Document:

exv10w1

 

EXHIBIT 10.1

SEPARATION AGREEMENT

     THIS
SEPARATION AGREEMENT, dated April 14, 2005 (the “Agreement”), is entered into by
and between Trizec Properties, Inc., a Delaware corporation (the “Company”), and Michael J.
Escalante (the “Executive”). The “Effective Date” of this Agreement shall be the
day after the Revocation Period (as defined below) expires. However, if the Executive revokes this
Agreement during the Revocation Period, this Agreement shall not become effective and none of its
terms will be binding on or enforceable by any party.

     WHEREAS, the Executive has resigned as an employee and officer of the Company and of certain
of the Company’s affiliates; and

     WHEREAS, except as otherwise set forth herein, the parties intend that this Agreement shall
set forth the terms of the Executive’s separation from the Company and that this Agreement shall
supersede all prior agreements between the parties regarding the subject matter contained herein;

     NOW, THEREFORE, in consideration of the covenants and agreements hereinafter set forth in this
Agreement, the parties hereto hereby agree as follows:

     1. Resignation. Effective as of the close of business on March 2, 2005 (the
“Resignation Date”), the Executive resigned from his position as Executive Vice President,
Portfolio Management & Capital Transactions, and from all other positions, offices, and
directorships with the Company and any of its subsidiaries and affiliates (collectively, the
“Company Group”), and will execute such other documentation requested by the Company to
evidence said resignations.

     2. Severance Payments and Benefits. In consideration of the covenants set forth
herein and the waiver and release of claims set forth below, and provided that the Executive signs
this Agreement and does not revoke this Agreement during the Revocation Period, the Company shall
provide the Executive with the following Severance Payments and benefits:

     (a) Severance Payments. The Company shall pay the Executive a cash severance
in an aggregate amount equal to $835,000.00. Of this total, (i) $420,000.00 shall be
payable to the Executive within three business days following the expiration of the
Revocation Period; (ii) $223,333.33 shall be payable to Executive in 16 equal installments
(with the first installment accruing as of March 18, 2005) to be paid on the Company’s
regular bi-weekly payroll schedule (the “Salary Continuation”), provided,
however, that no such Salary Continuation installment payment shall be due until the
regular payroll date that occurs at least three business days after the Revocation Period
expires; and (iii) the remainder ($191,666.67) shall be payable to Executive in a lump sum
within three business days following the last installment payment of the Salary
Continuation.

     (b) Treatment of Equity-Based Compensation. Exhibit A sets forth a
list of all Stock Options, Restricted Stock Units and Restricted Stock Rights that have been
granted to the Executive and have vested as of the Resignation Date pursuant to the
Company’s incentive plans and bonuses. The Executive will have 3 months from the
Resignation

 

 

Date to exercise all options that have vested as of that date. The Executive’s
participation in the 2002 Long Term Incentive Plan (Amended and Restated Effective May 29,
2003, as amended) (the “LTIP”) and the 2004 Long Term Outperformance Compensation Program
under the LTIP (the “Compensation Program”) shall terminate as of the Resignation Date.
Unvested Stock Options, Restricted Stock Units and Restricted Stock Rights granted pursuant
to the LTIP, the Compensation Program, or any other plan or program shall terminate and are
canceled as of the Resignation Date.

     (c) Continuation of Health Insurance. The Company shall continue to cover the
Executive under the Company’s group health and dental insurance plans as if the Executive
were employed on a full-time basis to the extent that such coverage is provided to the
Company’s executives on the terms applicable to such executives until the earlier of (i) the
date of the sixteenth Salary Continuation installment payment; or (ii) the date on which the
Executive becomes eligible to participate in another group health plan (and any applicable
waiting period for such participation has expired). The Executive agrees to promptly notify
the Company in writing in the event that the Executive becomes eligible for coverage under
another group health plan. The Executive shall continue to be obligated to pay his share of
premiums, deductibles, and co-payments as in effect from time to time with respect to the
Company’s executives. The Company shall deduct the Executive’s portion of the monthly
premiums from the Salary Continuation payments made to Executive pursuant to Section
2(a)(ii), above. The parties hereto acknowledge and agree that the Executive’s loss of
coverage on April 1, 2005, due to his resignation, shall constitute a “qualifying event” for
purposes of the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”),
including the provisions of Section 4980B(f) of the Internal Revenue Code of 1986, as
amended, and that following the period described in this Section 2(c), the Company shall
continue to facilitate continuation coverage in compliance with and to the extent required
by COBRA and applicable state law.

     (d) Out-Placement Services. The Executive shall be entitled to receive
outplacement counseling services from Lee Hecht Harrison in Pasadena, California, and the
Company will pay the cost of such services up to a maximum of $10,000. The Company’s
payment shall be made directly to Lee Hecht Harrison upon the Company’s receipt of
appropriate invoices for such services.

     (e) 401(k) Plan and ESPP. The Executive’s participation in the Trizec
Properties, Inc. 401(k) Plan (the “Retirement Plan”) and the Trizec Properties, Inc.
Employee Stock Purchase Plan (“ESPP”) shall terminate on the Resignation Date. The
Executive’s rights and obligations under the Retirement Plan and the ESPP shall be governed
by applicable law and the respective terms and conditions of the Retirement Plan and the
ESPP, as applicable. The Executive may obtain a current statement of the Executive’s
account balance in the Retirement Plan by calling New York Life Benefits Complete at (800)
294-3575.

     (f) Deferred Compensation Plan. Salary and/or incentive compensation deferrals
into the Trizec Properties, Inc. Deferred Compensation Plan shall terminate on the
Resignation Date. Distributions of the Executive’s account balance are paid out in either

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annual installments or in a lump sum (depending on the Executive’s previous election)
as soon as practicable following the Effective Date, in accordance with the applicable plan
or agreement. All distributions are treated as “ordinary income” subject to federal and
state tax at the time of distribution. The Executive may obtain the Executive’s account
balance by calling Aon Executive Benefits at (800) 341-4413 or by checking the website at
www.deferralselect.com.

     (g) Salary, Accrued Vacation. Executive acknowledges and agrees that the
Company has paid him everything to which he is entitled by virtue of his employment with the
Company, including all salary, bonuses, and compensation for accrued but unused vacation.

     (h) Continued Indemnification. The Executive shall continue to be indemnified
(including entitlement to a defense by attorneys retained and paid by the Company) to the
fullest extent permitted under applicable law and pursuant to the corporate governance
documents of the Company (or of the relevant member of the Company Group) in accordance with
their terms as in effect from time to time for actions and omissions by the Executive
occurring during his tenure as an officer of any member of the Company Group. The Company
agrees that for purposes of this Section 2(h), it (or any member of the Company Group, as
the case may be) shall interpret and/or apply any provision of applicable law or any
corporate governance document relating to indemnification (including advancement of
expenses) with respect to the Executive in a manner consistent with the way in which such
provisions are interpreted and applied by the Company (or the relevant member of the Company
Group) to then active executives of the Company (or of the relevant member of the Company
Group). To the extent permitted under the applicable policies, the Executive shall continue
to be covered under the Company’s directors and officers liability insurance policies in
effect from time to time to the same extent he would have been covered if he had been
employed when the claim was made. The Executive agrees to promptly notify the Company of
any claims made against the Executive in his capacity as a former officer or employee of the
Company or of any other member of the Company Group.

     (i) Business Opportunity. The Executive shall be free to pursue the purchase
of the Aon Building, 707 Wilshire Boulevard, Los Angeles, California, but only to the extent
that Executive can do so without breaching his obligations of confidentiality and
non-disparagement, as set forth in Section 6, below, and in accordance with all the laws
concerning trade secrets. Other than as set forth herein, the Company waives any claim it
may have to prevent Executive from pursuing this project, including a usurpation of business
opportunity claim.

     (j) No Other Compensation or Benefits. Except as otherwise specifically
provided herein or as required by applicable law, the Executive shall not be entitled to any
compensation or benefits or to participate in any past, present or future employee benefit
programs or arrangements of any member of the Company Group (including, without limitation,
any compensation or benefits under any severance plan, program or arrangement) after
February 25, 2005.

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     (k) No Known Claims. The Company acknowledges that, as of the date first
written above (on page 1 of the Agreement), it knows of no claims it may have against
Executive.

     3. Return of Property. Executive warrants and represents that he has surrendered to
the Company all property of the Company Group in the Executive’s possession and all property made
available to the Executive in connection with his employment by the Company, including, without
limitation, any and all Company credit cards, keys, security access codes, records, manuals,
customer lists, notebooks, Blackberry handheld devices, cellular telephones, computers, computer
programs and files, papers, electronically stored information and documents kept or made by the
Executive in connection with his employment, provided, however, that the Executive
may keep the compact disc (and all the materials on it) that the Company sent to the Executive
after February 25, 2005, and any minor, generic office supply items he may possess.

     4. Cooperation. From and after the Effective Date, the Executive shall cooperate in
all reasonable respects with the Company Group and its respective directors, officers, attorneys
and experts in connection with the conduct of any action, proceeding, investigation, or litigation
involving any member of the Company Group, including any such action, proceeding, investigation, or
litigation in which the Executive is called to testify. In addition, the Executive shall cooperate
in all reasonable respects with the Company Group in connection with executing minutes and other
corporate documents relating to his period of service as an officer of any member of the Company
Group. The Executive shall be reimbursed for all expenses properly incurred by him in connection
with the cooperation described in this Section 4 in accordance with Company policy. The Company
and Executive agree that the Executive’s obligations pursuant to this Section 4 shall be reasonable
in scope and duration and shall be reasonably accommodated to the Executive’s schedule and other
business commitments.

     5. Reference; Confidentiality of this Agreement.

     (a) Neutral Letter of Reference; Inquiries. The Company shall provide the
Executive, and any prospective employer that so requests, with written confirmation of the
dates the Executive was employed by the Company and the positions the Executive held during
the period. Executive and the Company agree that all requests for a reference regarding the
Executive shall be directed to the Company’s Chief Executive Officer, Timothy H. Callahan,
for response.

     (b) Confidentiality of this Agreement. The parties agree that the terms of
this Agreement (other than the fact of the Executive’s separation of employment from the
Company and the date thereof) are confidential and Executive agrees that neither he nor
anyone on his behalf may transmit the Agreement or disclose the substance of any term of
this Agreement to any person other than the Executive’s attorneys, financial or tax
advisors, accountants and spouse. Executive further agrees that he shall instruct his
attorneys, financial or tax advisors, accountants and spouse not to disclose such terms to
any other person. Notwithstanding anything herein to the contrary, the Executive and the

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Executive’s attorneys may consult any tax advisor regarding the tax treatment and tax
structure of this severance arrangement.

     (c) Permitted Disclosure. The provisions of this Section 5 shall not preclude
a party from: (i) providing any information required by law, (ii) disclosing any
information necessary to prepare a defense of any claim, or (iii) responding to any
statement made by the other party hereto in contravention of this Section 5. In addition,
the Executive and the Company expressly acknowledge and agree that the Company shall file a
Form 8-K with the Securities and Exchange Commission that will, among other things, include
this Agreement as an Exhibit, and shall inform the New York Stock Exchange of the
Executive’s resignation.

     6. Confidentiality; Non-Disparagement; Non-Interference.

     (a) Confidential Information. The Executive agrees that he will not at any
time, except with the prior written consent of the Company Group, directly or indirectly,
reveal to any person, entity, or other organization (other than the Company Group or their
respective employees, officers, directors, or agents), or use for the Executive’s own
benefit, any information that has been maintained as confidential by any member of the
Company Group (“Confidential Information”) relating to the assets, liabilities,
employees, goodwill, business or affairs of any member of the Company Group, including,
without limitation, any confidential personal information, confidential tenant information,
confidential financial information, information concerning pending or potential
transactions, any information concerning any past, present, or prospective customers,
suppliers, manufacturing processes, marketing data, projects, databases, analyses, computer
software, marketing techniques and strategies, or other confidential information used by, or
useful to, any member of the Company Group and known to the Executive by reason of the
Executive’s employment by, shareholdings in, or other association with any member of the
Company Group. The term “Confidential Information” shall not include information
that (i) is or becomes generally available to the public other than as a result of a
disclosure by, or at the direction of, the Executive; (ii) was within the Executive’s
possession prior to Executive’s employment by the Company or by any member of the Company
Group; (iii) was within the Executive’s possession prior to its being furnished to the
Executive by or on behalf of the Company Group, provided that the source of such information
was not bound by a confidentiality agreement with, or other contractual, legal, or fiduciary
obligation of confidentiality to, the Company Group with respect to such information; or
(iv) becomes available in the future to the Executive on a non-confidential basis from a
source other than the Company Group or any of its representatives, provided
that such source is not known to the Executive to be bound by a confidentiality
agreement with, or other contractual, legal, or fiduciary obligation of confidentiality to,
the Company Group with respect to such information. Notwithstanding anything in this
Section 6(a) to the contrary, in the event that the Executive becomes legally compelled to
disclose any Confidential Information, the Executive shall provide the Company with prompt
written notice so that the Company may seek a protective order or other appropriate remedy.
In the event that such protective order or other remedy is not obtained, the Executive shall
furnish only that

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portion of such Confidential Information or take only such action as is legally
required by binding order and shall exercise his reasonable efforts to obtain reliable
assurance that confidential treatment shall be accorded any such Confidential Information.
The Company shall promptly pay (upon receipt of invoices and any other documentation as may
be requested by the Company) all reasonable expenses and fees incurred by the Executive,
including attorneys’ fees, in connection with his compliance with the immediately preceding
sentence.

     (b) Non-Disparagement/Non-Interference. The Executive agrees that for 24
months after his Resignation Date, he will not make any statement or issue any
communication, written or otherwise, that disparages, criticizes, or otherwise reflects
adversely on or encourages, any adverse action against, the Company Group and/or its senior
management, except if testifying truthfully under oath pursuant to any court order or lawful
subpoena or otherwise responding to a lawful subpoena or providing disclosures required by
law. The Executive also agrees that for 24 months after his Resignation Date, he shall not
engage in any conduct which is intended to, or which is reasonably likely to, disrupt or
otherwise harm the Company Group’s operations or business reputation.

     7. Exclusive Property. The Executive confirms that all Confidential Information is
and shall remain the exclusive property of the Company Group, and that all business records, papers
and documents kept or made by the Executive relating to the business of the Company Group shall be
and remain the property of the Company Group. The Executive further confirms that, on or prior to
executing this Agreement, the Executive surrendered to the Company all copies and extracts of any
written Confidential Information acquired or developed by the Executive during his employment,
shareholding and association with the Company Group, and that the Executive has not removed or
taken from the premises of any member of the Company Group any written Confidential Information or
any copies or extracts thereof. Upon the request and at the expense of the Company Group, the
Executive shall promptly make all disclosures, execute all instruments and papers, and perform all
acts reasonably necessary to vest and confirm in the Company Group, fully and completely, all
rights created or contemplated by this Section 7.

     8. Release.

     (a) General Release. In consideration of the payments and benefits provided to
the Executive under this Agreement and after consultation with counsel, the Executive and
each of the Executive’s respective heirs, executors, administrators, representatives,
agents, successors, and assigns (collectively, the “Releasors”) hereby irrevocably
and unconditionally release and forever discharge each member of the Company Group and each
of their respective officers, employees, directors, shareholders and agents from any and all
claims, charges, actions, causes of action, rights, judgments, obligations, damages,
demands, accountings, or liabilities of whatever kind or character (collectively,
“Claims”), including, without limitation, any Claims under any federal, state,
local, or foreign law that the Releasors may have, or in the future may possess, arising out
of (i) the Executive’s employment relationship with and service as an employee or officer of
any member of the Company Group and the termination of such relationship or service or

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(ii) any event, condition, circumstance or obligation that occurred, existed or arose
on or prior to the date hereof, provided, however, that the release set
forth in this Section 8(a) shall not apply to (x) the obligations of the Company under this
Agreement and (y) any indemnification rights the Executive may have in accordance with the
Company Group’s governance instruments or under any directors and officers liability
insurance maintained by the Company Group with respect to liabilities arising as a result of
the Executive’s service as an officer and employee of the Company Group. Without in any way
limiting the foregoing, the Releasors further agree that the payments and benefits described
in this Agreement shall be in full satisfaction of any and all Claims for payments or
benefits, whether express or implied, that the Releasors may have against any member of the
Company Group (including its directors, officers, employees, and agents) arising out of the
Executive’s employment relationship or the Executive’s service as an employee or officer of
any member of the Company Group or the termination thereof.

     (b) Specific Release of ADEA Claims. In further consideration of the payments
and benefits provided to the Executive under this Agreement, the Releasors hereby
unconditionally release and forever discharge the Company Group, and each of their
respective officers, employees, directors, shareholders and agents from any and all Claims
that the Releasors may have as of the date the Executive signs this Agreement arising under
the federal Age Discrimination in Employment Act of 1967, as amended, and the applicable
rules and regulations promulgated thereunder (“ADEA”). By signing this Agreement,
the Executive hereby acknowledges and confirms the following: (i) the Executive was advised
by the Company in connection with his termination to consult with an attorney of his choice
prior to signing this Agreement and to have such attorney explain to the Executive the terms
of this Agreement, including, without limitation, the terms relating to the Executive’s
release of claims arising under ADEA, and the Executive has in fact consulted with an
attorney and has obtained an explanation of the terms of this Agreement; (ii) the Executive
was given a period of at least 21 days to consider the terms of this Agreement and to
consult with an attorney of his choosing with respect thereto; (iii) the Executive is
providing the release and discharge set forth in this Section 8(b) in exchange for
consideration in addition to anything of value to which the Executive is already entitled;
and (iv) the Executive knowingly and voluntarily accepts the terms of this Agreement.
Executive acknowledges and agrees that $1,000 of the Severance Payments referenced in
Section 2(a) of this Agreement is being paid for this release of claims arising under the
ADEA, and further acknowledges and agrees that the $1,000 payment shall be in full
satisfaction of any and all claims Releasors may have or could have had pursuant to the
ADEA.

     (c) Specific Release of Employment Related Benefits. Except as specifically
set forth herein, by virtue of the severance granted to Executive pursuant to this
Agreement, Executive specifically waives and releases any claim, right, or interest he may
have to receive actual salary payments, or to accrue any benefits such as health insurance
benefits, vacation pay, matching 401(k) contributions, or incentive option vesting for the
period of February 26, 2005 through March 2, 2005.

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     (d) California Civil Code Section 1542 Acknowledgement. Executive specifically
acknowledges that he is aware of California Civil Code Section 1542, which provides as
follows: “A general release does not extend to claims which the creditor does not know or
suspect to exist in his or her favor at the time of executing the release, which if known by
him or her must have materially affected his or her settlement with the debtor.” Executive
expressly waives and relinquishes all rights and benefits he may have under California Civil
Code Section 1542, as well as any other statutes or common law principles of similar effect.

     (e) No Assignment. The Executive represents and warrants that he has not
assigned any of the Claims being released under this Section 8.

     (f) No Claims. The Executive warrants and represents that he has not
instituted, assisted with, or otherwise participated in any action, complaint, claim,
charge, grievance, arbitration, lawsuit, or administrative agency proceeding, or action at
law or otherwise against any member of the Company Group or any of their respective
officers, employees, directors, shareholders, or agents.

     9. Certain Remedies.

     (a) Remedies. Without limiting the remedies available to the Company Group,
including those set forth in Section 9(b) hereof, the Executive acknowledges and agrees that
a breach of any of the covenants contained in this Agreement, including but not limited to
those set forth in Sections 4-7, above, will cause material and irreparable injury to the
Company Group, for which monetary damages or other non-equitable relief would be inadequate.
In the event of such a breach or threat thereof, any member of the Company Group shall be
entitled to obtain injunctive or other equitable relief to specifically enforce such
covenants or provisions through an action brought in any forum in which the Company Group
may elect to proceed, whether in a court of law or in an arbitration proceeding, in each
case without posting any bond or other security. Such injunctive or other equitable relief
shall be available to each member of the Company Group in lieu of, or prior to or pending a
determination in, any arbitration proceeding. Executive further acknowledges and agrees
that, for purposes of any action enforcing the terms of this Agreement, he agrees and
consents to the jurisdiction of the state and federal courts of Cook County, Illinois.

     (b) Cessation of Payments and Liquidated Damages. In the event that the
Executive (i) files any Claim, including but not limited to any charge, claim, demand,
action or arbitration with regard to the Executive’s employment, compensation, or
termination of his employment under any federal, state, or local law or regulation, except
for a claim for a breach of this Agreement, or (ii) breaches any of the covenants contained
in this Agreement in a material respect, the Company shall have no obligation to make
further payments or provide further benefits under this Agreement, and the Executive shall
be obligated to immediately pay the Company $50,000.00 as liquidated damages. In addition
to such automatic right to liquidated damages, the Company shall be entitled to bring an
action against the Executive for additional damages resulting from Executive’s

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breach, as well as for injunctive or other relief, as described in Section 9(a), above.
Notwithstanding Section 9(b)(i) herein, if Executive chooses to seek unemployment insurance
compensation by submitting an application to the Employment Development Department for the
State of California, Executive’s submission of such application will not in itself entitle
the Company to receive liquidated damages, provided, however, the Company
shall have the right to contest any such submission.

     10. Miscellaneous.

     (a) Entire Agreement. This Agreement sets forth the entire agreement and
understanding of the parties hereto with respect to the matters covered hereby and
supersedes and replaces any express or implied, written or oral, prior agreement, plan, or
arrangement with respect to the terms of the Executive’s employment and the termination
thereof which the Executive may have had with the Company Group, provided,
however, that, except as specifically stated herein, the LTIP, the Compensation
Program, and the Retirement Plan shall be preserved and not superseded by this Agreement.
This Agreement may be amended only by a written document signed by both of the parties
hereto.

     (b) Effective Date. This Agreement shall not be effective or enforceable until
the day after the Revocation Period expires.

     (c) Withholding Taxes. Any payment made or benefits provided to the Executive
under this Agreement shall be reduced by any applicable deductions and withholdings. With
respect to all payments made pursuant to Section 2(a), the Company shall pay its portion of
the applicable payroll tax and withhold such taxes on behalf of Executive.

     (d) Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Illinois, without giving effect to the conflict of
law principles thereof.

     (e) Waiver. The failure of any party to this Agreement to enforce any of its
terms, provisions or covenants shall not be construed as a waiver of the same or of the
right of such party to enforce the same. Waiver by any party hereto of any breach or
default by another party of any term or provision of this Agreement shall not operate as a
waiver of any other breach or default.

     (f) Severability. In the event that any one or more of the provisions of this
Agreement shall be held to be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remainder of the Agreement shall not in any way be affected or
impaired thereby. Moreover, if any one or more of the provisions contained in this
Agreement shall be held to be excessively broad as to duration, activity, or subject, such
provisions shall be construed by limiting and reducing them so as to be enforceable to the
maximum extent allowed by applicable law.

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     (g) Notices. Other than as specified in Section 11 of this Agreement, any
notices required or made pursuant to this Agreement shall be in writing and shall be deemed
to have been given when delivered or mailed by United States certified mail, return receipt
requested, postage prepaid, as follows:

If to Executive:

Michael J. Escalante

c/o Cox, Castle & Nicholson LLP

2049 Century Park East, Suite 2800

Los Angeles, California 90067

Attention: Mathew Wyman, Esq.

with a copy to:

Cox, Castle & Nicholson LLP

2049 Century Park East, Suite 2800

Los Angeles, CA 90067

Attention: Mathew Wyman, Esq.

If to the Company:

Trizec Properties, Inc.

10 South Riverside Plaza, Suite 1100

Chicago, IL 60606

Attention: Chief Executive Officer

with a copy to:

Sperling & Slater, P.C.

55 West Monroe, Suite 3200

Chicago, IL 60603

Attention: Claire P. Murphy, Esq.

or to such other address as either party may furnish to the other in writing in accordance with
this Section 10(f). Notices of change of address shall be effective only upon receipt.

     (h) Descriptive Headings. The paragraph headings contained herein are for
reference purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.

     (i) Counterparts. This Agreement may be executed in one or more counterparts,
which together shall constitute one and the same agreement.

     (j) Successors and Assigns. This Agreement may not be assigned by either party
without the prior, express written consent of the other party. Except as otherwise

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provided herein, this Agreement shall inure to the benefit of and be enforceable by the
Executive and the Company and their respective successors and assigns.

     (k) Construction. The parties acknowledge that this Agreement is the result of
arm’s-length negotiations between sophisticated parties, each of whom has been represented
by competent legal counsel. Each and every provision of this Agreement shall be construed
as though both parties participated equally in the drafting of same, and any rule of
construction that a document shall be construed against the drafting party shall not be
applicable to this Agreement.

     (l) Arbitration. Without in any way limiting the right of the Company Group to
bring an action against Executive in a court of law pursuant to Section 9, above, Executive
agrees that any other dispute or controversy arising under this Agreement that cannot be
mutually resolved by the parties shall be submitted for arbitration in Chicago, Illinois,
before a panel of three arbitrators of exemplary qualifications and stature, one of whom
shall be selected by the Executive, one of whom shall be selected by the Company, and the
last of whom shall be selected by the other two arbitrators. Such arbitration shall follow
the rules established by the American Arbitration Association. Judgment may be entered on
the arbitration panel’s award in state or federal court located in Cook County, Illinois.
The arbitration panel shall be empowered to enter an equitable decree mandating specific
enforcement of the terms of this Agreement. The Executive acknowledges and agrees that any
judgment or award shall be enforceable against him, and waives jurisdictional defenses,
including personal and subject matter jurisdiction, to any such proceeding or enforcement.
Each party shall bear his own expenses (including attorneys’ fees and costs) incurred in any
arbitration arising out of a dispute or controversy under this Agreement.

     11. Revocation. This Agreement may be revoked by the Executive within the 7-day
period commencing on the date the Executive signs this Agreement as indicated on the signature page
hereof (the “Revocation Period”). In the event of any such revocation by the Executive,
all obligations of the parties under this Agreement shall terminate and be of no further force and
effect as of the date of such revocation. No such revocation by the Executive shall be effective
unless it is in writing, signed by the Executive, and received by the Company’s Regional HR
Manager, Stacey Buehner, prior to the close of business on the seventh day after the Executive
signs the Agreement.

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     IN WITNESS WHEREOF, the Company has executed this Agreement as of the date first set forth
above (on page 1 of this Agreement) and the Executive has executed this Agreement as of the date
set forth below (or, if the Executive does not include a date under the Executive’s signature line,
the signature date shall be deemed to be the date that the Company receives Executive’s signature
on this Agreement).

	 	 	 	 	 
	 	 	TRIZEC PROPERTIES, INC.
	 
	 	 	 	 
	

	 	By:	 	/s/ Ted R. Jadwin
	

	 	 	 	 
	 
	 	 	 	 
	

	 	Name:	 	Ted R. Jadwin
	

	 	 	 	 
	 
	 	 	 	 
	

	 	Title:	 	SVP, General Counsel & Corporate
Secretary
	

	 	 	 	 

THE EXECUTIVE HEREBY ACKNOWLEDGES THAT THE EXECUTIVE HAS READ THIS AGREEMENT, THAT THE EXECUTIVE
FULLY KNOWS, UNDERSTANDS AND APPRECIATES ITS CONTENTS, AND THAT THE EXECUTIVE HEREBY ENTERS INTO
THIS AGREEMENT VOLUNTARILY AND OF HIS OWN FREE WILL.

Accepted and Agreed:

	 	 	 	 	 
	/s/ Michael J. Escalante	 	 
	 	 	 
	Michael J. Escalante	 	 
	 
	 	 	 	 
	Date:
	 	    4/14/05	 	 
	

	 	 	 	 

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Exhibit A

Michael Escalante

Vested Equity-Based Compensation as of 3/02/05

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	OPTIONS
	 
	 	 	Expiration	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Grant Date	 	Date	 	 	Grant Type	 	Award	 	 	Price	 	 	Outstanding	 	 	 	Exercisable/Vested
	 
	5/8/2002
	 	 	1/9/2009	 	 	Non-Qualified Stock Options	 	 	10,000	 	 	$	16.34	 	 	 	10,000	 	 	 	10,000	 exercisable
	 
	5/8/2002
	 	 	1/9/2009	 	 	Non-Qualified Stock Options	 	 	10,000	 	 	$	17.30	 	 	 	10,000	 	 	 	10,000	 exercisable
	 
	5/8/2002
	 	 	1/9/2009	 	 	Non-Qualified Stock Options	 	 	10,000	 	 	$	18.26	 	 	 	10,000	 	 	 	10,000	 exercisable
	 
	5/8/2002
	 	 	1/9/2009	 	 	Non-Qualified Stock Options	 	 	80,000	 	 	$	18.98	 	 	 	80,000	 	 	 	80,000	 exercisable
	 
	5/8/2002
	 	 	1/9/2009	 	 	Non-Qualified Stock Options	 	 	105,000	 	 	$	14.51	 	 	 	105,000	 	 	 	105,000	 exercisable
	 
	5/8/2002
	 	 	11/8/2007	 	 	Non-Qualified Stock Options	 	 	40,000	 	 	$	15.57	 	 	 	40,000	 	 	 	40,000	 exercisable
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	Total vested options
	 	 	255,000	 	 	 	255,000	 

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 
	RESTRICTED STOCK RIGHTS
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Net remaining
	 	 	Expiration	 	 	 	 	 	 	 	 	 	 	 	 	Shares withheld to	 	shares held at
	Grant Date	 	Date	 	 	Grant Type	 	 	 	Vested                        	 	 	cover taxes	 	Mellon
	 
	6/23/2003
	 	 	6/23/2008	 	 	Restricted Stock - Time-based Vesting	 	 	 	 	1,500	 	vested 6/23/04	 	 	 	536	 	 	 	964	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	6/23/2003
	 	 	6/23/2008	 	 	Restricted Stock - Performance-based Vesting	 	 	 	 	1,500	 	vested 6/23/04	 	 	 	537	 	 	 	963	 
	 
	2/12/2004
	 	 	2/12/2007	 	 	Restricted Stock Rights - Annual Bonus	 	 	 	 	2,417	 	vested 2/12/05	 	 	 	963	 	 	 	1,454	 
	 
	2/12/2004
	 	 	2/12/2009	 	 	Restricted Stock - Time-based Vesting	 	 	 	 	1,980	 	vested 2/12/05	 	 	 	788	 	 	 	1,192	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	2/12/2004
	 	 	2/12/2009	 	 	Restricted Stock - Performance-based Vesting	 	 	 	 	1,980	 	vested 2/12/05	 	 	 	788	 	 	 	1,192	 
	 
	 
	 	 	 	 	 	 	 	Total	 	 	9,377	 	 	 	 	 	3,612	 	 	 	5,765<PAGE>

                                                                     EXHIBIT 4.2

                          AGENTED REVOLVING CREDIT AND
                               TERM LOAN AGREEMENT

      This Agented Revolving Credit and Term Loan Agreement is dated as of
October 15, 2002, among ORCHIDS PAPER PRODUCTS COMPANY, a Delaware corporation
("Borrower"), and BANK OF OKLAHOMA, N.A. and LOCAL OKLAHOMA BANK, N.A.
(individually a "Bank" and collectively the "Banks"), and BANK OF OKLAHOMA,
N.A., as agent for the Banks hereunder (in such capacity, the "Agent").

                                    RECITALS

      Subject to the terms and conditions set forth below, Banks have agreed to
extend to Borrower the following loans: (i) a $6,500,000 term loan ("$6,500,000
Term Loan"), (ii) a $4,000,000 term loan ("$4,000,000 Term Loan"), and (iii) a
$4,500,000 revolving line of credit ("$4,500,000 Revolving Line").

                                    AGREEMENT

      For valuable consideration received, it is agreed as follows:

      1. DEFINED TERMS. As used in this Agreement, the following terms have the
following meanings (terms defined in the singular to have the same meaning when
used in the plural and vice versa).

            1.1. Accounting Terms. All accounting terms not specifically defined
      herein shall be construed in accordance with GAAP consistent with those
      applied in the preparation of the financial statements referred to in
      Section 6.9, and all financial data submitted pursuant to this Agreement
      shall be prepared in accordance with such principles.

            1.2. "Adjusted LIBOR Rate" shall mean the LIBOR Rate plus the LIBOR
      Rate Margin. The Adjusted LIBOR Rate shall be recalculated on not less
      than a quarterly basis, upon Agent's receipt of Borrower's quarterly
      financial statements. From the date of this Agreement to the first
      recalculation, the Adjusted LIBOR Rate shall be set at the LIBOR Rate plus
      two and three quarters percent (2.75%) per annum, with the first
      recalculation to be effected upon Agent's receipt of Borrower's December
      31, 2002 quarterly financial statement, but in no event later than
      February 15, 2003.

            1.3. "Adjusted Prime Rate" shall mean the Prime Rate plus the Prime
      Rate Margin. The Adjusted Prime Rate shall be recalculated on not less
      than a quarterly basis, upon Agent's receipt of Borrower's quarterly
      financial statements. From the date of this Agreement to the first
      recalculation, the Adjusted Prime Rate shall be set at the Prime Rate,
      with the first recalculation to be effected upon Agent's receipt of
      Borrower's December 31, 2002 quarterly financial statement, but in no
      event later than February 15, 2003.

<PAGE>

            1.4. "Affiliate" means any Person: (i) which directly or indirectly
      controls, or is controlled by, or is under common control with, Borrower;
      (ii) which directly or indirectly beneficially owns or holds five percent
      (5%) or more of any class of voting stock of Borrower; or (iii) five
      percent (5%) or more of the voting stock of which is directly or
      indirectly beneficially owned or held by Borrower. The term "control"
      means the possession, directly or indirectly, of the power to direct or
      cause the direction of the management and policies of a Person, whether
      through the ownership of voting securities, by contract, or otherwise.

            1.5. "Agreement" means this Agented Revolving Credit and Term Loan
      Agreement, as amended, supplemented, or modified from time to time.

            1.6. "Borrowing Base" means, at any date of determination thereof,
      the sum of eighty percent (80%) of Borrower's Qualified Receivables at
      such date, plus fifty percent (50%) of Borrower's Qualified Inventory at
      such date, as determined by Agent based upon the most recent information
      relating thereto provided to Agent pursuant to Section 2.3; provided,
      however, that Qualified Inventory shall not exceed the Qualified Inventory
      Cap as determined by Agent in its sole discretion. The "Qualified
      Inventory Cap" shall equal the lesser of 50% of Qualified Inventory or 80%
      of Borrower's Qualified Receivables such that Qualified Inventory
      comprises no more than 50% of the overall Borrowing Base.

            1.7. "Borrowing Base Certificate" means each certificate from
      Borrower to Agent relating to the Borrowing Base, substantially in the
      form of Schedule "1.7" hereto.

            1.8. "Borrowing Resolutions" means certified Resolutions from the
      Secretary of Borrower, in form and content as set forth on Schedule "1.8"
      attached hereto.

            1.9. "Business Day" means any day other than a Saturday, Sunday, or
      other day on which commercial banks in Oklahoma are authorized or required
      to close under the laws of the State of Oklahoma.

            1.10. "Capital Lease" means all leases which have been or should be
      capitalized on the books of the lessee in accordance with GAAP.

            1.11. "Certificates of Good Standing" means a Certificate of Good
      Standing issued by the Secretary of State of incorporation for the
      Borrower and such other states in which Borrower does business and is
      required to domesticate or otherwise register, indicating that Borrower is
      in good standing with the laws of such state(s).

            1.12. "Code" means the Internal Revenue Code of 1986, as amended
      from time to time, and the regulations and published interpretations
      thereof.

                                       -2-

<PAGE>

            1.13. "Collateral" means all property in which the Banks are
      intended to have a security interest, as described in Section 3.

            1.14. "Commitment" means each Bank's obligation to make loans to the
      Borrower pursuant to this Agreement.

            1.15. "Commonly Controlled Entity" means an entity, whether or not
      incorporated, which is under common control with the Borrower within the
      meaning of Section 414(b) or 414(c) of the Code.

            1.16. "Debt" means, including but not limited to: (i) indebtedness
      or liability for borrowed money; (ii) obligations evidenced by bonds,
      debentures, notes, or other similar instruments; (iii) obligations for
      the deferred purchase price of property or services (including trade
      obligations); (iv) obligations under letters of credit; (v) obligations
      under acceptance facilities; (vi) all guaranties, endorsements (other than
      for collection or deposit in the ordinary course of business), and other
      contingent obligations to purchase, to provide funds for payment, to
      supply funds to invest in any Person or entity, or otherwise to assure a
      creditor against loss; and (vii) obligations secured by any Liens, whether
      or not the obligations have been assumed.

            1.17. "Debt Service Coverage Ratio" shall mean the ratio of (i)
      EBITDA for the preceding four (4) consecutive fiscal quarters of Borrower,
      to (ii) Borrower's Debt Service Requirement for the same four (4)
      consecutive fiscal quarters.

            1.18. "Debt Service Requirement" shall mean the sum of (i) interest
      expense (whether paid or accrued and including interest attributable to
      Capital Leases), (ii) scheduled principal payments on borrowed money, and
      (iii) capitalized lease expenditures, all determined without duplication
      and in accordance with GAAP.

            1.19. "EBITDA" shall mean net income plus (i) interest expense, (ii)
      depreciation, depletion, obsolescence and amortization of property, (iii)
      capitalized lease expense, and (iv) tax expense, all determined in
      accordance with GAAP, and for a particular period.

            1.20. "Equipment Appraisal" an appraisal of Borrower's equipment
      which is part of the Collateral hereunder, in form and content
      satisfactory to the Banks, evidencing an aggregate minimum value
      reasonably acceptable to Banks.

            1.21. "ERISA" means the Employee Retirement Income Security Act of
      1974, as amended from time to time, and the regulations and published
      interpretations thereof.

            1.22. "$4,333,550 Term Note" shall mean the $4,333,500 Promissory
      Note in form and content as set forth on Schedule "1.22" attached hereto.

                                       -3-

<PAGE>

            1.23. "Funded Debt" shall mean the amount outstanding under notes
      payable, capitalized lease obligations and any other similar instruments
      of Borrower, on any date of determination.

            1.24. "GAAP" means generally accepted accounting principles in the
      United States, applied on a consistent basis.

            1.25. "Guarantor" means any future Subsidiary which guarantees the
      Obligations hereunder in accordance with Section 6.12 hereof.

            1.26. "Guaranty Agreement" means the guaranty agreement executed and
      provided to Agent by any Guarantor in accordance with Section 6.12 hereof.

            1.27. "Initial Default" means any of the events specified in Section
      9, whether or not any requirement for the giving of notice, the lapse of
      time, or both, or any other condition has been satisfied.

            1.28. "Interest Period" shall mean a period of time equal to the
      lesser of: (i) at the election of the Borrower, thirty (30), sixty (60),
      or ninety (90) days; or (ii) the number of days between the contemplated
      effective date specified by the Borrower in the applicable Interest Rate
      Election and the maturity date of the applicable Note.

            1.29. "Interest Rate Election" means written notice from Borrower to
      Agent no earlier than twenty (20) days and no later than five (5) days
      prior to the contemplated effective date, substantially in form and
      content as set forth on Schedule "1.29" hereto, whereby Borrower may elect
      from time to time that interest shall accrue under the Notes at the
      Adjusted Prime Rate or the Adjusted LIBOR Rate.

            1.30. "Letter of Credit" means any letter of credit issued pursuant
      to Section 2.3, for which, when issued, a Letter of Credit Fee should be
      paid.

            1.31. "Letter of Credit Fee" means a fee of two percent (2%) per
      annum on the face amount of any Letter of Credit issued or renewed after
      the date hereof.

            1.32. "LIBOR Loan" means any Loan when and to the extent that the
      interest rate therefor is determined by reference to the LIBOR Rate.

            1.33. "LIBOR Rate" means the London Interbank Offered Rate composite
      rate per annum for U.S. Dollars for the applicable Interest Period which
      appears on the LIBOR 01 page of the Reuters information service on the day
      the Interest Rate Election is received by Agent. The LIBOR Rate shall
      remain fixed during the applicable Interest Period.

            1.34. "LIBOR Margin" shall mean the following:

                                       -4-

<PAGE>

<TABLE>
<CAPTION>
              RATIO OF FUNDED DEBT TO EBITDA                                LIBOR MARGIN
              ------------------------------                                ------------
<S>                                                                         <C>
Greater than 2.5 to 1                                                           3.25%
Greater than or equal to 1.75 to 1 but less than 2.5 to 1                       2.75%
Less than 1.75 to 1                                                             2.25%
</TABLE>

            1.35. "Lien" means any mortgage, pledge, hypothecation, assignment,
      deposit arrangement, encumbrance, lien (statutory or other), or
      preference, priority or other security agreement or preferential
      arrangement of any kind or nature whatsoever (including, without
      limitation, any conditional sale or other title retention agreement, any
      financing lease having substantially the same economic effect as any of
      the foregoing, and the filing of any financing statement under the UCC or
      comparable law of any jurisdiction in respect of any of the foregoing.)

            1.36. "Loan" means advances under the $4,500,000 Revolving Line, the
      $6,500,000 Term Loan or the $4,000,000 Term Loan.

            1.37. "Loan Documents" means this Agreement, the Notes, the Security
      Agreement, the Mortgage, the UCC-1 Financing Statement and all other
      instruments, documents or agreements required under this Agreement.

            1.38. "London Interbank Offered Rate" applicable to any Interest
      Period for a LIBOR Loan means the arithmetic average of the rates per
      annum (rounded upward, if necessary, to the nearest 1/100 of 1%) quoted at
      approximately 11:00 a.m. London time, by the principal loan branch of each
      Bank two Business Days prior to the first day of such Interest Period for
      the offering to leading banks in the London interbank market of Dollar
      deposits for a period, and in an amount, comparable to the Interest Period
      and principal amount of the LIBOR Loan which shall be made by the Banks
      and outstanding during such Interest Period.

            1.39. "Matured Default" means any of the events specified in Section
      9, provided that any requirement for the giving of notice, the lapse of
      time, or both, or any other condition has been satisfied.

            1.40. "Mortgage" means that certain first and prior Mortgage,
      Assignment of Rents and Leases, Security Agreement and Financing Statement
      in favor of Agent, for the benefit of the Banks, on the Mortgaged
      Property, in form and content substantially as set forth on Schedule
      "1.40" hereto.

            1.41. "Mortgaged Property" means the property set forth on Schedule
      "1.41" hereto.

            1.42. "Mortgage Related Documents" means, with regard to the
      Mortgaged Property:

                                       -5-

<PAGE>

                  (i) a commitment for title prior to the Closing, and final
            title insurance policy within sixty (60) days of the Closing to
            Agent, evidencing only those exceptions acceptable to Agent;

                  (ii) an appraisal on the Mortgaged Property, in form and
            content satisfactory to Agent, evidencing an aggregate minimum value
            reasonably acceptable to Agent;

                  (iii) a Phase I Environmental Audit from an auditor and in
            form and content acceptable to Agent; and

                  (iv) evidence that flood insurance is not required by Agent.

            1.43. "Multiemployer Plan" means a Plan described in Section
      4001(a)(3) of ERISA.

            1.44. "Non-use Fee" means the amount payable by the Borrower to the
      Agent, for the account of each Bank, from the date hereof to the
      Termination Date, computed at a rate equal to three-eighths of one percent
      (3/8%) per annum on the average daily amount of the unused portion of the
      $4,500,000 Revolving Line payable quarterly on the 15th day of each
      January, April, July and October and on the Termination Date or such
      earlier date as the $4,500,000 Revolving Line shall terminate as provided
      herein, commencing January 15, 2003. Upon receipt of any Non-use Fee, the
      Agent will promptly thereafter cause to be distributed such payment to
      each Bank in its Pro Rata Share.

            1.45. "Note Rate" means (i) the Adjusted Prime Rate or (ii) the
      Adjusted LIBOR Rate, as elected by Borrower pursuant to an Interest Rate
      Election; provided, that at the end of any applicable Interest Period, the
      Note Rate shall revert to the Adjusted Prime Rate unless a new Interest
      Rate Election has been properly made by Borrower.

            1.46. "Notes" means, separately and collectively, the $4,333,550
      Term Note, the $2,166,450 Term Note, the $2,666,800 Term Note, the
      $1,333,200 Term Note, the $3,000,150 Line Note and the $1,499,850 Line
      Note.

            1.47. "Obligations" means the Obligations defined in Section 3.

            1.48. "$1,499,850 Line Note" shall mean the $1,499,850 Promissory
      Note in form and content as set forth on Schedule "1.48" attached hereto.

            1.49. "$1,333,200 Term Note" shall mean the $1,333,200 Promissory
      Note in form and content as set forth on Schedule "1.49" attached hereto.

                                       -6-

<PAGE>

            1.50. "Opinion of Borrower's Counsel" means a legal opinion from
      Borrower's legal counsel including, without limitation, the opinions
      relating to Borrower and this loan transaction as set forth on Schedule
      "1.50" attached hereto.

            1.51. "PBGC" means the Pension Benefit Guaranty Corporation or any
      entity succeeding to any or all of its functions under ERISA.

            1.52. "Permitted Liens" means, as to Borrower and all Subsidiaries:

                  (1) Liens in favor of the Banks;

                  (2) Liens for taxes or assessments or other government charges
            or levies if not yet due and payable or, if due and payable or, if
            they are being contested in good faith by appropriate proceedings
            and for which appropriate reserves are maintained;

                  (3) Liens imposed by law, such as mechanics', materialmen's,
            landlords', warehousemen's, and carriers' liens, and other similar
            Liens, securing obligations incurred in the ordinary course of
            business which are not past due for more than thirty (30) days or
            which are being contested in good faith by appropriate proceedings
            and for which appropriate reserves have been established;

                  (4) Liens under workers' compensation, unemployment insurance,
            Social Security, or similar legislation;

                  (5) Liens, deposits, or pledges to secure the performance of
            bids, tenders, contracts (other than contracts for the payment of
            money), leases (permitted under the terms of this Agreement), public
            or statutory obligations, surety, stay, appeal, indemnity,
            performance or other similar bonds, or other similar obligations
            arising in the ordinary course of business;

                  (6) The liens described on Schedule "1.52(6)";

                  (7) Judgment and other similar liens arising in connection
            with court proceedings, provided the execution or other enforcement
            of such Liens is effectively bonded, stayed and the claims secured
            thereby are being actively contested in good faith and by
            appropriate proceedings;

                  (8) Easements, rights-of-way, restrictions, and other similar
            encumbrances which, in the aggregate, do not materially interfere
            with the occupation, use and enjoyment by the Borrower of the
            property or assets encumbered thereby in the normal course of its
            business or materially impair the value of the property subject
            thereto; and

                                       -7-

<PAGE>

                  (9) Purchase-money liens on any property hereafter acquired or
            the assumption of any lien on property existing at the time of such
            acquisition (and not created in contemplation of such acquisition),
            or a lien incurred in connection with any conditional sale or other
            title retention agreement or a Capital Lease; provided that:

                        (a) Any property subject to any of the foregoing is
                  acquired by the Borrower or any subsidiary in the ordinary
                  course of its business; and

                        (b) Each such lien shall attach only to the property so
                  acquired and fixed improvements thereon.

            1.53. "Person" means an individual, partnership, corporation,
      limited liability company, business trust, joint stock company, trust,
      unincorporated association, joint venture, governmental authority, or
      other entity of whatever nature.

            1.54. "Plan" means any pension plan which is covered by Title IV of
      ERISA and in respect of which the Borrower or a Commonly Controlled Entity
      is an "employer" as defined in Section 3(5) of ERISA.

            1.55. "Prime Loan" means any Loan when and to the extent that the
      interest rate therefor is determined by reference to the Prime Rate.

            1.56. "Prime Rate" means a fluctuating interest rate per annum as in
      effect from time to time, which interest rate per annum shall at all times
      be equal to the rate of interest announced publicly from time to time
      (whether or not charged in each instance), by J.P. Morgan Chase Bank
      ("Rate Bank"), as its base rate or general reference rate. Each change in
      the Prime Rate (or any component thereof) shall become effective hereunder
      without notice to Borrower (which notice is hereby expressly waived by
      Borrower), on the effective date of each such change. Should the Rate Bank
      abolish or abandon the practice of announcing or publishing a Prime Rate,
      then the Prime Rate used during the remaining term of the Notes shall be
      that interest rate or other general reference rate then in effect at the
      Rate Bank which, from time to time, in the reasonable judgment of Agent,
      most effectively approximates the initial definition of the "Prime Rate."
      Borrower acknowledges that Banks may, from time to time, extend credit to
      other borrowers at rates of interest varying from, and having no
      relationship to, the Prime Rate. The rate of interest payable upon the
      indebtedness evidenced by the Notes shall not, however, at any time exceed
      the maximum rate of interest permitted under the laws of the State of
      Oklahoma for loans of the type and character evidenced by the Notes.

            1.57. "Prime Rate Margin" shall mean the following:

                                       -8-

<PAGE>

<TABLE>
<CAPTION>
            RATIO OF FUNDED DEBT TO EBITDA                                        PRIME RATE MARGIN
            ------------------------------                                        -----------------
<S>                                                                               <C>
Less than 2.5 to 1                                                                        +.5%
Greater than or equal to 1.75 to 1 but less than 2.5 to 1                               Prime
Less than 1.75 to 1                                                                       -.5%
</TABLE>

            1.58. "Principal Office" means the main office of each Bank, set
      forth on the signature pages hereof.

            1.59. "Prohibited Transaction" means any transaction set forth in
      Section 406 of ERISA or Section 4975 of the Code.

            1.60. "Pro Rata Share" means, as to Bank of Oklahoma, N.A.,
      Sixty-six and Sixty-seven Hundredths percent (66.67%), and as to Local
      Oklahoma Bank, N.A., Thirty-three and Thirty-three Hundredths percent
      (33.33%).

            1.61. "Qualified Inventory" means the amount of inventory of
      Borrower located in the United States of America or Canada that is not
      subject to any Lien or adverse claim and that conforms to the
      representations and warranties contained in this Agreement and that is
      acceptable to the Agent in its sole discretion, less any packaging
      materials and supplies, damaged or unsalvageable goods returned or
      rejected by its customers, goods to be returned to its suppliers, goods in
      transit to third parties (other than its agent or warehouses) and goods
      out at contractors, and less any reserves required by the Agent in its
      sole discretion for special order goods, market value declines and bill
      and hold (deferred shipment) sales. Notwithstanding the foregoing,
      however, parent rolls and furnish products shall be included as Qualified
      Inventory.

            1.62. "Qualified Receivables" means and includes only accounts
      receivable of Borrower which meet the following specifications at the time
      they came into existence and continue to meet the same until collected in
      full.

                  1.62.1. The account is due and payable. No account shall be
            outstanding for more than ninety (90) days from the date of the
            applicable invoice.

                  1.62.2. The account arose from a bona fide outright sale of
            goods previously made or from the performance of services, but not
            from leasing, and Borrower has possession of or has delivered to
            Agent shipping and delivery receipts evidencing shipment of the
            goods or, if representing services, the services have been fully
            performed for the respective account debtor.

                  1.62.3. The account is not subject to any assignment, claim,
            lien or security interest of any character or subject to any
            attachment, levy, garnishment or other judicial process, except the
            security interest of Agent.

                                       -9-

<PAGE>

                  1.62.4. The account is not subject to any claim for credit,
            setoff, allowance, adjustment by the account debtor or counterclaim,
            and Borrower has not received any notice of any such claim for
            credit, setoff, allowance, adjustment or counterclaim from or on
            behalf of the account debtor.

                  1.62.5. The account arose in the ordinary course of Borrower's
            business and no notice of the bankruptcy, insolvency or adverse
            change in the financial condition of the account debtor has been
            received by Borrower or Agent.

                  1.62.6. Agent has not previously notified Borrower that the
            account or the account debtor is or has become unsatisfactory, based
            upon reasonable credit standards, or the account debtor has been
            adjudicated bankrupt or is subject to a similar proceeding.

                  1.62.7. The account is not evidenced by a judgment, an
            instrument or chattel paper.

                  1.62.8. The account debtor is not a governmental entity or a
            foreign (i.e., residing or incorporated in or organized under a
            jurisdiction outside the United States) person or company and is not
            a parent, subsidiary, officer, employee, director, agent or
            Affiliate of any Borrower, and the account debtor and any Borrower
            do not have common shareholders, officers or directors.

                  1.62.9. All receivables of one account debtor shall become
            ineligible if more than 10% of such receivables are over ninety (90)
            days past due from the invoice.

                  1.62.10. The accounts receivable of the account debtor cannot
            exceed 10% of the total accounts receivable, and any amounts over
            10% will be excluded from the Borrowing Base unless specifically
            waived in writing in each instance by Agent in its sole discretion.
            Notwithstanding the foregoing, the accounts receivable of Dollar
            General shall be included as Qualified Receivables up to 40% of the
            total accounts receivable, and any amounts over 40% will be excluded
            from the Borrowing Base unless specifically waived in writing in
            each instance by Agent in its sole discretion.

            1.63. "Reportable Event" means any of the events set forth in
      Section 4043 of ERISA.

            1.64. "Security Agreement" means the Security Agreement and other
      Collateral documents described in Section 3.

            1.65. "Subsidiary" or "Subsidiaries" means, separately and
      collectively, any corporation of which shares of stock having ordinary
      voting power (other than stock having

                                      -10-

<PAGE>

      such power only by reason of the happening of a contingency) to elect a
      majority of the board of directors or other managers of such corporation
      are at the time owned, or the management of which is otherwise controlled,
      directly or indirectly through one or more intermediaries, or both, by the
      Borrower.

            1.66. "Termination Date" means October 14, 2003.

            1.67. "$3,000,150 Line Note" shall mean the $3,000,150 Promissory
      Note in form and content as set forth on Schedule "1.67" attached hereto.

            1.68. "$2,166,450 Term Note" shall mean the $2,166,450 Promissory
      Note in form and content as set forth on Schedule "1.68" attached hereto,

            1.69. "$2,666,800 Term Note" shall mean the $2,666,800 Promissory
      Note in form and content as set forth on Schedule "1.69" attached hereto.

            1.70. "UCC" shall mean the Uniform Commercial Code of the applicable
      jurisdiction.

            1.71. "UCC-1 Chattel Check" means a UCC Information and/or Copy
      Request as to Borrower from the Chattel Records Division of the Secretary
      of State of Delaware, the Oklahoma County Clerk, and from any other office
      deemed necessary or advisable by Agent, which chattel checks must evidence
      no conflicting security interests, except the Permitted Liens.

            1.72. "UCC-1 Financing Statement" means a financing statement in
      form and content substantially as set forth on Schedule "1.72" attached
      hereto, which will be filed with the appropriate office and shall evidence
      perfection of a first and prior security interest in the collateral
      described in the Security Agreement in favor of Agent, for the benefit of
      the Banks, except for the Permitted Liens.

      2. AMOUNT AND TERMS OF THE LOANS.

            2.1. $6,500,000 Term Loan. Subject to the terms and conditions of
      this Agreement, each Bank agrees to loan Borrower said Bank's Pro Rata
      Share of the aggregate principal amount of $6,500,000, to be further
      evidenced by the $4,333,550 Term Note and the $2,166,450 Term Note. The
      purpose of the advance under the $6,500,000 Term Loan is to enable
      Borrower to refinance existing term debt.

            2.2. $4,000,000 Term Loan. Subject to the terms and conditions of
      this Agreement, each Bank agrees to loan Borrower said Bank's Pro Rata
      Share of the aggregate principal amount of $4,000,000, to be further
      evidenced by the $2,666,800 Term Note and the $1,333,200 Term Note. The
      purpose of the advance under the $4,000,000 Term Loan is to enable
      Borrower to refinance stockholder equity.

                                      -11-

<PAGE>

            2.3. $4,500,000 Revolving Line. Subject to the terms and conditions
      of this Agreement, and so long as no Initial Default or Matured Default
      has occurred, each Bank agrees to loan to Borrower (by advancing funds or
      issuing Letters of Credit in amounts not to exceed $4,500,000 in the
      aggregate), such amounts up to said Bank's Pro Rata Share of the aggregate
      principal amount of $4,500,000 as Borrower may request from time to time
      on or before the Termination Date, to be further evidenced by the
      $3,000,150 Line Note and the $1,499,850 Line Note; provided that the
      aggregate outstanding principal amount of advances at any time outstanding
      shall not exceed the lesser of (i) $4,500,000 or (ii) the Borrowing Base.
      Such Borrowing Base shall be computed on a monthly basis, and Borrower
      agrees to provide to Agent on the 15th day of each month with regard to
      the immediately preceding month all information requested in connection
      therewith, including without limitation a Borrowing Base Certificate. In
      the event Banks shall make advances in excess of the formula set forth
      above, any such advance shall, nevertheless, be secured by all Collateral.
      In the event outstanding advances with respect to Qualified Receivables or
      Qualified Inventory fail to comply with such formula, by reason of any
      accounts receivable or inventory ceasing to be so qualified, for whatever
      reason, then Borrower shall immediately notify Agent of such situation and
      shall, within five (5) Business Days of the imbalance, either (i) reduce
      the amount of the outstanding balances to bring such amounts within the
      formulas prescribed, or (ii) provide additional Qualified Receivable or
      Qualified Inventory, without any additional advance being made by Banks
      with respect thereto, necessary to comply with the formulas required
      herein. Within the limits set forth in this Section 2.3, Borrower may
      borrow, repay and reborrow at any one time and from time to time.

            2.4. Notice and Manner of Borrowing. The Borrower shall give the
      Agent notice of any Loans under this Agreement, specifying the date and
      amount thereof, in writing or via telephone (with voice verification by
      the appropriate officer), no later than 12:00 p.m. (Tulsa time) on the
      date of such Loan. The Agent shall promptly notify each Bank of each such
      notice. Not later than 2:00 p.m. on the date of such Loan, each Bank will
      make available to the Agent at Agent's Principal Office in immediately
      available funds, such Bank's Pro Rata Share of such Loan. After the
      Agent's receipt of such funds, and upon fulfillment of the applicable
      conditions, the Agent will make such Loan available to the Borrower in
      immediately available funds by crediting the amount thereof to the
      following account with the Agent: Account styled Orchids Paper Products
      Company, No. 209908802.

            2.5. Non-Receipt of Funds by Agent. Unless the Agent shall have
      received notice from a Bank prior to the date on which such Bank is to
      provide funds to the Agent for a Loan to be made by such Bank that such
      Bank will not make available to the Agent such funds, the Agent may assume
      that such Bank has made such funds available to the Agent on the date of
      such Loan in accordance with Section 2.4 and the Agent in its sole
      discretion may, but shall not be obligated to, in reliance upon such
      assumption, make available to the Borrower on such date a corresponding
      amount. If and to the extent such Bank shall not have made such funds
      available to the Agent, such Bank agrees to repay to the Agent forthwith
      on demand such corresponding amount together with interest thereon, for
      each day from the date such amount is made available to the Borrower until
      the date such amount is

                                      -12-

<PAGE>

      repaid to the Agent, at the customary rate set by the Agent for the
      correction of errors among banks for three (3) Business Days and
      thereafter at the Prime Rate. If such Bank shall repay to the Agent such
      corresponding amount, such amount so repaid shall constitute such Bank's
      Loan for purposes of this Agreement. If such Bank does not pay such
      corresponding amount forthwith upon the Agent's demand therefor, the Agent
      shall promptly notify the Borrower, and if the outstanding balance under
      the $4,500,000 Revolving Line is equal to or exceeds the Pro Rata Share of
      the Commitment of the remaining Bank, within ten (10) days of such notice
      the Borrower shall pay such corresponding amount to the Agent with
      interest thereon, for each day from the date such amount is made available
      to the Borrower until the date such amount is repaid to the Agent, at the
      rate of interest applicable at the time to such proposed Loan.
      Notwithstanding the above, as long as no Initial Default or Matured
      Default exists, Bank's shall not unreasonably withhold funding of an
      advance requested by Borrower in accordance with the terms of Section 2.3.

            Unless the Agent shall have received notice from the Borrower prior
      to the date on which any payment is due to the Banks hereunder that the
      Borrower will not make such payment in full, the Agent may assume that the
      Borrower has made such payment in full to the Agent on such date and the
      Agent in its sole discretion may, but shall not be obligated to, in
      reliance upon such assumption, cause to be distributed to each Bank on
      such due date an amount equal to the amount then due such Bank. If and to
      the extent the Borrower shall not have so made such payment in full to the
      Agent, each Bank shall repay to the Agent forthwith on demand such amount
      distributed to such Bank together with interest thereon, for each day from
      the date such amount is distributed to such Bank until the date such Bank
      repays such amount to the Agent, at the customary rate set by the Agent
      for the correction of errors among banks for three (3) Business Days and
      thereafter at the Prime Rate.

            2.6. Interest Rate Determination. Each Bank agrees to furnish to the
      Agent timely information for the purpose of determining each London
      Interbank Offered Rate. If any Bank shall not furnish such timely
      information to the Agent for determination of any such interest rate, the
      Agent shall determine such interest rate on the basis of timely
      information furnished by the remaining Bank. The Agent shall give prompt
      notice to the Borrower and the Banks of the applicable interest rate
      determined by the Agent pursuant to the terms of this Agreement.

            2.7. Method of Payment. The Borrower shall make each payment under
      this Agreement and under the Notes on the date when due in lawful money of
      the United States to the Agent at its Principal Office for the account of
      each Bank in immediately available funds. The Agent will promptly
      thereafter cause to be distributed each Bank's Pro Rata Share of such
      payments of principal and interest in like funds to each Bank. The
      Borrower hereby authorizes each Bank, if and to the extent payment is not
      made when due under this Agreement or under the Notes, to charge from time
      to time against any account of the Borrower with such Bank any amount as
      due. Whenever any payment to be made under this Agreement or under the
      Notes shall be stated to be due on a day other than a Business Day, such
      payment shall be made on the next succeeding Business Day, and such
      extension of

                                      -13-

<PAGE>

      time shall be included in the computation of the payment of interest and
      the Non-use Fee, as the case may be, except, in the case of a LIBOR Loan,
      if the result of such extension would be to extend such payment into
      another calendar month, such payment shall be made on the immediately
      preceding Business Day.

            2.8. Illegality. Notwithstanding any other provision in this
      Agreement, if any Bank determines that any applicable law, rule, or
      regulation, or any change therein, or any change in the interpretation or
      administration thereof by any governmental authority, central bank, or
      comparable agency charged with the interpretation or administration
      thereof, or compliance by such Bank with any request or directive (whether
      or not having the force of law) of any such authority, central bank, or
      comparable agency shall make it unlawful or impossible for such Bank to
      (1) maintain its Commitment, then upon notice to the Borrower by such Bank
      the Commitment of such Bank shall terminate; or (2) maintain or fund its
      LIBOR Loan, then upon notice to the Borrower by such Bank the outstanding
      principal amount of the LIBOR Loan, together with interest accrued
      thereon, and any other amounts payable to such Bank under this Agreement
      shall be repaid (a) immediately upon demand of such Bank if such change or
      compliance with such request, in the judgment of such Bank, requires
      immediate repayment; or (b) at the expiration of the last Interest Period
      to expire before the effective date of any such change or request.

            2.9. Disaster. Notwithstanding anything to the contrary herein, if
      Agent determines (which determination shall be conclusive) that:

                  (1) Quotations of interest rates for the relevant deposits
            referred to in the definition of LIBOR Rate, as the case may be, are
            not being provided in the relevant amounts or for the relative
            maturities for purposes of determining the rate of interest on a
            LIBOR Loan as provided in this Agreement; or

                  (2) The relevant rates of interest referred to in the
            definition of LIBOR Rate do not accurately cover the cost to the
            Banks of making or maintaining such LIBOR Loan;

      then the Agent shall forthwith give notice thereof to the Borrower,
      whereupon (a) the obligation of the Banks to make the LIBOR Loan shall be
      suspended until the Agent notifies the Borrower that the circumstances
      giving rise to such suspension no longer exist; and (b) any outstanding
      LIBOR Loan shall automatically be converted to a Prime Loan on the last
      day of the then current Interest Period, unless no later than such date
      the Borrower repays in full the then outstanding principal amount of each
      LIBOR Loan, together with accrued interest thereon.

            2.10. Increased Cost. The Borrower shall pay to the Agent, for the
      account of the applicable Bank, from time to time such amounts as any Bank
      may determine to be necessary to compensate such Bank for any costs
      incurred by such Bank which such Bank determines are attributable to its
      making or maintaining any LIBOR Loan hereunder or its obligation to

                                      -14-

<PAGE>

      make any such Loan hereunder, or any reduction in any amount receivable by
      such Bank under this Agreement or the Notes in respect of any such Loan or
      obligation (such increases in costs and reductions in amounts receivable
      being herein called "Additional Costs"), resulting from any change after
      the date of this Agreement in U.S. federal, state, municipal, or foreign
      laws or regulations (including Regulation D), or the adoption or making
      after such date of any interpretations, directives, or requirements
      applying to a class of banks including such Bank or under any U.S.
      federal, state, municipal, or any foreign laws or regulations (whether or
      not having the force of law) by any court or governmental or monetary
      authority charged with the interpretation or administration thereof
      ("Regulatory Change"), which: (1) changes the basis of taxation of any
      amounts payable to such Bank under this Agreement or the Notes in respect
      of any such Loan (other than taxes imposed on the overall net income of
      such Bank for any such Loan by the jurisdiction where the Principal Office
      is located); or (2) imposes or modifies any reserve, special deposit,
      compulsory loan, or similar requirements relating to any extensions of
      credit or other assets of, or any deposits with or other liabilities of,
      such Bank (including any of such Loans or any deposits referred to in the
      definition of LIBOR Rate); or (3) imposes any other condition affecting
      this Agreement or the Notes (or any of such extensions of credit or
      liabilities). Such Bank will notify the Borrower of any event occurring
      after the date of this Agreement which will entitle such Bank to
      compensation pursuant to this Section 2.10 as promptly as practicable
      after it obtains knowledge thereof and determines to request such
      compensation.

            Determinations by any Bank for purposes of this Section 2.10 of the
      effect of any Regulatory Change on its costs of making or maintaining
      Loans or on amounts receivable by it in respect of Loans, and of the
      additional amounts required to compensate such Bank in respect of any
      Additional Costs, shall be conclusive, provided that such determinations
      are made on a reasonable basis.

            2.11. Risk-Based Capital. In the event that any Bank determines that
      (1) compliance with any judicial, administrative, or other governmental
      interpretation of any law or regulation or (2) compliance by such Bank or
      any corporation controlling such Bank with any guideline or request from
      any central bank or other governmental authority (whether or not having
      the force of law) has the effect of requiring an increase in the amount of
      capital required or expected to be maintained by such Bank or any
      corporation controlling such Bank, and such Bank determines that such
      increase is based upon its obligations hereunder, and other similar
      obligations, the Borrower shall pay to the Agent, for the account of the
      applicable Bank, such additional amount as shall be certified by such Bank
      to be the amount allocable to such Bank's obligations to the Borrower
      hereunder. Such Bank will notify the Borrower of any event occurring after
      the date of this Agreement that will entitle such Bank to compensation
      pursuant to this Section 2.11 as promptly as practicable after it obtains
      knowledge thereof and determines to request such compensation.

            Determinations by any Bank for purposes of this Section 2.11 of the
      effect of any increase in the amount of capital required to be maintained
      by such Bank and of the amount

                                      -15-

<PAGE>

      allocable to such Bank's obligations to the Borrower hereunder shall be
      conclusive, provided that such determinations are made on a reasonable
      basis.

            2.12. Funding Loss Indemnification. The Borrower shall pay to the
      Agent, for the account of the applicable Bank, upon the request of the
      Agent, such amount or amounts as shall be sufficient (in the reasonable
      opinion of the Agent) to compensate it for any loss, cost, or expense
      incurred as a result of any payment of a LIBOR Loan on a date other than
      the last day of the Interest Period for such Loan including, but not
      limited to, acceleration of the Loans by the Agent pursuant to Section
      9.1, unless such loss, cost or expense resulted from the gross negligence
      or willful misconduct of Agent, or Banks.

      3. SECURITY. As security for any and all indebtedness, obligations or
liabilities of every kind and description of Borrower to Banks, including,
without limitation, all advances and Loans evidenced by the Notes, and any other
advances or loans made pursuant to this Agreement or any other instrument,
document, agreement executed and/or delivered by Borrower to Banks in connection
herewith, including any extensions, renewals or changes in form of any of the
Notes, and any other obligations or liabilities now existing or hereafter
arising, direct or indirect, absolute or contingent, joint and/or several,
howsoever created or obtained (separately and collectively, the "Obligations"),
Borrower grants to Agent, for the benefit of the Banks, the following liens and
security interests and also agrees as follows:

            3.1. A first and prior security interest in all accounts, inventory,
      equipment, general intangibles and chattel paper of Borrower, whether now
      owned or hereafter acquired, howsoever arising or wheresoever located, all
      as evidenced by the Security Agreement set forth on Schedule "3.1"
      attached hereto.

            3.2. A first and prior mortgage lien against the Mortgaged Property,
      as evidenced by the Mortgage.

            3.3. All proceeds and products of the foregoing.

            3.4. Borrower also agrees to execute and deliver all financing
      statements or other instruments, documents or agreements required by Agent
      in order to effectuate the intent of the parties in connection herewith,
      including without limitation documents necessary for proper perfection as
      deemed necessary and/or advisable by Agent and legal counsel.

      4. CONDITIONS PRECEDENT.

            4.1. Closing. The closing shall occur when all conditions described
      in this Section 4.1 have been satisfied.

                  4.1.1. Borrower shall execute and/or deliver to Agent the
            following:

                  A. This Agreement;

                                      -16-

<PAGE>

                  B. $3,000,150 Line Note;

                  C. $1,499,850 Line Note;

                  D. $4,333,550 Term Note;

                  E. $2,166,450 Term Note;

                  F. $2,666,800 Term Note;

                  G. $1,333,200 Term Note;

                  H. Security Agreement;

                  I. UCC-1 Financing Statement;

                  J. Mortgage;

                  K. Opinion of Borrower's Counsel;

                  L. Equipment Appraisal;

                  M. Borrowing Resolutions;

                  N. Certificates of Good Standing;

                  O. UCC-1 Chattel Check;

                  P. Mortgage Related Documents;

                  Q. completion of all schedules to this Agreement; and

                  R. any other instruments, documents or agreements reasonably
                  requested by Agent in connection herewith.

                  4.1.2. The following statements shall be true and correct.

                  A. The representations and warranties contained in this
                  Agreement and the other Loan Documents shall be true and
                  correct; and

                  B. No Initial Default or Matured Default has occurred and is
                  continuing or will occur as a result of the execution,
                  delivery and/or performance by Borrower under any of the Loan
                  Documents.

                                      -17-

<PAGE>

                  4.1.3. The Agent shall have received such other approvals,
            opinions, instruments, documents and/or agreements which it may
            reasonably request.

            4.2. Post-Closing. Borrower shall, within one hundred twenty (120)
      days after closing, deliver to Agent documentation satisfactory to Agent
      evidencing that the Easement in favor of Ralston Purina Company dated
      April 19, 1976, recorded in Book 840, Page 914; as assigned to Protein
      Technologies International, Inc., has been removed as an exception to the
      title insurance policy, or in the alternative provide documentation
      satisfactory to Agent that said Easement is properly filed, and does not
      materially adversely affect Borrower's interest in the Mortgaged Property.

      5. REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants to
each Bank that:

            5.1. Incorporation, Good Standing, and Due Qualification. Borrower
      is a corporation duly incorporated, validly existing, and in good standing
      under the laws of the State in which it is incorporated; has the corporate
      power and authority to own its assets and to transact the business in
      which it is now engaged or proposed to be engaged; and is duly qualified
      as a foreign corporation and in good standing under the laws of each other
      jurisdiction in which such qualification is required.

            5.2. Corporate Power and Authority. The execution, delivery, and
      performance by Borrower of the Loan Documents have been duly authorized by
      all necessary corporate action and do not and will not (1) require any
      consent or approval of the stockholders which has not been given; (2)
      contravene Borrower's charter or bylaws; (3) violate any provision of any
      law, rule, regulation (including, without limitation, Regulations U and X
      of the Board of Governors of the Federal Reserve System), order, writ,
      judgment, injunction, decree, determination, or award presently in effect
      having applicability to Borrower; (4) result in a breach of or constitute
      a default under any indenture or loan or credit agreement or any other
      agreement, lease, or instrument to which Borrower is a party or by which
      it or its properties may be bound or affected; (5) result in, or require,
      the creation or imposition of any lien, upon or with respect to any of the
      properties now owned or hereafter acquired by Borrower; or (6) cause
      Borrower to be in default under any such law, rule, regulation, order,
      writ, judgment, injunction, decree, determination, or award or any such
      indenture, agreement, lease, or instrument.

            5.3. Legally Enforceable Agreement. This Agreement is, and each of
      the other Loan Documents when delivered under this Agreement will be,
      legal, valid, and binding obligations of Borrower, enforceable against
      Borrower in accordance with their respective terms, except to the extent
      that such enforcement may be limited by applicable bankruptcy, insolvency,
      and other similar laws affecting creditors' rights generally.

            5.4. Financial Statements. The balance sheet of Borrower as of July
      31, 2002, the related statements of income and retained earnings of
      Borrower for the twelve (12) months

                                      -18-

<PAGE>

      then ended, are complete and correct and fairly present the financial
      condition of Borrower at such dates and the results of the operations of
      Borrower for the periods covered by such statements, all in accordance
      with GAAP (subject to year-end adjustments in the case of the interim
      financial statements), and since July 31, 2002, there has been no material
      adverse change in the condition (financial or otherwise), business or
      operations of Borrower. There are no liabilities of Borrower, fixed or
      contingent, which are material but not reflected in such financial
      statements or in the notes thereto, other than liabilities arising in the
      ordinary course of business since July 31, 2002. No information, exhibit,
      or report furnished by the Borrower to any Bank in connection with the
      negotiation of this Agreement contains any material misstatement of fact
      or omits to state a material fact or any fact necessary to make the
      statement contained therein not materially misleading.

            5.5. Labor Disputes and Acts of God. Neither the business nor the
      properties of Borrower is affected by any fire, explosion, accident,
      strike, lockout or other labor dispute, drought, storm, hail, earthquake,
      embargo, act of God or other casualty (whether or not covered by
      insurance), materially adversely affecting such business or the operation
      of Borrower.

            5.6. Other Agreements. Borrower is not a party to any indenture,
      loan, or credit agreement, or to any lease or other agreement or
      instrument, or subject to any charter or corporate restriction, the
      performance of which in accordance with the respective terms could have a
      material adverse effect on the business, properties, assets, operations,
      or condition, financial or otherwise, of Borrower or the ability of
      Borrower to carry out its obligations under the Loan Documents. Borrower
      is not in material default in any respect in the performance, observance,
      or fulfillment of any of the obligations, covenants, or conditions
      contained in any agreement or instrument material to its business to which
      it is a party.

            5.7. Litigation. There is no pending or threatened action or
      proceeding against or affecting Borrower before any court, governmental
      agency or arbitrator, which may, in any one case or in the aggregate,
      materially adversely affect the financial condition, operations,
      properties, or business of Borrower or the ability of Borrower to perform
      its obligations under the Loan Documents. Any litigation which does exist
      is set forth in detail satisfactory to Agent on Schedule "5.7" hereto, but
      Borrower represents to each Bank that such litigation does not violate
      this Section 5.7.

            5.8. Ownership and Liens. Borrower has title to, or valid leasehold
      interests in, all of its properties and assets, real and personal,
      including the properties and assets and leasehold interest reflected in
      the financial statements referred to in Section 5.4, and none of the
      properties and assets owned by Borrower, and none of its leasehold
      interests, are subject to any lien, except the Permitted Liens.

            5.9. ERISA. Borrower is in compliance in all material respects with
      all applicable provisions of ERISA. Neither a Reportable Event nor a
      Prohibited Transaction has occurred and is continuing with respect to any
      Plan; no notice of intent to terminate a Plan has been

                                      -19-

<PAGE>

      filed, nor has any Plan been terminated; no circumstances exist which
      constitute grounds entitling the PBGC to institute proceedings to
      terminate, or appoint a trustee to administer, a Plan, nor has the PBGC
      instituted any such proceedings; neither Borrower nor any Commonly
      Controlled Entity has completely or partially withdrawn from a
      Multiemployer Plan; Borrower and each Commonly Controlled Entity have met
      their minimum funding requirements under ERISA with respect to all of
      their Plans and the present value of all vested benefits under each Plan
      exceeds the fair market value of all Plan assets allocable to such
      benefits, as determined on the most recent valuation date of the Plan and
      in accordance with the provisions of ERISA; and neither Borrower nor any
      Commonly Controlled Entity has incurred any liability to the PBGC under
      ERISA.

            5.10. Operation of Business. Borrower possesses all licenses,
      permits, franchises, patents, copyrights, trademarks, and trade names, or
      rights thereto, to conduct its business substantially as now conducted and
      as presently proposed to be conducted, and Borrower is not in violation of
      any valid rights of others with respect to any of the foregoing.

            5.11. Taxes. Borrower has filed all tax returns (federal, state and
      local) required to be filed by law and has paid all taxes, assessments,
      and governmental charges and levies thereon to be due, including interest
      and penalties, except any such taxes, charges or levies which are being
      diligently contested in good faith by appropriate proceedings.

            5.12. Debt. Schedule "5.12" is a complete and correct list of all
      credit agreements, indentures, purchase agreements, guaranties, Capital
      Leases, and other investments, agreements, and arrangements presently in
      effect providing for or relating to extensions of credit (including
      agreements and arrangements for the issuance of letters of credit or for
      acceptance financing) in respect of which Borrower is in any manner
      directly or contingently obligated; and the maximum principal or face
      amounts of the debt in question, which are outstanding and which can be
      outstanding, are correctly stated, and all liens of any nature given or
      agreed to be given as security therefor are correctly described or
      indicated in such Schedule. With regard to any guaranty or other
      contingent obligation of Borrower, Borrower shall promptly notify Agent in
      the event any such obligation becomes non-contingent.

            5.13. Environment. Borrower has duly complied with, and its
      business, operations, assets, equipment, property, leaseholds, or other
      facilities are in compliance with, the provisions of all federal, state,
      and local environmental, health and safety laws, codes and ordinances, and
      all rules and regulations promulgated thereunder, as more fully set forth
      in the Mortgage.

      6. AFFIRMATIVE COVENANTS. So long as any Note shall remain unpaid or any
Bank shall have any Commitment under this Agreement, Borrower will comply with
the following:

            6.1. Maintenance of Existence. Preserve and maintain its corporate
      existence and good standing in the states in which it does business, and
      qualify and remain qualified as a foreign corporation in each jurisdiction
      in which such qualification is required.

                                      -20-

<PAGE>

            6.2. Maintenance of Records. Keep adequate records and books of
      account, in which complete entries will be made in accordance with GAAP,
      reflecting all financial transactions.

            6.3. Maintenance of Properties. Maintain, keep, and preserve all of
      its properties (tangible and intangible) necessary or useful in the proper
      conduct of its business in good working order and condition, ordinary wear
      and tear excepted.

            6.4. Lockbox. Upon the request of Agent, Borrower shall establish
      and maintain a lockbox in Agent pursuant to an agreement in form and
      substance satisfactory to Agent which shall provide, in part, that: (a)
      Borrower shall deposit all checks and other instruments with respect to
      its notes, chattel paper or accounts receivable in the form received by
      them in the lockbox, (b) unless otherwise directed by Agent, Borrower
      shall direct its debtors and customers to make all payments in respect to
      their accounts receivable directly to the lockbox at Agent, (c) Agent
      shall deposit all items received by it to accounts designated by the Agent
      for the Borrower, provided no Matured Default shall have occurred and be
      continuing, and (d) if a Matured Default shall have occurred and be
      continuing, all such payments may be applied to the Indebtedness, at such
      times and in such order as Agent may elect.

            6.5. Conduct of Business. Continue to engage in an efficient and
      economical manner in a business of the same general type as conducted by
      it on the date of this Agreement.

            6.6. Maintenance of Insurance. Borrower will keep or cause to be
      kept adequately insured by financially sound and reputable insurers its
      plant, equipment, motor vehicles, and all other property of a character
      usually insured by businesses engaged in the same or similar businesses.
      Upon demand by the Agent, any insurance policies covering the Collateral
      shall include a loss payable endorsement to Agent, shall provide that such
      policies may not be canceled, reduced or affected in any manner for any
      reason without thirty (30) days prior notice to the Agent, and shall
      provide for any other matters which the Agent may reasonably require. Such
      insurance shall be against fire, casualty and any other hazards normally
      insured against and shall be in the amount of the full value (less a
      reasonable deductible not to exceed amounts customary in the industry for
      similarly situated businesses and properties) of the property insured. So
      long as no Initial Default or Matured Default exists and is continuing,
      the proceeds of said insurance policies may be used for repair or
      replacement of the damaged property. The Borrower shall at all times
      maintain adequate insurance against damage to persons or property, which
      insurance shall be by financially sound and reputable insurers and shall,
      without limitation, provide the following coverages: comprehensive general
      liability (including, without limitation, coverage, where applicable,
      damage caused by explosion, broad form property damage coverage, broad
      form coverage for contractually independent contractors), worker's
      compensation, products liability and automobile liability.

            6.7. Compliance with Laws. Comply in all material respects with all
      applicable laws, rules, regulations, and orders, such compliance to
      include, without limitation, paying

                                      -21-

<PAGE>

      before the same become delinquent all taxes, assessments, and governmental
      charges imposed upon it or upon its property.

            6.8. Right of Inspection. At any reasonable time and from time to
      time, and following twenty-four (24) hours prior written notice, permit
      the Agent or any agent or representative thereof, to reasonably examine
      and make copies of (at a cost to Borrower not to exceed $1,000) and
      abstracts from the records and books of account of, and visit the
      properties of, Borrower, and to discuss the affairs, finances, and
      accounts of Borrower with any of its officers and directors and Borrower's
      independent accountants. Agent contemplates conducting at least
      semi-annual field audits of the Borrower's property.

            6.9. Reporting Requirements. Furnish to Agent:

                  6.9.1. Quarterly Financial Statements. As soon as available
            and in any event within forty-five (45) days after the end of each
            fiscal quarter of Borrower, Borrower shall deliver to Agent
            consolidated interim balance sheets of Borrower as of the end of
            such quarter, statements of income and retained earnings of Borrower
            for the period commencing at the end of the previous fiscal year and
            ending with the end of such quarter, and statements of cash flow of
            Borrower for the portion of the fiscal year ended with the last day
            of such quarter, all in sufficient detail and stating in comparative
            form the respective figures for the corresponding date and period in
            the previous fiscal year all prepared in accordance with GAAP and
            certified by the chief financial officer of Borrower (subject to
            normal year end audit adjustments).

                  6.9.2. Annual Financial Statements. As soon as available and
            in any event within ninety (90) days after the end of each fiscal
            year of Borrower, commencing with the fiscal year ending December
            31, 2002, balance sheets of Borrower as of the end of such fiscal
            year, statements of income and retained earnings of Borrower for
            such fiscal year, and statements of cash flow of Borrower for such
            fiscal year, with explanatory footnotes in sufficient detail
            acceptable to the Agent, and stating in comparative form the
            respective figures for the corresponding date and period in the
            prior fiscal year and all prepared in accordance with GAAP and as to
            the statements accompanied by an unqualified opinion thereon
            acceptable to the Agent by independent accountants selected by
            Borrower and which are acceptable to the Agent;

                  6.9.3. Management Letters. Promptly upon receipt thereof,
            copies of any reports submitted to Borrower by independent certified
            public accountants in connection with examination of the financial
            statements of Borrower made by such accountants;

                  6.9.4. Compliance Certificate. Within forty-five (45) days
            after the end of each fiscal quarter of Borrower a certificate of
            compliance ("Compliance

                                      -22-

<PAGE>

            Certificate") executed by the chief financial officer of Borrower,
            in form and content as set forth in Schedule "6.9.4" hereto;

                  6.9.5. Notice of Litigation. Promptly after the commencement
            thereof, notice of all actions, suits, and proceedings before any
            court or governmental department, commission, board, bureau, agency,
            or instrumentality, domestic or foreign, affecting Borrower, which,
            if determined adversely to Borrower, could have a material adverse
            effect on the financial condition, properties, or operations of
            Borrower;

                  6.9.6. Notice of Initial Defaults and Matured Defaults. As
            soon as possible and in any event within five (5) days after the
            occurrence of each Initial Default or Matured Default, a written
            notice setting forth the details of such Initial Default or Matured
            Default and the action which is proposed to be taken by the Borrower
            with respect thereto;

                  6.9.7. ERISA Reports. As soon as possible, and in any event
            within thirty (30) days after Borrower knows or has reason to know
            that any circumstances exist that constitute grounds entitling the
            PBGC to institute proceedings to terminate a Plan subject to ERISA
            with respect to Borrower or any Commonly Controlled Entity, and
            promptly but in any event within two (2) Business Days of receipt by
            the Borrower or any Commonly Controlled Entity of notice that the
            PBGC intends to terminate a Plan or appoint a trustee to administer
            the same, and promptly but in any event within five (5) Business
            Days of the receipt of notice concerning the imposition of
            withdrawal liability with respect to Borrower or any Commonly
            Controlled Entity, the Borrower will deliver to the Agent a
            certificate of the chief financial officer of the Borrower setting
            forth all relevant details and the action which the Borrower
            proposes to take with respect thereto;

                  6.9.8. Reports to Other Creditors. Promptly after the
            furnishing thereof, copies of any statement or report furnished to
            any other party pursuant to the terms of any indenture, loan,
            credit, or similar agreement and not otherwise required to be
            furnished to the Agent pursuant to any other clause of this Section
            6; and

                  6.9.9. General Information. Such other information respecting
            the condition or operations, financial or otherwise, of Borrower as
            the Agent may from time to time reasonably request.

            6.10. Environment. Be and remain in material compliance with the
      provisions of all federal, state, and local environmental, health and
      safety laws, codes and ordinances, and all rules and regulations issued
      thereunder, as more fully set forth in the Mortgage.

            6.11. Operating Accounts. Maintain its primary operating accounts at
      Agent, with the exception of its payroll account.

                                      -23-

<PAGE>

            6.12. Subsidiaries. At the time of creation or acquisition of any
      Subsidiary, Borrower shall cause such Subsidiary to properly become a
      Guarantor hereunder.

      7. NEGATIVE COVENANTS. So long as any Notes shall remain unpaid or any
Bank shall have any Commitment under this Agreement or any Letter of Credit
issued in connection herewith, Borrower will not:

            7.1. Negative Pledge. Create, incur, permit or suffer to exist any
      Liens upon any of its assets or properties, now owned or hereafter
      acquired, except for the Permitted Liens.

            7.2. Debt. Create, incur, assume, or suffer to exist any Debt,
      except:

                  (1) Indebtedness arising out of this Agreement;

                  (2) Purchase money indebtedness not to exceed $500,000 in the
            aggregate for any given fiscal year;

                  (3) Current liabilities for taxes and assessments incurred in
            the ordinary course of business;

                  (4) Indebtedness in respect of current accounts payable or
            accrued (other than for borrowed funds or purchase money
            obligations) and incurred in the ordinary course of business,
            provided that all such liabilities, accounts and claims shall be
            promptly paid and discharged when due or in conformity with
            customary trade terms;

                  (5) Debt described in Schedule "5.12" but no voluntary
            prepayment, renewals, extensions, or refinancings thereof;

                  (6) Unsecured non-Bank Debt in addition to the debt described
            in Schedule "5.12" not to exceed $100,000 for the Borrower in the
            aggregate in any given fiscal year; and

                  (7) Accounts payable to trade creditors for goods or services
            which are not past due more than ninety (90) days from the billing
            date, in each case incurred in the ordinary course of business, as
            presently conducted, and paid within the specified time, unless
            contested in good faith and by appropriate proceedings.

            7.3. Mergers, etc. Wind up, liquidate or dissolve itself,
      reorganize, merge or consolidate with or into, or convey, sell, assign,
      transfer, lease, or otherwise dispose of (whether in one transaction or in
      a series of transactions) all or substantially all of its assets (whether
      now owned or hereafter acquired) to any Person.

                                      -24-

<PAGE>

            7.4. Leases. Without Agent's prior written consent, create, incur,
      assume, or suffer to exist, any obligation as lessee for the rental or
      hire of any real or personal property, except (1) the leases set forth on
      Schedule "7.4" hereto and any extensions or renewals thereof and (2)
      leases (other than Capital Leases) which do not in the aggregate require
      Borrower to make payments (including taxes, insurance, maintenance, and
      similar expenses which the Borrower is required to pay under the terms of
      any lease) in any fiscal year of Borrower in excess of Fifty Thousand and
      no/100ths Dollars ($50,000). Agent agrees not to unreasonably withhold its
      consent and will endeavor to respond within ten (10) days to Borrower's
      request therefor.

            7.5. Sale and Leaseback. Sell, transfer, or otherwise dispose of any
      real or personal property to any Person and thereafter directly or
      indirectly lease back the same or similar property.

            7.6. Dividends. Except as related to the refinance of stockholder
      equity contemplated under Section 2.2 hereof, declare or pay any
      dividends; or purchase, redeem, retire, or otherwise acquire for value any
      of its capital stock now or hereafter outstanding; or make any
      distribution of assets to its stockholders as such whether in cash,
      assets, or in obligations of the Borrower; or allocate or otherwise set
      apart any sum for the payment of any dividend or distribution on, or for
      the purchase, redemption, or retirement of any shares of its capital
      stock; or make any distribution by reduction of capital or otherwise in
      respect of any shares of its capital stock.

            7.7. Sale of Assets. Sell, lease, assign, transfer, or otherwise
      dispose of, any of its now owned or hereafter acquired assets (including,
      without limitation, shares of stock, receivables, and leasehold
      interests), except: (1) inventory disposed of or leased in the ordinary
      course of business; (2) the sale or other disposition of assets no longer
      used or useful in the conduct of its business; and (3) treasury stock.

            7.8. Guaranties, etc. Assume, guarantee, endorse, or otherwise be or
      become directly or contingently responsible or liable (including, but not
      limited to, an agreement to purchase any obligation, stock, assets, goods,
      or services, or to supply or advance any funds, assets, goods, or
      services, or an agreement to maintain or cause such Person to maintain a
      minimum working capital net worth, or otherwise to assure the creditors of
      any Person against loss), for obligations of any Person, except guaranties
      by endorsement of negotiable instruments for deposits or collection or
      similar transactions in the ordinary course of business.

            7.9. Transactions with Affiliates. Enter into any transaction,
      including, without limitation, the purchase, sale, or exchange of property
      or the rendering of any service, with any Affiliate, except in the
      ordinary course of and pursuant to the reasonable requirements of each
      Borrower's business and upon fair and reasonable terms no less favorable
      to the Borrower than would obtain in a comparable arm's-length transaction
      with a Person not an Affiliate.

                                      -25-

<PAGE>

      8. FINANCIAL COVENANTS. So long as any Notes shall remain unpaid or any
Bank shall have any Commitment under this Agreement, Borrower shall comply with
the following on a consolidated basis:

            8.1. Funded Debt to EBITDA. Maintain at all times a ratio of Funded
      Debt to EBITDA of not greater than 3 to 1.

            8.2. Fiscal Year. Not change its fiscal year end.

            8.3. Tangible Net Worth. Maintain at all times a tangible net worth
      of not less than Eight Million Dollars ($8,000,000).

            8.4. Debt Service Coverage Ratio. Maintain at all times a Debt
      Service Coverage Ratio not less than 1.25 to 1.

            8.5. Capital Expenditures. Not make expenditures for fixed or
      capital assets if, after giving effect thereto, the aggregate of all such
      expenditures would exceed $1,000,000 during any fiscal year of the
      Borrower, beginning December 31, 2002.

      9. EVENTS OF DEFAULT.

            9.1. Events of Default. If any of the following events shall occur:

                  (1) Borrower should fail to pay the principal of, or interest
            on, the Notes, or any amount of the Commitment or other fee within
            ten (10) days as and when due and payable;

                  (2) Any representation or warranty made or deemed made by
            Borrower in this Agreement or the Security Agreement or which is
            contained in any certificate, document, opinion, or financial or
            other statement furnished at any time under or in connection with
            any Loan Document shall prove to have been incorrect, incomplete, or
            misleading in any material respect on or as of the date made or
            deemed made;

                  (3) Borrower shall fail to perform or observe any term,
            covenant, or agreement contained in this Agreement or any Loan
            Documents, following a thirty (30) day notice and cure period as to
            non-monetary covenant defaults;

                  (4) Borrower shall (a) fail to pay any indebtedness for
            borrowed money (other than the Notes) or any interest or premium
            thereon, when due (whether by scheduled maturity, required
            prepayment, acceleration, demand, or otherwise); or(b) fail to
            perform or observe any term, covenant, or condition on its part
            required to be performed or observed under any agreement or
            instrument relating to any such indebtedness, when required to be
            performed or observed, if the effect of such failure to perform or
            observe is to accelerate, or to permit the acceleration of, after
            the giving

                                      -26-

<PAGE>

            of any applicable notice or passage of time, or both, the maturity
            of such indebtedness, whether or not such failure to perform or
            observe shall be waived by the holder of such indebtedness, or any
            such indebtedness shall be declared to be due and payable, or
            required to be prepaid (other than by a regularly scheduled required
            prepayment), prior to the stated maturity thereof;

                  (5) Borrower or any Guarantor (a) shall generally not pay, or
            shall be unable to pay, or shall admit in writing its inability to
            pay its debts as such debts become due; or (b) shall make an
            assignment for the benefit of creditors, or petition or apply to any
            tribunal for the appointment of a custodian, receiver, or trustee
            for it or a substantial part of its assets; or (c) shall commence
            any proceeding under any bankruptcy, reorganization, arrangement,
            readjustment of debt, dissolution, or liquidation law or statute of
            any jurisdiction, whether now or hereafter in effect; or (d) shall
            have had any such petition or application filed or any such
            proceeding commenced against it in which an order for relief is
            entered or an adjudication or appointment is made, and which remains
            undismissed for a period of thirty (30) days or more; or (e) shall
            take any corporate action indicating its consent to, approval of, or
            acquiescence in any such petition, application, proceeding, or order
            for relief or the appointment of a custodian, receiver, or trustee
            for all or any substantial part of its properties; or (f) shall
            suffer such custodianship, receivership, or trusteeship to continue
            undischarged for a period of thirty (30) days or more;

                  (6) One or more judgments, decrees, or orders for the payment
            of money in excess of One Hundred Thousand and no/100ths Dollars
            ($100,000.00) in the aggregate shall be rendered against Borrower,
            and such judgments, decrees, or order shall continue unsatisfied and
            in effect for a period of sixty (60) consecutive days without being
            vacated, discharged, satisfied, or stayed or bonded pending appeal;

                  (7) The Collateral documents shall at any time after their
            execution and delivery and for any reason cease (a) to create a
            valid and perfected first priority security interest in and to the
            property purported to be subject to such Collateral documents; or
            (b) to be in full force and effect or shall be declared null and
            void, or the validity or enforceability thereof shall be contested
            by Borrower, or Borrower shall deny it has any further liability or
            obligation under the Collateral documents, or Borrower shall fail to
            perform any of its obligations under the Collateral documents; or
            the validity or enforceability of the Guaranty Agreement of any
            Guarantor shall be contested, or liability thereunder is denied;

                  (8) Any of the following events shall occur or exist with
            respect to Borrower and any Commonly Controlled Entity under ERISA:
            any Reportable Event shall occur; complete or partial withdrawal
            from any Multiemployer Plans shall occur; any Prohibited Transaction
            shall occur; a notice of intent to terminate a Plan shall be filed,
            or a Plan shall be terminated; or circumstances shall exist which

                                      -27-

<PAGE>

            constitute grounds entitling the PBGC to institute proceedings to
            terminate a Plan, or the PBGC shall institute such proceedings; and
            in each case above, such event or condition, together with all other
            events or conditions, if any, could subject Borrower to any tax,
            penalty, or other liability which in the aggregate may exceed One
            Hundred Thousand and no/100ths Dollars ($100,000.00);

                  (9) If the Agent receives its first notice of a hazardous
            discharge or an environmental complaint from a source other than
            Borrower, and the Agent does not receive notice (which may be given
            in oral form, provided same is followed with all due dispatch by
            written notice by Certified Mail, Return Receipt Requested) of such
            hazardous discharge or environmental complaint from any Borrower
            within twenty-four (24) hours of the time the Agent first receives
            said notice from a source other than any Borrower; or if any
            federal, state, or local agency asserts or creates a Lien upon any
            or all of the assets, equipment, property, leaseholds, or other
            facilities of the Borrower by reason of the occurrence of a
            hazardous discharge or an environmental complaint; or if any
            federal, state, or local agency asserts a claim against Borrower
            and/or its assets, equipment, property, leaseholds, or other
            facilities for damages or cleanup costs relating to a hazardous
            discharge or an environmental complaint; provided, however, that
            such claim shall not constitute a default if, within five (5)
            Business Days of the occurrence giving rise to the claim, (a) the
            Borrower can prove to the Agent's satisfaction that the Borrower has
            commenced and is diligently pursuing either: (i) a cure or
            correction of the event which constitutes the basis for the claim,
            and continues diligently to pursue such cure or correction to
            completion or (ii) proceedings for an injunction, a restraining
            order, or other appropriate relief preventing such agency or
            agencies from asserting such claim, which relief is granted within
            ten (10) Business Days of the occurrence giving rise to the claim
            and the injunction, order, or relief is not thereafter resolved or
            reversed on appeal; and (b) in either of the foregoing events, the
            Borrower has posted a bond, letter of credit, or other security
            satisfactory in form, substance, and amount to both the Agent and
            the agency or entity asserting the claim to secure the proper and
            complete cure or correction of the event which constitutes the basis
            for the claim; or

                  (10) Without the prior written consent of Agent, a change in
            management should occur such that the managing officers of Borrower
            on the date of this Agreement cease to be the managing officers of
            Borrower. Notwithstanding the foregoing, a termination for cause
            shall not be considered an Event of Default.

            In any such event, Agent may, at the request of or with the consent
      of the Banks, (a) declare the Banks' obligation to make Loans to be
      terminated, whereupon the same shall forthwith terminate; and/or (b)
      declare the outstanding Notes, all interest thereon, and all other amounts
      payable under this Agreement to be forthwith due and payable, whereupon
      the Notes, all such interest, and all such amounts shall become and be
      forthwith due and payable, without presentment, demand, protest, or
      further notice of any kind, all of which are hereby expressly waived by
      the Borrower. Additionally, such Bank is hereby authorized at any time

                                      -28-

<PAGE>

      and from time to time, without further notice to Borrower (any such notice
      being expressly waived by the Borrower), to set off and apply any and all
      deposits (general or special, time or demand, provisional or final) at any
      time held and other indebtedness at any time owing by such Bank to or for
      the credit or the account of the Borrower against any and all of the
      obligations of the Borrower now or hereafter existing under this Agreement
      or the Notes or other Loan Documents, irrespective of whether or not such
      Bank shall have made any demand under this Agreement or the Notes or such
      other Loan document and although such obligations may be unmatured. The
      rights of the Banks under this Section are in addition to other rights and
      remedies (including, without limitation, other rights of setoff) which the
      Banks may have, in this Agreement, any other Loan Document or at law or
      equity, including without limitation the right to accelerate the Notes
      upon the occurrence of a Matured Default.

      10. AGENCY PROVISIONS.

            10.1. Authorization and Action. Each Bank hereby irrevocably
      appoints and authorizes the Agent to take such action as agent on its
      behalf and to exercise such powers under this Agreement as are delegated
      to the Agent by the terms hereof, together with such powers as are
      reasonably incidental thereto. The duties of the Agent shall be mechanical
      and administrative in nature and the Agent shall not by reason of this
      Agreement be a trustee or fiduciary for any Bank. The Agent shall have no
      duties or responsibilities except those expressly set forth herein. As to
      any matters not expressly provided for by this Agreement (including,
      without limitation, enforcement or collection of the Notes), the Agent
      shall not be required to exercise any discretion or take any action, but
      shall be required to act or to refrain from acting (and shall be fully
      protected in so acting or so refraining from acting) upon the instructions
      of the Banks, and such instructions shall be binding upon all Banks and
      all holders of Notes; provided, however, that the Agent shall not be
      required to take any action which exposes the Agent to personal liability
      or which is contrary to this Agreement or applicable law.

            10.2. Liability of Agent. Neither the Agent nor any of its
      directors, officers, agents or employees shall be liable for any action
      taken or omitted to be taken by it or them under or in connection with
      this Agreement in the absence of its or their own gross negligence or
      willful misconduct. Without limitation of the generality of the foregoing,
      the Agent (1) may treat the payee of any Note as the holder thereof until
      the Agent receives written notice of the assignment or transfer thereof
      signed by such payee and in form satisfactory to the Agent; (2) may
      consult with legal counsel (including counsel for the Borrower),
      independent public accountants and other experts selected by it and shall
      not be liable for any action taken or omitted to be taken in good faith by
      it in accordance with the advice of such counsel, accountants, or experts;
      (3) makes no warranty or representation to any Bank and shall not be
      responsible to any Bank for any statements, warranties, or representations
      made in or in connection with this Agreement; (4) shall not have any duty
      to ascertain or to inquire as to the performance or observance of any of
      the terms, covenants, or conditions of this Agreement on the part of the
      Borrower, or to inspect the property (including the books and records) of
      the Borrower; (5) shall not be responsible to any Bank for the due
      execution,

                                      -29-

<PAGE>

      legality, validity, enforceability, genuineness, perfection, sufficiency,
      or value of this Agreement or any other instrument or document furnished
      pursuant thereto; and (6) shall incur no liability under or in respect of
      this Agreement by acting upon any notice, consent, certificate, or other
      instrument or writing (which may be sent by telegram, telex, or facsimile
      transmission) believed by it to be genuine and signed or sent by the
      proper party or parties.

            10.3. Rights of Agent as a Bank. With respect to its Commitment, the
      Loans made by it and the Notes issued to it, the Agent shall have the same
      rights and powers under this Agreement as any other Bank and may exercise
      the same as though it were not the Agent; and the term "Bank" or "Banks"
      shall, unless otherwise expressly indicated, include the Agent in its
      individual capacity. The Agent and its Affiliates may accept deposits
      from, lend money to, act as trustee under indentures of, and generally
      engage in any kind of business with, the Borrower, any of its Subsidiaries
      and any Person who may do business with or own securities of the Borrower
      or any Subsidiary, all as if the Agent were not the Agent and without any
      duty to account therefor to the Banks.

            10.4. Independent Credit Decisions. Each Bank acknowledges that it
      has, independently and without reliance upon the Agent or any other Bank
      and based on such documents and information as it has deemed appropriate,
      made its own credit analysis and decision to enter into this Agreement.
      Each Bank also acknowledges that it will, independently and without
      reliance upon the Agent or any other Bank and based on such documents and
      information as it shall deem appropriate at the time, continue to make its
      own credit decisions in taking or not taking action under this Agreement.
      Except for notices, reports and other documents and information expressly
      required to be furnished to the Banks by the Agent hereunder, the Agent
      shall have no duty or responsibility to provide any Bank with any credit
      or other information concerning the affairs, financial condition or
      business of the Borrower or any of its Subsidiaries (or any of their
      Affiliates) which may come into the possession of the Agent or any of its
      Affiliates.

            10.5. Indemnification. The Banks agree to indemnify the Agent (to
      the extent not reimbursed by the Borrower), ratably according to the
      respective amounts of their Commitments, from and against any and all
      liabilities, obligations, losses, damages, penalties, actions, judgments,
      suits, costs, expenses or disbursements of any kind or nature whatsoever
      which may be imposed on, incurred by, or asserted against the Agent in
      any way relating to or arising out of this Agreement or any action taken
      or omitted by the Agent under this Agreement, provided that no Bank shall
      be liable for any portion of any of the foregoing resulting from the
      Agent's gross negligence or willful misconduct. Without limitation of the
      foregoing, each Bank agrees to reimburse the Agent (to the extent not
      reimbursed by the Borrower) promptly upon demand for its ratable share of
      any out-of-pocket expenses (including counsel fees) incurred by the Agent
      in connection with the preparation, administration, or enforcement of, or
      legal advice in respect of rights or responsibilities under, this
      Agreement.

                                      -30-

<PAGE>

            10.6. Successor Agent. The Agent may resign at any time by giving at
      least sixty (60) days' prior written notice thereof to the Banks and the
      Borrower. Upon any such resignation, the Banks shall have the right to
      appoint a successor Agent. If no successor Agent shall have been so
      appointed by the Banks, and shall have accepted such appointment, within
      thirty (30) days after the retiring Agent's giving of notice of
      resignation, then the retiring Agent may, on behalf of the Banks, appoint
      a successor Agent, which shall be a commercial bank organized under the
      laws of the United States of America or of any State thereof. Upon the
      acceptance of any appointment as Agent hereunder by a successor Agent,
      such successor Agent shall thereupon succeed to and become vested with all
      the rights, powers, privileges and duties of the retiring Agent, and the
      retiring Agent shall be discharged from its duties and obligations under
      this Agreement.

            10.7. Sharing of Payments, Etc. If any Bank shall obtain any payment
      (whether voluntary, involuntary, through the exercise of any right of
      setoff, or otherwise) on account of the Notes held by it in excess of its
      ratable share of payments on account of the Notes obtained by all the
      Banks, such Bank shall purchase from the other Banks such participations
      in the Notes held by them as shall be necessary to cause such purchasing
      Bank to share the excess payment ratably with each of the other Banks,
      provided, however, that if all or any portion of such excess payment is
      thereafter recovered from such purchasing Bank, such purchase from each
      Bank shall be rescinded and each Bank shall repay to the purchasing Bank
      the purchase price to the extent of such recovery together with an amount
      equal to such Bank's ratable share (according to the proportion of (1) the
      amount of such Bank's required repayment to (2) the total amount so
      recovered from the purchasing Bank) of any interest or other amount paid
      or payable by the purchasing Bank in respect of the total amount so
      recovered. The Borrower agrees that any Bank so purchasing a participation
      from another Bank pursuant to this Section 10.7 may, to the fullest extent
      permitted by law, exercise all its rights of payment (including the right
      of setoff) with respect to such participation as fully as if such Bank
      were the direct creditor of the Borrower in the amount of such
      participation.

      11. MISCELLANEOUS.

            11.1. Amendments, Etc. No amendment, modification, termination, or
      waiver of any provision of any Loan Document to which the Borrower is a
      party, nor consent to any departure by the Borrower from any Loan Document
      to which it is a party, shall in any event be effective unless the same
      shall be in writing, and then such waiver or consent shall be effective
      only in the specific instance and for the specific purpose for which
      given, provided, however, that no amendment, waiver or consent shall,
      unless in writing and signed by all the Banks, do any of the following:
      (1) waive any of the conditions precedent specified in Section 4 hereof;
      (2) increase the Commitments of the Banks or subject the Banks to any
      additional obligations; (3) reduce the principal of, or interest on, the
      Notes or any fees hereunder; (4) postpone any date fixed for any payment
      of principal of, or interest on, the Notes or any fees hereunder; (5)
      change the percentage of the Commitments or of the aggregate unpaid
      principal amount of the Notes or the number of Banks which shall be

                                      -31-

<PAGE>

      required for the Banks or any of them to take action hereunder; or amend,
      modify or waive any provision of this Section 11.1, and provided further
      that no amendment, waiver, or consent shall, unless in writing and signed
      by the Agent in addition to the Banks required above to take such action,
      affect the rights or duties of the Agent under any of the Loan Documents.

            11.2. Notices, etc. All notices, consents, waivers, and other
      communications under this Agreement must be in writing and will be deemed
      to have been duly given when (a) delivered by hand (with written
      confirmation of receipt), (b) sent by telecopier (with written
      confirmation of receipt), provided that a copy is mailed by registered
      mail, return receipt requested, or (c) when received by the addressee, if
      sent by a nationally recognized overnight delivery service (receipt
      requested), in each case to the appropriate addresses and telecopier
      numbers set forth below (or to such other addresses and telecopier numbers
      as a party may designate by notice to the other parties):

            If to the Borrower:

            ORCHIDS PAPER PRODUCTS COMPANY
            Rt. 3, Box 69-8
            Pryor, Oklahoma 74361
            Attention: Keith R. Schroeder
            Facsimile No.: (918)824-0900

            With a copy to:

            Hall, Estill, Hardwick, Gable, Golden & Nelson, P.C.
            320 South Boston, Suite 400
            Tulsa, Oklahoma 74103
            Attention: Dean Luthey
            Facsimile No.: (918)594-0505

            If to the Agent:

            BANK OF OKLAHOMA, N.A.
            P.O. Box 2300
            Tulsa, Oklahoma 74192
            Attention: Stephen R. Wright
            Facsimile No.: (918)588-6880

                                      -32-

<PAGE>

            With a copy to:

            Riggs, Abney, Neal, Turpen, Orbison & Lewis
            502 West Sixth Street
            Tulsa, Oklahoma 74119
            Attention: Janet G. Mallow
            Facsimile No.: (918)584-1603

            If to Local Oklahoma Bank, N.A.:

            LOCAL OKLAHOMA BANK, N.A.
            2250 East 73rd Street, Suite 200
            Tulsa, Oklahoma 74136
            Attention: Elisabeth F. Blue
            Facsimile No.: (918) 497-2497

      or at such other address as shall be designated by such party in a written
      notice to the other party complying as to delivery with the terms of this
      Section 11.2. Except as is otherwise provided in this Agreement, all such
      notices and communications shall be effective when deposited in the mails
      addressed as aforesaid, except that notices for advances to the Agent
      pursuant to the provisions of Section 2.4 shall not be effective until
      received by the Agent. Any notices due from Borrower need only be sent to
      the Agent. The Agent shall provide copies of all notices from Borrower to
      the Banks.

            11.3. No Waiver. No failure or delay on the part of any Bank or the
      Agent in exercising any right, power or remedy hereunder shall operate as
      a waiver thereof, nor shall any single or partial exercise of any such
      right, power, or remedy preclude any other or further exercise thereof or
      the exercise of any other right, power, or remedy hereunder. The rights
      and remedies provided herein are cumulative, and are not exclusive of any
      other rights, powers, privileges, or remedies, now or hereafter existing,
      at law or in equity or otherwise.

            11.4. Successors and Assigns. This Agreement shall be binding upon
      and inure to the benefit of the Borrower, each Bank and the Agent, and
      their respective successors and assigns, except that the Borrower may not
      assign or transfer any of its rights under any Loan Document to which the
      Borrower is a party without the prior written consent of all the Banks.

            11.5. Costs, Expenses and Taxes. The Borrower agrees to pay on
      demand all costs and expenses incurred by the Agent in connection with the
      preparation, execution, delivery, filing, and initial administration of
      the Loan Documents, including without limitation the reasonable fees of
      Riggs, Abney, Neal, Turpen, Orbison & Lewis, and of any amendment,
      modification, or supplement to the Loan Documents, including, without
      limitation, the reasonable fees and out-of-pocket expenses of counsel for
      the Agent or any of the Banks, incurred in connection with advising the
      Agent or any of the Banks as to their rights and

                                      -33-

<PAGE>

      responsibilities hereunder. The Borrower also agrees to pay all such
      costs, expenses and reasonable fees, including court costs, incurred in
      connection with enforcement of the Loan Documents, or any amendment,
      modification, or supplement thereto, whether by negotiation, legal
      proceedings, or otherwise. In addition, the Borrower shall pay any and all
      stamp and other taxes and fees payable or determined to be payable in
      connection with the execution, delivery, filing, and recording of any of
      the Loan Documents and the other documents to be delivered under any such
      Loan Documents, and agrees to hold the Agent and the Banks harmless from
      and against any and all liabilities with respect to or resulting from any
      delay in paying or omission to pay such taxes and fees. This provision
      shall survive termination of this Agreement.

            11.6. Integration. This Agreement and the Loan Documents contain the
      entire agreement between the parties relating to the subject matter hereof
      and supersede all prior and contemporaneous oral statements and writings
      with respect thereto.

            11.7. Indemnity. The Borrower hereby agrees to defend, indemnify,
      and hold each Bank harmless from and against any and all claims, damages,
      judgments, penalties, costs, and expenses (including reasonable attorneys'
      fees and court costs now or hereafter arising from the aforesaid
      enforcement of this clause) arising directly or indirectly from the
      activities of the Borrower, its predecessors in interest, or third parties
      with whom they have a contractual relationship, or arising directly or
      indirectly from the violation of any environmental protection, health or
      safety law, whether such claims are asserted by any governmental agency or
      any other Person, except where such claim or expense arose from the gross
      negligence or willful misconduct of Agent or any Bank. This indemnity
      shall survive termination of this Agreement.

            11.8. Governing Law. This Agreement and the Notes shall be governed
      by, and construed in accordance with, the laws of the State of Oklahoma.

            11.9. Severability of Provisions. Any provision of any Loan
      Documents which is prohibited or unenforceable in any jurisdiction shall,
      as to such jurisdiction, be ineffective to the extent of such prohibition
      or unenforceability without invalidating the remaining provisions of such
      Loan Document or affecting the validity or enforceability of such
      provision in any other jurisdiction.

            11.10. Counterparts. This Agreement may be executed in any number of
      counterparts, and all the counterparts taken together shall be deemed to
      constitute one and the same instrument.

            11.11. Headings. Article and Section headings in the Loan Documents
      are included in such Loan Documents for the convenience of reference only
      and shall not constitute a part of the applicable Loan Documents for any
      other purpose.

                                      -34-

<PAGE>

            11.12. Jury Trial Waiver. BORROWER AND EACH BANK HEREBY WAIVE TRIAL
      BY JURY IN ANY ACTION, PROCEEDING, CLAIM, OR COUNTERCLAIM, WHETHER IN
      CONTRACT OR TORT, AT LAW OR IN EQUITY, ARISING OUT OF OR IN ANY WAY
      RELATED TO THIS AGREEMENT OR THE LOAN DOCUMENTS. BORROWER AND EACH BANK
      ALSO SUBMITS ITSELF AND OTHERWISE CONSENTS TO THE JURISDICTION AND VENUE
      OF THE MAYES COUNTY DISTRICT COURT OR FEDERAL DISTRICT COURT (NORTHERN
      DISTRICT OF OKLAHOMA), AS TO ANY DISPUTES OR OTHER MATTERS ARISING OUT OF
      OR IN CONNECTION HEREWITH.

            11.13. Conflicts. To the extent any conflict exists under any of the
      Loan Documents, this Agreement shall be controlling.

      IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.

                                  "Borrower"

                                  ORCHIDS PAPER PRODUCTS COMPANY

                                  By /s/ Keith R. Schroeder
                                     -------------------------------------------
                                     Keith R. Schroeder, Chief Financial Officer
                                     and Secretary

                                  "Banks"

                                  BANK OF OKLAHOMA, N.A.

                                  By /s/ Stephen R. Wright
                                     ----------------------------------------
                                     Stephen R. Wright, Senior Vice President

                                  Principal Office:

                                  Bank of Oklahoma Tower
                                  P.O. Box 2300
                                  Tulsa, Oklahoma 74192

                                      -35-

<PAGE>

                                   LOCAL OKLAHOMA BANK, N.A.

                                   By /s/ Elisabeth F. Blue
                                      -----------------------------------------
                                      Elisabeth F. Blue, Senior Vice President

                                   Principal Office:

                                   2250 East 73rd Street, Suite 200
                                   Tulsa, Oklahoma 74136

                                   "Agent"

                                   BANK OF OKLAHOMA, N.A.

                                   By /s/ Stephen R. Wright
                                      ----------------------------------------
                                      Stephen R. Wright, Senior Vide President

                                   Principal Office:

                                   Bank of Oklahoma Tower
                                   P.O. Box 2300
                                   Tulsa, Oklahoma 74192

                                      -36-

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