FIRST SUPPLEMENTAL INDENTURE (this “Supplemental Indenture”), dated as ofMay 19, 2004, among Ainsworth Engineered Corp. (the “Guaranteeing Subsidiary”),a subsidiary of Ainsworth Lumber Co. Ltd., a corporation incorporated under thelaws of the Province of British Columbia (the “Company”), the Company, and TheBank of New York, as Trustee under the Indenture referred to below (the“Trustee”).
W I T N E S S E T H
     WHEREAS, the Company has heretofore executed and delivered to the Trusteean indenture (the “Indenture”), dated as of March 3, 2004 providing for theissuance of an unlimited aggregate principal amount of Senior Notes due March15, 2014 (the “Notes”);
     WHEREAS, the Indenture provides that under certain circumstances aSubsidiary providing a Subsidiary Guarantee shall execute and deliver to theTrustee a supplemental indenture pursuant to which such Subsidiary shallunconditionally guarantee all of the Company’s Obligations under the Notes andthe Indenture on the terms and conditions set forth herein (the “SubsidiaryGuarantee”); and
     WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee isauthorized to execute and deliver this Supplemental Indenture.
     NOW THEREFORE, in consideration of the foregoing and for other good andvaluable consideration, the receipt of which is hereby acknowledged, theparties mutually covenant and agree for the equal and ratable benefit of theHolders of the Notes as follows:
     1. CAPITALIZED TERMS. Capitalized terms used herein without definitionshall have the meanings assigned to them in the Indenture.
     2. AGREEMENT TO GUARANTEE. The Guaranteeing Subsidiary hereby agrees asfollows:
     (a) Along with all Guarantors named in the Indenture, to jointly andseverally unconditionally guarantee to each Holder of a Noteauthenticated and delivered by the Trustee and to the Trustee and itssuccessors and assigns, irrespective of the validity and enforceabilityof the Indenture, the Notes or the obligations of the Company hereunderor thereunder, that:
(i) the principal of and interest, premium and SpecialInterest, if any, on the Notes will be promptly paid in fullwhen due, whether at maturity, by acceleration, redemption orotherwise, and interest on the overdue principal of andinterest on the Notes, if any, if lawful, and all otherobligations of the Company to the Holders or the Trusteehereunder or thereunder will be promptly paid in full orperformed, all in accordance with the terms hereof andthereof; and
 

 

(ii) in case of any extension of time of payment or renewal ofany Notes or any of such other obligations, that same will bepromptly paid in full when due or performed in accordance withthe terms of the extension or renewal, whether at statedmaturity, by acceleration or otherwise. Failing payment whendue of any amount so guaranteed or any performance soguaranteed for whatever reason, the Guarantors shall bejointly and severally obligated to pay the same immediately.
     (b) The obligations hereunder shall be unconditional, irrespectiveof the validity, regularity or enforceability of the Notes or theIndenture, the absence of any action to enforce the same, any waiver orconsent by any Holder of the Notes with respect to any provisions hereofor thereof, the recovery of any judgment against the Company, any actionto enforce the same or any other circumstance which might otherwiseconstitute a legal or equitable discharge or defense of a guarantor.
     (c) The obligations of the Guaranteeing Subsidiary under thisSubsidiary Guarantee are independent of the obligations guaranteed by theGuaranteeing Subsidiary hereunder, and a separate action or actions maybe brought and prosecuted by the Trustee on behalf of, or by, theHolders, subject to the terms and conditions set forth in the Indenture,against the Guaranteeing Subsidiary to enforce this Subsidiary Guarantee,irrespective of whether any action is brought against the Company orwhether the Company is joined in any such action or actions.
     (d) In the event of a default in payment of principal (or premiumand Special Interest, if any) or interest on a Note, whether at itsstated maturity, by acceleration, purchase or otherwise, legalproceedings may be instituted by the Trustee on behalf of, or by, theHolder of such Note, subject to the terms and conditions set forth in theIndenture, directly against the Guaranteeing Subsidiary to enforce theSubsidiary Guarantee without first proceeding against the Company or anyother Guarantor. If, after the occurrence and during the continuance ofan Event of Default, the Trustee or any of the Holders are prevented byapplicable law from exercising their respective rights to accelerate thematurity of the Notes, to collect interest on the Notes, or to enforce orexercise any other right or remedy with respect to the Notes, theGuaranteeing Subsidiary shall pay to the Trustee for the account of theHolder, upon demand therefor, the amount that would otherwise have beendue and payable had such rights and remedies been permitted to beexercised by the Trustee or any of the Holders.
     (e) The following is hereby waived: diligence presentment, demandof payment, filing of claims with a court in the event of insolvency orbankruptcy of the Company, any right to require a proceeding firstagainst the Company, protest, notice and all demands whatsoever.
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     (f) This Subsidiary Guarantee shall not be discharged except bycomplete performance of the obligations contained in the Notes, theIndenture and this Supplemental Indenture, and the GuaranteeingSubsidiary accepts all obligations of a Guarantor under the Indenture.
     (g) If any Holder or the Trustee is required by any court orotherwise to return to the Company, the Guarantors (including theGuaranteeing Subsidiary), or any custodian, trustee, liquidator or othersimilar official acting in relation to either the Company or theGuarantors, any amount paid either to the Trustee or such Holder, thisSubsidiary Guarantee, to the extent theretofore discharged, shall bereinstated in full force and effect.
     (h) The Guaranteeing Subsidiary shall not be entitled to any rightof subrogation in relation to the Holders in respect of any obligationsguaranteed hereby until payment in full of all obligations guaranteedhereby.
     (i) As between the Guaranteeing Subsidiary, on the one hand, and theHolders and the Trustee, on the other hand, (x) the maturity of theobligations guaranteed hereby may be accelerated as provided in Article 6of the Indenture for the purposes of this Subsidiary Guarantee,notwithstanding any stay, injunction or other prohibition preventing suchacceleration in respect of the obligations guaranteed hereby, and (y) inthe event of any declaration of acceleration of such obligations asprovided in Article 6 of the Indenture, such obligations (whether or notdue and payable) shall forthwith become due and payable by theGuaranteeing Subsidiary for the purpose of this Subsidiary Guarantee.
     (j) The Guaranteeing Subsidiary shall have the right to seekcontribution from any non-paying Guarantor so long as the exercise ofsuch right does not impair the rights of the Holders under thisSubsidiary Guarantee.
     (k) Pursuant to Section 10.02 of the Indenture, after giving effectto all other contingent and fixed liabilities that are relevant under anyapplicable Bankruptcy or fraudulent conveyance laws, and after givingeffect to any collections from, rights to receive contribution from orpayments made by or on behalf of any other Guarantor in respect of theobligations of such other Guarantor under Article 10 of the Indenture,this new Subsidiary Guarantee shall be limited to the maximum amountpermissible such that the obligations of such Guaranteeing Subsidiaryunder this Subsidiary Guarantee will not constitute a fraudulent transferor conveyance.
     (l) This Subsidiary Guarantee shall remain in full force and effectand continue to be effective should any petition be filed by or againstthe Company for liquidation, reorganization, should the Company becomeinsolvent or make an assignment for the benefit of creditors or should areceiver or trustee be appointed for all or any significant part of theCompany’s assets, and shall, to the fullest extent permitted by law,continue to be effective or be reinstated, as the case may
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be, if at any time payment and performance of the Notes are,pursuant to applicable law, rescinded or reduced in amount, or mustotherwise be restored or returned by any obligee on the Notes andSubsidiary Guarantee, whether as a “voidable preference”, “fraudulenttransfer” or otherwise, all as though such payment or performance had notbeen made. In the event that any payment or any part thereof, isrescinded, reduced, restored or returned, the Note shall, to the fullestextent permitted by law, be reinstated and deemed reduced only by suchamount paid and not so rescinded, reduced, restored or returned.
     (m) In case any provision of this Subsidiary Guarantee shall beinvalid, illegal or unenforceable, the validity, legality, andenforceability of the remaining provisions shall not in any way beaffected or impaired thereby.
     (n) This Subsidiary Guarantee shall be a general unsecuredobligation of such Guaranteeing Subsidiary, ranking *pari passu*with anyother future senior Indebtedness of the Guaranteeing Subsidiary, if any.
     (o) Each payment to be made by the Guaranteeing Subsidiary inrespect of this Subsidiary Guarantee shall be made without set-off,counterclaim, reduction or diminution of any kind or nature.
     3. EXECUTION AND DELIVERY. The Guaranteeing Subsidiary agrees that theSubsidiary Guarantee shall remain in full force and effect notwithstanding anyfailure to endorse on each Note a notation of this Subsidiary Guarantee.
     4. GUARANTEEING SUBSIDIARY MAY CONSOLIDATE, ETC. ON CERTAIN TERMS.
     (a) Except as otherwise provided in Section 10.05 of the Indenture,the Guaranteeing Subsidiary may not sell or otherwise dispose of all orsubstantially all of its assets to, or consolidate, amalgamate with ormerge with or into (whether or not such Guaranteeing Subsidiary is thesurviving Person) another Person other than the Company or anotherGuarantor unless:
     (b) immediately after giving effect to that transaction, no Defaultor Event of Default exists; and
     (c) either:
     (1) the Guaranteeing Subsidiary is the surviving Person, orthe Person acquiring the property in any such sale or dispositionor the Person formed by or surviving any such consolidation,amalgamation or merger assumes all the obligations of theGuaranteeing Subsidiary under the Indenture, this SubsidiaryGuarantee and the Registration Rights Agreement pursuant to asupplemental indenture satisfactory to the Trustee and completesall other required documentation; or
     (2) the Net Proceeds of such sale or other disposition areapplied in accordance with the provisions of Section 4.10 of theIndenture;
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     (d) In case of any such consolidation, amalgamation, merger, sale orconveyance and upon the assumption by the successor Person (whereapplicable), by supplemental indenture, executed and delivered to theTrustee and satisfactory in form to the Trustee, of this SubsidiaryGuarantee endorsed upon the Notes and the due and punctual performance ofall of the covenants and conditions of the Indenture to be performed bythe Guaranteeing Subsidiary, such successor Person shall succeed to andbe substituted for the Guaranteeing Subsidiary with the same effect as ifit had been named herein as a Guaranteeing Subsidiary. Such successorPerson thereupon may cause to be signed the Subsidiary Guarantee to beendorsed upon all of the Notes issuable hereunder which theretofore shallnot have been signed by the Company and delivered to the Trustee. TheSubsidiary Guarantee so issued shall in all respects have the same legalrank and benefit under the Indenture as the Subsidiary Guaranteestheretofore and thereafter issued in accordance with the terms of theIndenture as though all of such Subsidiary Guarantees had been issued atthe date of the execution hereof.
     (e) Except as set forth in Articles 4 and 5 of the Indenture, andnotwithstanding clauses (a) and (b) above, nothing contained in theIndenture or in any of the Notes shall prevent any consolidation,amalgamation or merger of a Guaranteeing Subsidiary with or into theCompany or another Guarantor, or shall prevent any sale or conveyance ofthe property of the Guaranteeing Subsidiary as an entirety orsubstantially as an entirety to the Company or another Guarantor.
     5. RELEASES.
     (a) In the event of a sale (including by way of merger, amalgamationor consolidation in compliance with Section 5.01 of the Indenture) of allthe capital stock of the Guaranteeing Subsidiary to a Person that is not(either before or after giving effect to such transaction) the Company ora Restricted Subsidiary then the Guaranteeing Subsidiary (in the event ofa sale or other disposition, by way of merger, consolidation orotherwise, of all of the capital stock of such Guaranteeing Subsidiary)will be released and relieved of any obligations under this SubsidiaryGuarantee; provided, that the sale complies with Section 4.10 of theIndenture. Further, if the Company redesignates any RestrictedSubsidiary that is a Guarantor as an Unrestricted Subsidiary inaccordance with Section 4.17 of the Indenture then the GuaranteeingSubsidiary will be released and relieved of any obligations under thisSubsidiary Guarantee. Upon delivery by the Company to the Trustee of anOfficers’ Certificate and an Opinion of Counsel to the effect that suchsale or other disposition was made by the Company in accordance with theprovisions of the Indenture, including without limitation Section 4.10 ofthe Indenture, the Trustee shall execute any documents reasonablyrequired in order to evidence the release of the Guaranteeing Subsidiaryfrom its obligations under this Subsidiary Guarantee.
     (b) The Guaranteeing Subsidiary not released from its obligationsunder this Subsidiary Guarantee shall remain liable for the full amountof principal of
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and interest on the Notes and for the other obligations of theGuaranteeing Subsidiary under the Indenture as provided in Article 10thereof.
     6. NO RECOURSE AGAINST OTHERS. No past, present or future director,officer, employee, incorporator, shareholder or agent of the GuaranteeingSubsidiary, as such, shall have any liability for any obligations of theCompany or any Subsidiary under the Notes, any Subsidiary Guarantees, theIndenture or this Supplemental Indenture or for any claim based on, in respectof, or by reason of, such obligations or their creation. Each Holder of theNotes by accepting a Note waives and releases all such liability. The waiverand release are part of the consideration for the issuance of the Notes. Suchwaiver may not be effective to waive liabilities under the federal securitieslaws and it is the view of the Commission that such a waiver is against publicpolicy.
     7. THE LAWS OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUETHIS SUPPLEMENTAL INDENTURE, THE INDENTURE, THE NOTES AND THE SUBSIDIARYGUARANTEES.
     8. COUNTERPARTS. The parties may sign any number of copies of thisSupplemental Indenture. Each signed copy shall be an original, but all of themtogether represent the same agreement.
     9. EFFECT OF HEADINGS. The Section headings herein are for convenienceonly and shall not affect the construction hereof.
     10. THE TRUSTEE. The Trustee shall not be responsible in any mannerwhatsoever for or in respect of the validity or sufficiency of thisSupplemental Indenture or for or in respect of the recitals contained herein,all of which recitals are made solely by the Guaranteeing Subsidiary and theCompany.
     11. SUBROGATION. The Guaranteeing Subsidiary shall be subrogated to allrights of Holders of Notes against the Company in respect of any amounts paidby the Guaranteeing Subsidiary pursuant to the provisions of Section 2 hereof;*provided*, however, that, if an Event of Default has occurred and is continuing,the Guaranteeing Subsidiary shall not be entitled to enforce or receive anypayments arising out of, or based upon, such right of subrogation until allamounts then due and payable by the Company under the Indenture or the Notesshall have been paid in full.
     12. BENEFITS ACKNOWLEDGED. The Guaranteeing Subsidiary acknowledges thatit will receive direct and indirect benefits from the financing arrangementscontemplated by the Indenture and this Supplemental Indenture and that theguarantee and waivers made by it pursuant to this Subsidiary Guarantee areknowingly made in contemplation of such benefits.
     13. SUCCESSORS. All agreements of the Guaranteeing Subsidiary in thisSupplemental Indenture shall bind its Successors, except as otherwise providedin Section 2(k) hereof or elsewhere in this Supplemental Indenture. Allagreements of the Trustee in this Supplemental Indenture shall bind itssuccessors.
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     IN WITNESS WHEREOF, the parties hereto have caused this SupplementalIndenture to be duly executed, all as of the date first above written.
Dated: May 19, 2004,       Ainsworth Lumber Co. Ltd.      By:         Name:   Title:      By:         Name:   Title:       Ainsworth Engineered Corp.      By:         Name:   Title:       The Bank of New York, as Trustee      By:         Authorized Signatory
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