additional loan or extend credit to any
                  unrelated third party except for providing ordinary trade
                  terms to creditworthy customers and making investments in
                  short term, investment grade money market instruments, in
                  accordance with the Borrower's usual and customary treasury
                  management practices.

            (4)   Distributions. Neither the Borrower nor any Subsidiary will
                  directly or indirectly issue any additional securities or make
                  any distribution except for dividends that are (A) permitted
                  by law, (B) will not result in a violation of the financial
                  covenants, and (C) are made at a time when no material default
                  or prospective material default exists under this Agreement.

            (5)   Preferences. Neither the Borrower nor any Subsidiary will
                  directly or indirectly prefer its owners or creditors to the
                  Lenders.

            (6)   Purchases. Neither the Borrower nor any Subsidiary will
                  directly or indirectly purchase or otherwise acquire a
                  significant equity interest any third party except for the
                  purchase of the securities of Corporation X mentioned above.

            (7)   Debts. Neither the Borrower nor any Subsidiary will become
                  liable for any additional debts or liabilities for borrowed
                  money, except for (A) trade debt incurred in the ordinary
                  course of business, (B) intercompany transactions, (C) its
                  existing and future debts and liabilities to the Lenders under
                  this Agreement, and (D) an amount not to exceed $10 million in
                  the aggregate.

            (8)   Margin Stock. Neither the Borrower nor any Subsidiary will
                  directly or indirectly apply any part of the proceeds of any
                  loan or extensions of credit under this Agreement to purchase
                  or carry any "margin stock" within the meaning of Regulation U
                  of the Board of Governors of the Federal Reserve System, or
                  any regulations, interpretations or rulings.

            (9)   No Ceasing Business. Neither the Borrower nor any Subsidiary
                  will directly or indirectly cease, reduce, or substantially
                  change the nature or size of its business operations.


                                      -24-
<PAGE>   25

7.    Indemnity

      (a)   Indemnity. The Borrower and the Guarantors will indemnify, defend
            (with counsel selected by the indemnified party) and hold harmless
            the Agent and each Lender from and against all claims, causes of
            action, loss, liability, cost or expense (including damages,
            penalties, fines, attorney fees, and court costs), asserted against
            or incurred by such indemnified party that relates to or arise out
            of this Agreement or any other Loan Document, any failure of the
            Borrower or a Subsidiary to perform its obligations under the Loan
            Documents, any misrepresentation or omission, or the use or intended
            use of the proceeds of a loan or extension of credit made under this
            Agreement, except for any portion thereof resulting from the
            indemnified party's gross negligence or willful misconduct.

      (b)   Notice. If any third party threatens to commence or commences any
            action or other proceeding against an indemnified party, that party
            will promptly notify the Borrower in writing of such threat or
            commencement, any intended settlement of such action or proceeding,
            and the entry of all orders and judgments entered therein. Except as
            provided for herein, no indemnity obligation with respect to any
            such action will become due and payable until the action is settled
            in accordance with the preceding sentence or a final non-appealable
            judgment has been entered. The Borrower will have the right to (1)
            veto any proposed settlement as long as the Borrower provides
            adequate assurance through insurance coverage, cash deposits, or
            otherwise that any judgment that might thereafter be entered against
            the indemnified party will be promptly satisfied and (2) with the
            consent of the indemnified party (which will not be unreasonably
            withheld) settle any such claim on such terms as the Borrower may
            determine.

      (c)   Durable Nature. This indemnity will survive the satisfaction or
            discharge of the claims of the Lenders against the Borrower and the
            Subsidiaries under the Loan Documents by payment, bankruptcy
            discharge, or otherwise.

8.    Default.

      TIME IS OF THE ESSENCE. The Borrower will be in default under the Loan
      Documents if any of the following events occur:

      (a)   Credit Limit; Availability. Advances and Swingline Loans exceed the
            maximum amount of the applicable credit facility at any time and the
            Borrower fails to repay the excess amount immediately upon the
            Agent's request.

      (b)   Payment Failure. The Borrower fails to repay an Advance or Swingline
            Loan when due or fails to make any other interest payment or
            reimbursement under the Loan Documents within two days following the
            due date.

      (c)   Misrepresentation. The Borrower or any Subsidiary intentionally
            makes an untrue statement of any material fact to the Lenders or
            omits to state a


                                      -25-
<PAGE>   26

            material fact necessary in order to make the statements made, in
            light of the circumstances under which they are made not misleading
            on the date made.

      (d)   Improper Use of Proceeds. The Borrower uses a loan or extension of
            credit under this Agreement for a purpose or purposes not specified
            in this Agreement unless otherwise approved by the Agent.

      (e)   Negative Covenants. The Borrower or a Subsidiary violates any
            negative covenant of the Loan Documents.

      (f)   Financial Covenants. The Borrower and the Subsidiaries fail to
            comply with the financial covenants except if such noncompliance is
            solely the result of a change in GAAP after the date of this
            Agreement.

      (g)   Financial Statements. The Borrower or any Subsidiary fails to
            deliver financial statements, certificates, notices, or other
            financial information when and as required by this Agreement.

      (h)   Other Contract Breach. The Borrower or any Subsidiary is in material
            breach of or default under any other contract with or instrument
            payable to the Agent or a Lender, or is in breach of or default
            under any other contract with or instrument payable to any third
            party for borrowed money involving an aggregate principal amount in
            excess of $1,000,000, such breach or default will continue after the
            applicable grace period, if any, specified in such contract or
            instrument, and the effect of such breach or default is to
            accelerate, or to permit the acceleration of, the maturity of the
            debt.

      (i)   Affirmative Covenants.  The Borrower or any Subsidiary fails to
            comply with any other affirmative covenant under the Loan
            Documents within 30 days following the date such compliance is
            demanded in writing by the Agent or, if such compliance cannot be
            completed within that 30-day period, that entity fails to
            substantially commence compliance within that 30-day period and
            then to complete such compliance as soon as possible thereafter
            but in no event later than 90 days after such compliance is
            demanded.

      (j)   Action by Governmental Unit. The Borrower or any Subsidiary is
            enjoined, restrained or otherwise prohibited by a governmental unit
            from conducting all or any substantial or essential part of its
            legal affairs or business operations.

      (k)   Insolvency. The Borrower or any Subsidiary becomes insolvent,
            commences a voluntary insolvency proceeding or having become the
            subject of an involuntary insolvency proceeding, fails to have the
            involuntary proceeding dismissed, withdrawn or stayed within 90 days
            of commencement.

      (l)   Change in Control. A significant number of the directors or officers
            of the Borrower or any Subsidiary resign or are removed or a
            significant number of shares of the Borrower or any Subsidiary are
            transferred to persons who are not now shareholders of such party.


                                      -26-
<PAGE>   27

      (m)   Material Adverse Change. In the good faith opinion of the Agent,
            there has been a material adverse change in the financial condition,
            property, business operations, or business prospects of the Borrower
            or any Subsidiary that will jeopardize the prospects for repayment
            when due of the loans and extensions of credit being made under this
            Agreement.

      (n)   Judgments. A final judgment is entered against the Borrower or any
            the Borrower subsidiary for the payment of more than $1 million in
            the aggregate and is not covered by insurance or satisfied or
            appealed (and with the filing of such appeal bonds as are necessary
            to stay execution pending the appeal) within 30 days following
            entry, or all or a substantial part of the property of the Borrower
            is attached, seized, made subject to writ or warrant or is levied on
            or comes into the possession or control or a receiver, trustee,
            custodian or assignee for the benefit of creditors.

      (o)   Bad Faith. The existence of any illegal act, collusion or bad faith
            by or with the acquiescence of the Borrower or any Subsidiary in the
            performance of such party's obligations under this Agreement.

      (p)   Validity Contest. The Borrower, any Subsidiary, or any third party
            contests the validity or enforceability of any of the Loan Documents
            or of the obligations of the Borrower or any Subsidiary thereunder.

9.    Remedies

      (a)   General.

            (1)   The Agent may suspend the duties of the Lenders to make
                  further loans or extensions of credit under this Agreement,
                  including those of USB under the Swingline, and may make the
                  LIBOR option unavailable for any new loans or extensions of
                  credit upon and during the continuation of any prospective
                  default or default.

            (2)   The Agent may cancel the duties of the Lenders to make further
                  loans or extensions of credit under this Agreement, including
                  those of USB under the Swingline, may make the LIBOR option
                  unavailable for any new loans or extensions of credit, and may
                  accelerate the due date of all loans and extensions of credit
                  made under this Agreement (make payment of all principal,
                  interest, fees and costs immediately due and payable), without
                  further notice or demand upon the occurrence of a default and
                  its continuation beyond any applicable notice or cure period.
                  Acceleration of the due date will be automatic upon the
                  commencement of insolvency proceedings.

            (3)   The Lenders may collect the overdue payments or the
                  accelerated balance of the loans and extensions of credit made
                  under this Agreement at such times and in such order as the
                  Lenders may select.


                                      -27-
<PAGE>   28

            (4)   The Agent may foreclose the Lenders' security interest in the
                  Collateral in one or more proceedings and in any order
                  selected by the Agent.

            (5)   All rights and remedies provided by law, equity, and contract
                  are cumulative.

            (6)   The Borrower and the Subsidiaries consent to the jurisdiction
                  and venue of the circuit court of the state of Oregon for
                  Multnomah County (Portland) and of any federal court located
                  in the state of Oregon for any proceeding arising out of the
                  Loan Documents.

      (b)   Offset Rights. Without limiting the generality of the foregoing, the
            Borrower and each Subsidiary expressly grants to the Agent and to
            each Lender the right to set off their debts and liabilities to the
            Borrower and the Subsidiaries against the debts and liabilities of
            the Borrower and any Subsidiary to the Agent and the Lenders without
            notice or demand upon the occurrence and continuance of a default.
            The Borrower will be notified of any set off promptly following the
            taking of such action.

      (c)   Waiver of Jury Trial. Each Lender, the Agent, the Borrower, and each
            Subsidiary hereby waives the right to trial by jury in any action or
            proceeding relating to any claim, offset, defense, or counterclaim,
            whether in contract or tort, at law or in equity, arising out of or
            relating to the Loan Documents.

      (d)   Costs. The prevailing party in the trial or appeal of any civil
            action, arbitration, or other adversary proceeding relating to any
            Loan Document will be entitled to the award of a reasonable attorney
            fee in addition to costs and disbursements.

10.   Administrative Agent. The following terms and conditions will become
      effective when and if there is a Lender (a lender party to this Agreement)
      who is not USB.

      (a)   Appointment. The Borrower, the Subsidiaries, and the Lenders appoint
            USB as their agent and attorney-in-fact for the limited purpose of
            performing administrative functions under this Agreement.

      (b)   Lending Decision. By executing a supplement to this Agreement, each
            Lender will confirm that its decision to lend money and extend
            credit to the Borrower and the Subsidiaries is and will continue to
            be based on its own independent investigation and determination as
            to the creditworthiness of such parties. Each Lender disclaims
            reliance on any information heretofore provided by the Agent.

      (c)   Action.  As to any matters (other than those matters listed
            below that require the consent or approval of all of the
            Lenders) that require the consent or approval of the Agent,
            the Agent will act or refrain from acting upon the
            instructions of the "Lender Majority," two or more Lenders who
            have individual commitments that total at least 66.67% of the
            Line of Credit.  The Agent will be fully protected in acting
            or refraining from acting.  The Agent will


                                      -28-
<PAGE>   29

            not be required to exercise any discretion or take any action not
            expressly provided for by this Agreement or take any action contrary
            to applicable law.

      (d)   Unanimous Action. Notwithstanding any other term or condition of
            this or any other Loan Document, the Agent may not without the prior
            instruction of all of the Lenders (except any Lender in default of
            its duty to make Advances) do any of the following things:

            (1)   modify interest rates or fees or extend the Expiry Date,

            (2)   release or reduce the liability of the Borrower or any
                  Guarantor,

            (3)   release any substantial or essential part of the Collateral,
                  or

            (4)   exercise any right or remedy upon the default of the Borrower
                  and the Subsidiaries (except to suspend the duties of the
                  Lenders to make Advances and the duty of USB to make Swingline
                  Loans).

      (e)   Duties. Neither the Agent nor any of its directors, officers,
            agents, or employees will be liable for any action taken or omitted
            to be taken by it or any of them in connection with this Agreement
            except for its or their own gross negligence or willful misconduct.
            The Agent:

            (1)   may treat the payee of any note as the holder thereof until
                  the Agent receives written notice from the payee of an
                  assignment,

            (2)   may consult with legal counsel, independent public accountants
                  and other experts selected by it and will not be liable for
                  any action taken or omitted in good faith by it in accordance
                  with the advice of such experts,

            (3)   makes no warranty or representation to any Lender and will not
                  be responsible to any Lender for any statements, warranties or
                  representation made by the Borrower or any Subsidiary in or in
                  connection with this Agreement,

            (4)   will not have any duty to ascertain or to inquire as to the
                  performance of any of the terms, covenants, or conditions of
                  this Agreement on the part of the Borrower or any Subsidiary
                  or as to the use of the proceeds or, unless the officers of
                  the Agent acting in their capacity as officers of the Agent on
                  the Borrower's account have actual knowledge thereof or have
                  been notified in writing thereof by a Lender, the existence or
                  possible existence of any default or any prospective default,

            (5)   will not be responsible to any Lender for the due execution,
                  legality, validity, enforceability, genuineness,
                  effectiveness, or value of the Loan Documents, and


                                      -29-
<PAGE>   30

            (6)   will not incur any liability under or with respect to the Loan
                  Documents by acting upon any notice, consent, certificate or
                  other instrument or writing (which may be by facsimile, cable
                  or telex) believed by it to be genuine and signed or sent by
                  the proper party or parties or by acting upon any
                  representation or warranty of the Borrower made hereunder.

      (f)   The Agent will account for and remit to each Lender its Share of all
            payments of principal, interest and fees (other than the Agent's
            annual fee) received by the Agent from the Borrower and the
            Subsidiaries.

      (g)   Dealings between the Agent and the Borrower. With respect to
            any loans or extensions of credit made by USB to the Borrower
            or the Subsidiaries, and the notes issued to it, USB will have
            the same rights and powers under the Loan Documents as any
            other Lender and may exercise the same as though it were not
            the Agent.  In addition, the Agent may accept deposits from,
            lend money to, act and generally engage in any kind of business
            with the Borrower, any Subsidiary, or any person which may do
            business with such parties, all as if the Agent were not the
            administrative agent hereunder and without any duty to account
            therefor to the Lenders.

      (h)   Indemnification. The Lenders agree to indemnify the Agent (to the
            extent not reimbursed by the Borrower) according to their Lender
            Shares from and against all claims, causes of action, liabilities,
            obligations, losses, damages, penalties, actions, judgments, costs,
            expenses or disbursements of any kind or nature whatsoever which may
            be imposed on, incurred by or asserted against the Agent in any way
            relating to the Loan Documents or any action taken or omitted by the
            Agent under the Loan Documents except such as result from the
            Agent's gross negligence or willful misconduct. Each Lender agrees
            to reimburse the Agent promptly on demand for its Share of any
            out-of-pocket expenses, including legal fees, incurred by the Agent
            in connection with the administration or enforcement of or the
            preservation of any rights under the Loan Documents (to the extent
            that the Agent is not reimbursed for such expenses by the Borrower).
            This includes legal fees incurred in connection with any litigation,
            or appeal therefrom, pertaining to the Loan Documents, any loans or
            extensions of credit thereunder, actions against the Guarantors, and
            foreclosure against the Collateral.

      (i)   Annual Fee. The Agent may impose an annual fee for performing its
            services as the administrative agent under this Agreement.

      (j)   Replacement Agent. The Agent may resign at any time by giving
            written notice thereof to the Lenders and the Borrower. The Borrower
            and the Lender Majority for cause may remove the Agent at any time.
            Upon any such resignation or removal, the Lender Majority will have
            the right and obligation to appoint a replacement with the consent
            of the Borrower (such consent not to be unreasonably withheld). If
            no replacement is appointed or if the replacement does not accept
            the appointment within 30 days after the retiring Agent's notice of
            resignation, the retiring or removed Agent may appoint a replacement
            without the consent of the Lenders or the Borrower. The replacement
            agent will be a bank, or any affiliate of such bank, having a


                                      -30-
<PAGE>   31

            combined capital and surplus of at least $100 million and which is
            in substantial compliance with capital adequacy ratios as
            established by such replacement's regulators.

            Upon the acceptance of any appointment by a replacement agent, the
            replacement agent will succeed to all the rights, powers,
            privileges, and duties of the retiring/removed agent, and the
            retiring/removed Agent will be discharged from its duties and
            obligations as the Agent under the Loan Documents. After
            resignation/removal, the provisions of this article will inure to
            the benefit of the replaced Agent as to any actions taken or omitted
            to be taken by it while it was the Agent.

11.   Miscellaneous.

      (a)   Binding Successors. The Loan Documents will inure to the benefit of
            and bind the Borrower, each Subsidiary, each Lender, the Agent, and
            their respective successors and assigns. Neither the Borrower nor
            any Subsidiary may assign its rights or delegate its obligations
            under the Loan Documents.

      (b)   Participation; Assignment.

            (1)   Each Lender will be entitled to sell participation in the Loan
                  Documents and the credit facilities provided under the Loan
                  Documents without the consent of the Borrower but no such
                  participation will carry any voting rights.

            (2)   Each Lender also may partially assign its individual
                  commitment under the Line of Credit and its related rights
                  under the Loan Documents in minimum increments of $5 million
                  to one or more unaffiliated lenders with the prior written
                  consent of the Borrower and the Agent. The consent of the
                  Borrower and the Agent will not be unreasonably withheld,
                  delayed, or conditioned, but the Agent may charge a fee of
                  $3,500 for consent to any assignment. Any such assignment will
                  depend on the assignee accepting and agreeing in writing to
                  perform the assignor's rights and duties under the Loan
                  Documents and thereby becoming a Lender under this Agreement.
                  Upon receipt of such acceptance and agreement, the Borrower
                  then will issue new Line of Credit Notes to the assignor and
                  assignee that reflect the new Shares of such Lenders.

      (c)   Non-Waiver. No term or condition of the Loan Documents will be
            deemed waived nor will the grounds for the claim of estoppel be
            established by a course of performance, oral understanding, or other
            circumstances.

      (d)   Communications. Whenever any communication is required by the terms
            of the Loan Documents or by law, it will be deemed given when
            delivered personally or by facsimile or on the third banking day
            after it is mailed in a postage prepaid envelope addressed to the
            intended recipient at the address specified on the signature pages
            of this Agreement or such other address as a party may hereafter
            specify by written notice to the other parties.


                                      -31-
<PAGE>   32

      (e)   Costs. The Borrower will pay on demand all reasonable costs incurred
            by the Agent in administering, modifying, and renewing the Loan
            Documents, in administering this Agreement and the loans and
            extensions of credit made under this Agreement, and in dealing with
            regulatory matters relating to the credit facilities provided under
            this Agreement.

            The Borrower will pay on demand all reasonable costs incurred by the
            Agent and the Lenders in recovery of the claims of the Lenders
            against the Borrower and the Guarantors and in foreclosure against
            the Collateral after a default and whether or not a civil action or
            other proceeding is commenced.

      (f)   Counterparts. This Agreement may be executed in any number of
            counterparts, each of which will be deemed to be an original, and
            all of which, taken together will constitute one and the same
            contract.

      (g)   Confidentiality. The Agent and the Lenders will hold all non-public
            information relating to the Borrower and the Subsidiaries obtained
            under this Agreement in accordance with its customary procedures for
            handling confidential information of this nature, except for (1)
            disclosure to its counsel or to any agent or advisor acting on its
            behalf in connection with the negotiation, execution, or performance
            of the Loan Documents, (2) disclosure as reasonably required in
            connection with a transfer to a prospective assignee or participant
            (provided that any prospective transferee agrees in advance of any
            disclosure to confidentiality obligations substantially similar to
            those contained in this section), (3) disclosure as may be required
            or requested by any governmental unit or representative thereof or
            pursuant to legal process, and (4) any other disclosure with the
            prior written consent of the Borrower. Prior to any disclosure by
            the Agent or any Lender of such nonpublic information to a
            governmental unit permitted under clause (3) (other than in
            connection with an examination of the financial condition of a
            Lender or its affiliates by any governmental unit), it will, if
            permitted by applicable laws or judicial order, notify the Borrower
            of such pending disclosure.

      (h)   Severability. If any term or condition of any Loan Document is
            hereafter determined to be illegal or unenforceable, that term or
            condition will be deemed deleted without invalidating the remaining
            terms and conditions and, to the extent permitted by law, the
            Borrower and each Subsidiary waives any provision of law that
            renders any such term or condition illegal or unenforceable.


                                      -32-
<PAGE>   33

      (i)   Statutory Warning. Under Oregon Law, most agreements, promises and
            commitments made by a financial institution after October 3, 1989,
            concerning loans and other credit extensions which are not for
            personal, family or household purposes or secured solely by the
            borrower's residence must be in writing, express consideration and
            be signed by the financial institution to be enforceable.

U.S. Bank National Association,        Pope & Talbot, Inc.

By /s/ JANICE T. THEDE                 By /s/ ROBERT J. DAY
       ---------------------------            ----------------------------------
       Janice T. Thede                        Name:  ROBERT J. DAY
       Vice President                         Title: SENIOR V.P. AND
                                                     CHIEF FINANCIAL OFFICER

                                       Pope & Talbot, Wis., Inc.

                                       By /s/ ROBERT J. DAY
                                              ----------------------------------
                                              Name:  ROBERT J. DAY
                                              Title: SECRETARY AND TREASURER

                                       Pope & Talbot International, Ltd.

                                       By /s/ ROBERT J. DAY
                                              ----------------------------------
                                              Name:  ROBERT J. DAY
                                              Title: VICE PRESIDENT AND
                                                     SECRETARY


                                       Pope & Talbot, Ltd.

                                       By /s/ ROBERT J. DAY
                                              ----------------------------------
                                              Name:  ROBERT J. DAY
                                              Title: VICE PRESIDENT

LENDERS:                               COMMITMENT AMOUNT:

U.S. Bank National Association         $75,000,000

By /s/ JANICE T. THEDE
       ---------------------------
       Janice T. Thede
       Vice President

National Corporate Banking (PL-4)
555 SW Oak Street
Portland, Oregon  97204
Telephone:     (503) 275-4942
Fax:           (503) 275-5428


                                      -33-
<PAGE>   34
                                                                       Exhibit 1
                                                                Portland, Oregon
                                                               December 15, 1997

                                    GUARANTY

For value, each entity who signs this guaranty (the "Guarantor") unconditionally
guarantees that Pope & Talbot, Inc., a Delaware corporation (the "Borrower"),
will pay its debts and perform its other obligations to the Lenders and the
Agent under the 1997 Loan Agreement dated December 15, 1997 (the "Loan
Agreement") among the Borrower, its Subsidiaries, and U.S. Bank National
Association ("USB"), when and as such payment and performance is due. The
Lenders are providing $75 million in loans and extensions of credit to the
Borrower and the Subsidiaries under the Loan Agreement. The Guarantor is a
subsidiary of the Borrower. The Guarantor anticipates receiving substantial
value and business benefit from the loans and extensions of credit being made to
the Borrower. The Guarantor's liability under this guaranty is joint, several,
and unconditional. This guaranty includes repayment of any loans and extensions
of credit that are made to the Borrower while the Borrower is insolvent or the
subject of insolvency proceedings.

This guaranty is one of payment and not merely of collection. Accordingly, the
Guarantor promises to pay and perform the Borrower's obligations to the Lenders
immediately if the Borrower is in default and when the Agent makes written
demand on the Guarantor for such payment and performance. If this guaranty is
executed after the Loan Agreement is executed and the Guarantor is not one of
the original parties to such agreement, the Guarantor promises to perform the
affirmative and negative covenants that each Subsidiary is obligated to perform
under the terms of the Loan Agreement.

The Guarantor irrevocably (1) consents to extensions of due dates, material
modifications of the Borrower's obligations, release of other guarantors, and
impairment of the value of an interest in any collateral without further notice
to or consent of the Guarantor, (2) waives acceptance, notice of acceptance, and
presentment (including notice of dishonor), and claims in recoupment, and (3)
waives defenses based on forbearance or delay, suretyship, impairment of
collateral, or discharge of the primary obligor in insolvency proceedings. The
Guarantor also waives all claims to contribution, subrogation, recourse, and
substitution to the extent necessary to avoid characterization of any payments
and transfers of property to a Lender or others as fraudulent transfers or
preferences.

In order to preserve the value of this guaranty, the Guarantor promises the
Lenders that the Guarantor will not grant a security interest in or allow a lien
to be charged against any material or essential part of or interest in its
property without the prior written consent of the Agent except for security
interests granted to the Lenders and purchase money security interests reserved
by vendors in connection with the ordinary course purchase of fixtures and
equipment.

Effective upon the Borrower's default but only so long as such default exists,
the Guarantor subordinates each and every claim and securities entitlement, and
all rights and remedies related thereto, that the Guarantor may have against the
Borrower and against any Subsidiary to the claims and related rights and
remedies of the Lenders against the Borrower and the Subsidiaries to ensure that
the claims of the Lenders are completely discharged through payment before the
Guarantor receives any payment, 


                                      -1-
<PAGE>   35

dividend, distribution, or other transfer on account of the Guarantor's claims
and securities entitlements.

The party who substantially prevails in the trial or appeal of any civil action,
arbitration proceeding, or insolvency (liquidation, reorganization or
receivership) claim or proceeding on any claim (including setoffs, defenses,
counterclaims and third-party claims) whether arising in tort or contract)
arising from or related to this guaranty, including Agent, will be entitled to
reasonable attorney fees in addition to its costs and disbursements.

The substantive provisions (that is, without regard for any choice of law
provisions which would make the law of another jurisdiction applicable) of
Oregon law and any applicable provisions of federal law will govern the
construction and enforcement of this guaranty. The Guarantor consents to
jurisdiction of any state or federal court sitting in Portland, Oregon, on any
action or proceeding involving this guaranty and/or any offsets, defenses or
counterclaims related to this guaranty.

This guaranty will bind and inure to the benefit of the respective successors
and assigns of the Guarantor, the Lenders, and the Agent, but the Guarantor will
not have the right by reason of this paragraph to assign its rights or delegate
its obligations under this guaranty without the prior written consent of the
Agent.

Under Oregon law, most agreements, promises and commitments made by a financial
institution after October 3, 1989, concerning loans and other credit extensions
which are not for personal, family or household purposes or secured solely by
the borrower's residence must be in writing, express consideration and be signed
by the financial institution to be enforceable.

                                    POPE & TALBOT, WIS., INC.

                                    By /s/ ROBERT J. DAY
                                           -------------------------------------
                                           Name:   ROBERT J. DAY
                                           Title:  SECRETARY AND TREASURER


                                      -2-

<PAGE>   36

                                                                       Exhibit 2
   $75,000,000                                                  Portland, Oregon
                                                               December 15, 1997

                               LINE OF CREDIT NOTE

For value, Pope & Talbot, Inc., a Delaware corporation (the "Borrower"), whose
address is 1500 SW First Avenue, Portland, Oregon 97201, promises to pay to the
order or assigns of U.S. Bank National Association (the "Lender") in care of
U.S. Bank National Association (the "Agent"), National Corporate Banking
Division, at 555 SW Oak Street, Portland, Oregon 97204 (or at such other address
as the Agent may hereafter specify in writing from time to time), the principal
amount of $75,000,000, or such greater or lesser amount as the Lender actually
loans to the Borrower under this note, plus interest, fees, and costs, as
provided for in this note. This note is issued under a Loan Agreement dated
December 15, 1997 (the "Loan Agreement"), and is a "Line of Credit Note." Each
loan and renewal of a loan made under this note is an "Advance."

1.    Use of Proceeds.  The Borrower will use each Advance only as permitted
      by the Loan Agreement.

2.    Fees.

      (a)   The Borrower will pay the Lender's Share of the Commitment Fee and
            the Unused Fee when due under the Loan Agreement.

      (b)   The Borrower will pay the Late Payment Fee and Yield Maintenance Fee
            when due under the Loan Agreement.

3.    Availability. No Advance by the Lender will be greater than Lender's Share
      of Availability on the date that the Advance is requested.

4.    Expiry Date. The Expiry Date is April 15, 1999, unless extended by mutual
      agreement of the Borrower and the Lender.

5.    Principal Repayment. Each LIBOR Advance is due and payable at the end of
      the LIBOR Interest Period. All Prime Rate Advances are due on the Expiry
      Date if not repaid before that date.

6.    Interest.

      (a)   Before default, interest on each Prime Rate Advance will accrue
            at the prime rate per annum and interest on each LIBOR Advance
            will accrue at the LIBOR per annum plus the margin per annum that
            is applicable to such rates under the Pricing Matrix of the Loan
            Agreement.  The Borrower will pay interest on LIBOR Advances at
            the end of each LIBOR Interest Period (or, if the LIBOR Interest
            Period is more than three months, then on the first banking day
            of each quarter that occurs during the LIBOR Interest Period) and
            on Prime Rate Advances quarterly in arrears on the first banking
            day of each quarter.

      (b)   After default under the Loan Agreement, interest will accrue at the
            Default Rate(s) specified in the Loan Agreement until the default is
            cured or the entire outstanding


                                      -1-
<PAGE>   37

            balance of this note is paid in full. Interest at the Default
            Rate(s) is payable on the Lender's demand.

7.    Costs. The party who substantially prevails in the trial or appeal of any
      civil action, arbitration proceeding, or insolvency (liquidation,
      reorganization or receivership) claim or proceeding on any claim
      (including setoffs, defenses, counterclaims and third-party claims)
      whether arising in tort or contract) arising from or related to this note
      will be entitled to reasonable attorney fees in addition to its costs and
      disbursements.

8.    Waivers. The Borrower waives acceptance, presentment, delay, dishonor, and
      notice of dishonor.

9.    Governing Law; Jurisdiction. The substantive provisions (that is, without
      regard for any choice of law provisions which would make the law of
      another jurisdiction applicable) of Oregon law and any applicable
      provisions of federal law will govern the construction and enforcement of
      this note. The Borrower consents to jurisdiction of any state or federal
      court sitting in Portland, Oregon, on any action or proceeding involving
      this note and/or any offsets, defenses or counterclaims related to this
      note.

10.   Successors and Assigns. This note will bind and inure to the benefit of
      the respective successors and assigns of the Borrower, the Lender, and the
      Agent, but the Borrower will not have the right by reason of this
      paragraph to assign its rights or delegate its obligations under this note
      without the prior written consent of the Lender and the Agent.

11.   Statutory Warning. UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND
      COMMITMENTS MADE BY A FINANCIAL INSTITUTION AFTER OCTOBER 3, 1989,
      CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT FOR PERSONAL,
      FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE BORROWER'S RESIDENCE
      MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY THE FINANCIAL
      INSTITUTION TO BE ENFORCEABLE.


                                    POPE & TALBOT, INC.

                                    By /s/ ROBERT J. DAY
                                           -------------------------------------
                                           Name:  ROBERT J. DAY
                                           Title: SENIOR VICE PRESIDENT AND
                                                  CHIEF FINANCIAL OFFICER


                                      -2-
<PAGE>   38

                                                                       Exhibit 4

                               SECURITY AGREEMENT

This Security Agreement is dated as of December 15, 1997, and is between Pope &
Talbot, Inc., a Delaware corporation whose federal taxpayer identification
number, of "TIN" is 94-0777139 ("P&T"), Pope & Talbot, Wis., Inc., a Delaware
corporation whose TIN is 391344749 ("Wis") (each being a "Debtor" and both being
the "Debtors") whose chief executive offices are at 1500 SW First Avenue,
Portland, Oregon 97201, U.S. Bank National Association ("USB"), whose address is
c/o National Corporate Banking (PL-4), 555 SW Oak Street, Portland, Oregon 97204
and telephone number is (503) 275-4942.

                                    Recitals

A.    The Debtors and the Secured Party are also parties to a 1997 Loan
      Agreement dated as of December 15, 1997 (the "Loan Agreement"), under
      which USB and other Lenders will provide up to $75 million of loans and
      extensions of credit to P&T and its Subsidiaries.

B.    One of the conditions to providing the above-described credit facilities
      is that the Debtors create and assist USB in perfecting a security
      interest in the Collateral (as defined below) to secure payment and
      performance of the obligations of the Debtors to the lenders under the
      Loan Agreement (the "Lenders"). USB is the agent for the Lenders under the
      Loan Agreement (the "Agent").

NOW, THEREFORE, for value, the current receipt and reasonable equivalence of
which are hereby acknowledged, it is agreed that:

1.    Grant of Security Interest.  Each Debtor hereby pledges, assigns, and
      grants a security interest under Article 9 of the Uniform Commercial
      Code (the "UCC") to the Agent in and to all of its

            present and after-acquired inventory (including supplies, materials,
            work in progress, finished goods, and returned and repossessed
            goods) and receivables (accounts, chattel paper, documents,
            instruments, distributions on account of investment property,
            deposit accounts into which proceeds have been deposited, rights to
            proceeds of written letters of credit, and all entitlements and
            things in action related thereto) of the Borrower and the Guarantors
            and all records and documents related thereto (the "Collateral")(1),


----------

(1)   Notwithstanding any other term or condition of this Security Agreement,
      the Collateral will not include any property of the Debtors that cannot be
      assigned or encumbered under any existing agreement with any third party,
      including an Indenture dated 6/2/93 with Chemical Trust Company of
      California as Trustee, a Loan Agreement dated 6/10/93, with the State of
      Oregon, Department of Energy, and an Asset Purchase Agreement dated
      12/11/95 with Paragon Trade Brands, Inc. et al., to the extent that any
      such restriction is enforceable under applicable law.


                                      -1-
<PAGE>   39

      to secure payment and performance of the obligations of the Debtors to the
      Agent and the Lenders under the Loan Agreement and this Security Agreement
      of every kind and nature, liquidated, unliquidated, fixed, contingent,
      matured, unmatured, disputed, undisputed, legal, or equitable, and all
      extensions, renewals, and modifications thereof (the "Secured
      Obligations").

2.    Perfection.

      (a)   Each Debtor will execute and deliver to the Agent all of the
            financing statements that the Agent requires to perfect, amend,
            continue, clarify, and reperfect the Agent's security interest in
            the Collateral ("Financing Statements").

      (b)   The parties intend for the existing financing statements, which have
            already been filed to perfect the security interests granted to the
            Agent in the 1996 Security Agreements, to continue in effect with
            respect to the security interests granted in this Security
            Agreement.

      (c)   The Agent may require each Debtor to endorse with recourse and
            deliver to the Agent the originals of all chattel paper,
            instruments, and documents that are included in the Collateral in
            order to perfect the Agent's security interest in such items of the
            Collateral.

      (d)   The original or a photocopy of this Security Agreement without the
            original signature of each Debtor may be filed as a Financing
            Statement or a continuation statement either by personal delivery or
            by facsimile machine.

3.    Limited Power of Attorney. To the full extent allowed by law, each Debtor
      appoints the Agent as its attorney in fact, coupled with an interest, and
      agent for the limited purpose of executing and filing Financing Statements
      which are necessary, in the Agent's reasonable judgment, to perfect,
      continue, and/or re-perfect the Agent's security interest in the
      Collateral or any item thereof or interest therein.

4.    Notice of Post-Perfection Changes. Each Debtor will immediately notify the
      Agent of:

      (a)   Any change in the name of such Debtor or such Debtor's use of an
            assumed business or trade name;

      (b)   The relocation of such Debtor's chief executive office to a state
            other than Oregon; and

      (c)   Any transfer (other than ordinary course sales of finished goods
            inventory) of material or essential amounts of inventory into any
            states other than Oregon, Washington, Wyoming, South Dakota,
            Wisconsin, or Pennsylvania;

      so that the Agent may continue the perfection of the Agent's security
      interest in all appropriate locations.


                                      -2-
<PAGE>   40

5.    Inspection and Verification Rights. Each Debtor will keep accurate records
      and documents (as defined in the Loan Agreement) relating to the
      Collateral at its principal business office and at the chief executive
      offices in Portland, Oregon. The Agent will have the unconditional right
      at all times and upon prior notice to the Debtors to:

      (a)   Inspect the Collateral, including the records and documents
            related thereto;

      (b)   Make copies of the records and documents;

      (c)   After notice to the Debtors (unless they are in default), verify
            orally and in writing directly with third parties, including account
            debtors, the accuracy of any information provided by either Debtor
            with respect to the Collateral;

      (d)   If the Debtors are in default, determine through employees, agents,
            or independent contractors the value of the Collateral at the
            expense of the Debtors no more than once per calendar year and as
            reasonably prudent at any time after an event of default and before
            any cure of such default;

      (e)   Enter upon any premises owned, leased, or otherwise controlled by
            either Debtor for the foregoing purposes.

      (f)   Each Debtor promises and agrees to provide to the Agent access to
            the Collateral and to provide any office space (including
            computer hardware, operating systems, and software and access to
            safes and other areas of safekeeping) that is reasonably
            necessary for the exercise of the foregoing rights.  Each Debtor
            grants to the Agent an easement over all premises owned, leased,
            or otherwise controlled by such Debtor for the purpose of
            inspecting and valuing the Collateral and, following any default,
            repossessing, storing, preparing for disposition, and disposing
            of the Collateral.  Each Debtor authorizes and instructs all
            third parties who have information relating to the Collateral
            (such as customers, account debtors, obligors, government
            agencies, employees, and outside accountants) to provide any and
            all information and documents relating to the Collateral to the
            Agent upon the Agent's written request provided that the Agent
            has given the Debtors prior notice in writing of its intention to
            ask for such information.

6.    Covenants. Without thereby limiting any covenant contained in the Loan
      Agreement and subject to the right to contest third-party obligations in
      good faith and by appropriate means, each Debtor promises and agrees to:

      (a)   Keep all tangible items of the Collateral insured against loss or
            damage in accordance with industry practices and prudent business
            judgment;

      (b)   Pay all taxes, assessments, and similar charges ("taxes") levied
            against the Collateral as and when the same become due and payable
            except as otherwise provided in the Loan Agreement;


                                      -3-
<PAGE>   41

      (c)   Pay all amounts when due which, if not so paid, may become the
            subject of a lien against the Collateral which might have or gain
            priority over the Agent's security interest (a "lien claim");

      (d)   Provide to the Agent upon request evidence of insurance coverage and
            the payment of taxes and lien claims; and

      (e)   Indemnify, defend, and hold harmless the Agent and the Lenders
            against all claims, loss, liability, cost, or expense asserted
            against or incurred by the Agent or the Lenders by reason of either
            Debtor's failure to provide a perfected, first-priority security
            interest in any item or items of the Collateral or the breach or
            default of either Debtor under the Loan Agreement or this Security
            Agreement.

      (f)   Each Debtor hereby authorizes the Agent to pay the premiums for
            insurance, taxes, and the principal, interest, fees, and costs
            constituting lien claims if such Debtor does not do so in a
            timely manner (unless such Debtor is then contesting such
            obligation in good faith and by appropriate means) and the Agent
            reasonable believes such payment is necessary for the protection
            of the Collateral and/or the Agent's security interest in the
            Collateral (a "security protection advance").  Each Debtor
            promises and agrees to reimburse the Agent on demand for any
            security protection advance made by the Agent and to pay interest
            thereon at the Agent's publicly announced prime rate plus 2% per
            annum from the date of the advance until the date of
            reimbursement.

7.    Consent to Transfers. The Agent consents to:

      (a)   The sale of finished goods inventory for reasonably equivalent value
            for cash or on ordinary trade terms in the ordinary course of
            business;

      (b)   The collection of accounts in the ordinary course of business;

      (c)   The good faith compromise of accounts and disputes regarding
            defective or nonconforming goods and to returns and rebates in
            connection therewith; and

      (d)   The replacement (including sale or exchange) of obsolete or worn-out
            fixtures and equipment in the ordinary course of business.

8.    Collection of Accounts. Each Debtor will use its best efforts to collect
      amounts due on receivables in the ordinary course of business. Each Debtor
      will not sell or assign any receivables to any third party or to any
      Lender without the Agent's prior written consent.

9.    Default. TIME IS OF THE ESSENCE. The Debtors will be in default under this
      Security Agreement if there is a default under the Loan Agreement or
      either Debtor fails to perform any promise contained in this Security
      Agreement within 30 days after such performance is due, or if such
      performance cannot be completed within such period, to substantially start
      to perform within such period and thereafter diligently complete such
      performance.


                                      -4-
<PAGE>   42

10.   Remedies. Upon default and without further notice or demand other than as
      provided in the Loan Agreement, the Agent may:

      (a)   Notify account debtors and obligors of the Agent's security interest
            and to demand payment directly from the account debtors and obligors
            to the Agent whether or not either Debtor then disputes the default
            or the Agent's right to collect such payments;

      (b)   Require each Debtor to assemble the Collateral and make it available
            to the Agent at a place to be designated by the Agent which is
            reasonably convenient to the Agent and the Debtors;

      (c)   Take possession of the Collateral either directly or through a
            receiver appointed by the circuit court in which any substantial or
            essential part of the Collateral is located without the necessity of
            making any showing under the rules of civil procedure as to
            entitlement to provisional relief and to improve, operate, maintain,
            lease, sell, contract rights, and otherwise dispose of the
            Collateral;

      (d)   Collect the revenue and proceeds of the Collateral;

      (e)   Hold, sell, lease or otherwise dispose of all or any part of the
            Collateral in its then condition or following any commercially
            reasonable preparation or processing; and

      (f)   Apply the proceeds, after payment of costs, charges and expenses, to
            amounts due on prior liens and security interests and then to
            amounts due to the Lenders under the Loan Documents.

      (g)   Each Debtor agrees that a letter delivered to it at least 30 days
            before a public or private sale or other disposition is reasonable
            notification of such sale or disposition. Each Debtor acknowledges
            that payments by account debtors and obligors to the Agent, rather
            than to such Debtor, following default will constitute satisfaction
            of the debt of the account debtor or obligor to such Debtor to the
            extent of the payment.

      (h)   Any receiver appointed may be an employee of the Agent and may serve
            as receiver without bond and without fee except for reimbursement of
            actual expenses. The Agent may advance such funds as are necessary
            or convenient to such repossession, operation, and management and
            any such advances, plus interest at the Agent's publicly announced
            prime rate plus 2% per annum, will be included in the Secured
            Obligations.

      (i)   All rights and remedies of the Agent under this Security Agreement
            and under applicable laws and regulations are cumulative and not
            exclusive. The commencement or partial exercise of any such right or
            remedy shall not preclude the Agent from the exercise of any other
            right or remedy until the Secured Obligations are fully paid and
            performed. Those rights specifically


                                      -5-
<PAGE>   43

            include the right of offset against any obligations owed by the
            Agent or any Lender to either Debtor against the Secured
            Obligations.

      (j)   Each Debtor waives and assigns to the Agent all marshaling,
            integration and similar claims intended to restrict the rights and
            remedies of the Agent following default. Each Debtor hereby waives
            and assigns to the Agent any and all claims that foreclosure against
            the Collateral amounts to a fraudulent transfer. Each Debtor
            acknowledges that the possibility that the Collateral at the time of
            foreclosure may have a value in excess of the Secured Obligations
            should not impair the bargained-for rights and remedies of the
            Agent.

11.   Reimbursement of Costs and Expenses. Each Debtor will reimburse the Agent
      on demand for the reasonable and necessary costs and expenses incurred by
      the Agent in connection with:

      (a)   Perfecting the security interest in the Collateral and confirming
            such perfection and the priority of the security interest;

      (b)   Inspecting and evaluating the Collateral (as limited above but
            otherwise including the cost of any third-party inspections and
            appraisals): and

      (c)   Repossessing, storing, preparing for disposition, and disposing of
            the Collateral;

      (d)   Enforcing and collecting the Secured Obligations, including
            reasonable attorney fees, whether or not a civil action or similar
            proceeding (including arbitration and insolvency proceedings) is
            filed or appealed,

      such costs and expenses being part of the Secured Obligations.

12.   Miscellaneous.

      (a)   This Security Agreement will bind and inure to the benefit of the
            respective successors and assigns of each Debtor, the Agent, and the
            Lenders (including participants), but no Debtor will have no right
            to assign any of its rights or delegate any of its obligations under
            this Security Agreement without the Agent's prior written consent.

      (b)   Each Debtor hereby consents to the jurisdiction of any state or
            federal court sitting in Portland, Oregon, with respect to any claim
            (including setoffs, defenses, counterclaims and third-party claims
            whether arising in tort or contract) arising from or related to this
            Security Agreement and hereby waives any claim that such a forum is
            inconvenient or that there is a more convenient forum.

      (c)   Certain terms and conditions of the Loan Agreement are also
            applicable to this Security Agreement.


                                      -6-
<PAGE>   44

13.   Statutory Warnings.

      (a)   Under Oregon law, most agreements, promises and commitments made by
            a financial institution after October 3, 1989, concerning loans and
            other credit extensions which are not for personal, family or
            household purposes or secured solely by Each Debtor's residence must
            be in writing, express consideration and be signed by the financial
            institution to be enforceable.

      (b)   Unless the Debtors provide the Agent with evidence of the insurance
            coverage that is required by this Security Agreement, the Agent may
            purchase such insurance to protect the Agent's security interest.
            Such insurance may, but need not, also protect the Debtors'
            interest. If the Collateral becomes damaged, the insurance purchased
            by the Agent may not pay any claim that a Debtor may make or any
            claim made against a Debtor.

            The Debtors will be responsible for the cost of the insurance
            purchased by the Agent and the Agent may add such cost to the
            Secured Obligations without any prior request for reimbursement of
            such amount. When added to the Secured Obligations, interest will
            accrue and be payable thereon at the Agent's prime rate plus 2% per
            annum. The effective date of coverage may be the date when the
            Debtors' coverage lapsed or the Debtors fails to provide proof of
            coverage.

            The cost of the insurance purchased by the Agent may be considerably
            more expensive than the insurance coverage that the Debtors can
            obtain and such insurance coverage may not satisfy any need for
            property damage coverage or any mandatory liability insurance
            requirements imposed by applicable law.

            Either Debtor may require the Agent to cancel the Agent's insurance
            by providing evidence that the Debtors have obtained the required
            insurance coverage elsewhere.


                                      -7-
<PAGE>   45

            Neither the Agent nor any of the Banks has any duty to either
            Debtor, a Guarantor, or anyone else to obtain insurance coverage if
            the Debtors fail to do so. It is agreed that the risk of an
            uninsured loss is allocated to the Debtors and such loss will not
            reduce or otherwise affect either Debtor's liability for payment and
            performance of the Secured Obligations.


U.S. Bank National Association,     Pope & Talbot, Inc.

By /s/ JANICE T. THEDE              By /s/ ROBERT J. DAY
       --------------------------          -------------------------------------
       Janice T. Thede                     Name:  ROBERT J. DAY
       Vice President                      Title: SENIOR VICE PRESIDENT AND
                                                  CHIEF FINANCIAL OFFICER

                                    Pope & Talbot, Wis., Inc.

                                    By /s/ ROBERT J. DAY
                                           -------------------------------------
                                           Name:  ROBERT J. DAY
                                           Title: SECRETARY AND TREASURER


                                      -8-
<PAGE>   46

                                                                       Exhibit 5


    $10,000,000                                                 Portland, Oregon
                                                               December 15, 1997

                                 SWINGLINE NOTE

For value, Pope & Talbot, Inc., a Delaware corporation (the "Borrower"), whose
address is 1500 SW First Avenue, Portland, Oregon 97201, promises to pay to the
order or assigns of U.S. Bank National Association ("USB"), c/o National
Corporate Banking Division, at 555 SW Oak Street, Portland, Oregon 97204 (or at
such other address as USB may hereafter specify in writing from time to time),
the principal amount of $10,000,000, or such greater or lesser amount as USB
actually loans to the Borrower under this note, plus interest, fees, and costs,
as provided for in this note. This note is issued under a 1997 Loan Agreement
dated December 15, 1997 (the "Loan Agreement"), among the Borrower, its
Subsidiaries, and USB. This note is the "Swingline Note" and each loan made
under this note is a "Swingline Loan."

1.    Use of Proceeds. The Borrower will use each loan made under this note only
      for balancing the daily cash position of the Borrower and the
      Subsidiaries.

2.    Fees. The Borrower will pay the Late Payment Fee specified by the Loan
      Agreement when due.

3.    Availability. No loan under this note will be greater than the lesser of:

      (a)   The difference between (1) $10,000,000 and (2) the aggregate
            principal amount of all Swingline Loans then outstanding.

      (b)   Availability on the date that the loan is requested.

4.    Expiry Date. The Borrower's opportunity to borrow under this note will
      expire on the Expiry Date (April 15, 1999) unless extended by mutual
      agreement of the Borrower and USB.

5.    Principal Repayment. Each loan made under this note will be due and
      payable at the end of the interest period agreed to by the Borrower and
      USB at the time the loan is made. No interest period will be longer than
      seven days or will extend beyond the Expiry Date.

6.    Interest.

      (a)   Before default, interest on each loan made under this note will
            accrue at the interest rate agreed to by the Borrower and USB at the
            time that the loan is made. Unless otherwise agreed, the Borrower
            will pay interest monthly in arrears on the first banking day of
            each month. USB uses a 360-day denominator to calculate interest at
            any rate.

      (b)   After default, interest will accrue at the Default Rate specified in
            the Loan Agreement until the default is cured or the entire
            outstanding balance of this note is paid in full. Interest at the
            default rate is payable on USB's demand.


                                      -1-
<PAGE>   47

7.    Costs. The party who substantially prevails in the trial or appeal of any
      civil action, arbitration proceeding, or insolvency (liquidation,
      reorganization or receivership) claim or proceeding on any claim
      (including setoffs, defenses, counterclaims and third-party claims)
      whether arising in tort or contract) arising from or related to this note
      will be entitled to reasonable attorney fees in addition to its costs and
      disbursements.

8.    Waivers. The Borrower waives acceptance, presentment, delay, dishonor, and
      notice of dishonor.

9.    Governing Law; Jurisdiction. The substantive provisions (that is, without
      regard for any choice of law provisions which would make the law of
      another jurisdiction applicable) of Oregon law and any applicable
      provisions of federal law will govern the construction and enforcement of
      this note. The Borrower consents to jurisdiction of any state or federal
      court sitting in Portland, Oregon, on any action or proceeding involving
      this note and/or any offsets, defenses or counterclaims related to this
      note.

10.   Successors and Assigns. This note will bind and inure to the benefit of
      the respective successors and assigns of the Borrower and USB, but the
      Borrower will not have the right by reason of this paragraph to assign its
      rights or delegate its obligations under this note without USB's prior
      written consent.

11.   Statutory Warning. Under Oregon law, most agreements, promises and
      commitments made by a financial institution after October 3, 1989,
      concerning loans and other credit extensions which are not for personal,
      family or household purposes or secured solely by the borrower's residence
      must be in writing, express consideration and be signed by the financial
      institution to be enforceable.


                                    POPE & TALBOT, INC.


                                    By /s/ ROBERT J. DAY
                                           -------------------------------------
                                           Name:  ROBERT J. DAY
                                           Title: SENIOR VICE PRESIDENT
                                                  AND CHIEF FINANCIAL OFFICER


                                      -2-