Document:

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                                                                     EXHIBIT 4.4

                            WORKING CAPITAL FACILITY
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                               FINANCING AGREEMENT

                         CIT BUSINESS CREDIT CANADA INC.

                                   (AS LENDER)

                                       AND

                          WESTERN FOREST PRODUCTS INC.

                                 (AS BORROWER)

                                       AND

      WESTERN PULP LIMITED, WFP LUMBER SALES LIMITED, DOMAN FOREST PRODUCTS
LIMITED AND DOMAN-WESTERN LUMBER LTD.

                                 (AS GUARANTORS)

                              DATED: JULY 27, 2004

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                                TABLE OF CONTENTS

<TABLE>
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                                                                    PAGE
<S>                                                                 <C>
ARTICLE 1     DEFINITIONS ......................................      2

ARTICLE 2     CONDITIONS PRECEDENT .............................     19

ARTICLE 3     REVOLVING LOANS ..................................     23

ARTICLE 4     BA EQUIVALENT LOANS ..............................     28

ARTICLE 5     LETTERS OF CREDIT ................................     28

ARTICLE 6     COLLATERAL .......................................     30

ARTICLE 7     REPRESENTATIONS, WARRANTIES AND COVENANTS ........     32

ARTICLE 8     INTEREST, FEES AND EXPENSES ......................     42

ARTICLE 9     POWERS ...........................................     45

ARTICLE 10    EVENTS OF DEFAULT AND REMEDIES ...................     46

ARTICLE 11    TERMINATION ......................................     50

ARTICLE 12    ASSIGNMENTS ......................................     50

ARTICLE 13    MISCELLANEOUS ....................................     51
</TABLE>

                                      -i-
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EXHIBITS

      Exhibit A - Form of Borrowing Base Certificate

      Exhibit B - Form of Officer's Certificate

SCHEDULES

Schedule 1 - Collateral Information, etc.

Schedule 2 - Material Agreements

Schedule 3 - Forest and Timber Tenures, Licences of Occupation Environment
Permits, Aquatic Leases, Water Licences and Permits, and Other Authorizations
and their respective expiry dates

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            THIS FINANCING AGREEMENT (this "Agreement") dated as of July 27,
2004 is entered into among Western Forest Products Inc. (the "Borrower"),
Western Pulp Limited ("WPL"), WFP Lumber Sales Limited ("Salesco") Doman Forest
Products Limited ("Doman FP") and Doman-Western Lumber Ltd. ("Doman WL"), and
together with WPL, Salesco and Doman FP, the "Guarantors" and individually a
"Guarantor"), and CIT Business Credit Canada Inc. (the "Lender"). Reference is
made to the Introductory Statements below and Section 1.1 hereof for the
definition of certain capitalized terms used herein.

INTRODUCTORY STATEMENTS:

A. Pursuant to that certain Financing Agreement, dated as of March 1, 2002 (as
amended, supplemented or otherwise modified or restated from time to time, the
"Pre-Filing Financing Agreement"), among Doman Forest Products Limited, Western
Pulp Limited Partnership, Western Forest Products Limited, Western Pulp Inc. and
Eacom Timber Sales Ltd. (collectively, the "Pre-Filing Borrowers"), Doman's
Freightways Ltd., Doman Investments Limited, Doman Log Supply Ltd.,
Doman-Western Lumber Ltd., Diamond Lumber Sales Limited, Quatsino Navigation
Company Limited and Alpine Projects Limited (the "Pre-Filing Guarantors"), Doman
Industries Limited (the "Pre-Filing Parent"), and the Lender, the Lender made
loans and advances to, and arranged for the issuance of letters of credit for
and/or provided other financial accommodations to, or on behalf of, the
Pre-Filing Borrowers (collectively, the "Pre-Filing Loans");

B. The obligations of the Pre-Filing Borrowers and the Pre-Filing Guarantors in
respect of the Pre-Filing Loans were secured by valid, binding, enforceable and
perfected liens, security interests and hypothecs in substantially all the
inventory, accounts receivable and other current assets of the Pre-Filing
Borrowers and the Pre-Filing Guarantors as set out in the Pre-Filing Financing
Agreement;

C. On November 7, 2002, the Pre-Filing Parent, the Pre-Filing Borrowers, the
Pre-Filing Guarantors, and certain of their direct or indirect subsidiaries
commenced proceedings under the Companies Creditors Arrangement Act (the "CCAA")
the Company Act (British Columbia) (the "BCCA"), the Canada Business
Corporations Act (the "CBCA"), and the Partnership Act (British Columbia) (the
"BCPA"), and a plan of reorganization and of compromise and arrangement (as such
plan of reorganization and of compromise and arrangement may be amended,
modified or supplemented in accordance with its terms, the "Plan of
Arrangement") was filed with the Supreme Court of British Columbia (the "Court")
on April 30, 2004;

D. The Plan of Arrangement was sanctioned and approved by the Court on June 14,
2004;

E. Pursuant to the Plan of Arrangement, the obligations of the Pre-Filing
Borrowers and the Pre-Filing Guarantors in respect of the Pre-Filing Loans and
other obligations under the Pre-Filing Credit Agreement (collectively,
"Pre-Filing Secured Claims") are to be repaid with the proceeds of loans to be
made to the Borrower under this Agreement;

F. Pursuant to the Plan of Arrangement and the Sanction Order, through a series
of transactions, the Pre-Filing Borrowers, the Pre-Filing Guarantors and the
Pre-Filing Parent will complete a corporate reorganization on the plan
implementation date as defined in the Plan (the

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                                     - 2 -

"Plan Implementation Date"), with the result that the Lumber Assets (as defined
in the Plan of Arrangement) will become the assets of the Borrower and the Pulp
Assets (as defined in the Plan of Arrangement) will become the assets of WPL,
respectively;

G. Pursuant to Section 8.4(f) of the Plan of Arrangement, the Borrower is
required, on or before the Plan Implementation Date, to have entered into this
Agreement whereby the Lender will establish in favour of the Borrower a working
capital facility in an amount not less than Cdn.$100,000,000, and the Lender has
agreed to provide such working capital facility to the Borrower on the terms and
conditions set forth herein.

            NOW THEREFORE, in consideration of the mutual conditions and
agreements set forth in this Agreement, and for good and valuable consideration,
the receipt of which is hereby acknowledged, the Lender, the Borrower and each
Guarantor hereby agree as follows.

                                    ARTICLE 1
                                   DEFINITIONS

1.1 In this Financing Agreement, the following terms shall have the following
meanings unless the context expressly or by necessary implication otherwise
requires:

ACCESS AGREEMENTS shall mean access agreements between the Lender and the
various landlords of locations at which Collateral or Guarantor's Collateral is
located, providing the Lender access rights to the Collateral or the Guarantor's
Collateral, as applicable, in form and substance satisfactory to the Lender in
its sole and absolute discretion.

ACCOMMODATION shall mean: (i) any advance made by way of a Prime Rate Loan at
the request of the Borrower or which is deemed to be made by the Lender
hereunder; (ii) any BA Equivalent Loan created hereunder; and (iii) any
assistance provided by the Lender to the Borrower to obtain Letters of Credit
and/or the granting of any Letter of Credit Guarantee by the Lender.

ACCOUNTS shall mean any and all of the Borrower's and each Guarantor's existing
and future: (a) accounts (as defined in the PPSA), and any and all other
receivables (whether or not specifically listed on schedules furnished to the
Lender), including all accounts created by, or arising from, all sales, leases,
rentals of goods or renditions of services to its customers, including those
accounts arising under the Borrower's or a Guarantor's trade names or styles, or
through the Borrower's or a Guarantor's divisions; (b) any and all instruments,
documents, chattel paper (including electronic chattel paper); (c)
indemnification rights and tax refunds; (d) the proceeds or royalties of any and
all licensing agreements or arrangements between the Borrower or a Guarantor and
any licencee of the Borrower's or a Guarantor's General Intangibles; (e)
reserves and credit balances arising in connection with or pursuant hereto; (f)
guarantees, supporting obligations, payment intangibles and letter of credit
rights (all as defined in the PPSA); (g) insurance policies or rights or claims
relating to any of the foregoing; (h) any and all rights to payment, including,
without limitation, those arising in connection with bank and non-bank credit
cards; (i) any and all books and records and any electronic media and software
relating to any and all of the foregoing (including any access codes in respect
thereof); (j) notes, deposits or property of account debtors securing the
obligations of any such account debtors to the Borrower or a Guarantor; (k) cash
and non-cash proceeds (as defined in the PPSA) of any and all of the foregoing;
(1) all demands, monies, choses in action and claims for monies now or hereafter
due and payable in connection with any and all of the foregoing or otherwise;

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and (m) all unpaid sellers or lessors rights (including rescission, replevin,
reclamation, repossession and stoppage in transit) relating to the foregoing or
arising therefrom and all rights to any goods represented by any of the
foregoing, including rights to returned, reclaimed or repossessed goods.

ADMINISTRATIVE MANAGEMENT FEE shall have the meaning provided for in Section 8.6
of this Financing Agreement.

ASSETS shall mean, with respect to any Person, all property, assets and
undertakings of such Person, both real and personal, of every kind and
wheresoever situate, whether now owned or hereafter acquired.

AUTHORIZATION shall mean, with respect to any Person, any authorization, order,
permit, approval, tenure, grant, waiver, exemption, concession, lease, licence,
consent, right, franchise, privilege, certificate, judgment, writ, injunction,
award, determination, direction, decree, by-law, rule or regulation of any
Governmental Entity or other Person having jurisdiction over such Person,
whether or not having the force of law.

AVAILABILITY RESERVE shall mean the sum of: (a) (i) (3) months rental payments
or similar charges for the Borrower's or a Guarantor's leased premises where
Collateral is stored or located or other locations where Collateral is stored or
located which the Borrower or a Guarantor does not own and has not delivered to
the Lender a waiver in form and substance satisfactory to the Lender, plus (ii)
an amount equal to the greater of (x) (3) months estimated payments plus any
other fees or charges which may become payable, or (y) the amount owing by the
Borrower or a Guarantor to any applicable warehousemen, third party processor,
lessor, licensor or other Person in possession or control of Collateral (as
determined by the Lender in its reasonable business judgment), provided that any
of the foregoing amounts shall be adjusted from time to time hereafter upon, (A)
delivery to the Lender of any such acceptable form of waiver confirming the
Lender's first perfected priority security interest, subject to Permitted
Encumbrances, and unfettered access to such location to take possession of the
Collateral, (B) the opening or closing of a Collateral location, and/or (C) any
change in the amount of rental, storage lease, licence or processor payments or
similar charges; (b) $40,000,000 as a net availability reserve, provided that,
at any time after the date which is nine months after the Closing Date, the
Borrower may require, by written notice to the Lender, that this net
availability reserve be reduced from $40,000,000 to $25,000,000 if the Fixed
Charge Coverage Ratio for the most recently completed Rolling Period is not less
than 1.10:1.00 (the "NET AVAILABILITY BLOCK"); and (c) any reserve which the
Lender may reasonably require from time to time pursuant to this Financing
Agreement, including in respect of any and all indemnities provided by the
Lender to The Toronto-Dominion Bank in respect of any outstanding letters of
credit and any and all lease or licence payments or similar charges to ensure
unfettered access to the Collateral, in respect of any claim or Encumbrance
against any part of the Collateral which may be in priority to the Lender,
including concerning any Taxes, pension and other benefits, Royalties, Priority
Payables, any credit memos which have not yet been issued, debit memos, unpaid
seller's thirty (30) day goods rights to repossess goods, unpaid sellers rights
of stoppage in transit, Inventory value adjustments (not to exceed ten percent
(10%) of the Borrower's or a Guarantor's cost of such Inventory in the absence
of a Default or an Event of Default and the Lender cannot verify the market
value of such Inventory to its satisfaction) from time to time to

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reflect an Inventory value of the lower of cost or market (without duplication
to the calculation of the Borrowing Base).

BA EQUIVALENT LOAN shall mean an accommodation of credit made hereunder by the
Lender up to the maximum amount of $25,000,000 based on the BA Equivalent Rate
for the applicable Interest Period.

BA EQUIVALENT RATE shall mean, for the Interest Period applicable to the
Revolving Loan, the simple average of the annual rates for Canadian dollar
Bankers' Acceptances, having such specified term (or a term as closely as
possible comparable to such specified term), of CIBC that appears on the Reuters
Screen CDOR Page as of 10:00 a.m. on such day that the Accommodation is made
(or, if such day is not a Business Day, as of 10:00 a.m. on the immediately
preceding Business Day), plus two and one quarter of one percent (2 1/4%) per
annum.

BANKERS' ACCEPTANCE shall mean a non-interest bearing bill of exchange
denominated in Canadian dollars in a form acceptable to a Schedule I bank under
the Bank Act (Canada) drawn and endorsed by or in the name of the Borrower and
accepted by a Schedule I bank under the Bank Act (Canada).

BLOCKED ACCOUNTS shall have the meaning provided for in Section 3.4(b) of
Article 3 of this Financing Agreement.

BLOCKED ACCOUNTS AGREEMENT shall have the meaning provided for in Section 3.4(b)
of Article 3 of this Financing Agreement.

BOND INDENTURE shall mean the indenture dated as of June 26, 2004 executed and
delivered by the Borrower and the Guarantor in favour of the Bond Trustee and
governing the issuance of the Borrower's 15% secured bonds due June 28, 2009.

BOND TRUSTEE means The Bank of New York, in its capacity as trustee under the
Bond Indenture.

BORROWER shall have the meaning provided for in the introductory paragraph of
this Agreement and shall extend to all of its successors and assigns.

BORROWING BASE shall mean, subject to the Revolving Line of Credit, the sum of
(a) eighty-five percent (85%) of the Borrower's and the Guarantors' aggregate
outstanding Eligible Trade Receivables ("MARGINABLE TRADE RECEIVABLES"), plus
(b) the lesser of (i) sixty-five percent (65%) of the aggregate value of the
Borrower's and the Guarantors' Eligible Inventory, valued, on a monthly basis,
at the lower of the Borrower's or the applicable Guarantor's cost and market, on
an average cost basis, (ii) eighty percent (80%) of the aggregate appraised net
recovery value of the Borrower's and the Guarantors' Eligible Inventory, and
(iii) the Inventory Loan Cap, less (c) any applicable Availability Reserves.

BORROWING BASE CERTIFICATE shall mean a certificate delivered by a designated
authorized signing officer of the Borrower (for itself and on behalf of the
Guarantors) in the form attached hereto as Exhibit A.

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BUSINESS DAY shall mean any day on which the Lender is open for business in
Toronto, Ontario.

CIBC shall mean Canadian Imperial Bank of Commerce and any chartered bank which
is its successor.

CLAIM shall mean any claim of any nature whatsoever, including, without
limitation, any demand, liability, obligation, debt, action, cause of action,
suit, proceeding, judgment, award, assessment and reassessment.

CLOSING DATE shall mean the date that this Financing Agreement has been duly
executed by the parties hereto, delivered to the Lender out of escrow and the
initial Accommodation has been made following the satisfaction or waiver of the
conditions precedent in Section 2.1.

COLLATERAL shall mean:

(i) all present and future Accounts, Inventory (including any and all returned
or repossessed merchandise or other goods which by sale resulted in Accounts)
and Other Collateral of the Borrower and each Guarantor;

(ii) all books, records, ledger cards, files, correspondence, invoices,
documents, papers, electronically recorded data, computer programs, tapes, disks
and related software (owned by the Borrower or a Guarantor or in which the
Borrower or a Guarantor has an interest, including any and all access codes in
respect thereof) which at any time evidence or contain information relating to
any Accounts, Inventory, Other Collateral or Policies or are otherwise necessary
or helpful in the collection thereof or realization thereupon, and all computer
hardware, software and systems (owned by the Borrower or a Guarantor or in which
the Borrower or a Guarantor has an interest, including any and all access codes
in respect thereof) which at any time evidence or contain information relating
to any Accounts, Inventory, Other Collateral or Policies or are otherwise
necessary or helpful in the collection thereof or realization thereupon, and all
computer hardware, software and systems (owned by the Borrower or a Guarantor or
in which the Borrower or a Guarantor has an interest) which are part of or are
used in connection with any of the above-mentioned electronically recorded data,
computer programs, tapes, disks or software;

(iii) all Documents of Title, policies and certificates of insurance pertaining
to the Collateral, including comprehensive/umbrella property and casualty and
business interruption insurance relating to the Borrower's or a Guarantor's
respective businesses and credit/receivables insurance, all policies of
insurance issued by Export Development Corporation and any other export insurer,
together with any and all schedules and endorsements thereto from time to time
and any and all monies and other sums payable to or receivable by the Borrower
or a Guarantor from time to time under any of the foregoing, together with any
and all present and future rights and benefits of the Borrower or a Guarantor
under and in connection with any of the foregoing and all agreements,
permissions, approvals and consents from time to time granted to the Borrower or
a Guarantor under any or in connection with any of the foregoing, and all
covenants, terms, conditions, representations and warranties made or expressed
therein or implied by law in relation thereto, and all rights granted to the
Borrower or a Guarantor under any of the foregoing to make claims, enforce
performance, sue for and collect amounts owing, give consents or approvals, make
selections, exercise options, participate in arbitration or other legal
proceedings and/or give notices and declare defaults thereunder (collectively,
the "POLICIES"), securities, and

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other documents or instruments at any time evidencing or pertaining to any
Accounts, Inventory, Other Collateral or Policies and all rights of the Borrower
or a Guarantor thereunder;

(iv) all guaranties, letters of credit, letters of guarantee, Encumbrances on
real or personal property, leases and other agreements and property which at any
time in any way secure or relate to any Accounts, Inventory, Other Collateral or
Policies, or are acquired for the purpose of securing and enforcing any item
thereof;

(v) (A) all cash or other property at any time on deposit with or held by any
financial institution for the account of the Borrower or a Guarantor (whether
for safekeeping, custody, pledge, transmission or otherwise), (B) all present
and future deposit accounts (whether time or demand or interest or non-interest
bearing) of the Borrower or a Guarantor with any financial institution including
those to which any such cash may at any time and from time to time be credited,
(C) all investments and reinvestments (however evidenced) of amounts from time
to time credited to such accounts, and (D) all interest, dividends,
distributions and other proceeds payable on or with respect to (x) such
investments and reinvestments, and (y) such accounts; provided that the
foregoing shall not extend to any "Cash Collateral Account" established pursuant
to Article 13 of the Bond Indenture or to any cash or other property contained
in any such "Cash Collateral Account"; and provided further that with respect to
(I) any monies or credits transferred or assigned to third parties for the
purpose of making payments to the Borrower's or a Guarantor's employees; and
(II) any monies or credits transferred or assigned to any financial institution
as security for the Borrower's or a Guarantor's obligation to reimburse such
financial institution with respect to any letters of credit or similar financial
instruments issued by such institution in favour of any third party at the
Borrower's or a Guarantor's request, the Lender's security interest shall rank
in priority after the interests of: (III) with respect to the third parties and
employees referenced in subparagraph (I). above, the interests of such third
parties and of such employees; and (IV) with respect to the financial
institutions and third parties referenced in subparagraph (II) above, the
interests of such financial institutions and third parties (all of the employees
and financial institutions referenced in subparagraphs (III) and (IV) are
collectively the "payees"), and such payees shall be entitled to such monies and
credits free and clear of the Lender's security interests;

(vi) all products and proceeds of (i) to (v) above (including all claims to
items referred to in (i) to (v) above) and all claims of the Borrower or a
Guarantor against third parties for loss of, damage to, or destruction of, and
payments due or to become due under leases, rentals and hires of, any or all of
(i) to (v) above and proceeds payable under, or unearned premiums with respect
to policies of insurance in whatever form (including the Policies) with respect
to (i) to (v) above;

but specifically excluding the Excluded Assets. For greater certainty,
"COLLATERAL" shall also refer to the "COLLATERAL" of a Guarantor as the context
so requires.

COLLATERAL SECURITY AGREEMENTS shall mean, collectively, the security agreements
entered into on the Plan Implementation Date by each of the Borrower and the
Guarantors in favour of the Bond Trustee pursuant to the Bond Indenture, as such
agreements exist on the date hereof.

COMMITMENT FEE shall mean the fee in the amount of $100,000 paid by the Borrower
to the Lender on April 2, 2004 under the terms of the Commitment Letter.

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COMMITMENT LETTER shall mean the commitment letter, dated April 2, 2004, issued
by the Lender to, and accepted by, the Pre-Filing Parent as permitted under the
Meeting Order.

COMPUTER ACCESS AGREEMENTS shall have the meaning ascribed thereto in Section
7.20 of this Financing Agreement.

CONSOLIDATED BALANCE SHEET shall mean a consolidated balance sheet for the
Borrower, prepared in accordance with GAAP.

DEFAULT shall mean any event specified in Section 10.1 of Article 10 hereof,
whether or not any requirement for the giving of notice, the lapse of time, or
both, or any other condition, event or act, has been satisfied.

DEFAULT RATE OF INTEREST shall mean a rate of interest per annum on any
Obligation hereunder, equal to the sum of: (i) (a) two percent (2%) per annum,
and (b) the applicable increment over the Prime Rate (as set forth in Section
8.1 of Article 8 hereof) plus the Prime Rate, or (ii) (a) two percent (2%) per
annum, and the applicable increment over the BA Equivalent Rate plus the BA
Equivalent Rate, which the Lender shall be entitled to charge the Borrower on
all Obligations due the Lender by the Borrower, as further set forth in Section
10.2 of Article 10 of this Financing Agreement.

DEPOSITORY ACCOUNTS shall mean the Lender's collection accounts as may be
designated by the Lender from time to time.

DOCUMENTS OF TITLE shall mean all present and future documents of title (as
defined in the PPSA), and any and all warehouse receipts, bills of lading,
shipping documents, chattel paper, instruments and similar documents, all
whether negotiable or not and all goods and Inventory relating thereto and all
cash and non-cash proceeds of the foregoing.

EARLY TERMINATION DATE shall mean the date on which the Borrower terminates this
Financing Agreement or the Revolving Line of Credit prior to the then applicable
Maturity Date.

EARLY TERMINATION FEE shall: (a) mean the fee the Lender is entitled to charge
the Borrower in the event this Financing Agreement is terminated on a date prior
to a Maturity Date; and (b) be determined by multiplying the maximum authorized
Revolving Line of Credit by (x) two percent (2%) if the Early Termination Date
occurs on or before one (1) year from the Closing Date, (y) one percent (1%) if
the Early Termination Date occurs any time after one (1) year from, but on or
prior to, two (2) years from the Closing Date, and (z) one half of one percent
(0.50%) if the Early Termination Date occurs any time after two (2) years from,
but prior to, a Maturity Date.

EBITDA means, for any Person or Persons on a consolidated basis and for any
period, without duplication, the amount equal to net income less any non-cash
income included in net income, plus, to the extent deducted in determining net
income, all interest expense (including foreign exchange losses on the
translation of U.S.-Dollar-denominated debt, amortization of debt issue
expenses, and non-cash interest accretion), depreciation and amortization
expense and cash income tax expenses.

EDC means Export Development Corporation (Canada).

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                                     - 8 -

ELIGIBLE INVENTORY shall mean the gross amount of the Borrower's and each
Guarantor's finished and unfinished log, lumber and/or pulp, including northern
bleached softwood, kraft pulp and wood chips, that is subject to a valid, first
priority and fully perfected security interest in favour of the Lender, subject
to Permitted Encumbrances, which at all times conform to the representations and
warranties contained herein and otherwise continues to be acceptable to the
Lender in the exercise of its reasonable business judgement, excluding, without
duplication (a) pulp work in process, (b) raw materials other than logs or
chips, (c) spare parts used for maintenance and repair of, and accessories to,
machinery and equipment, (d) packaging materials and supplies, (e) unharvested,
uncut or standing timber, (f) Inventory located outside the Province of British
Columbia or not located at the Collateral Locations set out on Schedule 1 to
this Financing Agreement unless the Lender is satisfied in its sole and absolute
discretion that it has a first entitlement and priority perfected security
interest in such Inventory, and (g) Inventory in transit from third parties
unless the Lender is satisfied in its sole and absolute discretion that it has a
first entitlement and priority perfected security interest in such Inventory,
subject to Permitted Encumbrances; and less any reserves required by the Lender
in its reasonable discretion, for special order goods, discontinued, slow
moving, defective, rejected and obsolete Inventory, market value declines, bill
and hold (deferred shipment), consignment sales, shrinkage and any applicable
customs, freight, duties and Taxes, the non-payment of which could result in an
Encumbrance in priority to the Lender's first secured priority position.

ELIGIBLE TRADE RECEIVABLES shall mean the gross amount of the Borrower's and
each Guarantor's Trade Receivables that are subject to a valid, first priority
and fully perfected security interest in favour of the Lender, subject to
Permitted Encumbrances, which, at all times, conform to the representations and
warranties contained herein and otherwise continue to be acceptable to the
Lender in the exercise of its reasonable business judgment, less, without
duplication, the sum of: (a) any returns, rejections, repossessions, discounts,
claims, rebates, guarantees, indemnities, set-offs, credits, fees, allowances
and any other dilutive factor of any nature (whether issued, owing, granted,
claimed or outstanding), and (b) reserves for any such Trade Receivables that
arise from or are subject to or include: (i) sales to any Governmental Entity of
the United States of America, or to any Governmental Entity of Canada, except
for any such sales in relation to which the Borrower or a Guarantor has complied
with any applicable legislation concerning the assignment of Accounts of such
Governmental Entities as is needed to ensure that the Lender holds a valid,
enforceable and first priority perfected security interest in such Trade
Receivable, subject to Permitted Encumbrances, to the Lender's satisfaction in
the exercise of its reasonable business judgment; (ii) foreign sales (sales to
customers residing outside of Canada or the United States of America), other
than (x) sales which otherwise comply with all of the other criteria for
eligibility hereunder and are secured by letters of credit (in form and
substance satisfactory to the Lender) issued or confirmed by, and payable at,
banks acceptable to the Lender in its sole and absolute discretion, or (y) are
subject to accounts receivable insurance acceptable to the Lender in its sole
and absolute discretion which has been assigned to the Lender, in form and
content acceptable to the Lender in its reasonable business judgement; (iii)
Trade Receivables, other than from the sale of pulp, that remain unpaid for more
than thirty (30) days from the due date, and Trade Receivables from the sale of
pulp that remain unpaid for more than sixty (60) days from the due date; (iv)
contra accounts; (v) sales to any employee, officer, agent, director,
shareholder, subsidiary (as defined in the Company Act (British Columbia), or to
any company affiliated (as defined in the Company Act (British Columbia) with
any of the foregoing in any way; (vi) bill and hold (deferred shipment),
guaranteed, conditional or consignment sales; (vii) sales to any customer which
is: (A) insolvent,

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                                     - 9 -

(B) the debtor in any bankruptcy, insolvency, arrangement, restructuring,
reorganization, receivership, liquidation or similar proceedings under any
federal, provincial or state law, or (C) negotiating, or has called a meeting of
its creditors for purposes of negotiating, a compromise of its debts; unless
such Trade Receivables meet the requirements set out in (ii)(y) above; or (D) is
financially unacceptable to the Lender or has a credit rating unacceptable to
the Lender in its absolute and sole discretion, (viii) all sales to any customer
if fifty percent (50%) or more of the aggregate dollar amount of all outstanding
invoices to such customer, other than in respect of sales of pulp, are unpaid
for more than thirty (30) days from the due date and are unpaid for more than
sixty (60) days from due date in respect of sales of pulp; (ix) pre-billed Trade
Receivables and Trade Receivables arising from progress billing; (x) sales not
payable in Canadian or United States currency unless such sales are foreign
sales contemplated by and in compliance with the requirements set out in (ii)
above; and (xi) Trade Receivables that have been sold, assigned, transferred,
encumbered or factored by the Borrower or a Guarantor to any Person.

ENCUMBRANCE shall mean any lien, charge, mortgage, hypothec, pledge, security
interest, claim and any other right or interest of a similar nature of third
parties relating to any of the Collateral or the Guarantor Collateral, as
applicable.

ENVIRONMENTAL LAWS shall mean all applicable Laws relating to Hazardous
Substances or pollution or relating to: (i) on-site or off-site contamination;
(ii) releases of pollutants, contaminants, chemicals or other industrial, toxic
or radioactive substances or Hazardous Substances into the environment; and
(iii) the manufacture, processing, distribution, use, treatment, storage,
transport or handling of Hazardous Substances, including the Waste Management
Act (British Columbia), Water Act (British Columbia), Environmental Management
Act (British Columbia), the Fisheries Act (Canada) and the Canadian
Environmental Protection Act, 1999.

EVENT(S) OF DEFAULT shall have the meaning provided for in Section 10.1 of
Article 10 of this Financing Agreement.

EXCLUDED ASSETS shall mean:

(i) all machinery, equipment and other tangible personal property (i.e. other
goods, and money, instruments, securities, chattel paper, and documents of title
pertaining to same) used in the processing of Inventory or otherwise used in the
carrying on of business from any of the Trustee Charged Operations, including
all inventories of spare parts and accessories (whether the same are fixtures or
not) but excluding, for greater certainty, all other Inventory as determined in
accordance with GAAP and also excluding all money, instruments, securities,
chattel paper and documents of title that are proceeds of or evidence or pertain
to such Inventory;

(ii) any "Cash Collateral Account" (as defined under the Bond Indenture)
established under Article 13 of the Bond Indenture, including all money,
securities, instruments or other investments and any interest or other income
earned or accruing thereon that may from time to time be deposited therein or
otherwise placed with or made or acquired by the Bond Trustee under Article 13
of the Bond Indenture or any other agreement or document entered into in
connection therewith;

<PAGE>

                                     - 10 -

(iii) all present and future tree farm licences, forest licences, timber sale
licences, timber licences, pulpwood agreements, wood lot licences and other
forest tenures an agreements (as defined in the Forest Act (British Columbia))
and any other rights, licences or permits relating to or accruing under any of
the foregoing from time to time, together with any and all renewals, amendments,
modifications, consolidations, replacements or substitutions thereof or thereto;
and all unharvested timber and rights to harvest timber within or arising
pursuant to the forest tenures and all unharvested timber situate on any
privately owned lands (the "Forest Tenures");

(iv) any and all permits, licences, approvals, consents, orders, rights,
certificates, writs, injunctions, determinations, directions, decrees,
authorizations, franchises, privileges, grants, waivers, exemptions and other
concessions, whether or not having the force of law, of, by or from any
Governmental Entity, relating to or in connection with any of the Trustee
Charged Operations, including any and all leases and licences of aquatic lands
or water lots, conditional or other water rights, permits or licences and road
or road building rights, permits or licences (the "LICENCES");

(v) the lands and premises, including any aquatic lands or waterlots and related
leases or licences, and any other interests in real property, comprising or
appurtenant to any of the Trustee Charged Operations; and

(vi) all proceeds from time to time owing to or received by the Borrower in
respect of any disposition of, or any expropriation, condemnation or casualty
involving an actual or constructive loss of, all or any portion of:

      (A)   any of the assets listed in clauses (ii) through (v) inclusive
            above;

      (B)   all goods, other than Inventory and proceeds of Inventory, which are
            in transit to or which are now or at any time hereafter located at
            any of the Trustee Charged Operations;

      (C)   all chattel paper, documents of title and intangibles, other than
            Accounts and other than chattel paper, documents of title and
            intangibles that are proceeds of or evidence or pertain to
            Inventory, now or hereafter located at, forming part of, pertaining
            to, used or acquired for use in connection with, arising out of or
            necessary for the ownership, maintenance, use or operation of any of
            the Trustee Charged Operations; or

      (D)   any proceeds of any assets covered by (A), (B) or (C) above;

EXPIRY DATE shall have the meaning provided for in Section 4.2 of this Financing
Agreement.

EQUIVALENT AMOUNT shall mean on any day, with respect to an amount of Canadian
dollars, the amount of United States dollars required to purchase that amount of
Canadian dollars at CIBC's opening rate on such day, or, if such day is not a
Business Day, on the next Business Day.

FISCAL QUARTER shall mean, with respect to the Borrower, each three (3) month
period ending on March 31, June 30, September 30 and December 31 of each Fiscal
Year.

<PAGE>

                                     - 11 -

FISCAL YEAR shall mear each twelve (12) month period commencing on January 1 of
each year and ending on the following December 31.

FOREST TENURES shall have the meaning provided for in the definition of
"Excluded Assets" in this Financing Agreement.

FIXED CHARGE COVERAGE RATIO means, as of the last day of any Fiscal Quarter, the
ratio of (a) EBITDA for the Rolling Period ended on that date minus capital
expenditures made by the Borrower and its Subsidiaries during such Rolling
Period to (b) the sum of (i) interest expense of the Borrower and its
Subsidiaries for such Rolling Period plus (ii) the aggregate of all scheduled
principal payments on Indebtedness made by the Borrower and its Subsidiaries
during such Rolling Period and all scheduled capital lease payments made by the
Borrower and its Subsidiaries during such Rolling Period.

GAAP shall mean generally accepted accounting principles in Canada as in effect
from time to time and for the period as to which such accounting principles are
to apply, provided that in the event the Borrower modifies its accounting
principles and procedures as applied as of the Closing Date, the Borrower shall
provide to the Lender such statements of reconciliation as shall be in form and
substance reasonably acceptable to the Lender.

GENERAL INTANGIBLES shall mean all present and hereafter acquired intangibles
(as defined in the PPSA), and shall include all present and future right, title
and interest in and to: (a) all Trademarks, tradenames, corporate names,
business names, logos and any other designs or sources of business identities;
(b) Patents, together with any improvements on said Patents, utility models,
industrial models, and designs; (c) Copyrights; (d) trade secrets; (e) licenses,
permits and franchises; (f) all applications with respect to the foregoing; (g)
all right, title and interest in and to any and all extensions and renewals; (h)
all goodwill with respect to any of the foregoing; (i) any other forms of
similar intellectual property, and; (j) all customer lists, distribution
agreements, supply agreements and blueprints.

GOVERNMENTAL ENTITY shall mean the Government of Canada, any other nation or any
political subdivision thereof, whether provincial, state, territorial or local,
and any agency, authority, instrumentality, regulatory body, court, central
bank, fiscal or monetary authority or other authority regulating financial
institutions, and any other entity exercising executive, legislative, judicial,
taxing, regulatory or administrative powers or functions of or pertaining to
government, including the Bank Committee on Banking Regulation and Supervisory
Practices of the Bank of International Settlements.

GUARANTOR and GUARANTORS shall have the meaning provided for in the introductory
statements of this Agreement and shall extend to each Guarantor's successors and
assigns.

GUARANTOR COLLATERAL shall mean, with respect to a Guarantor, any and all of the
Assets of such Guarantor which would be Collateral if such Guarantor were the
Borrower under this Financing Agreement.

HAZARDOUS SUBSTANCE shall mean any Substance which is or is deemed by applicable
Law to be, alone or in any combination, hazardous, hazardous waste, toxic, a
pollutant, a deleterious substance, a contaminant or a source of pollution or
contamination under any Environmental Laws, whether or not such Substance is
defined as hazardous under any Environmental Laws.

<PAGE>

                                     - 12 -

INDEMNIFIED PARTY shall have the meaning provided for in Section 7.11 of Article
7 of this Financing Agreement.

INITIAL APPRAISAL shall have the meaning provided for in subsection 2.1(v) of
this Financing Agreement;

INTERCREDITOR AGREEMENT shall mean that certain intercreditor agreement dated as
of the date hereof among the Lender and the Bond Trustee.

INTEREST PERIOD shall mean the period of 30, 60 and 90 days selected as the
period of reference for the setting of the BA Equivalent Rate.

INVENTORY shall mean any and all of the Borrower's and each Guarantor's present
and hereafter acquired inventory (as defined in the PPSA), including all
merchandise, inventory and goods, and all additions, substitutions and
replacements thereof, wherever located, including the Trustee Charged
Operations, together with all goods and materials used or usable in
manufacturing, processing, reprocessing, packaging or shipping same in all
stages of production from raw materials through work-in-process to finished
goods and all proceeds thereof of whatever sort together with any unpaid
seller's or lessor's rights (including rescission, replevin, reclamation,
repossession and stoppage in transit relating to any of the foregoing or arising
therefrom) to reclaim or repossess goods.

INVENTORY LOAN CAP shall mean the amount of $175,000,000, as increased or
decreased from time to time pursuant to Section 3.8 of Article 3 of this
Financing Agreement.

ISSUING BANK shall mean the bank issuing Letters of Credit for the Borrower.

LAWS shall mean all federal, provincial, municipal, foreign and international
statutes, acts, codes, ordinances, decrees, treaties, rules, regulations,
municipal by-laws, judicial or arbitral or administrative or ministerial or
departmental or regulatory judgments, orders, decisions, rulings or awards or
any provisions of the foregoing, including general principles of common and
civil law and equity, and all policies, practices and guidelines of any
Governmental Entity binding on or affecting the Person referred to in the
context in which such word is used (including, in the case of tax matters, any
accepted practice or application or official interpretation of any relevant
taxation authority); and "Law" means any one or more of the foregoing.

LETTERS OF CREDIT shall mean all Canadian and United States dollar letters of
credit issued with the assistance of the Lender in accordance with Article 5
hereof by the Issuing Bank for or on behalf of the Borrower.

LETTER OF CREDIT FEE shall mean the fee payable to the Lender, chargeable to the
Borrower under Article 8 of this Financing Agreement for (a) issuing a Letter of
Credit Guarantee, and/or (b) otherwise assisting the Borrower in obtaining
Letters of Credit, all pursuant to Article 5 hereof.

LETTER OF CREDIT GUARANTEE shall mean the guarantee delivered by the Lender to
the Issuing Bank of Borrower's reimbursement obligations under the Issuing
Bank's reimbursement agreement, application for Letters of Credit or other like
documents.

<PAGE>

                                     - 13 -

LETTER OF CREDIT SUB-LINE shall mean the commitment of the Lender to assist the
Borrower in obtaining Letters of Credit, pursuant to Article 5 hereof, to a
maximum aggregate amount of $10,000,000 or an Equivalent Amount.

LICENCES shall have the meaning provided for in the definition of "Excluded
Assets" in this Financing Agreement.

LINE OF CREDIT shall mean the commitment of the Lender to (a) make Revolving
Loans pursuant to Articles 3 and 4 of this Financing Agreement, and (b) assist
the Borrower in obtaining Letters of Credit pursuant to Article 5 of this
Financing Agreement; provided that nothing herein shall be deemed to increase
the Lender's commitment hereunder.

LINE OF CREDIT FEE shall: (a) mean the fee payable by the Borrower to the Lender
at the end of each month for the Line of Credit pursuant to Article 8 of this
Financing Agreement, and (b) be determined by multiplying the difference between
(i) the maximum authorized Revolving Line of Credit, and (ii) the sum, for such
month, of (x) the average daily balance of Revolving Loans, plus (y) the average
daily balance of the face amount of all outstanding Letters of Credit for such
month, by three-eighths of one percent (0.375%) per annum, for the number of
days in said month, calculated on the basis of a 365 day year.

LOAN DOCUMENTS shall mean this Financing Agreement, the Security Agreements, all
other certificates, instruments, agreements, acknowledgements, indemnities and
documents whatsoever executed from time to time in connection with this
Financing Agreement, all as may be amended, renewed, extended, increased,
replaced or supplemented from time to time.

LOAN FACILITY FEE shall mean the fee in the amount of $350,000 minus the amount
of the Commitment Fee payable by the Borrower to the Lender on the Closing Date
in accordance with, and pursuant to, the provisions of Article 8 of this
Financing Agreement.

MARGINABLE TRADE RECEIVABLES shall have the meaning provided for in the
definition of "Borrowing Base" in this Financing Agreement.

MATERIAL ADVERSE EFFECT shall mean a material adverse effect (or a series of
adverse effects, none of which is material in and of itself but which,
cumulatively, results in a material adverse effect), in the sole determination
of the Lender, on: (i) the business, operations, Assets or financial condition
of the Borrower as it relates to the Collateral or the first secured priority
position of the Lender, (ii) the ability of the Borrower or a Guarantor to
perform any of its obligations under this Financing Agreement or any other Loan
Document, (iii) the ability of the Lender to realize on the Collateral or
satisfy the Obligations from such realization or to enforce any of the
obligations of the Borrower or a Guarantor under this Financing Agreement or any
other Loan Document in accordance with applicable Laws, or (iv) the Collateral,
the Lender's Encumbrances on the Collateral or the priority of such
Encumbrances. This definition shall apply, mutatis mutandis, to the Guarantors
where the context so requires.

MATERIAL AGREEMENT shall mean those instruments, documents, contracts and
agreements listed on Schedule 2 of this Financing Agreement.

MATURITY DATE shall mean the date occurring three (3) years from the Closing
Date and, if this Financing Agreement is renewed from time to time pursuant to
Section 11.1 of this Financing

<PAGE>

                                     - 14 -

Agreement, the same date occurring every year thereafter, subject to this
Financing Agreement being terminated earlier in accordance with the provisions
of this Agreement.

MEETING ORDER means the Order dated April 30, 2004 issued by the Honourable Mr.
Justice Tysoe of the Supreme Court of British Columbia in the proceeding
relating to the Plan of Arrangement.

NET AVAILABILITY shall mean at any time the amount by which the Borrowing Base
exceeds the outstanding aggregate amount of all Revolving Loans and the face
amount of all Letters of Credit.

NET AVAILABILITY BLOCK shall have the meaning provided for in the definition of
"Availability Reserve" in this Financing Agreement.

NOTICE shall mean any claim, citation, directive, request for information,
statement of claim, notice of investigation or other similar communication from
any Person.

OBLIGATIONS shall mean, without duplication, all loans, advances and extensions
of credit made or deemed to be made by the Lender to the Borrower, or to others
for the Borrower's account pursuant to this Financing Agreement, (including any
and all indemnities provided to The Toronto-Dominion Bank by the Lender in
respect of any outstanding Letters of Credit;), any and all payments made on the
Borrower's behalf pursuant to any Computer Access Agreements and any and all
Revolving Loans and Letter of Credit Guarantees; any and all indebtedness and
obligations which may at any time be owing by the Borrower to the Lender
pursuant to this Financing Agreement howsoever arising, whether now in existence
or incurred by the Borrower from time to time hereafter; whether principal,
interest, fees, costs, expenses or otherwise; whether such indebtedness is
absolute or contingent, joint or several, matured or unmatured, direct or
indirect and whether the Borrower is liable to the Lender for such indebtedness
as principal, surety, endorser, guarantor or otherwise. Obligations shall also
include, without limitation, indebtedness owing to the Lender by the Borrower or
any Guarantor under any Loan Document, any indemnity under this Financing
Agreement or under any other agreement or arrangement now or hereafter entered
into between the Borrower or any Guarantor and the Lender relating to the
Accommodations made pursuant to this Financing Agreement; indebtedness,
liabilities, obligations or penalties incurred by, or imposed on, the Lender as
a result of environmental claims arising out of the Borrower's or any
Guarantor's operations, premises or waste disposal practices or sites; the
Borrower's liability to the Lender as maker or endorser of any promissory note
or other instrument for the payment of money; the Borrower's liability to the
Lender under any instrument of guarantee or indemnity, or arising under any
guarantee, endorsement or undertaking which the Lender may make or issue to
others for the Borrower's account, including any Letter of Credit Guarantee or
other accommodation extended by the Lender with respect to applications for
Letters of Credit, the Lender's acceptance of drafts, the Lender's endorsement
of notes or other instruments for the Borrower's account and benefit.

ORDER shall mean any judicial or arbitral or administrative or ministerial or
departmental or regulatory notice, decree, judgement, decision, ruling, award or
order of any kind.

OTHER COLLATERAL shall mean all now owned and hereafter acquired lockbox,
Blocked Accounts and any other deposit accounts maintained with any bank or
financial institutions into which the

<PAGE>

                                     - 15 -

proceeds of any Collateral or Guarantor Collateral, as applicable, are or may be
deposited and all cash and other monies and properties in the possession or
control of the Lender.

OUT-OF-POCKET EXPENSES shall mean all of the Lender's present and future fees,
costs and expenses incurred relative to this Financing Agreement or any other
Loan Document, whether incurred heretofore or hereafter, which fees, costs and
expenses shall include the cost of retaining external legal counsel, record
searches, all costs and expenses incurred by the Lender in opening bank
accounts, depositing cheques, receiving and transferring funds, and wire
transfer charges, any charges imposed on the Lender due to returned items and
"insufficient funds" of deposited cheques, and the Lender's standard fees
relating thereto, any amounts paid by, incurred by or charged to, the Lender by
the Issuing Bank under a Letter of Credit Guarantee or the Borrower's
reimbursement agreement, application for Letters of Credit or other like
document which pertain either directly or indirectly to such Letters of Credit,
and the Lender's standard fees relating to the Letters of Credit and any drafts
thereunder, travel, lodging, and similar expenses of the Lender's personnel in
connection with inspecting and monitoring the Collateral from time to time
hereunder, any applicable counsel fees and disbursements, fees and Taxes
relating to same, and all expenses, costs and fees set forth herein.

PERMITTED ENCUMBRANCES shall mean: (a) Encumbrances in favour of the Bond
Trustee arising under the Bond Indenture and other Encumbrances expressly
permitted, or consented to in writing by the Lender; (b) inchoate liens on the
Collateral or Guarantor Collateral of local or provincial authorities for Taxes
and claims imposed by Law for amounts not yet due and are not enforceable or
registered against any of the Collateral or Guarantor Collateral; (c) liens of
landlords and liens of carriers, warehousemen, bailees, mechanics, materialmen
and other like liens imposed by Law, created in the ordinary course of business
and for amounts not yet due (or which are being contested in good faith, by
appropriate proceedings or other appropriate actions which are sufficient to
prevent enforcement of such liens) and with respect to which adequate reserves
or other appropriate provisions are being maintained in accordance with GAAP;
(d) deposits made (and liens thereon) in the ordinary course of business
(including reasonable security deposits for leases, indemnity bonds, surety
bonds and appeal bonds) in connection with workers' compensation, unemployment
insurance and other types of social security benefits or to secure the
performance of tenders, bids, contracts (other than for the repayment or
guarantee of borrowed money), statutory obligations and other similar
obligations arising as a result of progress payments under government contracts;
(e) Encumbrances granted to the Lender by the Borrower or any Guarantor; (f)
liens of judgment creditors provided such liens do not exceed, in the aggregate,
at any time, $1,000,000, other than liens bonded or insured to the reasonable
satisfaction of the Lender; (g) liens in respect of Taxes for amounts which are
not yet due and payable or which are being diligently contested in good faith by
appropriate proceedings, and which liens are not (x) filed in any public
records, (y) enforceable against the Collateral or the Guarantor Collateral, as
applicable, or (z) for Taxes due to any Governmental Entity of Canada, the
United States of America or any province or state thereof having similar
priority statutes, as further set forth in Section 7.6 of this Financing
Agreement which have become enforceable; and (h) liens or security interests
granted against the Collateral or the Guarantor Collateral which are fully and
unconditionally postponed and subordinate to the liens and security interests
granted to the Lender, provided that any such subordinated creditor executes and
delivers to and in favour of the Lender a priority, inter-creditor and
standstill agreement in form and substance acceptable to the Lender, in its sole
and absolute discretion.

<PAGE>

                                     - 16 -

PERSON shall mean an individual, partnership, corporation, trust, unincorporated
association, joint venture, Governmental Entity or other entity whatsoever and
pronouns have a similar extended meaning.

POLICIES shall have the meaning provided for in the definition of "Collateral"
in this Financing Agreement.

PPSA shall mean the Personal Property Security Act of the Province of British
Columbia as the same may be amended, supplemented or replaced and in effect from
time to time.

PRIME RATE shall mean the rate of interest per annum announced by CIBC from time
to time as its prime rate in effect for Canadian dollar commercial loans in
Canada at its principal office in Toronto, Ontario, which is not intended to be
the lowest rate of interest charged by CIBC to its borrowers.

PRIORITY PAYABLES shall have the meaning provided for in Section 7.6 of this
Financing Agreement.

PRIME RATE LOANS shall mean any loans or advances pursuant to this Financing
Agreement made or maintained at a rate of interest based upon the Prime Rate.

PULPCO NOTE shall mean the Secured Term Promissory Note of WPL, dated July 27,
2004, issued in favour of Western Pulp Limited Partnership and subsequently
assigned to (and held on the Closing Date by) the Borrower, in the aggregate
principal amount of Cdn.$110,000,000.

REVOLVING LINE OF CREDIT shall mean, subject to the Borrowing Base, the
aggregate commitment of the Lender to make loans, advances and extensions of
credit pursuant to Articles 3 and 4 of this Financing Agreement and to assist in
the issuance of Letters of Credit to the Borrower pursuant to Article 5 hereof,
up to the maximum aggregate amount of $100,000,000.

REVOLVING LOAN ACCOUNT shall mean the account on the Lender's books, in the
Borrower's name, in which the Borrower will be charged with all Obligations
under this Financing Agreement.

REVOLVING LOANS shall mean the loans, advances and extensions of credit made,
from time to time, to or for the account of the Borrower by the Lender, pursuant
to Articles 3 and 4 of this Financing Agreement.

ROLLING PERIOD means, commencing with the Fiscal Quarter ending September 30,
2004, each Fiscal Quarter taken together with the three immediately preceding
Fiscal Quarters.

ROYALTIES shall have the meaning provided for in Section 7.6 of this Financing
Agreement.

SANCTION ORDER means the Order of the Supreme Court of British Columbia in the
proceedings relating to the Plan of Arrangement, sanctioning and approving the
implementation of the Plan of Arrangement dated as of June 14, 2004.

SECURED NOTES means the secured bonds issued by the Borrower pursuant to the
Bond Indenture.

<PAGE>

                                     - 17 -

SECURITY AGREEMENTS shall have the meaning provided for in Article 6 of this
Financing Agreement.

SUBSIDIARY means, with respect to any Person (the "parent") at any date, any
corporation, limited liability company, partnership, limited partnership,
association or other entity the accounts of which would be consolidated with
those of the parent in the parent's consolidated financial statements if such
financial statements were prepared in accordance with GAAP as of such date, as
well as any other corporation, limited liability company, partnership, limited
partnership, association or other entity (a) of which securities or other
ownership interests representing more than 50% of the equity or more than 50% of
the ordinary voting power or, in the case of a partnership, more than 50% of the
general partnership interests are, as of such date, owned, controlled or held,
or (b) that is, as of such date, otherwise controlled, by the parent or one or
more subsidiaries of the parent or by the parent and one or more subsidiaries of
the parent.

SUBSTANCE means any substance, waste, liquid, gaseous or solid matter, fuel,
micro-organism, sound, vibration, ray, heat, odour, radiation, energy vector,
plasma and organic or inorganic matter.

TAXES shall mean all taxes, charges, fees, levies, imposts and other
assessments, including all income, sales, use, goods and services, value added,
capital, capital gains, alternative, net worth, transfer, profits, withholding,
payroll, employer health, excise, real property and personal property taxes, and
any other taxes, customs duties, fees, assessments, or similar charges in the
nature of a tax, including Canada Pension Plan and provincial pension plan
contributions, unemployment insurance payments and workers' compensation
premiums, together with any installments with respect thereto, and any interest,
fines and penalties with respect thereto, imposed by any Governmental Entity
(any federal, state, provincial, municipal or foreign Governmental Entity), and
whether disputed or not.

TRADE RECEIVABLES shall mean any and all Accounts arising from the sale or
distribution of logs, lumber and/or pulp, including Accounts arising from the
sale or distribution of northern bleached softwood kraft pulp and chips.

TRANSFEREE shall have the meaning provided for in Section 12.1 of this Financing
Agreement.

TRADEMARKS shall mean all present and hereafter acquired trademarks, trademark
registrations, recordings, applications, tradenames, trade styles, service
marks, prints and labels (on which any of the foregoing may appear), licences,
issues, renewals, and any other intellectual property and trademark rights
pertaining to any of the foregoing, together with the goodwill associated
therewith and all cash and non-cash proceeds thereof.

TRUSTEE CHARGED OPERATIONS shall mean, collectively:

(i) the sawmill and related facilities, businesses and operations comprised by
or carried on from the lands and premises located at or about 9401 Trans Canada
Highway, North Cowichan, B.C., including, without limitation, any appurtenant
aquatic lands or waterlots, and related leases or licences, and any other
interests in any real property appurtenant thereto, all being (as of June 18,
1999) the lands with Parcel Identifiers 006 648 509, 004 802 161, and 004 601
572;
<PAGE>

                                     - 18 -

(ii) the value-added lumber remanufacturing plant and related facilities,
businesses and operations comprised by or carried on from the lands and premises
located at 3400 River Road, Chemainus, B.C., including, without limitation, any
appurtenant aquatic lands or waterlots, and related leases or licences, and any
other interests in any real property appurtenant thereto, all being (as of June
18, 1999) the lands with Parcel Identifier 023 017 775;

(iii) the sawmill and related facilities, businesses and operations comprised by
or carried on from the lands and premises located at or about 500 Duke Point
Highway, North Cowichan, B.C., including, without limitation, any appurtenant
aquatic lands or waterlots, and related leases or licences, and any other
interests in any real property appurtenant thereto, all being (as of June 18,
1999) the lands with Parcel Identifier 005 788 561 and the Provincial Crown
granted water lot licenses bearing nos. 103726, 103612, and 103674;

(iv) the sawmill and related facilities, businesses and operations comprised by
or carried on from the lands and premises located at or near the foot of Ludlow
Road, Ladysmith, B.C., including, without limitation, any appurtenant aquatic
lands or waterlots, and related leases or licences, and any other interests in
any real property appurtenant thereto, all being (as of June 18, 1999) the lands
with Parcel Identifiers 009 449 914 and 009 450 092;

(v) the sawmill and related facilities, businesses and operations comprised by
or carried on from the lands and premises located at 12308 Raven Road,
Ladysmith, B.C., including, without limitation, any appurtenant aquatic lands or
waterlots, and related leases or licences, and any other interests in any real
property appurtenant thereto, all being (as of June 18, 1999) the lands with
Parcel Identifiers 009 579 541, 009 579 630, 009 596 542, 009 579 591, and 009
450 068 and the Provincial Crown granted water lot lease bearing no. 120040;

(vi) the sawmill and related facilities, businesses and operations comprised by
or carried on from the lands and premises located at or about 500 Maughan Road,
Nanaimo, B.C., including, without limitation, any appurtenant aquatic lands or
waterlots, and related leases or licences, and any other interests in any real
property appurtenant thereto, all being (as of June 18, 1999) the lands with
Parcel Identifier 001 038 095 and the Provincial Crown granted water lot lease
bearing no. 101523;

(vii) the pulp mill and related facilities, businesses and operations comprised
by or carried on from the lands and premises located at or near Squamish, B.C.,
including, without limitation, any appurtenant aquatic lands or waterlots, and
related leases or licences, and any other interests in any real property
appurtenant thereto, all being (as of June 18, 1999) the lands with Parcel
Identifiers 015 910 717, 015 895 963, 015 822 061, 015 791 459, and 015 791 611
and the Provincial Crown granted water lot lease bearing nos. 233113, 234399,
233410, 231566, 231574 and 236807;

(viii) the sawmill and related facilities, businesses and operations comprised
by or carried on from the lands and premises located at or near Tahsis, B.C.,
including, without limitation, any appurtenant aquatic lands or waterlots, and
related leases or licences, and any other interests in any real property
appurtenant thereto, all being (as of June 18, 1999) the lands with Parcel
Identifier 006 894 607 and the Provincial Crown granted water lot lease bearing
no. 105393;

(ix) the sawmill and related facilities, businesses and operations comprised by
or carried on from the lands and premises located at 9001 Heather Street,
Vancouver, B.C., including, without

<PAGE>

                                     - 19 -

limitation, any appurtenant aquatic lands or waterlots, and related leases or
licences, and any other interests in any real property appurtenant thereto, all
being (as of June 18, 1999) the lands with Parcel Identifiers 008 238 057, 013
038 796, 011 263 873 and 013 206 222 and the Provincial Crown granted water lot
leases bearing nos. 05004, 05005, 05006, 05007 and 05008; and

(x) the sawmill and related facilities, businesses and operations comprised by
or carried on from the lands and premises located at or about 520 East Kent
Avenue South, Vancouver, B.C., including, without limitation, any appurtenant
aquatic lands or waterlots, and related leases or licences, and any other
interests in any real property appurtenant thereto, all being (as of June 18,
1999) the lands with Parcel Identifiers 015 120 384, 015 120 392, 015 120 406,
015 101 436 and 009 742 697 and the Provincial Crown granted water lot leases
bearing nos. 05023, 05025, 05021, 05022 and 05062; and, except where the plain
meaning or context may otherwise require, the term "Trustee Charged Operations"
shall include each or any part of such Trustee Charged Operations taken
separately.

                                    ARTICLE 2
                              CONDITIONS PRECEDENT

2.1 The obligation of the Lender to make the initial Accommodation hereunder is
subject to the following conditions to be fulfilled or performed at or prior to
the Closing Date, which conditions are for the exclusive benefit of the Lender
and may be waived in whole are in part by the Lender in its sole discretion:

      (a)   LIEN SEARCHES - The Lender shall have received Tax, executions, Bank
            Act (Canada), litigation, PPSA and any other searches reasonably
            required by the Lender with results satisfactory to the Lender for
            all locations and names presently and previously used by the
            Borrower and each Guarantor.

      (b)   INSURANCE - The Borrower shall have delivered to the Lender evidence
            satisfactory to the Lender that property, casualty,
            comprehensive/umbrella and business interruption insurance policies
            listing the Lender as an additional insured, first loss payee or
            mortgagee with respect to the Collateral and the Guarantor
            Collateral, as applicable, are in full force and effect, all as set
            forth in-Section 7.5 of Article 7 of this Financing Agreement.

      (c)   PPSA FILINGS - Any financing statements required to be filed in
            order to create, in favour of the Lender, a first priority perfected
            security interest in the Collateral and the Guarantor Collateral,
            subject only to the Permitted Encumbrances, shall have been properly
            filed in each office in each jurisdiction required in order to
            create in favour of the Lender a first priority perfected security
            interest in the Collateral and the Guarantor Collateral, subject to
            Permitted Encumbrances. The Lender shall have received
            acknowledgement copies of all such filings (or, in lieu thereof, the
            Lender shall have received other evidence satisfactory to the Lender
            that all such filings have been made) and the Lender shall have
            received evidence that all necessary filing fees and all Taxes or
            other expenses related to such filings have been paid in full.

<PAGE>

                                     - 20 -

      (d)   BOARD RESOLUTION - The Lender shall have received copies of the
            minutes or resolutions of the board of directors of each of the
            Borrower and each Guarantor, as applicable, confirming that the
            execution and delivery of the Loan Documents is in the "best
            interests" of such Person and authorizing the execution, delivery
            and performance of (i) this Financing Agreement, (ii) the other Loan
            Documents, (iii) and any other related or ancillary documents, in
            each case certified by a designated authorized signing officer of
            the Borrower or the applicable Guarantor, as of the date hereof,
            together with a certificate of a designated authorized signing
            officer of each of the Borrower and the applicable Guarantor as to
            the incumbency and signature of the officers of each the Borrower
            and the applicable Guarantor executing this Financing Agreement, the
            other Loan Documents and any other certificate, agreements or
            documents to be delivered by them pursuant hereto, together with
            evidence of the incumbency of such designated authorized signing
            officer.

      (e)   SANCTION ORDER - The Sanction Order shall have been issued and shall
            be in form and substance satisfactory to the Lender; the Sanction
            Order shall not have been stayed by any court having jurisdiction to
            issue any such stay, and the time to appeal the Sanction Order or to
            seek review, rehearing or certiorari with respect to the Sanction
            Order shall have expired; no appeal or petition for review,
            rehearing or certiorari with respect to the Sanction Order shall be
            pending, and the Sanction Order shall otherwise be in full force and
            effect; and the corporate transactions contemplated by Section 3 of
            the Plan of Arrangement (including the transfer of all Lumber Assets
            (as defined in the Plan of Arrangement) to the Borrower and all Pulp
            Assets (as defined in the Plan of Arrangement) to WPL) shall have
            been completed pursuant to documentation satisfactory in form and
            substance to the Lender.

      (f)   PLAN OF ARRANGEMENT NOT AMENDED, ETC. - The Plan of Arrangement
            shall not have been amended, supplemented, restated or otherwise
            modified in any manner not approved by the Lender.

      (g)   FEES - The Borrower shall have paid to the Lender the Loan Facility
            Fee.

      (h)   BOND INDENTURE - The Bond Indenture shall have been executed and
            delivered by the parties thereto and all conditions thereunder shall
            have been satisfied or waived.

      (i)   CORPORATE ORGANIZATION - The Lender shall have received (i) copies
            of the Certificates of Incorporation of the Borrower and each
            Guarantor certified by an officer of the Borrower and the applicable
            Guarantor, and (ii) a copy of the Articles and by laws of each of
            the Borrower and each Guarantor certified by a designated authorized
            signing officer thereof, all as amended through the date hereof.

      (j)   OPINIONS - Counsel for the Borrower and each Guarantor shall have
            delivered to the Lender legal opinions relating to the transactions
            contemplated herein, in form and substance satisfactory to the
            Lender.

<PAGE>

                                     - 21 -

      (k)   ABSENCE OF DEFAULT - No Default or Event of Default shall have
            occurred or will occur upon the Lender making the initial
            Accommodation to the Borrower hereunder and no Material Adverse
            Effect, to the extent it affects the Lenders' first priority secured
            position, the Collateral, the Guarantor Collateral, the Borrowing
            Base or the Net Availability, shall have occurred since April 2,
            2004 (the date of the Commitment Letter).

      (l)   LEGAL RESTRAINTS/LITIGATION - As of the Closing Date, there shall be
            no: (x) litigation, investigation or proceeding (judicial or
            administrative) pending or threatened against the Borrower or any
            Guarantor or their respective Assets, by any Person or Governmental
            Entity arising out of this Financing Agreement or the Plan of
            Arrangement; (y) injunction, writ or restraining order restraining
            or prohibiting the consummation of the financing arrangements
            contemplated under this Financing Agreement or the Plan of
            Arrangement; or (z) suit, action, investigation or proceeding
            (judicial or administrative) pending against the Borrower or any
            Guarantor or their respective Assets, which, in the opinion of the
            Lender, if adversely determined, could have a Material Adverse
            Effect.

      (m)   INTER-CREDITOR AGREEMENT - The Bond Trustee shall have executed and
            delivered to and in favour of the Lender, an inter-creditor
            agreement, in form and substance satisfactory to the Lender
            confirming, among other things, the Lender's first priority
            perfected security lien on and security interest in the Collateral
            and the Guarantor Collateral, as applicable.

      (n)   CASH BUDGET PROJECTIONS - The Lender shall have received, reviewed
            and been satisfied with a six (6) month cash budget projection (July
            to December 2004) in the Borrower's standard form approved by the
            Lender.

      (o)   ADDITIONAL DOCUMENTS - The Borrower and the Guarantor shall have
            executed and delivered to the Lender, all Loan Documents necessary
            to consummate the lending arrangements contemplated between the
            Borrower, the Guarantors and the Lender, all in form and substance
            satisfactory to the Lender.

      (p)   EXAMINATION & VERIFICATION - The Lender shall have completed, to its
            satisfaction, an examination of the Bond Indenture and any and all
            insurance policies required hereunder and an examination and
            verification of the Collateral, the Guarantor Collateral and
            financial statements and books and records of the Borrower and the
            Guarantors. Such examination shall indicate that, after giving
            effect to all Revolving Loans and other Accommodations to be made on
            the Closing Date, the Borrower shall have an opening Net
            Availability of at least $10,000,000 (after giving effect to the Net
            Availability Block) as evidenced by a Borrowing Base Certificate to
            be delivered by the Borrower to the Lender as of the Closing Date.
            It is understood that such requirement contemplates that all debts
            and obligations are current, and that all payables are being handled
            in the normal course of the Borrower's businesses and consistent
            with their past practice.

      (q)   BLOCKED ACCOUNTS - The Borrower shall have established a system of
            bank accounts with respect to, among other things, the collection of
            Trade Receivables

<PAGE>

                                     - 22 -

            of the Borrower and the Guarantor as shall be acceptable to the
            Lender in all respects. Such accounts shall be subject to
            multi-party agreements (among the Borrower, the Guarantors (if
            applicable), the Lender and the depository bank), which shall be in
            form and substance satisfactory to the Lender.

      (r)   EXISTING REVOLVING LOAN - The Pre-Filing Financing Agreement shall
            be concurrently terminated, and all loans and obligations of the
            Pre-Filing Borrower thereunder shall be paid or satisfied in full,
            including through utilization of the proceeds of the initial
            Revolving Loans to be made under this Financing Agreement.

      (s)   SCHEDULES - The Borrower and the Guarantors or their counsel shall
            provide the Lender with the Schedules of information contemplated
            herein, including locations where any of the Collateral and the
            Guarantor Collateral is or may be stored or located.

      (t)   ACKNOWLEDGEMENTS - The Borrower and each Guarantor shall have
            delivered to the Lender, any and all estoppels, acknowledgements,
            confirmations, documents, waivers, subordinations, postponements,
            discharges (including any and all registrations in favour of the
            Crown under the Miscellaneous Registrations Act (British Columbia)
            with respect to the Social Services Tax Act (British Columbia)),
            priority agreements, standstill agreements, access agreements,
            consents and inter-creditor and non-disturbance agreements, it may
            reasonably require to ensure its first priority, subject to
            Permitted Encumbrances, over and unfettered access to, the
            Collateral and the Guarantor Collateral.

      (u)   REVIEW - The Lender shall have reviewed the Borrower's and each
            Guarantor's corporate and ownership structure and status, including,
            the Borrower's and each Guarantor's books and records; the
            Borrower's and each Guarantor's accounting records concerning any
            and all exports duties imposed by any Governmental Authority; any
            and all laws affecting the Borrower's and any Guarantor's operations
            and financial performance concerning such export duties, the
            Collateral, the Guarantor's Collateral, the Borrower's and each
            Guarantor's inventory control systems and collateral reporting
            capabilities; any and all Material Agreements, all material supply
            and customer contracts and any other due diligence, including
            management and bank reference checks, a review of the Borrower's
            rights to future supply of Eligible Inventory and the Forest
            Tenures, Licences and other Authorizations, the Lender may require,
            all with results satisfactory to the Lender.

      (v)   MINISTRY OF FORESTS - The Lender shall have received written
            confirmation from the Ministry of Forests as to the existence and
            status of all such Forest Tenures, Licences and other
            Authorizations.

      (w)   FINANCIAL STATEMENTS - The Lender shall have received and reviewed
            any and all consolidated financial statements and projections of the
            Borrower and the Guarantors, including income statements, balance
            sheets and cash flow statements, with results satisfactory to the
            Lender.

<PAGE>

                                     - 23 -

      (x)   FIELD EXAMINATION REPORT AND APPRAISAL REPORTS - The Lender shall
            have received and reviewed a field examination report with results
            satisfactory to the Lender.

2.2 CONDITIONS TO EACH EXTENSION OF CREDIT

            Subject to the terms of this Financing Agreement, including the
Lender's rights pursuant to Section 10.2 of Article 10 hereof, the obligations
of the Lender to make any Accommodation on any date (including the initial
Accommodation) is subject to the following conditions, which conditions are for
the exclusive benefit of the Lender and may be waived in whole or in part by the
Lender:

      (a)   REPRESENTATIONS AND WARRANTIES - Each of the representations and
            warranties made by the Borrower and the Guarantors in or pursuant to
            this Financing Agreement shall be true and correct in all material
            respects on and as of such date, as if made on and as of such date,
            except for those representations and warranties which speak to a
            specific date which shall be true and correct as of such date.

      (b)   NO DEFAULT - No Default or Event of Default shall have occurred and
            be continuing on such date or would occur after giving effect to the
            Accommodation requested to be made on such date.

      (c)   BORROWING BASE - Except as may be otherwise agreed to from time to
            time by the Lender and the Borrower in writing, after giving effect
            to any Accommodation requested to be made by the Borrower on such
            date, the aggregate outstanding balance of the Revolving Loans and
            outstanding Letters of Credit owing by the Borrower will not exceed
            the lesser of (i) the Revolving Line of Credit, or (ii) the
            Borrowing Base.

Each borrowing by the Borrower hereunder shall constitute a representation and
warranty by the Borrower and the Guarantors as of the date of such Accommodation
that each of the representations, warranties and covenants contained in the
Financing Agreement has been satisfied and is true and correct as of such date
except for those representations and warranties which speak to a specific date
which shall be true and correct as of such date, except as the Borrower, the
Guarantors and the Lender shall otherwise agree herein or in a separate writing.

                                    ARTICLE 3
                                REVOLVING LOANS

3.1   (a)   The Lender agrees, subject to the Revolving Line of Credit and the
            terms and conditions of this Financing Agreement, from time to time,
            but not prior to the Closing Date, on any Business Day prior to the
            Maturity Date, to make Canadian dollar loans and advances to the
            Borrower on a revolving basis by way of Prime Rate Loans and BA
            Equivalent Loans and subject to the limitations set forth herein,
            the Borrower may borrow, repay and reborrow such Revolving Loans.
            Such requests for Accommodations, subject to the Revolving Line of
            Credit, shall be in amounts not to exceed the Net Availability. All
            requests for loans and advances must be received by an officer of
            the Lender no later than 11:00 A.M., Toronto time (i) of the
            Business Day on which any such Prime Rate Loan is

<PAGE>

                                     - 24 -

            required if such request is for an amount less than $25,000,000 and,
            (ii) one (1) Business Day prior to the Business Day on which any
            such Prime Rate Loan is required if such request is for an amount
            equal to or greater than $25,000,000.

      (b)   Whenever the Borrower requests the Lender to make a Revolving Loan,
            it shall give the Lender notice in writing or irrevocable telephonic
            notice confirmed promptly in writing (but prior to any advance),
            specifying (A) the amount to be borrowed, (B) the requested
            borrowing date (which shall be a Business Day and shall be prior to
            a Maturity Date, and if applicable, any Early Termination Date, or
            prior to any effective termination date of this Financing Agreement,
            all as further set forth herein), and (C) specify whether the
            requested Revolving Loan shall be by way of a Prime Rate or BA
            Equivalent Loan and, if by way of a BA Equivalent Loan, the
            applicable Interest Period, in accordance with the provisions set
            forth herein. The Lender shall make loans and advances to the
            disbursement account of the Borrower with The Toronto-Dominion Bank
            at 700 West Georgia Street, Vancouver, B.C. or to such other
            disbursement account as may be agreed in writing between the
            Borrower and the Lender.

      (c)   The Borrower shall not use any Accommodation other than for working
            capital purposes, for capital expenditures and other corporate
            purposes to the extent not otherwise prohibited or restricted by
            this Financing Agreement.

      (d)   Unless demand is made earlier pursuant to the provisions of this
            Financing Agreement, the Borrower shall repay, and there shall
            become due and payable, the Obligations and all accrued and unpaid
            interest thereon, on the earlier of the Early Termination Date and
            the Maturity Date.

3.2 In furtherance of the continuing assignment and security interest in the
Collateral and the Guarantor's Collateral, as applicable, the Borrower covenants
and agrees to provide to the Lender various reports and information with respect
to the Borrower and Guarantors as may be requested by the Lender, all in form
and substance satisfactory to the Lender, including, without limitation, the
following reports and information:

      (a)   As at the last day of each month and within ten (10) Business Days
            of each month end;

            (i)   a Borrowing Base Certificate as at such month end, including,
                  without limitation, a summary of sales and collections
                  journals;

            (ii)  a monthly summary of aging of Trade Receivables by due date
                  for the Borrower and the Guarantors. Notwithstanding the
                  above, the Lender reserves the right to require each of the
                  Borrower and the Guarantors to provide it with a detailed
                  listing of aging of Trade Receivables at any time upon the
                  Lender's request;

            (iii) a detailed monthly aging of accounts payable of the Borrower
                  and the Guarantors;

<PAGE>

                                     - 25 -

            (iv)  a calculation and listing of the Trade Receivables which would
                  not meet the criteria of an Eligible Trade Receivable;

            (v)   an aged listing of the ten (10) largest Trade Receivables and
                  accounts payable of the Borrower and the Guarantors for the
                  month; and

            (vi)  a reconciliation prepared by the Borrower of the cash receipts
                  journal to the Blocked Accounts.

      (b)   In addition to Section 3.2(a) above, the Borrower covenants and
            agrees to provide the Lender with the reports and information set
            out in 3.2(a)(i), (ii) and (iii) above within five (5) Business Days
            of the 15th day of each month, prepared as of the 15th day of such
            month and the following reports and information within five (5)
            Business Days of the 15th day of each month, prepared as at the
            previous month end:

            (i)   a detailed monthly Inventory summary and physical Inventory
                  listing;

            (ii)  a calculation and listing of the Inventory which would not
                  meet the criteria of Eligible Inventory;

            (iii) a reconciliation of the monthly Inventory summaries to the
                  general ledger and to the financial statements of each of the
                  Borrower and the Guarantors as at month end;

            (iv)  a reconciliation of aging of Trade Receivables and accounts
                  payable to the divisional trial balances, and the Borrower's
                  and each Guarantor's general ledgers and to the consolidated
                  financial statements for the Borrower, as at month end; and

            (v)   a listing of all other Accounts and accounts payable of each
                  of the Borrower and the Guarantors, including accruals, which
                  are not aged.

      (c)   In addition, upon the Lender's request, each of the Borrower and the
            Guarantors covenant and agree to provide the Lender with copies of
            agreements with, or purchase orders from, the Borrower's and the
            Guarantors' customers, and copies of invoices to customers, proof of
            shipment or delivery, access to their computers, electronic media
            and software programs associated therewith (including any access
            codes, electronic records, contracts and signatures) and such other
            documentation and information relating to said Accounts, any other
            Collateral and the Guarantor Collateral as the Lender may reasonably
            require, provided that such access does not constitute a violation
            of the Personal Information Protection and Electronic Documents Act
            (Canada) or any similar provincial privacy legislation in effect
            from time to time. The Borrower and the Guarantors hereby authorize
            the Lender to regard the Borrower's or the Guarantors' printed name
            or rubber stamp signature on assignment schedules or invoices as the
            equivalent of a manual signature by one of the Borrower's authorized
            signing officers or agents;

<PAGE>

                                     - 26 -

            Notwithstanding the above, the Lender reserves the right at any time
            to request additional reports and information, and on a more
            frequent basis, as it may reasonably require.

3.3 The Borrower and the Guarantors covenant and agree with the Lender that any
and all Taxes or fees relating to their business, their sales, the Collateral or
the Guarantors' Collateral, as applicable, relating thereto, are their sole
responsibility and that same will be paid by the relevant Person when due,
subject to Section 7.6 of Article 7 of this Financing Agreement and that none of
said Taxes or fees results in or represents an enforceable Encumbrance on or
claim against the Collateral or the Guarantor's Collateral which has not been
disclosed to the Lender, is not being contested in good faith by appropriate
proceedings or actions sufficient to prevent the enforcement of any such
Encumbrances and with respect to which adequate reserves are not being
maintained by the Borrower or a Guarantor, as applicable, in accordance with
GAAP. The Borrower and the Guarantors covenant and agree to make all of their
books and records available to the Lender at its premises upon one (1) day
notice during normal business hours, including any records handled or maintained
for them by any other Person whatsoever. The Borrower and Guarantors also
covenant and agree to make any and all environmental reports and reports and/or
communications to the Ministry of Forests available to the Lender forthwith upon
the Lender's reasonable request.

3.4 Until the Lender has advised the Borrower to the contrary upon the
occurrence of a Default or an Event of Default, and subject to the provisions
below, the Borrower and the Guarantors, at their expense, can enforce, collect
and receive all amounts owing on the Trade Receivables in the ordinary course of
its business. Upon the occurrence of a Default or an Event of Default which is
continuing, any cheques, cash, credit card sales and receipts, notes or other
instruments or property received by the Borrower or a Guarantor with respect to
any Collateral, including Accounts, shall be held by the Borrower or a Guarantor
in trust for the Lender, on behalf of the Lenders, separate from the Borrower's
and the Guarantor's own property and funds, and upon the request of the Lender
promptly turned over to the Lender with proper assignments or endorsements for
deposit to the Depository Accounts. Upon the occurrence of a Default or an Event
of Default which is continuing, the Borrower and the Guarantors shall, at the
Lender's election: (i) indicate on all of its invoices that funds should be
delivered to and deposited in a Depository Account; (ii) direct all of its
account debtors to deposit any and all proceeds of Collateral into the
Depository Accounts; (iii) irrevocably authorize and direct any banks which
maintain the Borrower's and the Guarantor's initial receipt of cash, cheques and
other items to promptly wire transfer all available funds to a Depository
Account; and (iv) advise all such banks of the Lender's security interest in
such funds. The Borrower and the Guarantors covenant and agree to provide the
Lender with prior written notice of any and all deposit or disbursement accounts
opened or to be opened subsequent to the Closing Date by any one or more of the
Borrower or the Guarantors. All amounts received by the Lender in payment of
Accounts will be credited to the Revolving Loan Account when the Lender is
advised by its bank of its receipt of "collected funds" at the Depository
Account in Toronto, Ontario on the Business Day of such advise if advised no
later than 10:00 A.M. Toronto time or on the next succeeding Business Day if so
advised after 10:00 A.M. Toronto time. No cheques, drafts or other instrument
received by the Lender shall constitute final payment to the Lender unless and
until such instruments have actually been collected. The Borrower shall
establish and maintain, in its name and at its expense, deposit accounts with
The Toronto-Dominion Bank (the "BLOCKED ACCOUNTS") into which the Borrower and
the Guarantors shall thereafter promptly cause to be deposited into such Blocked
Accounts, all Trade Receivables received by the Borrower and the Guarantors,

<PAGE>

                                     - 27 -

including all amounts payable to the Borrower from credit card issuers and
credit card processors, all insurance proceeds and all proceeds from the sale of
Collateral, except for amounts comprising or relating to Excluded Assets, and
other Assets of the Borrower which are not Collateral and upon the occurrence of
a Default or an Event of Default which is continuing, in addition to the above
and subject to the above exclusion with respect of Excluded Amounts, all amounts
on deposit in deposit accounts used by the Borrower, except for the term
deposits held by The Toronto-Dominion Bank as cash collateral in respect of
outstanding letters of credit, payroll, services and foreign exchange contracts.
The Toronto-Dominion Bank shall enter into an agreement, in form and substance
satisfactory to the Lender (the "BLOCKED ACCOUNTS AGREEMENT"), providing that
all cash, cheques and items received or deposited in the Blocked Accounts are
the property of the Lender, that the depository bank has no lien, security
interest or other Encumbrance in or claim upon, or right of set-off against, the
Blocked Accounts and any cash, cheques, items, wires or other funds from time to
time on deposit therein, except as otherwise provided in the Blocked Accounts
Agreement, and that automatically, on a daily basis, the depository bank will
wire, or otherwise transfer, in immediately available funds, all funds received
or deposited into the Blocked Accounts to such Depository Account as the Lender
may from time to time designate for such purpose. The Lender may instruct the
depository banks at which the Blocked Accounts are maintained to transfer all
funds received or deposited into the Blocked Accounts to the Depository Account
at any time. The Borrower and the Guarantors hereby confirm and agree that all
amounts deposited in such Blocked Accounts and any other funds received and
collected by the Lender, except for amounts comprising Excluded Assets, whether
as proceeds of Collateral or otherwise, shall be the property of the Lender. For
greater certainty, the same arrangements shall be made in respect of the
corresponding accounts of each Guarantor.

3.5 The Borrower and each Guarantor covenants and agrees to notify the Lender:
(a) of any matters materially adversely affecting the value, enforceability or
collectability of any Account and of all customer disputes, offsets, defences,
counterclaims, returns, rejections and all reclaimed or repossessed merchandise
or goods, of any adverse effect in the value of their Inventory in such detail
as the Lender may reasonably require from time to time, and
(b) promptly of any such matters which are material, as a whole, to the
Collateral. The Borrower and each Guarantor agree to issue credit memoranda
promptly with duplicates to the Lender upon its reasonable request, after the
occurrence of a Default or an Event of Default, upon accepting returns or
granting allowances.

3.6 The Lender shall maintain a Revolving Loan Account on its books in which the
Borrower will be charged with all loans and advances made by the Lender to it or
for its account, and with any other Obligations, including any and all costs,
expenses and reasonable legal fees which the Lender may incur in connection with
the exercise of any of the rights or powers herein conferred upon the Lender, or
in the prosecution or defence of any action or proceeding to enforce or protect
any rights of the Lender in connection with this Financing Agreement, the other
Loan Documents or the Collateral and the Guarantor Collateral, or any
Obligations owing by the Borrower. The Borrower will be credited with all
amounts received by the Lender from the Borrower or from others for the
Borrower's account, including as above set forth, all amounts received by the
Lender in payment of Accounts, and such amounts will be applied to payment of
the Obligations as set forth herein. In no event shall prior recourse to any
Accounts or other security granted to or by the Borrower or the Guarantor be a
prerequisite to the Lender's right to demand payment of any Obligation. Further,
it is understood that the Lender shall have

<PAGE>

                                     - 28 -

no obligation whatsoever to perform in any respect the Borrower's contracts or
obligations relating to the Accounts or any other Collateral.

3.7 After the end of each month, the Lender shall promptly send the Borrower a
statement showing the accounting for the charges, loans, advances and other
transactions occurring between the Lender and the Borrower during that month;
provided that any failure by the Lender to send any such statement shall not
affect in any way the Borrower's or the Guarantor's continuing liability in
respect of the obligations. The monthly statements shall constitute an account
stated between the Borrower and the Lender and, absent manifest error, shall be
deemed correct and binding on the Borrower unless the Lender receives a written
statement of the exceptions within thirty (30) days of the receipt of the
monthly statement by the Borrower.

3.8 Upon the request of the Borrower and provided the Borrower is in compliance
with all other terms and conditions under this Financing Agreement, the
Inventory Loan Cap may be increased from $175,000,000 to $200,000,000 for a
maximum period of one hundred and twenty (120) days once per year during each
Fiscal Year of the term of this Financing Agreement, provided further that the
Net Availability Block is maintained at any and all times during such period
(and, if the Borrower has required that the Net Availability Block be reduced
from $40,000,000 to $25,000,000 as contemplated by the definition of
"Availability Reserve", the Borrower shall also maintain the required Fixed
Charge Coverage Ratio of 1.10:1.00 at all time during such period). Upon the
Borrower not being in compliance with all of the terms and conditions of this
Financing Agreement at any time during such one hundred and twenty (120) day
period, the Inventory Loan Cap will thereafter revert back to $175,000,000 but
will not impact the ability to increase the Inventory Loan Cap in subsequent
years.

                                    ARTICLE 4
                              BA EQUIVALENT LOANS

4.1 Upon receipt of a request for an advance given in accordance with this
Financing Agreement and subject to the provisions of this Financing Agreement,
the Lender may make BA Equivalent Loans to the Borrower on a revolving basis up
to a maximum principal amount of $25,000,000 at the BA Equivalent Rate for the
applicable Interest Period within the scope and subject to the limits of the
Revolving Line of Credit from time to time after the Closing Date.

4.2 BA Equivalent Loans may be drawn down by the Borrower at any time and from
time to time in a minimum principal amount of $5,000,000 and amounts in excess
thereof in integral multiples of $1,000,000 for the selected Interest Period
(provided that in no event will a maturity date for a BA Equivalent Loan
("EXPIRY DATE") be a date beyond the then applicable Maturity Date of this
Financing Agreement) and by irrevocable written notice of its request for a BA
Equivalent Loan given to the Lender not later than 11:00 A.M. (Toronto time) two
(2) Business Days prior to the requested drawdown date of the BA Equivalent
Loan. Upon an Event of Default which is continuing, or if the Borrower fails to
give the Lender written notice of its intention to renew any outstanding BA
Equivalent Loan not later than 11:00 A.M. (Toronto time) two (2) Business Days
prior to any applicable Expiry Date, all such outstanding BA Equivalent Loans
shall be converted to Prime Rate Loans on the applicable Expiry Date.

<PAGE>

                                     - 29 -

                                    ARTICLE 5
                               LETTERS OF CREDIT

5.1 In order to assist the Borrower in establishing or opening Letters of Credit
with an Issuing Bank, the Borrower have requested the Lender, to join in the
applications for such Letters of Credit, and/or guarantee payment or performance
of such Letters of Credit and any drafts or acceptances thereunder through the
issuance of the Letter of Credit Guarantees, thereby lending the Lender's credit
to the Borrower and the Lender has agreed, subject to the Letter of Credit
Sub-Line, to do so. These arrangements shall be handled by the Lender subject to
the terms and conditions set forth below.

5.2 Within the Revolving Line of Credit and Net Availability, the Lender shall
assist the Borrower in obtaining Letter(s) of Credit in an aggregate amount not
to exceed the outstanding amount of the Letter of Credit Sub-Line, provided that
(i) no Default or Event of Default exists hereunder, and (ii) such Letter(s) of
Credit shall not have a term that ends subsequent to any applicable Maturity
Date. The Lender's assistance for amounts in excess of the limitation set forth
herein shall at all times and in all respects be in the Lender's sole
discretion. It is understood that the term, form and purpose of each Letter of
Credit and all documentation in connection therewith, and any amendments,
modifications or extensions thereof, must be mutually acceptable to the Lender,
the Issuing Bank and the Borrower. Any and all outstanding Letters of Credit
shall reduce Net Availability.

5.3 The Lender shall have the right, without notice to the Borrower, to charge
the Borrower's Revolving Loan Account with the amount of any and all
indebtedness, liability or obligation of any kind incurred by the Lender under
the Letters of Credit Guarantee at the earlier of (a) payment by the Lender
under the Letters of Credit Guarantee, or (b) the occurrence of Default or an
Event of Default. Any amount charged to the Borrower's Revolving Loan Account
shall be deemed a Revolving Loan hereunder and shall incur interest at the rate
applicable to Prime Rate Loans.

5.4 The Borrower hereby agrees to indemnify the Lender and their respective
officers, directors, agents, representatives, advisors, employees and affiliates
and holds each of them harmless from and against any and all damages, penalties,
charges, costs, expenses, losses, claims, actions, proceedings, obligations,
demands or liabilities incurred by any of them arising from any transactions or
occurrences relating to Letters of Credit established or opened for the
Borrower's account, the collateral relating thereto and any drafts or
acceptances thereunder, and all obligations thereunder, including any such loss,
claim, damages, penalties, costs, expenses, actions, proceedings, obligations,
demands or liabilities due to any errors, omissions, negligence, misconduct or
action taken by any Issuing Bank, other than for any such loss, claim or
liability arising out of the gross negligence or wilful misconduct by any of
them under the Letters of Credit. This indemnity shall be severable from and
shall survive termination of this Financing Agreement. The Borrower agrees that
any charges, disbursements, costs and expenses incurred by the Lender for the
Borrower's account by the Issuing Bank shall be conclusive and may be charged to
the Borrower's Revolving Loan Account.

5.5 The Borrower agrees that, absent gross negligence or wilful misconduct, any
action taken by the Lender, if taken in good faith, or any action taken by any
Issuing Bank, under or in connection with Letters of Credit or the Letter of
Credit Guarantees, shall be binding on the Borrower and shall not result in any
liability whatsoever of the Lender to the Borrower. In

<PAGE>

                                     - 30 -

furtherance thereof, the Lender shall have the full right and authority to: (a)
clear and resolve any questions of non-compliance of documents; (b) give any
instructions as to acceptance or rejection of any documents or goods; (c)
execute any and all steamship or airways guarantees (and applications therefor),
indemnities or delivery orders; (d) grant any extensions of the maturity of,
time of payment for, or time of presentation of, any drafts, acceptances, or
documents; and (e) agree to any amendments, renewals, extensions, modifications,
changes or cancellations of any of the terms or conditions of any of the
applications, Letters of Credit, drafts or acceptances; all in the Lender's sole
name. The Issuing Bank shall be entitled to comply with and honour any and all
such documents or instruments executed by or received solely from the Lender,
all without any notice to or any consent from the Borrower. Notwithstanding any
prior course of conduct or dealing with respect to the foregoing, including
amendments and non-compliance with documents and/or the Borrower's instructions
with respect thereto, the Lender may exercise its rights hereunder in its sole
and reasonable judgment. In addition, without the Lender's express consent and
endorsement in writing, the Borrower agree: (a) not to execute any and all
applications for steamship or airway guarantees, indemnities or delivery orders;
to grant any extensions of the maturity of, time of payment for, or time of
presentation of, any drafts, acceptances or documents; or to agree to any
amendments, renewals, extensions, modifications, changes or cancellations of any
of the terms or conditions of any of the applications, Letters of Credit, drafts
or acceptances; and (b) after the occurrence of a Default or an Event of Default
which is not cured within any applicable grace period, if any, or waived by the
Lender, not to (i) clear and resolve any questions of non-compliance of
documents, or (ii) give any instructions as to acceptances or rejection of any
documents or goods.

5.6 The Borrower agree that: (a) any necessary import, export or other licenses
or certificates for the import or handling of the goods will have been promptly
procured; (b) all foreign and domestic Laws in regard to the shipment and
importation of the goods, or the financing thereof will have been promptly and
fully complied with; and (c) any certificates in that regard that the Lender may
at any time request will be promptly furnished. In connection herewith, the
Borrower represents and warrants that all shipments made under any such Letters
of Credit are in accordance with the Laws of the jurisdictions in which the
shipments originate and terminate, and are not prohibited by any such Laws. The
Borrower assumes all risk, liability and responsibility for, and agrees to pay
and discharge, all present and future local, state, provincial, federal or
foreign Taxes, duties, or levies. Any embargo, restriction, laws, customs, rules
or regulations of any Governmental Entity, where the goods are or may be
located, or wherein payments are to be made, or wherein drafts may be drawn,
negotiated, accepted, or paid, shall be solely the Borrower's risk, liability
and responsibility.

5.7 Any letter of credit issued with the assistance of the Lender pursuant to
the Pre-Filing Financing Agreement and which remains outstanding on the Closing
Date shall be deemed, from and after the Closing Date, to have been issued with
the assistance of the Lender pursuant to this Financing Agreement.

                                    ARTICLE 6
                                   COLLATERAL

6.1 As security for the prompt payment in full and performance of, all of the
Obligations, (i) the Borrower will grant to the Lender, a continuing general
collateral lien upon, and security interest in, the Collateral pursuant to a
security agreement in form and substance

<PAGE>

                                     - 31 -

acceptable to the Lender, (ii) each Guarantor will execute and deliver to and in
favour of the Lender an unlimited guarantee of the Obligations of the Borrower
to the Lender, (iii) each Guarantor will grant to the Lender, a continuing
general collateral lien upon, and security interest in, the Guarantor Collateral
pursuant to a security agreement in form and substance acceptable to the Lender,
(iv) each of the Borrower and Guarantors will execute and deliver to and in
favour of the Lender, assignments of insurance and directions to pay in
connection with the insurance requirements set out in Section 7.5 of this
Financing Agreement, including concerning the Policies, in form and substance
acceptable to the Lender, and (v) any other guarantees and security the Lender
may require from the Borrower or the Guarantors relating to Accounts, Inventory,
Other Collateral and Policies, the Collateral and the Guarantor Collateral, as
applicable, from time to time, at its sole discretion (all of which are
hereinafter collectively referred to as the "Security Agreements").

6.2 The security interests granted under the Security Agreements shall extend
and attach to the Collateral and the Guarantor's Collateral, as applicable, upon
the execution thereof.

6.3 The Borrower and the Guarantors covenant and agree to safeguard, protect and
hold all Inventory for the Lender's account and make no disposition thereof
except in the ordinary course of its business or, if out of the ordinary course
of its business, upon the prior written notice to the Lender. Upon a Default or
an Event of Default, the Lender may exercise, in the Borrower's name, the rights
of an unpaid seller, including stoppage in transit, replevin, rescission and
reclamation. Upon a Default or an Event of Default which is continuing and the
request of the Lender, the Borrower and the Guarantors hereby agree to
immediately forward any and all proceeds of Collateral or the Guarantor
Collateral to the Depository Account, and to hold any such proceeds (including
any notes and instruments), in trust for the Lender pending delivery to the
Lender. The Borrower and the Guarantors agree to use their best efforts to
obtain and deliver to the Lender, within 30 days after the Closing Date, a duly
executed Access Agreement from each landlord of each premises leased by the
Borrower or a Guarantor and at which Collateral or Guarantor's Collateral is
located, and to provide to the Lender a weekly status update on any Access
Agreement which is not delivered to the Lender within 30 days after the Closing
Date.

6.4 The rights and security interests granted to the Lender under any Security
Agreements are to continue in full force and effect, notwithstanding the
termination of this Financing Agreement or the fact that the Revolving Loan
Account may from time to time be temporarily in a credit position, until the
final indefeasible payment in full to the Lender and performance of all
Obligations and the termination of this Financing Agreement. Any delay or
omission by the Lender to exercise any right hereunder shall not be deemed a
waiver thereof, or be deemed a waiver of any other right, unless such waiver
shall be in writing and signed by the Lender. A waiver on any one occasion shall
not be construed as a bar to, or waiver of, any right or remedy on any future
occasion.

6.5 Notwithstanding the Lender's security interests and to the extent that the
Obligations are now or hereafter secured by any Assets other than the Collateral
or by the guarantee, endorsement, assets or property of any other Person, the
Lender shall have the right in its sole discretion to determine which rights,
liens, security interests or remedies the Lender shall at any time pursue,
foreclose upon, relinquish, subordinate, modify or take any other action with

<PAGE>

                                     - 32 -

respect to, without in any way modifying or affecting any of them, or any of the
Lender's rights hereunder.

6.6 Any balances to the credit of the Borrower and any Collateral or the
Guarantor Collateral in the possession or control of the Lender may be held by
the Lender as security for any Obligations and applied in whole or partial
satisfaction of such Obligations when due as it sees fit. The liens and security
interests granted in the Security Agreements, and any other lien or security
interest the Lender may have, shall secure payment and performance of all now
existing and future Obligations (or, in the case of the Guarantor, the
Guarantors' obligations in respect thereof). The Lender may, in its discretion,
charge any or all of the Obligations to the Revolving Loan Account when due.

                                    ARTICLE 7
                   REPRESENTATIONS, WARRANTIES AND COVENANTS

7.1 To induce the Lender to enter into this Financing Agreement and to make
Accommodations available to the Borrower, each of the Borrower and Guarantors
hereby jointly and severally represents and warrants to the Lender, and
acknowledges that the Lender is relying on such representations and warranties
in entering into this Financing Agreement, that:

      (a)   the Borrower and each Guarantor is a corporation duly incorporated,
            organized and validly subsisting under the federal laws of Canada,
            and each of the Borrower and Guarantors has full power and capacity
            to own its Assets and to carry on its business as conducted and is
            duly qualified, registered and in good standing in every
            jurisdiction in which the Borrower or applicable Guarantor has
            Assets, an office or otherwise conducts or operates its business and
            the Guarantors and WFP Quatsino Navigation Limited are all of the
            Subsidiaries of the Borrower and WFP Quatsino Navigation Limited has
            one employee and no Assets;

      (b)   the Borrower and each Guarantor has obtained all Forest Tenures,
            Licences and other Authorizations required to operate its business,
            and except as disclosed in writing by them to the Lender from time
            to time, they are not in default and have not received any Order or
            notice of any Claim or default with respect to any such Forest
            Tenures, Licences and other Authorizations, where such default or
            claim would have a Material Adverse Effect;

      (c)   the Borrower and each Guarantor has full power and authority and
            full legal right to enter into and perform its obligations under the
            Loan Documents and to obtain Accommodations hereunder and has taken
            all action necessary to be taken by it to authorize such acts;

      (d)   each Loan Document and all agreements and undertakings of the
            Borrower and Guarantors to which they are a party, are legal, valid
            and binding obligations enforceable against each of them in
            accordance with their respective terms, subject only to any
            applicable bankruptcy, insolvency, winding-up, reorganization,
            arrangement, moratorium or other laws or equitable remedies
            affecting creditors' rights generally;

<PAGE>

                                     - 33 -

      (e)   the consummation of the transactions herein contemplated, and the
            compliance with the terms, conditions and provisions of the Loan
            Documents will not conflict with, contravene or result in a breach
            of, or constitute a default under, any of the terms, conditions or
            provisions of the constating documents of the Borrower or Guarantors
            or any indenture, instrument, document, mortgage, agreement or
            undertaking, including the Bond Indenture, any collective bargaining
            agreement, or any Material Agreement to which they are a party or by
            which they are bound, or any Laws or Authorizations, or result in
            the creation or imposition of any Encumbrance (other than pursuant
            to the Security Agreements) upon any of their Assets;

      (f)   the Borrower and each Guarantor is in compliance with all applicable
            Laws, including all Environmental Laws, Authorizations and Material
            Agreements, the Bond Indenture and any collective bargaining
            agreements and mortgages relating to any of their real property
            except where non-compliance would not have a Material Adverse
            Effect. No Default or Event of Default has occurred and is
            continuing;

      (g)   the Borrower's and the Guarantors' books and records are true,
            complete and accurate in all material respects and all financial
            statements delivered to the Lender fairly present the consolidated
            financial position of the Borrower and the Guarantors as at the date
            thereof and the consolidated results of the operations of the
            Borrower and the Guarantors for the period referred to therein, and,
            except as noted therein, have been prepared by the Borrower and its
            auditors in accordance with GAAP;

      (h)   the Borrower and each Guarantor:

                  (i)   is in compliance with all legally binding Orders to
                        which it is subject, if any, relating to any Laws or
                        Environmental Laws, except where the non-compliance
                        thereof would not have a Material Adverse Effect; and

                  (ii)  except as disclosed in writing to the Lender from time
                        to time, is not the subject of any existing or, to the
                        knowledge of the Borrower or the applicable Guarantor,
                        threatened actions, suits, proceedings, investigations
                        or Orders relating to Environmental Laws, Laws or
                        otherwise against the Borrower, the applicable
                        Guarantor, the Collateral or the Guarantor Collateral,
                        which if adversely determined, would have a Material
                        Adverse Effect.

      (i)   the Borrower and each Guarantor has good and marketable title to and
            legal and beneficial ownership of all of its Assets, the Collateral
            and Guarantor Collateral, as applicable, free and clear of any
            Encumbrances, other than Permitted Encumbrances;

      (j)   no Person has any written or oral agreement, option, understanding
            or commitment, or any right or privilege capable of becoming such
            for the purchase from the Borrower or any Guarantor of any of the
            Collateral and Guarantor Collateral, as applicable, other than in
            the ordinary course of its business;

<PAGE>

                                     - 34 -

      (k)   each Trade Receivable is based on an actual and bona fide sale and
            delivery of Inventory or rendition of services by the Borrower and
            the Guarantors to their customers in the ordinary course of their
            business and to the best of the Borrower's and the Guarantors'
            knowledge, are not subject to any present, future or contingent
            defence, offset, counterclaim, dispute or other dilutive factor
            which has not been disclosed to the Lender and for which an
            appropriate reserve has not been made by the Lender;

      (l)   all the work and services performed and goods supplied under any
            contract or agreement (oral or written) giving rise to any Accounts
            have been fully performed or supplied to acceptable standards as
            required by Law and by the terms (whether express or implied) of any
            such contract or agreement in respect thereof and to the
            satisfaction of the applicable customer of the Borrower and the
            applicable Guarantor and the work and services performed and goods
            supplied have been accepted by such customer, and where goods have
            been supplied, legal and proper delivery has been made and accepted
            by such customer;

      (m)   at the time of issuance of each invoice, the amount payable by any
            customer of the Borrower or any Guarantor is not less than the face
            value of such invoice and such Accounts are due and payable not
            later than the date specified on such invoice, all as recorded in
            their respective books and records;

      (n)   as of the date hereof, Schedules 1, 2 and 3 hereto correctly and
            completely set forth, for each of the Borrower and each Guarantor,
            its: (A) chief executive office, (B) Collateral and Guarantor
            Collateral locations, (C) predecessor names, (D) tradenames, (E)
            subsidiaries and affiliates (all as defined in the Canada Business
            Corporations Act), (F) deposit and disbursement bank accounts, (G)
            tenures, licences, permits, leases and other Authorizations, (H)
            Material Agreements, and (I) other information listed on said
            Schedules;

      (o)   except for the Permitted Encumbrances, after filing of financing
            statements or other similar registrations in the applicable public
            office at the locations set forth in Schedule 1, the Security
            Agreements, in the jurisdictions of such locations set forth in
            Schedule 1, create a valid, perfected and first priority security
            interest in the Collateral and the Guarantor Collateral, as
            applicable, in the jurisdictions of such locations set forth in
            Schedule 1, subject to Permitted Encumbrances; the security
            interests granted constitute and shall at all times, subject to
            Permitted Encumbrances, constitute a first priority lien on, and
            security interest in, the Collateral and the Guarantor Collateral,
            as applicable, in the jurisdictions of such locations set forth in
            Schedule 1, and the Collateral and the Guarantor Collateral are not
            subject to any Encumbrance in favour of any Person (other than the
            Lender);

      (p)   except for the Permitted Encumbrances, the Borrower and each
            Guarantor is, or will be, at the time additional Collateral or
            Guarantor Collateral, as applicable, is acquired by it, the absolute
            owner of the Collateral or Guarantor Collateral, as applicable, with
            full right to pledge, sell, assign, transfer and create a security
            interest therein, free and clear of any and all Encumbrances in
            favour of others;

<PAGE>

                                     - 35 -

      (q)   the Borrower and each Guarantor will, at its expense, forever
            warrant and, at the Lender's request, defend the Collateral and the
            Guarantor Collateral from any and all Claims of any other Person
            other than a holder of a Permitted Encumbrance;

      (r)   all statements, information, reports, listings, schedules and
            certificates made or given to the Lender by all officers, directors
            and authorized representatives of the Borrower and the Guarantors
            are true, complete and accurate in all material respects;

      (s)   no Person other than IBM Canada Ltd., J.D. Edwards World Solutions
            Company, Telus Enterprise Solutions Inc., Software Business Systems
            Inc. and Group West Systems Ltd. is supplying the Borrower and the
            Guarantor, nor has an Encumbrance on, any computer hardware,
            software or systems of the Borrower or the Guarantor;

      (t)   the Borrower and each Guarantor possess all General Intangibles and
            rights thereto necessary to conduct their business as conducted as
            of the Closing Date;

      (u)   the Borrower and the Guarantors have not withheld from or failed to
            disclose to the Lender, any matter or thing whatsoever which could
            reasonably be expected to be material to the Lender, including any
            proceedings commenced under the Woodworker Lien Act (British
            Columbia) or by any First Nations groups against any of their
            respective Assets.

Each of the representations and warranties contained in Section 7.1 shall
survive the execution and delivery of this Financing Agreement and be deemed to
be repeated by the Borrower and the Guarantors at the time and date of each
Accommodation notwithstanding any investigation made at any time by or on behalf
of the Lender.

7.2 The Borrower and Guarantors covenant and agree to maintain books and records
pertaining to the Collateral, the Guarantor Collateral and their Assets, as
applicable, in accordance with GAAP. The Borrower and Guarantors covenant and
agree that the Lender or its representatives may following a request on not less
than one (1) Business Day notice, enter upon their respective premises, and any
other premises where the Collateral and the Guarantor Collateral, as applicable,
may be located, at any time during normal business hours for the purpose of
inspecting the Collateral and the Guarantors Collateral, as applicable, and any
and all records pertaining thereto. The Borrower and Guarantors covenant and
agree to provide the Lender with, as soon as practicable, prior written notice
of any change in the location of any Collateral and the Guarantor Collateral, as
applicable, or its chief executive office, other than to locations, that as of
the Closing Date, are known to the Lender and at which the Lender has filed
financing statements and otherwise fully perfected its liens and security
interests thereon. The Borrower and Guarantors also hereby consent to the Lender
contacting any and all third parties the Lender may reasonably require from time
to time, including the Ministry of Forests, the Ministry of Water, Air and Land
Protection, the Ministry of Sustainable Resource Management, Canada Customs and
Revenue Agency and other Governmental Entities concerning social services tax,
corporation capital tax, logging tax, workers compensation, employment
standards, the Forest Act, the Forest Practices Code, the Logging Act and the
Waste Management Act, for purposes of verifying the state of the Collateral, the
Guarantor Collateral, their respective businesses, Authorizations and Tax
position, and the Borrower and each Guarantor covenants

<PAGE>

                                     - 36 -

and agrees to execute and deliver any authorization and consent requested by the
Lender in respect thereof.

7.3 The Borrower and the Guarantors covenant and agree to execute and deliver to
the Lender, from time to time, solely for the Lender's purpose of monitoring the
Collateral and the Guarantor Collateral, such written statements, reports and
schedules as the Lender and the Borrower may reasonably agree upon, designating,
quantifying, qualifying, identifying or describing the Collateral and the
Guarantor Collateral to the extent possible in the Borrower's standard form as
approved by the Lender, acting reasonably. Their failure, however, to promptly
give the Lender such statements, reports or schedules shall not in any way be
deemed to affect, diminish, modify or otherwise limit the Lender's security
interests in, or liens on, the Collateral or the Guarantor Collateral.

7.4 The Borrower and the Guarantors covenant and agree to comply with the
requirements of all applicable Laws in order to grant to the Lender a valid and
perfected first security interest and lien in the Collateral and the Guarantor
Collateral, subject only to the Permitted Encumbrances. The Lender is hereby
authorized by the Borrower and each Guarantor to file (including pursuant to the
applicable terms of the PPSA or similar statutes in other applicable
jurisdictions) from time to time any financing statements, continuations or
amendments covering the Collateral and the Guarantor Collateral, whether or not
the Borrower's or the Guarantors' signatures appear thereon. The Borrower and
the Guarantors hereby consent to and ratify any and all execution and/or filing
of financing statements on or prior to the Closing Date by the Lender. The
Borrower and the Guarantors covenant and agree to do whatever the Lender may
reasonably request, from time to time, by way of: (a) filing notices of
Encumbrances, financing statements, amendments, renewals and continuations
thereof; (b) cooperating with the Lender's agents, representatives, advisors and
employees; (c) keeping records of the Collateral and the Guarantor Collateral;
(d) transferring proceeds of the Collateral and the Guarantor Collateral to the
Lender's possession upon a Default or an Event of Default; and (e) performing
such further acts as the Lender may reasonably require in order to effect the
purposes of this Financing Agreement.

7.5 The Borrower and the Guarantors hereby covenant and agree to maintain
comprehensive/umbrella, property and casualty insurance and business
interruption insurance on the Collateral and Guarantor Collateral, as
applicable, and their respective businesses under such policies of insurance,
with such insurance companies, in such reasonable amounts and covering such
insurable risks as are at all times reasonably satisfactory to the Lender. All
policies covering the Assets are, subject to the rights of any holders of claims
against the Excluded Collateral, to be made payable to the Lender, in case of
loss, under a standard non-contributory "mortgagee", "lender" or "secured party"
clause and are to contain such other provisions as the Lender may require to
fully protect the Lender its interest in the Collateral and the Guarantor
Collateral and to any payments to be made under such policies. Copies of the
policies are to be delivered to the Lender, with the loss payable endorsement in
the Lender's favour and shall provide for not less than fifteen (15) days prior
written notice to the Lender of any material supplement, addition or amendment
or of any renewal, expiration, termination or cancellation. At the Borrower's or
a Guarantor's request, or if the Borrower or a Guarantor fail to maintain such
insurance, the Lender may arrange for such insurance, but at the Borrower's
expense and without any responsibility on the Lender's part for: (i) obtaining
the insurance; (ii) the solvency of the insurance companies; (iii) the adequacy
of the coverage; or (iv) the collection of claims

<PAGE>

                                     - 37 -

thereunder. Upon the occurrence of a Default or an Event of Default, the Lender
shall, subject to the rights of any holders holding claims against the Excluded
Assets, have the sole right, and at its option, in the name of the Lender or the
Borrower and the Guarantors, as the case may be, to file claims under any such
insurance policies relating to the Collateral or the Guarantor Collateral, to
receive, receipt and give acquittance for any payments that may be payable
thereunder, and to execute any and all endorsements, receipts, releases,
assignments, reassignments or other documents that may be necessary to effect
the collection, compromise or settlement of any such claims under any such
insurance policies. In the event of any loss or damage by fire or other
casualty, insurance proceeds relating to Inventory shall be applied to reduce
the Borrower's Revolving Loan. The insurance acquired by the Lender may, but
need not, protect the Borrower's interest in the Collateral or the Guarantors'
interest in the Guarantor Collateral and therefore such insurance may not pay
claims which the Borrower or the Guarantors may have with respect to the
Collateral or the Guarantor Collateral or pay any claim which may be made
against the Borrower or the Guarantors in connection with the Collateral or the
Guarantor Collateral. In the event the Lender purchases, obtains or acquires
insurance covering all or any portion of the Collateral or the Guarantor
Collateral, the Borrower covenants and agrees to be responsible for all of the
applicable costs of such insurance, including premiums, interest (subject to the
right to charge the Default Rate of Interest hereunder, at the applicable
interest rate for Revolving Loans), fees and any other charges with respect
thereto, until the effective date of the cancellation or the expiration of such
insurance. The Lender may charge all of such premiums, fees, costs, interest and
other charges to the Borrower's Revolving Loan Account. The Borrower and the
Guarantors hereby acknowledge that the costs of the premiums of any insurance
acquired by the Lender may exceed the costs of insurance which the Borrower and
the Guarantor may be able to purchase on its own. In the event that the Lender
purchases such insurance, the Lender will notify the Borrower of said purchase
within thirty (30) days of the date of such purchase. If, within thirty (30)
days after the receipt of such notice, the Borrower provides the Lender with
proof that the Borrower or the Guarantors had the insurance coverage required
pursuant to this Section 7.5(in form and substance satisfactory to the Lender)
as of the date on which the Lender purchased insurance and the Borrower or the
Guarantors continued at all times to have such insurance, then the Lender agrees
to cancel the insurance purchased by the Lender.

7.6 The Borrower and the Guarantors covenant and agree to pay, when due, all
Taxes, any and all rental, stumpage, scaling, permit fees and expenses,
royalties and other amounts payable to the Crown under the Forest Act (British
Columbia) and the Forest Practices Code (British Columbia) or otherwise
("ROYALTIES") and all other amounts, the non payment of which may result in an
Encumbrance in priority to the Lender ("PRIORITY PAYABLES"), including any and
all amounts owing or accruing due under the Workers Compensation Act (British
Columbia), Employment Standards Act (British Columbia), the Woodworker Lien Act
(British Columbia) and the Social Services Tax Act (British Columbia), pension
benefit payments required to be contributed or funded by them, sales and excise
taxes and duties, assessments, claims and other charges lawfully levied or
assessed upon the Borrower and the Guarantors, unless such Taxes, Royalties or
Priority Payables are being diligently contested in good faith by the Borrower
or the Guarantor by appropriate proceedings sufficient to prevent any
enforcement with respect to same and adequate reserves are established in
accordance with GAAP. Notwithstanding the foregoing, if any garnishment shall be
issued or any Encumbrance shall be filed or claimed thereunder (a) for Taxes,
Royalties or Priority Payables due any Governmental Entity, or (b) which in the
Lender's opinion might create a valid obligation having priority over the
Lender's security over
<PAGE>

                                     - 38 -

the Collateral or the Guarantor Collateral, such Encumbrance or claim shall not
be deemed to be a Permitted Encumbrance hereunder and the Borrower or the
Guarantors shall immediately pay such Taxes, Royalties or Priority Payables and
discharge the Encumbrance or garnishment unless such amount is being diligently
contested in good faith by appropriate proceedings sufficient to prevent any
enforcement with respect to same and adequate reserves are established in
accordance with GAAP. If the Borrower or the Guarantors fail to do so promptly,
then at the Lender's election, the Lender may (i) create an Availability Reserve
in such amount as it may deem appropriate in its sole business judgment, or (ii)
upon the occurrence of a Default or Event of Default, imminent risk of seizure
or garnishment, filing of any priority Encumbrance, claim, forfeiture, or sale
of the Collateral or the Guarantor Collateral, pay any such amounts on the
Borrower's or the Guarantors' behalf, and the amount thereof shall be an
Obligation secured hereby and due on demand.

7.7 The Borrower and Guarantors: (a) covenant and agree to comply with all Laws,
including all Environmental Laws which the failure to comply with could have a
Material Adverse Effect, provided that the Borrower or any Guarantor may contest
any acts, rules, regulations, orders and directions of any Governmental Entity
in any reasonable manner which will not, in the Lender's opinion, materially and
adversely affect the Lender's priority in the Collateral or the Guarantor
Collateral as determined by the Lender in its sole discretion; (b) covenant and
agree to maintain and comply with any and all Authorizations required for the
Borrower and the Guarantors to operate their business, including the Forest
Tenures, Licences and any annual timber cutting rights, and any and all Laws as
presently existing or as adopted or amended in the future, applicable to the
Collateral or the Guarantor Collateral, the ownership and/or use of any of their
real property and the operation of their business, which the failure to comply
with would have a Material Adverse Effect; and (c) shall not be deemed to have
breached any provision of this Section 7.7 if, (i) the failure to comply with
the requirements of this Section 7.7 resulted from good faith error or innocent
omission, (ii) the Borrower promptly commences and diligently pursues a cure of
such breach, and (iii) such failure is cured within twenty (20) days following
the Borrower's or the Guarantor's knowledge or receipt of notice (whichever is
earlier) of such failure, or if such failure cannot in good faith be cured
within twenty (20) days, such breach is cured within a reasonable time frame
based upon the extent and nature of the breach and the necessary remediation,
and in conformity with any applicable consent order, consensual agreement and
applicable Law and with the consent of the Lender, not to be unreasonably
withheld.

7.8 Until termination of this Financing Agreement and indefeasible payment and
satisfaction of all Obligations due hereunder, the Borrower and the Guarantors
covenant and agree that, unless the Lender shall have otherwise consented in
writing, in addition to the reports and information set forth in Section 3.2 of
this Financing Agreement, the Borrower will furnish to the Lender: (a) within
ninety (90) days after the end of each Fiscal Year of the Borrower, an audited
Consolidated Balance Sheet and all related consolidating work papers, as at the
close of such year, and statements of profit and loss, cash flow and
reconciliation of surplus of the Borrower for such year, audited by independent
chartered accountants; (b) within sixty (60) days after the end of each Fiscal
Quarter (except in respect of the last Fiscal Quarter of a Fiscal Year, which
shall be delivered within ninety (90) days after the end of such Fiscal Quarter)
a Consolidated Balance Sheet as at the end of such period and statements of
profit and loss, cash flow and surplus of the Borrower, certified by an
authorized financial or accounting officer of the Borrower, and if the Net
Availability Reserve has been reduced from $40,000,000 to

<PAGE>

                                     - 39 -

$25,000,000 as contemplated in the definition of "Net Availability Reserve", a
certificate of an authorized financial or accounting officer of the Borrower
confirming the Fixed Charge Coverage Ratio for the Rolling Period ended on the
last day of such Fiscal Quarter; (c) within thirty (30) days after the end of
each month a Consolidated Balance Sheet as at the end of such period and
statements of profit and loss, cash flow and surplus of the Borrower for such
period, certified by an authorized financial or accounting officer of the
Borrower; (d) copies of all reports provided to the Bond Trustee pursuant to
Section 10.17 of the Bond Indenture, at the same time such reports are provided
to the Bond Trustee, and (e) from time to time, such further information
regarding the business affairs and financial condition of the Borrower and the
Guarantors as the Lender may reasonably request, including, (i) the accountant's
management practice letter, (ii) annual cash flow projections in the Borrower's
standard form as approved by the Lender, acting reasonably; (iii) copies of any
and all annual compliance opinions given by the Borrower's counsel to the
trustee under the Bond Indenture, (iv) any and all material reports, notices or
communications with the Ministry of Forests concerning its annual timber cutting
rights, the Forest Tenures, the Licences and other Authorizations required to
operate its business, and (v) any and all material reports, notices or
communications with any First Nations group or its representatives regarding
land claims or compensation therefor. The Borrower and the Guarantors covenant
and agree to authorize and direct the Ministry of Forests to provide the Lender
with all Ministry of Forests accounts receivable weekly aged balance printouts
for each of the Borrower and the Guarantors (for the purposes of the Lender
monitoring whether there are any arrears that could be secured by an
Encumbrance) at the frequency which the Lender may determine in its sole
discretion from time to time and in any event at least semi-monthly and more
frequently in the Lender's sole discretion upon a Default or an Event of Default
which is continuing. Each financial statement which the Borrower is required to
submit hereunder must be accompanied by an officer's certificate, signed by a
designated authorized signing officer of the Borrower, pursuant to which such
officer must certify that: (x) the financial statement(s) fairly and accurately
represent(s) the Borrower's and the Guarantors' financial condition at the end
of the particular accounting period, as well as the Borrower's and the
Guarantors' operating results during such accounting period, subject to year-end
audit adjustments; (y) during the particular accounting period: (A) there has
been no Default or Event of Default under this Financing Agreement, provided
however, that if any such officer has knowledge that any Default or Event of
Default has occurred during such period, the existence of and a detailed
description of same shall be set forth in such officer's certificate; (B) the
Borrower and the Guarantors have not received any notice of cancellation with
respect to any of its insurance policies, including the Policies, which it is
required to maintain or is contemplated pursuant hereto; and (C) the Borrower
and the Guarantors have not received any notice that could result in a Material
Adverse Effect, including from any Person under the Woodworker Lien Act (British
Columbia) or from any Governmental Entity concerning duties, Taxes, Royalties,
Priority Payables, cutting rights, the Forest Tenures, the Licences or other
Authorizations required to operate their business; and (Z) they are current with
respect to any and all pension benefit obligations, Taxes, Royalties and
Priority Payables (unless such amounts are being diligently contested in good
faith by appropriate proceedings sufficient to prevent any enforcement with
respect to same, adequate reserves have been established in accordance with GAAP
and such matters, in sufficient detail, are set forth in such Officers'
certificate); substantially in the form attached hereto as Exhibit B.

7.9 Until termination of the Financing Agreement and indefeasible payment and
satisfaction of all Obligations hereunder, the Borrower and the Guarantors
covenant and agree

<PAGE>

                                     - 40 -

that, without the prior written consent of the Lender, except as otherwise
herein provided, the Borrower and the Guarantors will not:

      (a)   mortgage, assign, pledge or otherwise permit any Encumbrance or
            judgment, to exist on or claim to become enforceable against any of
            the property or assets of the Borrower or a Guarantor, except for
            Permitted Encumbrances;

      (b)   sell, assign, transfer, lease, rent, factor or otherwise dispose of
            any of the Collateral or the Guarantor Collateral other than in the
            ordinary course of business and on terms and conditions satisfactory
            to the Lender in its absolute and sole discretion;

      (c)   except for the transactions contemplated by the Plan of Arrangement,
            enter into any amalgamation, consolidation, reorganization, merger,
            continuance into another jurisdiction, restructuring or plan of
            arrangement resulting in a reorganization of share capital or file
            for a stay of proceedings under the Companies' Creditors
            Arrangements Act (Canada) or the Bankruptcy and Insolvency Act
            (Canada) staying the rights and remedies of the Lender;

      (d)   cease to be engaged primarily in the forest products business;

      (e)   move any Inventory forming part of the Collateral or the Guarantor
            Collateral from any location set out from time to time in Schedule 1
            other than in the ordinary course of business. The Borrower and the
            Guarantors shall have the right to remove or add any locations set
            out at any time in Schedule 1, provided that the lender's security
            in the Collateral or the Guarantor Collateral is not, in the sole
            opinion of the Lender, adversely affected and that the Lender may
            not consider such Assets at any such additional location to be
            Eligible Inventory unless, if applicable, appropriate Availability
            Reserves or a landlord waiver, bailee waiver or access agreement to
            the Lender's satisfaction in its absolute and sole discretion has
            been delivered in respect of such location;

      (f)   compromise, adjust or extend the time for payment of any Accounts
            forming part of the Collateral or the Guarantor Collateral or grant
            any discounts, allowances or credits thereon in each case other than
            in the normal course of business consistent with past practice;

      (g)   Pay any management fees, declare any dividends, make any loans or
            repay any indebtedness or other amounts or make any other similar
            payments to their shareholders other than, payment of principal and
            interest when due under the Bond Indenture;

      (h)   make or agree to make any voluntary redemption of Secured Bonds or
            any purchase of Secured Bonds in the open market, whether pursuant
            to Section 11.10 of the Bond Indenture or otherwise, or exercise any
            defeasance right under Article 14 of the Bond Indenture;

<PAGE>

                                     - 41 -

      (i)   permit the Fixed Charge Coverage Ratio to be less than 1.10:1.00 at
            any time after the Net Availability Reserve has been reduced from
            $40,000,000 to $25,000,000 as contemplated in the definition of "Net
            Availability Reserve".

7.10 The Borrower and the Guarantors covenant and agree to: (a) deliver to the
Lender any other documents, statements, certificates, records, appraisals,
notices, communications, printouts, reports and information (including
concerning any of the Policies, environmental reports and the Ministry of
Forests accounts receivable weekly aged balance printouts), the Lender may
reasonably require from time to time; (b) maintain any and all Authorizations
required to operate its business and shall immediately notify the Lender in
writing of any termination, suspension, rescission, amendment, supplement,
cancellation, change or expiration of such Authorizations and of any violation
of any Authorizations, industry standard or Laws which could have a Material
Adverse Effect; (c) fulfil and perform, in the ordinary course of its business,
any and all obligations to its customers which could impact the recoverability
of any Account; (d) forthwith notify the Lender in writing of any matter which
could have a Material Adverse Effect, including any proceeding commenced by any
Person under the Woodworker Lien Act (British Columbia) or any First Nations
group against the Borrower's or Guarantor's Assets or any claim made or
threatened by any Governmental Entity concerning duties relating to the
Borrower's and the Guarantors' business; and (e) forthwith notify the Lender in
writing of any matter which could jeopardize its first secured priority
position, subject to Permitted Encumbrances, over the Collateral and the
Guarantor's Collateral.

7.11 The Borrower and the Guarantors hereby covenant and agree, on a joint and
several basis, to indemnify and hold harmless the Lender and its officers,
directors, employees, agents, representatives, advisors and affiliates (each an
"INDEMNIFIED PARTY") from, and holds each of them harmless from and against, any
and all losses, liabilities, obligations, claims, actions, proceedings, demands,
damages, penalties, costs, fees and expenses (including legal fees) and any
payments made by the Lender pursuant to any indemnity provided by it with
respect to or to which any Indemnified Party could be subject insofar as such
losses, liabilities, obligations, claims, actions, damages, penalties,
disbursements, costs, fees or expenses relate to the Loan Documents, including
those which may arise from or relate to: (a) the Depository Account, the Blocked
Accounts, any depository account of the Borrower and/or the agreements executed
in connection therewith and any indemnity given by the Lender to The Toronto
Dominion Bank in respect of standby letters of credit or otherwise; (b) any and
all claims, costs, expenses or fees asserted against or incurred by the Lender
as a result of the Borrower's or any Guarantor's failure to (i) comply with any
Authorizations required for it to operate its business or any environmental
pollution, hazardous material or environmental clean-up relating to any of its
Collateral or Guarantor' Collateral locations, or (ii) pay any amounts to any
Person who is in possession and/or control of any of the Collateral or the
Guarantor Collateral; (c) or any claim or expense which results from the
Borrower's or any Guarantor's operations and use of any of its Collateral or
Guarantor Collateral locations, which the Lender may sustain or incur, all
whether through the alleged or actual negligence of such person or otherwise,
except and to the extent that the same results solely and directly from the
gross negligence or wilful misconduct of such Indemnified Party as finally
determined by a court of competent jurisdiction. The Borrower and the Guarantors
hereby agree that this indemnity shall be severable from and shall survive any
termination of this Financing Agreement, as well as payments of Obligations
which may be due hereunder. The Lender may, in its sole business judgement,
establish such Availability Reserves with respect thereto as it may deem
advisable under the circumstances and, upon any termination

<PAGE>

                                     - 42 -

hereof, hold such reserves as cash reserves in a cash collateral account as
continuing general collateral security or otherwise for any such contingent
liabilities.

7.12 The Lender shall be entitled to obtain Inventory appraisal reports on an
annual basis, and more frequently as the Lender may require in its reasonable
business judgement, from an appraiser mutually acceptable to the Borrower and
the Lender, at the Borrower's sole cost and expense.

7.13 The Borrower and the Guarantors covenant and agree to provide access to the
Lender and its agents, representatives, appraisers, examiners and employees to
all Collateral and Guarantor Collateral locations in respect of any and all such
appraisals and field examinations and audits.

7.14 The Borrower and the Guarantors covenant and agree to defend the Collateral
and Guarantor Collateral against the claims and demands of all persons.

7.15 The Borrower and the Guarantors covenant and agree not to amend or extend
any payment terms or do any other act or thing where doing so would result in
any Trade Receivable being excluded under coverage under any Policy or affect
the ability to make a claim thereunder.

7.16 The Borrower and the Guarantors covenant and agree not to change any of
their respective legal names without providing the Lender thirty (30) days prior
written notice of their intention to make such change.

7.17 The Borrower and the Guarantors covenant and agree to keep any and all
computer hardware, software and/or systems relating to the Collateral and the
Guarantor Collateral at the Collateral and the Guarantor Collateral locations
unless and until a satisfactory access agreement is executed and delivered to
and in favour of the Lender, in form in substance satisfactory to the Lender,
acting reasonably.

7.18 The Borrower and the Guarantors covenant and agree to maintain any and all
worker's compensation or similar insurance as may be required under the laws of
any jurisdiction in which they operate.

7.19 The Borrower and each Guarantor covenants and agrees to maintain its rights
in, and the value of, its General Intangibles in the ordinary course of its
business, including by making timely payment with respect to any applicable
licensed rights, including any Royalties required to be paid to the Ministry of
Forests, unless failure to do so would not have a Material Adverse Effect,
result in an Encumbrance against any of the Collateral or prevent the Lender
from having unfettered access to the Collateral at all times.

7.20 The Borrower and each Guarantor covenants and agrees to execute and deliver
to and in favour of the Lender any and all data processing services and licenced
hardware and software use and access agreements ("COMPUTER ACCESS AGREEMENTS")
the Lender may reasonably require in connection with this Financing Agreement.

7.21 Each of the Borrower and the Guarantors covenant and agree that the
indebtedness evidenced by the Pulpco Note is hereby subordinated and postponed
to the prior indefeasible payment in full of the Obligations, and any security
interest granted to secure the

<PAGE>

                                     - 43 -

obligations evidenced by the Pulpco Note are hereby subordinated and postponed
to the security interests granted under the Security Agreement. Neither the
Borrower nor any Guarantor will take or permit any action which is inconsistent
with such subordinations and postponements.

                                    ARTICLE 8
                          INTEREST, FEES AND EXPENSES

8.1 Interest on Prime Rate Loans shall be payable monthly, in arrears, to the
Lender as of the end of each month and interest on BA Equivalent Loans shall be
payable to the Lender on the applicable Expiry Date, in arrears, based on a 365
day year and a 366 day year in the case of a leap year. Interest on Prime Rate
Loans shall be an amount equal to the Prime Rate plus three-quarters of one
percent (0.75%) per annum on the balance owing by the Borrower to the Lender in
the Revolving Loan Account for Prime Rate Loans at the close of each day during
such month. In the event of any change in the Prime Rate, the rate hereunder for
Prime Rate Loans shall change, as of the date of such change, so as to remain
three-quarters of one percent (0.75%) above the Prime Rate. The Lender shall be
entitled to charge the Borrower's Revolving Loan Account for any and all fees,
costs and expenses incurred by the Lender and permitted to be charged by the
Lender under this Financing Agreement at the rate provided for herein for Prime
Rate Loans when due until all such Obligations have been indefeasibly paid in
full. Upon and after the occurrence of a Default or an Event of Default which is
continuing and the giving of any required notice by the Lender in accordance
with the provisions hereof, all Obligations shall bear interest at the Default
Rate of Interest.

8.2 In consideration of the Lender's assistance with the issuance of Letters of
Credit, the Borrower shall pay the Lender the Letter of Credit Fee which shall
be an amount equal to two and three-quarters of one percent (2-3/4%) per annum,
payable monthly in advance, on the face amount of each Letter of Credit;
provided that upon and after the occurrence of a Default or an Event of Default
which is continuing and the giving of any required notice by the Lender in
accordance with the provisions hereof, the Letter of Credit Fee shall be an
amount equal to four and three-quarters of one percent (4-3/4%) per annum.

8.3 Any and all charges, fees, commission, costs and expenses charged to the
Lender for the Borrower's account by an Issuing Bank in connection with, or
arising out of, Letters of Credit or out of transactions relating thereto will
be charged to the Revolving Loan Account in full when charged to, or paid by the
Lender, or as may be due upon any termination of this Financing Agreement.

8.4 Upon the last Business Day of each month, commencing on the last Business
Day of the month that this Financing Agreement is executed and delivered, the
Borrower shall pay to the Lender the Line of Credit Fee.

8.5 To induce the Lender to enter into this Financing Agreement and to make
Accommodations to the Borrower, the Borrower shall pay to the Lender, on the
Closing Date, the Loan Facility Fee.

8.6 The Borrower shall pay to the Lender on the Closing Date and on the first
Business Day of each month thereafter an administrative management fee in the
amount of $5,000, which the Borrower acknowledges and agrees shall be fully
earned when paid (the "ADMINISTRATIVE MANAGEMENT FEE").

<PAGE>

                                     - 44 -

8.7 The Borrower shall promptly reimburse or pay the Lender for any and all
Out-of-Pocket Expenses.

8.8 The Borrower shall pay the Lender's standard charges, fees, costs and
expenses for (i) the Lender's field examinations and audits in an amount equal
to $1,500 per person per day plus such field examiner's and auditor's
out-of-pocket expenses, (ii) protecting, safeguarding, preserving or disposing
of all or any part of the Collateral or Guarantor Collateral, and (iii)
enforcing any of the Lender's rights hereunder or under any other Loan Document
(which fees shall be in addition to any and all Out-of-Pocket Expenses), as
incurred by the Lender.

8.9 The Borrower hereby authorizes and directs the Lender to charge the
Revolving Loan Account with the amount of all payments due hereunder as such
payments become due. The Borrower acknowledge and confirm that any charges which
the Lender may so make to the Revolving Loan Account as herein provided will be
made as an Accommodation to the Borrower.

8.10 In the event that the Lender (or any financial institution which may from
time to time become a Lender hereunder (hereafter a "PARTICIPANT")) shall have
determined in the exercise of its reasonable business judgment that, subsequent
to the Closing Date, any change in applicable Law or guideline regarding capital
adequacy, or any change in the interpretation or administration thereof, or
compliance by the Lender or such participant with any new request or directive
regarding capital adequacy (whether or not having the force of Law) of any such
authority, central bank or comparable agency, has or would have the effect of
reducing the rate of return on the Lender's or such participant's capital as a
consequence of its obligations hereunder to a level below that which the Lender
or such participant could have achieved but for such adoption, change or
compliance (taking into consideration the Lender or such participant's policies
with respect to capital adequacy) by an amount reasonably deemed by the Lender
or such participant to be material, then, from time to time, the Borrower shall
pay, no later than five (5) days following the Lender's or such participant's
demand, to the Lender or such participant such additional amount or amounts as
will compensate the Lender's or such participant's for such reduction. In
determining such amount or amounts, the Lender or such participant may use any
reasonable averaging or attribution methods. The protection of this Section 8.10
of Article 8 shall be available to the Lender or such participant regardless of
any possible contention of invalidity or inapplicability with respect to the
applicable Law or condition. A certificate of the Lender or such participant
setting forth such amount or amounts as shall be necessary to compensate the
Lender or such participant with respect to this Section 8.10 of Article 8 and
the calculation thereof when delivered to the Borrower shall be, absent manifest
error, prima facie evidence of such amount. Notwithstanding anything in this
Section to the contrary, in the event the Lender or such participant has
exercised its rights pursuant to this Section, and subsequent thereto determines
that the additional amounts paid by the Borrower in whole or in part exceed the
amount which the Lender or such participant actually required to be made whole,
the excess, if any, shall be returned to the Borrower by the Lender or such
participant.

8.11 In the event that any applicable Law or treaty, or any change therein or in
the interpretation or application thereof, or compliance by the Lender or such
participant with any request or directive (whether or not having the force of
Law) from any central bank or other financial, monetary or other authority,
shall:

<PAGE>

                                     - 45 -

      (a)   subject the Lender or such participant to any tax of any kind
            whatsoever with respect to this Financing Agreement or change the
            basis of taxation of payments to the Lender or such participant of
            principal, fees, interest or any other amount payable hereunder or
            under any other documents (except for changes in the rate of tax on
            the overall net income of the Lender or such participant by the
            federal government or the jurisdiction in which it maintains its
            principal office);

      (b)   impose, modify or hold applicable any reserve, special deposit,
            assessment or similar requirement against assets held by, or
            deposits in or for the account of, advances or loans by, or other
            credit extended by the Lender or such participant by reason of or in
            respect to this Financing Agreement or the other Loan Documents; or

      (c)   impose on the Lender or such participant any other condition with
            respect to this Financing Agreement or any other Loan Document;

and the result of any of the foregoing is to increase the cost to the Lender or
such participant of making, renewing or maintaining its loans hereunder by an
amount that the Lender or such participant deems to be material in the exercise
of its reasonable business judgment and acting in good faith or to reduce the
amount of any payment (whether of principal, interest or otherwise) in respect
of any of the loans by an amount that the Lender or such participant deems to be
material in the exercise of its reasonable business judgment and acting in good
faith, then, in any case the Borrower shall pay the Lender or such participant,
within five (5) days following its demand, such additional cost or such
reduction, as the case may be. For purposes of this Section 8.11, the term
"taxes" does not include income taxes, franchise taxes or capital taxes imposed
on the Lender or such participant. If the Lender and any participant becomes
entitled to claim any additional amount pursuant to this Section 8.11, it shall
notify the Borrower of the event by reason of which it has become so entitled
upon the Lender becoming aware of such event. The Lender or such participant
shall certify the amount of such additional cost or reduced amount to the
Borrower and the calculation thereof and such certification shall be, absent
manifest error, prima facie evidence of such amount. Notwithstanding anything in
this Section 8.11 to the contrary, in the event the Lender or such participant
has exercised its rights pursuant to this Section, and subsequent thereto
determine that the additional amounts paid by the Borrower in whole or in part
exceed the amount which the Lender or such participant actually required
pursuant hereto, the excess, if any, shall be returned to the Borrower by the
Lender or such participant.

                                    ARTICLE 9
                                     POWERS

9.1 The Borrower and each Guarantor hereby constitutes the Lender, or any Person
or agent the Lender may designate, as its attorney-in-fact, at the Borrower's
cost and expense, and upon the occurrence of a Default or an Event of Default
which is continuing, the Lender may exercise all of the following powers, which
being coupled with an interest, shall be irrevocable until all Obligations to
the Lender have been indefeasibly paid in full:

      (a)   to receive, take, endorse, sign, assign and deliver, all in the name
            of the Lender or the Borrower or any Guarantor, as applicable, any
            and all cheques, notes, drafts,

<PAGE>

                                     - 46 -

            and other documents or instruments relating to the Collateral and
            the Guarantor Collateral, as applicable;

      (b)   to request from customers indebted on Accounts at any time, in the
            name of the Lender, information concerning the amounts owing on the
            Accounts;

      (c)   to request from customers indebted on Accounts at any time, in the
            name of the Borrower or any Guarantor, as applicable, in the name of
            chartered accountants designated by the Lender or in the name of the
            Lender's designee, information concerning the amounts owing on the
            Accounts;

      (d)   to transmit to customers indebted on Accounts notice of the Lender's
            interest therein and to notify customers indebted on Accounts to
            make payment directly to the Lender for the Borrower's or any
            Guarantor's account, as applicable;

      (e)   to take or bring, in the name of the Lender, or the Borrower or any
            Guarantor, as applicable, all steps, actions, suits or proceedings
            deemed by the Lender necessary or desirable to enforce or effect
            collection of the Accounts; and

      (f)   to request from any Persons or Governmental Entities contemplated in
            Section 7.2 of Article 7 hereof, any and all information concerning
            the Borrower or any Guarantor relating to any and all matters
            contemplated in Section 7.2 of Article 7 hereof.

                                   ARTICLE 10
                         EVENTS OF DEFAULT AND REMEDIES

10.1 Notwithstanding anything hereinabove to the contrary, the Lender may
terminate this Financing Agreement immediately upon the occurrence of any of the
following Events of Default:

      (a)   failure of the Borrower to pay any of the Obligations within three
            (3) days of the due date thereof, provided that nothing contained
            herein shall prohibit the Lender from charging such amounts to the
            Revolving Loan Account on the due date thereof;

      (b)   any representation or warranty made or deemed to be made by the
            Borrower or any Guarantor under this Financing Agreement or any
            other Loan Document shall prove to have been incorrect in any
            material respect when made or deemed to be made;

      (c)   the Borrower or any Guarantor shall fail to perform or observe any
            term, covenant or agreement contained in this Financing Agreement or
            any other Loan Document on its part to be performed or observed and
            such failure shall remain unremedied for ten (10) days after written
            notice thereof shall have been given to the Borrower by the Lender;

      (d)   a breach by the Borrower or any Guarantor of any representation,
            warranty, covenant or obligation under any Material Agreement (other
            than the non

<PAGE>

                                     - 47 -

            payment of interest under the Indentures), any mortgage of any real
            property or any collective bargaining agreement which breach could
            result in a Material Adverse Effect and which remains unremedied
            within the applicable period provided for in such agreement;

      (e)   a default or event of default under the Bond Indenture which remains
            unremedied within the applicable period provided for in the Bond
            Indenture;

      (f)   the failure of the Borrower or any Guarantor to pay any and all
            Royalties, Taxes and Priority Payables when due, unless failure to
            pay such amounts is disclosed to the Lender, being diligently
            contested in good faith by appropriate proceedings sufficient to
            prevent any enforcement with respect to same and adequate reserves
            have been established in accordance with GAAP;

      (g)   if the Borrower or any Guarantor breaches or is in violation of any
            Authorization, Law or industry standard, in connection with the
            operation of its business which breach or violation would have a
            Material Adverse Effect and which remains unremedied for ten (10)
            days;

      (h)   the Borrower or any Guarantor shall: (i) admit in writing its
            inability to pay its debts generally, or make a general assignment
            for the benefit of creditors; (ii) file a notice of intention to
            file a proposal under any Law relating to bankruptcy, insolvency or
            reorganization or relief of creditors; (iii) institute or have
            instituted against it any proceeding seeking (x) to adjudicate it a
            bankrupt or insolvent, (y) any liquidation, winding-up,
            reorganization, arrangement, adjustment, protection, relief or
            composition of it or its debts under any Law relating to bankruptcy,
            insolvency or reorganization or relief of debtors, or (z) the entry
            of an order for relief or the appointment of a receiver, trustee or
            other similar official for it or for any substantial part of its
            Assets, and, in the case of any such proceeding instituted against
            it (but not instituted by it), such proceeding shall remain
            undismissed or unstayed for a period of ten (10) days or any of the
            actions sought in such proceeding (including the entry of an order
            for relief against it or the appointment of a receiver, trustee,
            custodian or other similar official for it or for any substantial
            part of its Assets) shall occur; or (iv) take any action to
            authorize any of the foregoing events;

      (i)   any legally binding judgment or order for the payment of money in
            excess of $5,000,000 shall be rendered against the Borrower or any
            Guarantor and, if such judgment remains unpaid, either: (i)
            enforcement proceedings shall have been commenced by any creditor
            upon such judgment or order; or (ii) there shall be any period of
            ten (10) consecutive days during which a stay of enforcement of such
            judgment or order, by reason of a pending appeal or otherwise, shall
            not be in effect;

      (j)   any failure to deal with any money in accordance with the cash
            management and Blocked Accounts arrangements contemplated in this
            Financing Agreement other than if the Borrower and the Guarantors
            provide their customers with appropriate notice and instructions in
            order to comply with such cash management and Blocked Accounts
            arrangements and notwithstanding such notice and

<PAGE>

                                     - 48 -

            instructions, a customer inadvertently uses the old, incorrect wire
            transfer instructions and other than in respect of inadvertent
            clerical errors or inadvertent errors made by The Toronto-Dominion
            Bank (or any other applicable cash management bank), which are
            forthwith rectified;

      (k)   the loss, damage, destruction or confiscation of any material part
            of the Borrower's Collateral or any of the Guarantor's Collateral,
            unless upon such event, at the option of the Lender, the Borrower or
            the applicable Guarantor pays to the Lender such amount as the
            Lender in its absolute and sole discretion determines is
            satisfactory, including insurance proceeds forthwith upon receipt of
            such insurance proceeds, if any; or

      (l)   if any execution, sequestration, garnishment, claim, extent or other
            process of any court, tribunal or other Person becomes enforceable
            against the Borrower or any Guarantor for an amount in excess of
            $5,000,000 or if a distress or analogous process for an amount in
            excess of $5,000,000 becomes enforceable against or is levied upon
            the Collateral or the Guarantor Collateral and with respect to any
            such enforcement before judgement under the Laws of the Province of
            British Columbia, is not stayed or dismissed within fifteen (15)
            days after the date of such enforcement before judgement.

10.2 Upon the occurrence of an Event of Default which is continuing, the Lender
may declare that the Revolving Line of Credit provided for in this Financing
Agreement, and the obligation of the Lender to make Revolving Loans, assist with
the opening of Letters of Credit and provide Letter of Credit Guarantees or make
other accommodations of credit available to the Borrower, shall immediately
terminate and cease without any further notice or demand to the Borrower or
Guarantors whatsoever and, for greater certainty, it is hereby understood and
agreed by the Borrower and the Guarantors that the Revolving Line of Credit
shall be capped at the amount of the outstanding Obligations owing on the date
and at the time of the occurrence of such Event of Default and at the amount of
the outstanding Obligations owing at the end of business of each day thereafter,
that no Accommodations shall be made or required to be made, notwithstanding any
margining availability calculated in accordance with the terms and provisions
hereof, that the definition of "Revolving Line of Credit" hereunder shall
automatically be amended at the end of business of each day accordingly to
reflect the revised maximum authorized credit limit established hereunder and
that the Borrower shall continue to be required to comply with its obligations
under Section 3.4 of this Financing Agreement notwithstanding the termination of
the Revolving Line of Credit, unless such Event of Default is waived in writing
by the Lender or cured to the Lender's satisfaction in the exercise of the
Lender's reasonable judgment. In addition, upon the occurrence of an Event of
Default which is continuing, the Lender may declare that: (a) all Obligations
shall become immediately due and payable, including the face amount of all
outstanding Letters of Credit and any and all interest accrued thereon up to the
date thereof and with respect to BA Equivalent Loans, on a pro-rated basis,
given the applicable Interest Period; (b) the Lender may charge the Borrower the
Default Rate of Interest on all then outstanding or thereafter incurred
Obligations in lieu of the interest otherwise provided for in this Financing
Agreement, provided that, with respect to this Section 10.2 the Lender has given
the Borrower written notice of the Event of Default; and (c) the Lender may
immediately terminate this Financing Agreement. The exercise of any remedy is

<PAGE>

                                     - 49 -

not excluding any other remedy, which may be exercised at any time and from time
to time by the Lender.

10.3 Immediately upon the occurrence of any Event of Default which is continuing
and upon the enforcement of its security in accordance with applicable Law, in
addition to all of its rights and remedies under the PPSA and any other like
statute in other jurisdictions, the Lender may, to the extent permitted by Law:
(a) remove from any premises where same may be located, any and all books and
records, computers, electronic media and software programs associated with any
Collateral or Guarantor Collateral (including any electronic records, contracts
and signatures pertaining thereto), documents, instruments, files and records,
and any receptacles or cabinets containing same, relating to the Accounts, or
the Lender may use, at the Borrower's expense, such of the Borrower's personnel,
supplies or space at the Borrower's or the Guarantors' places of business or
otherwise, as may be necessary to properly administer and control the Accounts
or the handling of collections and realizations thereon; (b) collect any
Accounts, and bring suit, in the name of the Borrower or any Guarantor, as
applicable, or the Lender, and generally shall have all other rights respecting
Accounts, including the right to accelerate or extend the time of payment,
settle, compromise, release in whole or in part any amounts owing on any
Accounts and issue credits in the name of the Borrower or any Guarantor, as
applicable, or the Lender; (c) sell, assign and deliver the Collateral or
Guarantor Collateral and any returned, reclaimed or repossessed Inventory, with
or without advertisement, at public or private sale, for cash, on credit or
otherwise, at the Lender's sole option and discretion, and the Lender may bid or
become a purchaser at any such sale; (d) foreclose the security interests in the
Collateral or the Guarantor Collateral created by the Loan Documents by any
available legal procedure, or to take possession of any or all of the
Collateral, including, without limitation, any Inventory and/or other Collateral
or Guarantor Collateral without judicial process, and to enter any premises
where any Inventory and/or other Collateral or Guarantor Collateral may be
located for the purpose of taking possession of or removing the same; and (e)
exercise any other rights and remedies provided in law, in equity, by contract
or otherwise. The Lender shall have the right, without notice or advertisement,
to sell, lease, or otherwise dispose of all or any part of the Collateral or the
Guarantor Collateral, whether in its then condition or after further preparation
or processing, in the name of the Borrower or any Guarantor or the Lender, or in
the name of such other party as the Lender may designate, either at public or
private sale, in lots or in bulk, for cash or for credit, with or without
warranties or representations, and upon such other terms and conditions as the
Lender in its sole discretion may deem advisable, and the Lender shall have the
right to purchase at any such sale. If any Collateral or Guarantor Collateral
shall require rebuilding, repairing, maintenance or preparation, the Lender
shall have the right, at its option, to do such of the aforesaid as is
necessary, for the purpose of putting the Collateral or Guarantor Collateral in
such saleable form as the Lender shall deem appropriate and any such costs shall
be deemed an Obligation hereunder. The Borrower and the Guarantors agree, at the
request of the Lender, to assemble the Collateral or Guarantor Collateral and to
make it available to the Lender at its premises and to make available to the
Lender its premises and facilities for the purpose of the Lender's taking
possession of, removing or putting the Collateral or Guarantor Collateral in
saleable form. The net cash proceeds resulting from the Lender's exercise of any
of the foregoing rights, (after deducting all charges, costs and expenses,
including reasonable legal fees) shall be applied by the Lender to the payment
of the Obligations, whether due or to become due, in such order as the Lender
may elect, and the Borrower and the Guarantors shall remain liable to the Lender
for any deficiencies, and the Lender in turn agrees to remit to the Borrower and
the Guarantor or its successors or assigns, any surplus resulting therefrom. The
enumeration

<PAGE>

                                     - 50 -

of the foregoing rights is not intended to be exhaustive and the exercise of any
right shall not preclude the exercise of any other rights, all of which shall be
cumulative. The Borrower and the Guarantors, on a joint and several basis,
hereby indemnify the Lender and hold the Lender harmless from and against any
and all losses, damages, costs, expenses, claims, obligations, actions, suits,
proceedings, demands, penalties, liabilities, Out-of-Pocket Expenses or
otherwise, incurred or imposed on them by reason of the exercise of any of its
rights, remedies and interests hereunder, including from any sale or transfer of
Collateral or the Guarantor Collateral, preserving, maintaining or securing the
Collateral or the Guarantor Collateral, defending its interests in Collateral or
the Guarantor Collateral (including pursuant to any claims brought by the
Borrower or any Guarantor, the Borrower or any Guarantor as
debtor-in-possession, any secured or unsecured creditors of the Borrower or any
Guarantor, any trustee, monitor, liquidator, receiver or receiver and manager,
or otherwise), and the Borrower and the Guarantors, on a joint and several
basis, hereby agree to so indemnify and hold the Lender harmless, absent their
gross negligence or wilful misconduct as finally determined by a court of
competent jurisdiction. The foregoing indemnification shall be severable from
and shall survive any termination of this Financing Agreement until such time as
all Obligations (including the foregoing) have been finally and indefeasibly
paid in full.

                                   ARTICLE 11
                                   TERMINATION

11.1 Unless terminated in accordance with Article 10 or this Section 11.1, the
Maturity Date shall automatically be renewed after the initial three (3) years
from the date hereof for successive one (1) year periods. For greater certainty,
the Lender may terminate this Financing Agreement immediately upon the
occurrence and continuance of an Event of Default. The Borrower may terminate
this Financing Agreement at any time upon sixty (60) days' written notice to the
Lender prior to the then applicable Maturity Date, provided that the Borrower
pay to the Lender, immediately on demand, the Early Termination Fee, if the
termination does not fall on a Maturity Date. Each of the Borrower and the
Lender shall have the right not to renew this Financing Agreement at the end of
any applicable Maturity Date upon ninety (90) days prior written notice to the
other during the initial three (3) years from the date hereof and on ninety (90)
days prior written notice to the other thereafter. All Obligations shall become
due and payable as of any termination under this Section 11.1 or under Article
10 hereof and, pending a final accounting, the Lender may withhold any balances
in the Borrower's account (unless supplied with an indemnity satisfactory to the
Lender) to cover all of the Obligations, whether absolute or contingent,
including, but not limited to, cash reserves for any contingent Obligations,
including, without limitation, an amount equal to one hundred percent (102%) of
the face amount of any outstanding Letters of Credit. All of the Lender's
rights, liens and security interests shall continue after any termination until
all Obligations have been indefeasibly paid and satisfied in full.

                                   ARTICLE 12
                                   ASSIGNMENTS

12.1 The Lender shall have the right at any time to assign to one or more
commercial banks, commercial finance lenders or other financial institutions all
or a portion of its rights and obligations under this Financing Agreement
(including, without limitation, its obligations under the Revolving Loans and
its rights and obligations with respect to Letters of Credit). Upon

<PAGE>

                                     - 51 -

execution of an assignment and transfer agreement (a) the assignee thereunder
shall be a party hereto and, to the extent that rights and obligations hereunder
have been assigned to it pursuant to such assignment, have the rights and
obligations of the Lender hereunder, and (b) the Lender shall, to the extent
that its rights and obligations hereunder have been assigned by it pursuant to
such assignment, relinquish its rights and be released from its obligations
under this Financing Agreement. The Borrower and the Guarantors shall, if
necessary, execute any documents reasonably required to effectuate the
assignments. It shall be a condition of any assignment by the Lender hereunder
that (i) the amount being assigned shall, if there is no Event of Default which
is continuing, in no event be less than the lesser of $10,000,000 or the entire
interest of the Lender hereunder, and the parties to such assignment shall
execute and deliver to the Lender an assignment and transfer agreement.

                                   ARTICLE 13
                                 MISCELLANEOUS

13.1 This Financing Agreement, the Loan Documents executed and delivered in
connection therewith and prior to the Closing Date, the Commitment Letter,
constitute the entire agreement between the Borrower, the Guarantors and the
Lender; supersede any prior agreements; can be changed only by a writing signed
by the Borrower, the Lender and the Guarantors; and shall bind and benefit the
Borrower, the Lender, the Guarantors and their respective successors and
assigns.

13.2 For purposes of the Interest Act (Canada): (i) whenever any interest or fee
under this Financing Agreement is calculated using a rate based on a year of 360
or 365 days, as applicable, such rate determined pursuant to such calculation,
when expressed as an annual rate, is equivalent to (x) such calculated rate, (y)
multiplied by the actual number of days in the calendar year in which the period
for which such interest or fee is calculated ends, and (z) divided by 360 or
365, as applicable, (ii) the principle of deemed reinvestment of interest shall
not apply to any interest calculation under this Agreement; and (iii) the rates
of interest stipulated in this Agreement are intended to be nominal rates and
not effective rates or yields.

13.3 Notwithstanding any provision to the contrary contained in this Financing
Agreement, in no event shall the aggregate "INTEREST" (as defined in Article 347
of the Criminal Code, Revised Statutes of Canada, 1985, c.46 as the same may be
amended, replaced or re-enacted from time to time) payable under this Financing
Agreement exceed the maximum amount of interest on the "CREDIT ADVANCED" (as
defined in that Article) under this Financing Agreement lawfully permitted under
that Article and, if any payment, collection or demand pursuant to this
Financing Agreement in respect of "INTEREST" (as defined in that Article) is
determined to be contrary to the provisions of that Article, such payment,
collection or demand shall be deemed to have been made by mutual mistake of the
Borrower and the Lender and the amount of such payment or collection shall be
refunded to the Borrower. For purposes of this Financing Agreement, the
effective annual rate of interest shall be determined in accordance with
generally accepted actuarial practices and principles over the term the Line of
Credit is outstanding on the basis of annual compounding of the lawfully
permitted rate of interest and, in the event of dispute, a certificate of a
fellow of the Canadian Institute of Actuaries appointed by the Lender will be
conclusive for the purposes of such determination.

13.4 If any provision hereof or of any other agreement made in connection
herewith is held to be illegal or unenforceable, such provision shall be fully
severable, and the remaining

<PAGE>

                                     - 52 -

provisions of the applicable agreement shall remain in full force and effect and
shall not be affected by such provision's severance.

13.5 Except as otherwise herein provided, any notice or other communication
required hereunder shall be in writing (provided that, any electronic
communications from the Borrower or the Guarantors with respect to any request,
transmission, document, electronic signature, electronic mail or facsimile
transmission shall be deemed binding on the Borrower or the Guarantors for
purposes of this Financing Agreement, provided further that any such
transmission shall not relieve the Borrower or the Guarantors from any other
obligation hereunder to communicate further in writing), and shall be deemed to
have been validly served, given or delivered when hand delivered or sent by
facsimile, or three (3) days after deposit in the mail, with proper first class
postage prepaid and addressed to the party to be notified or to such other
address as any party hereto may designate for itself by like notice, as follows:

(A)   if to the Lender, at:

      CIT Business Credit Canada Inc.
      207 Queens Quay West, Suite 700
      Toronto, Ontario M5J 1A7

      Attn: Account Executive
      Fax No.: (416) 507-5100

      with a copy to:

      Blake, Cassels &: Graydon LLP
      Suite 2800, 199 Bay Street
      Commerce Court West
      Toronto, Ontario M5L 1A9

      Attn: Michael R. Harquail
      Fax No.: (416) 863-2653

(B)   if to the Borrower or a Guarantor, at:

      c/o Western Forest Products Inc.
      3rd Floor
      435 Trunk Road
      Duncan, British Columbia V9L 2P0

      Attn: President
      Fax No: (250) 748-6045

<PAGE>

                                     - 53 -

      With a copy to:

      Fasken Martineau Dumoulin LLP
      Suite 2100, 1075 West Georgia Street
      Vancouver, British Columbia V6E 3G2

      Attn: Michael Fitch
      Fax No.: 604-631-4779

provided, however, that the failure of the Lender to provide the Borrower's and
the Guarantors' counsel with a copy of such notice shall not invalidate any
notice given to the Borrower and the Guarantor and shall not give the Borrower
or any Guarantor any rights, claims or defences due to the failure of the Lender
to provide such additional notice.

13.6 Unless otherwise specified herein, all statements of or references to
dollar amounts shall mean the lawful money of Canada.

13.7 The validity, interpretation and enforcement of this Financing Agreement
and the other Loan Documents shall be exclusively (without regard to principles
relating to conflicts of laws) governed by and enforced in accordance with the
laws of the Province of British Columbia and the federal laws of Canada
applicable therein.

13.8 Words denoting the singular include the plural and vice versa and words
denoting any gender include all genders; headings shall not affect the
interpretation of this Financing Agreement; the word "INCLUDING" shall mean
"INCLUDING, WITHOUT LIMITATION" and "INCLUDES" shall mean "INCLUDES, WITHOUT
LIMITATION".

13.9 No failure on the part of the Lender to exercise, and no delay in
exercising any right under this Financing Agreement or any other Loan Document
shall operate as a waiver of such right; nor shall any single or partial
exercise of any right under this Financing Agreement or any other Loan Document
preclude any other or further exercise thereof or the exercise of any other
right; nor shall any waiver of one provision be deemed to constitute a waiver of
any other provision (whether or not similar). No waiver of any of the provisions
of this Financing Agreement or any other Loan Document shall be effective unless
it is in writing duly executed by the waiving party.

13.10 In the event of any conflict or inconsistency between any of the
provisions of this Financing Agreement or any other Loan Document, the
provisions of this Financing Agreement shall prevail to the extent of such
conflict or inconsistency.

13.11 Time shall be of the essence of this Financing Agreement.

13.12 Each party hereto intends that this Financing Agreement shall not benefit
or create any right or cause of action in or on behalf of any other Person,
other than the parties hereto and any other Person who may become a party hereto
and no other Person shall be entitled to rely on any of the provisions hereof in
any action, suit, proceeding, hearing or other forum.

<PAGE>

                                     - 54 -

13.13 This Financing Agreement shall enure to the benefit of and be binding upon
the parties hereto and any Person becoming a party to this Financing Agreement
pursuant hereto, and their respective successors and permitted assigns.

13.14 This Financing Agreement may be executed in one or more counterparts by
facsimile transmission, each of which shall be deemed to be an original and all
of which, when taken together, shall constitute one and the same agreement.

13.15 Except as otherwise expressly provided for in this Financing Agreement,
the covenants, representations and warranties, indemnities and power of
attorneys contained in this Financing Agreement and the other Loan Document
shall not merge and shall survive the closing of the financing transaction
contemplated herein, and notwithstanding such closing, or any investigation made
by or on behalf of any party, shall continue in full force and effect.

13.16 The Borrower and the Guarantors hereby consent to the Lender publishing
and disclosing such details of the financing transaction contemplated herein in
national publications as the Lender deems appropriate for advertising or public
relations purposes.

13.17 The Borrower and each Guarantor hereby waives all rights to receive from
the Lender a copy of any financing statement, financing change statement or
verification statement filed at any time or from time to time in respect of any
Security Agreement.

            IN WITNESS WHEREOF, the parties hereto have caused this Financing
Agreement to be effective, executed, accepted and delivered by their proper and
duly authorized officers as of the date first set forth above.

CIT BUSINESS CREDIT CANADA INC.

By: /s/ E. Dennis McCluskey
    -------------------------
    E. Dennis McCluskey
    President

By: /s/ Donald Rogers
    -------------------------
    Donald Rogers
    Vice President
<PAGE>

                                     - 55 -

WESTERN FOREST PRODUCTS INC.                      WESTERN PULP LIMITED

By: /s/ P.G. Hosier                               By: /s/ P.G. Hosier
    --------------------------                        --------------------------
    Name: Philip G. Hosier                            Name: Philip G. Hosier
    Title: Corporate Secretary                        Title: Corporate Secretary

By: _________________________                     By: __________________________
    Name:                                             Name:
    Title:                                            Title:

DOMAN FOREST PRODUCTS LIMITED                     DOMAN-WESTERN LUMBER LTD.

By: /s/ P.G. Hosier                               By: /s/ P.G. Hosier
    --------------------------                        --------------------------
    Name: Philip G. Hosier                            Name: Philip G. Hosier
    Title: Corporate Secretary                        Title: Corporate Secretary

By: _________________________                     By: __________________________
    Name:                                             Name:
    Title:                                            Title:

WFP LUMBER SALES LIMITED

By: /s/ P.G. Hosier
    --------------------------
    Name: Philip G. Hosier
    Title: Corporate Secretary

By: _________________________
    Name:
    Title:

<PAGE>

                                    EXHIBIT A

                       FORM OF BORROWING BASE CERTIFICATE

CIT BUSINESS CREDIT CANADA INC.                                   REPORT#:
(as Lender)

Borrowing Base Certificate                                        Date _________

Client: WESTERN FOREST PRODUCTS INC., (, the "BORROWER")

<TABLE>
<CAPTION>
                                                                                   ACCOUNTS
                                                                                  RECEIVABLE       INVENTORY
                                                                                  ----------       ---------
<S>                                                                          <C>  <C>              <C>
1.  TOTAL COLLATERAL (line 7 of previous report)                                  $                $
                                                                                  ------------     --------------

2.  GROSS SALES (per attached report)                                         (+) ------------

    CREDIT MEMOS (per attached report)                                        (-) ------------

3.  INVENTORY CHANGE (per attached report)                                   (+/-)                 --------------

4.  (+/-) MISC. ADJUSTMENTS (back-up attached)                               (+/-)                 --------------

5.  NET COLLECTIONS (per attached report)                                    (-)  -------------

6.  DISCOUNTS ALLOWED (per attached report)                                  (-)  -------------

7.  TOTAL COLLATERAL (per this report)                                            $                $
                                                                                  ------------     --------------

8.  A.   MONTHLY INELIGIBLES                                                      $                $
                                                                                  ------------     --------------

    B.   OTHERS
                                                                                  ------------     --------------

    C.   TOTAL INELIGIBLES                                                   (-)  $                $
                                                                                  ------------     --------------

9.  TOTAL ELIGIBLE COLLATERAL (line 7 minus 8C)                                   $                $

10. MAXIMUM AVAILABLE: (Revolving Limit)

    A.  Accounts Receivable at 85% of Line 9                                      $
                                                                                  -----------

    B.  Inventory at the lower of, 65% at the lower of                                              $
        Borrower's cost or market, and 80% of appraised net                                         -------------
        realizable value of Line 9

11. INVENTORY LOAN LIMIT (the lower of Line 10B or                                                 $
    $175,000,000)                                                                 -----------      --------------

12. TOTAL AVAILABILITY RESERVES                                                   $
                                                                                  ----------

13. BORROWING BASE (total of line 10 minus 12)                                    $
                                                                                  ----------

                                                                                  CAD              USD
                                                                                  ---              ---
14. LOAN BALANCE (Previous Report dated ______________)                           ----------       --------------

15. ADVANCES                                                                 (+)  ----------       --------------

16. CHARGES OR CREDITS                                                      (+/-) ----------       --------------

17. NET COLLECTIONS                                                           (-) ----------       --------------

18. IN TRANSIT COLLECTIONS                                                    (+) ----------       --------------

19. A.  REVOLVING LINE OF CREDIT BALANCE per this                                 $         -      $           -
report                                                                            -----------      --------------

        EXCHANGE RATE                                                                              $
                                                                                                   --------------
</TABLE>

<PAGE>

                                     - 2 -

<TABLE>
<S>                                                                               <C>              <C>
    B.  REVOLVING LOAN BALANCE IN CAD                                             $          -
                                                                                  ------------

                                                                                  CAD              USD
                                                                                  ---              ---

20. LETTERS OF CREDIT                                                             $                $
                                                                                  ------------     ----------------

21. NET AVAILABILITY (line 13 minus 19B and 20)                                   $
                                                                                  ------------

22. NET AVAILABILITY BLOCK                                                        $
                                                                                  ------------

23. SURPLUS AVAILABILITY                                                          $
                                                                                  ------------
</TABLE>

Pursuant to, and in accordance with, the terms and provisions of that certain
Financing Agreement ("Agreement"), between the Lender, the Borrower, and Western
Pulp Limited and WFP Lumber Sales Limited (the "Guarantors"), is executing and
delivering to the Lender, this Borrowing Base Certificate accompanied by
supporting data (collectively referred to as "Report"). The Borrower represents
and warrants to the Lender that this Report is true, correct, and based on
information contained in the Borrower's financial accounting records. The
Borrower, by the executing of this Report, hereby ratifies, confirms and affirms
as to the terms, conditions, and provisions of the Agreement, and further
certifies on this_______day of____________________, 20___, that the Borrower and
the Guarantors are in compliance with said Agreement and that there are no
arrears for rent, any pension benefit obligation contributions, Royalties or any
Priority Payables.

AUTHORIZED SIGNATURE:                             DATE:

__________________________                        ________________________

<PAGE>

                                    EXHIBIT B

                         FORM OF OFFICER'S CERTIFICATE

TO: CIT BUSINESS CREDIT CANADA INC. (THE "LENDER")

The undersigned,      [TITLE], of WESTERN FOREST PRODUCTS INC. (the "BORROWER"),
pursuant to Article 7 of the financing agreement dated July 27, 2004, among,
inter alia, the Lender, the Borrower, Western Pulp Limited and WFP Lumber Sales
Limited (the "GUARANTORS") (the "FINANCING AGREEMENT"), DOES HEREBY CERTIFY in
his capacity as an authorized signing officer of the Borrower, and not in his
personal capacity and without personal liability that:

1.    The financial statements attached hereto fairly and accurately represent
      the Borrower's financial condition at the end of the particular accounting
      period set out in such financial statements, as well as the Borrower's
      consolidated operating results during such accounting period, subject to
      year-end audit adjustments; and

2.    During the accounting period set out in such financial statements:

      (A)   there has been no Default or Event of Default (as defined in the
            Financing Agreement) under the Financing Agreement [NOTE TO DRAFT:
            PROVIDED HOWEVER, THAT IF ANY SUCH OFFICER HAS KNOWLEDGE THAT ANY
            SUCH DEFAULT OR EVENT OF DEFAULT, INCLUDING, WITHOUT LIMITATION,
            NON-COMPLIANCE WITH ANY ORDERS, HAS OCCURRED DURING SUCH PERIOD, THE
            EXISTENCE OF AND A DETAILED DESCRIPTION OF SAME SHALL BE SET FORTH
            BELOW];

      (B)   neither the Borrower nor any Guarantor has received any notice of
            cancellation with respect to any of its insurance policies which it
            is required to maintain under the Financing Agreement, including,
            without limitation, the Policies (as defined in the Financing
            Agreement);

      (C)   neither the Borrower nor any Guarantor has received any notice that
            could result in a Material Adverse Effect (as defined in the
            Financing Agreement), including, without limitation, from any
            Governmental Entity concerning duties, Taxes, Royalties, Priority
            Payables, the Forest Tenures, the Licences or other Authorizations
            required to operate its business (capitalized terms, are as defined
            in the Financing Agreement); and

      (D)   the Borrower and the Guarantors are current with respect to any and
            all pension benefit obligations, Taxes, Royalties and Priority
            Payables. [NOTE TO DRAFT: UNLESS AN AMOUNT IS BEING DILIGENTLY
            CONTESTED IN GOOD FAITH, ETC., THE DETAILED DESCRIPTION OF WHICH
            SHALL BE SET FORTH BELOW.]

<PAGE>

                                     - 2 -

IN WITNESS WHEREOF, the undersigned has executed this Officer's Certificate on
behalf of the Borrower and the Guarantors as of the         day of
       , 200      .

                                                 ___________________________
                                                 Name:
                                                 Title:

<PAGE>

                       SCHEDULE 1 - COLLATERAL INFORMATION

Exact Name and Jurisdiction of Organization of the Borrower and Guarantor:

Borrower:       Western Forest Products Inc. - CBCA
Guarantor:      Western Pulp Limited - CBCA
Guarantor:      WFP Lumber Sales Limited - CBCA
Guarantor:      Doman Forest Products Limited - CBCA
Guarantor:      Doman-Western Lumber Ltd. - CBCA

PREDECESSOR NAMES AND TRADENAMES:

Borrower:       4204247 Canada Inc. - Predecessor Name
Guarantor:      (WPL) 4204255 Canada Inc. - Predecessor Name
Guarantor:      (Salsco) 4204697 Canada Inc. - Predecessor Name
Guarantor:      Doman FP 4018940 Canada Inc. - Predecessor Name
Guarantor:      Doman WL 4018982 Canada Inc. - Predecessor Name

SUBSIDIARIES AND AFFILIATES:

See attached corporate chart appended to this Schedule 1 as 1-A illustrating the
corporate structure of the Borrower, including all subsidiaries as at the Plan
Implementation Date.

JURISDICTION OF INCORPORATION OR FORMATION:

Canada Business Corporations Act

CHIEF EXECUTIVE OFFICE:

For the Borrower and Guarantor the chief executive office is as follows:

         3rd Floor
         435 Trunk Road
         Duncan, B.C.,
         V9L 2PQ

         PHONE:  (250) 748-3711
         FAX:    (250) 748-6045

COLLATERAL AND GUARANTOR COLLATERAL LOCATIONS:

See attached lists appended to this Schedule 1 a 1-B and 1-C.

<PAGE>

                                     - 2 -

                                  SCHEDULE 1-A

                Western Forest Products Inc. Corporate Structure

                                  [FLOW CHART]
<PAGE>

                             REAL PROPERTY LOCATIONS

<TABLE>
<CAPTION>
                               PROPERTY
                               IDENTIFICATION
PROPERTY LOCATION              NUMBER             PROPERTY DESCRIPTION
-----------------              --------------     --------------------
<S>                            <C>                <C>
Chemainus Sawmill              004-601-572        Lot A, Section 14, Range 4, Chemainus
                                                  District, Plan 13619 except part in plan
                                                  VIP73021

                               004-802-161        Lot 2 of Section 14, Ranges 4 and 5,
                                                  Chemainus District Plan 12657, except
                                                  that part in plans 13619, VIP72173, and
                                                  VIP73020

                               006-648-509        That part of Lot 13, Section 13, Range
                                                  4, Chemainus District, Plan 2051, lying
                                                  to the north east of Plan 798 RW

Chemainus Value Added          023-017-775        Lot A, Sections 14 and 15, Ranges 3 and 4,
Plant and Cowichan                                Chemainus District, Plan VIP60627
Wholesale Yard

Cowichan Bay Sawmill           003-723-674        Lot 1, Section 12, Ranges 2 and 3,
                                                  Cowichan District, plan 19378

                               005-787-408        Section 13, Range 3, Cowichan District,
                                                  except part in plans 22505 and 37455

                               005-787-491        That part of District Lot 160, Cowichan
                                                  District, lying between the range and
                                                  section lines encompassing section 13,
                                                  Range 3, Cowichan District, as shown on
                                                  plan attached to original Crown grant,
                                                  dated 15/01/1872 (DD 25711), except part
                                                  in plans 23400 and 37455

                               005-788-561        Fractional section 12, Range 3, Cowichan
                                                  District, except parts in plan 19378 and
                                                  37455

                               005-788-749        That part of Section 12, Range 2,
                                                  Cowichan District, shown coloured red on
                                                  plan attached to Crown grant no. 1863
                                                  deposited under DD 263021, except out of
                                                  said section 12, Ranges 2 and 3, that
                                                  part thereof shown outlined in red on
                                                  plan 936R and except those parts of said
                                                  section 12, range 3, included within the
                                                  boundaries of plan 19378

Nanaimo, Duke Point Sawmill    001-038-087        Lot 22, Section 9, and District Lots 370
                                                  and 429, Nanaimo District Plan 37924,
                                                  except parts in plans 42196 and VIP63511

                               001-038-095        Lot 23, Sections 8 and 9, and District
                                                  Lots 370 and 429,
</TABLE>

<PAGE>

                                          - 2 -

<TABLE>
<S>                            <C>                <C>
                                                  Nanaimo District, plan 37924

Other                          013-181-131        Parcel "D" (Reference plan 6576),
                                                  Section 3 Block 6 North Range 1 East New
                                                  Westminster District

Squamish Pulp Sawmill          015-910-717        District Lot 2351 Group 1 New
                                                  Westminster District

                               015-895-963        District Lot 2802, Group 1, New
                                                  Westminster District

                               015-822-061        District Lot 5899, Group 1, New
                                                  Westminster District, except part in
                                                  reference plan 5238

                               015-791-459        District Lot 6232, Group 1, New
                                                  Westminster District

                               015-791-611        District Lot 6237, Group 1, New
                                                  Westminster District

                               004-184-653        District Lot 3357 Group 1 New
                                                  Westminster District

                               004-206-550        That Part of Lot 5681 Adjoining Lot 3357
                                                  and Shown Coloured Red on Sketch Annexed
                                                  to Crown Grant Registered under No.
                                                  84274H Group 1 New Westminster District

Vancouver Sawmill              008-238-057        Lot B, Block 4, District Lot 311, Plan
                                                  4803

                               011-263-873        Lot A (explanatory plan 1976), except
                                                  part in reference plan 3327, south part
                                                  of Block 5, District Lot 311, Plan 847

                               013-038-796        Lot E, Blocks 4,C,D,Y and Z, District
                                                  Lots 311, 319, 323, 324, Plan 22094

                               013-206-222        Lot B, Blocks C, D, Y and Z, District
                                                  Lot 319 Plan 22095

Mission                        001-722-549        Lot I, District Lot 436, Group 1 New
                                                  Westminster District, Plan 69567

                               014-842-386        Parcel "C" (reference plan 4578) ,
                                                  District Lot 436, Group 1, except:

                                                  Firstly: Parcel "D" (reference plan
                                                  2583) Secondly: Parcel "B" (reference
                                                  plan 4577) Thirdly: Parcel "H"
                                                  (reference plan 5558) Fourthly: Parcel
                                                  "H" (reference plan 6700) Fifthly: Part
                                                  on plan 4898 Sixthly: Part subdivided by
                                                  plan 23384, New Westminster District
</TABLE>

<PAGE>

                                           - 3 -
<PAGE>

                                      1-C

                 LOCATIONS WHERE INVENTORY STORED OTHER THAN DESTINATIONS
                            OWNED BY THE BORROWER OR GUARANTOR

      WESTERN FOREST PRODUCTS INC.

      LIST OF LOCATIONS WHERE INVENTORY IS LOCATED

<TABLE>
<CAPTION>
CODE  DESCRIPTION                       COUNTRY   NAME & MAILING ADDRESS           CONTACT            PHONE          FAX
<S>   <C>                               <C>       <C>                              <C>                <C>            <C>
CBD   Cowichan Bay Dock                 Canada    Westcan Terminals Limited        John Milligan      250-386-1321   250-386-2734
                                                  P.O. Box 1442
                                                  189 Dallas Rd.
                                                  Victoria, B. C. V8W 2X2

DEC   Desticon - Coquitlam, BC          Canada    Desticon Transportation          Fatima Hussain     604-931-7724
                                                  Services Inc.
                                                  225 North Road,
                                                  Coquitlam, B.C.

TBN   DryTeck - Surrey, BC              Canada    DryTeck Lumber Services,                            604-513-1131   604-513-1126
                                                  9356 193rd Street,
                                                  Surrey, B. C. V4N 4E8

FVC   Fraserview - Surrey, BC           Canada    Fraserview Cedar Reman,          Gary [ILLEGIBLE]   604-590-3355
                                                  6630 - 144th Street
                                                  Surrey, B. C. V3W 5R5

GPT   Global Pacific - N Vancouver, BC  Canada    Global Pacific Terminals Inc.                       604-924-3566
                                                  200 Bridge Street,
                                                  North Vancouver, B.C. V7H 1W7
</TABLE>

<PAGE>

                                     - 2 -

<TABLE>
<S>   <C>                              <C>        <C>                                    <C>            <C>           <C>
MVR   Mountain View - Abbotsford, BC   Canada     Mountain View Reload Inc.              Rick Pike      604-850-5788  604-850-5789
                                                  419 Sumas Way,
                                                  Abbotsford, B.C. V2S 8C4

NAW   Nanaimo Assembly - Nanaimo, BC   Canada     Nanaimo Port Authority                 Gord Koster    250-754-7701  250-753-4899
                                                  P. O. Box 131, 104 Front Street,
                                                  Nanaimo, B.C. V9R 5K4

NAR   North American - Cloverdale, BC  Canada     North American Reload                  Brad Clark     604-574-0900  604-574-9077
                                                  #101 - 17618 - 58th Avenue,
                                                  Cloverdale, B. C. V3S 1L3

PLR   Pacific Lumber Reman - Surrey,   Canada     Pacific Lumber Remanufacturing         Rob Sohi       604-582-0705  604-582-0704
      BC

                                                  13482 - 116th Avenue,
                                                  Surrey, B. C. V3R 9W4

scw   Stuart Channel - Crofton, BC     Canada     TFL Forest Ltd.                        Brian Crosson  250-246-3234  250-246-9300
                                                  Stuart Channel Wharves
                                                  P. O. Box 40,
                                                  Crofton, B. C. VR 1R0

SHW   Shawood Lumber - Langley, BC     Canada     Shawood Lumber Inc.                    Ken Kiers      604-888-2225  604-888-8446
                                                  20039 - 96th Avenue
                                                  Langley, B.C. V1M 3C6

SMW   Surrey Mill Work - Richmond, BC  Canada     Surrey Millwork (1990) Ltd.            Kurt Bonnes    604-276-2843  604-276-2852
                                                  15360 Knox Way,
                                                  Richmond, B. C. V6V 1L5

UWP   Uneeda Wood - Chilliwack, BC     Canada     Uneeda Wood Products                   Bob            604-858-3431  604-858-6347
                                                                                         Goldsworthy

                                                  655 Unsworth Road,
                                                  Chilliwack, B.C. V2R 4P4

WCC   Westree - Abbotsford, BC         Canada     Westree Custom Cedar Products          Mark Dumont    604-855-0933  604-855-1521
</TABLE>

<PAGE>

                                     - 3 -

<TABLE>
<S>   <C>                              <C>      <C>                                    <C>                <C>           <C>
                                                720 Riverside Road,
                                                Abbotsford, B.C. V2S 7N8

WES   Westran - New Westminster, BC    Canada   Westran Services Limited               Hugh [ILLEGIBLE]   604-520-6366  604-520-1024
                                                76 Braid Street
                                                New Westminster, B. C. V3L 3P3

WRD   Western Road - Abbotsford, BC    Canada   Western Road Road Systems Inc.         Wes [ILLEGIBLE]    604-864-4945  604-864-8178
                                                P. O. Box 8000, 34499 McClary Ave
                                                Abbotsford, B. C, V2S 6H1

BLB   Berth 122, Long Beach            USA      Fremont Forest Products                Jim [ILLEGIBLE]    562-945-2911  562-696-8574
                                                13215 E. Penn Street, Suite 319,
                                                Whittier, CA 90607

CCK   Cedar Creek Wholesale            USA      Cedar Creek Wholesale Inc.             Mark [ILLEGIBLE]   800-621-2611  816-965-5575
                                                13720 Botts Road,
                                                Grandview, Missouri 64030

CCL   Cedar Creek Wholesale            USA      Cedar Creek Wholesale Inc.             Dave [ILLEGIBLE]   918-258-9688  918-251-6405
                                                6500 S. 145th East Avenue,
                                                P. O. Box 1900,
                                                Broken Arrow, OK  74013

DAL   Dallas, Texas                    USA      Warehouse Specialist, Inc.                                214-660-8820
                                                12110 Garland Road
                                                Dallas, Texas

DES   Desticon - Sumas, WA             USA      Desticon Transportation Services Inc.  Bethan [ILLEGIBLE] 360-988-6444  360-988-0944
                                                300 Bob Mitchell Road, Box 1270,
                                                Sumas, WA  98295

DET   Desticon - Irving, TX            USA      Desticon Transportation Services Inc.                     972-785-8844
                                                2731 Carl Road,
                                                Irving, Texas 75062

MWR   Midwest Reload - Big Lake, MN    USA      Division of Central Missouri           Harold [ILLEGIBLE] 816-471-6754
                                                P. O. Box 1056,
</TABLE>

<PAGE>

                                     - 4 -

<TABLE>
<S>   <C>                              <C>    <C>                                    <C>                <C>             <C>
                                              Blue Springs, MO 64013

MWL   Midwest Reload - Kansas City, MO USA    Midwest Reload, Inc.                   Harold Mellon      816-471-6754
                                              Division of Central Missouri
                                              P. O. Box 1056,
                                              Blue Springs, MO 64013

OLY   Port of Olympia - Olympia, WA    USA    Port of Olympia                        John Wolfe         360-528-8042    604-528-8094
                                              1022 Marine Drive, N.E.
                                              Olympia, Washington  98501-6961

PCI   PCI Reload - Galena Park, TX     USA    PCI Transportation Inc.                                   713-673-6120    713-673-3973
                                              P. O. Box 4,
                                              Galena, Texas 77547

PE    Port Everglade, FL (was Eacom)   USA    Gulf Atlantic Lumber Sales Inc.        Frank Morrison     813-623-3933    813-621-9436
                                              4001-B McLane Drive,
                                              Tampa, Florida 33610-7440

RIG   Reload Inc - Glendale, AZ        USA    Reload Inc. & Reload Express                              602-939-9262
                                              P. O. Box 15179,                                          AII A/P
                                              St. Louis, MO 63110

RRF   Robbins Reload - Fontana, CA     USA    Robbins Reload Inc.                    Randy Robbins      909-355-1577    909-355-4956
                                              P. O. Box 757,
                                              Fontana, CA 92334-0757

RUS   Russin - Montgomery, NY          USA    Russin Lumber Corp..                   Brent Stuart       845-457-4000    845-457-4010
                                              21 Leonards Drive,
                                              Montgomery, New York 12549

SHP   Saga - Lumber enroute to US      USA    Saga Forest Carriers                   Jordan Welch       604-684-7569    604-684-7240
                                              Suite 1350, 409 Granville Street,
                                              Vancouver, B. C. V6C 1T2

WCP   Weiss Cascade - Centralia, WA    USA    Weiss Cascade                          Mike Jensen        360-807-9105
                                              1703 Lum Road,
                                              Centralia, Washington
</TABLE>

<PAGE>

                        SCHEDULE 2 - MATERIAL AGREEMENTS

A.    MATERIAL CUSTOMER AGREEMENTS

1.    Wood Pulp Contract No. 01/NBKP/1003/WP

      Supply Agreement made October 1, 2003 between Western Pulp Limited
      Partnership, as seller, and with APP Asia Pulp & Paper/Sinar Mas Group, as
      buyer, for the purchase and sale of Northern Softwood kraft pulp,
      "Squamish" brand, Canadian origin.

2.    Wood Pulp Contract No. W-052/98-I

      Supply Agreement made January 25, 1999 between Western Pulp Limited
      Partnership, as seller, and Ascoli Paper S.R.L., as buyer, for the
      purchase and sale of Bleached Softwood Sulphate pulp, "Squamish" brand,
      Canadian origin, and addendum thereto effective January 1, 1999.

3.    Wood Pulp Contract No. W-062/03-G

      Supply Agreement made June 04, 2003 between Western Pulp Limited
      Partnership, as seller, and Athens Paper Mill Co. S.A., as buyer, for the
      purchase and sale of Bleached Softwood Sulphate pulp, "Squamish" brand,
      Canadian origin.

4.    Wood Pulp Contract No. W-028/90-I

      Supply Agreement made November 16, 1989 between Western Pulp Limited
      Partnership, as seller, and Cartiere Burgo SpA, as buyer, for the purchase
      and sale of Squamish Bleached Softwood pulp, and addendum thereto
      effective February 9, 1993.

5.    Wood Pulp Contract No. W-035/94-I

      Supply Agreement made May 17, 1994 between Western Pulp Limited
      Partnership, as seller, and Cartiere Burgo SpA, as buyer, for the
      purchase and sale of Squamish Bleached Softwood pulp, and addendums
      thereto effective May 26, 1994.

6.    Wood Pulp Contract No. W-054/99-I

      Undated Supply Agreement between Western Pulp Limited Partnership, as
      seller, and Cartiere Burgo SpA, as buyer, executed by seller and buyer in
      October and September 1999, for the purchase and sale of Bleached Softwood
      Sulphate pulp, "Squamish" brand, Canadian origin, and addendum thereto
      effective October 15, 1999.

7.    Wood Pulp Contract No. W-060/03-I

      Supply Agreement made April 7, 2003 between Western Pulp Limited
      Partnership, as seller, and Cartiere Burgo SpA, as buyer, for the purchase
      and sale of Bleached Softwood Sulphate pulp, "Squamish" brand, Canadian
      origin, and addendum thereto effective January 1, 2003.

8.    Wood Pulp Contract No. W-053/99-I

<PAGE>

                                     - 2 -

      Undated Supply Agreement made September 9, 1999 between Western Pulp
      Limited Partnership, as seller, and Delfinet Sarl Luxembourg, as buyer,
      executed by seller and buyer in September 1999 for the purchase and sale
      of Bleached Softwood Sulphate pulp, "Squamish" brand, Canadian origin, and
      addendum thereto effective April 1, 1999.

9.    Wood Pulp Contract No. W-040/96-I

      Supply Agreement dated May 13, 1996 between Western Pulp Limited
      Partnership, as seller, and Delicarta SpA., as buyer, for the purchase and
      sale of Squamish-K (SQ-K) Bleached Softwood Pulp packed in unitized bales,
      and addendum thereto dated May 13, 1996.

10.   Wood Pulp Contract No. W-043/97-K

      Undated Supply Agreement made April 7, 2003 between Western Pulp Limited
      Partnership, as seller, and Hankuk Paper Mfg. Co. Ltd., as buyer, for the
      purchase and sale of Squamish-K (SQ-K) Bleached Softwood Pulp, and
      addendum thereto effective February 1, 1997.

11.   Wood Pulp Contract No. W-063/03-K

      Supply Agreement made January 26, 2004 between Western Pulp Limited
      Partnership, as seller, and Hankuk Paper Manufacturing Co. Ltd., as buyer,
      for the purchase and sale of Bleached Softwood Sulphate pulp, "Squamish"
      brand, Canadian origin,, and addendum thereto effective October 1, 2003.

12.   Wood Pulp Contract No. W-065/04-K

      Supply Agreement made April 2, 2004 between Western Pulp Limited
      Partnership, as seller, and MonaLisa Co., Ltd., as buyer, for the purchase
      and sale of Bleached Softwood Sulphate pulp, "Squamish" brand, Canadian
      origin,, and addendum thereto effective January 1, 2004.

13.   Wood Pulp Contract No. W-059/02-U

      Supply Agreement made March 1, 2004 between Western Pulp Limited
      Partnership, as seller, and Noramex, L.L.C. d.b.a. Korimpeks Pulp & Paper,
      as buyer, for the purchase and sale of Bleached Softwood Sulphate pulp,
      "Squamish" brand, Canadian origin.

14.   Wood Pulp Contract No. W-055/00-A

      Supply Agreement made May 8, 2000 between Western Pulp Limited
      Partnership, as seller, and Sappi Europe SA, as buyer, for the purchase
      and sale of Bleached Softwood Sulphate pulp, "Squamish" brand, Canadian
      origin, addendum thereto effective April 1, 2000, and undated addendum
      thereto executed April 22, 2002.

15.   Wood Pulp Contract No. W-064/03-G

      Supply Agreement made November 9, 2003 between Western Pulp Limited
      Partnership, as seller, and SCA Hygiene Products GMBH, as buyer, for the
      purchase and sale of

<PAGE>

                                     - 3 -

      Bleached Softwood Sulphate pulp, "Squamish" brand, Canadian origin, and
      addendum thereto effective April 1, 2003.

16.   Wood Pulp Contract No. W-049/98-J

      Supply Agreement made April 1, 1998 between Western Pulp Limited
      Partnership, as seller, and Tokyo Pulp & Paper International Co., Ltd., as
      buyer, for the purchase and sale of Bleached Softwood Sulphate pulp and
      addendum thereto dated April 1, 1998.

B.    MATERIAL FIBRE SUPPLY AGREEMENTS

1.    Crown Sawlog Agreement for the sale by TimberWest Holdings Ltd. and the
      purchase by Doman Forest Products Limited of 330,000m3 to 350,000m3 of
      sawlogs per annum in perpetuity.

2.    Norske Agreements:

(a) Hog Fuel Purchase Agreement dated April 14, 1978 between Doman Forest
Products Limited and British Columbia Forest Products Limited (predecessor of
Norske Skog Canada Limited).

(b) Chip and Sawlog Supply Agreement dated September 8, 1980 between British
Columbia Forest Products Limited and Doman Industries Limited whereby Doman
Industries Limited sells 180,000 units of chips to Norske Skog Canada Limited in
consideration for Norske Skog Canada Limited selling sawlogs to Doman Industries
Limited based on a 1.3m3/unit ratio.

(c) Sawdust Purchase Agreement dated January 1, 1987 between Crown Forest
Industries Limited and Doman Forest Products Limited.

(d) Letter Agreement dated November 15, 2002 to Doman Forest Products Limited
from Norske Skog Canada Limited concerning payment terms for chips, sawdust, hog
fuel and sawlogs.

(e) Letter Agreement dated December 2, 2002 to Doman Forest Products Limited
from Norske Skog Canada Limited concerning variation in supply arrangements.

(f) Two Letter Agreements, both dated June 11, 2003, to Doman Forest Products
Limited from Norske Skog Canada Limited - one concerning supply arrangements for
chips sawdust, hog fuel and sawlogs, the other specifically concerning the
supply of sawdust.

<PAGE>

        SCHEDULE 3 - TENURES, LICENCES, PERMITS AND OTHER AUTHORIZATIONS

(a)   Timber Tenures;

(b)   Crown Leases and Licences of Occupation - Ministry of Sustainable Resource
      Management;

(c)   Port Authority Leases;

(d)   Special Use Permits - Ministry of Forests;

(e)   Water Licences and Permits; and

(f)   Environmental Permits.
<PAGE>

                                     - 2 -

                                 TIMBER TENURES

<TABLE>
<CAPTION>
                                             CURRENT EXPIRY                           FOREST REGION/
  LICENSEE                 TENURE                DATE               CURRENT AAC      FOREST DISTRICT
-----------------       -------------        --------------         -----------      ---------------
<S>                     <C>                  <C>                    <C>              <C>
Western Forest          Forest Licence       Oct 29, 2013               83,981          Vancouver/
  Products Inc.             A19240                                                    Campbell River
                                                                                      & Port NcNeill

Doman-Western           Forest Licence       Aug. 31, 2013             193,734          Vancouver/
  Lumber Ltd.               A16847                                                      Mid Coast

 Western Forest         Forest Licence       Oct. 31, 2013             275,762          Vancouver/
  Products Inc.             A16845                                                      Mid Coast

Doman-Western           Forest Licence       Aug. 19, 2013              58,466          Vancouver/
  Lumber Ltd.               A19216                                                       Squamish

Doman-Western           Forest Licence       Oct. 18, 2013             355,814          Vancouver/
  Lumber Ltd.               A19231                                                   Campbell River

Doman-Western           Forest Licence       Nov. 11, 2013              33,545          Vancouver/
  Lumber Ltd.               A19228                                                   Sunshine Coast

Doman-Western           Forest Licence       Aug. 23, 2013              33,896          Vancouver/
  Lumber Ltd.               A19205                                                      Chilliwack

 Western Forest           Tree Farm          Feb. 28, 2025           1,446,758          Vancouver/
  Products Inc.           Licence 6                                                   Port McNeill

Doman-Western             Tree Farm          Dec. 31, 2026             894,132          Vancouver/
  Lumber Ltd.             Licence 19                                                 Campbell River

 Western Forest           Tree Farm          May 20, 2024              643,674          Vancouver/
  Products Inc.           Licence 25                                                 Campbell River
                                                                                     & South Island
</TABLE>

<PAGE>

                                     - 3 -

                     CROWN LEASES & LICENCES OF OCCUPATION -
                  MINISTRY OF SUSTAINABLE RESOURCE MANAGEMENT
             (ADMINISTERED BY LAND AND WATER BRITISH COLUMBIA INC.)

<TABLE>
<CAPTION>
LEGAL DESCRIPTION [LOCATION/OPERATION]                    FILE #          DOCUMENT #
--------------------------------------                    ------          ----------
<S>                                                       <C>             <C>
District Lot 475 and 403 Nanaimo District [Nanaimo,
Duke Point Sawrnill - Log handling and storage for                        Lease
sawmill]                                                  # 1400767       #101523

[Hecate Bay - Aeroplane Float]                                            Licence
                                                          # 1402021       #105114

District Lot 474, Nanaimo District [Duke Point                            Lease
Sawmill - log storage and handling purposes]              # 1405599       #103961

Unsurveyed foreshore or land covered by water being
part of the bed of Esperanza Inlet, Nootka District                       Licence #
[Brodick Creek - Log dump & booming grounds]              # 1405281       107548

Unsurveyed foreshore or land covered by water being
part of the bed of Esperanza Inlet, Nootka District
[Brodick Creek - Wharf & floats for boats & aircraft                      Licence
moorage]                                                  # 1405282       #109044

That part of District Lot 160, Cowichan District
[Cowichan Bay Sawmill - Log booming and storage                           Licence #
purposes]                                                 # 1405508       109033

That part of Sections 11 and 12, Range 1, Cowichan
District [Cowichan Bay Sawmill - powerline, waterline,                    Licence #
pumphouse, well and access]                               # 1405520       109037

That part of District Lot 160, together with
unsurveyed foreshore or land covered by water being part
of the bed of Cowichan Bay, both of Cowichan District                     Licence #
[Sawmill - log storage]                                   # 1406547       109253

Those two sites consisting of unsurveyed foreshore or
land covered by water being part of the bed of Hardy
Inlet, Range 2, Coast District [MacNair - Log handling,                   Licence #
storage & moorage]                                        # 5404951       515245

All that parcel or tract of land in the vicinity of
the mouth of Doris Creek, Range 2, Coast District                         Licence #
[logging camp, repair shop & fuel tank storage area]      # 5405961       514698

[Holberg, Camp - Camp residential]                                        Lease #
                                                          # 0086884       120619

District Lot 927, Renfrew District, containing 4.29                       Lease #
hectares [Jordan River - Dump, Booming & Storage]         # 0124310       109389

Port McNeill, Block A of Lot 1711, Rupert District                        Lease #
[Port McNeill - Log dump, booming, & storage]             # 0129930       101107

Holberg Inlet - Log booming & storage, storage tanks,                     Lease #
causeway, scow (un)loading & tie-up                       # 0137584       120531

Unsurveyed foreshore or land covered by water being
part of the bed of Becher Bay, Metchosin District                         Licence #
[Becher Bay - Log Storage, Booming]                       # 0139176       108873
</TABLE>

<PAGE>

                                     - 4 -

<TABLE>
<CAPTION>
LEGAL DESCRIPTION [LOCATION/OPERATION]                    FILE #          DOCUMENT #
--------------------------------------                    ------          ----------
<S>                                                       <C>             <C>
District Lot 6039, Group 1, New Westminster District                      Lease #
[Andys Bay - Log booming & storage]                       # 0165212       233408

Lot 6058, Group 1, New Westminster District [Andys                        Lease #
Bay - Booming ground & log storage]                       # 0172838       231859

Block B of District Lot 6167, Group 1, New
Westminster District [Andys Bay - Log booming &                           Lease #
storage]                                                  # 0176109       235913

[Port McNeill - Booming & log storage]                                    Lease #
                                                          # 0195648       120481

Lot 2085, Rupert District [Holberg - Booming grounds                      Licence #
& log storage]                                            # 0202654       100975

District Lot 136, Metchosin District [Becher Bay - Log                    Lease #
Storage]                                                  # 0208842       104788

District Lot 2986, Queen Charlotte District [Moresby -                    Licence #
Wharfsite]                                                # 0210372       633419

Lot 2092, Rupert District [Neroutsos Inlet                # 0210673       Lease #
Boomstick, Boomchain]                                                     102189

District Lot 2094 and 2307, Rupert District                               Lease #
[Port Alice - Log dump, storage]                          # 0210675       101591

[Ketchen Island - log handling/storage]                   #  210681       Lease #
                                                                          101590

Block B of District Lot 6169, Group 1, New
Westminster District [Andys Bay - Log booming,                            Lease #
storage & towing]                                         # 0211020       238525

District Lots 2104 and 2127, Rupert District [Mahatta                     Lease #
River - Log handling & barge moorage]                     # 0217003       106498

Julian Cove - Log Storage                                                 Lease #
                                                          # 0233447       120243

Lot 2117, Rupert District [Thurburn Bay - dump,                           Lease #
sorting, booming]                                         # 0233448       120182

Mahatta River - Log Storage                                               Lease #
                                                          # 0243702       120386

Lot 2238, Rupert District [Coal Harbour - Log Storage]                    Lease #
                                                          # 0260680       101039

Lot 2239, Rupert District [Coal Harbour - Dump, DLS,                      Lease #
log storage]                                              # 0260681       101062

That part of District Lot 3034, Queen Charlotte District                  Licence #
[Newcombe Inlet - Floating dock & moorage]                # 0260691       635077

District Lot 3035, Queen Charlotte District [Sewell
Inlet, Dryland Sort - Dryland sort, log dumping, storage,                 Lease #
barge landing & docking facilities]                       # 0260693       635079

Lot 2244, Rupert District [Mahatta River - Log Storage]                   Lease #
                                                          # 0263493       101364

District Lot 399, Rupert District [Jeune Landing, QDLS                    Lease #
- Boom, Store. Barge Load]                                # 0276688       103276

District Lot 138, Rupert District [Winter Harbour - Log                   Lease #
storage]                                                  # 0278712       106590

Unsurveyed foreshore or land covered by water being
part of the bed of Holberg Inlet, Rupert District [Log                    Licence #
handling & storage]                                       # 0287519       104964
</TABLE>

<PAGE>

                                     - 5 -

<TABLE>
<CAPTION>
LEGAL DESCRIPTION [LOCATION/OPERATION]                    FILE #          DOCUMENT #
--------------------------------------                    ------          ----------
<S>                                                       <C>             <C>
District Lot 6866, Group 1, New Westminster District      # 0295534       Lease #
[Andys Bay - Log storage]                                                 236151

District Lot 165, Rupert District [Holberg Inlet - Log    # 0297040       Lease #
storage]                                                                  103616

Block A of District Lot 140, Rupert District [Holberg                     Lease #
- Community hall, baseball field & recreation facility]   # 0299137       103588

District Lot 121, Queen Charlotte District [Sewell Inlet  # 0308435       Lease #
- Log storage, booming and barge loading]                                 740613

[Kultus Cove - Log storage & barge loading]               # 0318076       Lease #
                                                                          120426

Lot 309, Rupert District [Winter Harbour - Log dumping    # 0319349       Lease #
booming]                                                                  101027

District Lot 305, Range 1 Coast District [Heydon Bay -                    Lease #
Log storage & boom tie-up]                                # 0331109       107582

Lot 353, Rupert District [Naka Creek - Wharf site, log                    Lease #
dumping, booming & sorting]                               # 0333779       101670

District Lot 396, Rupert District [Schloss Island - Log                   Lease #
Storage]                                                  # 0333988       102716

District Lot 1416, Rupert District [Mahatta River - Log                   Lease #
booming & storage]                                        # 0336224       106033

Lot 306, Range 1 Coast District [Heydon Bay - Boom,                       Lease #
storage]                                                  # 0336794       101361

District Lot 391 and 449, Rupert District [Ingersoll -                    Lease #
Dump,Boom,Storage]                                        # 0337203       104519

District Lot 398, Rupert District [Robson Cove - Dump,                    Lease #
Booming]                                                  # 0348089       102248

District Lot 405, Rupert District [Coal Harbour - Log                     Lease #
handling, storage, tie-up]                                # 0354386       109384

District Lot 441, Rupert District [Hushamu creek - Dump,                  Lease #
& storage]                                                # 0356422       109631

District Lot 444, Rupert District [Hushamu creek -                        Lease #
Storage, Boom Tie-up]                                     # 0356423       103993

Rupert Arm - Dump, Booming, Sorting                                       Lease #
                                                          # 0356736       104306

District Lot 445, Rupert District [Rupert Arm -                           Lease #
Storage, Boom Tie-up]                                     # 1400146       104283

Part of the bed of Holberg Inlet, lying adjacent to
Section 1, Rupert District [Holberg - Sewer outfall                       R/W
Statutory Right of Way]                                   # 1402064       #122527

District Lot 269, Range 1, Coast District [Heydon Bay -                   Lease #
Log dumping, booming & wharfsite]                         # 1402563       105118

Unsurveyed foreshore or land covered by water being
part of the bed of Neroutsos Inlet, Rupert District                       Licence #
[Pender Point - Log Storage]                              # 1404014       106196

Unsurveyed foreshore or land covered by water being
part of the bed of Neroutsos Inlet, Rupert District                       Licence #
[Thurburn B - Boat dock]                                   # 1404039      106038
</TABLE>

<PAGE>

                                     - 6 -

<TABLE>
<CAPTION>
LEGAL DESCRIPTION [LOCATION/OPERATION]                    FILE #          DOCUMENT #
--------------------------------------                    ------          ----------
<S>                                                       <C>             <C>
That part of District Lot 1983, and all that
foreshore or land covered by water being part of the
bed of Heydon Bay, Range 1, Coast District [Heydon                        Licence #
Bay - Log handling & storage]                             # 1405920       107620

Unsurveyed foreshore or land covered by water being
part of Neroutsos Inlet, Rupert District [Port Alice                      Licence #
- Log handling & storage]                                 # 1406050       107617

That part of Block B of District Lot 819, Rupert                          Licence #
District [Holberg - Boat moorage and launch]              # 1406692       105012

That part of District Lot 1982; together with
unsurveyed foreshore or land covered by water being
part of the bed of Frazer Bay, Range 1, Coast                             Licence #
District [Log handling]                                   # 1407101       109449

That part of Blocks A and B of District Lot 307,                          Licence #
Rupert District [Michelson Point - Log Dump]              # 1408338       105635

All that unsurveyed foreshore or land covered by
water being part of the bed of Stafford Lake, Range                       Licence #
1, Coast District [Heli drop sites, booming & storage]    # 1412178       109974

That part of district lot 1145, together with
unsurveyed foreshore or land covered by water being
part of the bed of Harrison Lake, Yale Division of
Yale District [Harrison Lake, S of Silver Ck, N of                        Licence #
Bear Ck - Heli drop zones]                                # 2407187       237634

District Lot 103 together with adjoining unsurveyed
foreshore or land covered by water, being part of
the bed of Smith Inlet, all in Range 2, Coast
District [Piper River - Log dump, bundling, storage,                      Licence #
dock and camp barge moorage]                              # 5404489       515198

Unsurveyed foreshore or land covered by water, being
part of the bed of Yeo Cove, Range 3, Coast District                      Licence #
[Log storage & float camp]                                # 5404857       514704

Unsurveyed foreshore or land covered by water being
part of the bed of Ingram Bay, Spiller Inlet, Range 2,
Coast District [Log handling, storage, float camp &                       Licence #
dock]                                                     # 5405106       514874

Those parcels or tracts of land adjacent to Ingram
Creek and Spiller Inlet, Range 2, Coast District
[Dryland sort, log storage, repair shop, waste site,                      Licence #
water tank & fuel]                                        # 5406043       514895

All that parcel or tract of land in the vicinity of
District Lot 134, Range 3, Coast District [Yeo                            Licence #
Island, Dove Pt - Campsite]                               # 5406130       514825

All those five sites or parcels of land consisting of
unsurveyed foreshore or land covered by water being
part of the bed of Dean Channel, Range 3, Coast                           Licence
District [Kimsquit - Heli Drop zones]                     # 5406287       # 515061

Unsurveyed foreshore or land covered by water being
part of the bed of Mathieson Channel, Range 3, Coast                      Licence
District [McPherson Creek - Log storage]                  # 5406428       # 515292

All that foreshore or land covered by water being part
of the bed of Gordon Cove, Queen Charlotte District                       Licence
[Log dumping & storage]                                   # 6403419       # 633321
</TABLE>
<PAGE>

                                     - 7 -

<TABLE>
<CAPTION>
LEGAL DESCRIPTION [LOCATION/OPERATION]                      FILE #         DOCUMENT #
--------------------------------------                      ---------      ----------
<S>                                                         <C>            <C>
Unsurveyed foreshore or land covered by water being
part of the bed of Griffin Passage, Range 3, Coast                         Licence #
District [Log dumping, storage, breakwater & wharf]         # 6404952      704226

All that unsurveyed Crown foreshore being part of the
bed of Sheep Passage, within Range 3, Coast District                       Licence #
[Sheep Passage .. Log dumping, handling & storage]          # 6405949      740642

All that unsurveyed Crown foreshore being part of the
bed of Thurston Harbour, Queen Charlotte District                          Lease #
[Thurston Harbour - Log handling & storage]                 # 6406149      740643

All that unsurveyed Crown foreshore being part of the
bed of Green Inlet, Range 3, Coast District [Green Inlet,
Baffle Point - Log Storage, Barge load & Heli drop                         Licence #
zones]                                                      # 6406212      740638

All that unsurveyed Crown foreshore being part of the
bed of James Bay, Range 3, Coast District [Log dump,                       Licence #
sort, barge moorage]                                        # 6406214      635184

Unsurveyed Crown foreshore being part of the bed of
Griffin Passage, Range 3, Coast District [E of                             Licence #
Griffin Lake - log handling]                                # 6406406      635172

Unsurveyed Crown foreshore being part of the bed of
Mathieson Channel, Range 3, Coast District [Hird                           Licence #
Point - Log handling]                                       # 6406407      635439

All that foreshore of land covered by water being part
of the bed of Aaltanhash Inlet, Range 4, Coast District                    Licence #
[Log handling]                                              # 6406408      635037

All that foreshore of land covered by water being part of
the bed of Klekane Inlet, Range 4, Coast District                          Licence #
[Klekane Inlet, W shore, E of Scow Bay - log handling]      # 6406409      635076

Saltair Sawmill - Millsite, jackladder, chip barge
storage, barge loading, boom breakdown and log              # 0081822      107564
storage

Ladysmith Marina, (Ivy Green) - commercial marina           # 0114642      109797

Woods Island, across from Ladysmith sawmill - Log
Storage                                                     # 0128587      105568

Tahsis sawmill - sawmill , log handling and marina
purposes                                                    # 0157142      105393

Harrison Lake - Log handling and storage                    # 0160406      237517

Head Bay - Garage, docking facility, log dumping,
booming & storage                                           # 0202227      104912

Tahsis Inlet - Log Booming & Storage                        # 0205654      101662

Tahis Inlet, West Bay - Log storage                         # 0207943      120272

Jacklah Bay - Log booming & storage                         # 0210462      102824

Maurelle Island, Calm Channel - Log dumping, booming &
storage                                                     # 0233710      105345

Blowhole Bay - Moorage, Dryland Sort, log dump, booming
& storage                                                   # 0236752      105561

Kilbella Bay - Log booming and loading                      # 0249061      512739

Santiago Creek - Log booming storage & boat house           # 0253976      105300

Kendrick Inlet - Log dumping, booming & storage             # 0257490      100882
</TABLE>

<PAGE>

                                     - 8 -

<TABLE>
<CAPTION>
LEGAL DESCRIPTION [LOCATION/OPERATION]                   FILE #       DOCUMENT #
--------------------------------------                   ---------    ----------
<S>                                                      <C>          <C>
Jacklah Bay - Log storage & booming                      # 0257508    100732

McCurdy Creek - Log dumping & storage                    # 0257509    105322

Tahsis Inlet - Log storage                               # 0271327    101403

Jacklah - Log storage                                    # 0279515    103515

Tahsis, 230 Head Bay Rd - scow berths & log storage      # 0279943    103141

Matchlee Bay - Log storage                               # 0282016    120212

Plumper Harbour - Log storage                            # 0293032    105700

Hanna Channel - Log storage                              # 0298449    107545

McCurdy Creek - Log storage, float & moorage water
lot                                                      # 0306435    105563

Tahsis - Power line                                      # 0308613    1927

Port Eliza - Log dump, storage, booming ground &
boat tie up                                              # 0313069    104876

Nesook Bay - Log handling                                # 0324552    104502

Houston Creek - Log handling                             # 0324553    104925

Zeballos Inlet - Log dump, booming & storage             # 0324740    105519

Espinosa Inlet - Log dump, boom & storage, wharf &
float camp                                               # 0327268    109155

Tsowwin River - Log dumping, booming, storage & dock     # 0327789    106595

Tahsis Inlet, N of Mozino Pt - Log dumping booming &
storing                                                  # 0332211    105336

Muchalat Inlet - Log storage                             # 0347226    106088

Blowhole Bay - Log storage                               # 0348803    106325

Ladysmith, Burleith Arm - Log Storage & Sorting          # 1400256    103451

Ladysmith, Woods Island - Log Storage                    # 1400257    109117

Woods Island, across from Saltair sawmill - Log
Storage                                                  # 1400984    107523

Kleeptee, Williamson Passage - Log handling &
storage                                                  # 1402115    109796

Houston River - Log handling, booming and storage        # 1402799    100748

Jacklah Bay - log storage                                # 1402800    103172

Plumper Harbour - Log dumping & storage                  # 1402943    101394

Ladysmith, Burleith Arm - Log Sorting                    # 1404231    107632

Zeballos, Campsite - Residential, light industry         # 1404832    105721

Gold River Pit - Gravel quarry, sawmill, asphalt
plant                                                    # 1405228    107686

Zeballos - log dumping, booming & storage, wharf &
scow grid                                                # 1405380    103981

Gold River, Log dump - log dumping, handling and
storage                                                  # 1408097    105637

Gold River, Dryland Sort - Dryland Sort                  # 1408328    105811

Silverado - Log dump, booming, barge grid, dock, ramp
& habitat compensation reef                              # 1408725    108702

Bligh I., Fidalgo Passage - Log dumping booming &
storage                                                  # 1408835    109077

Gold River, VIH Heli facility - Helicopter facility
(office, hanger, landing area, fuel tanks)               # 1408858    107782

Tahsis Inlet, N of Tahsis Narrows - Tie Up for heli
barges                                                   # 1409389    107789

Hanna Channel - Log storage & booming                    # 1409470    108834

Kings Passage - Heli water drop and log storage          # 1409684    109267
</TABLE>

<PAGE>

                                     - 9 -

<TABLE>
<CAPTION>
LEGAL DESCRIPTION [LOCATION/OPERATION]                   FILE #       DOCUMENT #
--------------------------------------                   ---------    ----------
<S>                                                      <C>          <C>
Harrison Lake - Log handling                             # 2404220    237263

Harrison Lake, Long Island - Log handling & storage      # 2407941    238140

Sheemahant - Log handling, storage, Floating logging
camp, docks & barge ramp                                 # 5400801    514683

Owikeno Lake, 1st Narrows - Log Dump, storage, booming,
floats, dock & barge ramp                                # 5401882    704363

Shotbolt Bay, West shore - Log storage, barge and ship
loading                                                  # 5402061    512106

Kilbella Bay - Log sorting, bundling, dumping & barge    # 5402417    515180

Owikeno Lake - Log handling, storage & loadout           # 5405641    514667

Sheemahant - Airstrip & Logging Camp                     # 5405685    514870

Machmell - Campsite                                      # 5405687    514862

Owikeno Lake, east of first narrows - Heli water drop
sites, temp booming area                                 # 5406506    704395

Tahsis Inlet - Log storage & booming                     # 0235216    120294

Tahsis Inlet - Log storage                               # 0235217    104304
</TABLE>

SQUAMISH PULP MILL

<TABLE>
<CAPTION>
LOCATION/OPERATION                                       FILE #       DOCUMENT #
--------------------------------------                   ---------    ----------
<S>                                                      <C>          <C>
[WoodFibre, Squamish Pulpmill - Log storage, barge                    Lease #
moorage]                                                 # 0044927    233113

Lot 2804, Group 1, New Westminster District [WoodFibre,               Lease #
Watts Pt 1 - Log storage]                                # 0138766    231574

District Lot 6001, Group 1, New Westminster District                  Lease #
[WoodFibre, Watts Pt #2 - Log storage & booming]         # 0158375    238401

Block A of District Lot 6053, Group 1, New Westminster                Lease #
District [WoodFibre, N. Bluffs - Log storage]            # 0167009    234399

District Lot 3279, Group 1, New Westminster District                  Lease #
[WoodFibre, S. Bluff - Log storage]                      # 0311786    233410

District Lot 3231, Group 1, New Westminster District                  Lease #
[WoodFibre, Watts IV - Log Handling]                     # 2402937    236807

Block A of District lots 6847 and 7790, Group I, New
Westminster District [Silverdale - Barge loading, log                 Lease #
Storage & handling of wood products]                     # 0348756    238239

District Lot 7758, Group 1, New Westminster District                  Lease #
[Silverdale - Log Storage]                               # 2404873    235156
</TABLE>
<PAGE>

                                     - 10 -

                              PORT AUTHORITY LEASES

NORTH FRASER PORT AUTHORITY

<TABLE>
<CAPTION>
LOCATION/OPERATION                                                       DOCUMENT #
------------------                                                       -----------
<S>                                                                      <C>
Vancouver Sawmill - Sawmill                                              L # NF05004

Vancouver Sawmill - Sawmill scow moorage and barge loading facilities    L # NF05005

Vancouver Sawmill - Sawmill, scow berth, pond, sort area & floats        L # NF05006

Vancouver Sawmill - Sawmill                                              L # NF05007

Vancouver Sawmill - Mill site, pond & log pockets                        L # NF05008

Silvertree Sawmill - Scow Moorage area and related piles and
dolphins                                                                 L # NF05021

Silvertree Sawmill - Barge mooring                                       L # NF05022

Silvertree Sawmill - millsite                                            L # NF05023

Silvertree Sawmill - Log sorting and/or holding grounds                  L # NF05025

Silvertree Sawmill - Maintenance and operation of a log holding area     L # NF05062

Richmond Lumber Sales - A wharf site and scow berth, and related
works and structures.                                                    L # NF05073

Richmond, ABC - Storage, Booming                                         L # NF05035

Mitchell Island - log storage and booming area                           L # NF05038

Richmond, No Sag - Log boom storage                                      L # NF05083

Twigg Island - Storage, Booming                                          L # NF05089

F&K, Eburne Island - Scow Moor, Store, Boom                              L # NF05090

Burnaby, Big Bend - Log storage & booming                                L # NF08004
</TABLE>

FRASER RIVER PORT AUTHORITY

<TABLE>
<CAPTION>
LOCATION/OPERATION                                                     DOCUMENT #
------------------                                                     ----------
<S>                                                                    <C>
Surrey, AP#10, Port Mann - Log storage                                 L # W32-00

Surrey, AP#3 - Log Storage                                             L # W32-02

AP #2, Pitt River - Storage                                            L # W32-06

AP #1, Pitt River - Storage                                            L # W32-07

Poplar Island - Storage                                                L # W32-09

Surrey, Port Mann, AP # 9 - Storage                                    L # W32-11

Surrey, AP#5, Wing Dam - Booming, storage                              L # W32-12

Barnston Island, AP # 7 - Log storage                                  L # W32-14

New Westminster, Evco - log storage                                    L # W32-18
</TABLE>

<PAGE>

                                     - 11 -

NANAIMO PORT AUTHORITY

<TABLE>
<CAPTION>
LOCATION/OPERATION                                                        DOCUMENT #
------------------                                                       -------------
<S>                                                                      <C>
Nanaimo, Duke Point Sawmill - Barge Loadout (Lot 1, Part Plan VIP        L # NH#1 &
42197 NLD & Part Lot 447)                                                447

Nanaimo Sawmill - Log Storage                                            L # NH#106

Nanaimo Sawmill - Sawmill site                                           L # NHC FL
                                                                         300

Nanaimo Sawmill -                                                        L # NH#103
</TABLE>
<PAGE>

                                     - 12 -

                              SPECIAL USE PERMITS-
                               MINISTRY OF FORESTS

<TABLE>
<CAPTION>
LOCATION/OPERATION                        PERMIT #   FOREST DISTRICT
---------------------------------------   --------   -----------------------------
<S>                                       <C>        <C>
Kimsquit - Camp & Air Strip               SUP11637   North Island - Central Coast
                                                     Forest District

MacNair - Log dump & Dryland sort         SUP17712   North Island - Central Coast
                                                     Forest District

MacNair - Dryland sort waste disposal     SUP17719   North Island - Central Coast
site                                                 Forest District

Brodick Creek - Dryland sort and          SUP17737   Campbell River Forest
logging camp site                                    District

MacNair - Rock quarry                     SUP21783   North Island - Central Coast
                                                     Forest District

Tom Bay - DLS, camp & shop, waste         SUP23407   North Island - Central Coast
disposal site                                        Forest District

Heydon Bay - Dryland sort                 SUP11656   Campbell River Forest
                                                     District

Botel Lake - Solid waste disposal site    SUP20138   North Island - Central Coast
                                                     Forest District

San Josef - Rock quarry                   SUP20991   North Island - Central Coast
                                                     Forest District

Pegattem Cr - Road surfacing quarry       SUP21086   North Island - Central Coast
                                                     Forest District

Yeo Island - Gravel pit & rock quarry     SUP21571   North Island - Central Coast
                                                     Forest District

Yeo Island - DLS waste disposal           SUP21854   North Island - Central Coast
                                                     Forest District

Varney Main - Gravel pit                  SUP22316   North Island - Central Coast
                                                     Forest District

Michelson Point - Log Dump                SUP22366   North Island - Central Coast
                                                     Forest District

Jeune Landing - Gravel pit                SUP22486   North Island - Central Coast
                                                     Forest District

Mount Pickering - Repeater site           SUP22600   North Island - Central Coast
                                                     Forest District

Holberg - Disposal, solid waste           SUP22785   North Island - Central Coast
                                                     Forest District

William Lake - Rock quarry                SUP22885   North Island - Central Coast
                                                     Forest District

Holberg, Macjack 30 - Quarry              SUP22942   North Island - Central Coast
                                                     Forest District

James Bay - Temporary Camp, future shop   SUP23384   North Island - Central Coast
facility                                             Forest District

Koprino, Simpson 101 - Rock quarry        SUP23425   North Island - Central Coast
                                                     Forest District (possibly
                                                     South Island Forest District)

Thurburn Bay, Dump - Shop, dump &         SUP23485   North Island - Central Coast
fuel storage                                         Forest District

Roderick, DLS debris dump - DLS           SUP23532   North Island - Central Coast
</TABLE>

<PAGE>

                                     - 13 -

<TABLE>
<S>                                       <C>        <C>
Debris disposal                                      Forest District

Jordan River, Loss Ck - Rock quarry       SUP23558   South Island Forest District

Naka Creek - Dryland Sort, shop, waste    SUP23580   Campbell River Forest District
disposal & burn sites

Naka Creek - Campsite, fuel tanks         SUP23588   Campbell River Forest District

Stafford Lake - Camp & DLS waste          SUP23622   Campbell River Forest District
disposal site

Holberg, NE 66 & Br 602 - Gravel pit      SUP23678   North Island - Central Coast
                                                     Forest District

Winter Harbour, Log dump - Log dump       SUP23773   North Island - Central Coast
                                                     Forest District

Botel Mn, shop & bone yard - shop &       SUP23774   North Island - Central Coast
bone yard                                            Forest District

Holberg, South Mn - Log dump              SUP23775   North Island - Central Coast
                                                     Forest District

Koprino - Log dump & fuel station         SUP23776   North Island - Central Coast
                                                     Forest District

Koprino - Powder magazine                 SUP23777   North Island - Central Coast
                                                     Forest District

Ingersoll - Dump                          SUP23801   North Island - Central Coast
                                                     Forest District

Mahatta River - Camp, dump & boneyard     SUP23803   North Island - Central Coast
                                                     Forest District

Jeune landing, N of QDLS - Gravel pit     SUP23805   North Island - Central Coast
                                                     Forest District

Holberg, Ronning 140 - Rock Pit           SUP23970   North Island - Central Coast
                                                     Forest District

Holberg, NE Mn - Rock Pit                 SUP23979   North Island - Central Coast
                                                     Forest District

Holberg, Ronning 211 - Rock Pit           SUP23985   North Island - Central Coast
                                                     Forest District

Holberg, Quatsino Mn - Rock Pit           SUP23993   North Island - Central Coast
                                                     Forest District

Sewell - logging camp                     SUP24155   Queen Charlotte Island
                                                     FOREST DISTRICT

Sewel - dryland sort                      SUP24156   Queen Charlotte Island
                                                     FOREST DISTRICT

Sewell - powder magazine caps             SUP24157   Queen Charlotte Island
                                                     FOREST DISTRICT

Sewell - powder magazine                  SUP24158   Queen Charlotte Island
                                                     FOREST DISTRICT

Sewell - communications tower             SUP24159   Queen Charlotte Island
                                                     FOREST DISTRICT

Sewell - temporary timber processing      SUP24160   Queen Charlotte Island
site                                                 FOREST DISTRICT

Sewell - fuel station                     SUP24161   Queen Charlotte Island
                                                     FOREST DISTRICT

Sewell - metal recycling site             SUP24162   Queen Charlotte Island
                                                     FOREST DISTRICT

Sewell - DLS waste site                   SUP24163   Queen Charlotte Island
</TABLE>

<PAGE>

                                     - 14 -

<TABLE>
<S>                                       <C>        <C>
                                                     FOREST DISTRICT

Sewell - dock/fuel station                SUP24164   Queen Charlotte Island
                                                     FOREST DISTRICT

Thurston Harbour - undeveloped land       SUP24165   Queen Charlotte Island
                                                     FOREST DISTRICT

Sewell - gravel pits / log dump           SUP24166   Queen Charlotte Island
                                                     FOREST DISTRICT

Kendrick Inlet - Log dump & storage       SUP03457   Campbell River Forest
                                                     District

Blowhole Bay - Log dump & camp            SUP05728   Campbell River Forest
                                                     District

Kendrick Inlet - Campsite                 SUP07189   Campbell River Forest
                                                     District

Port Eliza - Log Dump or dry land sort    SUP07190   Campbell River Forest
                                                     District

Pt Eliza, Peculiar Point - Campsite       SUP07298   Campbell River Forest
                                                     District

Oktwanch River - gravel pit & heli        SUP08056   Campbell River Forest
service landings                                     District

Sheemahant - Waste disposal, airstrip     SUP10757   North Island - Central Coast
                                                     Forest District

Kilbella Bay - Camp                       SUP10788   North Island - Central Coast
                                                     Forest District

Machmell - Airstrip, disposal site        SUP11630   North Island - Central Coast
                                                     Forest District

Kilbella Bay - Dryland Sort burn          SUP11634   North Island - Central Coast
site/disposal site                                   Forest District

Big Silver River - Campsite               SUP12927   Chilliwack Forest District

Kendrick Inlet - Landing debris dump      SUP12941   Campbell River Forest
                                                     District

Sheemahant - quarries, pits, Heli sites   SUP14078   North Island - Central Coast
& zones, explosives                                  Forest District

Beano Creek - Gravel pit                  SUP15476   Campbell River Forest
                                                     District

Plumper Harbour - Equipment storage       SUP15500   Campbell River Forest
area                                                 District

Kilbella - Gravel pit                     SUP15518   North Island - Central Coast
                                                     Forest District

Plumper Harbour - Camp                    SUP15529   Campbell River Forest
                                                     District

Harrison Lake - Rock quarry & Gravel      SUP17114   Chilliwack Forest District
pit

Port Eliza - Dryland sort waste           SUP17155   Campbell River Forest
disposal site                                        District

Machmell - Gravel pits                    SUP17716   North Island - Central Coast
                                                     Forest District

Maurelle Island, Calm Channel - Dryland   SUP20014   Campbell River Forest
Sort & Log dump                                      District

Houston River - Waste Disposal Site       SUP21606   Campbell River Forest
                                                     District

Nesook Bay - Dryland Sort & shop site     SUP21625   Campbell River Forest
</TABLE>

<PAGE>

                                     - 15 -

<TABLE>
<S>                                       <C>        <C>
                                                     District

Gold River, Camp site - Campsite          SUP21626   Campbell River Forest
                                                     District

Tsowwin Narrows, DLS - Log dump,          SUP22497   Campbell River Forest
dryland sort, shop & fuel storage                    District

Muchalat Inlet - Dryland sort, camp,      SUP22498   Campbell River Forest
shop & boneyard                                      District

West Tahsis Inlet - Log dump & dryland    SUP22499   Campbell River Forest
sort                                                 District

Head Bay - Dryland sort & dump            SUP22500   Campbell River Forest
                                                     District

Silverado Creek - Dryland Sort            SUP22555   Campbell River Forest
                                                     District

Callaghan Main, West - Gravel pits        SUP22646   Sunshine Coast Forest
                                                     District

Rutherford Creek - Dryland Sort           SUP22948   Sunshine Coast Forest
                                                     District

Little Zeballos R - Log dump, dryland     SUP23037   Campbell River Forest
sort & waste disposal                                District

Head Bay - Waste disposal site            SUP23182   Campbell River Forest
                                                     District

Squamish, Calalaghan - Rock quarry        SUP23474   Squamish Forest District

West Tahsis, DLS - DLS Refuse site        SUP23562   Campbell River Forest
                                                     District

Owikeno Lake, NE of Phinney Ck - Log      SUP23595   North Island - Central Coast
dump or DLS                                          Forest District

Harrison Lake, Clear Ck FSR - Gravel      SUP23618   Chilliwack Forest District
Pit

Blowhole Bay - Waste disposal site for    SUP23681   Campbell River Forest
DLS refuse                                           District
</TABLE>

SQUAMISH PULP MILL

<TABLE>
<S>                                       <C>
WoodFibre, Mill Ck - Garbage dump         SUP7103    Squamish Forest District
</TABLE>
<PAGE>

                                     - 16 -

                       WATER LICENCES AND RELATED PERMITS

Water licences and permits, all of which are presently held by Western Pulp Inc.
as a general partner of and on behalf of Western Pulp Limited Partnership.

SQUAMISH PULP MILL

<TABLE>
<CAPTION>
                                           LICENSE AND
ISSUED TO                                 PERMIT NO.'S.     DATE ISSUED     DESCRIPTION
---------                                 -------------     -----------     -----------
<S>                                       <C>               <C>             <C>
Whalen Pulp and Paper Mills Limited       F.W.L. 4896       Aug. 5/25       Sylvia Lake

Whalen Pulp and Paper Mills Limited       F.W.L. 4897       Aug. 5/25       Sylvia Lake

Whalen Pulp and Paper Mills Limited       Permit            Nov. 9/22       App. to Lot 2351
                                                                            N.W.D.

B.C. Pulp and Paper Company Limited       F.W.L. 7218       Dec. 16/29      Woodfibre Creek

Whalen Pulp and Paper Mills Limited       Permit            Aug. 31/21      Part of Lots 1337 &
                                                                            3359, N.W.D.

B.C. Pulp and Paper Company Limited       F.W.L. 7219       Dec. 16/29      Sulphite Creek

Whalen Pulp and Paper Mills Limited       Permit            Aug. 31/21      Part of Lot 1337

B.C. Pulp and Paper Company Limited       F.W.L. 7220       Dec. 16/29      Woodfibre Creek

Alaska Pine and Cellulose Ltd.            F.W.L. 17264      May 1/59        Henriette Lake

Alaska Pine and Cellulose Ltd.            Permit 4512       May 1/59        Crown land around
                                                                            Henriette Lake

Rayonier Canada Ltd.                      F.W.L. 17345      Feb. 1/60       Sylvia Lake

Rayonier Canada Ltd.                      Permit 4607       Feb. 1/60       Crown land in Group 1,
                                                                            N.W.D.

Rayonier Canada Ltd.                      F.W.L. 17346      Feb. 1/60       Henriette Lake

Rayonier Canada Ltd.                      F.W.L. 17347      Feb. 1/60       Mill Creek

Rayonier Canada Ltd.                      Permit 4606       Feb. 1/60       Lot l337, N.W.D.

Rayonier Canada Ltd.                      F.W.L. 17348      Feb. 1/60       Henriette Lake

Rayonier Canada Ltd.                      Permit 4605       Feb. 1/60       Lots 1337 7 3359
                                                                            Group 1, N.W.D.

Rayonier Canada Ltd.                      F.W.L. 17350      Feb. 1/60       Woodfibre Creek

B.C. Pulp and Paper Company Limited       Permit            June 21/28      Lot 2351, N.W.D.

Rayonier Canada Ltd.                      F.W.L. 17351      Feb. 1/60       Henriette Lake

Rayonier Canada Ltd.                      Permit 4608       Feb. 1/60       bed of Henriette
                                                                            Lake and Lot 3357
</TABLE>

<PAGE>

                                     - 17 -

<TABLE>
<CAPTION>
                                          LICENSE AND
ISSUED TO                                 PERMIT NO.'S.      DATE ISSUED     DESCRIPTION
---------                                 -------------      -----------     -----------
<S>                                       <C>                <C>             <C>
Rayonier Canada (B.C.) Ltd.               F.W.L. 44329       June 16/75      Woodfibre Creek

Rayonier Canada (B.C.) Ltd.               F.W.L. 44330       June 16/75      Mill Creek
</TABLE>

<PAGE>

                                     - 18 -

                              ENVIRONMENTAL PERMITS

SQUAMISH PULP MILL

<TABLE>
<CAPTION>
LOCATION                        PERMIT #                         TYPE
--------                        --------                   -----------------
<S>                             <C>                        <C>
Woodfibre                       PE-01239                        Effluent

Woodfibre                       PA-01647                          Air

Woodfibre                       PE-02334                        Effluent

Woodfibre                       PR-07322                   Refuse (Landfill)
</TABLE><PAGE>
                                                                   EXHIBIT 4.13

                                                          EXECUTION COPY (delta)

                         FRAMEWORK TRANSACTION AGREEMENT

      BY AND AMONG

                  1.    KLEPIERRE S.A.

                  2.    KLEPIERRE HONGRIE S.A.S.

                  3.    LP7 S.A.S.

                  4.    SEGECE

                                                            AS BUYERS

                  5.    PLAZA CENTERS (EUROPE) B.V.

                  6.    ELBIT ULTRASOUND NETHERLANDS B.V.

                  7.    SZEGED 2002 KFT.

                  8.    PLAZA CENTERS MANAGEMENT B.V.

                                                            AS VENDORS

                           DATED AS OF JULY 30TH, 2004

                                       i
<PAGE>
                                TABLE OF CONTENTS

<TABLE>
<S>                                                                           <C>
ARTICLE I - - DEFINITIONS...................................................   3
      1.1   Certain Definitions.............................................   3
ARTICLE II - TRANSACTIONS...................................................  11
      2.1   Purchase and Sale of the Contract Companies.....................  11
      2.2   Financing Loan Facilities.......................................  13
      2.3   Re-payment of OVAG Loans and Release of Securities .............  13
      2.4   Release of Cross Collateralization.  ...........................  14
      2.5   Utilities Guarantee.............................................  14
      2.6   Price Adjustment Escrow Deposit.................................  15
      2.7   Parent Guarantees...............................................  15
      2.8   Excluded Portfolio Centers and Rights of First Offer............  15
      2.9   Other Excluded Assets...........................................  17
      2.10  Taxes...........................................................  17
ARTICLE III - TRANSACTION PRICE AND VERIFICATIONS...........................  18
      3.1   Determination of Estimated Transaction Prices...................  18
      3.2   Payment of Estimated Portfolio Companies Prices.................  19
      3.3   Payment of Estimated PCMM Shares Value..........................  19
      3.4   Closing Interest................................................  20
      3.5   Post-Closing Purchase Price Adjustments.........................  20
      3.6   Special Agreed Price Adjustments................................  24
      3.7   Duna Plaza Extension Price......................................  26
      3.8   Special Provisions relating to Duna Plaza Offices...............  26
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF VENDORS......................  26
      4.1   Organization, Qualification, and Corporate Power................  26
      4.2   Authorization...................................................  27
      4.3   No Conflicts....................................................  27
      4.4   Consents........................................................  27
      4.5   Capitalization..................................................  27
      4.6   Validity of Quotas and Shares...................................  28
      4.7   Articles of Association and Constitutive Documents..............  28
      4.8   Legal Title.....................................................  28
      4.9   Transferability.................................................  29
      4.10  Assigned Shareholders' Loans and Up-Stream Loans................  29
      4.11  Financing Loan Facilities.......................................  29
      4.12  Financial Statements............................................  30
      4.13  Undisclosed Liabilities.........................................  30
      4.14  Events Subsequent to Most Recent Fiscal Period End..............  30
      4.15  Legal Compliance................................................  32
      4.16  Tax Matters.....................................................  32
      4.17  Title of Properties; Absence of Liens and Encumbrances;
            Condition of Equipment..........................................  33
      4.18  Portfolio Centers...............................................  34
      4.19  Intellectual Property...........................................  35
      4.20  Notes and Accounts Receivable...................................  36
      4.21  Insurance.......................................................  36
</TABLE>
<PAGE>
<TABLE>
<S>                                                                           <C>
      4.22  Material Business Contracts  ...................................  36
      4.23  Lease Contracts.................................................  37
      4.24  Fotex Lease Contract............................................  38
      4.25  Power of Attorney...............................................  39
      4.26  Litigation......................................................  39
      4.27  Utilities Charges...............................................  39
      4.28  No Development Risks............................................  39
      4.29  Employees.......................................................  39
      4.30  Environment, Health and Safety..................................  40
      4.31  Intergroup Agreements. .........................................  42
      4.32  Promotions Agreements...........................................  42
      4.33  Complete Copies of Materials....................................  42
      4.34  Full Disclosure.................................................  42
ARTICLE V - REPRESENTATIONS AND WARRANTIES OF KLEPIERRE AND BUYERS..........  42
      5.1   Organization, Qualification, and Corporate Power................  42
      5.2   Authorization...................................................  43
      5.3   No Conflicts....................................................  43
      5.4   Consents........................................................  43
      5.5   Financial Resources.............................................  43
      5.6   Liability.......................................................  43
ARTICLE VI - PRE-CLOSING COVENANTS..........................................  44
      6.1   Operation of Business...........................................  44
      6.2   Notice of Developments..........................................  45
      6.3   Exclusivity.....................................................  46
      6.4   Reasonable Efforts..............................................  47
ARTICLE VII - CLOSING.......................................................  47
      7.1   Closing and Consummation........................................  47
      7.2   Conditions for Closing..........................................  47
      7.3   Acts to be performed at Closing.................................  48
      7.4   Acknowledgement of Closing......................................  49
      7.5   Partial Consummation............................................  49
      7.6   Deferred Closing................................................  50
ARTICLE VIII - ADDITIONAL AGREEMENTS WITH POST CLOSING EFFECT...............  50
      8.1   Post Closing Merger Procedures..................................  50
      8.2   Post Merger Tax Procedure.......................................  50
      8.3   Duna Plaza Extension............................................  54
      8.4   Duna Plaza Offices..............................................  59
      8.5   Re-Organization of Management Company Activities................  59
      8.6   Non-Compete.....................................................  60
      8.7   Non-Solicitation................................................  60
      8.8   Collection of Receivables.......................................  60
      8.9   PCMM Inventory..................................................  60
ARTICLE IX - OTHER AGREEMENTS AND COVENANTS.................................  61
      9.1   Confidentiality.................................................  61
</TABLE>

                                       2
<PAGE>
<TABLE>
<S>                                                                           <C>
      9.2   Additional Documents and Further Assurances.....................  61
ARTICLE X - WITHDRAWAL OPTION...............................................  61
      10.1  Withdrawal Option...............................................  61
      10.2  Material Adverse Effect Defined.................................  62
      10.3  Right of Withdrawal.............................................  63
      10.4  Withdrawal Notice and Rectification.............................  63
      10.5  Restrictions on Rights of Withdrawal............................  63
      10.6  Consequences of Withdrawal and Termination......................  64
ARTICLE XI - SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS..........  64
      11.1  Representations, Warranties and Covenants.......................  64
ARTICLE XII - INDEMNIFICATION...............................................  65
      12.1  Indemnification by Vendors......................................  65
      12.2  Indemnification by Buyers.......................................  66
      12.3  Notice and Opportunity to Defend................................  67
      12.4  Remedies........................................................  68
      12.5  Certain Limitations.............................................  68
      12.6  Special Indemnities.............................................  69
ARTICLE XIII - TERMINATION..................................................  70
      13.1  Termination of the Agreement....................................  70
      13.2  Effect of Termination...........................................  71
      13.3  Entire Transaction..............................................  71
ARTICLE XIV - MISCELLANEOUS.................................................  71
      14.1  Press Releases and Public Announcements.........................  71
      14.2  Governing Law...................................................  71
      14.3  Dispute Resolution..............................................  72
      14.4  Perfection of Schedules.........................................  73
      14.5  No Third-Party Beneficiaries....................................  73
      14.6  Entire Agreement and Modification...............................  73
      14.7  Amendment.......................................................  73
      14.8  Waivers.........................................................  73
      14.9  Successors and Assigns..........................................  74
      14.10 Counterparts....................................................  74
      14.11 Headings........................................................  74
      14.12 Notices.........................................................  74
      14.13 Severability....................................................  75
      14.14 Expenses........................................................  75
      14.15 Construction....................................................  76
      14.16 Attorneys' Fees.................................................  76
      14.17 Further Assurances..............................................  76
      14.19 Time of Essence.................................................  76
      14.20 Consent to Jurisdiction.........................................
      14.21 Schedules and Exhibit...........................................  76
      14.22 Euro............................................................  76
      14.23 Language........................................................  76
</TABLE>

                                       3
<PAGE>
                         FRAMEWORK TRANSACTION AGREEMENT

      THIS FRAMEWORK TRANSACTION AGREEMENT (this "AGREEMENT") is made and
entered into on July 30th, 2004, by and among:

      (1)   KLEPIERRE S.A., a French "societe anonyme" having its registered
            head office at Paris, 21 Avenue Kleber 75116, registered in the
            Paris Trade Register under n(degree) B 780 152 914 ("KLEPIERRE");

      (2)   KLEPIERRE HONGRIE S.A.S., a French "societe par actions simplifiee",
            being a wholly owned subsidiary of Klepierre, having its registered
            office at Paris, 21 Avenue Kleber 75116, registered in the Paris
            Trade Register under n(degree) B 442 692 315 ("KLPH");

      (3)   LP 7 S.A.S., a French "societe par actions simplifiee", being a
            wholly owned subsidiary of Klepierre, having its registered office
            at Paris, 21 Avenue Kleber 75116, registered in the Paris Trade
            Register under n(degree) B 428 782 486 ("LP7")

      (4)   SEGECE (societe en commandite simple), a French subsidiary of
            Klepierre, having its registered head office at Paris, 21 Avenue
            Kleber 75116, registered in the Paris Trade Register under n(degree)
            B 562 100 214 ("SEGECE");

      (5)   PLAZA CENTERS (EUROPE) B.V., a Dutch corporation having its
            registered seat at 239 Keizersgracht, EA1016 Amsterdam, The
            Netherlands, and registered with the Chamber of Commerce under
            n(degree) 33248324 ("PCE");

      (6)   ELBIT ULTRASOUND NETHERLANDS B.V., a Dutch corporation having its
            registered seat at 239 Keizersgracht, EA1016 Amsterdam, The
            Netherlands, and registered with the Chamber of Commerce under
            n(degree) 27156039 ("EUN");

      (7)   SZEGED 2002 KFT., an Hungarian corporation having its registered
            seat at 59 Andrassy Blvd., H-1067 Budapest, Hungary, and registered
            with the Court of Registration n(degree) 01-09-712263 ("SZEGED");
            and

       (8)  PLAZA CENTERS MANAGEMENT B.V., a Dutch corporation and a wholly
            owned subsidiary of PCE, having its registered seat at 239
            Keizersgracht, EA1016 Amsterdam, The Netherlands, and registered
            with the Chamber of Commerce under n(degree) 34149674 ("PCM-BV").

      Klepierre, KLPH, LP7, Segece, PCE, EUN, Szeged and PCM are sometimes
      referred to herein individually as a "PARTY" and collectively as the
      "PARTIES."
<PAGE>
                                    RECITALS

      A. PCE and EUN are the direct and/or indirect and/or beneficial owners of
the entire Equity Rights in and to the Portfolio Companies, and the indirect
owners of the entire issued and outstanding Equity Rights in and to PCMM,
through PCM-BV;

      B. Each of the Holding Companies is the direct owner of record of the
entire Equity Rights in and to the relevant Property Company recorded opposite
its name in the Rights Acquisition Schedule;

      C. Each of the Property Companies and each of the Direct Property
Companies is the owner of the entire right, title and interest in and to the
Portfolio Center recorded opposite its name in the Property Schedule;

      D. PCM-BV is a wholly owned subsidiary of PCE, and the holder of the
entire Equity Rights in and to PCMM, which operates and manages each of the
Portfolio Centers;

      E. Szeged is a wholly owned subsidiary of PCE and EUN, and the holder of
the entire Equity Rights in and to the Direct Property Company known as Szeged
Plaza Kft., which in turn is the registered owner of the right, title and
interest in and to the "Szeged Plaza" Portfolio Center.

      F. Purchasers desire to acquire from PCE, EUN and Szeged, and PCE, EUN and
Szeged desire to sell to Purchasers, the entire Equity Rights in and to the
Portfolio Companies, on the terms and subject to the conditions set forth
herein;

      G. Segece desires to acquire from PCM-BV, and PCM-BV desires to sell to
Segece, fifty percent (50%) of the entire Equity Rights in and to PCMM, on the
terms and subject to the conditions set forth herein;

      H. Each of the Parties believes that it is in their respective best
interests that the Transactions contemplated hereby be consummated and, in
furtherance thereof, has duly approved this Agreement and the Transactions
contemplated hereby.

      G. Each of the Parties desire to make certain representations, warranties,
covenants and other agreements in connection with the transactions contemplated
hereby.

                                       2
<PAGE>
      NOW, THEREFORE, in consideration of the covenants and representations set
forth herein, and for other good and valuable consideration, the parties agree
as follows:

                            ARTICLE I - - DEFINITIONS

      1.1 Certain Definitions. As used in this Agreement, the following terms
have the following meanings (terms defined in the singular to have a correlative
meaning when used in the plural and vice versa). Certain other terms are defined
in the Recitals and in the text of this Agreement.

            (a) "ASSIGNED SHAREHOLDER LOANS" mean all the shareholders loans
which remain outstanding as at the Reference Date and which are due and payable
by the Contract Companies to PCE and/or EUN, and/or PCM-BV and/or their
Affiliates;

            (b) "ASSIGNED SHAREHOLDER LOANS AMOUNTS means, with respect to each
of the Assigned Shareholder Loans (i) the entire (100%) aggregate estimated
amount of those Assigned Shareholder Loans, which are due and payable by the
Portfolio Companies to PCE and/or EUN and/or their Affiliates; and (ii) fifty
percent (50%) of the aggregate estimated amount of those Assigned Shareholder
Loans which are due and payable by PCMM to PCM-BV and/or its Affiliates; all in
the estimated amounts (principal and accrued interest as at the Reference Date)
which are specified in the Shareholders Loan Schedule attached hereto as
SCHEDULE 1.1(WWW), subject to verification in terms of the provisions of Section
3.5 below;

            (c) "ACQUIRED PCMM QUOTA" means fifty percent (50%) of the total
outstanding Equity Rights in and to PCMM, which are to be acquired by Segece
pursuant to the provisions of this Agreement, as detailed and specified in the
Rights Acquisition Schedule attached hereto as SCHEDULE 1.1(UUU);

            (d) "AFFILIATE" means any Person that directly or indirectly,
through one of more intermediaries, controls or is controlled by or is under
common control with the Person specified. For purposes of this definition,
control of a Person means the power, direct or indirect, to direct or cause the
direction of the management and policies of such Person whether by voting power,
Contract or otherwise;

            (e) "ANCILLARY AGREEMENTS" means all those ancillary agreements and
contracts to be concluded between inter alia the Parties or any of them and
which are required or necessary for the full and proper execution and perfection
of the Transactions provided for in this Framework Agreement, including: (i) the
Duna Plaza Turn-Key Development Agreement; (ii) the DPO Interim Agreement; (iii)
the PCMM Shareholders Agreement; (iv) the Trademark License Agreement; (v) the
OVAG Loan Repayment Agreement; (vi) the various agreements and related documents
required for the sale and transfer of the Equity Rights in and to the Portfolio
Companies referred to in Section 7.3 below; (vii) the Shareholder Loan
Assignment Agreements referred to in Section 7.3 below; and (viii) the Utilities
Guarantee; (ix) the EMI Parent Company Guarantee; (x) the Price Adjustment
Escrow Agreement; (xi) the EMI First Demand Guarantee referred to in Section
8.2(j) below; and (xii) such other contracts, deeds and documents as are
reasonably required by operation of applicable Law in order to give full, valid
and proper effect to the intention of the Parties as set forth in this
Agreement;

                                       3
<PAGE>
            (f) "ASSUMED FINANCING LOANS" means all those Financing Loans which
are to be repaid by the relevant Portfolio Company at the election of Purchasers
following the Closing, excluding the OVAG Loans, as specified in the Portfolio
Liability Schedule SCHEDULE 1.1(lll);

            (g) "BOOKS AND RECORDS" of any Contract Company means all files,
documents, instruments, papers, books and records relating to the business,
operations, condition of (financial or other), results of operations and assets
of each Contract Company, including without limitation financial statements,
ledgers, journals, deeds, title policies, minute books, stock certificates and
books, Contracts, Leases, Permits, customer and tenant lists, rent rolls,
computer files and programs, retrieval programs, operating data and plans and
environmental studies;

            (h) "BUSINESS DAY" shall mean a day other than (i) Saturday and
Sunday; and (ii) any day on which banks located in Hungary, France, The
Netherlands or Israel are authorized or obligated to close;

            (i) "BUSINESSES" shall mean the respective businesses and operations
of each of the Contract Companies and/or each of the Portfolio Centers;

            (j) "BUYERS" shall mean: Purchasers and Segece, acting jointly and
severally;

            (k) "BUYERS' ACCOUNTANTS" shall mean: Messrs. Deloittes of Hungary;

            (l) "CLOSING" means the consummation of the Transaction which is to
be carried out on the Closing Date in the manner specified in Article VII below
and in accordance with its provisions;

            (m) "CLOSING ACCOUNTS" means the Estimated Portfolio Companies
Accounts and the Estimated PCMM Accounts;

            (n) "CLOSING DATE" has the meaning set forth in Section 7.1 below;

            (o) "CONTRACT COMPANIES" means the Property Companies, the Direct
Property Companies, the Holding Companies and PCMM;

            (p) "DIRECT PROPERTY COMPANIES" means those 4 (four) companies
specified in Section B of the Rights Acquisition Schedule attached hereto as
SCHEDULE 1.1(uuu), which are recorded as the owners of the respective Portfolio
Centers recorded opposite their names in the Property Schedule attached hereto
as SCHEDULE 1.1(ooo), the entire quota of which are to be acquired directly by
KLPH from PCE (or, in the case of Szeged Plaza Kft. - from Szeged);

            (q) "DPO INTERIM AGREEMENT" means the agreement to be entered into
at the Closing by and among Klepierre, Purchasers, Duna Plaza Rt., and PCE in
the form and text attached hereto as SCHEDULE 8.4, which shall govern the
respective rights of, and the relations between, the Parties insofar as they
pertain to the Duna Plaza Offices;

            (r) "DUNA PLAZA COMPLEX" means the Duna Plaza Shopping Center and
the Duna Plaza Offices;

                                       4
<PAGE>
            (s) "DUNA PLAZA EXTENSION" means the proposed extension to the Duna
Plaza Shopping Center referred to in, contemplated in, and subject to the
provisions of, Section 8.3 below, which is to be constructed by PCE pursuant to
the provisions of the Duna Plaza Turn-Key Development Agreement and in
accordance with the plans and designs in terms of which the building permit
applications were submitted (and in accordance with detailed plans and designs
to be agreed);

            (t) "DUNA PLAZA OFFICES" means those areas of the Duna Plaza Complex
which are delineated in blue on the plans attached to the DPO Interim Agreement
and which : (i) are designated for use and are leased out as office areas (and
which shall include the underground parking facilities); (ii) are excluded from
the ambit of the Transaction; and (iii) are subject to and shall be governed by
the provisions of the DPO Interim Agreement;

            (u) "DUNA PLAZA SHOPPING CENTER" means those areas of the Duna Plaza
Complex which are delineated in green on the plans attached to the DPO Interim
Agreement and which : (i) are designated for use and are leased and operated as
a shopping and entertainment center; and (ii) are included within the ambit of
the Transaction and comprise the Duna Plaza Portfolio Center;

            (v) "DUNA PLAZA TURN-KEY DEVELOPMENT AGREEMENT" means the turn-key
development and construction agreement which is to be executed by and among
Klepierre, Purchasers, Duna Plaza Rt. and PCE following the Closing in respect
of the development, construction, lease-up and completion of the Duna Plaza
Extension, all as contemplated in and subject to the provisions of Section 8.3
below;

            (w) "EMI" means Elbit Medical Imaging Ltd., of 13 Moses Street, Tel
Aviv, Israel, being the ultimate and/or indirect parent company of the Vendors;

            (x) "EMI PARENT GUARANTEE" means the corporate guarantee to be
furnished by EMI to Purchasers and Segece at the Closing, in the form and text
attached hereto and marked as SCHEDULE 2.7(a);

            (y) "EMPLOYEE" means each employee of the Contract Companies or any
of them who is employed in connection with the Businesses;

            (z) "EQUITY RIGHTS" means the equity and voting rights (shares or
quotas) in each of the Contract Companies, together with all other rights and
interests bestowed by operation of applicable law on the holders thereof,
including without limitation the right to receive dividends and other forms of
profit distributions, and surplus assets upon liquidation;

            (aa) "ESTIMATED TRANSACTION PRICES" means the aggregate of the
Estimated Portfolio Company Prices and the Estimated PCMM Share Value, and as
detailed and specified in the Transaction Prices Schedule attached hereto as
SCHEDULE 1.1(bbbb);

            (bb) "ESTIMATED PCMM ACCOUNTS" means the pro forma balance sheet and
financial statements in respect of PCMM as of the Reference Date, which have
been prepared by PCE in accordance with Hungarian accounting standards, copies
of which are attached hereto and marked as SCHEDULE 3.1(a)(i);

            (cc) "ESTIMATED PCMM SHARE VALUE" means the estimated value of the
Acquired PCMM Quota which is to be paid by Segece to PCM-BV at the Closing in
consideration for the purchase of

                                       5
<PAGE>
the Acquired PCMM Quota, calculated in terms of the Estimated PCMM Accounts, but
subject to verification and review in terms of the provisions of Sections 3.5
below;

            (dd) "ESTIMATED PORTFOLIO COMPANIES ACCOUNTS" means the pro forma
balance sheet and financial statements in respect of all of the Portfolio
Companies (including those of the Property Companies) as of the Reference Date,
which have been prepared by PCE in accordance with Hungarian accounting
standards, copies of which are attached hereto and marked as SCHEDULE
3.1(a)(ii);

            (ee) "ESTIMATED PORTFOLIO COMPANY PRICES" means the estimated prices
which are to be paid by Purchasers to PCE, EUN and Szeged respectively at the
Closing in consideration for the acquisition of the entire Equity Rights in and
to the Portfolio Companies, calculated in terms of the Estimated Portfolio
Company Accounts, but subject to verification and review in terms of the
provisions of Sections 3.5 below;

            (ff) "EXCLUDED ASSETS" means the Excluded Centers, the Excluded
Centers Companies, the Duna Plaza Offices, as well as the other projects and
businesses of PCE and/or EUN referred to in Section 2.9 below;

            (gg) "EXCLUDED CENTERS" means the 4 (four) shopping and
entertainment centers located within Hungary which are owned and operated by the
Excluded Centers Companies, and which are not included within the ambit of the
Transaction (subject however to the provisions of Section 8.5(c) below), namely:
Pecs Plaza located in Pecs, Sopron Plaza located in Sopron, Balaton Plaza
located in Vezsprem, and Savaria Plaza located in Szombathely;

            (hh) "EXCLUDED CENTERS COMPANIES" means Pecs Plaza Kft., Sopron
Plaza Kft., Vezsprem Plaza Kft. and Szombathely Plaza Kft. being wholly owned
subsidiaries of PCE and the holders of the right, title and interest in and to
each of the Excluded Centers respectively;

            (ii) "EXCLUDED CENTERS FINANCING LOANS" means the loans awarded by
the Financing Banks to the Excluded Centers Companies as set forth in the
Portfolio Liabilities Schedule(SCHEDULE 1.1(lll));

            (jj) "EXECUTION DATE" means the date of the signing and execution of
this Agreement;

            (kk) "FINANCING BANKS" means those banking institutions which have
granted credit facilities to the relevant borrowers in respect of the Portfolio
Centers, all and more fully detailed and specified in the Portfolio Liability
Schedule attached hereto as SCHEDULE 1.1(lll);

            (ll) "FINANCING BANKS SECURITIES" means the securities and
collateral granted to the relevant Financing Banks in respect of each of the
respective credit facilities, all as more fully detailed and specified in the
Portfolio Liabilities Schedule attached hereto as SCHEDULE 1.1(lll);

            (mm) "GOVERNMENTAL BODY" means any (i) nation, province, state,
county, city, town, village, district, or other jurisdiction of any nature; (ii)
provincial, state, local, municipal, or other government; (iii) governmental or
quasi-governmental authority of any nature (including any governmental agency,
branch, department, official, or entity and any court or other tribunal); or
(iv) body exercising, or entitled to exercise, any administrative, executive,
judicial, legislative, police, regulatory, or taxing authority or power of any
nature;

                                       6
<PAGE>

                  (nn)     "HOLDING COMPANIES" means the eight (8) special
purpose vehicle holding companies which hold 100% of the Equity Rights of the
relevant Property Company recorded opposite its name in the Rights Acquisition
Schedule attached hereto as SCHEDULE (UUU), the Equity Rights of which are held
by PCE and EUN respectively in the proportions indicated in the said Rights
Acquisition Schedule, and are to be acquired by KLPH and LP7 in the same
proportions;

                  (oo)     "INDEBTEDNESS" of any Person means all obligations of
such Person (i) for borrowed money, (ii) evidenced by notes, bonds, debentures
or similar instruments, (iii) for the deferred purchase price of goods or
services (other than trade payables or accruals incurred in the ordinary course
of business), (iv) under leases or (v) in the nature of guarantees of the
obligations described in clauses (i) through (iv) above of any other Person;

                  (pp)     "KNOWLEDGE OF VENDORS" shall mean the actual
knowledge of the incumbent officers, employees and directors of the Vendors, or
of the Contract Companies where relevant, or knowledge which the incumbent
officers, employees and directors of the Vendors, or of the Contract Companies
where relevant, ought reasonably to have had in the circumstances of any
particular matter;

                  (qq)     "LAND REGISTRY EXTRACTS" means the official extracts
issued by and/or obtained from the Lands Registry Office in respect of each of
the Portfolio Centers, which shall each bear a date of issue not earlier than 3
(three) days prior to the Closing Date, and which are to be furnished by Vendors
to Purchasers at Closing in terms of the provisions of Section 7.2(a)(iii)
below, and which are attached as Exhibit B to the Property Schedule (SCHEDULE
1.1(OOO));

                  (rr)     "LAW" means any applicable law (including common
law), statute, rule, regulation, ordinance, extension order, or other
pronouncement having the effect of law in the Kingdom of The Netherlands or in
the Republic of Hungary or any other country or Governmental Body having
jurisdiction in matters pertaining to the subject matter of this Agreement;

                  (ss)     "LEASE CONTRACT(S)" means with respect to the shops
and office premises of the Portfolio Centers (excluding the Duna Plaza Offices),
any lease contract and any amendment thereof entered into between the relevant
Property Companies and Direct Property Companies, as the case may be, for the
use or occupancy of any portion of the Portfolio Centers;

                  (tt)     "LIABILITY" means any Indebtedness, obligation or
other liability of a Person (whether absolute, accrued, contingent, fixed or
otherwise, or whether due or to become due);

                  (uu)     "LIEN" means any mortgage, pledge, lien, charge,
claim, security interest, adverse claims of ownership or use, restrictions on
transfer, defect of title or other encumbrance of any sort, other than Permitted
Liens;

                  (vv)     "MATERIAL ADVERSE EFFECT" shall have the meaning
ascribed to it in Section 10.2 below;

                  (ww)     "ORDER" means any writ, judgment, decree, injunction,
administrative order, directive or similar order or directive of any
Governmental Body (in each such case whether preliminary or final);

                                       7
<PAGE>
                  (xx)     "OVAG" means Osterreichische Volksbanken AG of
Vienna;

                  (yy)     "OVAG LOANS" means the Financing Loans awarded by
OVAG (either alone or jointly with syndicating banks) to D2 Rt., Duna Plaza Rt.,
Csepel Plaza Kft. and Gyor Plaza Kft., as more fully detailed and specified in
the Portfolio Liabilities Schedule attached hereto as SCHEDULE 1.1(LLL), and in
the OVAG Loans Repayment Agreement (SCHEDULE 2.3(A))

                  (zz)     "OVAG LOANS REPAYMENT AGREEMENT" means the agreement
which shall have been concluded on or before the Closing Date by and among OVAG,
Purchasers and PCE, the provisions of which shall govern the repayment of the
OVAG Loans in full at the Closing, a copy of which is attached hereto and marked
as SCHEDULE 2.3(A);

                  (aaa)    "PCE" has the meaning set forth in the recitals
above;

                  (bbb)    "PCE GROUP APPROVALS" means the approval of the
Transaction, as incorporated in this Framework Agreement and the Ancilliary
Agreements, of the respective Boards of Directors of EMI and each of the
Vendors, all of which have been obtained prior to the Execution Date;

                  (ccc)    "PCM-BV" has the meaning set forth in the recitals
above;

                  (ddd)    "PCMM" means Plaza Centers Magyarorszag (Management)
Kft., being a company registered pursuant to the Laws of Hungary and bearing
registration No. 01-09-680412;

                  (eee)    "PCMM SHAREHOLDERS AGREEMENT" means the shareholders
agreement to be entered into by and among Segece and PCM-BV at the Closing,
which shall govern their relations inter se and their joint relations with PCMM,
in the form and text attached hereto as SCHEDULE 2.1(C)(II);

                  (fff)    "PCMM UPSTREAM LOANS" means the loan, in the amount
of E 2,509,000 as at the Reference Date, which is due and payable by PCE to
PCMM, of which an amount of E 1,000,000 will be repaid by PCE to PCMM at Closing
in terms of Section 3.3(b) below, subject to verification in terms of the
provisions of Section 3.5 below, which shall apply mutatis mutandis;

                  (ggg)    "PERMIT" means the licenses, permits, authorizations,
registrations, certificates, variances, approvals, consents and franchises and
similar rights obtained from governments and any Governmental Body, and any
pending applications relating to the foregoing in respect of and/or in
connection with the Contract Companies and/or the Portfolio Centers and/or the
Businesses and/or the Purchased Assets;

                  (hhh)    "PERMITTED LIENS" means (i) all Financing Bank
Securities in respect of the Assumed Financing Loans; (ii) with respect to each
of the Portfolio Centers, all specific liens, easements and other registered
third party rights recorded in the Land Registry Extracts attached hereto as an
exhibit to the Property Schedule (SCHEDULE 1.1(OOO)); and (iii), with respect to
the Property Companies and the Direct Property Companies, liens arising by
operation of law in respect of goods supplied or services rendered in the
ordinary course of business consistent with past practice for amounts that are
not due and payable as of the Closing Date or being contested in good faith and
for which appropriate reserves have been established in the Estimated Portfolio
Company Accounts; (iv) in respect of the Portfolio Centers only, legal easements
and rights of access mandated by operation of law whether or not recorded in the
Land Registry Extracts, which

                                       8
<PAGE>
comply with the provisions of Section 4.8(f) below and which do not and may not
detract from the value of the relevant Portfolio Center, or from the use,
operation of transfer of the relevant Portfolio Center; provided, however, that
no liens, encumbrances or other third party rights, other than Financing Bank
Securities, shall be permitted against the Equity Rights to be acquired by
Buyers pursuant to the provisions of this Agreement;

                  (iii)    "PERSON" means any individual, corporation (including
any non-profit corporation), company, general or limited partnership, limited
liability company, joint venture, estate, trust, association, organization,
labor union, Governmental Body or other entity;

                  (jjj)    "PORTFOLIO COMPANIES" means the Holding Companies and
the Direct Property Companies;

                  (kkk)    "PORTFOLIOS CENTERS" means the 12 (twelve) shopping
and entertainment centers specified in the Property Schedule, which are fully
and validly owned and controlled by the relevant Property Company or the
relevant Direct Property Company recorded opposite its name (and including land
reserves and/or extensions owned by Duna Plaza Rt. and Kapsovar Plaza Kft.
respectively which are adjacent to the existing Portfolio Centers, but subject
to the provisions of Section 8.3(e) below), as set forth in detail in the
Property Schedule as attached hereto as SCHEDULE 1.1(OOO);

                  (lll)    "PORTFOLIO LIABILITIES SCHEDULE" means the schedule
attached hereto and marked as SCHEDULE (LLL), setting out the details and
particulars of the Assumed Financing Loans, the OVAG Loans and the Excluded
Centers Financing Loans;

                  (mmm)    "PRICE ADJUSTMENT ESCROW AGREEMENT" means the escrow
agreement to be concluded on or before the Closing by and among Purchasers, PCE
and OVAG as escrow agent, pursuant to which an escrow fund will be created as
security for any price adjustments which may be required pursuant to the
provisions of Section 2.6 below, in the form and text attached hereto as
SCHEDULE 2.6(A);

                  (nnn)    "PROPERTY COMPANIES" means each of the eight (8)
special purpose vehicle companies which are recorded as the owners of the
respective Portfolio Centers recorded opposite their names in the Property
Schedule attached hereto as SCHEDULE 1.1(OOO), the entire Equity Rights of which
are held by the relevant Holding Company recorded opposite its name in the
Rights Acquisition Schedule attached hereto as SCHEDULE 1.1(UUU);

                  (ooo)    "PROPERTY SCHEDULE" means the schedule attached
hereto as SCHEDULE 1.1(OOO) setting out the details and particulars of the
Portfolio Centers, and including the floor plans of each of the Portfolio
Centers appendixed thereto as exhibits;

                  (ppp)    "PURCHASERS" shall means KLPH and LP7, jointly and
severally, and shall be deemed to include their successor or assign pursuant to
Section 14.9 below;

                  (qqq)    "PURCHASED ASSETS" means, refers to and includes all
the equipment, machinery, properties, rights, titles, assets (tangible and
intangible) and other interests which are owned, used or held for use by the
relevant Contract Companies and/or the relevant Portfolio Centers related to
and/or in connection with the relevant Businesses;

                                       9
<PAGE>
                  (rrr)    "PURCHASERS GROUP APPROVALS" means the approval of
the Transactions, as incorporated in this Framework Agreement and the Ancillary
Agreements, of the respective supervisory boards of Klepierre and and Segece,
both of which have been obtained prior to the Execution Date;

                  (sss)    "REFERENCE DATE" means June 30, 2004;

                  (ttt)    "REPRESENTATIVES" means, with respect to a Person,
that Person's officers, directors, employees, accountants, legal counsel, agents
and other representatives;

                  (uuu)    "RIGHTS ACQUISITION SCHEDULE" means the schedule of
the Equity Rights to be acquired by Purchasers and Segece pursuant to the
provisions of this Agreement attached hereto and marked as SCHEDULE 1.1(UUU);

                  (vvv)    "SEGECE" shall have the meaning set forth in the
recitals above;

                  (www)    "SHAREHOLDER LOAN SCHEDULE" means the schedule
attached hereto as SCHEDULE 1.1(WWW), specifying : (i) each of Assigned
Shareholder Loans and each of the estimated Assigned Shareholder Loans Amount
(principal and interest as at the Reference Date) and (ii) each of the Up-Stream
Loans and each of the Up-Stream Loans Amounts (principal and interest as at the
Reference Date);

                  (xxx)    "TRADEMARK LICENSE AGREEMENT" means the agreement to
be entered into by and among, inter alia, Klepierre, Purchasers and PCE at the
Closing, in terms of which PCE shall award a license for the use of the "Plaza
Centers" tradename and logo, on the terms and conditions specified therein, in
the form and text attached hereto as SCHEDULE 1.1(XXX);

                  (yyy)    "TRANSACTIONS" means the transactions which are the
subject matter of this Framework Agreement and the Ancillary Agreements;

                  (zzz)    "TRANSACTION APPROVALS" means all those approvals
which are required for the consummation of the Transaction are detailed and
specified in Section 7.2(a) below, namely : (i) the Financing Banks Approvals;
(ii) the Waivers and Consents; and (iii) the COH Approval (as defined in Section
7.2(a)(i) below);

                  (aaaa)   "TRANSACTION COMPANIES" means the Portfolio Companies
and PCMM;

                  (bbbb)   "TRANSACTION PRICES SCHEDULE" means the schedule
setting forth the Estimated Transaction Prices attached hereto and marked as
SCHEDULE 1.1(BBBB);

                  (cccc)   "TRIPLE NET RENTS" shall have the meaning, and shall
be calculated in according with the methodologies, as provided for in SCHEDULE
3.1(B)(I);

                  (dddd) "UTILITIES GUARANTEE" means the guarantee to be
furnished by PCE to Purchasers at the Closing in terms of the provisions of
Section 2.5 below and in the form and text attached hereto as SCHEDULE 2.5(B);

                                       10
<PAGE>
                  (eeee)   "UP-STREAM LOANS" means all loans which remain
outstanding as at the Reference Date, and which are due and payable by the PCE
and/or any of its Affiliates to any of the Contract Companies (but excluding the
PCMM Upstream Loan), all, as specified in the Shareholder Loan Schedule
(SCHEDULE 1.1(WWW)), subject to verification in terms of the provisions of
Section 3.5 below, which shall apply mutatis mutandis;

                  (ffff)   "UP-STREAM LOANS AMOUNT" means, with respect to any
of the Up-Stream Loans, the amount which remain outstanding as at the Reference
Date;

                  (gggg)   "VENDORS" means PCE, EUN, Szeged and PCM-BV, acting
jointly and severally;

                  (hhhh)   "WAIVERS AND CONSENTS" means the waivers and consents
to be furnished by the Financing Banks in respect of the Transactions, which are
to be obtained on or before the Closing, copies of which are attached hereto as
SCHEDULE 7.2(A)(II);

                            ARTICLE II - TRANSACTIONS

         2.1      Purchase and Sale of the Contract Companies.

                  (a)      Purchase and Sale of Holding Companies. Upon the
terms and subject to the conditions set forth herein, at the Closing : (i) KLPH
shall irrevocably purchase from PCE, and PCE shall irrevocably sell, convey,
transfer, assign and deliver to KLPH, the Equity Rights held by PCE
(representing at the date hereof and on the Closing Date 96.6% of the entire
Equity Rights) in and to all of the Holding Companies (excluding D2 Rt.) as
indicated in the Rights Acquisition Schedule, free and clear of all Liens except
for Financing Bank Securities; and (ii) LP7 shall irrevocably purchase from EUN,
and EUN shall irrevocably sell, convey, transfer, assign and deliver to LP7, the
Equity Rights held by EUN (representing at the date hereof and on the Closing
Date 3.4% of the entire Equity Rights) in and to all of the Holding Companies
(excluding D2 Rt.) as indicated in the Rights Acquisition Schedule, free and
clear of all Liens except for Financing Bank Securities; and (iii) KLPH shall
irrevocably purchase from PCE, and PCE shall irrevocably sell, convey, transfer,
assign and deliver to KLPH, the Equity Rights held by PCE in D2 Rt.
(representing at the date hereof and on the Closing Date 99.5% of the entire
Equity Rights of D2 Rt.), free and clear of all Liens except for Financing Bank
Securities; and (iv) LP7 shall irrevocably purchase from EUN, and EUN shall
irrevocably sell, convey, transfer, assign and deliver to LP7, the Equity Rights
held by EUN in D2 Rt. (representing at the date hereof and on the Closing Date
0.5% of the entire Equity Rights of D2 Rt.), free and clear of all Liens except
for Financing Bank Securities.

                  (b)      Purchase and Sale of Direct Property Companies. Upon
the terms and subject to the conditions set forth herein, at the Closing, KLPH
shall irrevocably purchase from PCE and Szeged, and PCE and Szeged shall
irrevocably sell, convey, transfer, assign and deliver to KLPH, the entire
Equity Rights (100%) in and to all of the Direct Property Companies, free and
clear of all Liens except for Financing Bank Securities.

                  (c)      Purchase and Sale of Acquired PCMM Quota.

                                       11
<PAGE>
                           (i)      Upon the terms and subject to the conditions
set forth herein, at the Closing, Segece shall irrevocably purchase from PCM-BV,
and PCM-BV shall irrevocably sell, convey, transfer, assign and deliver to
Segece, the Acquired PCMM Quota (constituting 50% of the entire Equity Rights of
PCMM) free and clear of all Liens except for Financing Bank Securities, if any;

                           (ii)     At the Closing, PCM-BV and Segece shall
enter into the PCMM Shareholders Agreement in the form and text attached hereto
as SCHEDULE 2.1(C)(II), which shall govern their mutual relations inter se as
the quotaholders of PCMM, and the relations between them and PCMM.

                  (d)      Assignment and Transfer of Assigned Shareholder
Loans. Upon the terms and subject to the conditions set forth herein, at the
Closing:

                           (i)      PCE shall assign, transfer and make over to
KLPH, and KLPH shall accept the assignment and transfer to it, of all the
outstanding Assigned Shareholder Loans recorded in the Books and Records of the
the relevant Holding Company and/or the relevant Direct Property Company (and
the relevant Property Company, if any) as an Indebtedness due and payable to PCE
and/or EUN and/or Szeged, as the case may be, or their Affiliates (all as
detailed and specified in the Shareholder Loan Schedule attached as SCHEDULE
1.1(WWW)). The Assigned Shareholders' Loans so assigned shall be free and clear
of all Liens, except for Financing Bank Securities.

                           (ii)     PCM-BV shall assign, transfer and make over
to Segece, and Segece shall accept the Assigned Shareholder Loans recorded in
the Books and Records of PCMM as an Indebtedness due and payable by PCMM to
PCM-BV or its Affiliates (as detailed and specified in the Shareholder Loan
Schedule attached as SCHEDULE 1.1(WWW)). The Assigned Shareholders' Loans so
assigned to Segece shall be free and clear of all Liens, except for Financing
Bank Securities.

                           (iii)    In the event that the recorded creditor of
any Indebtedness which is to be assigned as an Assigned Shareholders Loan in
terms of this Section is an Affiliate of Vendors, then and in such event the
relevant Vendor shall cause such Affiliate to execute the relevant Deed of Loan
Assignment so as to effect the assignment of the Assigned Shareholders Loan as
contemplated in terms of this Section.

                  (e)      Transfer of the Up-Stream Loans

                           (i)      At the Closing, and subject to the execution
and perfection of the assignment of the Assigned Shareholder Loans as aforesaid
and subject to the payment by PCE to KLPH of a amount equal to aggregate amount
of all of the Up-Stream Loans Amounts (such payment to be effected by way of set
off against the aggregate amount of Assigned Shareholder Loans Amounts which
shall be due and payable at Closing by KLPH to PCE as consideration for the
assignment of the Assigned Shareholder Loans), KLPH shall assume the obligations
of PCE under each of the Up-Stream Loans; in this respect, PCE, KLPH and the
relevant Contract Companies shall execute at Closing an assignment of debt and
substitution agreement effecting such substitution and releasing PCE of all and
any payment obligations under the Up-Stream Loans.

                           (ii)     At the Closing, and subject to the execution
and perfection of the assignment of the Assigned Shareholder Loans as aforesaid,
Vendors represent and warrants that no amount shall remain owed by any of the
Contract Companies to any of the Vendors and/or any of their Affiliate, under
any Assigned Shareholder Loan, and more generally under any agreement or
otherwise. In this respect the

                                       12
<PAGE>
Vendors, on the one hand and the relevant Contract Companies on the other hand
shall execute at Closing a general waiver and release, whereby Vendors and their
Affiliates shall irrevocably and unconditionally release the Contract Companies
from all and any Liabilities in respect of the Assigned Shareholder Loans and
from any other Indebtedness, and shall irrevocably waive all past present or
future claims against the Contract Companies pertaining to the repayment of the
Assigned Shareholder Loans.

                           (iii)    At Closing, and subject to the payment by
the Vendors to the Buyers by way of set-off against the Up-Stream Amount as set
forth in this Agreement, and subject to the provisions of Section 4.10(b) below,
the Buyers and the Contracts Companies shall irrevocably and unconditionally
release Vendors from all and any Liabilities and Indebtedness in respect of
Up-Stream Loans.

         2.2      Financing Loan Facilities.

                  The Parties record that each of the Property Companies and
each of the Direct Property Companies has entered into Financing Loan Facilities
with the Financing Banks, as more fully detailed and specified in the Portfolio
Liability Schedule attached hereto and marked as SCHEDULE 1.1(LLL).

         2.3      Re-payment of OVAG Loans and Release of Securities.

                  (a)      With respect to the repayment of the OVAG Loans in
their entirety at the Closing, Klepierre, Purchasers, PCE, and OVAG shall on or
before the Closing Date enter into that certain OVAG Loans Repayment Agreement
in the form and text attached hereto as SCHEDULE 2.3(A), whereby, subject to the
consummation of the Transactions at the Closing:

                           (i)      Purchasers shall deposit into an escrow
account opened in their names with OVAG the full amount required to repay the
OVAG Loans in full;

                           (ii)     PCE shall cause that amount required to
execute full repayment of the Financing Loans extended by OVAG to Pecs Plaza
Kft. And to Sopron Plaza Kft. ("THE EXCLUDED CENTER OVAG LOANS") to be deposited
into a special deposit account;

                           (iii)    OVAG shall be furnished with irrevocable
instructions that upon the delivery to the representative of OVAG attending the
Closing of the Acknowledgement of Closing referred to in Section 7.4 below, the
funds held in the special deposit accounts referred to hereinabove shall be
applied to the immediate repayment of the OVAG Loans and the Excluded center
OVAG Loans; and

                           (iv)     OVAG shall unconditionally release and
terminate all collateral held by it as security for the repayment of the OVAG
Loans and the Excluded Center OVAG Loans.

                  (b)      In respect of all Assumed Financing Loans, Purchasers
declare that it is their intention to cause the full repayment of the Assumed
Financing Loans on the next regularly scheduled payment date under the relevant
Financing Loan Facilities as set forth in the Portfolio Liabilities Schedule
attached as SCHEDULE 1.1(LLL). Pending repayment of the Assumed Financing Loans
as aforesaid, Purchasers undertake that they shall refrain from committing any
act, deed or omission which may give rise or result in an Event of Default or a
potential Event of Default under the relevant Financing Loan Facilities, and
which may thereby trigger the exercise of cross collateral against the Excluded
Centers and/or the Excluded Center

                                       13
<PAGE>
Companies. In this regard, Purchasers shall indemnify Vendors and/or the
Excluded Centers Companies as provided in Section 12.2 below .

         2.4      Release of Cross Collateralization. PCE hereby undertakes to
cause that by not later than the Closing Date it shall cause all the Financing
Loans taken out by Sombathely Plaza Kft. in respect of the Savaria Portfolio
Center to be either repaid in full or refinanced in such manner that with effect
from the Closing none of the Contract Companies and/or the Portfolio Centers
and/or the Purchased Assets will be encumbered in any manner or form, or subject
to any Liens, in respect of and/or pertaining to and/or which may serve as
collateral for the repayment of all and any loans and other forms of credit
facilities taken out by the Sombathely Plaza Kft. in respect of the Savaria
Portfolio Center or otherwise, whether past or future. In this respect, PCE
shall deliver at Closing a certificate signed by the relevant banks and
reasonably satisfactory to the Buyers, which shall confirm such repayment or
refinancing as described above has been fully effected.

         2.5      Utilities Guarantee

                  (a)      On Closing Date, PCE shall deliver the Utilities
Guarantee to Purchasers. The Utilities Guarantee shall be an autonomous,
irrevocable and unconditional first demand bank guarantee issued by Magyar
Kulkereskedelmi Bank Rt. of Hungary, or another reputable bank acceptable to
Purchasers in their sole discretion (such discretion not to be unreasonably
exercised).

                  (b)      The Utilities Guarantee shall be in the form and text
attached hereto as SCHEDULE 2.5(B), and shall fully guarantee that the annual
pre-tax net revenues deriving from the sale of electricity only to the tenants
of the Portfolio Centers [(including from the Duna Plaza Offices)] and which are
recorded by all the Property Companies and the Direct Property Companies in the
aggregate, after the deduction of direct costs ("UTILITIES REVENUES"), shall be
in a minimum amount equal to E 1.246 million (one million two hundred and forty
six thousand Euro) (the "MINIMUM ANNUAL UTILITIES REVENUES") with respect to
each of the consecutive six calendar years commencing as and from the 4th
anniversary of the Closing Date (the "GUARANTEED YEARS"). The total value of the
Utilities Guarantee shall be in the amount of E 7.476 million (seven million
four hundred and seventy six thousand Euro), which amount shall be reduced as
provided in the Utilities Guarantee.

                  (c)      Purchasers may not exercise the Utilities Guarantee
in respect of any Guaranteed Year unless and until they shall have furnished PCE
with a written demand to execute payment of the Utilities Shortfall in respect
of the relevant Guaranteed Year (which demand shall be accompanied by a copy of
the auditors report referred as provided in the Utilities Guarantee, and PCE
shall have failed to execute such payment within 10 (ten) Business Days of its
receipt of such written demand; and

                  (d)      Buyers undertake to ensure that the Property
Companies and the Direct Property Companies, as well as PCMM following the
exercise of the call option or the put option provided for in the PCMM
Shareholders Agreement, shall act in good faith in determining the margins
between the prices for the bulk acquisition of electricity and the prices for
the re-sale of electricity to the tenants of the Portfolio Centers, and shall
refrain from any act which would deliberately and unreasonably reduce the amount
of the Utilities Revenues (and consequently increase the amount of the Utilities
Shortfall) and thereby unfairly prejudice PCE's payment obligations pursuant to
the provisions of this Section.

                                       14
<PAGE>
                  (e)      For the avoidance of doubt, in the event that the
Property Companies and/or the Direct Property Companies shall sell the existing
transformator stations and relay stations to the electricity supplier at any
time during the Guaranteed Years, then and in such event the revenues deriving
from such sales of the transformator stations and relay stations shall be
included in the Utilities Revenues.

         2.6      Price Adjustment Escrow Deposit

                  (a)      On or before the Closing Date, Purchasers, PCE and
Magyar Kulkereskedelmi Bank Rt shall execute the Price Adjustment Escrow
Agreement in the form and text attached hereto as SCHEDULE 2.6(A).

                  (b)      The Price Adjustment Escrow Agreement shall provide
for the creation of an escow fund to be held by OVAG in escrow, and which shall
act as security for the repayment to Purchasers of a certain portion of the
Estimated Portfolio Companies Prices (or the Final Definitive Portfolio
Companies Prices following Verification under Section 3.5 below) in the
circumstances provided for in Section 8.2 below.

         2.7      Parent Guarantees

                  (a)      On Closing Date, PCE shall cause EMI to furnish
Buyers with the EMI Parent Guarantee in the form and text attached hereto as
SCHEDULE 2.7(A), in terms of which EMI shall guarantee the fulfillment by
Vendors of their obligations and undertakings pursuant to the provisions of this
Agreement and the Ancillary Agreements. The EMI Parent Guarantee shall remain
valid until the fulfillment by the Vendors of all of their payment obligations
under this Agreement and the Ancillary Agreements.

                  (b)      By affixing its signature to this Framework
Agreement, Klepierre hereby unconditionally guarantees the full, prompt, timely
and complete performance by Buyers of all of their undertakings, obligations and
duties in accordance with the terms and conditions of this Agreement and/or the
Ancillary Agreements, and undertake to indemnify Vendors against all losses,
reasonable costs, charges and expenses which they may sustain or incur by reason
of the failure of the Buyers or any of them to perform their obligations and
undertakings in whole or in part, and in a timely manner. Klepierre undertakes
that it shall not avail itself of the rights afforded to it in terms of Article
7-III of the Articles of Association of Segece.

         2.8      Excluded Portfolio Centers and Rights of First Offer

                  (a)      It is specifically hereby agreed and understood that
each of the Excluded Centers which are owned by direct and wholly owned
subsidiaries of PCE) are all excluded from the ambit of the Transaction.

                  (b)      With respect to each of the Excluded Centers (as
defined), PCE hereby grants to Purchasers a right of first offer, which remain
valid and binding for a period of 5 (five) years following the Closing Date, in
the event that PCE may consider transferring directly or indirectly the relevant
Excluded Center to an unrelated third party which is not a Group Affiliate of
PCE ("POTENTIAL PURCHASER"). The following provisions shall govern the said
rights of first offer, namely:

                                       15
<PAGE>
                           (i)      In the event that PCE shall consider the
transfer of an Excluded Center to a Potential Purchaser, it shall be required to
furnish Purchasers with 60 (sixty) days advance written notice of its intention
to transfer the relevant Excluded Center, and specifying the terms and
conditions upon which it would be agreeable to the sale of the relevant Excluded
Center, and attaching a form of Sale and Purchase Agreement incorporating such
terms and conditions ("NOTICE OF FIRST OFFER").

                           (ii)     Purchasers shall have the right, by not
later than the sixtieth (60th) day following their receipt of the Notice of
First Offer ("OFFER EXPIRY DATE") to accept the offer on the terms and
conditions specified in the Notice of First Offer by written notice to PCE to be
delivered to PCE not later than the close of business (17h00 Amsterdam time) on
the Offer Expiry Date ("ACCEPTANCE NOTICE").

                           (iii)    PCE undertakes to afford Purchasers a
reasonable opportunity to conduct due diligence investigations in respect of the
relevant Excluded Center (and, as the case may be of the Excluded Center Company
or any other relevant company), provided that such investigations are concluded
prior to the Offer Expiry Date.

                           (iv)     Upon receipt of an unconditional Acceptance
Notice, Purchasers and PCE (or its group Affiliate, where relevant) shall
execute the Sale and Purchase Agreement in the form attached to the Notice of
First Offer, and same not later than 10 (ten) Business Days following the date
of receipt of the Acceptance Notice (subject to obtaining the approval of the
Hungarian Competition Office, if required).

                           (v)      In the event that Purchasers decline to
accept the offer, or are deemed to have so declined, then and in such event PCE
shall be free to transfer the relevant Excluded Center to any Potential
Purchaser within a 6 (six) month period following the Offer Expiry Date, under
terms and conditions which shall not be more favorable for the Potential
Purchaser than those offered to Purchasers.

                           (vi)     For the avoidance of doubt:

                                    (1)      Failure by Purchasers to deliver
                                             the Acceptance Notice to PCE as
                                             aforesaid shall be deemed to
                                             constitute a refusal by Purchasers
                                             to accept the offer;

                                    (2)      Delivery of an Acceptance Notice
                                             which is subject to certain
                                             conditions, or which deviates from
                                             the terms and conditions of the
                                             Notice of First Offer, shall be
                                             also deemed to constitute a refusal
                                             by Purchasers to accept the offer.

                                    (3)      Upon receipt of a conditional
                                             Acceptance Notice, or an Acceptance
                                             Notice which deviates from the
                                             terms and conditions specified in
                                             the Notice of First Offer, PCE
                                             shall be entitled, but not obliged,
                                             to conduct negotiations with
                                             Purchasers in good faith with a
                                             view to reaching agreement on the
                                             purchase and sale of the relevant
                                             Excluded Center. If PCE elects to
                                             conduct such negotiations, and if
                                             the parties fail to reach agreement
                                             within a period of 30 (thirty) days
                                             following the date of receipt of
                                             the original Acceptance Notice,
                                             then and in such event the
                                             provisions of Section 2.8(b)(v)
                                             above shall apply.

                                       16
<PAGE>
                                    (4)      In the event that PCE wishes to
                                             transfer the relevant Excluded
                                             Center to the Potential Purchaser
                                             on terms and conditions which are
                                             more favorable to the Potential
                                             Purchaser than those offered by
                                             Purchasers in their original
                                             Acceptance Notice, then and in such
                                             event PCE shall be obliged to
                                             furnish Purchasers with an amended
                                             Notice of First Offer incorporating
                                             identical terms and conditions
                                             offered by the Potential Purchaser,
                                             and the provisions of this Section
                                             2.8(b) shall apply mutatis mutandis
                                             to such amended Notice of First
                                             Offer; and

                                    (5)      In the event that the PCE and any
                                             Potential Purchaser shall fail to
                                             execute definitive agreements for
                                             the purchase and sale of the
                                             relevant Excluded Center within 6
                                             (six) months from the Offer Expiry
                                             Date, as aforesaid, then and in
                                             such event any subsequent sale of
                                             the relevant Excluded Center shall
                                             be subject to the rights of
                                             Purchasers in terms of this
                                             Section.

         2.9      Other Excluded Assets

                  (a)      The Transaction which is the subject matter of this
Agreement also specifically excludes: (i) the Duna Plaza Offices, which shall be
separated from the Duna Plaza Shopping Center in the manner and subject to the
terms and provisions of the DPO Interim Agreement as contemplated in Section 8.3
below; (ii) all and any shopping and entertainment centers owned, controlled or
operated by PCE and/or its Affiliates, whether directly or indirectly or whether
wholly or partially, located outside the boundaries of Hungary, including
without limitation: Poland, the Czech Republic, Greece, Latvia and Israel; and
(iii) any other businesses of PCE and its Affiliates in Hungary or elsewhere,
including the "Obuda Project".

         2.10     Taxes.

                  (a)      Purchasers shall bear all acquisition or transfer
taxes, if applicable, which are imposed in any jurisdiction by operation of
applicable Law on buyers with respect to the acquisition of the Equity Rights of
the Transaction Companies contemplated in this Agreement.

                  (b)      PCE shall bear all taxes, if applicable, imposed in
any jurisdiction by operation of applicable Law on sellers with respect to the
sale of the Equity Rights of the Transaction Companies contemplated in this
Agreement.

                  (c)      PCE shall bear all income or capital gains taxes
which may be imposed upon it in any jurisdiction by operation of applicable Laws
in respect of the consummation of the Transaction.

         2.11     Stamp Duty. Stamp duty related to this Transaction imposed
under applicable Law in Hungary, if any, shall be borne equally by Purchasers,
on the first hand, and PCE and EUN and the second hand. For the avoidance of
doubt, stamp duties which may be imposed upon Purchasers under French Law are
subject to the provisions of Section 2.10(a) above.

                                       17
<PAGE>
                ARTICLE III - TRANSACTION PRICE AND VERIFICATIONS

         3.1      Determination of Estimated Transaction Prices.

                  (a)      On the basis of the Closing Accounts delivered by PCE
to Buyers on or about May 31st, 2004, the Parties have by mutual agreement
determined the Estimated Transaction Prices comprised of: (i) the Estimated
Portfolio Company Prices in respect of each Portfolio Company calculated in
accordance with the Estimated Portfolio Companies Accounts attached as SCHEDULE
3.1(A)(I); and (ii) the Estimated PCM Shares Value calculated in terms of the
Estimated PCMM Accounts attached as SCHEDULE 3.1(A)(II); all as detailed and
specified in the Transaction Price Schedule attached hereto and marked as
SCHEDULE 1.1(BBBB).

                  (b)      The Parties record and declare that the Estimated
Transaction Prices have been determined by mutual agreement in accordance with:
(i) the methodology for the calculation of the Triple Net Rents attached as
SCHEDULE 3.1(B)(I); (ii) the Restated Net Asset Methodology attached as SCHEDULE
3.1(B)(II); and (iii) the Methodology for the Valuation of PCMM attached as
SCHEDULE 3.1(B)(III).

                  (c)      It is specified that, inasmuch as the net asset value
of Zalaegerszeg Plaza Kft. is in the negative, the Parties have agreed that:
(i) the price to be paid at Closing by KLPH to PCE in respect of the acquisition
of the Equity Rights in and to Zalaegerszeg Plaza Kft. shall be fixed at the
nominal amount of E 1.- (one Euro); and (ii) the price to be paid by KLPH to PCE
in consideration for the assignment of the Assigned Shareholder Loans due and
payable by Zalaegerszeg Plaza Kft. to PCE shall be equal to Assigned Shareholder
Loan Amount of such Assigned Shareholder Loans as specified in the Shareholders
Loan Schedule less the amount by which the Estimated Portfolio Companies Price
for Zalaegerszeg Plaza Kft. is negative.

                  (d)      The Transaction Prices Schedule (SCHEDULE 1.1(BBBB))
shall detail and determine (subject to adjustment and verification in terms
of Sections 3.5 and 3.6 below):

                           (i)      the agreed price to be paid by KLPH to PCE
in respect of the acquisition PCE's Equity Rights representing 99.5% in D2 Rt.
and 96.6% in each of the remaining Holding Companies and in each of the Direct
Property Companies;

                           (ii)     the Assigned Shareholder Loan Amount to be
paid by KLPH to PCE and/or its Affiliates in respect of the assignment of the
Assigned Shareholder Loans recorded in the Books and Records of each of the
Holding Companies and the Direct Property Companies in accordance with the
Shareholders Loan Schedule; it being specified, however, that in respect of each
Holding Company and Direct Property Company where Up-Stream Loans exist, part of
the Assigned Shareholder Loan Amount shall be paid by way of set off against the
amount of the Up-Stream Loan Amounts which are to be transferred and assigned by
PCE to KLPH as set forth in Section 2.1(e) above;

                           (iii)    the agreed price to be paid by LP7 to EUN in
respect the acquisition EUN's Equity Rights representing 0.5% in D2 Rt., and
3.4% in each of the remaining Holding Companies;

                           (iv)     the agreed price to be paid by KLPH to
Szeged in respect of the acquisition Szeged's Equity Rights in the Direct
Property Company known as Szeged Plaza Kft.;

                                       18
<PAGE>
                           (v)      the Assigned Shareholder Loan Amount to be
paid by KLPH to Szeged in respect of the assignment of the Assigned Shareholder
Loans recorded in the Books and Records of Szeged Plaza Kft, in accordance with
the Shareholders Loan Schedule.;

                           (vi)     the agreed price to be paid by Segece to
PCM-BV in respect of the acquisition of the Acquired PCMM Quota; and

                           (vii)    the Agreed DPO Value.

         3.2      Payment of Estimated Portfolio Companies Prices.

                  (a)      At the Closing, on the terms and subject to the
conditions set forth in this Agreement, as full payment for -

                           (i)      the transfer of the entire Equity Rights in
and to the Portfolio Companies by PCE, EUN and Szeged to Purchasers, Purchasers
shall pay to PCE, EUN and Szeged respectively the aggregate total of the
Estimated Portfolio Companies Prices determined in terms of Section 3.1(d)(i),
(iii) and (iv) above and subject to the provisions of Section 3.1(c) above (less
the Agreed DPO Value, which shall be paid by way of set off as set forth in the
DPO Interim Agreement; and

                           (ii)     the assignment of each of the Assigned
Shareholder Loans, Purchasers shall pay to PCE, EUN and Szeged, as the case may
be, the Assigned Shareholder Loan Amounts determined in Section 3.1(d)(ii)
above;

                  (b)      Payment of the Estimated Portfolio Companies Prices
(less the Agreed DPO Value as aforesaid) and the Assigned Shareholder Loan
Amounts (after deduction of the Up-Stream Loans Amounts) shall be effected by
wire transfer of immediately available funds in Euro to such account or accounts
as PCE may direct in its irrevocable payment instructions to be furnished to
KLPH and LP7 at least two Business Days before Closing in terms of Section
7.3(l) below.

         3.3      Payment of Estimated PCMM Shares Value.

                  (a)      At the Closing, on the terms and subject to the
conditions set forth in this Agreement, as full payment for the transfer of the
Acquired PCMM Quota by PCM-BV to Segece, Segece shall pay to PCM-BV the full
amount of the Estimated PCMM Shares Value determined in terms of Section 3.1
above;

                  (b)      The following provisions shall govern the status of
the PCMM Up-Stream Loan on and after Closing:

                           (i)      At Closing, PCE shall furnish Segece with
its payment instructions, whereby out of the Estimated PCMM Shares Value, an
amount of E 1,000,000 (one million Euro) will be transferred directly by Segece
to PCMM on behalf of PCE as partial repayment of the PCMM Up-Stream Loan,
following which the outstanding balance of the PCMM Up-Stream Loan will be
approximately E 1,509,000 (one million five hundred and nine thousand Euro)(the
"REDUCED PCMM UP-STREAM LOAN");

                                       19
<PAGE>
                           (ii)     At Closing, PCE shall, with the consent of
PCMM, assign 50% of the liability to repay the Reduced PCMM Up-Stream Loan in
the amount of approximately E 755,000 (seven hundred and fifty five thousand
Euro) to Segece, in consideration for which PCE shall pay to Segece an
equivalent amount by way of set-off against the Estimated PCMM Shares Value. In
this regard, PCE and Segece shall execute a deed of assignment and substitution
in order to accomplish this assignment, following which the outstanding amount
of the Reduced PCMM Up-Stream Loan due and payable by PCE shall be approximately
E 755,000 (seven hundred and fifty five thousand Euro)(the "REMAINING PCMM
UP-STREAM LOAN");

                           (iii)    Simultaneously, PCE shall assign to PCM-BV
the full amount of the Remaining PCMM Up-Stream Loan in terms of a deed of
assignment and substitution; and

                           (iv)     Following the execution of the steps set
forth in this Section 3.3(b), each of Segece and PCM-BV will be indebted to PCMM
in an amount of approximately E 755,000 (seven hundred and fifty five thousand
Euro), which loans shall bear interest as provided in the PCMM Shareholders
Agreement.:

                  (c)      Subject to the provisions of Section 3.3(b) above,
payment of the Estimated PCMM Shares Value shall be effected by wire transfer of
immediately available funds in Euro to such account or accounts as PCM-BV may
direct in its irrevocable payment instructions to be furnished to Segece by
PCM-BV at least two Business Days before Closing in terms of Section 7.3(m)
below.

         3.4      Closing Interest. The Estimated Transaction Prices (less the
Agreed DPO Value, and after deduction of the Up-Stream Loan Amounts to be paid
at Closing shall be paid together with interest calculated at EURIBOR for three
(3) month deposits in Euro applicable on July 1st, 2004, plus 185 base points,
(i) multiplied by the number of days which shall have elapsed between the
Reference Date and the actual Closing Date and (ii) divided by 365.

         3.5      Post-Closing Purchase Price Adjustments.

         Verification of Estimated Transaction Prices.

                  (a)      Within sixty (60) days following the Closing Date
(such period hereinafter referred to as the "VERIFICATION PERIOD"), the Vendors
will prepare :

                           (i)      the financial statements of each of the
Contract Companies (excluding PCMM) in accordance with Hungarian accounting
standards as at the Reference Date (June 30, 2004) (the "DEFINITIVE PORTFOLIO
COMPANIES ACCOUNTS"); and

                           (ii)     the financial statements of PCMM , in
accordance with Hungarian accounting standards as at the Reference Date (June
30, 2004) (the "DEFINITIVE PCMM ACCOUNTS").

                  (b)      By not later than the last day of the Verification
Period, the external auditors of Vendors (who shall be numbered amongst the "Big
Four") shall carry out and complete an audit of the Definitive Portfolio Company
Accounts and the Definitive PCMM Accounts.

                                       20
<PAGE>
                  (c)      On the basis of the Definitive Portfolio Company
Accounts and the Definitive PCMM Accounts, during the Verification Period PCE on
behalf of the Vendors will calculate:

                           (i)      the definitive prices to be paid by KLPH and
LP7 to PCE, EUN and Szeged respectively in respect of each of the Portfolio
Companies based upon the Definitive Portfolio Companies Accounts, in accordance
with the formula set forth in SCHEDULE 3.1(B)(II) (the "DEFINITIVE PORTFOLIO
COMPANIES PRICES" ); and

                           (ii)     the definitive price to be paid by Segece to
PCM-BV in respect of the purchase of the Acquired PCMM Quota, based on the
Definitive PCMM Accounts, in accordance with the formula set forth in SCHEDULE
3.1(B)(III) (the "DEFINITIVE PCMM SHARES VALUE"); and

                           (iii)    the definitive prices to be paid by KLPH to
PCEin respect of each of the Assigned Shareholder Loans, in accordance with the
principles set forth in this Section 3.1 (the "DEFINITIVE ASSIGNED SHAREHOLDER
LOANS PRICES"

                           (iv)     those adjustments which are to be made to
the Estimated Transaction Prices pursuant to the provisions of Section 3.5(o)
below (the "PRICE ADJUSTMENTS").

                  (d)      The Parties shall reasonably cooperate with the
Transaction Accountants during the Verification Period in order to enable the
auditing of the audited Definitive Portfolio Companies Accounts and the audited
Definitive PCMM Accounts.

                  (e)      The reasonable cost of the auditing of the Definitive
Portfolio Companies Accounts and the audited Definitive PCMM Accounts shall be
borne by Buyers.

         Review of Definitive Accounts.

                  (f)      The Buyers Accountants will have forty-five days as
from the expiration of Verification Period (the "REVIEW PERIOD") to review the
Definitive Portfolio Companies Accounts, the Definitive PCMM Accounts, the
Definitive Portfolio Companies Prices, the Definitive PCMM Share Value, the
Definitive Shareholder Loan Prices and the Price Adjustments (collectively the
"DEFINITIVE CLOSING ACCOUNTS"). Vendors shall reasonably cooperate with Buyers
and/or Buyers' Accountants in order to enable Buyers' Accountants to perform the
review of the Definitive Closing Accounts.

                  (g)      If Buyers believe that any changes are required to be
made to the Definitive Closing Accounts or any of them (including but not
limited to changes based on differences between the Definitive Closing Accounts
and the results of the Review) (an "UNCERTAINTY"), Buyers shall but not later
than the last day of the Review Period give written notice to Vendors (a
"DISPUTE NOTICE") of any such proposed change or Uncertainty, describing the
change or Uncertainty and the basis for the change or Uncertainty in reasonable
detail. The Definitive Closing Accounts shall be binding and conclusive upon,
and deemed accepted by, Buyers unless Buyers shall have delivered a Dispute
Notice to Vendors prior to the conclusion of the Review Period in terms of this
section.

         Verification Disputes

                                       21
<PAGE>
                  (h)      Any difference of opinion between the Parties and/or
between the Transaction Accountants and Buyers' Accountants pertaining to the
preparation, verification and review of the Definitive Closing Accounts with
regard to any item contained therein ("VERIFICATION DISPUTES") which cannot be
promptly and amicably resolved by mutual agreement within 14 (fourteen) days of
the expiry of the Review Period (or such longer period as shall be mutually
agreed), shall be referred to an internationally reputable firm of auditors, who
shall act in the capacity of third party experts (and not arbitrators) (the
"CLOSING EXPERTS"). If the Parties are unable to agree upon the identity of the
Closing Experts within 14 days of a request by either party to do so, then and
in such event each Party shall have the right to request the President for the
time being of the Commercial Court in the Hague to proceed to the appointment of
the Closing Expert (preferably from amongst the "Big Four" international
accounting firms, provided that the Closing Exeprt shall not act as the external
auditors of any of the Parties to this Agreement, nor to any of the Contract
Companies.

                  (i)      The Closing Expert will be instructed to select, in
its discretion, the individuals within its organization who will have primary
responsibility for this matter and to reach a determination within twenty-one
(21) days from the date of referral. The Closing Expert shall be required, if so
requested by either party, to allow both Parties an opportunity to give
explanations and/or to provide documentation in support of the position adopted
by the respective Parties regarding the Dispute.

                  (j)      The decision of the Closing Expert will be final and
binding upon the Parties, and, in the absence of manifest error or fraud, shall
not be subject to appeal. The Definitive Closing Accounts shall be adjusted by
the Parties in order to reflect the decision of the Closing Expert.

                  (k)      The reasonable fees, and the expenses and
disbursements, of the Closing Expert shall be paid one-half by Vendors and
one-half by Buyers, unless otherwise determined by the Closing Experts.

                  (l)      Notwithstanding the provisions of Section 14.3 below
(Dispute Resolution) below and the provisions of applicable Law determined in
terms of Section 14.2 below (Governing Law), the procedures for the adjudication
of Verification Disputes as provided for in this Section shall not be governed
by the provisions of any applicable arbitration laws now in effect or as
hereafter amended, or any subsequent legislation replacing or supplanting same,
and for this purpose the Closing Expert shall be deemed to be an expert and not
an arbitrator.

                  (m)      By executing this Agreement, the Parties hereto shall
be deemed to have furnished the Closing Expert with instructions and with a
mandate to fulfill the duties specified in this Section. In the event, however,
that additional instructions or directions are required to be given to the
Closing Expert, the Parties undertake to co-operate and to act reasonably in
order to facilitate the resolution of any Verification Dispute.

         Final Definitive Closing Accounts.

                  (n)      The audited Closing Definitive Accounts shall become
final with respect to all or any portion thereof, and binding upon the Parties
hereto upon the earlier of (i) the failure by Buyers to object to all or any
portion thereof within the period specified under Section 3.5(f) above; (ii) an
agreement between Buyers and Vendors with respect thereto; or (iii) the decision
by the Closing Expert with respect to any disputed matters pursuant to Section
3.5(i) above. The audited Definitive Closing Accounts, as adjusted pursuant to

                                       22
<PAGE>
the agreement of Buyers and Vendors or the decision of the Closing Expert as
aforesaid, upon becoming final and binding pursuant to this Section 3.5(n),
shall be referred to herein as the "FINAL DEFINITIVE CLOSING ACCOUNTS".

         Transaction Price Adjustments.

                  (o)      In the event and to the extent that:

                           (i)      the Final Definitive Portfolio Companies
Prices of all the Portfolio Companies in the aggregate exceed the Estimated
Portfolio Companies Prices of all the Portfolio Companies, then and in such
event the amounts paid to PCE, EUN, and Szeged, as the case may be, at the
Closing shall be increased on a Euro-for-Euro basis by an amount (the "PCE&CO
INCREASE AMOUNT") equal to the amount by which the Final Definitive Portfolio
Companies prices as reflected in the Final Definitive Closing Accounts is
greater than the Estimated Portfolio Companies Prices for all the Portfolio
Companies.

                           (ii)     the Final Definitive PCMM Shares Value
exceeds the Estimated PCMM Shares Value, then and in such event the amount paid
to PCM-BV at the Closing shall be increased on a Euro-for-Euro basis by an
amount (the "PCM INCREASE AMOUNT") equal to the amount by which the Final
Definitive PCMM Shares Value as reflected in the Final Definitive Closing
Accounts is greater than the Estimated PCMM Shares Value.

                           (iii)    the Final Definitive Assigned Shareholder
Loans Prices of all the Contract Companies in the aggregate exceed the Assigned
Shareholder Loan Amounts of all the Contract Companies, then and in such event
the amounts paid to PCE at the Closing shall be increased on a Euro-for-Euro
basis by an amount (the " SHAREHOLDER LOANS INCREASE AMOUNT") equal to the
amount by which the aggregate amount of the Final Definitive Assigned
Shareholder Loans Prices is greater than the aggregate amount of the Assigned
Shareholder Loan Amounts for all the Portfolio Companies.

                  (p)      In the event that in terms of the Definitive Closing
Accounts, a negative value results for any Portfolio Company, then and in such
event the provisions of Section 3.13.1(c) shall be applied, mutatis mutandis.

                  (q)      However, in the event and to the extent that:

                           (i)      the Final Definitive Portfolio Companies
Prices of all the Portfolio Companies in the aggregate are less than the
aggregate of the Estimated Portfolio Companies Prices of all the Portfolio
Companies, then and in such event the amount paid to PCE EUN, and Szeged, as the
case may be at the Closing shall be decreased on a Euro-for-Euro basis by an
amount (the "PURCHASERS DECREASE AMOUNT") equal to the amount by which the
aggregate Estimated Portfolio Companies Prices for all the Portfolio Companies
exceeds the Final Definitive Portfolio Companies Prices as reflected in the
Final Definitive Closing Accounts.

                           (ii)     the Final Definitive PCMM Shares Value is
less than the Estimated PCMM Shares Value, then and in such event the amount
paid to PCM-BV at the Closing shall be decreased on a Euro-for-Euro basis by an
amount (the "SEGECE DECREASE AMOUNT") equal to the amount by which the

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Estimated PCMM Shares Value is greater than the Final Definitive PCMM Shares
Value as reflected in the Final Definitive Closing Accounts.

                           (iii)    the Final Definitive Assigned Shareholder
Loans Prices of all the Contract Companies in the aggregate is less than the
aggregate of Assigned Shareholder Loan Amounts of all the Contract Companies,
then and in such event the amounts paid to PCE at the Closing shall be decreased
on a Euro-for-Euro basis by an amount (the "SHAREHOLDER LOANS DECREASE AMOUNT")
equal to the amount by which the aggregate amount of the Assigned Shareholder
Loan Amounts for all the Portfolio Companies is greater than the aggregate
amount of the Final Definitive Assigned Shareholder Loans Prices.

         Method of Transaction Price Adjustments.

                  (r)      All adjustment payments which are required to be made
pursuant to the aforegoing provisions will:

                           (i)      be executed within 10 (ten) Business Days of
later of: (A) the expiry of the Review Period; or (B) the date upon which the
Closing Expert shall have rendered its opinion on any Verification Dispute
referred to it in terms of Section 3.6(h) above; and

                           (ii)     be payable to the Party entitled to receive
same in immediately available funds to such banking account(s) as the party
entitled to receive such payment shall designate from time to time.

                           (iii)    bear interest thereon at the rate of EURIBOR
for 3 month deposits in Euro plus 185 base points, accruing from the Reference
Date to the actual date of payment.

         Interim Price Adjustments.

                  (s)      The Parties hereby record that it is their express
understanding and intention that the payment of all undisputed amounts set forth
in the Definitive Closing Accounts that have become final and binding pursuant
to Section 3.5(n) above shall not be contingent upon the resolution of any
disputed amounts specified in a Dispute Notice which are referred to the Closing
Expert for adjudication as contemplated in Section 3.5 above.

         3.6      Special Agreed Price Adjustments. Without derogating from the
provisions of Section 3.5 above, and in addition thereto, the Parties have
agreed that the following special price adjustments may be carried out in the
circumstances and on the conditions set forth hereunder:

                  (a)      Szeged Land Use Rights:

                           (i)      The Parties record that the area of land
adjacent to the Szeged Plaza Portfolio Center, which is currently used as an
external parking lot, is owned by the Municipality of Szeged but is used by
Szeged Plaza Kft. under a Rights of Use Agreement concluded with the
Municipality for 50 years commencing in 1999;

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<PAGE>
                           (ii)     PCE and Szeged undertake to procure that the
Municipality of Szeged will extend the validity of the said Rights of Use
Agreement for an additional 50 years (for a total of 100 years) by not later
than a date 6 (six) months following the Closing Date;

                           (iii)    In the event that PCE and/or Szeged are
unable to procure the extension of the validity of the Rights of Use Agreement
as aforesaid, then and in such event the Parties have agreed that the Final
Definitive Portfolio Company Price in respect of Szeged Plaza Kft. only shall be
reduced by an amount of E300,000 (three hundred thousand Euro), which shall be
paid by or on behalf of Szeged to KLPH within 5 (five) Business Days of its
receipt of a written demand to do so.

                        (iv)  As security for the execution of the price
adjustment provided for in this Section 3.6(a), Vendors shall furnish to KLPH
the special indemnity provided for in Section 12.6(a) below.

                  (b)      Surface Area Discrepancies (Duna Plaza and Gyor
                           Plaza).

                           (i)      The Parties record that no "as made" or "as
built" drawings have been prepared in respect of the Duna Plaza Portfolio Center
and the Gyor Plaza Portfolio Center. Vendors undertake to ensure that detailed
"as-made" drawings are prepared in respect of these two Portfolio Centers by not
later than December 31st, 2004, at their sole cost and expense.

                           (ii)     In the event of a discrepancy (a "SURFACE
AREA DISCREPANCY") between (a) the actual surface area of the leaseable areas as
reflected in the "as-made" drawings; and (b) the surface areas specified in the
Schedule of Leases or actually charged; which does not exceed 2% (two percent)
(a "PERMITTED SURFACE AREA DISCREPANCY"), then in such event no price
adjustments shall be carried out.

                           (iii)    In the event however that a Surface Area
Discrepancy (higher or lower) is discovered which exceeds the Permitted Surface
Area Discrepancy (an "EXCESS SURFACE AREA DISCREPANCY"), then and in such event
the value of the relevant Portfolio Center shall be re-calculated to the extent
of such Excess Surface Area Discrepancy in accordance with the methodology set
forth in SCHEDULE SCHEDULE 3.13.1(A)(I), and thereafter the corresponding
Definitive Portfolio Company Price of that Property Company (and the Definitive
Assigned Shareholder Loan Price, should such Definitive Portfolio Company Price
become negative) shall be re-determined accordingly;

                           (iv)     The price adjustments to be carried out in
terms of this Section shall be paid within 20 (twenty) Business Days following
the preparation and presentation of the "as-made" drawings to Purchasers

                           (v)      In this regard, Vendors have furnished
Purchasers with a specific indemnity as provided for in Section 12.6(b) below.

                  (c)      Anchor Tenant Price Adjustments. SCHEDULE (C)
attached hereto sets out the methodologies and amounts of certain agreed price
adjustments which are to be made following the Closing regarding a certain major
anchor tenant, all as detailed and specified therein.

                                       25
<PAGE>
         3.7      Duna Plaza Extension Price. The price due and payable in
respect of the construction and completion of the Duna Plaza Extension shall be
calculated and paid separately in terms of the provisions of Section 8.3 below.

         3.8      Special Provisions relating to Duna Plaza Offices. The agreed
value of the Duna Plaza Offices has been determined by the Parties at the
Closing in the amount of E3,000,000 (three million Euro), which amount isd
specified in the Transaction Prices Schedule ("AGREED DPO VALUE"). The Agreed
DPO Value shall not be paid by Purchasers to PCE at the Closing, but shall
remain an amount due (without bearing any interest) by Purchasers to PCE in
terms of the relevant Equity Rights Transfer Agreements to be executed at
Closing. However, Purchasers, Klepierre and PCE have agreed further that the
payment of the Agreed DPO Value shall be effected by way of set-off in terms of
the provisions of the DPO Interim Agreement.

             ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF VENDORS

         Subject to such exceptions as are specifically disclosed in the
disclosure letter (each exception referencing the corresponding representation
and warranties section number to which it applies) supplied by Vendors to Buyers
(the "VENDORS' DISCLOSURE SCHEDULE") which is attached hereto as SCHEDULE 4.0,
and which shall not be modified after the date hereof, the Vendors acting
jointly and severally hereby represent and warrant to Buyers that the statements
contained in this Article IV are true and correct and not misleading as of the
date of this Agreement and will be true and correct and not misleading as of the
Closing Date (as though made at the Closing Date); provided, that the
representations and warranties made as of a specified date will be true and
correct as of such date.

         Representations and Warranties applicable to Vendors

         4.1      Organization, Qualification, and Corporate Power

         Each of the Vendors:

                  (a)      is a corporation duly organized, validly existing,
and in good standing (to the extent to which the concept of good standing exists
in the relevant jurisdiction) under the laws of the Kingdom of The Netherlands
with respect to PCE, EUN and PCM-BV and under the laws of Hungary with respect
to Szeged;

                  (b)      is duly authorized to conduct its respective
businesses and is in good standing (to the extent to which the concept of good
standing exists in the relevant jurisdiction) under the laws of each other
jurisdiction where such qualification is required for the conduct of such
businesses and in which the failure to so qualify is reasonably likely to have a
materially adverse effect on Vendors or any of them;

                  (c)      is duly qualified or otherwise authorized to transact
business and is in good standing (to the extent the concept of good standing
exists in the relevant jurisdiction) in each jurisdiction in which such
qualification or authorization is required by applicable Laws; and

                  (d)      has full corporate power and authority to carry on
its respective businesses and to own and use its respective assets.

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<PAGE>
         4.2      Authorization Each of the Vendors has full power and authority
to enter into, execute and deliver this Agreement and all Ancillary Agreements
to which it is a party, and, to consummate the transactions contemplated
hereunder and to perform its obligations hereunder, including, without
limitation, the sale and transfer of Equity Rights in and to the Transaction
Companies and no further actions on the part of Vendors or any of them are
necessary to authorize the execution, delivery and performance of this Agreement
and the Ancillary Agreements to which Vendors are parties or, in the case of the
Ancillary Agreements, do not require such approval. This Agreement and the
Ancillary Agreements to which Vendors are parties and the transactions
contemplated hereby and thereby have been approved by the affirmative vote of
the respective Boards of Directors of each of the Vendors (and, where required,
their Affiliates, including EMI). This Agreement and the Ancillary Agreements to
which Vendors are parties have been duly and validly executed and constitute the
valid and legally binding obligations of each of the Vendors, enforceable
against the Vendors in accordance with their respective terms and conditions.

         4.3      No Conflicts Neither the execution and the delivery of this
Agreement and the Ancillary Agreements by the Vendors nor the consummation of
the Transaction will:

                  (a)      violate any constitution, Law, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which the Vendors or the Contract Companies are
subject;

                  (b)      violate or conflict with any provision of the
respective Articles of Incorporation, bylaws or organizational documents of the
Vendors or the Contract Companies; or

                  (c)      conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice or consent
under, any agreement, contract, lease, license, instrument, franchise, permit,
mortgage, indenture or other arrangement to which any of the Vendors or the
Contract Companies are a party or by which it is bound or to which any of its
assets are subject (or result in the imposition of any Lien upon any of their
respective assets); or

                  (d)      result in the imposition or creation of a Lien upon
or with respect to the Equity Rights of the Contract Companies.

         4.4      Consents. No consent, waiver, approval, order, license,
permit, certificates, filing or authorization of, or registration, declaration
or filing with, any Governmental Body or any third party, including a party to
any agreement with Vendors or any of them, is required by or with respect to
Vendors in connection with the execution and delivery of this Agreement or the
consummation of the Transaction (or, if so required have been obtained), except
for the Transaction Approvals referred to in Section 7.2 below.

         Representations and Warranties applicable to the Contract Companies

         4.5      Capitalization. The authorized, issued and outstanding capital
stock of each of the Contract Companies is as set forth in the Rights
Acquisition Schedule. Except as set forth in the Portfolio Liabilities Schedule,
or as mandated under applicable Hungarian Law, there are no outstanding
securities convertible into or exchangeable for quotas or shares in any of the
Contract Companies, nor there are any outstanding options, rights, preemptive or
otherwise, or similar right or other right, contract, agreement, commitment or

                                       27
<PAGE>
understanding of any kind or warrants to purchase or to subscribe for any quotas
or shares of such stock or other securities of the Contract Companies, or
obligating any of the Contract Companies to issue any additional shares or
quotas of capital stock. The issued and outstanding quotas and shares of the
Contract Companies are held by the quotaholders or shareholders listed in the
Rights Acquisition Schedule, and in the amounts set forth.

         4.6      Validity of Quotas and Shares. The quotas and shares of the
Contract Companies have all been validly issued, are fully paid up and
non-assessable, and free of any liens or encumbrances save in respect of the
Financing Bank Securities, and have been issued in compliance with all
applicable Laws and in accordance with the relevant Articles of Association.

         4.7      Articles of Association and Constitutive Documents. The copies
of the Articles of Association and other constitutive documents of each of the
Contract Companies which have been furnished to Buyers within the framework of
Buyers' due diligence investigations are true and accurate copies thereof, and
that same have not been amended or modified except as disclosed in writing to
Buyers, but subject to the provisions of Section 8.1 below (Post Closing
Mergers).

         4.8      Legal Title.

                  (a)      At Closing, PCE and EUN are the beneficial and the
owner of record of, and have good, valid and marketable title in and to, all of
the shares and quotas (100%) of the Portfolio Companies, which are to be
acquired by Purchasers pursuant to the provisions of this Agreement, free and
clear of all Liens save in respect of Financing Bank Securities;

                  (b)      At Closing, Szeged is the beneficial and the owner of
record of, and has good, valid and marketable title in and to, all of the quota
(100%) of Szeged Plaza Kft., which are to be acquired by KLPH pursuant to the
provisions of this Agreement, free and clear of all Liens save in respect of
Financing Bank Securities;

                  (c)      PCM-BV is the beneficial and owner of record of, and
has good, valid and marketable title in and to, the entire quota of the PCMM,
including the Acquired PCMM Quota which is to be acquired by Segece pursuant to
the provisions of this Agreement, free and clear of all Liens.

                  (d)      At Closing, each of the Holding Companies is the
beneficial and owner of record of, and has good, valid and marketable title in
and to, all of the shares and/or quota (as the case may be) of the relevant
Property Company recorded opposite its name in the Rights Acquisition Schedule,
free and clear of all Liens (save in respect of Financing Bank Securities; and

                  (e)      Except for the Holding Companies as set forth above,
and save in respect of the Post Closing Merger Procedures referred to in
Section 8.1 below, none of the Contract Companies owns or has any right to
acquire, directly or indirectly, any outstanding capital stock of, or other
equity interest in, any Person; and

                  (f)      All easements which constitute Permitted Liens are
not violated by the current use or occupancy of the Portfolio Centers, or the
operation of Contract Companies as currently conducted thereon.

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<PAGE>
         4.9      Transferability. The quotas and shares of the Transaction
Companies are not subject to any restrictions with respect to their
transferability, save as determined in terms of the Financing Bank Securities
applicable to the Assumed Financing Loans, and save as mandated under applicable
Hungarian Law.

         4.10     Assigned Shareholders' Loans and Up-Stream Loans. (a) The
Shareholder Loan Schedule sets forth all of the Assigned Shareholder Loans due
by the Contract Companies to PCE and/or EUN and/or PCM-BV and/or their
Affiliates as at the Reference Date. All the Assigned Shareholder Loans: (i) are
recorded in the books of account of the relevant Contract Companies as being an
Indebtedness due and payable to PCE and/or EUN or to their Affiliates; (ii) have
been properly reported to and/or recorded with the Central Bank of Hungary (MNB)
in compliance with all applicable Laws and regulations, if necessary; (iii) are
valid binding and enforceable in accordance with their terms, and free from any
Lien (except for Financing Bank Securities), (iv) are capable of repayment in
Euro currency in accordance with their respective terms and conditions without
restriction, save in respect of the sub-ordination rights of the Financing Banks
under the Financing Bank Securities; (v) are capable of assignment and transfer
to Purchasers (or - in respect of PCMM only - to Segece) as contemplated in this
Agreement; and (vi) none of the Assigned Shareholder Loans have been repaid in
whole or in part, or increased, nor has any interest thereon been paid, since
the Reference Date.

                  (b)      The Shareholder Loan Schedule also sets forth all of
the Up-Stream Loans loans owed to the Contract Companies by PCE and/or EUN
and/or PCM-BV and/or their Affiliates as at the Reference Date. All the
Up-Stream Loans: (i) are recorded in the books of account of the relevant
Contract Companies as being an asset due and payable by PCE and/or EUN and/or
their Affiliates; (ii) have been properly reported to and/or recorded with the
Central Bank of Hungary (MNB) in compliance with all applicable Laws and
regulations (including any credit facilities covenants), if necessary; (iii) are
valid binding and enforceable in accordance with their terms, and free from any
Lien (except for Financing Bank Securities), (iv) are capable of repayment in
Euro currency in accordance with their respective terms and conditions without
restriction; (v) are capable of transfer to Purchasers as contemplated in this
Agreement; and (vi) none of the Up-Stream Loans have been repaid in whole or in
part, or increased, nor has any interest thereon been paid, since the Reference
Date.

                  (c)      The PCMM Up-Stream Loan is the only up-stream loan
which is due and owing by PCE and its Affiliates to PCMM. The representations
set forth in Section 4.10(b) above apply mutatis mutandis and in all respects to
the PCMM Up-Stream Loan.

         4.11     Financing Loan Facilities.

                           (i)      Subject to obtaining the Waivers and
Consents of the Financing Banks as specified in Section 7.2(a)(ii) below, the
Transactions shall not give rise to any breach of any obligation, undertaking or
covenant of the Contract Companies under the Financing Loan Facilities, nor
shall any Event of Default or other adverse event occur under the Financing Loan
Facilities as a result thereof;

                           (ii)     The Contract Companies have not and are not
currently in breach of any obligation, undertaking or covenant of the Contract
Companies under the Financing Loan Facilities which gives rise to an Eent of
Default or adverse effect (or any fact or circumstance which could give rise to
an Event of Default or adverse effect) under the Financing Loan Facilities which
remains outstanding;

                                       29
<PAGE>
                           (iii)    The next regularly scheduled payment date
under the Financing Loan Facilities is set forth in Portfolio Liability Schedule
(the "PREPAYMENT DATE") and upon such date, that total amount of all outstanding
principal, interest and prepayment fees under each of Financing Loan Facilities,
should the relevant borrower decide to prepay, shall be as set forth in the
Waiver and Consent of the Financing Banks attached as SCHEDULE 7.2(A)(II)
(collectively, the "PREPAYMENT AMOUNTS"), and no other fees, costs, penalties
losses (including "breakage costs") and/or other amounts shall be due in
connection with the prepayment of such loan on the Prepayment Date;

                           (iv)     Subject at all times to the provisions of
the relevant Loan Facility Agreements, upon prior written notice of the relevant
borrower that it intends to prepay its Financing Loan Facility, the relevant
borrower shall be entitled to prepay such loan on the Prepayment Date; and

                           (v)      No side letters, addenda or other documents
exist which have not already been disclosed to Buyers and which may affect the
obligations of the borrowers and/or their ability to execute repayment on the
Prepayment Date and/or the Prepayment Amounts, or the cost of, the repayment of
the Financing Loan Facilities on the Prepayments Date.

         4.12     Financial Statements. Attached as SCHEDULE 4.12 are the
financial statements of each of the Contract Companies, which have been audited
or reviewed, for the fiscal periods ended June 30, 2003 (reviewed), December 31,
2003 (audited) and June 30, 2004 (reviewed) (the "FINANCIAL STATEMENTS"). The
Financial Statements (including the note thereto) have been prepared in
accordance with Hungarian accounting standards applied on a basis consistent
throughout the periods covered thereby, present fairly the financial condition
of the relevant Contract Companies as of such date and the result of operations
of the relevant Contract Companies for such periods, are correct and complete,
and are consistent with the Books and Records of the relevant Contract
Companies. The Estimated Portfolio Company Prices and the Estimated PCMM Shares
Value have been prepared in good faith and in accordance with Hungarian
accounting standards.

         4.13     Undisclosed Liabilities. None of the Contract Companies has
any Liability, Indebtedness, obligation, expense, claim, deficiency, guaranty or
endorsement of any type (whether asserted or unasserted, whether absolute or
contingent, whether accrued or un-accrued, whether liquidated or un-liquidated,
and whether due or to become due), except for those set forth on the face of the
Final Definitive Closing Accounts (rather than in any notes thereto) and those
which have arisen after the Reference Date in the ordinary course of business
(none of which results from or relates to a breach of contract, breach of
warranty, tort or violation of law).

         4.14     Events Subsequent to Most Recent Fiscal Period End. Other than
in the ordinary course of business and consistent with past practise, sine the
Reference Date there has not been any material adverse change in the business,
operations, assets (including intangible assets), liabilities (contingent or
otherwise), results of operations or financial performance, or condition
(financial or otherwise) of the Contract Companies. Without limiting the
generality of the foregoing, since that date:

                  (a)      Neither Vendors nor any of the Contract Companies
have sold, pledged, leased, transferred, or assigned any of the Purchased
Assets, tangible or intangible, used or held for use in, or necessary for the
continued conduct of, the Businesses outside the ordinary course of business;

                                       30
<PAGE>
                  (b)      Neither Vendors nor any of the Contract Companies
have entered into, assumed or become bound under or obligated by any agreement,
contract, lease or commitment (collectively a "CONTRACT") or extended or
modified the terms of any Contract related to the Businesses or the Purchased
Assets which (i) involves the payment by the Contract Companies or any of them
of greater than E 10,000 per annum or which extends for more than one (1) year,
(ii) involves any payment or obligation to any Affiliate of Vendors other than
in the ordinary course of business, or (iii) involves the sale of any material
assets;

                  (c)      Save as otherwise notified in writing to Buyers and
with their approval and consent, and save in respect of prepayment notices sent
to the Financing Banks with the consent and approval of Purchasers, no party
(including Vendors and the Contract Companies) has accelerated, terminated, made
modifications to, or canceled (or advised or been advised of an intention to
cancel) any agreement, contract, lease, or license of a material nature related
to the Businesses or the Purchased Assets to which Vendors or any of the
Contract Companies is a party or by which they are bound, nor have they
modified, canceled or waived or settled any material debts or claims held by
them related to the Business or the Purchased Assets, outside the ordinary
course of business, or waived or settled any rights or claims of a substantial
value related to the Businesses or the Purchased Assets, whether or not in the
ordinary course of business;

                  (d)      none of the Purchased Assets, tangible or intangible,
has become subject to any Lien (excluding Permitted Liens);

                  (e)      Neither Vendors nor any of the Contract Companies
have made any capital expenditures related to the Businesses or the Purchased
Assets except in the ordinary course of business and/or not exceeding E 10,000
in the aggregate of all such capital expenditures;

                  (f)      Neither Vendors nor any of the Contract Companies
have created, incurred, assumed, prepaid or guaranteed any indebtedness for
borrowed money and capitalized lease obligations, or extended or modified any
existing Indebtedness related to the Businesses or the Purchased Assets;

                  (g)      Neither Vendors nor any of the Contract Companies
have granted any license or sublicense of any rights under or with respect to
any intellectual property related to the Businesses or the Purchased Assets,
including specifically with respect to the trademark which is the subject matter
of the Trademark License Agreement;

                  (h)      Neither Vendors nor any of the Contract Companies
have experienced any damage, destruction, or loss (whether or not covered by
insurance) to the Purchased Assets in excess of E 10,000 in the aggregate of all
such damage, destruction and losses;

                  (i)      Neither Vendors nor any of the Contract Companies
have entered into any employment contract (other than a standard contract
involving non-management personnel, and other than as a result of the conversion
of the Mandate Agreements referred to in Section 8.5(f) into labour contracts)
or collective bargaining agreement, made any other change in employment terms
for any key-personnel Employees, or adopted any bonus, profit-sharing,
incentive, severance, or other plan, contract, or commitment for the benefit of
any Employees;

                  (j)      Neither Vendors nor any of the Contract Companies
have changed any of the accounting principles or methods followed by the
Businesses or the method of applying such principles;

                                       31
<PAGE>
                  (k)      Neither Vendors nor any of the Contract Companies
have entered into any agreement, contract or commitment limiting the freedom of
the Contract Companies to engage in the Businesses or to compete with any
person, save as provided in Section 8.6 below;

                  (l)      Neither Vendors nor any of the Contract Companies
have entered into any transaction related to or in connection with the Business
or the Purchased Assets other than in the ordinary course of business;

                  (m)      Neither Vendors nor any of the Contract Companies
have made any distribution of dividends or made any other contractual payment to
their direct or indirect Affiliates (including repayment of Assigned Shareholder
Loans (it being specifically declared that the representation and warranty
contained in this sub-section shall not be subject to qualifications of business
conducted in the ordinary course and consistent with past practice); and

                  (n)      Neither Vendors nor any of the Contract Companies
have become obligated to do any of the foregoing.

         4.15     Legal Compliance. The Businesses are being conducted and all
of the Contract Companies are in compliance with all applicable Laws (including
without limitation rules, regulations, codes, plans, injunctions, judgments,
orders, extension orders, decrees, rulings, and charges). Except as set forth in
the Proceedings Schedule (SCHEDULE 4.15) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, demand, notice or inquiry is pending,
or to the Knowledge of Vendors, is threatened against Vendors or any of the
Contract Companies by any Governmental Body alleging any failure to so comply.
The Contract Companies have all Permits and qualifications that are necessary
for the conduct of the Businesses and/or the ownership and operation of the
Purchased Assets.

         4.16     Tax Matters.

                  (a)      For purposes of this Agreement, "TAX" or,
collectively, "TAXES", means any taxes income, stamp severance, customs duties,
franchise, withholding social security, value added tax, and any other type of
tax of any kind whatsoever (including but not limited to: Corporate Income Tax,
Value Added Tax, Local Business Tax, Personal Tax) in respect of the Contract
Companies and/or the Businesses and/or the Purchased Assets.

                  (b)      Each of the Contract Companies has filed all
declaration, form, claim statements ("TAX RETURN") that it was required to file
for any type of Tax under applicable laws, regulations and case law. All such
Tax Returns, including those which review is still pending at the time of the
signature of this agreement, or those which were only partially submitted for
review, were correct and complete in all respects and have been prepared in
strict and substantial compliance with all applicable laws and regulations.
There are no Liens upon any property or assets of the Contract Companies
relating to or attributable to Taxes.

                  The Contract Companies have withheld and paid all Taxes
required to have been withheld and paid in connection with any amounts paid or
owing to any employee independent contractor, creditor, stockholder, or other
third party.

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                  (c)      The provisions made in the Final Definitive Closing
Accounts are sufficient in order to cover any Tax payment pertaining to the time
period elapsed [on June 30, 2004].

                  (d)      There are no audits or investigations by any Tax
authority of any Contract Company currently in progress.

                  (e)      No Contract Company is party to any tax sharing
agreement or similar agreement or arrangement (evidenced in writing or
otherwise) pursuant to which it will have any obligation to make any payments in
respect of Taxes after the Closing Date.

                  (f)      None of the Contract Companies benefits from or has
benefited from or has claimed to benefit from any Tax benefits or from an
optional Tax regime (other than a Tax benefit, election, deduction, credit or
treatment which is generally available to Tax payers under the Tax laws of the
Tax jurisdiction in question), except as a result of the Post-Closing Merger
Procedures referred to in Section 8.1 below. None of the Contract Companies has
taken any action which triggers a disallowance of any Tax benefits or optional
Tax regime or other undertaking with respect to Tax.

                  (g)      None of the Contract Companies benefit from Tax aids
or from Tax subsidies or Tax exemptions not generally available to other similar
Tax payers in such Tax jurisdiction and no undertaking or commitment has been
entered into by the Contract Companies in connection with any such Tax aids or
Tax subsidies, and no Tax aids or Tax subsidies which have been granted to any
of the Companies is required to be refunded. None of the Contract Companies will
incur any Taxes or lose its right to any Tax benefits by the reason of the
consummation of the transactions contemplated by this Agreement.

                  (h)      The Contract Companies have satisfied their
obligations regarding the conservation of documents and hold (or have access to)
all appropriate documents which could be required by the relevant authorities
for the non-prescribed periods in respect of the Tax Returns submitted.

                  (i)      To the Knowledge of Vendors, there is no basis for
the assertion of any claim relating or attributable to Taxes which, if adversely
determined, would result in any Lien upon any Purchased Assets if unpaid by due
date.

         4.17     Title of Properties; Absence of Liens and Encumbrances;
Condition of Equipment (a) Each of the Property Companies and the Direct
Property Companies has good, valid and marketable title to the respective
Portfolio Centers recorded opposite their respective names in the Property
Schedule, free and clear of all objection, adverse possession, Liens and other
encumbrances other than Permitted Liens, and each of the Contract Companies has
good, valid and marketable title to all other Purchased Assets, free and clear
of all objection, adverse possession, Liens and other encumbrances other than
Permitted Liens.

                  (b)      Each of the Property Companies and the Direct
Property Companies has good and valid title to, or, in the case of leased
properties and assets, valid leasehold interests in, the relevant respective
Purchased Assets owned by it (as specified in the Property Schedule), free and
clear of any Liens, save for Permitted Liens. The Purchased Assets are not
subject to expropriation or seizure as at the Closing Date.

                  (c)      Each material item of equipment owned or leased by
the Property Companies and the Direct Property Companies and included in the
Purchased Assets is (i) adequate for the conduct of the

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Businesses as currently conducted, and (ii) in good operating condition,
regularly and properly maintained, subject to normal wear and tear (subject to
recognized capital expenditures which have been taken into account in
determining the relevant Estimated Portfolio Company Prices). Upon the transfer
of moveable assets and chattels to PCMM as set forth in Section 8.9, each
material item of equipment (including computers and softwares) owned by PCMM
shall be (i) adequate for the conduct of its Businesses as currently conducted,
and (ii) in good operating condition, regularly and properly maintained, subject
to normal wear and tear.

                  (d)      Each of the Property Companies and the Direct
Property Companies, and PCMM, own, free and clear of any Liens, all tenant
lists, customer contact information, customer correspondence and customer lease
histories relating to their respective Portfolio Centers. Other than PCE, PCMM,
the relevant Property Company, the relevant Direct Property Company and the
tenant to which such information relates, no person possesses any claims or
rights with respect to use of the information.

         4.18     Portfolio Centers.

                  (a)      The Portfolio Centers comprise all of the real
property used or intended to be used in, or otherwise related to, the
Businesses; and, except as set forth in Vendors Disclosure Schedule (SCHEDULE
4.0) none of the Contract Companies is a party to any agreement or option to
purchase (including preference right) any real property or interest therein.

                  (b)      Subject to recognized capital expenditures which have
been taken into account in determining the relevant Estimated Portfolio Company
Prices, all Portfolio Centers, and all buildings, structures, fixtures, building
systems and equipment, and all components thereof, included in the Portfolio
Centers (the "IMPROVEMENTS") are in good condition and repair and sufficient for
the operation of Businesses. There are no structural deficiencies or latent
defects, affecting any of the Portfolio Centers and/or any of the Improvements
and there are no facts or conditions affecting any of the Portfolio Centers or
Improvements which would, individually or in the aggregate, interfere in any
respect with the use or occupancy of the Portfolio Centers or Improvements or
any portion thereof in the operation of Businesses as currently conducted
thereon.

                  (c)      There is no condemnation, expropriation or other
proceeding in eminent domain, pending or threatened, affecting any parcel of the
Portfolio Centers or any portion thereof or interest therein. Save as specified
in the Proceedings Schedule, there is no injunction, decree, order, writ or
judgment outstanding, nor any claims, litigation, administrative actions or
similar proceedings, pending or threatened, relating to the ownership, lease,
use or occupancy of the Portfolio Centers or any portion thereof, or the
operation of Companies' business as currently conducted thereon. There is no
claim or action initiated by any Portfolio Center's neighbor which is pending or
to the Knowledge of the Vendors, which is threatening.

                  (d)      The Portfolio Centers are in compliance with all
applicable building, zoning, subdivision, health and safety and other land use
laws, and are in compliance with the legal requirements upon which the cover of
the present insurance carrier is conditional, which affect the Portfolio Centers
(collectively, the "PORTFOLIO CENTERS LAWS"), and the current use and occupancy
of the Portfolio Centers and operation of Businesses thereon do not violate any
Portfolio Centers Laws. None of the Contract Companies has received any notice
of violation of any Portfolio Centers Law and to Knowledge of Vendors there is
no basis for the issuance of any such notice or the taking of any action for
such violation, nor are there any pending or anticipated change in any Portfolio
Centers Law that will materially impair the ownership, lease,

                                       34
<PAGE>
use or occupancy of any Portfolio Centers or any portion thereof in the
continued operation of Companies' business as currently conducted thereon.

                  (e)      Each parcel of Portfolio Centers has direct vehicular
and pedestrian access to a public street adjoining the Portfolio Centers, or has
vehicular and pedestrian access to a public street via an insurable, permanent,
irrevocable and appurtenant easement benefiting such parcel of Portfolio
Centers, and such access is not dependent on any land or other real property
interest which is not included in the Portfolio Centers or in respect of which
valid leasehold interests exist which comply with the provisions of Section
4.17(b) above. None of the Improvements or any portion thereof is dependent for
its access, use or operation on any land, building, improvement or other real
property interest which is not included in the Portfolio Centers.

                  (f)      All water, oil, gas, electrical, steam, compressed
air, telecommunications, sewer, storm and waste water systems and other utility
services or systems for the Portfolio Centers have been installed and are
operational and sufficient for the operation of the Businesses as currently
conducted thereon. Each such utility service enters the Portfolio Centers from
an adjoining public street or valid private easement in favor of the supplier of
such utility service or appurtenant to such Portfolio Centers.

                  (g)      All certificates of occupancy, Permits, approvals and
authorizations (collectively, the "PORTFOLIO CENTERS PERMITS") of all
Governmental Bodies or any other entity having jurisdiction over the Portfolio
Centers which have been required for the construction and which are required or
appropriate to construct, to open to the public, to use, occupy and operate the
Portfolio Centers or operate Businesses as currently conducted thereon, have
been issued and are in full force and effect and are not susceptible of
challenge or withdrawal. As at the Closing Date, none of the Contract Companies
has received any notice from any Governmental Body or other entity having
jurisdiction over the Portfolio Centers threatening a suspension, revocation,
modification or cancellation of any Portfolio Centers Permit and to the
Knowledge of Vendors there is no basis for the issuance of any such notice or
the taking of any such action.

                  (h)      The current use and operation of the Portfolio
Centers and the operation of the Businesses as currently conducted thereon do
not violate any easement, covenant, condition, restriction or similar provision
(including restrictive covenants) in any instrument of record or other
unrecorded agreement affecting such Portfolio Centers. None of the Vendors or
Contract Companies has received any notice of such violation, and to the
Knowledge of Vendors there is no basis for the issuance of any such notice or
the taking of any action for such violation.

                  (i)      None of the Portfolio Centers or any portion thereof
is located in an officially designated flood hazard area.

         4.19     Intellectual Property.

                  (a)      The Contract Companies own and possess or have the
right to use pursuant to a valid and enforceable, written license, sublicense,
agreement, or permission all intellectual property used in the operation of the
Businesses as presently conducted. Each item of intellectual property owned or
used by the Contract Companies will be owned or available for use by the
Contract Companies on identical terms and conditions immediately subsequent to
the Closing hereunder (subject to the rights awarded to Buyers in terms of the
Trademark License Agreement). The Contract Companies have taken all necessary
action to maintain and protect each item of intellectual property that they own
or use.

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<PAGE>
                  (b)      None of the Contract Companies has interfered with,
infringed upon, misappropriated, or otherwise come into conflict with any
intellectual property rights of third parties, and none of Vendors and the
directors and officers (and employees with responsibility for Intellectual
Property matters) of the Contracts Companies has ever received any charge,
complaint, claim, demand, or notice alleging any such interference,
infringement, misappropriation, or violation.

         4.20     Notes and Accounts Receivable All notes and accounts
receivable (including the Up-Stream Loans) of the Contract Companies are
reflected properly on their Books and Records, are valid receivables which as at
the Reference Date are not subject to setoffs or counterclaims pending at the
Reference Date, are current and collectible, and are capable of being collected
in accordance with their terms at their recorded amounts, subject only to the
reserve for bad debts set forth on the face of the Final Definitive Closing
Accounts.

         4.21     Insurance. (a) The Contract Companies are validly and
adequately insured in scope and amount in accordance with valid insurance
policies as detailed and specified in the Insurance Schedule attached hereto as
SCHEDULE 4.21. All the insurance policies owned by the Contract Companies and/or
on their behalf, provide for coverage that conforms to industry standards in
respect of the risk and the amount covered. To the extent that the Contract
Companies have made claims, such claims have been made in accordance with the
terms and conditions of such insurance policies in respect of all insured losses
suffered thereby and have not been notified any denial of coverage and/or
indemnification.

                  (b)      With respect to all insurance policies specified in
SCHEDULE 4.21,: (i) the policy is legal, valid, binding, enforceable, and in
full force and effect; (ii) the policy will continue to be legal, valid,
binding, enforceable, and in full force and effect on identical terms following
the consummation of the Transactions contemplated hereby provided that the
insurance premiums due after the Closing Date are paid in a timely manner and
other conditions the fulfillment of which is required following the Closing are
fulfilled; (iii) none of the Contract Companies, nor any other party to the
policy is in breach or default (including with respect to the payment of
premiums or the giving of notices), and no event has occurred which, with notice
or the lapse of time, would constitute such a breach or default, or permit
termination, or modification under the policy; and (iv) no party to the policy
has repudiated any provision thereof.

         4.22     Material Business Contracts

                  (a)      For the purposes of this section, the term "MATERIAL
BUSINESS CONTRACTS" shall mean :

                           (i)      any agreement (or group of related
agreements) for the lease of personal property to or from any Person providing
for lease payments in excess of E 50,000 per annum;

                           (ii)     any agreement (or group of related
agreements) for the purchase or sale of raw materials, commodities, supplies,
products, or other personal property, or for the furnishing or receipt of
services, the performance of which will extend over a period of more than one
year, result in a material loss to any of the Contract Companies, or involve
consideration in excess of E 50,000;

                           (iii)    any agreement concerning a partnership or
joint venture;

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<PAGE>
                  (iv) any agreement (or group of related agreements) under
which it has created, incurred, assumed, or guaranteed any indebtedness for
borrowed money, or any capitalized lease obligation, in excess of E20,000 or
under which it has imposed a Lien on any of its assets, tangible or intangible;

                  (v) any agreement concerning confidentiality or
non-competition;

                  (vi) any agreement with any of Vendors and their Affiliates
(other than the Contract Companies);

                  (vii) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other material plan or
arrangement for the benefit of its current or former directors, officers, and
employees;

                  (viii) any collective bargaining agreement;

                  (ix) any agreement for the employment of any individual on a
full-time, part-time, consulting, or other basis providing annual compensation
in excess of E 20,000 or providing severance benefits;

                  (x) any agreement under which it has advanced or loaned any
amount to any of its directors, officers, and employees outside the ordinary
course of business;

                  (xi) any agreement under which the consequences of a default
or termination could have a Material Adverse Effect;

                  (xii) any agreement under which it has granted any Person any
registration rights;

                  (xiii) any agreement under which any of the Contract
Companies has advanced or loaned any other Person amounts in the aggregate
exceeding E10,000; or

                  (xiv) any other agreement (or group of related agreements) the
performance of which involves consideration in excess of E50,000.

            (b) Vendors represent and warrant that all Material Business
Contracts entered into by any Contract Company and in force at the Reference
Date and the Closing Date have been disclosed to Buyers, either in the due
diligence data room or by request.

            (c) With respect to each Material Business Contract: (i) the
Material Business Contract is legal, valid, binding, enforceable in accordance
with its terms, and in full force and effect in all respects; (ii) neither
Vendors nor the Contract Companies, or, to the Knowledge of Vendors, any other
party is in breach or default, and no event has occurred, which with notice or
lapse of time would constitute a breach or default, or permit termination,
modification, or acceleration, under the Material Business Contracts, nor have
any notices been received from any party which purports to repudiated any
provision of the Material Business Contract.

      4.23  Lease Contracts

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<PAGE>
            (a) The Lease Schedule attached as SCHEDULE 4.23(A) and which has
formed the basis of the calculation of the Triple Net Rents, sets forth all the
Lease Contracts in force as at March 31st, 2004, and for each Lease Contract,
the amount and the date of the cash deposit paid or bank guarantee furnished by
the tenant to the landlord.

            (b) With respect to each Lease Contract itemized in the Lease
Schedule: (i) the Lease Contract is duly executed, legal, valid, binding,
enforceable in accordance with its terms, and in full force and effect in all
respects; (ii) neither Vendors and/or the Contract Companies, nor, to the
Knowledge of Vendors, any other party is in breach or default, and no event has
occurred, which with notice or lapse of time would constitute a breach or
default, or permit termination, modification, or acceleration, under the Lease
Contracts, nor have any notices been received from any party which purports to
repudiated any provision of the Lease Contract.

            (c) Without limiting the generality of the foregoing, with respect
to each of the Lease Contracts itemized in the Lease Schedule, and save as
provided in Section 3.6(c) above, the square meter area stated in such Lease
ContrACt is accurate and in conformity with the actual square meter area of the
leased premises ,except for minor inaccuracy of less than 2% of the relevant
leased areas, which is not susceptible to give rise proceeding or action
(including for refund or reduction of rent) against any of the Contract
Companies.

            (d) All the Lease Contracts itemized in the Lease Schedule have been
entered into with good standing tenants, are and will be at Closing: (I) in
force and of a duration of more than 1 (one) year from date of execution (it
being specified that approximately 60% of the rentals of the Portfolio Centers
derive from Lease Contracts which are in force for a period of more than 4
(four) years from date of execution, including exercised options or options
exercised under new contracts); (II) globally conform to the breakdown set forth
in the Schedule of Leases (SCHEDULE 4.23(D)) in terms of currency of payment,
currency of accounts, exchange rate reference date and indexation; and (III) for
most of the Portfolio Centers, such Lease Contracts conform in all material
respects with the standard form of lease contract set forth in Exhibit A to the
Schedule of Leases (it being specified that renewals of existing leases and new
leases are executed under an improved version of this contract which contains
provisions more favorable to the lessor), but excluding approximately 80 arms
length contracts concluded with anchors and semi-anchors, and excluding other
contracts designated as "Others"; all of the above subject to the rent-roll for
all Portfolio Centers as at March 31st, 2004 which comprises the Schedule of
Leases.

            (e) The rent roll updated to June 30, 2004 includes details of lease
contracts executed after April 1st, 2004 which : (i) have been concluded with
good standing tenants for a period in excess of 1 (one) year,(ii) conform in all
material respects with the standard form of lease contract set forth in Exhibit
A to the Schedule of Leases, or under an improved version of this contract which
contains provisions more favorable to the lessor); (iii) are valid and legal;
and (iv) comply with the provisions of Section 4.23(c) above.

      4.24  Fotex Lease Contract.  With respect to the Lease Agreement dated
July 26th, 1996 entered into with Fotex Rt., as amended ("THE FOTEX LEASE") :

            (a) the pre-emption right to acquire the Shopping Center referred to
in Section 20.5 of the Fotex Lease does not apply to the transfer of the shares
in D2 Rt. (or indirectly in Duna Plaza Rt.) to Purchasers in terms of this
Agreement, to the Post Closing Merger Procedures referred to in Section 8.1
below, or to the DPO Spin-Off referred to in the DPO Interim Agreement;

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<PAGE>
            (b) upon the expiration of the term of the Fotex Lease on September
24, 2009 and/or upon the lawful termination of the Fotex Lease, the pre-emption
right provided for in Section 20.5 of the Fotex Lease as well as all other
exclusivity rights, pre-emption rights, preferential rights or prior approval
rights granted to and enjoyed by Fotex Rt. in terms of the Fotex Lease shall
expire and be of no further force and effect;

            (c) upon the expiry of the term of the Fotex Lease on September 24,
2009 as aforesaid, Duna Plaza Rt. shall be under no contractual or legal
obligation to renew the Fotex Lease and/or to extend its validity, and Fotex Rt.
will be obliged to vacate the leased premises which are the subject of the Fotex
Lease and shall have no further rights therein;

            (d) the right to lease additional space provided for in Section 20.6
of the Fotex Lease does not apply to the Duna Plaza Extension;

            (e) The copy of the Fotex Lease furnished by Vendors to Purchasers
is a true, complete and accurate copy of the Fotex Lease, and there are no other
written or oral agreement, amendments, modifications, side letters or other
documents regarding the rights of Fotex Rt. in and to the leased premises at the
Duna Plaza Portfolio Center.

      4.25 Power of Attorney. Save as required for the conduct of the Businesses
in their ordinary course, and as disclosed to Buyers, there are no outstanding
powers of attorney executed on behalf of Vendors in respect of the Businesses
and/or the Purchased Assets. All powers of attorney issued in the ordinary
course of business as aforesaid shall be deemed terminated and of no further
force and effect as at the Closing or may be unilaterally and unconditionally
terminated at the sole discretion of the Portfolio Companies or the Direct
Property Companies. Upon the resignation at Closing of all the managing
directors of the Contract Companies nominated by Vendors, there shall be no
valid and outstanding powers of attorney with respect to any Contract Company.

      4.26 Litigation. The Proceedings Schedule attached hereto as SCHEDULE 4.26
sets forth details of all outstanding injunction, order, decree to which any of
the Contract Companies is subject and of all hearing, action, proceeding,
investigation or litigation proceedings which are pending (collectively the
"PROCEEDINGS"), as at the date hereof, or in respect of which threats of
Proceedings have been received or may reasonably be anticipated, which pertain
to the Contract Companies and/or the Businesses and/or the Purchased Assets.
Other than as specified in the Proceedings Schedule, to the Knowledge of
Vendors, there are no facts or circumstances that would form the reasonable
basis of any claim against the Contract Companies.

      4.27  Utilities Charges.  (a) All charges for electricity only made by the
Property Companies and the Direct Property Companies to their respective tenants
have been made in compliance with applicable Laws and regulations.

      4.28  No Development Risks.  PCMM has not been exposed to any development
risks in respect of any of the Portfolio Centers and/or the Excluded Centers at
any time prior to the Reference Date.

      4.29  Employees.

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<PAGE>
            (a) No executive, key employee, or significant group of Employees
has advised any executive officer of Vendors that he, she or they plan to
terminate their employment with the Contract Companies during the 12 (twelve)
month period following the Reference Date. To the Knowledge of Vendors, there is
no organizational effort presently being made or threatened by or on behalf of
any labor union with respect to Employees.

            (b) There are no severance or other similar contracts and no pension
or retirement benefits, bonus, employment, change-in-control, deferred
compensation profit sharing, stock purchase, stock option, company saving,
employee benefit plans, agreements, programs, policies, arrangements or schemes
or employee funds by reason of which any of the Contract Companies has any
current or future liability (such plans or funds, the "BENEFIT PLANS").

            (c) Except for PCMM, none the Contract Companies employs any person.
SCHEDULE 4.29(C) sets forth a complete and correct list of the all of the
Employees of PCMM (detailing each such employee's name, job title, length of
service and gross annual remuneration). The employment contracts relating to
PCMM were entered into under ordinary and customary conditions. There are no
commitments or undertakings vis-a-vis any regulatory authorities or employees
unions in respect of past or future dismissals of employees of the Contract
Companies. PCMM is not bound and has not been bound by any collective bargaining
agreement.

            (d) Each of the Contract Companies has been and is in compliance
with all applicable Law respecting employment and employment practices.

            (e) No labour dispute, strike or work stoppage exists or has been
notified to any member of PCMM which is likely to interrupt the normal
activities of PCMM.

            (f) In respect of any of the Contract Companies, there are no
obligations of any kind nor any sum due to any present or former employee, agent
or representative in connection with their employment and/or other contracts or
agreements (including dismissal indemnities) except as liabilities disclosed in
the Final Definitive Closing Accounts (rather than in any notes thereto) or
incurred in the normal course of business since the Reference Date.

            (g) The resignation of the managing directors of each of the
Contract Companies, as well as the resignations of all members of the
supervisory boards of the Contract Companies, on or prior to the Closing Date
shall not give rise to any payment obligation (including bonuses,
indemnification, or golden parachute) on the part of any Contract Company.

      4.30  Environment, Health and Safety.

            (a) As at the Closing Date, each of the Contract Companies is in
compliance with all applicable Laws, regulations and orders pertaining to
environment, health and safety ("ENVIRONMENT, HEALTH AND SAFETY REQUIREMENTS"),
nor have they received any notification of any alleged violation of such Laws,
regulations and orders. Furthermore, no actions, proceedings (judicial or
administrative) are currently pending against any of the Contract Companies
concerning any such alleged violation.

                                       40
<PAGE>
            (b) Without limiting the generality of the foregoing, each of the
Contract Companies has obtained and complied with, and is in compliance with,
all permits, licenses and other authorizations that are required pursuant to
Environmental, Health, and Safety Requirements for the occupation of their
facilities and the operation of their Business.

            (c) SCHEDULE 4.30(C) sets forth the accurate and complete list of
all reports, investigations notices, and other environmental information
regarding the Portfolio Centers. None of the Contract Companies, nor to the
Knowledge of Vendors their respective predecessors or previous owners of the
parcels or buildings has received any written or oral notice, report or other
information regarding any actual or alleged violation of Environmental, Health,
and Safety Requirements, or any Liabilities or potential Liabilities, including
any investigatory, remedial or corrective obligations, relating to any of them
or its facilities arising under Environmental, Health, and Safety Requirements.

            (d) None of the following exists at any property or facility owned
or operated by the Contract Companies: (1) underground storage tanks (excluding
mandatory oil traps (parking) and grease traps (restaurants); (2)
asbestos-containing material in any form or condition, (3) materials or
equipment containing polychlorinated biphenyls, or (4) landfills, surface
impoundments, or disposal areas.

            (e) None of the Contract Companies nor to the Knowledge of Vendors
their respective predecessors or previous owners of the parcels or buildings
have treated, stored, disposed of, arranged for or permitted the disposal of,
transported, handled, or released any substance, including without limitation
any hazardous substance, or owned or operated any property or facility (and no
such property or facility is contaminated by any such substance) in a manner
that has given or would give rise to Liabilities, including any Liability for
response costs, corrective action costs, personal injury, property damage,
natural resources damages or attorney fees, pursuant to any environmental,
health, and safety requirements.

            (f) Neither this Agreement nor the consummation of the Transaction
that is the subject of this Agreement will result in any obligations for site
investigation or cleanup, or notification to or consent of government agencies
or third parties, pursuant to any of the so-called "transaction-triggered" or
"responsible property transfer" Environmental, Health, and Safety Requirements.

            (g) None of the Contract Companies, nor to the Knowledge of Vendors
any of their respective predecessors or previous owners of the parcels or
buildings has, either expressly or by operation of law, assumed or undertaken
any Liability, including without limitation any obligation for corrective or
remedial action, of any other Person relating to Environmental, Health, and
Safety Requirements.

            (h) No facts, events or conditions relating to the past or present
facilities, properties or operations of the Contract Companies, or any of their
respective predecessors or previous owners of the parcels or buildings will
prevent, hinder or limit continued compliance with Environmental, Health, and
Safety Requirements, give rise to any investigatory, remedial or corrective
obligations pursuant to environmental, health, and safety requirements, or give
rise to any other Liabilities pursuant to Environmental, Health, and Safety
Requirements, including without limitation any relating to onsite or offsite
releases or threatened releases of hazardous materials, substances or wastes,
personal injury, property damage or natural resources damage.

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<PAGE>
      4.31 Intergroup Agreements. At the Closing there are no contracts and
agreements currently in force between any of the Vendors or any of their
Affiliates (other than the Contract Companies) on the one hand and any of the
Contract Companies, on the other hand. All contracts and agreements currently in
force between PCMM on the one hand and with suppliers (other than suppliers who
will not be transferred to the Property Companies or the Direct Property
Companies), on the other hand (the "PCMM AGREEMENTS") as specified in SCHEDULE
4.31, may be terminated at any time by the relevant Contract Company without any
penalty or termination indemnity to be paid by the relevant Contract Company,
and without any prior notice longer than ninety (90) days. All PCMM Agreements
are valid, binding and in full force and effect, and have been entered into and
performed on an arm's length basis and in the ordinary course of business.

      4.32  Promotions Agreements. As of March 31st, 2004, the three promotional
service contracts concluded with Miniplex Operations Kft., I.T. Cinema Magyar
Rt. and Rano Szolgaltato Kft. have expired and are of no force and effect as at
the Reference Date.

      4.33 Complete Copies of Materials. All relevant documents and information
relating to the Contract Companies, the Portfolio Centers and the Purchased
Assets which were provided to the Buyers during the due diligence phase are
accurate in all respects.

      4.34 Full Disclosure. No representation or warranty in this Article IV or
in any document delivered by Vendors or their Representatives pursuant to the
Transactions contemplated by this Agreement, and no statement, list, certificate
or instrument furnished to Buyers pursuant hereto or in connection with this
Agreement, when taken as a whole, contains any untrue statement of a material
fact, or omits to state a material fact necessary to make the statement herein
or therein, in light of the circumstances in which they were made, not
misleading.

       ARTICLE V - REPRESENTATIONS AND WARRANTIES OF KLEPIERRE AND BUYERS

      Each of Klepierre, KLPH, LP7 and Segece, jointly and severally, hereby
represents and warrants to Vendors that the statements contained in this Article
V are true and correct as of the date of this Agreement and will be true and
correct as of the Closing (as though made at the Closing); provided, that the
representations and warranties made as of a specified date will be true and
correct as of such date.

      5.1   Organization, Qualification, and Corporate Power.  Each of
Klepierre, KLPH, LP7 and Segece :

            (a) is a corporation duly organized, validly existing, and in good
standing under the laws of France (to the extent the concept of good standing
exists in the relevant jurisdiction);

            (b) is duly authorized to conduct their respective businesses and
are in good standing (to the extent the concept of good standing exists in the
relevant jurisdiction) under the laws of each other jurisdiction where such
qualification is required and in which the failure to so qualify is reasonably
likely to have a material adverse effect on Klepierre, KLPH, LP7 or Segece.

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<PAGE>
      5.2 Authorization. Klepierre, KLPH, LP7 and Segece each have full power
and authority to enter into, execute and deliver this Agreement and the
Ancillary Agreements to which they are parties, and to consummate the
Transaction and to perform their obligations hereunder, and no other proceedings
on the part of any of Klepierre, KLPH, LP7 or Segece are necessary to authorize
the execution, delivery and performance of this Agreement and the Ancillary
Agreements to which they are parties. This Agreement and the Ancillary
Agreements to which they are parties and the transactions contemplated hereby
and thereby have been duly approved by the respective Supervisory Boards of
Klepierre and Segece, or, in the case of KLPH and LP7 and in respect of the
Ancillary Agreements, do not require such approval. The consummation of the
transactions contemplated hereby does not require the approval or consent of the
shareholders of Klepierre, KLPH, LP7 or Segece . This Agreement and the
Ancillary Agreements to which they are parties constitute the valid and legally
binding obligations of Klepierre, KLPH, LP7 or Segece, enforceable against
Klepierre, KLPH, LP7 or Segece in accordance with their respective terms and
conditions.

      5.3   No Conflicts.  Neither the execution and the delivery of this
Agreement nor the consummation of the transactions contemplated hereby, will:

            (a) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which Klepierre, KLPH, LP7 or Segece is
subject;

            (b)   violate or conflict with any provision of the charters, bylaws
or organizational documents of Klepierre, KLPH, LP7 or Segece; or

            (c) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under, any
agreement, contract, lease, license, instrument, or other arrangement to which
Klepierre, KLPH, LP7 or Segece is a party or by which either is bound or to
which any of their assets is subject, other than any of the foregoing which
would not in the aggregate have a material adverse effect on Klepierre, KLPH,
LP7 or Segece or adversely their ability of to consummate the transactions
contemplated hereby.

      5.4 Consents. No consent, waiver, approval, order, license, permit,
certificates, filing or authorization of, or registration, declaration or filing
with, any Governmental Body or any third party, including a party to any
agreement with Klepierre, KLPH, LP7 or Segece, is required by or with respect to
Klepierre, KLPH, LP7 or Segece in connection with the execution and delivery of
this Agreement or the consummation of the Transaction, except for the
Transaction Approvals referred to in Section 7.2 below.

      5.5 Financial Resources. Klepierre, KLPH, LP7 and Segece have the
financial resources to fulfill all the undertakings, obligations and guarantees
made by them in terms of the provisions of this Agreement, including without
limitation, the payment of the Estimated Transaction Price (or the Final
Definitive Transaction Price following Verification), and any Price Adjustments
required in terms hereof.

      5.6 Liability. Klepierre is an "associe commanditaire" of Segece and has
the duties and obligations provided for in Article L.222-6 of the French
Commercial Code.

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<PAGE>
                       ARTICLE VI - PRE-CLOSING COVENANTS

      With respect to the period between the execution of this Agreement and the
earlier of the termination of this Agreement and the Closing ("COVENANT
PERIOD"), the following shall apply:

      6.1   Operation of Business.

            (a) Vendors agree that, for the duration of the Covenant Period,
except as contemplated by this Agreement or as otherwise consented to or
approved in advance in writing by Buyers (which consent and approval shall not
be unreasonably withheld or delayed to the extent that it does not prejudice the
rights of Buyers in terms of this Agreement), Vendors shall, and shall procure
that the Contract Companies shall:

                  (i) use all commercially reasonable efforts to (aa) preserve
intact the present business organization, reputation, contractual and other
arrangements of the Contract Companies and the Businesses then under the control
of Vendors; (bb) keep available (subject to dismissals and retirements in the
ordinary course of business consistent with past practice) the services of the
present officers and other Employees of the Businesses, and subject to any right
under applicable Law; (cc) maintain the Purchased Assets in good working order
and condition, ordinary wear and tear excepted; (dd) maintain the goodwill of
tenants, customers, suppliers and other Persons with whom Vendors have
significant business relationships in connection with the Businesses; and (ee)
continue all current business operations and activities relating to the
Businesses in a manner consistent with past practise;

                  (ii) except to the extent required by applicable Law, (aa)
cause the Books and Records of the Contract Companies to be maintained in the
usual, regular and ordinary manner, and (bb) not permit any change in any
rentals, credit, allowance or Tax practice or policy of the Contract Companies
that would adversely affect the Businesses, the Contract Companies or the
Purchased Assets;

                  (iii) comply with all Laws and Orders applicable to the
Businesses, and promptly following receipt thereof deliver to Buyers copies of
any notice received from any Governmental Body or other Person alleging any
violation of any such Law or Order.

            (b) During the Covenant Period, except as contemplated by this
Agreement or as otherwise consented to or approved in advance and in writing by
Buyer (which approval shall not be unreasonably withheld or delayed to the
extent that it does not prejudice the rights of Buyers in terms of this
Agreement), Vendors shall not, and shall procure that the Contract Companies
shall not:

                  (i) make any representation or promise, oral or written, to
any Employee, except for statements as to the rights or accrued benefits of any
Employee under the terms of any applicable Law;

                  (ii) make any increase in the salary, wages or other
compensation (aa) of any Employee whose annual salary is or, after giving effect
to such change, would be the equivalent of E50,000 per annum or more, except
where such increases have been agreed upon by the relevant Contract Companies
and/or Vendors, prior to the Execution Date;

                  (iii) adopt, enter into or become bound by any benefit plan,
any employment-related contract or any collective bargaining agreement with
respect to any of the Employees;

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<PAGE>
                  (iv) enter into any Contract to do or engage in any of the
foregoing items set forth in this Section 6.1(b).

            (c) Vendors agree that, during the Covenant Period, except as
contemplated by this Agreement, or as specifically directed by Buyers, or as
otherwise consented to or approved in advance by Buyers (which consent or
approval shall not be unreasonably withheld or delayed to the extent that it
does not prejudice the rights of Buyers in terms of this Agreement), Vendors
shall not, and shall procure that the Contract Companies shall not:

                  (i) acquire lease, license or dispose of or agree to acquire
lease, license or dispose of any assets that would constitute Purchased Assets
hereunder, other than in the ordinary course of business consistent with past
practice, or create or incur any Lien, other than a Permitted Lien, on any
assets that would constitute Purchased Assets hereunder;

                  (ii) enter into, amend, modify, terminate (partially or
completely), grant any waiver under or give any consent with respect to any
Business Contract, in each case other than in the ordinary course of business
consistent with past practice;

                  (iii) violate, breach or default under, or take or fail to
take any action that (with or without notice or lapse of time or both) would
constitute a material violation or breach of, or default under, any term or
provision of any Business Contract;

                  (iv) incur, purchase, cancel, prepay or otherwise provide for
a complete or partial discharge in advance of a scheduled payment date with
respect to, or waive any right of the Contract Companies under, any liability of
or owing to the Contract Companies in connection with the Businesses then under
the control of Vendors that would constitute a Purchased Asset hereunder, other
than in the ordinary course of business consistent with past practice;

                  (v) save as specifically provided to the contrary in Section
8.1 below, engage with any Person in any merger, consolidation or other business
combination, unless such Person agrees in writing that such merger,
consolidation or other business combination is subject to the terms and
conditions of this Agreement and the Ancillary Agreements;

                   (vi) make or commit to make any capital expenditures for
additions to property, plant or equipment constituting capital assets on behalf
of the Businesses, other than in the ordinary course of business consistent with
past practice, or otherwise as are urgently required to maintain the equipment
and assets of the Portfolio Centers in operating condition and in compliance
with safety regulations;

                   (vii) make any material changes in the conduct of the
Businesses, except as specifically contemplated or permitted by this Agreement;
or

                   (viii) enter into any Contract to do or engage in any of the
foregoing items set forth in this Section 6.1(c).

      6.2 Notice of Developments. Vendors shall give prompt notice to Buyers of
(i) the occurrence or non-occurrence of any event, the occurrence or
non-occurrence of which is likely to cause, net and in the

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<PAGE>
aggregate, any representation or warranty of Vendors contained in this Agreement
to be untrue or inaccurate at or prior to the Closing and (ii) any failure of
Vendors to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder; provided, however, that the delivery
of any notice pursuant to this Section 6.2 shall not limit or otherwise affect
any remedies available to the Party receiving such notice.

      6.3   Exclusivity.

            (a) From and after May 12, 2004, and until the earlier of the
Closing or the termination of this Agreement, Vendors have not and shall not
(nor has it permitted and shall it permit its Representatives to) directly or
indirectly take any of the following actions with any Person other than Buyers
and their designees:

                   (i) solicit, initiate or encourage any proposals or offers
from, or conduct discussions with or engage in negotiations with, any Person
relating to any possible Acquisition Proposal (as hereinafter defined) with
Vendors or any of its subsidiaries (whether such subsidiaries are in existence
on the date hereof or are hereafter organized);

                   (ii) provide information with respect to Vendors and/or the
Contract Companies, other than to Buyers, relating to, or otherwise cooperate
with, facilitate or encourage any effort or attempt by any such Person with
regard to, any possible Acquisition Proposal with Vendors or any subsidiary of
Vendors (whether such subsidiaries are in existence on the date hereof or are
hereafter organized);

                   (iii)enter into a contract or agreement (whether oral or
written) with any Person, other than Buyers, providing for an Acquisition
Proposal with Vendors or any subsidiary (whether such subsidiaries are in
existence on the date hereof or are hereafter organized); or

                   (iv) make or authorize any statement, recommendation or
solicitation in support of any possible Acquisition Proposal with Vendors or any
subsidiary (whether such subsidiary is in existence on the date hereof or are
hereafter organized) other than by Buyers.

            (b) Vendors shall, and shall cause its Representatives to, avoid and
cause to be avoided any such contacts or negotiations with any Person relating
to any Acquisition Proposal. In addition to the foregoing, if Vendors or any of
their Representatives receives, prior to the Closing or the termination of this
Agreement, any offer or proposal (formal or informal) relating to any of the
above, Vendors shall immediately notify Buyers thereof and provide Buyers with
the details thereof including the identity of the Person or Persons making such
offer or proposal, and will keep Buyers fully informed of the status and details
of any such offer of proposal. Vendors and Buyers all acknowledge that this
Section 6.3 was a significant inducement for Buyers to enter into this Agreement
and the absence of such provision would have resulted in either (i) a material
reduction in the Purchase Price to be paid to Vendors; or (ii) a failure to
induce Buyers to enter into this Agreement.

            (c) As used in this Section 6.3, the term "ACQUISITION PROPOSAL"
shaLL mean a proposal or offer for a merger, consolidation or other business
combination involving an acquisition of all or part of the Contract Companies
and/or the Businesses and/or the Purchased Assets.

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<PAGE>
            (d) For the avoidance of doubt, it is specifically agreed and
understood that the provisions of this Section 6.3 are not applicable to: (i)
the Post-Closing Merger procedures referred to in Section 8.1 below; and (ii) to
any property, assets or business activities of Vendors and/or their Affiliates
which are excluded from the ambit of this Agreement.

      6.4 Reasonable Efforts. Each of the Parties will use their best efforts to
take all action and to do all things necessary, proper, or advisable in order to
consummate and make effective the transactions contemplated by this Agreement
(including satisfaction of the closing conditions set forth in Article VII
below).

                              ARTICLE VII - CLOSING

      7.1   Closing and Consummation.

      The closing of the Transaction shall take place July 29th, 2004, or on
such alternative date as shall be agreed between the Parties prior to July 31st,
2004 (the "CLOSING DATE"), provided that if the Transaction Approvals have not
been obtained by that date, then and in such event the Closing shall take place
within [five (5)] Business Days after the date on which the Transaction
Approvals will have been obtained (or waived in writing). The Closing shall take
place in the offices of PCE located in Budapest, Hungary.

      7.2 Conditions for Closing. Notwithstanding anything to the contrary in
this Agreement contained, the Closing and consummation of the Transaction shall
be subject to the fulfillment of the following conditions, namely:

            (a) Transaction Approvals. The following unconditional Transaction
Approvals shall have been obtained (or, if issued subject to fulfillment of
certain conditions, such conditions have been either fulfilled or waived in
writing), and shall be valid, namely:

                  (i) The approval of the Transaction, which was issued by the
Hungarian Competition Office under applicable Law on July 21st, 2004 (the "COH
APPROVAL"), a copy of which is attached hereto and marked as SCHEDULE
(I)7.2(A)(I);

                  (ii) Each of the Financing Banks (excluding OVAG) shall have
delivered to the Buyers a duly signed Waivers and Consents, and which include
Waivers and Consents issued by the Financing Banks in respect of Pecs Plaza Kft.
and Sombathely Plaza Kft.referred to in Section 2.4 above, copies of which are
attached as SCHEDULE 7.2(A)(II);

                  (iii) Vendors shall have furnished Buyers with Land Registry
Extracts updated to a date 3 (three) days to the Closing Date, and which shall
be attached as an exhibit to the Property Schedule.

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<PAGE>
            (b) OVAG Loan Repayment Agreement. The OVAG Loan Repayment Agreement
shall have been executed between the parties thereto, shall be valid and binding
upon them, and Purchasers shall have deposited the OVAG Loan Repayment Amount
into the special escrow account opened and maintained by OVAG for that purpose;

            (c)   Vendors' Legal Opinion. Buyers shall have received an opinion
of Vendors' legal counsel in substantially the form set forth in SCHEDULE
7.2(c).

            (d)   Buyers's Legal Opinion of Counsel.  Vendors shall have
received an opinion of legal counsel for Klepierre, KLPH, LP7 and Segece in
substantially the form set forth in SCHEDULE 7.2(D).

      7.3 Acts to be performed at Closing. At the Closing, the following acts,
deeds and things shall be simultaneously executed, performed and perfected,
namely:

            (a) PCE and EUN shall sell, transfer and make over to KLPH and LP7
respectively, and KLPH and LP7 shall acquire from PCE and EUN respectively,
good, clean and valid title in and to the entire Equity Rights (100%) in and to
the Holding Companies by way of the execution of Equity Rights Transfer
Agreements in agreed form in respect of each Holding Company, together with all
ancillary documentation required by operation of applicable Hungarian Law in
order to give full and proper effect thereto;

            (b) PCE and Szeged shall sell, transfer and make over to KLPH, and
KLPH shall acquire from PCE and Szeged respectively, good, clean and valid title
in and to the entire Equity Rights (100%) in and to the Direct Property
Companies by way of the execution of Equity Rights Transfer Agreements in agreed
form in respect of each Direct Property Company, together with all ancillary
documentation required by operation of applicable Hungarian Law in order to give
full and proper effect thereto;

            (c) PCM-BV shall sell, transfer and make over to Segece, and Segece
shall acquire from PCM-BV, good, clean and valid title in and to the Acquired
PCMM Quota by way of the execution of Equity Rights Transfer Agreements in
agreed form, together with all ancillary documentation required by operation of
applicable Hungarian Law in order to give full and proper effect thereto;

            (d) PCE and/or EUN and/or their relevant Affiliates shall assign and
transfer to KLPH, and KLPH shall accept assignment of, the relevant Assigned
Shareholder Loans due and owing by the Portfolio Companies by way of the
execution of a Deed of Assignment of Shareholder Loans in agreed form;

            (e) PCM-BV and/or PCM-BV and/or the relevant Affiliates shall assign
and transfer to Segece, and Segece shall accept assignment of, the relevant
Assigned Shareholder Loans (50%) due and owing by PCMM by way of the execution
of a Deed of Assignment of Shareholder Loans in agreed form;

            (f) Vendors shall furnish Buyers with unconditional letters of
resignation of each of the managing directors of each of the Contract Companies,
as well as the resignations of all members of the supervisory boards of the
Contract Companies, nominated by Vendors and/or their Affiliates, which shall be
effective as at the Closing Date. Vendors undertake to procure that none of the
managing directors and supervisory board members appointed by it and who shall
resign at the Closing as aforesaid shall have any claims or rights against the
Contract Companies and that all their rights against such Contract Companies are
unconditionally waived and released.

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<PAGE>
            (g) Buyers shall nominate and appoint, in the manner required under
applicable Hungarian Law, managing directors for each of the Contract Companies,
and, where required, members of the Supervisory Boards of the Contract
Companies.

            (h) Vendors shall if necessary convene on the Closing Date, such
Quotaholders meetings of each of the Contract Companies in order to give full
and proper effect to the Transactions contemplated herein, and to replace the
managing directors and the supervisory board members of the Contract Companies
as aforesaid.

            (i) The following Ancillary Agreements, to the extent that same
shall not have been executed between the relevant parties thereto prior to the
Closing Date, shall be duly and properly signed and executed, namely:

                  (i)   the DPO Interim Agreement;

                  (ii)  the PCMM Shareholders Agreement; and

                  (iii) the Trademark License Agreement;

                  (iv)  the OVAG Loan Repayment Agreement; and

                  (v)   the Price Adjustment Escrow Agreement.

            (j)   PCE shall furnish Buyers with the Utilities Guarantee;

            (k)   Vendors shall cause Buyers to be furnished with the EMI Parent
Guarantee;

            (l) Purchasers shall execute payment of the Estimated Portfolio
Company Prices subject to and in accordance with the provisions of Section 3.2
above;

            (m) Segece shall execute payment of the Estimated PCMM Shares Value
subject to and in accordance with the provisions of Section 3.3 above; and

            (n) The Parties shall execute all additional documents, deeds and
instruments which are required by operation of applicable Hungarian Law and
regulations in order to give full and proper effect to the Transactions
contemplated hereby.

      7.4 Acknowledgement of Closing. Upon the full and proper execution of the
Closing in terms of this Article VII, the Parties shall execute an
Acknowledgement of Closing in agreed form confirming that the consummation of
the Transactions has been accomplished.

      7.5 Partial Consummation. In the event that one or several of the
Transaction Companies (or its (their) relevant Property Company or Portfolios
Centers) shall be affected by a problem which would entitle the Purchasers
and/or Segece to exercise their respective rights to withdraw from the
Transaction in accordance with the provisions of Article X below, then and in
such event Purchasers or Segece, as the case may be, will have the option to
partially consummate the Transaction by excluding such affected Transaction

                                       49
<PAGE>
Company from the Closing procedures to be conducted in terms of this Article VI,
provided that nothing in this Section contained shall be deemed to prejudice the
rights of Purchasers and/or Segece under Sections 10.3(a), 10.3(b) and
10.3(D) below.

      7.6 Deferred Closing. In the event that any Transaction Approval(s)
relevant to any particular Transaction Company and/or its relevant Portfolio
Center shall not have been obtained by the Closing Date as determined above,
then and in such event the Purchasers shall have the right to demand that a
separate deferred closing be conducted in respect of the affected Transaction
Company upon receipt of the missing Transaction Approval(s), provided that such
deferred Closing shall not occur later than December 31, 2004 (unless otherwise
agreed between the Parties).

          ARTICLE VIII - ADDITIONAL AGREEMENTS WITH POST CLOSING EFFECT

      8.1   Post Closing Merger Procedures.

            (a) It shall be the sole responsibility and liability of PCE to
cause, complete and perfect the due, proper and valid execution of the merger
procedures which have been instituted prior to the date hereof between each of
the Holding Companies and the relevant Property Company recorded opposite its
name of the Rights Acquisition Schedule (the "Post Closing Mergers").

            (b) It is envisaged that in each instance, the relevant Property
Company will be merged into the relevant Holding Company ("step-up mergers"),
save in the event of Duna Plaza, where the Holding Company (D2 Rt.) will be
merged down into the Property Company (Duna Plaza Rt.) (a "step-down merger").

            (c) The Post Closing Mergers shall be conducted and implemented on
the basis of the financial statements of the respective Holding Companies and
the relevant Property Companies as at December 31st, 2003.

            (d) PCE undertakes to ensure that the Post Closing Mergers are
finalized and perfected, by order of the Court of Registration, by not later
than December 31st, 2004.

            (e) All costs and expenses incurred or to be incurred in respect of
and/or in connection with and/or pertaining to the Post Closing Mergers
(including without limitation : legal fees, tax advisors fees, accountants fees,
notarial fees and court registration fees) shall be for the sole cost and
account of PCE.

      8.2   Post Merger Tax Procedure

            (a)   Definition & qualification of the Goodwill

                  (i) It is acknowledged by the Parties that the completion of
the Post Closing Mergers referred to in Section 8.1 above, shall make available
a Global Goodwill Tax Benefit.

                  (ii) For the purpose of this Section 8.2, the term "Global
Goodwill Tax Benefit" shall mean the discounted tax benefit of E 6,800,000 (six
million eight hundred thousand Euros) resulting from the

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<PAGE>
possibility to amortize from a tax standpoint a goodwill amount transferred to
the surviving companies of the Post Closing Mergers.

                  (iii) The Global Goodwill Tax Benefit is broken down as
follows : (1) E 5,780,000 in respect of Duna Plaza Rt. following its merger with
D2 Rt.; (2) E 560,000  in respect of Csepel Plaza Kft. following its merger with
CSPL 2002 Kft.; and (3) E 460,000  in respect of Debrecen Plaza Kft. following
its merger with Debrecen 2002 Kft, (Duna Plaza Rt., Csepel Plaza Kft and
Debrecen Plaza Kft. collectively referred to as the "Goodwill Beneficiaries" and
each of such amount being defined as "Individual Goodwill Tax Benefit").

                  (iv) Vendors hereby agree and acknowledge that due to the
existence of the Global Goodwill Tax Benefit, Purchasers did not reduce the
Estimated Transaction Prices by E 6,800,000 to take into account the impact of
the lack of amortization basis as specified in Exhibit H of the Heads of Terms
dated May 10, 2004. In this context, Vendors undertake to implement the
following steps in order to ensure that Goodwill Beneficiaries will be able to
derive the full benefit of the Global Goodwill Tax Benefit;

                  (v) The Parties further acknowledge that the approval by the
Tax Authorities (as hereinafter defined) of carry forward losses is prima facia
evidence that the relevant Goodwill Beneficiary will be able to derive the
benefit of the Goodwill Tax Benefit.

            (b) Escrow Deposit.

                  (i) In order to secure its undertakings and obligations
pursuant to the provisions of this Section 8.2, at the Closing, Vendors shall
cause an amount of E 6,800,000 to be deposited into a special escrow account to
be opened and maintained by OVAG in terms of the Escrow Agreement attached
hereto as Schedule 8.2(b).

                  (ii) The Escrow Agreement shall govern the manner in which
OVAG as escrow agent shall release the escrow funds in terms of the provisions
of this Section 8.2.

            (c) Actions to be taken by Vendors to ensure the use and enjoyment
of the Global Goodwill Tax Benefit by the Goodwill Beneficiaries. In order to
allow the future enjoyment and use of the Global Goodwill Tax Benefit by the
Goodwill Beneficiaries, Vendors have undertaken to implement and shall complete
the following specific procedures ("POST MERGER TAX PROCEDURES").

            (d) On the other hand and solely in the case of "Upstream Mergers"
(as defined in Section 8.1 (b) above), in the event that Csepel Plaza Kft.
and/or Debrecen Plaza Kft. do not have tax losses, Vendors shall have the right
in its sole discretion (subject to a 3 day prior written notice to Purchasers)
to substitute other Contract Companies (which would be the surviving entity
following an Upstream Merger) instead of Debrecen 2002 Kft and CSPL 2002 Kft,
for the purpose of the Post Merger Tax Procedures, provided that the aggregate
amount of the Goodwill Tax Benefit for such companies shall not be less than E
1,020,000.

            (e) Duna Plaza Application.  The Post Merger Tax Procedures with
respect to Duna Plaza Rt. are as follows:

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<PAGE>
                  (i) Given the specific nature of the merger process entered
into among D2 Rt. and Duna Plaza Rt. (namely a downstream merger whereby Duna
Plaza Rt. is the surviving entity) and in order to ensure the enjoyment and use
by Goodwill Beneficiary of the corresponding Individual Goodwill Tax Benefit
(i.e. E 5.78 million), Vendors undertake to make an application (the "DUNA PLAZA
APPLICATION") to the relevant office, service or department of the Hungarian Tax
Authorities ("TAX AUTHORITIES") so as to obtain the approval of the Tax
Authorities that Duna Plaza Rt., as the surviving entity in the merger and legal
successor, will be entitled to utilize the carry forward losses (which comprise
but are not limited to the Individual Goodwill Tax Benefit) of D2 Rt. (as the
predecessor), such approval being necessary in respect of tax losses incurred in
2004 and thereafter, in application of the new Hungarian tax regime which
entered into force as of January 1, 2004 (the "NEW REGIME"). It is emphasized
that the nature and wording of the Duna Application to be made to the Tax
Authorities pursuant to the provisions of this Section 8.2(d) shall be made
exclusively at the discretion of Vendors.

                  (ii) It shall be the responsibility and liability of Vendors
to make all arrangements necessary to ensure that the Duna Plaza Application be
prepared and submitted to the Tax Authorities within the statutory deadline,
namely within 30 days of date of the adoption the first decision on the merger
by the general meeting of the relevant company, but at the latest within 30 days
of the date of the registration of the merger by the Hungarian Commercial Court.
Vendors shall also be responsible for providing the Tax Authorities with all the
necessary and requested information and documentation during the procedure in a
timely manner with a view to ensure the success of the procedure, and Purchasers
undertake to co-operate in the provision of such documentation.

            (f)   Approval of Duna Plaza Application

                  (i) In the event that the Duna Plaza Application is approved
by the Tax Authorities, then and in such event Vendors shall be entitled to
demand OVAG as escrow agent to release to Vendors the amount of E 5,780,000 out
of the escrow funds, together with accrued interest, provided that they shall
have delivered to Purchasers the EMI First Demand Guarantee in accordance with
the provisions of Section 8.2(j) below.

                  (ii) For the purposes of this Section, an "approval/approved"
shall mean either : (1) official notification of the Tax Authorities that the
Duna Plaza Application has been approved (provided, however, that an approval
which is qualified as being subject to future tax audits and which reserves the
determination as to the correctness or integrity of the carry forward losses
which are referred to in the Duna Plaza Application, shall nevertheless be
deemed to constitute an approval of the Tax Authorities for the purposes of this
Section which will entitle Vendors to demand the release of the escrow funds as
aforesaid); or (2) in the event that the Tax Authorities are deemed to have
approved the Duna Plaza Application by reason of their failure to respond to the
Duna Plaza Application within 60 (sixty) days from the date of the submission of
the Duna Application (a "deemed approval"). Purchasers shall notify Deloittes
Rt. (or such other tax adviser numbered amongst the "Big Four" who act as the
tax advisers of Purchasers. at that time) of the occurrence of a "deemed
approval". Deloittes Rt. shall be required to either confirm or dispute the
existence of a deemed approval within 10 (ten) Business Days, failing which they
shall be deemed to have approved. For the avoidance of doubt, Deloittes Rt.
shall not make any approaches to the Tax Authorities in order to verify the
occurrence of a deemed approval.

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            (g)   Refusal of the Duna Plaza Application

                  (i) In the event, however, that the Tax Authorities issue a
refusal of the Duna Plaza Application, then and in such event Purchasers shall
be entitled to demand OVAG as escrow agent to release to Purchasers the amount
of E 5,780,000 out of the escrow funds, together with accrued interest.

                  (ii) For the purposes of this Section, a "refusal" shall be
deemed to mean either (1) official notification of the Tax Authorities that the
Duna Plaza Application has been rejected, or has not been approved, irrespective
as to whether reasons are furnished (provided however that if Vendors elect to
appeal the refusal to the next instance within the Tax Authorities, the refusal
shall not be deemed to have occurred until such time as the appeal is also
rejected); or (2) if the Tax Authorities by official notice advise Vendors
and/or Duna Plaza Rt. that they wish to conduct an investigation of Duna Plaza
Rt. prior to rendering their decision on the Duna Plaza Application which has
not been finalized by December 31st, 2005; or (3) if Vendors have not applied
for the permission to use the loss carry forward of D2 Rt as at December 31,
2005.

                  (iii) For the avoidance of doubt, in the event that Vendors
elect to appeal the decision of the Tax Authorities as aforesaid, and the appeal
is accepted, then and in such event an "approval" of the Duna Plaza Application
shall be deemed to have occurred, and the provisions of Section 8.2(f)(i) above
shall apply.

            (h)   Csepel Plaza Kft . The Post Merger Tax Procedures with respect
to Csepel Plaza Kft are as follows:

                  (i) Given the specific nature of the merger process entered
into among Csepel Plaza Kft. and CSPL 2002 Kft. (namely an upstream merger
whereby CSPL 2002 Kft. is the surviving entity) and in order to ensure the
enjoyment and use by the Goodwill Beneficiary of the Individual Goodwill Tax
Benefit (i.e. E 560,000 million), Vendors undertakes to make an application (the
"CSEPEL APPLICATION") to the Tax Authorities so as to obtain the approval of the
Tax Authorities that CSPL 2002 Kft., as the surviving entity in the merger and
legal successor, will be entitled to utilize the carry forward tax losses of
Csepel Plaza Kft. (as the predecessor) which is necessary in respect of tax
losses incurred in 2004 and later based on the New Regime.

                  (ii) In the event of an "approval" of the Csepel Application,
Purchasers shall be entitled to request that OVAG as escrow agent release to
Vendors the amount of E 560,000 out of the escrow funds, together with accrued
interest, provided that they shall have delivered to Purchasers the EMI First
Demand Guarantee in terms of Section 8.2(j) below. For the purpose of the Csepel
Application an "approval" shall be deemed to mean either: (1) either of the
circumstances referred to in Section 8.2(f)(ii) above, mutatis mutandis; and (2)
if the Csepel Application is not submitted by December 31, 2004 by reason of the
fact that Csepel Plaza Kft. has no tax losses.

                  (iii) However, in the event of a "refusal" of the Csepel
Application, then Purchasers shall be entitled to request the release to the
Purchasers of the amount of E 560,000 together with accrued interest For the
purposes of the Csepel Application, a "refusal" shall be deemed to mean either
of the circumstances referred to in Section 8.2(g) (1) and (2).

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            (i) Debrecen Plaza Kft. The Post Merger Tax Procedures with respect
to Debrecen Plaza Kft are as follows: The provisions of Section 8.2(h) above
shall apply, mutatis mutandis, to an application to be submitted by Vendors to
the Tax Authorities in respect of the Debrecen Plaza Kft. (the "DEBRECEN
APPLICATION") in respect of an Individual Goodwill Tax Benefit in the amount of
E 460,000.

            (j)    EMI First Demand Guarantee

                  (i) Any demand by Vendors for the withdrawal of funds from the
escrow account as contemplated in this Section 8.2 shall be conditioned upon the
delivery to Purchasers of a first demand corporate guarantee issued by EMI in
favour of the Purchasers in terms of this Section 8.2(j) ("the EMI First Demand
Guarantee") in the form and text attached hereto as SCHEDULE 8.2(J);

                  (ii) The EMI First Demand Guarantee shall be in an amount
equal to : (1) the amount of the relevant Individual Goodwill Tax Benefit to be
withdrawn; and (2) fines, penalties and late payment interests actually charged
by the Tax Authorities in a Tax Demand (as hereinafter defined), but in any
event in a total amount which shall not exceed 25% of the relevant Individual
Goodwill Tax Benefit;

                  (iii) Purchasers shall not be entitled to draw down on the EMI
First Demand Guarantee after the expiry of a period commencing on its date of
issue and terminating on the 5th anniversary of that date;

                  (iv) The EMI First Demand Guarantee will be payable on demand.
However, Purchasers undertake that they shall not make any demands under the EMI
First Demand Guarantee unless and until the Tax Authorities have re-assessed the
use of the Individual Goodwill Tax Benefit by the Goodwill Beneficiary and have
delivered to the Goodwill Beneficiary a demand for the payment of taxes, fines,
penalties and/or late payment interests relating directly to the use of the
relevant Individual Goodwill Tax Benfit (a "Tax Demand"),

                  (v) In the event that Vendors contest the Tax Demand and
succeed in definitely canceling the Tax Demand, then and in such event
Purchasers undertake to cause that any amounts drawn down on the EMI First
Demand Guarantee on the basis of such Tax Demand shall be refunded in full to
EMI; and

                  (vi) In the event that, notwithstanding that a "refusal" has
been given to any of the Duna Application, the Csepel Application or the
Debrecen Application, but the relevant Goodwill Beneficiary nevertheless makes
use of the Individual Goodwill Tax Benefit, then and in such event Purchasers
undertake to return to EMI all amounts drawn down under the EMI First Demand
Guarantee..

      8.3    Duna Plaza Extension

            (a)   The parties record and declare that the acquisition of D2 Rt.
specifically includes the rights in and to the proposed Duna Plaza Extension.

            (b) In respect of the Duna Plaza Extension., PCE and Duna Plaza Rt
shall as soon as reasonably practicable after the Closing Date agree in good
faith on the valid building permits, and the detailed plans and designs of the
Duna Plaza Extension.

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      Undertaking to Construct.

            (c) PCE shall construct, complete and deliver to Duna Plaza Rt. the
Duna Plaza Extension fully in accordance with (i) the valid agreed building
permits and the plans and designs; and, (ii) the terms and conditions of the
Duna Plaza Turnkey Development Agreement. PCE shall be required to perform the
Duna Plaza Extension's works and to acquire the supplies, parts, materials,
services and equipment necessary, even if not specifically identified or
otherwise specified by Duna Plaza Turnkey Development Agreement, so as to ensure
that the works are completed in a timely manner and in accordance with the
agreed plans and designs and the technical specifications. At the time of
delivery of the Duna Plaza Extension, the works shall be technically and
administratively viable, conform with the Duna Plaza Turnkey Development
Agreement in all material respects, and be capable of operation within its
intended purpose.

      Plans and Designs, Building Permits.

            (d) It shall be the responsibility of PCE to obtain all building
permits and other Permits required under operation of applicable law in order to
enable the construction of the Duna Plaza Extension in accordance with the said
agreed plans and designs. In the event that the building permits and other
Permits have not been issued and/or have not become valid and final, by the
fifth anniversary of the Closing Date, notwithstanding the diligent and
commercially reasonable efforts of the Parties, then and in such event the
Parties shall be deemed to have waived all their respective rights, and to have
been be fully and unconditionally released from all their respective
obligations, in terms of the provisions of this Section 8.3, and/or the Duna
Plaza Turn-Key Development Agreement, without sanction or penalty.

            (e)   Purchasers and Duna Plaza Rt. shall give positive
consideration to a proposed "land swap" with the owners of the adjacent parcels
of land, so as to enable the construction of a parking garage intended to
service the Duna Plaza Extension.

            (f) Duna Plaza Rt. shall upon request furnish PCE and/or its
representatives with special powers of attorney or other authorizations which
may be necessary or required in order to enable PCE to obtain the valid and
legal building permits in the name of Duna Plaza Rt., and generally to fulfill
its undertakings and obligations in terms of the Duna Plaza Turn-Key Development
Agreement.

            (g) PCE shall have the right to engage reputable building
contractors, consultants, service providers and other parties as sub-contractors
in respect of the execution of the construction works, in accordance with the
terms and provisions of the Duna Plaza Turnkey Agreement. The appointment of
such sub-contractors shall be subject to Purchaser's approval, such approval not
to be unreasonably or arbitrarily withheld or delayed.

      Commencement of Construction - Non Commencement.

            (h) Subject to : (i) the consummation of the Transactions in terms
of Article VII above in respect of a majority of the Contract Companies and
specifically including D2 RT. and Duna Plaza Rt; (ii) the execution of the Duna
Plaza Turn-Key Development Agreement; and (iii) the obtaining of the valid and
legal building permits as aforesaid; it is anticipated that construction of the
Duna Plaza Extension will commence in early 2005, and will be completed within
30 (thirty) months (including the parking garage).

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            (i) In the event that the construction works for the Duna Plaza
Extension shall have not commenced by the 2nd (second) anniversary of the
Closing Date by reason of the refusal or neglect of Purchaser and/or Duna Plaza
Rt. to authorize the commencement of construction under the Duna Plaza Turnkey
Agreement, notwithstanding that : (i) the Closing of the Transaction shall have
occurred; and (ii) the valid and legal building permits have been issued which
enables the commencement of such construction and which are in accordance with
the agreed plans and specifications in all material respects); then and in such
event PCE shall have the right to terminate the Duna Plaza Turnkey Agreement. In
such event, Purchaser shall be obliged and hereby undertakes to compensate PCE
for the value of the building rights inherent in the Duna Plaza Extension in the
amount of E 10,000,000 (ten million Euro), payable not later than the effective
date of termination of the Duna Plaza Turnkey Agreement. For the avoidance of
doubt, the maximum amount to be paid by Purchaser to PCE in terms of this
sub-section shall in all events be capped at the total amount of E 10,000,000
(ten million Euro) and PCE shall waive unconditionally any right to
compensation, fees or damages to be awarded by Duna Plaza Rt. Prior to payment.

            (j) If on the second anniversary of the Closing Date the conditions
precedent set forth in Section 8.3(i) above are not fulfilled and if PCE is
liable for such failure, Duna Plaza Rt. shall be entitled to elect to extend the
Duna Plaza Turn-Key Development Agreement for another period of two years for
PCE to correct its faults and procure the fulfilment of the conditions
precedent, if possible. If such election has not been exercised or, if it has
been elected, if the conditions precedent are still not fulfilled at the end of
the extension period, Duna Plaza Rt. shall nonetheless be granted an irrevocable
license to use the technical documentation in connection with the Duna Plaza
Extension's works and be assigned the exclusive right to use the designs and
architectural conception of the Extension free of royalties (but subject to
copyright of the designing architects).

      Duna Plaza Turn-Key Development Agreement.

            (k) As soon as practical following the Closing, Duna Plaza Rt. and
PCE shall prepare, negotiate and execute a turnkey agreement the terms and
conditions of which shall be customary for an institutional investor (the "DUNA
PLAZA TURNKEY DEVELOPMENT AGREEMENT").

            (l) The Duna Plaza Turnkey Development Agreement shall provide among
other things that:

                   (i) Duna Plaza Rt. shall not bear any development
responsibility and that in this respect the situation should be as analogous as
possible to that arising of the purchase Duna Plaza Rt from PCE of an existing
building. As a result PCE shall be the sole co-contracting party of Duna Plaza
Rt and shall be accountable for all the works, services, faults or omissions of
the sub-contractors, architects, engineers, suppliers, or surveyors.

                   (ii) PCE's primary and fundamental obligation under the Duna
Plaza Turnkey Development Agreement shall to design, engineer, manufacture,
deliver to site, install, construct after having obtained the necessary
administrative approvals, free of any challenges or right of withdrawal, and
test the works so that the works and each and every component of the works: (1)
meet or exceed the guarantees and other requirements upon completion and at all
relevant times thereafter, provided that the Duna Plaza Extension shall be of
the same standard or higher as the existing Duna Plaza Portfolio Center; (2)
upon

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completion comply with all applicable laws; and (3) upon completion, be
otherwise fit for their intended purposes.

          Lease Up.

            (m) The Duna Plaza Turn-Key Development Agreement shall also provide
that PCE shall be responsible for the marketing and lease-up of the Duna Plaza
Extension leasable areas in a timely and efficient manner to reputable tenants
of good standing. All lease agreements shall be concluded directly between Duna
Plaza Rt. and the individual tenants in the standard form of contract used by
Duna Plaza Rt. at that time.

            (n) Purchasers undertake to cause that the consent of Duna Plaza Rt.
will not be unreasonably withheld or delayed, provided that the following
leasing parameters, as reasonably determined by Purchasers ("EXTENSION LEASING
PARAMETERS") are observed by PCE, namely:

                  (i) the rentals payable under the lease agreements are equal
to or higher than the average rentals payable at the same time by tenants in the
existing Duna Plaza Portfolio Center;

                  (ii)  general and customary leasing parameters and guidelines;

                  (iii) rental grids (but no higher than 20% of the rental grid
in respect of any specific tenant, or 10% in the aggregate regarding all
tenants); and

                  (iv)  tenant mix.

            (o) Notwithstanding the foregoing, Duna Plaza Rt. shall remain free
to market and lease premises to tenants not introduced by PCE , provided however
that : (A) the Extension Leasing Parameters are observed; (B) Duna Plaza Rt.
will co-ordinate such independent leasing operations with PCE; and (C) the
leases signed as a result of such independent leasing operations shall be
included in the calculation of the 90% threshold referred to in Section
8.3(s)(iv) below.

      Duna Plaza Extension Payment.

            (p) In consideration for the fulfillment of its undertakings and
obligations pursuant to the provisions of the Duna Plaza Turnkey Development
Agreement, PCE shall be entitled to receive, and Duna Plaza Rt. shall be
obligated to pay, an amount equivalent to Triple Net Rents generated by the Duna
Plaza Extension, determined in accordance to the formula set forth in SCHEDULE
3.1(B)(I), capitalized at a rate of 8.75%. The Duna Plaza Extension Payment
shall be paid as follows : (A) during the construction period, the Construction
Period Payments will be paid on account of the Duna Plaza Extension Payment, in
accordance with the provisions of Section 8.3(r) below; (B) subject to the
fulfillment of the conditions specified in Section 8.3(s) below, the balance of
the estimated Duna Plaza Extension Payment shall be paid; and (C) a final
verification of the Duna Plaza Extension Payment shall be conducted within 9
(nine) months in accordance with the provisions of Section 8.3(t) below.

            (q) The "ESTIMATED DUNA PLAZA EXTENSION PRICE" shall be calculated
upon the execution of the Duna Plaza Turn-Key Development Agreement on the basis
of PCE's reasonable assessment

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<PAGE>
of the future Triple Net Rents to be generated by the Duna Plaza Extension
following completion and delivery, calculated in accordance with the Duna Plaza
Extension methodology attached hereto as SCHEDULE 8.3(Q).

      Construction Period Payments.

            (r) During construction, Duna Plaza Rt. shall pay to PCE the
construction costs (as determined in the Duna Plaza Turnkey Development
Agreement plus a 10% overhead cost factor, but in any event capped at an amount
equivalent to 80% of the Estimated Duna Plaza Extension Price (as hereinabove
defined (the "CONSTRUCTION PERIOD PAYMENTS"). The Construction Period Payments
will be paid according to agreed milestones based on the progress of the
construction works, as specified in the Duna Plaza Turnkey Development
Agreement.

      Final Duna Plaza Extension Payment.

            (s) Subject to the terms of the Duna Plaza Turnkey Development
Agreement, Duna Plaza Rt. shall execute payment to PCE of the difference between
the Estimated Duna Plaza Extension Price and those amounts of the Construction
Period Payment paid on account during the construction period in terms of
Section 8.3(r) above. (the "FINAL DUNA PLAZA EXTENSION PAYMENT"). The Final Duna
Plaza Extension Payment shall be made not later than 10 (ten) Business Days (or
such other date as shall be mutually agreed) following the fulfillment, or
waiver by Purchaser, of the following conditions, namely:

                  (i)   the Duna Plaza Extension shall be practically complete,
and shall have been delivered to Duna Plaza Rt. pursuant to the provisions of
the Duna Plaza Turnkey Development Agreement;

                  (ii) the Duna Plaza Extension shall be open to the public at
large, and all accesses to and from public roads and streets, as specified in
the approved plans and designs and in the building permits, shall be open to
pedestrian and vehicular traffic;

                  (iii) all the authorizations and Permits required by
applicable law for the operation of the Duna Plaza Extension (including the
occupancy permits and other operational permits) shall have been obtained, and
shall be valid and legal; and

                  (iv) Lease Contracts in relation to at least 90% of the
letable area of the Duna Plaza Extension shall have been executed and shall be
in force and effect, provided however, that Purchaser (acting through Duna Plaza
Rt.) shall not be entitled to withhold its approval for the execution of Lease
Agreements without legitimate grounds if same are in accordance with the
Extension Leasing Parameters (as defined in Section 8.2(n)above).

      Final Verification of the Duna Plaza Final Payment.

            (t) Not later than a date nine (9) months following the date of
delivery of the Duna Plaza Extension under the Duna Plaza Turn-Key Development
Agreement, the Estimated Duna Plaza Extension Price calculated in terms of
Section 8.2(q) above, the aggregate of the Estimated Duna Plaza Extension
Payment shall be adjusted (upwards or downwards, as the case may be) according
the actual Duna Plaza Extension Triple Net Rents determined in accordance to the
formula set forth in SCHEDULE 3.1(B)(I), capitalized at a rate

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of 8.75%. Any payments to be made in consequence of the adjustments to be made
in terms of this section shall be effected with 10 (ten) Business Days from the
date of the determination of the adjustment amount.

      8.4 Duna Plaza Offices. Inasmuch as the Parties have agreed between them
that the Duna Plaza Offices are excluded from the ambit of the Transaction which
is the subject matter of this Agreement, PCE and Purchasers shall by not later
than the Closing enter into a separate DPO Interim Agreement in the form and
text attached hereto as SCHEDULE 8.4.

      8.5 Re-Organization of Management Company Activities. It is specifically
agreed between the Parties to this Agreement that, notwithstanding the
provisions of the Heads of Terms dated May 10th, 2004, a reorganization of the
business, legal and financial activities of the Management Company will be
implemented jointly by Segece and PCM-BV following the Closing, in accordance
with the following terms, provisions and conditions:

            (a) On a date to be agreed between Segece and PCM-BV, but in any
event nor later than November 1, 2004, each of the Property Companies and each
of the Direct Property Companies shall enter into a Patrimonial Management
Contract (in the agreed form attached hereto as SCHEDULE 8.5(A) with PCMM in
respect of the management and operation of each of the respective Portfolio
Centers, and the administration of the relevant Property Company and Direct
Property Company.

            (b) The Patrimonial Management Contracts will determine and
implement a new fee and costing regime pertaining to the management and
operation of the Portfolio Centers, which shall be implemented according to the
step plan attached hereto as SCHEDULE 8.5(B), it being specified however that
any payments under the Patrimonial Management Contracts will be conditioned upon
the occurrence of the Closing and the repayment of the Assumed Financing Loans..

            (c) PCE shall cause PCMM to act diligently in order to make all
legal, technical and other arrangements and modifications vis-a-vis suppliers,
tenants and any other relevant third party in order to implement the
Reorganization as set forth in SCHEDULE 8.5(B) as expeditiously as possible, but
in any event by not later than January 1st, 2005.

            (d)   In addition:

                  (i) each of the Excluded Centers Companies shall conclude
Patrimonial Management Contracts with PCMM on a date to be agreed between Segece
and PCM-BV, but in any event nor later than November 1, 2004. Subject to
specific reporting requirements of Vendors and other agreed changes, these
Patrimonial Management Agreements will be in identical form, mutatis mutandis,
and will also be implemented according to the step plan attached SCHEDULE
8.5(b). Any payment under the Patrimonial Management Contracts pertaining to the
Excluded Centers will be conditioned upon the occurrence of the Closing and the
repayment of the Financing Loans applicable to the Excluded Centers, unless
otherwise agreed; and

                  (ii) PCMM may conclude agreement(s) with PCE and/or its
subsidiaries in respect of the rendering of certain marketing and lease-up
services in respect of new shopping and entertainment centers owned and/or to be
developed by PCE which are not the subject of the Transaction, on terms and
conditions to be agreed on an ad hoc basis.

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            (e) It is hereby specifically agreed that, notwithstanding the
provisions of the Heads of Terms dated May 10, 2004, neither the execution of
the Patrimonial Management Contract nor the implementation of the PCMM
Reorganization shall not constitute a condition for closing.

            (f) PCE shall cause the mandate agreements set forth in SCHEDULE
8.5(F)(the "MANDATE AGREEMENTS") to be terminated before December 31st, 2004,
failing which the provisions of Section 12.1(g) below shall apply.

      8.6   Non-Compete.

            (a) PCE undertakes that neither it nor its Group Affiliates shall,
during a ten-year period commencing on the Closing Date, directly or indirectly,
own, manage, operate, control or be connected with, any shopping and
entertainment centers or factory outlets within the Restricted Areas (as
hereinafter defined).

            (b) For the purposes of this Section, the term "RESTRICTED AREAS"
means those areas lying within a radius of: (i) 4 (four) kilometers from the
Duna Plaza and Csepel Plaza Portfolio Centers in Budapest (but specifically
excluding the Obuda Island and the properties located at 25 Andrassy ut. and 59
Andrassy ut., which shall not constitute Restricted Areas notwithstanding that
the are located within the 4 (four) kilometer radious abovementioned); or (ii)
10 (ten) kilometers in any other regional city in which a Portfolio Center
(excluding Duna Plaza and Csepel Plaza) is situated.

      8.7 Non-Solicitation. PCE and its Group Affiliates (including PCM-BV)
shall, for a period of 10 (ten) years following the Closing Date, be prohibited
(directly or indirectly) from soliciting or encouraging the managers and
employees of PCMM and/or PCMM-II to leave their functions or from otherwise
recruiting them to fulfill any position within the PCE group of companies
(including acting as independent consultants or contractors). However, in the
event that an employee of PCMM or PCMM-II shall voluntarily resign from his
employment with those companies, or either of them, or in the event that such
employee shall be dismissed from his employment for whatever reason, then and in
such event the non-solicitation undertakings made in terms of this section shall
cease to be applicable or effective, in respect of that employee only, after the
elapse of 6 (six) months from the effective date of the termination of his
employment as aforesaid.

      8.8 Collection of Receivables. Purchasers and/or Segece shall exert all
reasonable commercial efforts in order to collect receivables which are
outstanding at the Reference Date for a period in excess of 6 months in
accordance with the Accounting Principles specified in SCHEDULE 8.8/A, and which
are to be excluded from the calculation of the Definitive Portfolio Company
Prices. A list of these outstanding receivables (estimated) shall compromise
part of the Definitive Portfolio Companies Accounts to be furnished to
Purchasers in terms of the provisions of Section 3.5 above. Any amounts
collected by the relevant Contracts Company within 18 (eighteen) months of the
Closing Date in respect of such identified outstanding receivables shall be
transferred to PCE, less any reasonable collection costs (including reasonable
legal fees) incurred in respect thereof, and after deduction of any taxes
applicable thereto.

      8.9 PCMM Inventory. PCM-BV undertakes to ensure that as soon as possible
following the closing, but in any event by not later than December 31st, 2004,
it shall compile and complete a detailed inventory of the moveable assets and
chattels of PCMM, including those items which are physically located in the
Portfolio Centers. PCM-BV undertakes to act in good faith in compiling the
inventory list, and to refrain

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from any act which would unreasonably prejudice the interests of Segece. PCE
shall undertake to transfer without delay and for free to PCMM all the full
ownership of all the assets (including the files, data, softwares, computers
currently) currently used for the purpose of the operation of its business and
its activity.

                   ARTICLE IX - OTHER AGREEMENTS AND COVENANTS

      9.1 Confidentiality. Each of the Parties hereto hereby agrees to keep such
information or knowledge obtained in any due diligence or other investigation
pursuant to the negotiation and execution of this Agreement or the effectuation
of the transactions contemplated hereby, confidential; provided, however, that
the foregoing shall not apply to information or knowledge: (a) the disclosure
of which is mandated by operation of any securities law or regulations of any
recognized stock exchange in any jurisdiction which are applicable to the
Parties and/or their affiliates; (b) which a Party can demonstrate was already
lawfully in its possession prior to the disclosure thereof by the other party;
(c) which is generally known to the public and did not become so known through
any violation of law or the terms of this section; (d) which became known to the
public through no fault of such Party; (e) which is later lawfully acquired by
another Party from other sources; (f) which is required to be disclosed by order
of court or government agency with subpoena powers; or (g) which is disclosed in
the course of any Proceedings between any of the Parties hereto.

      9.2 Additional Documents and Further Assurances. Each Party hereto, at the
request of another Party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be reasonably
necessary for effecting the consummation of the Transactions contemplated
hereby.

                          ARTICLE X - WITHDRAWAL OPTION

      10.1 Withdrawal Option. Notwithstanding anything to the contrary herein
contained, Purchasers and Segece shall have an option to withdraw from the
Transaction and to terminate this Agreement at any time prior to the Closing,
but only in the following events, namely:

            (a) In the event that at any time prior to Closing, Purchasers
and/or Segece (whether as a result of its due diligence findings or otherwise)
shall become aware of objective findings that have a Material Adverse Effect (as
hereinafter defined) resulting from:

                  (i) defects, deficiencies or encumbrances on the rights,
title, interests and ownership of the Contract Companies and/or the Portfolio
Centers; and/or

                  (ii) discrepancies or inaccuracies in the financial
information provided to Purchasers, including in the Estimated Portfolio
Companies Accounts and the Estimated PCMM Accounts; and/or

                  (iii) any other matters (including a material change in the
operations of the Portfolio Centers or the Contract Companies as a result of
their operation in a manner which is inconsistent with the ordinary and usual
course of business or with past practise; and/or.

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            (b) upon the occurrence of a change in the tax or legal situation of
Hungary which has a Material Adverse Effect in the aggregate.

      10.2 Material Adverse Effect Defined. For the purposes of this Article X,
and without prejudice to the representations and warranties given by Vendors in
terms of Article IV hereof and to the provisions of Section 3.6 above, the term
"MATERIAL ADVERSE EFFECT" shall have the meanings ascribed to it hereunder, and
each such event shall constitute an "MAE EVENT":

            (a) any matter(s) that has(have) or could reasonably be anticipated
to have an adverse effect (direct or indirect, present or future, conditional or
not) on Purchasers and/or on the rights and interests to be acquired by them
directly or indirectly in terms of this Agreement, which is or may be quantified
with a financial value in the aggregate in excess of an amount equivalent to 5%
(five percent) of the total of the Estimated Portfolio Companies Prices for all
Portfolio Centers in the aggregate; or

            (b) any matter(s) that has(have) or could reasonably be anticipated
to have an adverse effect (direct or indirect, present or future, conditional or
not) on Purchasers and/or the rights and interests to be acquired by Purchasers
directly or indirectly in terms hereof in respect of an individual Portfolio
Company or Direct Property Company only, which is or may be quantified with a
financial value in excess of an amount equivalent to 5% (five percent) of the
Estimated Portfolio Companies Price for that specific Portfolio Company only; or

            (c) any matter(s) that has(have) or could reasonably be anticipated
to have an adverse effect (direct or indirect, present or future, conditional or
not) on Segece and/or the rights and interests which are to be acquired by
Segece directly or indirectly in terms hereof in respect of PCMM only, which is
or may be quantified with a financial value in excess of an amount equivalent to
5% (five percent) of the Estimated PCMM Shares Value; or any defect, impediment
or encumbrance which would materially jeopardize or prejudice the value and/or
integrity of the legal rights (including the permits and authorizations) and
interests to be acquired directly or indirectly by Segece in respect of PCMM, in
such manner that Segece will be prevented from or unreasonably delayed in
exercising free, permanent and unfettered rights of ownership, operation,
possession and disposal (including syndication) of the assets and rights so
acquired in respect of PCMM; or

            (d) any defect, impediment or encumbrance which would materially
jeopardize or prejudice the value and/or integrity of the legal rights
(including the permits and authorizations) and interests to be acquired directly
or indirectly by Purchasers in terms hereof, in such manner that Purchasers will
be prevented from or unreasonably delayed in exercising free, permanent and
unfettered rights of ownership, operation, possession and disposal (including
syndication) of the assets and rights so acquired in respect of all or a
majority of the Portfolio Centers and/or the Portfolio Companies, or
specifically in respect of the Duna Plaza Shopping Center (it being specified
that the existence of Financing Banks Securities pertaining to the Assumed
Financing Loans shall not per se constitute an MAE Event to the extent they are
capable of release upon full repayment of the relevant Assumed Financing Loan;
or

            (e) any defect, impediment or encumbrance which would materially
jeopardize or prejudice the value and/or integrity of the legal rights
(including the permits and authorizations) and interests to be acquired directly
or indirectly by Purchasers in respect of a specific Portfolio Center, in such
manner that Purchasers will be prevented from or unreasonably delayed in
exercising free, permanent and unfettered

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rights of ownership, operation, possession and disposal (including syndication)
of the assets and rights so acquired in respect of that specific Portfolio
Centers and/or the relevant Portfolio Company or Direct Property Company (it
being specified that the existence of Financing Banks Securities pertaining to
the Assumed Financing Loans shall not per se constitute an MAE Event to the
extent they are capable of release upon full repayment of the relevant Assumed
Financing Loan).

      10.3  Right of Withdrawal.  Upon the occurrence of:

            (a) an MAE Event under Sections 10.2(a) or 10.2(d) above,
Purchasers shall be entitled to withdraw from the entire Transaction in respect
of all Portfolio Companies and all Portfolio Centers, and Segece shall be
entitled to withdraw from the transaction for the acquisition of the Acquired
PCMM Quota;

            (b) an MAE Event under Section 10.2(b) above which affects the Duna
Plaza Center only, Purchasers shall be entitled to withdraw from the entire
Transaction in respect of all Portfolio Companies and all Portfolio Centers, and
Segece shall be entitled to withdraw from the transaction for the acquisition of
the Acquired PCMM Quota;

            (c) an MAE Event under Sections 10.2(b) and/or 10.2(e) above
which affects any Portfolio Center other than the Duna Plaza Center, Purchasers
shall be entitled to exercise its partial consummation rights under Section 7.5
above in respect of that specific Portfolio Center only; and

            (d) an MAE Event under Section 10.2(c) above which affects PCMM
only, Segece shall be entitled to withdraw from the transaction for the
acquisition of the Acquired PCMM Quota.

      10.4    Withdrawal Notice and Rectification.

            (a) Subject to the provisions of Section 10.5 below, if the
Purchasers and/or Segece elect to withdraw from the Transaction pursuant to the
provisions of Section 10.1(a) above, they shall be entitled to do so by the
giving of written notice of their intention to do so, specifying their reasons
for doing so, and giving particulars of the MAE Event which has occurred in
sufficient detail to enable Vendors to identify the nature of the event.

            (b) Vendors shall be afforded an opportunity to rectify the MAE
Event identified in the Withdrawal Notice within 21 (twenty one) days from the
date of receipt of the Withdrawal Notice (provided that if the MAE Event is
incapable of being rectified within that period for reasons beyond the control
of Vendos, Buyers will not unreasonably withhold their consent to an extension
of such rectification period).

            (c) In the event that PCE shall have failed to rectify the matter to
the reasonable satisfaction of Purchasers or Segece within the said 21day
rectification period (as extended, where relevant), then and in such event the
Withdrawal Notice shall become effective

      10.5  Restrictions on Rights of Withdrawal.  For the avoidance of doubt,
it is hereby stated and declared that:

            (a) Upon the Closing, the rights of withdrawal awarded to Buyers in
terms of this Article X shall automatically lapse and be of no further force and
effect;

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            (b) Upon the occurrence of a deferred closing in respect of any
individual Portfolio Company as provided in Section 7.6 above, the rights of
withdrawal provided for in this Article X shall continue in force in respect of
the relevant Portfolio Company and Portfolio Center only;

            (c) No separate rights of withdrawal shall exist in respect of the
Duna Plaza Extension only following the Closing, which shall be governed by the
provisions of the Duna Plaza Construction Agreement;

            (d) Nothing in this Article X contained shall be deemed to derogate
from the rights of Vendors to refer any dispute regarding the existence of an
MAE Event to arbitration pursuant to the provisions of Section 14.3 below.

            (e) In the event that Purchasers only shall furnish a notice of
withdrawal on the basis of an MAE Event which has occurred under Sections
10.2(a), 10.2(b) and 10.2(d) above, then and in such event Segece shall
automatically be deemed to have furnished a notice of withdrawal in respect of
the acquisition of the Acquired PCMM Quota, it being understood that Segece
shall not be permitted to enforce the transaction for the acquisition of the
Acquired PCMM Quota in the event that Purchasers have elected to withdraw from
the transaction for the acquisition of all of the Portfolio Companies.

      10.6  Consequences of Withdrawal and Termination.

            (a) The exercise by Purchasers and/or Segece of their respective
rights of withdrawal and termination in terms of this Article X shall be without
sanction or penalty whatsoever to any of the Parties. All costs and expenses
incurred by the Parties prior to the effective date of the termination of the
Agreement and/or the Ancillary Agreements as aforesaid shall be for their own
cost and account, and no rights of reimbursement, compensation or indemnity
shall exist in that event.

            (b) Upon the notice of withdrawal becoming effective as contemplated
in Section 10.4(c) above, this Agreement and all the Ancillary Agreements shall
be deemed to have been terminated by mutual consent and shall be of no further
force and effect.

            (c) However, if a notice of withdrawal has become effective in
respect of an individual Portfolio Company only, or in respect of the Acquired
PCMM Quota only, then and in such event this Agreement and the Ancillary
Agreements shall be deemed to have been modified and amended in such manner that
all references to the relevant Transaction Company shall be deleted.

       ARTICLE XI - SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS

      11.1 Representations, Warranties and Covenants. The covenants contained in
this Agreement and of any of the Ancillary Agreements shall survive the
applicable Closing Date indefinitely and without limitation except as otherwise
specified therein. The representations and warranties contained in this
Agreement shall survive the applicable Closing Date and continue in full force
and effect for a period of thirty six (36) months (such date upon which they
expire being referred to herein as the "SURVIVAL DATE") and shall thereafter
expire; provided, however, that notwithstanding the foregoing (i) the
representations and

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warranties of Vendors relating to Tax matters (including in Section 4.16) shall
survive until the date which is sixty (60) days following the expiration of the
applicable statute of limitations (after giving effect to any extensions or
waivers) and (ii) the representations and warranties of Vendors contained in
Section 4.2 (Authorization) and Section 4.30] (Environment, Health and Safety),
and the representations and warranties of Buyers contained in Section 5.2
(Authorization), shall survive the applicable Closing Date indefinitely and
without limitation. Buyers' right to make a claim for indemnification under
Section 12.1, and Vendors' right to make a claim for indemnification under
Section 12.2, for a breach of any representation or warranty shall be made on or
prior to the date, if any, on which the survival period for such representation
or warranty expires, irrespective as to whether the Damages (as hereinafter in
Section 12.1 defined) may be suffered after the Survival Date. Any claims under
Article XII must be asserted in writing with reasonable particularity by the
party making such claim.

                          ARTICLE XII - INDEMNIFICATION

      12.1 Indemnification by Vendors. Subject to Section 12.5 below, PCE, EUN,
Szeged and PCM-BV, acting jointly and severally, shall defend, indemnify and
hold harmless Purchasers and Segece - or at the discretion of Purchasers and/or
Segece - any of the Contract Companies (and their respective successors, assigns
and Affiliates) (individually, a "BUYERS INDEMNITEE", and collectively, the
"BUYERS INDEMNITEES") from and against and in respect of any and all losses,
damages, deficiencies, liabilities, assessments, judgments, costs and expenses,
including attorneys' fees (both those incurred in connection with the defense or
prosecution of the indemnifiable claim and those incurred in connection with the
enforcement of this provision) (collectively, "DAMAGES") suffered or incurred by
any Buyers Indemnitee which is caused by, resulting from or arising out of,
related to, in the nature of:

            (a) any breach of any representation or warranty of any of the
Vendors contained in this Agreement or in any Ancillary Agreement, or other
agreement, certificate, instrument or other document entered into or delivered
by Vendors in connection herewith;

            (b) any breach of any covenant of any of the Vendors contained in
this Agreement or in any Ancillary Agreement, or other agreement, certificate,
instrument or other document entered into or delivered by Vendors in connection
herewith;

            (c) Taxes chargeable to or asserted against the Contract Companies
in terms of a final assessment and/or enforceable judgment in respect of the
period preceding the Reference Date, but only to the extent that such Taxes
exceed the amount, if any, reserved for such Taxes (excluding any reserve for
deferred Taxes established to reflect timing differences between book and Tax
income) on the face of the Final Definitive Closing Account (rather than in any
notes thereto); and Taxes imposed in respect of the Excluded Asset;

            (d) any additional Tax liabilities assessed, and related sanctions
such as fines, penalties and late payment interest) regarding any type of Tax
imposed by the statutory Tax Authorities directly or indirectly related to the
fiscal years prior to the Reference Date which are directly or indirectly
attributable to the acts, deeds and omissions of the Vendors;

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            (e) any additional Tax liability related to the implementation of
the Post Closing Merger Procedures referred to in Section 8.1 above (including
any Damage related to any delay, challenge, or impediment regarding any of the
Post Closing Mergers;

            (f) any additional Tax liabilities assessed, and related sanctions
(such as penalties and late payment interest) regarding any type of Tax imposed
or assessed by the statutory Tax Authorities directly or indirectly related to
the fiscal years in respect of which review has been partial, not definitive
and/or impossible due to the lack of documentation provided or made available by
the Vendors;

            (g) the execution, the performance and/or the termination of any of
the Mandate Agreements, as referred to in Section 8.5(f) above, in respect of
the four head - office Employees of PCMM only and to the extent only that
increased costs associated with such Mandate Agreements have not been taken into
consideration in the determination of the PCMM Shares Value; and, any tax
liabilities in connection with all Mandate Agreements;

            (h) any of the Proceedings set forth in the Proceedings Schedule
(SCHEDULE 4.26) and/or any environmental Damage related to the potential risks
set forth in SCHEDULE 4.30(C) under a final and enforceable judgment or Order ;

            (i) any dysfunction or improper use of the electricity meter in the
Alba Plaza Portfolio Center prior to the Closing Date, and in particular any
claim that may be initiated by the electricity supplier of such center arising
therefrom;

            (j) any Damages which will be suffered by Purchasers in the event
that the tax authorities decide to re-assess the depreciation policies
pertaining to the accumulated carry forward losses of CSPL 2002 Kft. and/or
Debrecen 2002 Kft., as contemplated in Section 8.2, notwithstanding that the
applications made in terms of Section 8.2 above were approved; and

            (k) Any Damage which will be suffered by Purchasers in respect of
and/or arising out of encumbrances (including a mortgage) registered in favour
of K&H Bank against the ownership interests of Csepel Plaza Kft. in and to the
Csepel Plaza Portfolio Center as reflected in the Land Registry Extract for
Csepel Plaza Portfolio Center which is attached as an exhibit to the Property
Schedule, (in respect of which applications for termination have been submitted
but have not yet been registered).

      12.2 Indemnification by Buyers. Subject to Section 12.5, the Klepierre and
the Buyers agree jointly and severally to defend, indemnify and hold harmless
PCE, EUN, Szeged and PCM-BV and their respective successors, assigns and
Affiliates (individually, a "VENDORS INDEMNITEE", and collectively, the "VENDORS
INDEMNITEES") from and against and in respect of any and all Damages suffered or
incurred by any Vendors Indemnitee which is caused by, resulting from or arising
out relating to, in the nature of:

            (a) any breach of any representation and warranty of Buyers
contained in this Agreement, or in any Ancillary Agreement, or other agreement,
certificate, instrument or other document entered into or delivered by any of
Klepierre and/or, the Purchasers and/or Segece in connection herewith;

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<PAGE>
            (b) any breach of any covenant of any of the Buyers and Klepierre
contained in this Agreement or in any Ancillary Agreement, or other agreement,
certificate, instrument or other document entered into or delivered by Vendors
and Klepierre in connection herewith; and

            (c) any Damage which may be suffered by Vendors by reason of the
failure of Purchasers to fulfill their undertakings made in terms of Section
2.3(b) above.

      12.3  Notice and Opportunity to Defend.

            (a) If any action, proceeding, claim, liability, demand or
assessment shall be asserted by a third party against any Buyers Indemnitee or
any Vendors Indemnitee (the "INDEMNITEE") with respect to any matter (a "THIRD
PARTY CLAIM") in respect of which such Indemnitee proposes to demand
indemnification in terms of this Article XII, such Indemnitee shall notify the
party obligated to provide indemnification pursuant to Section 12.1 or Section
12.2 (the "INDEMNIFYING PARTY") thereof within a reasonable period of time after
assertion thereof; provided, however, that the failure to so notify the
Indemnifying Party shall not affect the Indemnitee's right to indemnification
hereunder unless (and solely to the extent) the Indemnifying Party's interests
are actually and materially prejudiced thereby. Subject to rights of or duties
to any insurer or other third Person having liability therefor, the Indemnifying
Party shall have the right, within ten (10) days after receipt of such notice,
to defend the Indemnitee against the Third Party Claim with counsel of its
choice reasonably satisfactory to the Indemnitee; provided, however, that the
Indemnifying Party notifies the Indemnitee in writing within 15 days after the
Indemnitee has given notice of the Third Party Claim that the Indemnifying Party
will indemnify the Indemnitee from and against the entirety of any damage the
Indemnitee may suffer resulting from, arising out of, relating to, in the nature
of, or caused by the Third Party Claim, and provided further that the
Indemnifying Party may not assume such control without Indemnitee's express
written consent if : (i) the Third Party Claim does not involve only money
damages but also seeks an injunction or other equitable relief; or (ii)
settlement of, or an adverse judgment with respect to, the Third Party Claim is,
in the good faith judgment of the Indemnitee, likely to establish a precedential
custom or practice materially adverse to the continuing business interests or
the reputation of the Indemnitee. The Indemnifying Party shall conduct the
defense of the Third Party Claim actively and diligently.

            (b) So long as the Indemnifying Party is conducting the defense of
the Third Party Claim in accordance with Section 12.3(a) above, (i) the
Indemnitee may retain separate counsel at its sole cost and expense and
participate in the defense of the Third Party Claim, provided that Indemnitee's
counsel may not oppose the professional decisions of the lead counsel engaged by
the Indemnifying Party except on reasonable grounds; (ii) the Indemnitee will
not consent to the entry of any judgment or enter into any settlement with
respect to the Third Party Claim without the prior written consent of the
Indemnifying Party (not to be withheld unreasonably), and (C) the Indemnifying
Party will not consent to the entry of any judgment or enter into any settlement
with respect to the Third Party Claim without the prior written consent of the
Indemnitee (which may only be withheld in the event that such settlement would
serve to create a precedential custom or practice materially adverse to the
continuing business interests or the reputation of the Indemnitee).

            (c) In the event that Indemnifying Party declines or fails to assume
control of the defense of any Third Party Claim as specified in Section 12.3(a)
above, then and in such event the Indemnitee may defend against, and consent to
the entry of any judgment or enter into any settlement with respect to, the
Third Party Claim in any manner it reasonably may deem appropriate, subject to
the consent of the Indemnifying Party

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which may not be unreasonably withheld or delayed. The Indemnifying Parties will
reimburse the Indemnitee promptly and periodically for the costs of defending
against the Third Party Claim (including attorneys' fees and expenses), and will
remain responsible for any Damage the Indemnitee may suffer resulting from,
arising out of, relating to, in the nature of, or caused by the Third Party
Claim in accordance with the provisions of this Article XII.

      12.4 Remedies. Except for the right to seek to specifically enforce the
covenants hereunder, and except as specifically provided in this Agreement
(including, without limitation, the immediately succeeding sentence), following
the Closing Date, in the absence of fraud or willful breach of this Agreement,
the sole and exclusive remedy of the Buyers (or, at the discretion of
Purchasers, the Contract Companies) and Vendors with respect to any breach of
any representation or warranty contained in this Agreement, or in any agreement,
certificate, instrument or other document entered into in connection herewith,
shall be restricted to the indemnification rights set forth in this Article XII.
Nothing contained in this Article XII or elsewhere in this Agreement shall limit
the liability of any Party under this Agreement if this Agreement is terminated
pursuant to Section 13.1 or otherwise, or if the transactions contemplated
hereby shall not be consummated for any reason.

      12.5  Certain Limitations.  The liability of the Vendors or Buyers, as
applicable, for claims under this Agreement shall be limited by the following:

            (a) At any time after the Survival Date, (i) the Vendors shall have
no further obligations under this Article XII for breaches of representations
and warranties of the Vendors, except for Damages with respect to which the
Buyers Indemnitee has given the Vendor written notice prior to such date in
accordance with Section 12.3 above; and (ii) the Buyers shall have no further
obligations under this Article XII for breaches of representations and
warranties of the Buyers, except for Damages with respect to which the Vendors
Indemnitee has given the Buyers written notice prior to such date in accordance
with Section 12.3.

            (b) Notwithstanding anything to the contrary herein, Buyers
Indemnitees shall not be entitled to recover Damages from Vendors pursuant to
Section 12.1(a) unless and until the accumulated aggregate amount of Damages
shall exceed an amount which is the equivalent of E 150,000 (the "VENDOR
INDEMNIFICATION THRESHOLD"); provided, however, that at such time as the
aggregate amount of Damages in respect of the indemnity obligations of Vendors
shall exceed the Vendors Indemnification Threshold, Vendors shall thereafter
indemnify any of the Buyers Indemnitees from all and against all Damage in
excess of equivalent E 10,000.

            (c) Notwithstanding anything to the contrary herein, in the absence
of fraud or willful breach of this Agreement (for which there shall be no
limitation), in no event shall the maximum aggregate liability of Vendors in
respect of any claims by the Buyers Indemnitees against Vendors pursuant to
Section 12.1(a) for Damages suffered or incurred by any Buyers Indemnitee exceed
the maximum amount of E 100,000,000.

            (d) Notwithstanding anything to the contrary contained herein, any
claim for indemnity made by any Buyer Indemnitee relating to Taxes is subject to
the condition that : (i) Purchasers and/or the Contract Companies shall
authorize and permit the tax advisers of Vendors at Vendors' sole cost and
expense to conduct, direct and process all dealings with the Tax Authorities in
respect of all matters and/or all fiscal years and/or all assessments pertaining
to the period prior to the Reference Date, in close co-operation with

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the accountants and tax advisers of the Purchasers and the Contract Companies,
provided that neither the Vendors nor their tax advisers shall enter into any
settlement or take any action before the courts, or otherwise compromise any tax
matter that affects or may affect the tax liabilities of Buyers or any of the
Contract Companies, without the prior written consent of the Buyers, which
consent shall not be unreasonably withheld or delayed; and (ii) with respect of
claims which are not based upon a breach of Vendors' representations and
warranties given under Section 4.16 above, the Tax Liability in respect of which
the claim for indemnity is made (including penalties and late payment interest)
does not result from a change adopted by Purchasers and/or the Contract
Companies in the accounting and/or tax policies of the Contract Companies which
has, directly or indirectly, retroactive effect to the period preceding the
Reference Date.

            (e) Notwithstanding anything to the contrary herein, the limitations
contained in Section 12.5 (b) shall not apply to claims for indemnification by
Buyers Indemnitees against Vendors in respect of : (i) the indemnities specified
in Section 12.1(b), (c), (d), (e) and (f) above; and (ii) the special
indemnities specified in Section 12.6 below.

            (f) Notwithstanding anything to the contrary herein, Vendor
Indemnitees may not shall not be entitled to recover Damages from Buyers unless
and until the accumulated aggregate amount of Damages shall exceed an amount
which is the equivalent of E 150,000 (the "BUYER INDEMNIFICATION THRESHOLD");
provided, however, that at such time as the aggregate amount of Damages in
respect of the indemnity obligations of Buyers shall exceed the Buyers
Indemnification Threshold, Buyers shall thereafter indemnify any of the Vendor
Indemnitees from all and against all Damage in excess of equivalent E 10,000.

            (g) Notwithstanding anything to the contrary herein, the limitations
contained in this Section 12.5(f) shall not apply to claims for indemnification
by Vendors Indemnitees against Buyers in respect of: (i) the indemnities
specified in Section 12.2(b); and (ii) all and any Damages which may be
suffered by the Excluded Centers Companies in consequence of the exercise by the
Financing Banks of any cross collateralization rights by reason of an Event of
Default caused by Buyers under the Assumed Financing Loans, as contemplated in
2.3(b) above.

            (h) Notwithstanding anything to the contrary herein, in no event
shall the maximum aggregate liability of Buyers in respect of any claims by the
Vendors Indemnitees against Buyers pursuant to Section 12.2 for Damages suffered
or incurred by any Vendors Indemnitees exceed E 100,000,000.

      12.6 Special Indemnities. Notwithstanding the provisions of Section
12.5(b) above, Vendors have agreed to provide Buyers with the special
indemnities set forth hereunder. The special indemnities provided in terms of
this Section 12.6 shall be in respect of all Damages suffered by Buyers'
Indemnitees and shall be exempt from the Vendor Indemnification Threshhold and
from the limitations provided for in Section 12.5(b) and (c) above.

            (a) Szeged Land Use Extension. In the event that Vendors shall have
failed to obtain the extension of the Land Use rights as contemplated in
Section3.6(a) above by a date 6 (six) months following the Closing Date, then
and in such event PCE and/or EUN shall indemnify Buyers by payment to Purchasers
as a price reduction in respect of the acquisition of the Equity Rights in
Szeged Plaza Kft., in the amount of E300,000 (three hundred thousand Euro),
which the Parties agree represents a fair, equitable and reasonable compensation
for any possible loss of value of the Szeged Plaza Portfolio Center consequent
upon failure to extend the land use rights as aforesaid

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            (b) Surface Area Adjustments (Duna Plaza and Gyor Plaza). Without
derogating from the provisions of Section 3.6(b) above, and in addition thereto,
PCE and/or EUN hereby agree to indemnify KLPH and/or LP7 and/or Duna Plaza Rt.
and/or Gyor Plaza Kft. against any Damage which may be suffered Duna Plaza Rt.
as a result of claims submitted by any of the tenants of the Duna Plaza
Portfolio Center or the Gyor Plaza Portfolio Center by reason of the fact that
the actual surface areas of the units leased by them is less than the surface
areas for which they have been invoiced and for which they have actually paid
rentals. The indemnity provided in terms hereof shall: (i) be for the amount
determined in a final and enforceable judgment as being the amount by which the
tenant has been overcharged for rental payments by reason of the discrepancy
between the actual surface area and the billed surface area; (ii) expire on the
date of expiry of the then current longest running lease agreement as at the
Reference Date (excluding any extensions of that lease agreement which may be
agreed upon)

                           ARTICLE XIII - TERMINATION

      13.1  Termination of the Agreement.  The Parties may terminate this
Agreement as provided below:

            (a)   Any Party may terminate this Agreement by mutual written
consent of all the Parties at any time prior to the Closing;

            (b)   Any Party may terminate this Agreement by written notice if:

                  (i) the Closing has not occurred by November 30th, 2004];
provided, however, that the right to terminate this Agreement under this Section
13.1(b)(i) shall not be available to any Party whose action or failure to act
has been a principal cause of or resulted in the failure of the Closing to occur
on or before such date and such action or failure to act constitutes a breach of
this Agreement;

                  (ii) there shall be a final non-appealable order of a court of
competent jurisdiction in effect preventing consummation of the Transactions
contemplated by this Agreement or

                  (iii) there shall be any statute, rule, regulation or order
enacted, promulgated or issued or deemed applicable to the Transactions
contemplated by this Agreement by any Governmental Body that would make
consummation of the transactions contemplated by this Agreement illegal;

            (c) Purchasers and Segece may terminate this Agreement by written
notice if they are not in material breach of their obligations under this
Agreement and there has been a material breach of any covenant, undertaking,
obligation or agreement contained in this Agreement on the part of Vendors or
either

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of them and such breach has not been cured within thirty (30) calendar days
after written notice to Vendors; provided, however, that, no cure period shall
be required for a breach which by its nature cannot be cured;

            (d) PCE, EUN and PCM-BV may terminate this Agreement by written
notice if they are not in material breach of their obligations under this
Agreement and there has been a material breach of any covenant, undertaking,
obligation or agreement contained in this Agreement on the part of Buyers and
such breach has not been cured within thirty (30) calendar days after written
notice to Buyers; provided, however, that no cure period shall be required for a
breach which by its nature cannot be cured; and

            (e) For the purposes of this Section 13.1, a breach of this
Agreement shall be deemed to be material if its goes to the root of this
Agreement and/or may reasonably be deemed to substantially frustrate the purpose
and intent of the Parties hereto.

      13.2 Effect of Termination. If any Party terminates this Agreement
pursuant to Section 13.1 above, all rights and obligations of the Parties
hereunder shall terminate without derogating from any liability of any Party to
any other Party; provided that the provisions contained in Section 9.1
(Confidentiality) and Section 14 (Miscellaneous) shall survive termination.

      13.3 Entire Transaction. The Parties acknowledge that the acquisition of
the Duna Plaza Portfolio Center is a material and essential condition for
Purchasers in respect of the entire Transaction. The termination of the
Transaction in respect of the Duna Plaza Portfolio Center shall constitute
sufficient cause for the termination of the Transaction in its entirety.

                           ARTICLE XIV - MISCELLANEOUS

      14.1 Press Releases and Public Announcements. No Party shall issue any
press release or make any public announcement relating to the subject matter of
this Agreement prior to the Closing without the prior written approval of the
other Party; provided, however, that (a) Purchasers and EMI may make any public
disclosure they believe in good faith is required by applicable law or any
listing or trading agreement concerning their respective publicly-traded
securities (in which case Purchasers will use their reasonable efforts to advise
PCE and EMI prior to making the disclosure, and visa versa) and (b) the Parties
may correspond with third parties in writing with respect to obtaining the
Transaction Approvals.

      14.2 Governing Law. This Agreement shall be governed by and construed in
accordance with Dutch Law, without regard to conflicts of laws or the choice of
law principles of any jurisdiction including The Netherlands, and without the
need of any Party to establish the reasonableness of the relationship between
Dutch Law and the subject matter of this Agreement, and all questions concerning
the validity and construction hereof shall be determined in accordance with
Dutch Law. However, it is specified that the transfer of ownership of the quotas
and shares in the Acquired Companies and the transfer or assignment of

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<PAGE>
the Assigned Shareholder Loans, where relevant, shall be executed in compliance
with applicable Hungarian Law.

      14.3  Dispute Resolution.

            (a) For any dispute, difference or claim arising out of or relating
to this Agreement or the Ancillary Agreements (other than as set forth in
Section 14.3(c) below), the Parties shall first attempt in good faith to
negotiate a written resolution of such dispute or claim within a period not to
exceed fifteen (15) days from the date of receipt of a Party's request for such
negotiations ("DATE OF REQUEST"). Such negotiations shall be conducted by senior
executives of Purchasers and PCE. In the event that Purchasers and PCE fail to
reach a written resolution within such fifteen (15) days from the Date of
Request, or other period of time agreed upon by the Parties in writing, either
Purchasers or PCE may seek to resolve the dispute or claim by arbitration in
accordance with the procedures set forth in Section 14.3(b) of this Agreement.

            (b) Subject to Section 14.3(a) above and other than as set forth in
Section 14.3(c) below, any dispute, difference or claim between the Parties with
regard to this Agreement or the Ancillary Agreements, its performance,
interpretation, application or validity, shall be solely referred for
arbitration before a tribunal of three arbitrators in accordance with the Rules
of Arbitration then in force of the Court of Arbitration of the International
Chamber of Commerce (ICC) headquartered in Paris, France (the "RULES"). Each of
Buyers and Vendors will be entitled to appoint a Party Appointed Arbitrator,
while the third arbitrator, who shall act as Chairman of the Tribunal, shall be
appointed by mutual agreement between the two Party Appointed Arbitrators, or
failing agreement between them, by the President for the time being of the Court
of Arbitration of the ICC. (the "TRIBUNAL"). Purchasers and Segece shall be
considered as the same party, and PCE, EUN and PCM-BV shall be considered as the
same party, for the purpose of the appointment of the Party Appointed
Arbitrators in terms of this section. For the purposes of this Section : (i)
PCE, EUN, PCM-BV and Szeged shall be considered as one party for the purpose of
the appointment of a party appointed arbitrator; and (ii) Klepierre, KLPH, LP7
and Segece shall be considered as one party for the purpose of the nomination of
a party appointed arbitrator in terms hereof.

            (c) The arbitration shall be conducted in Amsterdam, The
Netherlands, or at such other venue as shall be agreed upon between the Parties
or failing such agreement as determined by the Tribunal. The arbitration
proceedings shall be conducted in the English language on a continuous basis on
consecutive working days until completed, to the greatest extent possible.

            (d) The Tribunal will be bound solely by the substantive Dutch Law
and the terms of this Agreement (save in those instances where Hungarian Law is
applicable as specified in Section 14.2 above. However the Tribunal may, but
only with the prior consent of the adjudicating Parties, act as amicable
compositeurs.

            (e) Upon request by either Party, the Tribunal may order the Parties
to conduct Party and non-party oral depositions of witnesses outside the
presence of the Tribunal, which shall be recorded by a stenographer. The
Tribunal shall issue a written determination setting forth with particularity
its findings of fact and conclusions of law. The decision of the Tribunal shall
be final and binding upon the Parties and shall be subject to judicial review
solely in accordance with the provisions of Dutch Law.

                                       72
<PAGE>
            (f) The Tribunal shall be competent to grant interim relief by way
of injunctions at the request of the Parties. Notwithstanding the foregoing,
either party shall be entitled to apply to a court of competent jurisdiction to
obtain temporary injunctive or other ancillary relief in aid of arbitration
hereunder.

            (g) The fees and expenses of the Tribunal shall be borne as
determined in the Arbitral Award, provided that interim payments made on account
shall be borne by the Parties in equal shares.

            (h) The provisions of this Section 14.3 shall not apply to disputes
and claims before the Closing Expert under Section 3.6 above.

            (i) If any dispute submitted to arbitration involves claims by or
against a Party against or by a third party, and such third party cannot be made
a party to such arbitration, the Tribunal shall be empowered to take such
actions as it deems just and equitable in order to avoid prejudice to the
Parties by reason of the inability of the Tribunal to adjudicate such third
party claims, including without limitation, if the Tribunal so determines,
conditioning its award upon the outcome of the third party or staying the
arbitration pending the outcome of the third party claims.

            (j) This Section 14.3 constitutes a separate agreement to arbitrate
which shall survive the termination of this Agreement for any reason.

      14.4  Perfection of Schedules.  All schedules referred to in this
Agreement shall be furnished on the Execution Date.

      14.5 No Third-Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and the Contract
Companies as contemplated in Section 12.1 above, and their respective successors
and permitted assigns, other than as specifically set forth herein.

      14.6 Entire Agreement and Modification. This Agreement (including the
exhibits and schedules hereto) constitutes the entire agreement among the
Parties with respect to the subject matter hereof and supersedes any prior
understandings, agreements, warranties or representations by or among the
Parties, written or oral, to the extent they related in any way to the subject
matter hereof, including specifically the Heads of Terms. This Agreement may not
be amended except by a written agreement executed by all Parties.

      14.7 Amendment. At any time prior to the Closing, this Agreement may be
amended by the Parties hereto at any time by execution of an instrument in
writing signed on behalf of each of the Parties hereto. At any time after the
Closing, this Agreement may be amended by all the Parties by execution of an
instrument in writing.

      14.8 Waivers. The rights and remedies of the Parties to this Agreement are
cumulative and not alternative. Neither the failure nor any delay by any Party
in exercising any right, power or privilege under this Agreement or the
documents referred to in this Agreement will operate as a waiver of such right,
power or privilege, and no single or partial exercise of such right, power, or
privilege will preclude any other or further exercise of such right, power, or
privilege or the exercise of any other right, power, or privilege. To the
maximum extent permitted by applicable law, (i) no claim or right arising out of
this Agreement or the documents referred to in this Agreement can be discharged
by one Party, in whole or in part, by a waiver or renunciation of the claim or
right unless in writing signed by the other Party; (ii) no waiver that may be
given

                                       73
<PAGE>
by a Party will be applicable except in the specific instance for which it is
given; and (iii) no notice to or demand on one Party will be deemed to be a
waiver of any obligation of such Party or of the right of the Party giving such
notice or demand to take further action without notice or demand as provided in
this Agreement or the documents referred to in this Agreement.

      14.9 Successors and Assigns. This Agreement shall inure to the benefit of,
and be binding upon, the Parties hereto and their respective successors and
assigns; provided, however, that no Party shall assign or delegate any of the
obligations created under this Agreement without the prior written consent of
the other Parties. Notwithstanding the foregoing, Purchasers and Segece shall
have the unrestricted right to assign this Agreement and to delegate all or any
part of their obligations hereunder (i) to any direct or indirect Affiliate of
Purchasers; or (ii) to an investment fund which would be controlled or managed
by Klepierre or any of its Affiliates, or the property and asset management of
which shall be entrusted to Klepierre or its Affiliate; provided that in such
events Purchasers shall remain fully liable for the performance of all of such
obligations in the manner prescribed in this Agreement. Nothing in this
Agreement shall confer upon any person or entity not a party to this Agreement,
or the legal representatives of such person or entity, any rights or remedies of
any nature or kind whatsoever under or by reason of this Agreement.

      14.10 Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original but all of which together will constitute
one and the same instrument.

      14.11 Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.

      14.12 Notices.

            (a) Any notice, approval, request, authorization or other
communication under this Agreement shall be given in writing and in English
language ("NOTICE"). Any Notice must be made by personal remittance, by fax
(followed by a copy sent the same day or the following Business day by
registered letter with acknowledgment of receipt) or by prepaid international
express mail with acknowledgment of receipt and shall be deemed to have been
delivered (i) on the date of the personal remittance as certified by the
receipt, in the case of personal service; (ii) on the Business Day following the
date of sending the fax (with confirmatory copy of the mail) in the case of a
transmission by fax (the date set out on the acknowledgment of transmission
indicating the date of sending); or (iii) the date of receipt in the event of
sending by international express mail.

            (b) The relevant addresses and fax numbers of each Party for the
purpose of these Heads of Terms are as follows:

            PCE, EUN, Szeged and PCM-BV:

                  239 Keizersgracht,
                  EA1016 Amsterdam,
                  The Netherlands.
                  Tel: 31-20-3449560
                  Fax: 31-20-3449561
                  For the attention of Mr. Luc Ronsmans

                                       74
<PAGE>
                  With a copy to:
                  59 Andrassy Blvd.,
                  Budapest,
                  Hungary
                  Tel: 36-1-4627112
                  Fax: 36-1-4627201
                  For the attention of Mr. Zvi Bochman.

            Klepierre,KLPH and LP7 ::

                  21 Avenue Kleber,
                  75116 Paris,
                  France
                  Tel: (33-1) 40 67 57 06
                  Fax: (33-1) 40 67 40 31
                  For the attention of Ms. Marie-Therese DIMASI.

            Segece:

                   21 Avenue Kleber,
                   75116 Paris
                   France
                   Tel: (33) 1 40 67 53 55
                   Fax: (33-1) 40 67 36 79
                   For the attention of Mr. Dominique BEGHIN,

            (c) By written Notice sent as indicated above, the Parties may
specify a new address or a supplementary address to which notification or
communications should be sent subsequently or to any address that a Party shall
notify in writing at any time, with at least ten (10) days' advance written
notice.

      14.13 Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.

      14.14 Expenses. Subject to the provisions of this Agreement, each Party
will bear its own costs and expenses (including legal and accounting fees and
expenses) incurred in connection with this Agreement and the transactions
contemplated hereby. All notarial fees and other costs (excluding taxes) which
may be incurred in connection with: (I) the transfer of the quotas and shares in
the Holding Companies and the

                                       75
<PAGE>
Acquired Property Companies - shall be borne equally by PCE and EUN, on the
first hand, and Purchasers and the second hands; and (II) the transfer of 50% of
the outstanding shares in the Management Company - shall be borne equally by
Segece and PCM-BV.

      14.15 Construction.

            (a) The Parties have participated jointly in the negotiation and
drafting of this Agreement. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the Parties and no presumption or burden of proof shall arise favoring or
disfavoring any Party by virtue of the authorship of any of the provisions of
this Agreement. Any reference to any federal, state, local, or foreign statute
or law shall be deemed also to refer to all rules and regulations promulgated
thereunder, unless the context requires otherwise. The word "including" shall
mean including without limitation.

            (b) Unless the context requires otherwise, all words used in this
Agreement in the singular number shall extend to and include the plural, all
words in the plural number shall extend to and include the singular, and all
words in any gender shall extend to and include all genders.

      14.16 Attorneys' Fees. If any legal proceeding or other action relating to
this Agreement is brought or otherwise initiated, the prevailing Party shall be
entitled to recover reasonable attorneys fees, costs and disbursements (in
addition to any other relief to which the prevailing Party may be entitled).

      14.17 Further Assurances. The Parties agree (a) to furnish upon request to
each other such further information, (b) to execute and deliver to each other
such other documents, and (c) to do such other acts and things, all as the other
Party may reasonably request for the purpose of carrying out the intent of this
Agreement and the documents referred to in this Agreement.

      14.19 Time of Essence. With regard to all dates and time periods set forth
or referred to in this Agreement, time is of the essence.

      14.20 Schedules and Exhibit. The Schedules and Exhibits described herein
and attached hereto constitute an inseparable part of this Agreement and are
incorporated into this Agreement for all purposes as if fully set forth herein.
Any disclosure made in any Schedule to this Agreement which may be applicable to
another Schedule to this Agreement shall be deemed to be made with respect to
such other Schedule only if a specific cross reference is made thereto.

      14.21 Euro. All currency amounts expressed herein (whether or not preceded
by E) are in the currency of the Euro, unless preceded by HUF, in which case,
the amounts will be in the currency of Hungarian Forints.

      14.22 Language. This Agreement and all documents contemplated hereby or
relating thereto shall be prepared and binding in the English language.

                                       76
<PAGE>
                          THIS SPACE INTENTIONALLY LEFT BLANK

      ]

                                       77
<PAGE>
      IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on of
the date first above written.

      KLEPIERRE:                          KLEPIERRE SA

                                          By:
                                              --------------------

                                          Name: Mr. Dominique BEGHIN

                                          Title: Under Power of Attorney

                                          Date : July 30th, 2004

      KLPH :                              KLEPIERRE HONGERIE SAS

                                          By:
                                              --------------------

                                          Name: Mr. Dominique BEGHIN

                                          Title: Under Power of Attorney

                                          Date : July 30th, 2004

      LP7  :                              LP7  SAS

                                          By:
                                              --------------------

                                          Name: Mr. Dominique BEGHIN

                                          Title: Under Power of Attorney

                                          Date : July 30th, 2004
<PAGE>
      SEGECE:                             SEGECE

                                          By:
                                              --------------------

                                          Name: Mr. Dominique BEGHIN

                                          Title: Under Power of Attorney

                                          Date : July 30th, 2004

      PCE:                                PLAZA CENTERS (EUROPE) BV

                                          By:
                                              ----------------------

                                          Name: Zvi Bochman

                                          Title: President and CEO

                                          Date:  July 30th, 2004

      EUN:                                ELBIT ULTRASOUND

                                          NETHERLANDS BV

                                          By:
                                              ---------------------

                                          Name: Mr. Zvi Bochman

                                          Title: Under Power of Attorney

                                          Date: July 30th, 2004

                                       2
<PAGE>
      PCM-BV:                             PLAZA CENTERS MANAGEMENT BV

                                          By:
                                              ------------------------------

                                          Name: Mr. Zvi Bochman

                                          Title: Member of the Management Board

                                          Date:  July 30th, 2004

      SZEGED:                             SZEGED 2002 KFT.

                                          By:
                                              -------------------

                                          Name: Mr. Ran Starkman

                                          Title:  Under Power of Attorney

                                          Date:  July 30th, 2004

                                       3

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