Exhibit 10.20

 

THIRD AMENDED AND RESTATED CREDIT AGREEMENT

 

 

AMONG:

 

LOUISIANA-PACIFIC CANADA LTD.

 

AND:

 

LOUISIANA-PACIFIC CORPORATION

 

AND:

 

ROYAL BANK OF CANADA

 

 

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TABLE OF CONTENTS

1.

INTERPRETATION

1.1

 

Definitions

1.2

 

Applicable Law

1.3

 

Severability

1.4

 

Successors and Assigns

1.5

 

Included Words

1.6

 

Headings and Marginal References

1.7

 

Cross References

1.8

 

Use of Word “Including”

1.9

 

Expiration of Summary of Terms and Conditions

1.10

 

Currency

1.11

 

Payment Dates and Interest Calculation

1.12

 

Accounting Terms

1.13

 

Schedules

2.

REPRESENTATIONS AND WARRANTIES

2.1

 

Representations and Warranties

2.2

 

Status of the Borrower

2.3

 

Status of Guarantor

2.4

 

Power and Authority

2.5

 

Due Authorization

2.6

 

No Contravention

2.7

 

No Breach

2.8

 

Leases and Licences

2.9

 

No Financial Default

2.10

 

Disclosure of Material Facts

2.11

 

Consents and Approvals

2.12

 

Title

2.13

 

LP Canada’s Financial Statements Furnished

2.14

 

Guarantor’s Financial Statements Furnished

2.15

 

No Change in LP Canada’s Financial Condition

2.16

 

Guarantor’s Financial Status

2.17

 

No Change in Guarantor’s Financial Condition

2.18

 

Solvency

2.19

 

Financial Statements Not Misleading

2.20

 

Taxes

2.21

 

Environmental Law Compliance

2.22

 

Insurance

2.23

 

ERISA Compliance by Guarantor

2.24

 

No Material Litigation

2.25

 

Government Acts

2.26

 

Margin Regulations

 

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2.27

 

Compliance with Laws

2.28

 

Environmental Matters

2.29

 

Purpose of Extensions of Credit

2.30

 

Subsidiaries

2.31

 

Ownership

2.32

 

Indebtedness

2.33

 

Investments

2.34

 

No Burdensome Restrictions

2.35

 

Accuracy and Completeness of Information

2.36

 

Material Contracts

3.

THE CREDIT FACILITY

3.1

 

Establishment of the Credit Facility

3.2

 

Currencies and Other Options Available Under the Credit Facility

3.3

 

Interest on Advances Under the Credit Facility

3.4

 

Issuance of Documentary Credits

3.5

 

Notice for Canadian Advances Under the Credit Facility

3.6

 

Obligation of Royal

3.7

 

Procedures for Issuance and Amendment of Documentary Credit; Auto-Renewal of
Documentary Credit

3.8

 

Drawings and Reimbursements

3.9

 

Obligations Absolute

3.10

 

Role of Royal

3.11

 

Documentary Credit Fees

3.12

 

Conflict with Letter of Credit Application

3.13

 

Existing Letters of Credit

3.14

 

Collateral Coverage; Restricted Cash Collateral

3.15

 

Security

3.16

 

Swap Contracts, PDS Services and EFT Transfers

3.17

 

Interest Act of Canada

3.18

 

Default Interest

3.19

 

Indemnity for Out of Pocket Expenses

3.20

 

Effective Time for Section 3 Notices

3.21

 

Increased Costs

3.22

 

Borrower’s Option on Receipt of an Increased Costs Certificate

3.23

 

Increased Costs Limitation

3.24

 

Repayment of Credit Facility

3.25

 

Extension of Maturity Date

3.26

 

Currency of All Payments

3.27

 

Borrower’s Right to Cancel Available Amount of Credit Facility

3.28

 

Facility Fee

3.29

 

Arrangement Fee

3.30

 

Evidence of Indebtedness

3.31

 

Determination of Available Amount of the Credit Facility

 

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4.

SECURITY FOR BORROWINGS

4.1

 

Security for Borrowings

4.2

 

Conflict Between the Agreement and Royal’s Security

4.3

 

Payment

4.4

 

Guarantees

5.

CREDIT FACILITY CONDITIONS PRECEDENT

5.1

 

Conditions Precedent to Initial Borrowings

5.2

 

Conditions Precedent to Subsequent Borrowings

6.

COVENANTS OF THE BORROWER AND THE GUARANTOR

6.1

 

Borrower’s Covenants

6.2

 

Guarantor’s Covenants

6.3

 

Environmental Law

7.

EVENTS OF DEFAULT

7.1

 

Definition of Event of Default

7.2

 

Remedies

7.3

 

Remedies Cumulative

7.4

 

Waivers

7.5

 

Application of Payments Following Acceleration

7.6

 

Royal May Perform Covenants

7.7

 

Waiver of Certain Defaults under Prior Credit Agreement

8.

GENERAL

8.1

 

Waiver

8.2

 

Effect of Amendment, Modification or Waiver

8.3

 

Time of the Essence

8.4

 

Further Assurances

8.5

 

Set Off

8.6

 

Judgement Currency

8.7

 

Account Debit Authorization

8.8

 

Expenses

8.9

 

Survival of Representations and Warranties

8.10

 

Notice

8.11

 

General Indemnity

8.12

 

Counterparts

8.13

 

Reasonable Consent or Approval of the Parties

8.14

 

Entire Agreement

8.15

 

No Deduction for Taxes

8.16

 

Participations and Assignments

8.17

 

Assignment After Default

8.18

 

Obligations of Borrower Re Facility Disposition

8.19

 

Confidentiality

 

 

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SCHEDULE A OFFICER’S COMPLIANCE CERTIFICATE

SCHEDULE B UNFUNDED PENSION LIABILITIES

SCHEDULE C BORROWING BASE CERTIFICATE

SCHEDULE D EXISTING LETTERS OF CREDIT

SCHEDULE E NOTICE OF BORROWING

SCHEDULE F CASH COLLATERAL RELEASE NOTICE

 

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THIRD AMENDED AND RESTATED CREDIT AGREEMENT

This Third Amended and Restated Credit Agreement is dated for reference
December 20, 2004

 

 

AMONG:

 

LOUISIANA-PACIFIC CANADA LTD., a British Columbia company having an office at
2100 - 1075 West Georgia Street, Vancouver, British Columbia, V6E 3G2

 

AND:

 

LOUISIANA-PACIFIC CORPORATION, a Delaware corporation having an office at Suite
1200, 805 S.W. Broadway, Portland, Oregon, U.S.A., 97205

 

AND:

 

ROYAL BANK OF CANADA, a Canadian chartered bank, having its head office in
Montreal, Quebec, and a branch office at 1025 West Georgia Street, Vancouver,
British Columbia, V6E 3N9

WHEREAS:

A.            The Borrower is a company formed by the amalgamation of
Louisiana-Pacific Canada Ltd. (“LP Canada”), LP Engineered Wood Products Ltd.
and Louisiana-Pacific B.C. Forest Products Limited (the “Amalgamation”);

B.            Royal and LP Canada are parties to a credit agreement dated for
reference November 30, 2001, which credit agreement was amended by a waiver and
first amendment dated as of July 23, 2002 and further amended by a second
amendment dated for reference November 27, 2002, a third amendment dated for
reference March 14, 2003 and a fourth amendment dated for reference June 27,
2003 (as so amended the “Prior Credit Agreement”);

C.            The Prior Credit Agreement was amended and restated by an amended
and restated credit agreement among Royal, LP Canada and the Guarantor dated for
reference September 15, 2003 and by a second amended and restated credit
agreement among Royal, the Borrower and the Guarantor dated for reference
April 5, 2004 (as so amended and restated the “Credit Agreement”);

D.            Royal and the Borrower desire to amend and restate the Credit
Agreement, as set forth herein;

E.             Pursuant to this Agreement, Royal has agreed to make available to
the Borrower:

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(a)                                  a committed, revolving credit facility
(unsecured by Collateral but with the Borrower having the option to cash
collateralize its liabilities and obligations in respect thereof) in the
principal amount of:

(1)                                  during any No Collateral Period of up to
$10,000,000, or the Equivalent Amount in U.S. Funds, and

(2)                                  during the Cash Collateral Period, up to
the lesser of:

(A)                              $10,000,000, or the Equivalent Amount in U.S.
Funds, or

(B)                                the amount of the Collateral Value of the
Borrowing Base; and

(b)                                 at Royal’s discretion, on an uncommitted
basis, lines of credit in the aggregate principal amount of up to $50,000,000 to
cover Swap Termination Values and liabilities of the Borrower or, with the
consent of Royal, any of its Subsidiaries in respect of EFT Transfers and PDS
Services, including overdrafts and cash management debts and liabilities.

F.             Pursuant to the Credit Agreement the Guarantor executed and
delivered the Guarantee.

1.                                      INTERPRETATION

1.1                               DEFINITIONS

Where used in this Agreement, the following terms shall have the following
meanings:

“Additional Amount” means the amount defined as such in Section 3.21;

“Administrative Agent” means Wachovia Bank, National Association, as
administrative agent for the Lenders under and pursuant to the Guarantor Credit
Agreement;

“Advances” means Canadian Advances;

“Affiliate” means, in relation to a specified Person, any other Person which
directly (or indirectly through one or more intermediaries) controls, or is
controlled by, or is under common control with, the specified Person or any
Subsidiary of the specified Person. The term “control” (including the phrases
“controlled by” or “under common control with”) means the possession, directly
or indirectly, of the effective power to direct or cause the direction of the
management and policies of such Person, whether through ownership of voting
securities or by contract or otherwise;

“Agreement” means this Third Amended and Restated Credit Agreement among the
Borrower, the Guarantor and Royal;

“Amended Subordination Agreement” means the subordination agreement dated for
reference April 5, 2004 among the Borrower, the Guarantor, certain Guarantor
Affiliates and Royal wherein all indebtedness owing by the Borrower to such
Guarantor Affiliates and to the Guarantor except for trade accounts payable
(including payables for

 

2

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management services) incurred in the ordinary course of business prior to
receipt from Royal of a notice of default, in the case of a default in respect
of which Royal is required to give notice before it becomes an Event of Default
or, an Event of Default, is expressly made subordinate and subject in right of
payment as therein provided to the prior payment in full of all indebtedness of
the Borrower to Royal under the Agreement;

“Applicable Percentage” means the rate per annum set forth below opposite the
applicable level then in effect based on the Guarantor’s then current Debt
Rating, it being understood that the Applicable Percentage for (a)  the
Documentary Credit Fee shall be (i) during the Cash Collateral Period, 0.05% and
(ii) during any No Collateral Period, the percentage set forth under the column
“Applicable Percentage for Documentary Credit Fee”, (b) Loans that are Canadian
Advances shall be (i) during the Cash Collateral Period, 0.00% and (ii) during
any No Collateral Period, the percentage set forth under the column “Applicable
Percentage for Canadian Advances”, and (c) the Facility Fee shall be the
percentage set forth under the column “Facility Fee”:

 

Tier

 

Rating

 

Applicable Percentage For Documentary Credit Fee

 

Applicable Percentage For Canadian Advance

 

Facility Fee

 

I

 

³ Baa1/BBB+

 

0.450

%

0.000

%

0.100

%

II

 

Baa2/BBB

 

0.500

%

0.000

%

0.125

%

III

 

Baa3/BBB-

 

0.700

%

0.000

%

0.150

%

IV

 

Ba1/BB+

 

1.050

%

0.050

%

0.200

%

V

 

Ba2/BB

 

1.250

%

0.250

%

0.250

%

VI

 

< Ba3/BB-

 

1.450

%

0.450

%

0.300

%

Any change in the Applicable Percentage due to a change in the Debt Rating shall
be effective on, and payable from, the effective date of such change in the Debt
Rating. Notwithstanding the foregoing, the Guarantor shall be obligated to
provide notice to Royal of any change in the Debt Rating in accordance with
Section 6.2(k).

If (a) only one of S&P and Moody’s at any time of determination shall have in
effect a Debt Rating, the Applicable Percentage shall be determined by reference
to the available rating, (b) neither S&P nor Moody’s at any time of
determination shall have in effect a Debt Rating, the Applicable Percentage will
be set in accordance with Tier VI, (c) the ratings established by S&P and
Moody’s shall fall within different levels, the Applicable Percentage shall be
based upon the higher rating; provided, that if there exists a multiple level
split in the ratings, the rating that is one level higher than the lower level
shall apply, (d) any rating established by S&P or Moody’s shall be changed, such

 

3

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change shall be effective as of the date on which such change is first announced
publicly by the Rating Agency making such change, and (e) S&P or Moody’s shall
change the basis on which ratings are established, each reference to the Debt
Rating announced by S&P or Moody’s, as the case may be, shall refer to the then
equivalent rating by S&P or Moody’s, as the case may be.

“BAS Investment Collateral Account” means the account of the Borrower numbered
249-01169 with Banc of America Securities LLC;

“Basis Point” and “BP” each means one one-hundredth (1/100) of one percent or
.01%;

“Borrower” means Louisiana-Pacific Canada Ltd., its successors and permitted
assigns;

“Borrower Guarantees” means the limited liability guarantees to be provided by
the Borrower guaranteeing the present and future, direct and indirect
obligations of any future Borrower Subsidiaries to Royal under the credit
facility established pursuant to Section 3.1(b) in favour of the Borrower and,
with the consent of Royal, to be available for utilization by Subsidiaries of
the Borrower in respect of EFT Transfers and PDS Services including overdrafts
and cash management debits and liabilities, as amended, modified, supplemented
extended, renewed or replaced from time to time;

“Borrower Subsidiaries” means all Subsidiaries of the Borrower;

“Borrower Subsidiaries’ Guarantees” means the limited liability guarantees to be
provided by any future Material Canadian Subsidiary, guaranteeing the present
and future, direct or indirect obligations of the Borrower to Royal under the
Agreement, as such guarantees may be amended, modified, supplemented, extended,
renewed or replaced from time to time;

“Borrowing” means a utilization or deemed utilization, as the case may be, by
the Borrower of the credit facility established pursuant to Section 3.1(a) by
way of Canadian Advances or Documentary Credits or of the credit facility
established pursuant to Section 3.1(b) by way of Canadian Advances or U.S.
Advances; and “Borrowings” means the aggregate of such utilizations;

“Borrowing Base Certificate” means a certificate in the form of Schedule C ;

“Borrowing Options” means any of the borrowing options available to the Borrower
pursuant to Section 3.2;

“Branch of Account” means the branch of Royal located at 1025 West Georgia
Street, Vancouver, British Columbia, V6E 3N9 or elsewhere as may be agreed
between the Borrower and Royal in writing;

“Business Day” means a day, excluding Saturday and Sunday, on which institutions
are open for business in Toronto, Ontario, Canada and Vancouver, British
Columbia, Canada and, in respect of any payments hereunder in U.S. Funds, a day
on which banking institutions are also open for business in New York, New York,
U.S.A.;

 

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“Canadian Advance” means any advance or conversion under the Credit Facility
requested by the Borrower in Canadian Funds and advanced by Royal in Canadian
Funds;

“Canadian Funds” and “Cdn$” and “$” means lawful currency of Canada;

“Capital Lease” means any lease of property, real or personal, the obligations
with respect to which are required to be capitalized on a balance sheet of the
lessee in accordance with GAAP;

“Capital Stock” means (a) in the case of a corporation, capital stock, (b) in
the case of an association or business entity, any and all shares, interests,
participations, rights or other equivalents (however designated) of capital
stock, (c) in the case of a partnership, partnership interests (whether general
or limited), (d) in the case of a limited liability company, membership
interests and (e) any other interest or participation that confers on a Person
the right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person;

“Cash Collateral Period” has the meaning ascribed thereto in Section 3.14;

“Cash Collateral Release Notice” means a notice in the form of Schedule F;

“Cash Equivalents” means:

(a)                                  Canadian Funds;

(b)                                 U.S. Funds;

(c)                                  certificates of deposit and term deposits
with maturities of six months or less from the date of acquisition;

“CDOR Rate” means the annual rate of interest equal to the average “BA 1 Month”
interest rates for Cdn$ bankers’ acceptances displayed and identified as such on
the “Reuters Screen CDOR Page” (as defined in the International Swap Dealer
Association Inc. definitions, as modified and amended from time to time) as of
10:00 a.m. local time at Toronto, Ontario on any particular day and, if such day
is not a Business Day, then on the Business Day immediately preceding that
Business Day (as adjusted by Royal after 10:00 a.m. local time at Toronto,
Ontario to reflect any error in a posted rate of interest or in the posted
average annual rate of interest). If such rates are not available on the Reuters
Screen CDOR Page on any particular day, then the CDOR Rate on that day shall be
the 30 day rates applicable to Cdn$ bankers’ acceptances quoted by Royal as of
10:00 a.m. local time at Toronto, Ontario on such day, or if such day is not a
Business Day, then on the immediately preceding Business Day;

“Change of Control” means the occurrence of one or more of the following events:
(a) any Person or two or more Persons acting in concert shall have acquired
“beneficial ownership,” directly or indirectly, of, or shall have acquired by
contract or otherwise, or shall have entered into a contract or arrangement
that, upon consummation, will result in its or

 

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their acquisition of, or control over, Voting Stock of the Guarantor (or other
securities convertible into such Voting Stock) representing 35% or more of the
combined voting power of all Voting Stock of the Guarantor, or (b) Continuing
Directors shall cease for any reason to constitute a majority of the members of
the board of directors of the Guarantor then in office. As used herein,
“beneficial ownership” shall have the meaning provided in Rule 13d-3 of the
Securities and Exchange Commission under the Securities Exchange Act of 1934;

“Charter” means the Certificate of Amalgamation and Articles of the Borrower,
the Certificate of Incorporation and Bylaws of the Guarantor, and the
Certificate of Incorporation, Articles and Bylaws of the Borrower Subsidiaries,
as the context requires, and includes in each case every amendment thereto;

“Chief Financial Officer” means that Person responsible for reporting to the
board of directors of the Borrower or the Guarantor, as the case may be, on the
financial condition and performance of the Borrower or the Guarantor, as the
case may be, or any Person designated as such;

“Closing Date” means December 21, 2005 or such earlier or later date as agreed
by Royal and the Borrower;

“Code” means the Internal Revenue Code of 1986, and regulations promulgated
thereunder;

“Collateral” means all property covered by the Restricted Cash Collateral
Agreements and any other property, real or personal, tangible or intangible, now
existing or hereafter acquired, that is subject to a security interest or Lien
in favour Royal to secure the Obligations;

“Collateral Agent” means Bank of America, N.A. as collateral agent for and on
behalf of the Lenders under and pursuant the Guarantor Credit Agreement;

“Collateral Value of the Borrowing Base” shall mean, at any date, 91% of the
amount of the Restricted Cash Collateral;

“Commonly Controlled Entity” means an entity, whether or not incorporated, which
is under common control with the Guarantor within the meaning of Section 4001 of
ERISA or is part of a group which includes the Guarantor and which is treated as
a single employer under Section 414 of the Code;

“Compliance Certificate” means the certificate defined as such in the Guarantor
Credit Agreement;

“Composite 3:30 p.m. Quotations for U.S. Government Securities” means the daily
statistical release designated as such published by the Federal Reserve Bank of
New York (U.S.A.) or in any successor publication;

 

6

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“Consolidated EBITDA” means, for any period, determined for the Guarantor and
its Subsidiaries on a consolidated basis, the sum of (a) Consolidated Net
Income, plus (b) an amount which, in the determination of Consolidated Net
Income, has been deducted for (i) Consolidated Interest Expense, (ii) total
federal, state, local and foreign income and similar taxes, (iii) depreciation
and amortization expense, and (iv) other non-cash items (excluding any such
non-cash item to the extent that it represents an accrual or reserve for
potential cash items in any future period or amortization of a prepaid cash item
that was paid in a prior period), minus (c) non-cash items increasing
Consolidated Net Income for such period (excluding any such non-cash item to the
extent it represents the reversal of an accrual or reserve for potential cash
item in any prior period or will result in the receipt of cash payments in a
future period), all as determined in accordance with GAAP. Unless expressly
indicated otherwise, the applicable period shall be for the four consecutive
quarters ending on the date of computation;

“Consolidated Interest Coverage Ratio” means, as of the end of any fiscal
quarter of the Guarantor for the four fiscal quarter period ending on such date
with respect to the Guarantor and its Subsidiaries on a consolidated basis, the
ratio of (a) Consolidated EBITDA for such period to (b) the difference (to the
extent the difference between the following is negative, for purposes of
calculating the Consolidated Interest Coverage Ratio, this clause (b) shall be
set at $1) of (i) Consolidated Interest Expense for such period minus (ii)
Consolidated Interest Income for such period;

“Consolidated Interest Expense” means, for any period, all interest expense
(including, without limitation, the interest component under Capital Leases) of
the Guarantor and its Subsidiaries on a consolidated basis, including all
commissions, discounts and other fees and charges owed with respect to letters
of credit and net costs under Swap Contracts, as determined in accordance with
GAAP. Unless expressly indicated otherwise, the applicable period shall be for
the four consecutive quarters ending on the date of computation;

“Consolidated Interest Income” means, for any period, all interest income of the
Guarantor and its Subsidiaries on a consolidated basis, as determined in
accordance with GAAP. Unless expressly indicated otherwise, the applicable
period shall be for the four consecutive quarters ending on the date of
computation;

“Consolidated Leverage Ratio” means, as of the end of any fiscal quarter of the
Guarantor for the four fiscal quarter period ending on such date with respect to
the Guarantor and its Subsidiaries on a consolidated basis, the ratio of (a)
Funded Debt of the Guarantor and its Subsidiaries on a consolidated basis on the
last day of such period to (b) Consolidated EBITDA for such period;

“Consolidated Net Income” means for any period, net income of the Guarantor and
its Subsidiaries on a consolidated basis, as determined in accordance with GAAP.
Unless expressly indicated otherwise, the applicable period shall be for the
four consecutive quarters ending on the date of computation;

 

7

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“Consolidated Net Worth” means, as of any date of computation, (a) Consolidated
Total Assets minus (b) the total liabilities of the Guarantor and its
Subsidiaries on a consolidated basis, as determined in accordance with GAAP;

“Consolidated Total Assets” means, on the date of computation, the amount of
total assets of the Guarantor and its Subsidiaries on a consolidated basis, as
determined in accordance with GAAP;

“Contaminant” means, but is not limited to meaning, any pollutants, dangerous
substances, liquid waste, industrial waste, hauled liquid waste, toxic
substances, hazardous wastes, hazardous materials, hazardous substances or
contaminants including any of the foregoing as defined in any Environmental Law;

“Continuing Directors” means during any period of up to 24 consecutive months
commencing after September 1, 2004, individuals who at the beginning of such
24 month period were directors of the Guarantor (together with any new director
whose election by the Guarantor’s board of directors or whose nomination for
election by the Guarantor’s shareholders was approved by a vote of at least
two-thirds of the directors then still in office who either were directors at
the beginning of such period or whose election or nomination for election was
previously so approved);

“Credit Facility” means, collectively the credit facilities described in Section
3.1;

“Credit Party” means any of the Guarantor and the guarantors under the Guarantor
Credit Agreement;

“Credit Party Obligations” means all of the obligations of the Credit Parties
under the Guarantor Credit Agreement and the other Guarantor Credit Documents;

“Currencies” means Canadian Funds or U.S. Funds;

“Debt Rating” means the debt rating for the Guarantor’s senior, unsecured,
non-credit enhanced long-term indebtedness for money borrowed as determined by
Moodys and S&P;

“Debtor Relief Laws” means the Bankruptcy Code of the United States, and all
other liquidation, conservatorship, bankruptcy, assignment for the benefit of
creditors, moratorium, rearrangement, receivership, insolvency, reorganization
or similar debtor relief laws of the United States, any state thereof or other
applicable jurisdictions from time to time in effect and affecting the rights of
creditors generally;

“Default” means any event that would constitute an Event of Default, whether or
not any requirement for the giving of notice or lapse of time, or both, or any
other condition, has been satisfied,

“Defaulting Lender” shall have the meaning ascribed to it in the Guarantor
Credit Agreement;

 

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“Disposition” means, with respect to any Person, the sale, transfer, license or
other disposition (including any sale and leaseback transaction) of any property
(other than the Stock of such Person) by such Person, including any sale,
assignment, transfer or other disposal, with or without recourse, of any notes
or accounts receivable or any rights and claims associated therewith;

“Documentary Credit Application” means an application and agreement for the
issuance or amendment of a Documentary Credit in the form from time to time used
by Royal;

“Documentary Credit Fee” means the fee for Guarantee Letters and Letters of
Credit charged by Royal pursuant to Section 3.11;

“Documentary Credits” means Guarantee Letters and Letters of Credit;

“Domestic Subsidiary” means any Subsidiary that is organized and existing under
the laws of the United States or any state or commonwealth thereof or under the
laws of the District of Columbia;

“Drawdown Date” means a Business Day on which a Borrowing is advanced to the
Borrower;

“EFT Transfers” means electronic funds transfers by the Borrower or its present
and future Subsidiaries;

“EFT Transfer Fees” means the fees charged by Royal in respect of EFT Transfers;

“Environmental Activity” means any past, present or future activity, event or
circumstance in respect of a Contaminant, including its storage, use, holding,
collection, purchase, accumulation, assessment, generation, manufacture,
construction, processing, treatment, stabilization, disposition, handling or
transportation, or its Release, escape, leaching, dispersal or migration into
the natural environment, including the movement through or in the air, soil,
surface water or groundwater;

“Environmental Law” means any and all applicable federal, provincial, municipal
or local laws, statutes, regulations, orders, judgements, decrees, ordinances,
official directives and all authorizations, relating to the environment or any
Environmental Activity;

“Equivalent Amount” means at any time on any date, the amount in Canadian Funds
or U.S. Funds, as the case may be, which would result from the conversion of
U.S. Funds to Canadian Funds or Canadian Funds to U.S. Funds, as the case may
be, determined on the basis of the Spot Buying Rate for U.S. Funds against
Canadian Funds or Canadian Funds against U.S. Funds, as the case may be. If the
date for determination of an Equivalent Amount is not a Business Day, the
applicable rate shall be the Spot Buying Rate quoted on the immediately
preceding Business Day;

 

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“ERISA” means the Employee Retirement Income Security Act of 1974 and
regulations issued pursuant thereto;

“ERISA Affiliate” means any trade or business (whether or not incorporated)
under common control with the Guarantor within the meaning of Section 414(b) or
(c) of the Code (and Sections 414(m) and (o) of the Code for purposes of
provisions relating to Section 412 of the Code) other than the Guarantor and its
Subsidiaries;

“ERISA Event” means:

(a)                                  a Reportable Event with respect to a
Pension Plan;

(b)                                 a withdrawal by the Guarantor or any ERISA
Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan
year in which it was a substantial employer (as defined in Section 4001(a) (2)
of ERISA) or a cessation of operations that is treated as such a withdrawal
under Section 4062(e) of ERISA which could reasonably be expected to give rise
to any liability with respect to such withdrawal;

(c)                                  a complete or partial withdrawal by the
Guarantor or any ERISA Affiliate from a Multiemployer Plan or notification that
a Multiemployer Plan is in reorganization;

(d)                                 the filing of a notice of intent to
terminate, the treatment of a Plan amendment as a termination under Section 4041
or 4041A of ERISA, or the commencement of proceedings by the PBGC to terminate a
Pension Plan or Multiemployer Plan;

(e)                                  an event or condition which might
reasonably be expected to constitute grounds under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any Pension Plan
or Multiemployer Plan; or

(f)                                    the imposition of any liability under
Title IV of ERISA, other than for PBGC premiums due but not delinquent under
Section 4007 of ERISA, upon the Guarantor or any ERISA Affiliate;

“Event of Default” means any event set forth in Section 7.1 of the Agreement;

“Existing Letters of Credit” means the letters of credit issued pursuant to the
Prior Credit Agreement and listed in Schedule D;

“Extension of Credit” has the meaning ascribed to it in the Guarantor Credit
Agreement;

“Facility Fee” has the meaning ascribed thereto in Section 3.28;

“Federal Funds Effective Rate” means on any day, the rate of interest per annum
set forth in the H.15(519) for that day opposite the caption “Federal Funds
Effective”. If on

 

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any day such rate is not yet published in the H.15(519), the rate for such day
will be the rate set forth in the Composite 3:30 p.m. Quotations for US
Government Securities for such day under the caption “Federal Funds Effective
Rate”. If on any day such rate is not yet published in either the H.15(519) or
the Composite 3:30 p.m. Quotations for US Government Securities such rate shall
be the average of the quotations for such day on overnight Federal Funds (such
words to have the meaning generally given to them by money market brokers of
recognised standing doing business in the United States of America) transactions
received by Royal from three Federal Funds brokers of recognised standing
selected by Royal;

“Funded Debt” means, with respect to any Person, without duplication, (a) all
obligations of such Person for borrowed money, (b) all obligations of such
Person evidenced by bonds, debentures, notes or similar instruments, or upon
which interest payments are customarily made, (c) all obligations of such Person
under conditional sale or other title retention agreements relating to property
purchased by such Person (other than customary reservations or retentions of
title under agreements with suppliers entered into in the ordinary course of
business), (d) all obligations (including, without limitation, earnout
obligations) of such Person incurred, issued or assumed as the deferred purchase
price of property or services purchased by such Person (other than trade debt
incurred in the ordinary course of business and due within nine months of the
incurrence thereof) that would appear as liabilities on a balance sheet of such
Person, (e) the principal portion of all obligations of such Person under
Capital Leases, (f) all obligations of such Person under Swap Contracts,
excluding any portion thereof that would be accounted for as interest expense
under GAAP, (g) the maximum amount of all letters of credit issued or bankers’
acceptances facilities created for the account of such Person and, without
duplication, all drafts drawn and unreimbursed thereunder, (h) all preferred
Capital Stock or other equity interests issued by such Person and which by the
terms thereof could be (at the request of the holders thereof or otherwise)
subject to mandatory sinking fund payments, redemption or other acceleration on
or prior to the Maturity Date, (i) the principal balance outstanding under any
synthetic lease, tax retention operating lease, off-balance sheet loan or
similar off-balance sheet financing product, (j) all Indebtedness of others of
the type described in clauses (a) through (i) hereof secured by (or for which
the holder of such Indebtedness has an existing right, contingent or otherwise,
to be secured by) any Lien on, or payable out of the proceeds of production
from, property owned or acquired by such Person, whether or not the obligations
secured thereby have been assumed, (k) all Guaranty Obligations of such Person
with respect to Indebtedness of another Person of the type described in clauses
(a) through (i) hereof, and (l) all Indebtedness of the type described in
clauses (a) through (i) hereof of any partnership or unincorporated joint
venture in which such Person is a general partner or a joint venturer; provided,
that Funded Debt shall not include any Indebtedness of the Guarantor or its
Subsidiaries that is non-recourse to the Guarantor or its Subsidiaries or their
respective assets;

“GAAP” shall mean generally accepted accounting principles in effect in the
United States of America applied on a consistent basis, subject, however, in the
case of determination of compliance with the financial covenants set out in
Section 6.2 (nn) and (oo) to the provisions of Section 1.11;

 

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“Governmental Approval” means any authorization, permit, approval, grant,
licence, consent, right, privilege, registration, filing, order, commitment,
judgement, direction, ordinance, decree or like instrument or affirmation issued
or granted by any Governmental Body;

 

“Governmental Body” means, as the context requires, any government, parliament,
legislature, regulatory authority, agency, tribunal, department, commission,
board or court or other law, regulation or rule making entity (including a
Minister of the Crown) having or purporting to have jurisdiction on behalf of
any country or nation, any province, state, municipality, region, district, any
subdivision thereof or any other lawful authority;

“Guarantee” means the limited liability guarantee of the Guarantor dated for
reference September 15, 2003 guaranteeing the present and future, direct or
indirect obligations of the Borrower to Royal under the Agreement, as such
guarantee may be amended, modified, supplemented, extended, renewed or replaced
from time to time;

“Guarantee Letters” means the letters of guarantee issued by Royal pursuant to
Section 3.4;

“Guarantor” means Louisiana-Pacific Corporation, its successors and permitted
assigns;

“Guarantor Affiliates” means any Affiliate of the Guarantor, their respective
successors and permitted assigns;

“Guarantor Credit Agreement” means the credit agreement in respect of the
Guarantor Credit Facility, as it existed on September 1, 2004 unless otherwise
provided;

“Guarantor Credit Facility” means the credit facility made available to the
Guarantor pursuant to the terms of a Credit Agreement entered into as of
September 1, 2004 among the Guarantor, as borrower, Bank of America, N.A., as
Collateral Agent and Syndication Agent, Wachovia Bank, National Association, as
the Administrative Agent, Royal and The Bank of Nova Scotia, as Documentation
Agents and the other lenders party to the credit agreement;

“Guarantor Credit Documents” means the Guarantor Credit Agreement and all other
agreements, documents, certificates and instruments delivered in connection
therewith (other than any agreement, document, certificate or instrument related
to a Swap Contract);

“Guaranty Obligations” means, with respect to any Person, without duplication,
any obligations of such Person (other than endorsements in the ordinary course
of business of negotiable instruments for deposit or collection) guaranteeing or
intended to guarantee any Indebtedness of any other Person in any manner,
whether direct or indirect, and including without limitation any obligation,
whether or not contingent, (a) to purchase any such Indebtedness or any property
constituting security therefor, (b) to advance or provide funds or other support
for the payment or purchase of any such Indebtedness or to maintain working
capital, solvency or other balance sheet condition of such other Person
(including

 

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without limitation keep well agreements, maintenance agreements, comfort letters
or similar agreements or arrangements) for the benefit of any holder of
Indebtedness of such other Person, (c) to lease or purchase property, securities
or services primarily for the purpose of assuring the holder of such
Indebtedness, or (d) to otherwise assure or hold harmless the holder of such
Indebtedness against loss in respect thereof. The amount of any Guaranty
Obligation under the Guarantor Credit Agreement shall (subject to any
limitations set forth therein) be deemed to be an amount equal to the
outstanding principal amount (or maximum principal amount, if larger) of the
Indebtedness in respect of which such Guaranty Obligation is made;

“H.15(519)” means the weekly statistical release designated as such published by
the Board of Governors of the Federal Reserve System of the United States of
America or in any successor publication;

“Indebtedness” means, with respect to any Person, without duplication, (a) all
obligations of such Person for borrowed money, (b) all obligations of such
Person evidenced by bonds, debentures, notes or similar instruments, or upon
which interest payments are customarily made, (c) all obligations of such Person
under conditional sale or other title retention agreements relating to property
purchased by such Person (other than customary reservations or retentions of
title under agreements with suppliers entered into in the ordinary course of
business), (d) all obligations (including, without limitation, earnout
obligations) of such Person incurred, issued or assumed as the deferred purchase
price of property or services purchased by such Person (other than trade debt
incurred in the ordinary course of business and due within nine months of the
incurrence thereof) that would appear as liabilities on a balance sheet of such
Person, (e) the principal portion of all obligations of such Person under
Capital Leases, (f) all obligations of such Person under Swap Contracts,
excluding any portion thereof that would be accounted for as interest expense
under GAAP, (g) the maximum amount of all letters of credit issued or bankers’
acceptances facilities created for the account of such Person and, without
duplication, all drafts drawn and unreimbursed thereunder (excluding performance
based letters of credit issued to the Guarantor’s customers in connection with
certain long-term contracts), (h) all preferred Capital Stock or other equity
interests issued by such Person and which by the terms thereof could be (at the
request of the holders thereof or otherwise) subject to mandatory sinking fund
payments, redemption or other acceleration, (i) the principal balance
outstanding under any synthetic lease, tax retention operating lease,
off-balance sheet loan or similar off-balance sheet financing product, (j) all
obligations of such Person under take-or-pay or similar arrangements or under
commodities agreements, (k) all Indebtedness of others of the type described in
clauses (a) through (j) hereof secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any Lien on, or payable out of the proceeds of production from, property owned
or acquired by such Person, whether or not the obligations secured thereby have
been assumed, (l) all Guaranty Obligations of such Person with respect to
Indebtedness of another Person of the type described in clauses (a) through (j)
hereof, and (m) all Indebtedness of the type described in clauses (a) through
(j) hereof of any partnership or unincorporated joint venture in which such
Person is a general partner or a joint venturer in proportion to such Person’s
ownership percentage in such partnership or joint venture;

 

13

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“Indentures” means, collectively, the Senior Note Indentures and the Senior
Subordinated Note Indenture;

“Insolvency” means, with respect to any Multiemployer Plan, the condition that
such Plan is insolvent within the meaning of such term as used in Section 4245
of ERISA;

“Insurance Coverage” means insurance provided by financially sound and reputable
insurers or through a program of self-insurance with reserves in accordance with
sound business practices or a combination of both, insuring the property, assets
and business of the Borrower against such liabilities, casualties, risks and
contingencies and in such types of insurance as is customary for companies
engaged in the same or similar businesses including:

(a)                                  fire, earthquake and extended coverage
insurance on a replacement cost basis,

(b)                                 boiler, furnace and machinery insurance,

(c)                                  course of construction insurance (to the
extent necessary to insure any modifications under construction),

(d)                                 business interruption insurance,

(e)                                  public liability insurance, and

(f)                                    inventory insurance insuring the
inventory of the Borrower not in transit to purchasers;

“Investment Grade Debt Rating” means a Debt Rating of BBB- or higher by S&P and
Baa3 or higher by Moody’s; provided, however, if (a) only one of S&P and Moody’s
at any time of determination shall have in effect a Debt Rating, the available
rating shall apply, (b) neither S&P nor Moody’s at any time of determination
shall have in effect a Debt Rating, the Guarantor shall not have an Investment
Grade Debt Rating, (c) the ratings established by S&P and Moody’s shall fall
within different levels, the higher rating shall apply; provided, that if there
exists a multiple level split in the ratings, the rating that is one level
higher than the lower level shall apply, (d) any rating established by S&P or
Moody’s shall be changed, such change shall be effective as of the date on which
such change is first announced publicly by the rating agency making such change,
and (e) S&P or Moody’s shall change the basis on which ratings are established,
each reference to the Debt Rating announced by S&P or Moody’s, as the case may
be, shall refer to the then equivalent rating by S&P or Moody’s, as the case may
be;

“Investment” means, as to any Person, any direct or indirect acquisition or
investment by such Person, whether by means of (a) the purchase or other
acquisition of capital stock or other securities of another Person, (b) a loan,
advance or capital contribution to, guaranty or assumption of debt of, or
purchase or other acquisition of any other debt or equity participation or
interest in, another Person, including any partnership or joint venture interest
in such other Person, or (c) the purchase or other acquisition (in one

 

14

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transaction or a series of transactions) of assets of another Person that
constitute a business unit;

“Joinder Agreement” has the meaning ascribed to it in the Guarantor Credit
Agreement;

“Judgment Currency” has the meaning ascribed thereto in Section 8.6;

“Lenders” means the parties who from time to time may become party to the
Guarantor Credit Agreement as lenders;

“Letter of Credit Expiration Date” means February 1, 2006;

“Letters of Credit” means letters of credit issued by Royal pursuant to Section
3.4 and Existing Letters of Credit;

“Lien” means any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), charge or other security
interest or any 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 and any Capital Lease having
substantially the same economic effect as any of the foregoing);

“Loan” has the meaning ascribed to it in the Guarantor Credit Agreement;

“Margin Stock” has the meaning ascribed to it in Regulation U;

“Master Agreement” has the meaning ascribed thereto in the definition “Swap
Contract”;

“Material Adverse Effect” has the meaning set forth in the Guarantor Credit
Agreement as in effect as of September 1, 2004;

“Material Canadian Subsidiary” means a subsidiary of the Borrower which is 100%
legally and beneficially owned by the Borrower which has all or substantially
all of its property and assets located in Canada;

 

“Material Contract” means any contract or other agreement, whether written or
oral, to which any Credit Party or any of its Subsidiaries is a party as to
which the breach, nonperformance, cancellation or failure to renew by any party
thereto could reasonably be expected to have a Material Adverse Effect;

“Material Proceeding” means any litigation, investigation or other proceeding by
or before any Governmental Body (a) which involves any of the Guarantor Credit
Documents or any of the transactions contemplated thereby, (b) which involves
the Guarantor or any of its Subsidiaries as a party or the property of the
Guarantor or any of its Subsidiaries, and could reasonably be expected to have a
Material Adverse Effect if adversely determined, (c) in which there has been
issued an injunction, writ, temporary

 

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restraining order or any other order of any nature which purports to restrain or
enjoin the making of any requested Extension of Credit, the consummation of any
other transaction contemplated by the Guarantor Credit Documents, or the
enforceability of any provision of any of the Guarantor Credit Documents,
(d) which involves the breach or violation by the Guarantor or any of its
Subsidiaries of, or default by the Guarantor or any of its Subsidiaries under,
any Material Contract which, in each case, could reasonably be expected to have
a Material Adverse Effect or (e) which involves the violation by the Guarantor
or any of its Subsidiaries of any applicable law which could reasonably be
expected to have a Material Adverse Effect;

“Maturity Date” means the later of:

(a)                                  364 days after the Closing Date (as such
term is defined in the Guarantor Credit Agreement); and

(b)                                 such date as Royal may from time to time
determine following written notice from the Borrower requesting a Maturity Date
extension,

in both cases subject to the provisions of Section 3.25;

“Multiemployer Plan” means any employee benefit plan of a type described in
Section 4001(a) (3) of ERISA, to which the Guarantor or any ERISA Affiliate
makes or is obligated to make contributions or during the preceding three
calendar years, has made or been obligated to make contributions;

“No Collateral Period” means any period after the Closing Date that is not the
Cash Collateral Period;

“Notice of Borrowing” means a notice in the form of Schedule E;

“Obligations” means all advances to, and debts, liabilities, obligations,
covenants and duties of, the Borrower arising under this Agreement, Advances,
Royal’s Security and all other documents executed by the Borrower and delivered
to Royal in connection with the transactions contemplated by the Agreement, and
all advances to, and debts, liabilities, obligations, covenants and duties of,
the Borrower otherwise owing to Royal with respect to any Borrowings, whether
direct or indirect (including those acquired by assumption), absolute or
contingent, due or to become due, now existing or hereafter arising;

“Off-Balance Sheet Liabilities” means, with respect to any Person as of any date
of determination thereof, without duplication and to the extent not included as
a liability on the consolidated balance sheet of such Person and its
Subsidiaries in accordance with GAAP: (a) with respect to any asset
securitization transaction (including any accounts receivable purchase facility)
(i) the unrecovered investment of purchasers or transferees of assets so
transferred, and (ii) any other payment, recourse, repurchase, hold harmless,
indemnity or similar obligation of such Person or any of its Subsidiaries in
respect of assets transferred or payments made in respect thereof, other than
limited recourse provisions that are customary for transactions of such type and
that neither (x) have the effect of limiting the loss or credit risk of such
purchasers or transferees with

 

16

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respect to payment or performance by the obligors of the assets so transferred
nor (y) impair the characterization of the transaction as a true sale under
applicable laws (including Debtor Relief Laws); (b) the monetary obligations
under any financing lease or so-called “synthetic”, tax retention or off-balance
sheet lease transaction which, upon the application of any Debtor Relief Law to
such Person or any of its Subsidiaries, would be characterized as indebtedness;
(b) the monetary obligations under any sale and leaseback transaction which does
not create a liability on the consolidated balance sheet of such Person and its
Subsidiaries; or (c) any other monetary obligation arising with respect to any
other transaction which (i) upon the application of any Debtor Relief Law to
such Person or any of its Subsidiaries, would be characterized as indebtedness
or (ii) is the functional equivalent of or takes the place of borrowing but
which does not constitute a liability on the consolidated balance sheet of such
Person and its Subsidiaries (for purposes of this clause (c), any transaction
structured to provide tax deductibility as interest expense of any dividend,
coupon or other periodic payment will be deemed to be the functional equivalent
of a borrowing);

“Participation Interests” has the meaning ascribed to it in the Guarantor Credit
Agreement;

“PBGC” means the Pension Benefit Guaranty Corporation established pursuant to
Subtitle A of Title IV of ERISA;

“PDS Services” means payment distribution services as may be approved from time
to time by Royal;

“PDS Services Fees” means the fees charged by Royal in respect of PDS Services;

“Pension Plan” means any “employee pension benefit plan” (as such term is
defined in Section 3(2) of ERISA), other than a Multiemployer Plan, that is
subject to Title IV of ERISA and is sponsored or maintained by the Guarantor or
any ERISA Affiliate or to which the Guarantor or any ERISA Affiliate contributes
or has an obligation to contribute, or in the case of a multiple employer plan
(as described in Section 4064(a) of ERISA) has made contributions at any time
during the immediately preceding five plan years;

“Permitted Acquisition” means an acquisition or any series of related
acquisitions by a Credit Party of the assets or all of the Capital Stock of a
Person that is incorporated, formed or organized in the United States or any
division, line of business or other business unit of a Person that is
incorporated, formed or organized in the United States (such Person or such
division, line of business or other business unit of such Person referred to
herein as the “Target”), in each case that is in the same line of business (or
assets used in the same line of business) as the Credit Parties and their
Subsidiaries, so long as (a) no Default or Event of Default shall then exist or
would exist after giving effect thereto, (b) if applicable, the Credit Parties
shall have complied with the documentation requirements for a Permitted
Acquisition as set forth in Section 6.2(j), (c) the Credit Parties shall
demonstrate to the reasonable satisfaction of Royal that the Credit Parties will
be in compliance on a pro forma basis with all of the terms and provisions of
the financial covenants set forth in Sections 6.2 (nn) and (oo), (d) the

 

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Target, if a Person, shall have executed a Joinder Agreement in accordance with
the terms of Section 6.2(w), and (e) such acquisition has been approved by the
Board of Directors and/or shareholders of the applicable Credit Party;

 

“Permitted Cash Collateral” means (i) cash and (ii) investments in the Nations
Money Market Reserves Fund and Nations Treasury Reserves Fund held in the BAS
Investment Collateral Account or any successor funds approved by the
Administrative Agent;

 

“Permitted Investments” means:

(a)                                  cash and Cash Equivalents (as defined in
the Guarantor Credit Agreement);

(b)                                 receivables owing to the Guarantor or any of
its Subsidiaries or any receivables and advances to suppliers, in each case if
created, acquired or made in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms;

(c)                                  Investments in and loans to any Credit
Parties;

(d)                                 (i) loans and advances to employees (other
than any officer or director) of the Guarantor or its Subsidiaries in an
aggregate amount not to exceed $5,000,000 at any time outstanding and (ii) in
addition to the loans and advances made pursuant to the immediately preceding
clause (i), advances to employees of the Guarantor or its Subsidiaries made in
accordance with the Guarantor’s relocation policy in connection with the
relocation of the Guarantor’s headquarters from Portland, Oregon to Nashville,
Tennessee;

(e)                                  Investments (including debt obligations)
received in connection with the bankruptcy or reorganization of suppliers and
customers and in settlement of delinquent obligations of, and other disputes
with, customers and suppliers arising in the ordinary course of business;

(f)                                    Investments, acquisitions or transactions
permitted under Section 6.2(bb)(2);

(g)                                 Swap Contracts entered into by the Guarantor
to the extent permitted pursuant to Section 6.2(y);

(h)                                 Permitted Acquisitions;

(i)                                     Permitted Cash Collateral;

(j)                                     Investments in and loans to the Borrower
not to exceed (i) the amount of such Investments and loans outstanding on
September 1, 2004 (the “Closing Date Investment Amount”) plus (ii) on a
cumulative basis as of

 

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the end of each fiscal year of the Guarantor, commencing with the fiscal year
ending December 31, 2004 (A) for such fiscal year, 15% of the Closing Date
Investment Amount, and (B) for each subsequent fiscal year, 15% of the aggregate
Investments in and loans to the Borrower as of the end of the immediately
preceding fiscal year;

(k)                                  Investments existing (or committed to made,
but not yet funded) on September 1, 2004 and listed on Schedule 1.1-D to the
Guarantor Credit Agreement;

(l)                                     Investments in Securitization Vehicles;
provided, however, that both immediately before and after giving effect to such
Investment no Default or Event of Default shall have occurred and be continuing,
and Investments of any Securitization Vehicle in the Guarantor or in another
Securitization Vehicle; and

(m)                               other Investments in addition to those
permitted by the foregoing clauses in an aggregate amount not to exceed 20% of
Consolidated Net Worth at any time outstanding;

 

“Permitted Liens” means:

(a)                                  Liens created by or otherwise existing,
under or in connection with the Guarantor Credit Agreement or the other
Guarantor Credit Documents;

(b)                                 purchase money Liens securing purchase money
indebtedness (and refinancings thereof) to the extent permitted under Section
6.2(y)(3);

(c)                                  Liens for taxes, assessments, charges or
other governmental levies not yet due or as to which the period of grace (not to
exceed sixty (60) days), if any, related thereto has not expired or which are
being contested in good faith by appropriate proceedings, provided that adequate
reserves with respect thereto are maintained on the books of the Guarantor or
its Subsidiaries, as the case may be, in conformity with GAAP (or, in the case
of Subsidiaries with significant operations outside of the United States of
America, generally accepted accounting principles in effect from time to time in
their respective jurisdictions of incorporation);

(d)                                 carriers’, warehousemen’s, mechanics’,
materialmen’s, repairmen’s or other like Liens arising in the ordinary course of
business which are not overdue for a period of more than sixty (60) days or
which are being contested in good faith by appropriate proceedings;

(e)                                  pledges or deposits in connection with
workers’ compensation, unemployment insurance and other social security
legislation and deposits securing liability to insurance carriers under
insurance or self-insurance arrangements;

 

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(f)                                    deposits to secure the performance of
bids, trade contracts, (other than for borrowed money), leases, statutory
obligations, surety and appeal bonds, performance bonds and other obligations of
a like nature incurred in the ordinary course of business;

(g)                                 any extension, renewal or replacement (or
successive extensions, renewals or replacements) , in whole or in part, of any
Lien referred to in the foregoing clauses; provided that such extension, renewal
or replacement Lien shall be limited to all or a part of the property which
secured the Lien so extended, renewed or replaced (plus improvements on such
property);

(h)                                 Liens existing on September 1, 2004 and set
forth on Schedule 1.1-B to the Guarantor Credit Agreement; provided that (i) no
such Lien shall at any time be extended to cover property or assets other than
the property or assets subject thereto on September 1, 2004 and (ii) the
principal amount of the Indebtedness secured by such Liens shall not be
extended, renewed, refunded or refinanced unless the principal amount of such
Indebtedness is not increased at the time of such refinancing, refunding,
renewal or extension except by an amount equal to a reasonable premium or other
reasonable amount paid, and fees and expenses reasonably incurred, in connection
with such refinancing, and so long as such Indebtedness is permitted to be
incurred under Section 6.2(y);

(i)                                     Liens arising in connection with Capital
Leases to the extent permitted under Section 6.2(y)(3);

(j)                                     Liens on the property of a Person
existing at the time such Person becomes a Subsidiary of the Guarantor in a
transaction permitted under the Guarantor Credit Agreement securing Indebtedness
permitted to be incurred under Section 6.2(y); provided, however, that any such
Lien may not extend to any other property of the Guarantor or any other
Subsidiary that is not a Subsidiary of such Person; provided, further, that any
such Lien was not created in anticipation of or in connection with the
transaction or series of transactions pursuant to which such Person became a
Subsidiary of the Guarantor;

(k)                                  easements, rights-of-way, restrictions,
defects in title and other similar encumbrances affecting real property which,
in the aggregate, are not substantial in amount, and which do not in any case
materially detract from the value of the property subject thereto or materially
interfere with the conduct of the business of the applicable Person; and

(l)                                     other Liens in addition to those
permitted by the foregoing clauses securing Indebtedness in an aggregate amount
not to exceed the following (measured at the time of incurrence): (i) if the
Guarantor has an Investment Grade Debt Rating, 15% of Consolidated Net Worth at
any

 

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time outstanding or (ii) if the Guarantor does not have an Investment Grade Debt
Rating, 8% of Consolidated Net Worth at any time outstanding;

“Person” means and includes any individual, a partnership, a corporation, a
joint stock company, a trust, business trust, an unincorporated association, a
joint venture or other entity or a government or any agency or political
subdivision thereof;

“Plan” means an “employee benefit plan” (as such term is defined in Section 3(3)
of ERISA) established by the Guarantor or any ERISA Affiliate;

“Prime Rate” means the rate of interest per annum in effect from time to time
that is equal to the greater of:

(a)                                  Royal’s Prime Rate; and

(b)                                 the CDOR Rate plus 100 basis points per
annum;

“Prior Credit Agreement” has the meaning set forth in Recital A hereof;

“Rating Agencies” means Moody’s Investors Services, Inc. (“Moody’s”) and
Standard Poor’s Rating Services (“S&P”), a division of McGraw-Hill Companies,
Inc. and “Rating Agency” means either of them as the context requires;

“Recovery Event” means theft, loss, physical destruction or damage, taking or
similar event with respect to any property or assets owned by the Guarantor or
any of its Subsidiaries which results in the receipt by the Guarantor or any of
its Subsidiaries of any cash insurance proceeds or condemnation award payable by
reason thereof;

“Regulation U” means Regulation U of the Board of Governors of the Federal
Reserve System of the U.S.A. (as the same is from time to time in effect) and
all official rulings and interpretations thereunder or thereof;

“Release” includes discharge, spray, injection, inoculation, abandonment,
deposit, spill, leak, seep, pour, emission, emptying, throwing, dumping,
placement and exhaust, and when used as a verb has a similar meaning;

“Reorganization” means, with respect to any Multiemployer Plan, the condition
that such Plan is in reorganization within the meaning of such term as used in
Section 4241 of ERISA;

“Reportable Event” means any of the events set forth in Section 4043(c) of ERISA
or the regulations thereunder, other than any such event for which the 30-day
notice requirement under ERISA has been waived in regulations issued by the
PBGC;

“Required Lenders” means Lenders holding in the aggregate greater than 50% of
(a) the Commitments (as defined in the Guarantor Credit Agreement) (and
Participation Interests therein) or (b) if the Commitments (as defined in the
Guarantor Credit Agreement) have been terminated, the outstanding Loans and
Participation Interests

 

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(including the Participation Interests of the Issuing Lender (as defined in the
Guarantor Credit Agreement) in any Letters of Credit (as defined in the
Guarantor Credit Agreement) and of the Swingline Lender (as defined in the
Guarantor Credit Agreement) in Swingline Loans (as defined in the Guarantor
Credit Agreement)) provided, however, that if any Lender shall be a Defaulting
Lender at such time, then there shall be excluded from the determination of
Required Lenders, Obligations (as defined in the Guarantor Credit Agreement)
(including Participation Interests) owing to such Defaulting Lender and such
Defaulting Lender’s Commitments (as defined in the Guarantor Credit Agreement),
or after termination of the Commitments (as defined in the Guarantor Credit
Agreement), the principal balance of the Obligations (as defined in the
Guarantor Credit Agreement) owing to such Defaulting Lender;

 

“Requirement of Law” means, as to any Person, the certificate of incorporation
and bylaws or other organizational or governing documents of such Person, and
each law, treaty, rule or regulation or determination of an arbitrator or a
court or other Governmental Body, in each case applicable to or binding upon
such Person or any of its property or to which such Person or any of its
property is subject;

“Responsible Officer” means, with respect to the Borrower, the chief executive
officer, president, chief financial officer, vice president or treasurer of the
Borrower and, with respect to the Guarantor, the chief executive officer,
president, chief financial officer, treasurer, assistant treasurer or secretary
of the Guarantor. Any document delivered under the Agreement that is signed by a
Responsible Officer shall be conclusively presumed to have been authorized by
all necessary corporate, partnership or other action on the part of the Borrower
or the Guarantor, as applicable, and such Responsible Officer shall conclusively
be presumed to have acted on behalf of the Borrower or the Guarantor, as
applicable;

“Restricted Cash Collateral” means Cash Equivalents from time to time deposited
in the Restricted Cash Collateral Account but excludes all interest accrued on
such Cash Equivalents, except interest so accrued during an Event of Default
that has not been subsequently cured or waived;

“Restricted Cash Collateral Account” means:

(A)                                  A BLOCKED DEPOSIT ACCOUNT OR ACCOUNTS, AS
MORE PARTICULARLY IDENTIFIED FROM TIME TO TIME IN THE RESTRICTED CASH COLLATERAL
AGREEMENTS; AND

(B)                                 AT BORROWER’S OPTION PRIOR TO THE OCCURRENCE
AND CONTINUANCE OF AN EVENT OF DEFAULT, INVESTMENT ACCOUNTS AT ROYAL IN WHICH
ROYAL SHALL HAVE A PERFECTED, FIRST PRIORITY SECURITY INTEREST, SUBJECT ONLY TO
CUSTOMARY AND ORDINARY LIENS IN FAVOR OF THE FINANCIAL INSTITUTION ACTING AS THE
DEPOSITORY BANK OR AS SECURITIES INTERMEDIARY TO SECURE PAYMENT OF FEES, COSTS
OF ADMINISTRATION AND PAYMENT OF OTHER AMOUNTS RELATING TO SUCH ACCOUNT PAYABLE
BY BORROWER TO SUCH FINANCIAL INSTITUTION;

“Restricted Cash Collateral Agreements” means a security agreement, account
control agreements or other documents relating to any account which is a
Restricted

 

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Cash Collateral Account which Royal may require in order to have a perfected
first priority security interest therein, which shall be in form and substance
satisfactory to Royal, in its sole discretion, and be accompanied by legal
opinion(s) in form and substance satisfactory to Royal relating to the security
interest granted therein, and such other matters as Royal may request;

“Restricted Payment” means (a) any dividend or other distribution, direct or
indirect, on account of any shares of any class of Capital Stock of the
Guarantor or any of its Subsidiaries, now or hereafter outstanding, (b) any
redemption, retirement, sinking fund or similar payment, purchase or other
acquisition for value, direct or indirect, of any shares of any class of Capital
Stock of the Guarantor or any of its Subsidiaries, now or hereafter outstanding,
(c) any payment made to retire, or to obtain the surrender of, any outstanding
warrants, options or other rights to acquire shares of any class of Capital
Stock of the Guarantor or any of its Subsidiaries, now or hereafter outstanding,
(d) any payment with respect to any earnout obligation, (e) any payment or
prepayment of principal of, premium, if any, or interest on, redemption,
purchase, retirement, defeasance, sinking fund or similar payment with respect
to, any Subordinated Debt or (f) the payment by the Guarantor or any of its
Subsidiaries of any management or consulting fee to any Person or of any salary,
bonus or other form of compensation to any Person who is directly or indirectly
a significant partner, shareholder, owner or executive officer of any such
Person, to the extent such salary, bonus or other form of compensation is not
included in the corporate overhead of the Guarantor or such Subsidiary;

“Royal” means Royal Bank of Canada its successors and permitted assigns;

“Royal’s Prime Rate” means the floating annual rate of interest publicly
announced from time to time by Royal as its reference rate then in effect for
determining interest rates on Cdn$ commercial loans made by Royal in Canada;

“Royal’s Security” means all of the security referred to in Section 4.1;

“Royal’s U.S. Base Rate” means the floating annual rate of interest publicly
announced from time to time by Royal as its reference rate then in effect for
determining interest rates on US$ commercial loans made by Royal in Canada;

“Securitization Vehicle” means a special purpose vehicle that is a wholly-owned
Subsidiary of the Guarantor and is a corporation, limited liability company,
trust or other person organized for the limited purpose of entering into
securitization transactions by purchasing, or receiving by way of capital
contributions, assets from the Guarantor and obtaining financing for such assets
from third parties, and whose structure is designed to insulate such vehicle
from the credit risk of the Guarantor;

 

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“Senior Note Indentures” means, collectively:

(a)                                  the First Supplemental Trust Indenture,
dated as of August 18, 2000, between the Guarantor and Bank One Trust Company,
N.A. as Trustee, supplementing the Indenture dated as of April 2, 1999,
authorizing the issuance and delivery of up to $190,000,000 aggregate principal
amount of 8.500% senior notes due 2005, and

(b)                                 the Second Supplemental Trust Indenture,
dated as of August 18, 2000, between the Guarantor and Bank One Trust Company,
N.A. as Trustee, supplementing the Indenture dated as of April 2, 1999,
authorizing the issuance and delivery of up to $200,000,000 aggregate principal
amount of 8.875% senior notes due 2010;

“Senior Subordinated Note Indenture” means the Third Supplemental Trust
Indenture, dated as of August 13, 2001, between the Guarantor and Bank One Trust
Company, N.A. as Trustee, supplementing the Indenture dated as of April 2, 1999,
authorizing the issuance and delivery of up to $300,000,000 aggregate principal
amount of 10.875% senior subordinated notes due 2008;

“Single Employer Plan” means any Plan which is not a Multiemployer Plan;

“Specified Sales” means (a) the sale, transfer, lease or other disposition of
inventory and raw materials in the ordinary course of business, or (b) the sale,
transfer or other disposition of Cash Equivalents (as defined in the Guarantor
Credit Agreement) for fair market value;

“Spot Buying Rate” means:

(a)                                  in respect of conversions from Canadian
Funds to U.S. Funds or vice versa the Bank of Canada noon spot rate for Canadian
Funds against U.S. Funds or U.S. Funds against Canadian Funds (as quoted or
published from time to time by the Bank of Canada), as the case may be, on the
relevant date of determination, and

(b)                                 in respect of conversions to Canadian Funds
or U.S. Funds of currencies other than Canadian Funds or U.S. Funds, Royal’s
spot buying rate in Canadian Funds or U.S. Funds, as the case may be, for
purchasing any such foreign currency on the relevant date of determination;

“Stock” means all shares, options, warrants, general or limited partnership
interests, units or other equivalents (regardless of how designated) of or in a
corporation, general partnership, limited partnership, limited liability
company, unlimited liability company, joint stock company, or equivalent entity
whether voting or nonvoting, including common stock and preferred stock;

“Subordinated Debt” means any Indebtedness incurred by any Credit Party which by
its terms is specifically subordinated in right of payment to the prior payment
of the Credit

 

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Party Obligations and contains subordination and other terms acceptable to the
Required Lenders;

“Subordination Agreement” means the subordination agreement dated for reference
November 30, 2001 among LP Canada, the Guarantor, certain Guarantor Affiliates
and Royal wherein all indebtedness owing by LP Canada to such Guarantor
Affiliates and to the Guarantor except for trade accounts payable (including
payables for management services) incurred in the ordinary course of business
prior to receipt from Royal of a notice of default, in the case of a default in
respect of which Royal is required to give notice before it becomes an Event of
Default or, an Event of Default, is expressly made subordinate and subject in
right of payment as therein provided to the prior payment in full of all
indebtedness of LP Canada to Royal under the Agreement, as amended by an
amending agreement dated for reference September 15, 2003;

“Subsidiary” of a Person means any corporation, association, partnership, joint
venture or other business entity of which more than 50% of the Voting Shares or
other equity interests (in the case of Persons other than corporations) is owned
or controlled directly or indirectly by the Person, or one or more of the
Subsidiaries of the Person, or a combination thereof;

“Sufficient Copies” means three copies or such other reasonable number of copies
of reports, financial statements, certificates and other material required to be
delivered by the Borrower or the Guarantor, as the case may be, to Royal
pursuant to the Agreement as advised by Royal from time to time in writing;

“Swap Contract” means:

(A)                                  ANY AND ALL RATE SWAP TRANSACTIONS, BASIS
SWAPS, CREDIT DERIVATIVE TRANSACTIONS, FORWARD RATE TRANSACTIONS, COMMODITY
SWAPS, COMMODITY OPTIONS, FORWARD COMMODITY CONTRACTS, EQUITY OR EQUITY INDEX
SWAPS OR OPTIONS, BOND OR BOND PRICE OR BOND INDEX SWAPS OR OPTIONS OR FORWARD
BOND OR FORWARD BOND PRICE OR FORWARD BOND INDEX TRANSACTIONS, INTEREST RATE
OPTIONS, FORWARD FOREIGN EXCHANGE TRANSACTIONS, CAP TRANSACTIONS, FLOOR
TRANSACTIONS, COLLAR TRANSACTIONS, CURRENCY SWAP TRANSACTIONS, CROSS-CURRENCY
RATE SWAP TRANSACTIONS, CURRENCY OPTIONS, SPOT CONTRACTS, OR ANY OTHER SIMILAR
TRANSACTIONS OR ANY COMBINATION OF ANY OF THE FOREGOING (INCLUDING ANY OPTIONS
TO ENTER INTO ANY OF THE FOREGOING), WHETHER OR NOT ANY SUCH TRANSACTION IS
GOVERNED BY OR SUBJECT TO ANY MASTER AGREEMENT; AND

(B)                                 ANY AND ALL TRANSACTIONS OF ANY KIND, AND
THE RELATED CONFIRMATIONS, WHICH ARE SUBJECT TO THE TERMS AND CONDITIONS OF, OR
GOVERNED BY, ANY FORM OF MASTER AGREEMENT PUBLISHED BY THE INTERNATIONAL SWAPS
AND DERIVATIVES ASSOCIATION, INC., ANY INTERNATIONAL FOREIGN EXCHANGE MASTER
AGREEMENT, OR ANY OTHER MASTER AGREEMENT (ANY SUCH MASTER AGREEMENT, TOGETHER
WITH ANY RELATED SCHEDULES, A “MASTER AGREEMENT”), INCLUDING ANY SUCH
OBLIGATIONS OR LIABILITIES UNDER ANY MASTER AGREEMENT;

 

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“Swap Contract Provider” means any Person that enters into a Swap Contract with
a Credit Party or any of its Subsidiaries that is permitted by Section 6.2 to
the extent such Person is a (a) Lender, (b) an Affiliate of a Lender or (c) any
other Person that was a Lender (or an Affiliate of a Lender) at the time it
entered into the Swap Contract but has ceased to be a Lender (or whose Affiliate
has ceased to be a Lender) under the Guarantor Credit Agreement;

“Swap Termination Value” means, in respect of any one or more Swap Contracts,
after taking into account the effect of any legally enforceable netting
agreement relating to such Swap Contracts:

(a)                                  for any date on or after the date such Swap
Contracts have been closed out and termination value(s) determined in accordance
therewith, such termination value(s); and

(b)                                 for any date prior to the date referenced in
clause (a) the amount(s) determined as the mark-to-market value(s) for such Swap
Contracts, as determined based upon one or more mid-market or other readily
available quotations provided by any recognized dealer in such Swap Contracts
(which may include Royal);

“Target” shall have the meaning set forth in the definition of “Permitted
Acquisition”;

“Threshold Amount” means US $25,000,000;

“Unfunded Pension Liability” means the excess of a Pension Plan’s benefit
liabilities under Section 4001(a) (16) of ERISA, over the current value of that
Pension Plan’s assets, determined in accordance with the assumptions used for
funding that Pension Plan pursuant to Section 412 of the Code for the applicable
plan year;

“U.S.A.” means United States of America;

“U.S. Advance” means any advance or conversion under the Credit Facility
requested by the Borrower in U.S. Funds and advanced in U.S. Funds by Royal;

“U.S. Base Rate” means the rate of interest per annum in effect from time to
time that is equal to the greater of:

(a)           Royal’s U.S. Base Rate; and

(b)           the Federal Funds Effective Rate plus 50 basis points per annum;

“U.S. Funds” and “US$” means lawful currency of the U.S.A. in same day
immediately available funds, or, if such funds are not available, the form of
money of the U.S.A. that is customarily used in the settlement of international
banking transactions on the day payment is due;

“Voting Shares” means shares of any class entitled to vote in all circumstances;

 

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“Voting Stock” means, with respect to any Person, Capital Stock issued by such
Person the holders of which are ordinarily, in the absence of contingencies,
entitled to vote for the election of directors (or persons performing similar
functions) of such Person, even though the right so to vote has been suspended
by the happening of such a contingency.

1.2                               APPLICABLE LAW

The Agreement shall be construed in accordance with and governed by the laws of
the Province of British Columbia and the laws of Canada applicable in the
Province of British Columbia.

1.3                               SEVERABILITY

If any one or more of the provisions contained in the Agreement is invalid,
illegal or unenforceable in any respect in any jurisdiction, the validity,
legality and enforceability of such provision shall not in any way be affected
or impaired thereby in any other jurisdiction and the validity, legality and
enforceability of the remaining provisions contained in the Agreement shall not
in any way be affected or impaired thereby.

1.4                               SUCCESSORS AND ASSIGNS

The Agreement shall enure to the benefit of and be binding on each of the
parties to the Agreement and their respective successors and permitted assigns.

1.5                               INCLUDED WORDS

Where the singular or the masculine are used in the Agreement, the same shall be
deemed to include the plural or the feminine or vice versa and a body politic or
corporate where the context or the parties so require.

1.6                               HEADINGS AND MARGINAL REFERENCES

The division of the Agreement into paragraphs and subparagraphs and the
insertion of headings are for convenience of reference only and shall not affect
the construction or interpretation of the Agreement.

1.7                               CROSS REFERENCES

Unless otherwise stated, a reference in the Agreement to a numbered or lettered
paragraph, subparagraph or schedule refers to the paragraph, subparagraph or
schedule bearing that number or letter in the Agreement.

1.8                               USE OF WORD “INCLUDING”

The word “including”, when following any general term or statement, is not to be
construed as limiting the general term or statement to the specific terms or
matters set forth immediately following such word or to similar items or
matters, but such general term or statement shall be construed as referring to
all items or matters that could reasonably fall within the broadest possible
scope thereof.

 

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1.9                               CURRENCY

Unless otherwise specified all statements of, or references to, dollar amounts
in the Agreement without currency specification shall mean Canadian Funds.

1.10                        PAYMENT DATES AND INTEREST CALCULATION

If the date for a payment to Royal of any sum owing hereunder or the date of
advance, renewal or conversion of any sum by Royal hereunder is not a Business
Day, such payment, advance, renewal or conversion, as the case may be, shall be
due or made upon the next immediately succeeding Business Day.

1.11                        ACCOUNTING TERMS

Unless otherwise specified herein, all accounting terms used herein shall be
interpreted, all accounting determinations hereunder shall be made, and all
financial statements required to be delivered hereunder shall be prepared in
accordance with GAAP applied on a basis consistent with the most recent audited
consolidated financial statements of the Guarantor delivered to Royal; provided
that, if the Guarantor shall notify the Administrative Agent that it wishes to
amend any covenant in Sections 6.2 (nn) and (oo) to eliminate the effect of any
change in GAAP on the operation of such covenant, then the Guarantor’s
compliance with such covenant shall be determined on the basis of GAAP in effect
immediately before the relevant change in GAAP became effective, until either
such notice is withdrawn or such covenant is amended in a manner satisfactory to
the Guarantor and the Required Lenders.

1.12                        SCHEDULES

The Schedules to the Agreement shall form an integral part of the Agreement, and
are as follows:

Schedule A           Officer’s Compliance Certificate

Schedule B            Unfunded Pension Liabilities

Schedule C            Borrowing Base Certificate

Schedule D            Existing Letters of Credit

Schedule E            Notice of Borrowing

Schedule F            Cash Collateral Release Notice

2.                                      REPRESENTATIONS AND WARRANTIES

2.1                               REPRESENTATIONS AND WARRANTIES

Each of the Borrower and the Guarantor represents and warrants to Royal as set
forth in this Section 2 of the Agreement. All representations and warranties
shall survive all Borrowings and no investigation at any time made by or on
behalf of Royal shall diminish in any respect whatsoever its right to rely
thereon.

 

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2.2                               STATUS OF THE BORROWER

The Borrower is a corporation, duly amalgamated, validly existing, in good
standing with respect to the filing of annual returns under the laws of the
Province of British Columbia and is duly qualified, in good standing and
authorized to do business in all jurisdictions where the character of the
properties owned by it or the nature of the business transacted by it makes such
qualification necessary.

2.3                               STATUS OF GUARANTOR

The Guarantor is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, one of the States of the
United States of America.

2.4                               POWER AND AUTHORITY

Each of the Borrower and the Guarantor has all requisite corporate power and
authority to own its respective properties, has obtained or will obtain, all
material Governmental Approvals required at the date hereof to carry on its
respective business as now conducted and proposed to be conducted and to enter
into and perform its obligations under the Agreement and all instruments and
agreements delivered pursuant hereto and thereto.

2.5                               DUE AUTHORIZATION

The Agreement, the Guarantee and every instrument or agreement delivered
pursuant hereto has been duly and validly authorized by all requisite actions by
the Borrower and the Guarantor and each of such documents has been duly executed
by the Borrower and the Guarantor if it is a party thereto and when delivered
will be a legal, valid and binding obligation of the Borrower and the Guarantor,
as the case may be, enforceable in accordance with its respective terms save as
enforcement may be limited by:

(A)                                  APPLICABLE BANKRUPTCY, INSOLVENCY,
MORATORIUM, REORGANIZATION AND SIMILAR LAWS AT THE TIME IN EFFECT AFFECTING THE
RIGHTS OF CREDITORS GENERALLY;

(B)                                 EQUITABLE PRINCIPLES WHICH MAY LIMIT THE
AVAILABILITY OF CERTAIN REMEDIES, INCLUDING THE REMEDY OF SPECIFIC PERFORMANCE;
AND

(C)                                  THE INABILITY OF THE COURTS OF CANADA TO
GIVE JUDGEMENT FOR PAYMENT IN FOREIGN CURRENCIES.

2.6                               NO CONTRAVENTION

The execution, delivery and performance of the Agreement by the Borrower and the
Guarantor and the Guarantee by the Guarantor will not contravene any material
provision of any regulation, order or permit applicable to the Borrower or the
Guarantor, as the case may be, or cause a conflict with or contravention of its
respective Charter or cause a breach of or constitute a default under or require
any consent under any agreement or instrument to which the Borrower or the
Guarantor, as the case may be, is a party or by which it is bound except such as
have been obtained.

 

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2.7                               NO BREACH

Neither the Borrower nor the Guarantor is in default under any agreement or
instrument to which it is a party in any way which materially adversely affects
its ability to perform its respective obligations under the Agreement or the
Guarantee, as the case may be, and there are no suits or judicial proceedings or
proceedings before any governmental commission, board or other agency pending or
to the knowledge of the Borrower or the Guarantor, as the case may be,
threatened against it which could reasonably be expected to give rise to a
judgement or liability which, if satisfied, would have a materially adverse
effect on the ability of the Borrower to meet its obligations under the
Agreement or the Guarantor to meet its obligations under the Guarantee.

2.8                               LEASES AND LICENCES

Each of the Borrower and the Guarantor has all leases, licences, permits and
consents as are essential for the due carrying on of its respective business in
the manner in which its business is carried on and all such leases, licences,
permits and consents are in full force and effect and no proceedings relating
thereto are pending or known to the Borrower or the Guarantor, as the case may
be, to be threatened in any way which would have a material adverse effect on
the ability of the Borrower or the Guarantor to meet its respective obligations
under the Agreement or the Guarantor to meet its obligations under the
Guarantee.

2.9                               NO FINANCIAL DEFAULT

Neither the Borrower nor the Guarantor is in default in any way which materially
adversely affects its ability to perform its obligations under the Agreement or
the Guarantee, as the case may be, under any guarantee, bond, debenture, note or
other instrument evidencing any indebtedness or under the terms of any
instrument pursuant to which any of the foregoing has been issued or made and
delivered and to the knowledge of the Borrower and the Guarantor there exists no
state of facts which, after notice or lapse of time or both or otherwise, would
constitute such a default in any way which materially adversely affects its
ability to perform its obligations under the Agreement or the Guarantee, as the
case may be.

2.10                        DISCLOSURE OF MATERIAL FACTS

Each of the Borrower and the Guarantor has disclosed to Royal in writing all
facts (other than facts which are a matter of public knowledge or record) which
materially adversely affect, or so far as it can now reasonably foresee, will
materially adversely affect its ability to perform its obligations under the
Agreement and, in the case of the Guarantor, under the Guarantee.

2.11                        CONSENTS AND APPROVALS

All consents, approvals, authorizations, declarations, registrations, filings,
notices and other actions whatsoever required as at the date hereof by the
Borrower and the Guarantor in order to execute and deliver the Agreement and the
Guarantee, as the case may be, and all agreements or instruments delivered
pursuant thereto, and the consummation of the transactions contemplated hereby,
have been obtained, made or taken or will have been obtained, made or taken or
waived by Royal on or prior to the Closing Date.

 

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2.12                        TITLE

The Borrower has good and marketable title to or the right to use all of the
assets necessary for the operation of its business except for such defects in
title and rights as could not, individually or in the aggregate, reasonably be
expected to have a material adverse effect on the financial condition or
operations of the Borrower.

2.13                        LP CANADA’S FINANCIAL STATEMENTS FURNISHED

LP Canada has furnished Royal with its most recent unaudited financial
statements for the fiscal year ended December 31, 2003, all such financial
statements have been prepared in accordance with GAAP applied on a consistent
basis, except as stated therein or in the notes thereto, the balance sheets as
therein contained present fairly in all material respects the consolidated
financial position of LP Canada and its Subsidiaries as at the dates thereof and
the consolidated statements of income present fairly in all material respects
the results of the operations of LP Canada and its Subsidiaries for the period
indicated.

2.14                        GUARANTOR’S FINANCIAL STATEMENTS FURNISHED

The Guarantor has heretofore delivered to Royal, at the Royal’s request, the
following financial statements and information: (a) audited consolidated
financial statements of the Guarantor and its Subsidiaries for the fiscal years
ended December 31, 2001, 2002 and 2003, consisting of consolidated balance
sheets and the related consolidated statements of income, stockholders’ equity
and cash flows for such period and (b) company-prepared unaudited consolidated
financial statements of the Guarantor and its Subsidiaries for the fiscal
quarter ended June 30, 2004, consisting of consolidated balance sheets and the
related consolidated statements of income, stockholders’ equity and cash flows
for such period, all in form and substance reasonably satisfactory to Royal and
certified by the chief financial officer of the Guarantor that such consolidated
financial statements fairly present the financial condition of the Guarantor and
its Subsidiaries as of the dates indicated and (i) with respect to the audited
and unaudited financial statements, the results of their operations and their
cash flows for the periods indicated, subject to changes resulting from audit
and normal year-end adjustments, and (ii) with respect to the projections, were
prepared in good faith based upon reasonable assumptions.

2.15                        NO CHANGE IN LP CANADA’S FINANCIAL CONDITION

Since December 31, 2003 there has been no material adverse change in the
financial condition of LP Canada from that shown on the consolidated financial
statements of LP Canada as at that date, except as disclosed to Royal, and any
such change will not materially adversely affect the ability of the Borrower to
perform its obligations under the Agreement.

2.16                        GUARANTOR’S FINANCIAL STATUS

The Guarantor has furnished Royal with its most recent annual and quarterly
consolidated financial statements, all such financial statements have been
prepared in all material respects in accordance with United States Securities
and Exchange Commission requirements except as stated therein or in the notes
thereto, each balance sheet as therein contained presents fairly, in

 

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all material respects, the financial position of the Guarantor and its
subsidiaries as at the date thereof.

2.17                        NO CHANGE IN GUARANTOR’S FINANCIAL CONDITION

Since the date of the most recent quarterly financial statements of the
Guarantor and its Subsidiaries referred to in the preceding paragraph:

(A)                                  THERE HAS BEEN NO CHANGE IN THE
CONSOLIDATED FINANCIAL CONDITION OF THE GUARANTOR AND ITS SUBSIDIARIES AS SHOWN
ON THE GUARANTOR’S BALANCE SHEET AS AT THAT DATE SUFFICIENT TO IMPAIR THE
GUARANTOR’S ABILITY TO PERFORM ITS OBLIGATIONS UNDER THE AGREEMENT OR THE
GUARANTEE EXCEPT AS DISCLOSED TO ROYAL, AND

(B)                                 THERE HAS BEEN NO CHANGE IN THE BUSINESS,
ASSETS, LIABILITIES, CONDITION (FINANCIAL OR OTHERWISE) OR PROSPECTS OF THE
GUARANTOR AND ITS SUBSIDIARIES TAKEN AS A WHOLE WHICH COULD HAVE A MATERIAL
ADVERSE EFFECT (OTHER THAN AS DISCLOSED IN THE GUARANTOR’S FORM 10-K FOR THE
FISCAL YEAR ENDING DECEMBER 31, 2003, AS SUPPLEMENTED BY THE GUARANTOR’S FORM
10-Q FOR THE FISCAL QUARTER ENDING MARCH 31, 2004 AND FORM 10-Q FOR THE FISCAL
QUARTER ENDING JUNE 30, 2004).

2.18                        SOLVENCY

None of the Credit Parties (a) has unreasonably small capital in relation to the
business in which it is or proposes to be engaged or (b) has incurred, or
believes that it will incur after giving effect to the transactions contemplated
by the Agreement and the Guarantor Credit Agreement, debts beyond its ability to
pay such debts as they become due.

2.19                        FINANCIAL STATEMENTS NOT MISLEADING

The consolidated financial statements referred to above or any other statement
or report furnished to Royal by or on behalf of the Borrower or the Guarantor in
connection with the negotiation or confirmation of the transactions contemplated
herein do not contain, as at the time such statements or reports were furnished,
any untrue statement of a material fact or any omission of a material fact
necessary to make the statements contained therein not materially misleading, it
being understood by Royal that such statements were prepared by the Guarantor
and certain of them do not contain explanatory footnotes, and all such
statements and reports, taken as a whole together with the Agreement do not
contain any untrue statement of material fact or omit a material fact necessary
to make the statements contained therein not materially misleading.

2.20                        TAXES

Each of the Borrower and the Guarantor and each Subsidiary thereof has filed or
caused to be filed all material income tax reports and returns required to be
filed by each of them with any Governmental Body, except where (i) extensions
have been properly obtained and have paid or made adequate provision for the
payment of all taxes, assessments, fees and other charges by any Governmental
Body which are due and payable, except such taxes, assessments, fees and other
charges, if any, as are being diligently contested in good faith by appropriate
proceedings

 

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and as to which the Borrower, the Guarantor or Subsidiary thereof has
established adequate reserves in conformity with GAAP on the books of the
Borrower, the Guarantor or Subsidiary or (ii) the failure to file such tax
reports or returns could not reasonably be expected to have a Material Adverse
Effect. No Lien for any such taxes, assessments, fees or other charges has been
filed, and no claims are being asserted with respect to any such taxes,
assessments, fees or other charges which, if adversely determined, could
reasonably be expected to have a Material Adverse Effect.

2.21                        ENVIRONMENTAL LAW COMPLIANCE

The Borrower is in compliance with all Environmental Law in respect of which
non-compliance would have a material adverse effect on the ability of the
Borrower to perform its obligations under the Agreement.

2.22                        INSURANCE

Each of the Borrower and the Guarantor:

(A)                                  HAS INSURED BY FINANCIALLY SOUND AND
REPUTABLE INSURERS ALL ASSETS AND PROPERTY OF A CHARACTER CUSTOMARILY INSURED BY
PERSONS ENGAGED IN THE SAME OR A SIMILAR BUSINESS, SIMILARLY SITUATED, INCLUDING
INVENTORY AND BUSINESS INTERRUPTION INSURANCE, IN SUCH AMOUNTS AS ARE
CUSTOMARILY INSURED FOR BY SUCH PERSONS, OR

(B)                                 MAINTAINS A PROGRAM OF SELF-INSURANCE, WITH
RESERVES, IN ACCORDANCE WITH SOUND BUSINESS PRACTICES.

2.23                        ERISA COMPLIANCE BY GUARANTOR

(A)                                  EACH PLAN IS IN COMPLIANCE IN ALL MATERIAL
RESPECTS WITH THE APPLICABLE PROVISIONS OF ERISA, THE CODE AND OTHER FEDERAL OR
STATE LAWS. EACH PLAN THAT IS INTENDED TO QUALIFY UNDER THE SECTION 401(A) OF
THE CODE HAS RECEIVED A FAVOURABLE DETERMINATION LETTER FROM THE IRS OR AN
APPLICATION FOR SUCH A LETTER IS CURRENTLY BEING OR WILL BE PROCESSED BY THE IRS
WITH RESPECT THERETO AND SUCH APPLICATION IS OR WILL BE WITHIN A REMEDIAL
AMENDMENT PERIOD AND, TO THE GUARANTOR’S KNOWLEDGE, NOTHING HAS OCCURRED WHICH
WOULD PREVENT, OR CAUSE THE LOSS OF, SUCH QUALIFICATION WHICH IS NOT CORRECTABLE
WITHOUT COST OR AT A COST THAT IS IMMATERIAL. THE GUARANTOR AND EACH ERISA
AFFILIATE HAVE MADE ALL REQUIRED CONTRIBUTIONS TO EACH PLAN SUBJECT TO SECTION
412 OF THE CODE, AND NO APPLICATION FOR A FUNDING WAIVER OR AN EXTENSION OF ANY
AMORTIZATION PERIOD PURSUANT TO SECTION 412 OF THE CODE HAS BEEN MADE WITH
RESPECT TO ANY PLAN.

(B)                                 THERE ARE NO PENDING OR, TO THE GUARANTOR’S
KNOWLEDGE, THREATENED CLAIMS, ACTIONS OR LAWSUITS, OR ACTION BY ANY GOVERNMENTAL
BODY, WITH RESPECT TO ANY PLAN THAT COULD BE REASONABLY EXPECTED TO HAVE A
MATERIAL ADVERSE EFFECT. THERE HAS BEEN NO PROHIBITED TRANSACTION OR VIOLATION
OF THE FIDUCIARY RESPONSIBILITY RULES WITH RESPECT TO ANY PLAN THAT HAS RESULTED
OR COULD BE REASONABLY EXPECTED TO RESULT IN A MATERIAL ADVERSE EFFECT.

 

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(C)

(1)                                  EXCEPT AS SPECIFICALLY DISCLOSED IN
ANNEXURE I TO SCHEDULE B NO ERISA EVENT HAS OCCURRED WITHIN THE 12 YEAR PERIOD
PRIOR TO JANUARY 1, 2003 OR WAS OR IS REASONABLY EXPECTED TO OCCUR THEREAFTER;

(2)                                  AS OF JANUARY 1, 2003, EXCEPT AS
SPECIFICALLY DISCLOSED IN SCHEDULE B, NO PENSION PLAN HAD ANY UNFUNDED PENSION
LIABILITY;

(3)                                  NEITHER THE GUARANTOR NOR ANY ERISA
AFFILIATE HAS INCURRED, OR REASONABLY EXPECTS TO INCUR, ANY LIABILITY UNDER
TITLE IV OF ERISA, WITH RESPECT TO ANY PENSION PLAN (OTHER THAN PREMIUMS DUE AND
NOT DELINQUENT UNDER SECTION 4007 OF ERISA);

(4)                                  NEITHER THE GUARANTOR NOR ANY ERISA
AFFILIATE HAS INCURRED, OR REASONABLY EXPECTS TO INCUR, ANY LIABILITY (AND NO
EVENT HAS OCCURRED WHICH, WITH THE GIVING OF NOTICE UNDER SECTION 4219 OF ERISA,
COULD BE REASONABLY EXPECTED TO RESULT IN SUCH LIABILITY) UNDER SECTION 4201 OR
4243 OF ERISA WITH RESPECT TO A MULTIEMPLOYER PLAN; AND

(5)                                  NEITHER THE GUARANTOR NOR ANY ERISA
AFFILIATE HAS ENGAGED IN A TRANSACTION THAT COULD BE SUBJECT TO SECTION 4069 OR
4212(C) OF ERISA.

(D)                                 NEITHER A REPORTABLE EVENT NOR AN
“ACCUMULATED FUNDING DEFICIENCY” (WITHIN THE MEANING OF SECTION 412 OF THE CODE
OR SECTION 302 OF ERISA) HAS OCCURRED DURING THE FIVE-YEAR PERIOD PRIOR TO THE
DATE ON WHICH THIS REPRESENTATION IS MADE OR DEEMED MADE WITH RESPECT TO ANY
PLAN, AND EACH PLAN HAS COMPLIED IN ALL MATERIAL RESPECTS WITH THE APPLICABLE
PROVISIONS OF ERISA AND THE CODE. NO TERMINATION OF A SINGLE EMPLOYER PLAN HAS
OCCURRED RESULTING IN ANY LIABILITY THAT HAS REMAINED UNDERFUNDED, AND NO LIEN
IN FAVOR OF THE PBGC OR A PLAN HAS ARISEN, DURING SUCH FIVE-YEAR PERIOD. THE
PRESENT VALUE OF ALL ACCRUED BENEFITS UNDER EACH SINGLE EMPLOYER PLAN (BASED ON
THOSE ASSUMPTIONS USED TO FUND SUCH PLANS) DID NOT, AS OF THE LAST ANNUAL
VALUATION DATE PRIOR TO THE DATE ON WHICH THIS REPRESENTATION IS MADE OR DEEMED
MADE, EXCEED THE VALUE OF THE ASSETS OF SUCH PLAN ALLOCABLE TO SUCH ACCRUED
BENEFITS. NEITHER THE GUARANTOR NOR ANY COMMONLY CONTROLLED ENTITY IS CURRENTLY
SUBJECT TO ANY LIABILITY FOR A COMPLETE OR PARTIAL WITHDRAWAL FROM A
MULTIEMPLOYER PLAN.

2.24                        NO MATERIAL LITIGATION

Other than as disclosed in the Guarantor’s Form 10-K for the fiscal year ending
December 31, 2003, as supplemented by the Guarantor’s Form 10-Q for the fiscal
quarter ending March 31, 2004 and Form 10-Q for the fiscal quarter ending June
30, 2004, no litigation, investigation or proceeding of or before any arbitrator
or Governmental Body is pending or, to the best knowledge of the Guarantor,
threatened by or against the Guarantor or any of its Subsidiaries or against any
of its or their respective properties or revenues (a) with respect to the
Guarantor Credit Documents or any of the transactions contemplated thereby, or
(b) which could reasonably be expected to have a Material Adverse Effect.

 

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2.25                        GOVERNMENT ACTS

Neither the Guarantor nor any Credit Party is:

(a)                                 an “investment company”, or a company
“controlled” by an “investment company”, within the meaning of the Investment
Company Act of 1940, as amended; and .

(b)                                a “holding company”, or an “affiliate” of a
“holding company” or a “subsidiary company” of a “holding company”, within the
meaning of the Public Utility Holding Company Act of 1935, as amended.

2.26                        MARGIN REGULATIONS

No part of the proceeds of any Extension of Credit under the Guarantor Credit
Agreement will be used directly or indirectly for any purpose which violates, or
which would be inconsistent with, the provisions of Regulation T, U or X of the
Board of Governors of the Federal Reserve System as now and from time to time
hereafter in effect. The Guarantor and its Subsidiaries taken as a group do not
own Margin Stock except as identified in the financial statements referred to in
Section 2.14 and the aggregate value of all Margin Stock owned by the Guarantor
and its Subsidiaries taken as a group does not exceed 25% of the value of their
assets.

2.27                        COMPLIANCE WITH LAWS

Each of the Credit Parties is in compliance with all Requirements of Law,
including all applicable Environmental Laws, except to the extent that (a) the
failure to comply therewith could not, in the aggregate, reasonably be expected
to have a Material Adverse Effect, or (b) such Requirements of Law are being
contested in good faith or a bona fide dispute exists with respect thereto and
the affected Credit Party have established adequate reserves in conformity with
GAAP on the books of such Credit Party to account therefor.

2.28                        ENVIRONMENTAL MATTERS

The Guarantor conducts, in the ordinary course of business, a review of the
effect of existing Environmental Laws and claims alleging potential liability or
responsibility for violation of any Environmental Law on the facilities and
properties owned, leased or operated by the Credit Parties or any of their
Subsidiaries (the “Properties”). Such review is of such a scope and nature that
the review is reasonably likely to lead to discovery by the Guarantor of any
material violation of any Environmental Law or the existence of any circumstance
or condition that could give rise to any material obligation by the Guarantor or
any of its Subsidiaries to make any report to any Governmental Body, or conduct
any investigative, remedial, response or cleanup action, pursuant to any
Environmental Law. As a result of such review, the Guarantor has reasonably
concluded that there exists no violation of any Environmental Law, or
circumstance or condition giving rise to any obligation by the Guarantor or any
of its Subsidiaries to make any report to any Governmental Body, or conduct any
investigative, remedial, response or cleanup action, pursuant to, or claim
arising under, any Environmental Law, that could reasonably be expected to have
a Material Adverse Effect.

 

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2.29                        PURPOSE OF EXTENSIONS OF CREDIT

The proceeds of the Extensions of Credit under the Guarantor Credit Agreement
shall be used by the Guarantor solely to (i) refinance certain existing
Indebtedness of the Guarantor, (ii) pay fees and expenses owing to the Lenders
and the Administrative Agent in connection with the Guarantor Credit Agreement,
(iii) support issuances of Letters of Credit (as defined in the Guarantor Credit
Agreement) under the Guarantor Credit Agreement and (iv) provide for the working
capital and other general corporate requirements of the Guarantor and its
Subsidiaries including, but not limited to, Permitted Acquisitions and capital
expenditures.

2.30                        SUBSIDIARIES

Set forth on Schedule 3.13 to the Guarantor Credit Agreement is a complete and
accurate list of all Subsidiaries of the Credit Parties. Information on such
Schedule includes (i) the state of incorporation or formation, (ii) the number
of shares of each class of Capital Stock or other equity interests outstanding,
(iii) the number and percentage of outstanding shares of each class of Capital
Stock or other equity interests and (iv) the number and effect, if exercised, of
all outstanding options, warrants, rights of conversion or purchase and similar
rights. The outstanding Capital Stock and other equity interests of all such
Subsidiaries is validly issued, fully paid and non-assessable and is owned, free
and clear of all Liens (other than those arising under or contemplated in
connection with the Guarantor Credit Documents). For the purposes hereof, the
Guarantor may update Schedule 3.13 to the Guarantor Credit Agreement from time
to time by providing a copy of each replacement Schedule 3.13 to the Guarantor
Credit Agreement to Royal.

2.31                        OWNERSHIP

Each of the Credit Parties (a) is the owner of, and has good and valid title to,
or a valid leasehold interest in, all of its respective material assets, except
as may be permitted pursuant to Section 6.2(z), and none of such assets is
subject to any Lien other than Permitted Liens and (b) enjoys peaceful and
undisturbed possession of all real properties that are necessary for the
operation and conduct of its business.

2.32                        INDEBTEDNESS

Except as otherwise permitted under Section 6.2(y), the Guarantor and its
Subsidiaries have no Indebtedness (including Off-Balance Sheet Liabilities).

2.33                        INVESTMENTS

All Investments of each of the Guarantor and its Subsidiaries are Permitted
Investments.

2.34                        NO BURDENSOME RESTRICTIONS

None of the Guarantor or any of its Subsidiaries is a party to any agreement or
instrument or subject to any other obligation or any charter or corporate
restriction or any provision of any applicable law, rule or regulation which,
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect.

 

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2.35                        ACCURACY AND COMPLETENESS OF INFORMATION

(a)                                 All information heretofore or
contemporaneously herewith furnished by either the Guarantor or any other Credit
Party or any of their Subsidiaries to the Administrative Agent for purposes of
or in connection with the Guarantor Credit Agreement and the transactions
contemplated thereby is, and all information hereafter furnished by or on behalf
of the Credit Parties or any of their Subsidiaries to the Administrative Agent,
WCM (as defined in the Guarantor Credit Agreement), the Collateral Agent or any
Lender pursuant to, or in connection with the Guarantor Credit Agreement will
be, true and accurate in every material respect on the date as of which such
information is dated or certified, and such information, taken as a whole, does
not and will not omit to state any material fact necessary to make such
information, taken as a whole, not misleading; and

(b)                                All registration statements, reports, proxy
statements and other documents, if any, required to be filed by the Credit
Parties and their Subsidiaries with the Securities and Exchange Commission
pursuant to the Securities Act of 1933 and the Securities Exchange Act of 1934,
as amended, have been filed, and such filings are complete and accurate and
contain no untrue statements of material fact or omit to state any material
facts required to be stated therein or necessary in order to make the statements
therein not misleading.

2.36                        MATERIAL CONTRACTS

Each Material Contract (as defined in the Guarantor Credit Agreement) is, and
after giving effect to the transactions contemplated by the Guarantor Credit
Documents will be, in full force and effect in accordance with the terms thereof
and no Credit Party and no Subsidiary of any Credit Party has violated in any
material respect any such Material Contract.

3.                                      THE CREDIT FACILITY

3.1                               ESTABLISHMENT OF THE CREDIT FACILITY

Relying on each of the representations and warranties set out in Section 2 and
subject to the terms and conditions set forth herein, Royal agrees to make
available to the Borrower:

(A)                                  A COMMITTED, REVOLVING CREDIT FACILITY
(UNSECURED BY COLLATERAL BUT WITH THE BORROWER HAVING THE OPTION TO CASH
COLLATERALIZE ITS LIABILITIES AND OBLIGATIONS IN RESPECT THEREOF) IN THE
PRINCIPAL AMOUNT OF:

(1)                                  DURING ANY NO COLLATERAL PERIOD OF UP TO
$10,000,000, OR THE EQUIVALENT AMOUNT IN U.S. FUNDS, AND

(2)                                  DURING THE CASH COLLATERAL PERIOD, UP TO
THE LESSER OF:

(A)                              $10,000,000, OR THE EQUIVALENT AMOUNT IN U.S.
FUNDS, OR

 

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(B)                                THE AMOUNT OF THE COLLATERAL VALUE OF THE
BORROWING BASE; AND

(B)                                 AT ROYAL’S DISCRETION, ON AN UNCOMMITTED
BASIS, LINES OF CREDIT IN THE AGGREGATE PRINCIPAL AMOUNT OF UP TO $50,000,000 TO
COVER SWAP TERMINATION VALUES AND LIABILITIES OF THE BORROWER OR, WITH THE
CONSENT OF ROYAL, ANY OF ITS SUBSIDIARIES IN RESPECT OF EFT TRANSFERS AND PDS
SERVICES INCLUDING OVERDRAFTS AND CASH MANAGEMENT DEBTS AND LIABILITIES,

to be used by the Borrower (and, in the case of Section 3.1(b), with the consent
of Royal, any Subsidiaries of the Borrower in respect of EFT Transfers and PDS
Services) for its general corporate purposes.

3.2                               CURRENCIES AND OTHER OPTIONS AVAILABLE UNDER
THE CREDIT FACILITY

Subject to the provisions of the Agreement:

(A)                                  THE BORROWER MAY, AT ITS OPTION UTILIZE THE
CREDIT FACILITY ESTABLISHED PURSUANT TO SECTION 3.1(A) BY WAY OF CANADIAN
ADVANCES OR DOCUMENTARY CREDITS, AND

(B)                                 THE BORROWER AND, WITH THE CONSENT OF ROYAL,
ANY OF ITS SUBSIDIARIES MAY, AT THE DISCRETION OF ROYAL, AVAIL THEMSELVES OF
ROYAL’S FACILITIES IN RESPECT OF EFT TRANSFERS AND PDS SERVICES AND ROYAL MAY,
AT ITS DISCRETION, MAKE CANADIAN ADVANCES OR U.S. ADVANCES AVAILABLE TO THE
BORROWER, TO PROVIDE FOR SWAP TERMINATION VALUES, AND COVER FOR LIABILITIES IN
RESPECT OF EFT TRANSFERS AND PDS SERVICES. ANY LIABILITIES IN RESPECT OF EFT
TRANSFERS AND PDS SERVICES INCLUDING OVERDRAFTS AND CASH MANAGEMENT DEBTS AND
LIABILITIES, SHALL BE OBLIGATIONS UNDER THE CREDIT FACILITY ESTABLISHED PURSUANT
TO SECTION 3.1(B) AND SHALL BE SECURED BY THE GUARANTEE, THE BORROWER GUARANTEES
AND THE BORROWER SUBSIDIARIES’ GUARANTEES AND OTHERWISE BE SUBJECT TO THE
APPLICABLE PROVISIONS OF THE AGREEMENT.

3.3                               INTEREST ON ADVANCES UNDER THE CREDIT FACILITY

Interest shall be paid to Royal at the Branch of Account. Canadian Advances
shall bear interest in Canadian Funds at the Prime Rate plus the Applicable
Percentage, which interest shall accrue from day to day while such advances are
outstanding and shall be computed on the basis of a year of 365 days and for
actual days elapsed and shall be payable and compounded monthly in arrears on
the 20th day of each month.

3.4                               ISSUANCE OF DOCUMENTARY CREDITS

Subject to the provisions of the Agreement, from time to time on any Business
Day during the period from the Closing Date until the Maturity Date, Royal will
issue Documentary Credits in Canadian Funds or U.S. Funds for the account of the
Borrower and its Subsidiaries, and will amend or renew Documentary Credits
previously issued by it, in accordance with Section 3.7, and will honour drafts
under the Documentary Credits; provided that Royal will not be obligated issue,
renew, increase or extend any Documentary Credits, if as of the date of such
Borrowing, the Borrowings under the facility established under Section 3.1(a) of
the Agreement would

 

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exceed the maximum limit of such credit facility. Within the foregoing limits,
and subject to the terms and conditions of the Agreement, the Borrower’s ability
to obtain Documentary Credits shall be fully revolving, and accordingly the
Borrower may, during the foregoing period, obtain Documentary Credits to replace
Documentary Credits that have expired or that have been drawn upon and
reimbursed. The undrawn face amount of each Existing Letter of Credit shall
constitute Borrowings under the credit facility provided for in Section 3.1(a),
and the reimbursement obligations with respect thereto shall be governed by the
terms and conditions of the Agreement.

3.5                               NOTICE FOR CANADIAN ADVANCES UNDER THE CREDIT
FACILITY

The Borrower shall give to Royal a notice in the form of Schedule E of its
intention to take a Canadian Advance. The Borrower may request from Royal
Canadian Advances in minimum amounts of $100,000 or any greater whole multiple
of $100,000 with prior irrevocable notice on the Business Day before the
requested Drawdown Date if the requested Canadian Advance is for more than
$1,000,000 and on the Drawdown Date if the requested Canadian Advance is for
$1,000,000 or less and any such notice shall specify the amount of the requested
Canadian Advance, and the Drawdown Date and Royal shall make the advance on the
Drawdown Date specified in the request, unless that date is not a Business Day,
in which case the advance shall be made on the next following Business Day.

3.6                               OBLIGATION OF ROYAL

Royal shall not be under any obligation to issue or renew or permit renewal of
any Documentary Credit if:

(A)                                  ANY ORDER, JUDGMENT OR DECREE OF ANY
GOVERNMENTAL BODY OR ARBITRATOR SHALL BY ITS TERMS PURPORT TO ENJOIN OR RESTRAIN
ROYAL FROM ISSUING SUCH DOCUMENTARY CREDIT, OR ANY LAW APPLICABLE TO ROYAL OR
ANY REQUEST OR DIRECTIVE (WHETHER OR NOT HAVING THE FORCE OF LAW) FROM ANY
GOVERNMENTAL BODY WITH JURISDICTION OVER ROYAL SHALL PROHIBIT, OR REQUEST THAT
ROYAL REFRAIN FROM, THE ISSUANCE OF DOCUMENTARY CREDITS GENERALLY OR SUCH
DOCUMENTARY CREDIT IN PARTICULAR OR SHALL IMPOSE UPON ROYAL WITH RESPECT TO SUCH
DOCUMENTARY CREDIT ANY RESTRICTION, RESERVE OR CAPITAL REQUIREMENT (FOR WHICH
ROYAL IS NOT OTHERWISE COMPENSATED HEREUNDER) NOT IN EFFECT ON THE CLOSING DATE,
OR SHALL IMPOSE UPON SUCH ROYAL ANY UNREIMBURSED LOSS, COST OR EXPENSE WHICH WAS
NOT APPLICABLE ON THE CLOSING DATE AND WHICH ROYAL IN GOOD FAITH DEEMS MATERIAL
TO IT;

(B)                                 SUBJECT TO SECTION 3.7(B), THE EXPIRY DATE
OF SUCH REQUESTED DOCUMENTARY CREDIT WOULD OCCUR MORE THAN TWELVE MONTHS AFTER
THE DATE OF ISSUANCE OR LAST RENEWAL, UNLESS ROYAL HAS APPROVED SUCH EXPIRY
DATE;

(C)                                  THE EXPIRY DATE OF SUCH REQUESTED
DOCUMENTARY CREDIT WOULD OCCUR AFTER THE LETTER OF CREDIT EXPIRATION DATE,
UNLESS ROYAL HAS APPROVED SUCH EXPIRY DATE;

(D)                                 THE ISSUANCE OF SUCH DOCUMENTARY CREDIT
WOULD VIOLATE THE POLICIES OF ROYAL; OR

 

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(E)                                  SUCH LETTER OF CREDIT IS TO BE DENOMINATED
IN A CURRENCY OTHER THAN CANADIAN FUNDS OR U.S. FUNDS,

and Royal will be under no obligation to amend any Documentary Credit if Royal
would have no obligation at such time to issue such Documentary Credit in its
amended form under the terms of the Agreement or the beneficiary of such
Documentary Credit does not accept the proposed amendment to such Documentary
Credit.

3.7                               PROCEDURES FOR ISSUANCE AND AMENDMENT OF
DOCUMENTARY CREDIT; AUTO-RENEWAL OF DOCUMENTARY CREDIT

(A)                                  EACH DOCUMENTARY CREDIT SHALL BE ISSUED OR
AMENDED, AS THE CASE MAY BE, UPON THE REQUEST OF THE BORROWER DELIVERED ROYAL IN
THE FORM OF A DOCUMENTARY CREDIT APPLICATION, APPROPRIATELY COMPLETED AND SIGNED
BY AN AUTHORIZED SIGNATORY OF THE BORROWER. SUCH DOCUMENTARY CREDIT APPLICATION
MUST BE RECEIVED BY ROYAL NOT LATER THAN 8:00 A.M. TORONTO TIME AT LEAST THREE
BUSINESS DAYS (OR SUCH LATER DATE AND TIME AS ROYAL MAY AGREE IN A PARTICULAR
INSTANCE IN ITS SOLE DISCRETION) PRIOR TO THE PROPOSED ISSUANCE DATE OR DATE OF
AMENDMENT, AS THE CASE MAY BE. IN THE CASE OF A REQUEST FOR AN INITIAL ISSUANCE
OF A DOCUMENTARY CREDIT, SUCH DOCUMENTARY CREDIT APPLICATION SHALL SPECIFY IN
FORM AND DETAIL SATISFACTORY TO ROYAL:

(1)                                  THE PROPOSED ISSUANCE DATE OF THE REQUESTED
DOCUMENTARY CREDIT (WHICH SHALL BE A BUSINESS DAY);

(2)                                  THE AMOUNT THEREOF;

(3)                                  THE EXPIRY DATE THEREOF;

(4)                                  THE NAME AND ADDRESS OF THE BENEFICIARY
THEREOF;

(5)                                  THE DOCUMENTS TO BE PRESENTED BY SUCH
BENEFICIARY IN CASE OF ANY DRAWING THEREUNDER;

(6)                                  THE FULL TEXT OF ANY CERTIFICATE TO BE
PRESENTED BY SUCH BENEFICIARY IN CASE OF ANY DRAWING THEREUNDER; AND

(7)                                  SUCH OTHER MATTERS AS ROYAL MAY REQUIRE,

and during the Cash Collateral Period the Borrower will, at the time of delivery
of the Documentary Credit Application, deliver to Royal a Borrowing Base
Certificate and deposit or direct Royal in writing to deposit in the Restricted
Cash Collateral Account the amount required to collateralize the Documentary
Credit applied for.

In the case of a request for an amendment of any outstanding Documentary Credit,
such Documentary Credit Application shall specify in form and detail
satisfactory to Royal:

 

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(A)                              THE DOCUMENTARY CREDIT TO BE AMENDED;

(B)                                THE PROPOSED DATE OF AMENDMENT THEREOF (WHICH
SHALL BE A BUSINESS DAY);

(C)                                THE NATURE OF THE PROPOSED AMENDMENT; AND

(D)                               SUCH OTHER MATTERS AS ROYAL MAY REQUIRE.

(B)                                 IF THE BORROWER SO REQUESTS IN ANY
APPLICABLE DOCUMENTARY CREDIT APPLICATION, ROYAL MAY, IN ITS SOLE AND ABSOLUTE
DISCRETION, AGREE TO ISSUE A DOCUMENTARY CREDIT THAT HAS AUTOMATIC RENEWAL
PROVISIONS (EACH, AN “AUTO-RENEWAL DOCUMENTARY CREDIT”); PROVIDED THAT ANY SUCH
AUTO-RENEWAL DOCUMENTARY CREDIT MUST PERMIT ROYAL TO PREVENT ANY SUCH RENEWAL AT
LEAST ONCE IN EACH TWELVE-MONTH PERIOD (COMMENCING WITH THE DATE OF ISSUANCE OR
RENEWAL OF SUCH DOCUMENTARY CREDIT) BY GIVING PRIOR NOTICE TO THE BENEFICIARY
THEREOF NOT LATER THAN A DAY (THE “NONRENEWAL NOTICE DATE”) IN EACH SUCH
TWELVE-MONTH PERIOD TO BE AGREED UPON AT THE TIME SUCH DOCUMENTARY CREDIT IS
ISSUED. UNLESS OTHERWISE DIRECTED BY ROYAL, THE BORROWER SHALL NOT BE REQUIRED
TO MAKE A SPECIFIC REQUEST TO ROYAL FOR ANY SUCH RENEWAL. ROYAL SHALL NOT PERMIT
ANY SUCH RENEWAL IF:

(1)                                  ROYAL HAS DETERMINED THAT IT WOULD HAVE NO
OBLIGATION AT SUCH TIME TO ISSUE SUCH DOCUMENTARY CREDIT IN ITS RENEWED FORM
UNDER THE TERMS OF THE AGREEMENT (BY REASON OF THE PROVISIONS OF SECTIONS 3.4,
3.6 OR OTHERWISE),

(2)                                  ONE OR MORE OF THE APPLICABLE CONDITIONS
SPECIFIED IN SECTION 3.7 IS NOT THEN SATISFIED. NOTWITHSTANDING ANYTHING TO THE
CONTRARY CONTAINED HEREIN, ROYAL SHALL HAVE NO OBLIGATION TO PERMIT THE RENEWAL
OF ANY AUTO-RENEWAL DOCUMENTARY CREDIT AT ANY TIME TO THE EXTENT SUCH
NON-RENEWAL IS PERMITTED BY THE TERMS OF SUCH AUTO-RENEWAL DOCUMENTARY CREDIT.

(C)                                  PROMPTLY AFTER ITS DELIVERY OF ANY
DOCUMENTARY CREDIT OR ANY AMENDMENT TO A DOCUMENTARY CREDIT TO AN ADVISING BANK
WITH RESPECT THERETO OR TO THE BENEFICIARY THEREOF, ROYAL WILL ALSO DELIVER TO
THE BORROWER A TRUE AND COMPLETE COPY OF SUCH DOCUMENTARY CREDIT OR AMENDMENT.

3.8                               DRAWINGS AND REIMBURSEMENTS

(A)                                  UPON RECEIPT FROM THE BENEFICIARY OF ANY
DOCUMENTARY CREDIT OF ANY NOTICE OF A DRAWING UNDER SUCH DOCUMENTARY CREDIT,
ROYAL SHALL NOTIFY THE BORROWER THEREOF. NOT LATER THAN 12:00 NOON TORONTO TIME
ON THE DATE OF ANY PAYMENT BY ROYAL UNDER A DOCUMENTARY CREDIT (EACH SUCH DATE,
AN “HONOUR DATE”), THE BORROWER SHALL REIMBURSE ROYAL , IN AN AMOUNT EQUAL TO
THE AMOUNT OF SUCH DRAWING. AT THE BORROWER’S OPTION DURING THE CASH COLLATERAL
PERIOD, IT MAY IN, LIEU OF REMITTING THE AMOUNT NECESSARY TO

 

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REIMBURSE SUCH DRAWING, SEND WRITTEN INSTRUCTION TO ROYAL NOT LATER THAN
12:00 NOON TORONTO TIME, DIRECTING ROYAL TO DEBIT THE RESTRICTED CASH COLLATERAL
ACCOUNT IN THE AMOUNT NECESSARY TO REIMBURSE SUCH DRAWING. SUCH INSTRUCTION
SHALL BE ACCOMPANIED BY A BORROWING BASE CERTIFICATE SHOWING THAT AFTER GIVING
EFFECT TO SUCH REIMBURSEMENT (AND ANY PERMANENT REDUCTION IN THE AMOUNT OF THE
DOCUMENTARY CREDIT EFFECTED BY SUCH DRAWING), THERE WILL BE NO SHORTFALL IN THE
COLLATERAL VALUE OF THE BORROWING BASE.

(B)                                 WITH RESPECT TO ANY AMOUNT NOT REIMBURSED TO
ROYAL PURSUANT TO (A), THE BORROWER SHALL BE DEEMED TO HAVE OBTAINED FROM ROYAL
AN ADVANCE IN THAT AMOUNT, WHICH BORROWING SHALL BE DUE AND PAYABLE ON DEMAND
(TOGETHER WITH INTEREST) AND SHALL BEAR INTEREST AT THE PRIME RATE.

3.9                               OBLIGATIONS ABSOLUTE

The obligation of the Borrower to reimburse Royal for each drawing under each
Documentary Credit and to repay each Borrowing shall be absolute, unconditional
and irrevocable, and shall be paid strictly in accordance with the terms of this
Agreement under all circumstances, including the following:

(A)                                  ANY LACK OF VALIDITY OR ENFORCEABILITY OF
SUCH DOCUMENTARY CREDIT, THIS AGREEMENT, OR ANY OTHER AGREEMENT OR INSTRUMENT
RELATING THERETO;

(B)                                 THE EXISTENCE OF ANY CLAIM, COUNTERCLAIM,
SET-OFF, DEFENSE OR OTHER RIGHT THAT THE BORROWER MAY HAVE AT ANY TIME AGAINST
ANY BENEFICIARY OR ANY TRANSFEREE OF SUCH DOCUMENTARY CREDIT (OR ANY PERSON FOR
WHOM ANY SUCH BENEFICIARY OR ANY SUCH TRANSFEREE MAY BE ACTING), ROYAL OR ANY
OTHER PERSON, WHETHER IN CONNECTION WITH THE AGREEMENT, THE TRANSACTIONS
CONTEMPLATED HEREBY OR BY SUCH DOCUMENTARY CREDIT OR ANY AGREEMENT OR INSTRUMENT
RELATING THERETO, OR ANY UNRELATED TRANSACTION;

(C)                                  ANY DRAFT, DEMAND, CERTIFICATE OR OTHER
DOCUMENT PRESENTED UNDER SUCH DOCUMENTARY CREDIT PROVING TO BE FORGED,
FRAUDULENT, INVALID OR INSUFFICIENT IN ANY RESPECT OR ANY STATEMENT THEREIN
BEING UNTRUE OR INACCURATE IN ANY RESPECT; OR ANY LOSS OR DELAY IN THE
TRANSMISSION OR OTHERWISE OF ANY DOCUMENT REQUIRED IN ORDER TO MAKE A DRAWING
UNDER SUCH DOCUMENTARY CREDIT;

(D)                                 ANY PAYMENT BY ROYAL UNDER SUCH DOCUMENTARY
CREDIT AGAINST PRESENTATION OF A DRAFT OR CERTIFICATE THAT DOES NOT STRICTLY
COMPLY WITH THE TERMS OF SUCH DOCUMENTARY CREDIT; OR ANY PAYMENT MADE BY ROYAL
UNDER SUCH DOCUMENTARY CREDIT TO ANY PERSON PURPORTING TO BE A TRUSTEE IN
BANKRUPTCY, DEBTOR-IN-POSSESSION, ASSIGNEE FOR THE BENEFIT OF CREDITORS,
LIQUIDATOR, RECEIVER OR OTHER REPRESENTATIVE OF OR SUCCESSOR TO ANY BENEFICIARY
OR ANY TRANSFEREE OF DOCUMENTARY CREDIT, OR

(E)                                  ANY OTHER CIRCUMSTANCE OR HAPPENING
WHATSOEVER, WHETHER OR NOT SIMILAR TO ANY OF THE FOREGOING, INCLUDING ANY OTHER
CIRCUMSTANCE THAT MIGHT OTHERWISE CONSTITUTE A DEFENSE AVAILABLE TO, OR A
DISCHARGE OF, THE BORROWER.

 

The Borrower shall promptly examine a copy of each Documentary Credit and each
amendment thereto that is delivered to it and, in the event of any claim of
noncompliance with the Borrower’s

 

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instructions or other irregularity, the Borrower will immediately notify Royal.
The Borrower shall be conclusively deemed to have waived any such claim against
Royal and its correspondents unless such notice is given.

3.10                        ROLE OF ROYAL

In paying any drawing under a Documentary Credit, Royal shall not have any
responsibility to obtain any document (other than any sight draft, certificates
and documents expressly required by the Documentary Credit) or to ascertain or
inquire as to the validity or accuracy of any such document or the authority of
the Person executing or delivering any such document. The Borrower assumes all
risks of the acts or omissions of any beneficiary or transferee with respect to
its use of any Documentary Credit; provided that this assumption is not intended
to, and shall not, preclude the Borrower’s pursuing such rights and remedies as
it may have against the beneficiary or transferee at law or under any other
agreement. Neither Royal nor any of its correspondents, participants or
assignees, shall be liable or responsible for any of the matters described in
Sections 3.9(a) through (e); provided that anything in Sections 3.9(a) through
(e) or this Section 3.10 notwithstanding, the Borrower may have a claim against
Royal, and Royal may be liable to the Borrower, to the extent, but only to the
extent, of any direct, as opposed to consequential or exemplary, damages
suffered by the Borrower which the Borrower proves were caused by Royal’s
willful misconduct or gross negligence or Royal’s willful failure to pay under
any Documentary Credit after the presentation to it by the beneficiary of a
sight draft and certificate(s) strictly complying with the terms and conditions
of a Documentary Credit. In furtherance and not in limitation of the foregoing,
Royal may accept documents that appear on their face to be in order, without
responsibility for further investigation, regardless of any notice or
information to the contrary, and Royal shall not be responsible for the validity
or sufficiency of any instrument transferring or assigning or purporting to
transfer or assign a Documentary Credit or the rights or benefits thereunder or
proceeds thereof, in whole or in part, which may prove to be invalid or
ineffective for any reason.

3.11                        DOCUMENTARY CREDIT FEES

The Borrower shall pay to Royal documentary credit fee for each Documentary
Credit equal to the greater of $250 and the Applicable Percentage times the
daily maximum amount available to be drawn under such Letter of Credit
(calculated with reference to the maximum amount in effect under such
Documentary Credit at the time of calculation and not calculated with reference
to the maximum face amount of such Documentary Credit after giving effect to any
increases contemplated therein until such increases occur). Such documentary
credit fees shall be computed on a quarterly basis in arrears. Such documentary
credit fees shall be due and payable on the last Business Day after the end of
each March, June, September and December, commencing with the first such date to
occur after the issuance of such Documentary Credit, on the expiry date of that
Document Credit and thereafter on demand.

3.12                        CONFLICT WITH LETTER OF CREDIT APPLICATION

In the event of any conflict between the terms hereof and the terms of any
Documentary Credit Application, the terms hereof shall control.

 

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3.13                        EXISTING LETTERS OF CREDIT

The provisions of the Agreement will apply to the Existing Letters of Credit in
the same manner as if the Existing Letters of Credit had been issued pursuant to
the Agreement.

3.14                        COLLATERAL COVERAGE; RESTRICTED CASH COLLATERAL

(A)                                  THE BORROWER SHALL HAVE THE OPTION ONCE
DURING THE TERM OF THE AGREEMENT TO ELECT TO CASH COLLATERALIZE ITS OBLIGATIONS
AND LIABILITIES HEREUNDER IN RESPECT OF THE CREDIT FACILITY PROVIDED FOR IN
SECTION 3.1(A) BY DEPOSITING CASH EQUIVALENTS IN THE RESTRICTED CASH COLLATERAL
ACCOUNT AND NOTIFYING ROYAL IN WRITING OF SUCH ELECTION. THEREAFTER, ON OR PRIOR
TO THE TENTH (10TH) BUSINESS DAY OF EACH MONTH, THE BORROWER SHALL DELIVER TO
ROYAL A BORROWING BASE CERTIFICATE AS OF THE LAST BUSINESS DAY OF THE
IMMEDIATELY PRECEDING MONTH (EACH SUCH DATE A “RE-MARGIN DATE”). ON AND FROM THE
DATE THAT THE BORROWER ELECTS AS AFORESAID TO CASH COLLATERALIZE UNTIL THE
COLLATERAL RELEASE DATE, AS DEFINED BELOW IN SECTION 3.14(C), (THE “CASH
COLLATERAL PERIOD”) IF TOTAL BORROWINGS UNDER THE CREDIT FACILITY PROVIDED FOR
IN SECTION 3.1(A) EXCEED THE LESSER OF $10,000,000 AND THE COLLATERAL VALUE OF
THE BORROWING BASE, THE BORROWER SHALL DEPOSIT OR DIRECT ROYAL IN WRITING TO
DEPOSIT INTO THE RESTRICTED CASH COLLATERAL ACCOUNT AN AMOUNT EQUAL TO SUCH
EXCESS ON OR PRIOR TO SUCH TENTH (10TH) BUSINESS DAY. IF, AS OF ANY RE-MARGIN
DATE, THE COLLATERAL VALUE OF THE BORROWING BASE EXCEEDS THE THEN OUTSTANDING
BORROWINGS UNDER THE CREDIT FACILITY PROVIDED FOR IN SECTION 3.1(A), ROYAL
PROVIDED NO EVENT OF DEFAULT EXISTS AS OF SUCH RE-MARGIN DATE, SHALL, UPON
WRITTEN REQUEST BY THE BORROWER MADE IN THE RELATED BORROWING BASE CERTIFICATE,
REMIT THE AMOUNT OF SUCH EXCESS (THE “EXCESS AMOUNT”) FROM THE RESTRICTED CASH
COLLATERAL ACCOUNT TO THE BORROWER PROMPTLY IF THE EXCESS AMOUNT CONSISTS OF
CANADIAN FUNDS OR U.S. FUNDS AND PROMPTLY ON MATURITY OF EACH CASH EQUIVALENT IF
THE EXCESS AMOUNT CONSISTS OF CERTIFICATES OF DEPOSIT OR TERM DEPOSITS. THE
EXCESS AMOUNT WILL BE FREE AND CLEAR OF THE LIEN GRANTED IN THE RESTRICTED CASH
COLLATERAL AGREEMENT AS OF SUCH RE-MARGIN DATE. THE BORROWER SHALL COMPLY WITH
ALL OF ITS OBLIGATIONS UNDER THIS SECTION 3.14 SO LONG AS ROYAL SHALL HAVE ANY
COMMITMENT UNDER THE AGREEMENT, ANY OBLIGATION HEREUNDER FOR THE PAYMENT OF
MONEY THAT HAS ACCRUED AND IS PAYABLE SHALL REMAIN UNPAID OR UNSATISFIED, OR ANY
DOCUMENTARY CREDIT SHALL REMAIN OUTSTANDING.

(B)                                 THE BORROWER SHALL MAINTAIN THE RESTRICTED
CASH COLLATERAL ACCOUNT AT ALL TIMES DURING THE CASH COLLATERAL PERIOD.

(C)                                  THE BORROWER MAY, AT ANY TIME FOLLOWING ANY
RE-MARGIN DATE BUT ONLY ONCE DURING THE TERM OF THE AGREEMENT, ELECT TO RELEASE
THE RESTRICTED CASH COLLATERAL AND TERMINATE THE REQUIREMENTS OF SECTION 3.14(A)
HEREOF; PROVIDED, THAT (I) AS OF THE EFFECTIVE DATE OF SUCH ELECTION (THE
“COLLATERAL RELEASE DATE”), THE GUARANTOR SHALL BE ABLE TO DEMONSTRATE TO THE
REASONABLE SATISFACTION OF ROYAL THAT FOR THE TWELVE MONTH PERIOD IMMEDIATELY
PRECEDING THE COLLATERAL RELEASE DATE (A) THE CONSOLIDATED LEVERAGE RATIO FOR
SUCH PERIOD WAS LESS THAN OR EQUAL TO 2.50 TO 1.00 AND (B) THE CONSOLIDATED
INTEREST COVERAGE RATIO FOR SUCH PERIOD WAS

 

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GREATER THAN OR EQUAL TO 4.25 TO 1.00, (II) NO DEFAULT OR EVENT OF DEFAULT SHALL
HAVE OCCURRED AND BE CONTINUING PRIOR TO, AS OF OR IMMEDIATELY AFTER THE
COLLATERAL RELEASE DATE (FOR THE AVOIDANCE OF DOUBT, THE DETERMINATION OF THE
EXISTENCE OF A DEFAULT OR AN EVENT OF DEFAULT IMMEDIATELY AFTER THE COLLATERAL
RELEASE DATE SHALL TAKE INTO ACCOUNT THE EFFECTIVENESS OF THE COVENANTS SET
FORTH IN SECTION 6 OF THE AGREEMENT WHICH ARE EFFECTIVE ONLY DURING THE NO
COLLATERAL PERIOD AS WELL AS THOSE COVENANTS SET FORTH IN SECTION 6 OF THE
AGREEMENT WHICH ARE EFFECTIVE AT ALL TIMES DURING THE TERM OF THE AGREEMENT) AND
(III) THE BORROWER SHALL HAVE DELIVERED A CASH COLLATERAL RELEASE NOTICE TO
ROYAL DEMONSTRATING COMPLIANCE WITH THE FOREGOING CONDITIONS AND SETTING FORTH
THE DATE OF THE PROPOSED COLLATERAL RELEASE DATE AT LEAST 60 DAYS PRIOR TO SUCH
PROPOSED COLLATERAL RELEASE DATE.

(d)                                 The Borrower will deliver to Royal, promptly
prior to the commencement of any No Collateral Period (as defined in the
Guarantor Credit Agreement), notice of such No Collateral Period under the terms
of the Guarantor Credit Agreement.

3.15                        SECURITY

At all times after the Closing Date, the Obligations shall be secured in
accordance with Royal’s Security, and the Borrower agrees that it will from time
to time execute or cause to be executed any Borrower Guarantees and Borrower
Subsidiaries’ Guarantees and any such documents will be part of Royal’s
Security. In connection with the pledge of any Collateral which is included in
the calculation of the Collateral Value of the Borrowing Base as reflected in a
duly executed Borrowing Base Certificate delivered by the Borrower, the Borrower
will from time to time execute or cause to be executed such security agreements,
control agreements and any other documents incident to the granting or
perfection of the Lien in such Collateral as Royal may reasonably request and
any such documents will be part of Royal’s Security. Without limiting any
provision of the Restricted Cash Collateral Agreement, the Borrower hereby
grants to Royal, a Lien upon the Restricted Cash Collateral to secure the
Obligations.

3.16                        SWAP CONTRACTS, PDS SERVICES AND EFT TRANSFERS

Under the credit facility established pursuant to Section 3.1(b):

(A)                                  THE BORROWER MAY REQUEST THAT ROYAL ENTER
INTO SWAP CONTRACTS WITH THE BORROWER FROM TIME TO TIME. ROYAL MAY DECLINE SUCH
REQUEST OR MAY AGREE TO ENTER INTO SWAP CONTRACTS, PROVIDED:

(1)                                  THE BORROWER AGREES TO THE TERMS AND
CONDITIONS OF THE CURRENT APPLICABLE MASTER AGREEMENT OR SUCH OTHER SIMILAR OR
STANDARD FORM OF AGREEMENT APPROPRIATE TO THE TYPE OF SWAP CONTRACT, REQUESTED
BY THE BORROWER AS MAY BE REQUIRED BY ROYAL AND ENTERS INTO AND DELIVERS SUCH
AGREEMENT TO ROYAL;

(2)                                  THE BORROWER PAYS ALL REQUIRED FEES IN
CONNECTION WITH A SWAP CONTRACT AND INDEMNIFIES ROYAL AGAINST ANY LOSS, COST OR
EXPENSE INCURRED BY ROYAL INCLUDING ANY SWAP TERMINATION VALUES;

 

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(3)                                  THE BORROWER INDEMNIFIES ROYAL AGAINST ANY
LOSS, COST OR EXPENSE SUFFERED OR INCURRED BY ROYAL AS A RESULT OF ACTING UPON
INSTRUCTIONS GIVEN OR AGREEMENTS MADE OVER THE TELEPHONE OR BY ELECTRONIC
TRANSMISSION OF ANY TYPE WITH PERSONS REASONABLY BELIEVED BY ROYAL TO HAVE BEEN
ACTING ON THE BORROWER’S BEHALF;

(4)                                  THE BORROWER AGREES THAT IF THERE IS ANY
INCONSISTENCY AT ANY TIME BETWEEN THE TERMS OF THE AGREEMENT AND ANY MASTER
AGREEMENT, THE TERMS OF SUCH MASTER AGREEMENT SHALL PREVAIL; AND

(B)                                 THE BORROWER MAY REQUEST THAT ROYAL PROVIDE
PDS SERVICES AND EFT TRANSFERS FROM TIME TO TIME. ROYAL MAY DECLINE SUCH REQUEST
OR MAY AGREE TO PROVIDE PDS SERVICES AND EFT TRANSFERS, SUBJECT TO THE EXECUTION
AND DELIVERY OF ROYAL’S STANDARD FORM OF AGREEMENT APPROPRIATE TO THE TYPE OF
PDS SERVICES OR EFT TRANSFERS REQUESTED.

3.17                        INTEREST ACT OF CANADA

For the purpose of the Interest Act of Canada, the yearly rate of interest to
which interest calculated on the basis of a year of 360 or 365 days is
equivalent, is the rate of interest determined as herein provided multiplied by
the number of days in such year divided by 360 or 365, as the case may be.

3.18                        DEFAULT INTEREST

Default interest payable in the currency of the amount which is overdue shall be
paid on all interest, fees and other amounts payable hereunder which are
overdue. Default interest with respect to interest, fees and other amounts
payable in Canadian Funds shall be at the Prime Rate and with respect to
interest, fees and other amounts payable in U.S. Funds shall be at the U.S. Base
Rate, as the case may be. Default interest on overdue interest, fees and other
amounts shall be compounded monthly and shall be paid on demand both before and
after maturity, default and judgement. Default interest shall be computed from
and including the date interest, fees or any other amounts payable pursuant to
the Agreement become due and shall be paid for so long as such amount or amounts
remains unpaid.

3.19                        INDEMNITY FOR OUT-OF-POCKET EXPENSES

The Borrower agrees to indemnify Royal against any out-of-pocket loss or expense
which it may sustain or incur as a consequence of the Borrower’s failure to
effect, repay or prepay a Borrowing as specified in any Notice of Borrowing
delivered by the Borrower pursuant to the Agreement.

3.20                        EFFECTIVE TIME FOR SECTION 3 NOTICES

For the purposes of Section 3 of the Agreement, and unless otherwise specified
in Section 3, notices from the Borrower to Royal must be received by Royal prior
to 10:00 a.m. local time at Vancouver, British Columbia to be effective on the
date on which they are given. Notices

 

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received after that local time will take effect from the next Banking Day or
Business Day, as the case may be.

3.21                        INCREASED COSTS

Subject to Section 3.23, if, after the Closing Date, the implementation or
introduction of or any change in any applicable law, regulation, treaty, or
official directive or regulatory requirement now or hereafter in effect (whether
or not having the force of law), or any change in the interpretation or
application thereof by any court or by any judicial or governmental body charged
with the interpretation or administration thereof, or if compliance by Royal
with any request from any central bank or other fiscal, monetary, or other
authority (whether or not having the force of law):

(A)                                  SUBJECTS ROYAL TO ANY TAX, CHANGES THE
BASIS OF TAXATION OF PAYMENTS DUE TO ROYAL OR INCREASES ANY EXISTING TAX, ON
PAYMENTS OF PRINCIPAL, INTEREST, OR OTHER AMOUNTS PAYABLE BY THE BORROWER TO
ROYAL UNDER THE AGREEMENT (EXCEPT FOR TAXES ON THE OVERALL NET INCOME OF ROYAL
IMPOSED BY THE JURISDICTION IN WHICH IT IS INCORPORATED OR RESIDENT OR FROM
WHICH IT IS ACTING FOR THE PURPOSES OF THE AGREEMENT, AND EXCEPT FOR TAXES ON
ROYAL’S CAPITAL OR OTHER SIMILAR TAXES); OR

(B)                                 IMPOSES ON ROYAL ANY OTHER CONDITION WITH
RESPECT TO THE AGREEMENT,

and the result of (a) or (b) is, in the reasonable determination of Royal acting
in good faith, to increase the cost to Royal or to reduce the income receivable
by Royal in respect of a Borrowing or Facility Fee payable, or to reduce the
rate of return on the overall capital of Royal, the Borrower shall, upon receipt
of a certificate from Royal as described below (“Certificate”), pay to Royal
that amount which compensates Royal for such additional cost, reduction in
income or rate of return (“Additional Amount”) from the date of the Certificate.
The Borrower will pay the Additional Amount on the next following 20th day of
the month and on the 20th day of each month thereafter until the earlier of
(a) the date on which the Additional Amount has been paid in full, and (b) the
date on which the Borrower has repaid and/or converted all Borrowings with
respect to which a Certificate has been delivered. Royal shall deliver a
Certificate to the Borrower which shall set forth the amount of the Additional
Amount and the basis for its calculation which will, in the absence of manifest
or demonstrable error, be conclusive evidence of the amount of the Additional
Amount. Royal will use its reasonable efforts to reduce the amount of the
Additional Amount payable hereunder provided that Royal will have no obligation
to expend its own funds, to suffer any economic hardship or to take any action
detrimental to its interest in connection therewith.

3.22                        BORROWER’S OPTION ON RECEIPT OF AN INCREASED COSTS
CERTIFICATE

If Royal delivers the Certificate and the Borrower has paid the Additional
Amount required to be paid by the Certificate in accordance with the
Certificate, then with two Business Days’ prior written irrevocable notice to
Royal, the Borrower may within 60 days, prepay in full without bonus or penalty
all Borrowings, with respect to which a Certificate has been delivered,
interest, fees and other amounts payable hereunder in connection with such
Borrowings.

 

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3.23                        INCREASED COSTS LIMITATION

Royal agrees that:

(A)                                  THE INCREASED COSTS PAYABLE BY THE BORROWER
PURSUANT TO SECTION 3.21 SHALL NOT INCLUDE:

(1)                                  THOSE RESULTING FROM ANY LAW, REGULATION,
TREATY, OR OFFICIAL DIRECTIVE OR REGULATORY REQUIREMENT OR AMENDMENTS THERETO OF
WHICH ROYAL HAD KNOWLEDGE PRIOR TO THE CLOSING DATE, OR

(2)                                  ANY TAX, PENALTY OR OTHER CHARGES PAYABLE
BY ROYAL DUE TO ITS FAILURE TO PAY OR DELAY IN PAYING ANY AMOUNT REQUIRED TO BE
PAID BY IT REFERRED TO IN SECTION 3.21(A);

(B)                                 IT WILL NOT CHARGE THE BORROWER FOR ANY
INCREASED COSTS PAYABLE BY IT REFERRED TO IN SECTION 3.21 IF IT IS NOT AT THE
SAME TIME PASSING SIMILAR COSTS ON TO SUBSTANTIALLY ALL OF ITS CUSTOMERS TO WHOM
ROYAL IS, BY AGREEMENT, ENTITLED TO PASS ON SUCH COSTS; AND

(C)                                  IT WILL USE ALL REASONABLE EFFORTS TO
MINIMIZE AMOUNTS PAYABLE BY THE BORROWER HEREUNDER INCLUDING ALL REASONABLE
EFFORTS TO OBTAIN REFUNDS OR CREDITS.

3.24                        REPAYMENT OF CREDIT FACILITY

On the Maturity Date the Borrower shall repay to Royal the whole of the
outstanding amount of Borrowings under the Credit Facility provided for under
Section 3.1(b) together with interest, fees and other amounts due hereunder to
such date. Royal may retain sufficient Restricted Cash Collateral after the
Maturity Date to secure its obligations under any Documentary Credits which have
not at that time expired or been cancelled or returned and related interest,
fees or other amounts by maintaining the Collateral Value of the Borrowing Base.

3.25                        EXTENSION OF MATURITY DATE

Royal in its sole discretion may, at the request of the Borrower, extend the
Maturity Date and the Letter of Credit Expiration Date for successive periods of
364 days. If the Borrower wishes to extend the Maturity Date and the Letter of
Credit Expiration Date it shall so notify Royal not more than 90 days and not
less than 60 days prior to the then current Maturity Date and Royal shall,
within 30 days of receipt of such extension notice, advise the Borrower of its
determination in response to any such request. If Royal determines that it will
extend the Maturity Date and the Letter of Credit Expiration Date for 364 days
the current Maturity Date, and the current Letter of Credit Expiration Date
shall be extended to that date which is 364 days past the current Maturity Date
or Letter of Credit Expiration Date, as the case may be. The Borrower and the
Guarantor acknowledge that the rates of interest, Facility Fee, acceptance fees,
Documentary Credit Fees and any other fees payable by the Borrower under the
Agreement are subject to confirmation by Royal at the time of each request for
an extension of the Maturity Date and Letter of Credit Expiration Date.

 

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3.26                        CURRENCY OF ALL PAYMENTS

All repayments made by the Borrower pursuant to the Agreement shall be made in
the currency of the Borrowing being repaid.

3.27                        BORROWER’S RIGHT TO CANCEL AVAILABLE AMOUNT OF
CREDIT FACILITY

If the Borrower delivers to Royal three Business Days’ prior irrevocable notice,
the Borrower may, without penalty, cancel the available amount of the Credit
Facility or a portion thereof in minimum increments of $5,000,000 or any greater
amount in whole multiples of $100,000. Such cancellation shall be effective on
the later of the effective Business Day set out in such notice and the third
Business Day after such notice. No cancellation under this Section 3.27 shall be
effective in respect of any portion of the Credit Facility which has been
advanced or utilized until such advance or utilization has been repaid or
reduced and all interest and fees accruing thereon have been paid. Any such
amount so cancelled shall permanently reduce the available amount of the Credit
Facility thereafter available for Borrowings by a like amount.

3.28                        FACILITY FEE

The Borrower shall pay to Royal a facility fee (the “Facility Fee”) in an amount
equal to the Applicable Percentage per annum on the full amount of the credit
facility described in Section 3.1(a) regardless of usage from the Closing Date
until the Maturity Date. The Facility Fee shall be paid in Canadian Funds
calculated on a daily basis and be payable quarterly in arrears on the 15th day
following the last day of each calendar quarter for the prior calendar quarter.

3.29                        ARRANGEMENT FEE

The Borrower shall pay to Royal an arrangement fee of $12,500 on the Closing
Date.

3.30                        EVIDENCE OF INDEBTEDNESS

Royal shall open and maintain on its books at its Branch of Account, accounts
and records evidencing Borrowings and other amounts owing by the Borrower to
Royal under the Agreement. Royal shall record Documentary Credits issued and
cancelled by it and all other amounts becoming due to it under the Agreement
including interest, Documentary Credit Fees, the Facility Fee and other fees and
amounts and all payments on account thereof. Such accounts and records
maintained by Royal shall constitute, in the absence of manifest or demonstrable
error, prima facie evidence of the indebtedness of the Borrower to Royal
pursuant to the Agreement, the date Royal made each Borrowing available to the
Borrower and the amounts the Borrower has paid from time to time on account of
principal and interest on the Borrowings, Documentary Credit Fees, the Facility
Fee and other fees and amounts payable pursuant to the Agreement and all other
amounts owing hereunder.

3.31                        DETERMINATION OF AVAILABLE AMOUNT OF THE CREDIT
FACILITY

The available amount of the Credit Facility shall always be determined in
Canadian Funds, with Borrowings by way of Documentary Credits in U.S. Funds
converted to Canadian Funds by determining the Equivalent Amount of any such
Documentary Credit in U.S. Funds.

 

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4.                                      SECURITY FOR BORROWINGS

4.1                               SECURITY FOR BORROWINGS

As general and continuing security for the performance of all obligations of the
Borrower hereunder and the prompt payment when due by the Borrower of Borrowings
under the Credit Facility and interest thereon and all other money for the time
being and from time to time owing by the Borrower hereunder, including the
Facility Fee, Documentary Credit Fees and other fees, default interest, fees for
Swap Contracts, Swap Termination Values, fees and liabilities in respect of EFT
Transfers and PDS Services, the Borrower confirms that, subject to the
provisions of this Agreement, it has executed and delivered or caused to be
executed and delivered, or shall execute and deliver, or cause to be executed
and delivered to Royal the following:

(A)                                  THE RESTRICTED CASH COLLATERAL AGREEMENTS;

(B)                                 THE AMENDED SUBORDINATION AGREEMENT; AND

(C)                                  THE GUARANTEE.

4.2                               CONFLICT BETWEEN THE AGREEMENT AND ROYAL’S
SECURITY

Except for the choice of law provisions in the Guarantee and those provisions in
Royal’s Security describing the collateral over which security is taken or which
allow for dispositions of such collateral free from such security, which shall
prevail, if there is any discrepancy or inconsistency between the terms of the
Agreement and the terms of Royal’s Security the terms of the Agreement shall
prevail.

4.3                               PAYMENT

Notwithstanding that the Guarantee, the Borrower Guarantees and the Borrower
Subsidiaries’ Guarantees are expressed to be payable on demand, Royal will not
demand payment thereof except when an Event of Default has occurred and is
continuing.

4.4                               GUARANTEES

Notwithstanding the aggregate dollar limitations on liability under the
Guarantee, the Borrower Guarantees and the Borrower Subsidiaries’ Guarantees,
Royal acknowledges that the respective dollar limitations set out in those
guarantees are not intended to be cumulative.

5.                                      CREDIT FACILITY CONDITIONS PRECEDENT

5.1                               CONDITIONS PRECEDENT TO INITIAL BORROWINGS

Royal shall not be obliged to make an initial advance of the Credit Facility
unless, on the Closing Date, all representations and warranties contained in
Section 2 of the Agreement are true and correct, no Event of Default has
occurred and is continuing and upon each of the following conditions being
satisfied:

 

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(A)                                  DELIVERY BY THE BORROWER TO ROYAL OF THE
FOLLOWING:

(1)                                  DULY EXECUTED COPIES OF THE AGREEMENT
TOGETHER WITH ALL DOCUMENTS WHICH THE BORROWER HAS COVENANTED TO DELIVER UNDER
THE AGREEMENT AND ANY OTHER DOCUMENTS OR INSTRUMENTS AS IN THE OPINION OF
COUNSEL FOR ROYAL ARE REASONABLY NECESSARY OR APPROPRIATE TO RENDER EFFECTIVE
THE AGREEMENT;

(2)                                  A CERTIFICATE OF GOOD STANDING FOR THE
BORROWER AND EACH OF THE BORROWER SUBSIDIARIES FROM THE OFFICE OF THE BRITISH
COLUMBIA REGISTRAR OF COMPANIES;

(3)                                  A CERTIFIED COPY OF THE CHARTER FOR THE
BORROWER;

(4)                                  A CERTIFIED COPY OF A RESOLUTION OR
RESOLUTIONS OF THE BOARD OF DIRECTORS OF THE BORROWER OR A DULY CONSTITUTED AND
AUTHORIZED COMMITTEE OF ITS DIRECTORS AND EACH OF THE BORROWER SUBSIDIARIES
AUTHORIZING IT TO EXECUTE, DELIVER AND PERFORM ITS OBLIGATIONS UNDER THE
AGREEMENT AND ROYAL’S SECURITY AND THE INSTRUMENTS, AGREEMENTS, CERTIFICATES,
PAPERS AND OTHER DOCUMENTS CONTEMPLATED HEREIN AND THEREIN AND THE MANNER IN
WHICH AND BY WHOM THE FOREGOING DOCUMENTS ARE TO BE EXECUTED AND DELIVERED;

(5)                                  AN INCUMBENCY CERTIFICATE OF THE BORROWER
AND EACH OF THE BORROWER SUBSIDIARIES SETTING FORTH THE NAMES OF ITS DIRECTORS
AND OFFICERS AND SPECIMEN SIGNATURES OF THE INDIVIDUALS WHO SIGN THE AGREEMENT
AND ROYAL’S SECURITY AND THE INSTRUMENTS, AGREEMENTS, CERTIFICATES, PAPERS AND
OTHER DOCUMENTS PROVIDED FOR OR CONTEMPLATED THEREIN;

(6)                                  A CERTIFICATE SIGNED BY THE CHIEF FINANCIAL
OFFICER OR OTHER RESPONSIBLE PERSON CERTIFYING:

(A)                              THAT THE GUARANTOR IS NOT IN DEFAULT UNDER THE
GUARANTOR CREDIT AGREEMENT;

(B)                                THERE IS NO MATERIAL LITIGATION PENDING OR
THREATENED AGAINST THE BORROWER OTHER THAN AS DISCLOSED IN THE DECEMBER 31, 2003
ANNUAL REPORT;

(C)                                THERE HAS BEEN NO MATERIAL ADVERSE CHANGE IN
THE FINANCIAL CONDITIONS AND OPERATIONS OF THE GUARANTOR OR ANY OF ITS
SUBSIDIARIES SINCE THE DATE OF THE GUARANTOR’S MOST RECENT FINANCIAL STATEMENTS
REFERRED TO IN SECTION 2.16 OF THE AGREEMENT;

(7)                                  A FAVOURABLE OPINION OF COUNSEL FOR THE
BORROWER (IN FORM AND CONTENT SATISFACTORY TO THE SOLICITORS FOR ROYAL) TO THE
EFFECT THAT:

(A)                              THE BORROWER AND EACH OF THE BORROWER
SUBSIDIARIES HAS BEEN DULY INCORPORATED, AMALGAMATED OR CONTINUED UNDER THE LAWS
OF THE PROVINCE OF BRITISH COLUMBIA AND IS, ACCORDING TO THE RECORDS

 

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OF THE OFFICE OF THE REGISTRAR OF COMPANIES FOR THE PROVINCE OF BRITISH
COLUMBIA, AN EXISTING COMPANY IN GOOD STANDING WITH RESPECT TO THE FILING OF ITS
ANNUAL REPORTS;

(B)                                THE BORROWER AND EACH OF THE BORROWER
SUBSIDIARIES HAVE THE CORPORATE POWER AND CAPACITY TO BORROW MONEY AND GRANT
SECURITY THEREFORE IN THE MANNER CONTEMPLATED BY THE AGREEMENT AND ROYAL’S
SECURITY AND TO ENTER INTO, OBSERVE AND PERFORM THE TERMS AND OBLIGATIONS ON ITS
PART TO BE OBSERVED AND PERFORMED UNDER THE AGREEMENT AND ROYAL’S SECURITY;

(C)                                THE BORROWER HAS DULY AUTHORIZED, EXECUTED
AND DELIVERED THE AGREEMENT AND THAT ROYAL’S SECURITY TO WHICH IT IS A PARTY AND
EACH OF THE BORROWER SUBSIDIARIES HAVE DULY AUTHORIZED, EXECUTED AND DELIVERED
THAT ROYAL’S SECURITY TO WHICH IT IS A PARTY, THE AGREEMENT AND SUCH ROYAL’S
SECURITY CONSTITUTE VALID, BINDING AND ENFORCEABLE OBLIGATIONS OF THE BORROWER
AND THE BORROWER SUBSIDIARIES (AS APPLICABLE) IN ACCORDANCE WITH ITS TERMS, SAVE
AS ENFORCEMENT MAY BE LIMITED BY:

(I)                                     APPLICABLE BANKRUPTCY, INSOLVENCY,
MORATORIUM OR REORGANIZATION OR OTHER LAWS AFFECTING CREDITORS’ RIGHTS
GENERALLY;

(II)                                  THE UNAVAILABILITY OF EQUITABLE REMEDIES
SUCH AS THE REMEDY OF SPECIFIC PERFORMANCE AND INJUNCTION IN ANY PARTICULAR
INSTANCE;

(III)                               THE INABILITY OF THE COURTS OF CANADA TO
GIVE JUDGEMENT FOR PAYMENT IN FOREIGN CURRENCIES; AND

(IV)                              SUCH OTHER QUALIFICATIONS AND LIMITATIONS AS
COUNSEL FOR ROYAL MAY ACCEPT ACTING REASONABLY;

(D)                               SO FAR AS THEY ARE AWARE IN THEIR CAPACITY AS
COUNSEL FOR THE BORROWER IN RESPECT OF THIS TRANSACTION, THERE ARE NO ACTIONS,
PROCEEDINGS OR INVESTIGATIONS PENDING OR THREATENED AGAINST THE BORROWER WHICH
QUESTION THE VALIDITY OF THE AGREEMENT OR ROYAL’S SECURITY OR THE VALIDITY OF
ANY ACT TO BE TAKEN PURSUANT THERETO,

and, in addition, dealing with such other matters incidental to the transactions
contemplated by the Agreement as Royal may reasonably and properly require;

(8)                                  AN OPINION OF MESSRS. BULL, HOUSSER &
TUPPER, COUNSEL FOR ROYAL (IN FORM AND CONTENT SATISFACTORY TO ROYAL BUT SUBJECT
TO THE USUAL ASSUMPTIONS AND QUALIFICATIONS) TO THE EFFECT THAT THE AGREEMENT
AND ROYAL’S SECURITY HAVE BEEN EXECUTED BY ALL PARTIES THERETO AND DELIVERED TO
ROYAL AND THAT

 

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SUCH ITEMS OF ROYAL’S SECURITY WHICH REQUIRE REGISTRATION OR FILING HAVE BEEN
REGISTERED OR FILED IN ALL PLACES AND OFFICES IN BRITISH COLUMBIA AND ELSEWHERE
(AS MAY BE DETERMINED BY COUNSEL FOR ROYAL) WHERE SUCH REGISTRATION OR FILING IS
NECESSARY;

(B)                                 DELIVERY BY THE GUARANTOR TO ROYAL OF THE
FOLLOWING:

(1)                                  THE DULY EXECUTED GUARANTEE AND
SUBORDINATION AGREEMENT;

(2)                                  A CERTIFICATE OF GOOD STANDING FOR THE
GUARANTOR;

(3)                                  A CERTIFIED COPY OF THE CHARTER FOR THE
GUARANTOR;

(4)                                  A CERTIFIED COPY OF A RESOLUTION OR
RESOLUTIONS OF THE GUARANTOR’S BOARD OF DIRECTORS OR A DULY CONSTITUTED AND
AUTHORIZED COMMITTEE OF THE GUARANTOR’S BOARD OF DIRECTORS AUTHORIZING THE
GUARANTOR TO EXECUTE, DELIVER AND PERFORM ITS OBLIGATIONS UNDER THE AGREEMENT
AND THE INSTRUMENTS, AGREEMENTS, CERTIFICATES, PAPERS AND OTHER DOCUMENTS
CONTEMPLATED HEREIN, INCLUDING THE GUARANTEE AND THE SUBORDINATION AGREEMENT AND
THE MANNER IN WHICH AND BY WHOM THE FOREGOING DOCUMENTS ARE TO BE EXECUTED AND
DELIVERED;

(5)                                  AN INCUMBENCY CERTIFICATE OF THE GUARANTOR
SETTING FORTH THE NAMES OF ITS DIRECTORS AND OFFICERS AND SPECIMEN SIGNATURES OF
THE INDIVIDUALS WHO SIGN THE AGREEMENT, THE GUARANTEE, THE SUBORDINATION
AGREEMENT AND THE OTHER INSTRUMENTS, AGREEMENTS, CERTIFICATES, PAPERS AND OTHER
DOCUMENTS PROVIDED FOR OR CONTEMPLATED THEREIN;

(6)                                  A FAVOURABLE OPINION OF COUNSEL FOR THE
GUARANTOR (IN FORM AND CONTENT SATISFACTORY TO THE SOLICITORS FOR ROYAL)
SUBSTANTIALLY TO THE EFFECT THAT:

(A)                              THE GUARANTOR IS A CORPORATION DULY ORGANIZED
AND EXISTING UNDER THE LAWS OF THE STATE OF DELAWARE, U.S.A., AND IS IN GOOD
STANDING IN THAT JURISDICTION;

(B)                                THE GUARANTOR HAS ALL REQUISITE CORPORATE
POWER AND CAPACITY TO GUARANTEE THE OBLIGATIONS OF THE BORROWER, TO ENTER INTO,
OBSERVE AND PERFORM ITS OBLIGATIONS UNDER THE AGREEMENT, THE GUARANTEE AND THE
SUBORDINATION AGREEMENT;

(C)                                THE GUARANTOR HAS TAKEN ALL NECESSARY
CORPORATE ACTION TO AUTHORIZE THE EXECUTION, DELIVERY AND PERFORMANCE OF ITS
OBLIGATIONS UNDER THE AGREEMENT, THE GUARANTEE AND THE SUBORDINATION AGREEMENT;

(D)                               EACH OF THE AGREEMENT, THE GUARANTEE AND THE
SUBORDINATION AGREEMENT HAS BEEN DULY AUTHORIZED, EXECUTED AND DELIVERED BY THE
GUARANTOR AND CONSTITUTES LEGAL, VALID AND BINDING OBLIGATIONS

 

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OF THE GUARANTOR, ENFORCEABLE AGAINST THE GUARANTOR IN ACCORDANCE WITH ITS
RESPECTIVE TERMS, SAVE AS ENFORCEABILITY MAY BE LIMITED BY:

(I)                                     APPLICABLE BANKRUPTCY, INSOLVENCY,
FRAUDULENT TRANSFER, MORATORIUM OR REORGANIZATION OR OTHER SIMILAR LAWS
AFFECTING CREDITORS’ RIGHTS GENERALLY, AND

(II)                                  GENERAL PRINCIPLES OF EQUITY AND THE
UNAVAILABILITY OF THE REMEDIES OF SPECIFIC PERFORMANCE AND INJUNCTION IN ANY
PARTICULAR INSTANCE;

(E)                                 SO FAR AS THEY ARE AWARE IN THEIR CAPACITY
AS COUNSEL TO THE GUARANTOR, THERE IS NO ACTION, SUIT, PROCEEDING OR
INVESTIGATION PENDING OR THREATENED AGAINST THE GUARANTOR WHICH QUESTIONS THE
VALIDITY OF THE AGREEMENT, THE GUARANTEE OR THE SUBORDINATION AGREEMENT OR THE
VALIDITY OF ANY ACT TO BE TAKEN PURSUANT THERETO;

(F)                                 SO FAR AS THEY ARE AWARE IN THEIR CAPACITY
AS COUNSEL TO THE GUARANTOR, NEITHER THE EXECUTION AND DELIVERY OF THE
AGREEMENT, THE GUARANTEE OR THE SUBORDINATION AGREEMENT BY THE GUARANTOR NOR THE
FULFILMENT OR COMPLIANCE WITH THE TERMS THEREOF:

(I)                                     CONTRAVENES OR RESULTS IN A BREACH OF
ANY OF THE TERMS, CONDITIONS OR PROVISIONS OF THE CHARTER OF THE GUARANTOR, OR

(II)                                  CONTRAVENES OR RESULTS IN ANY BREACH OF OR
CONSTITUTES A DEFAULT UNDER ANY MATERIAL AGREEMENT TO WHICH THE GUARANTOR IS A
PARTY OR BY WHICH IT IS BOUND;

(C)                                  THE BORROWER SHALL HAVE PAID ALL FEES AND
EXPENSES THEN DUE TO ROYAL INCLUDING THE ARRANGEMENT FEE DUE UNDER SECTION 3.29
AND ANY REASONABLE LEGAL FEES INVOICED PRIOR TO THE CLOSING DATE.

(D)                                 ALL DOCUMENTS AND LEGAL MATTERS IN
CONNECTION WITH THE TRANSACTIONS CONTEMPLATED BY THE GUARANTOR CREDIT AGREEMENT
SHALL HAVE BEEN COMPLETED PRIOR TO THE CLOSING DATE.

5.2                               CONDITIONS PRECEDENT TO SUBSEQUENT BORROWINGS

It shall be a condition of each subsequent advance, renewal or conversion under
the Credit Facility that:

(A)                                  THE REPRESENTATIONS AND WARRANTIES
CONTAINED IN SECTION 2 HEREOF SHALL BE TRUE ON AND AS OF THE DATE OF EACH
ADVANCE, RENEWAL OR CONVERSION;

(B)                                 ROYAL IS SATISFIED THAT THERE HAS BEEN NO
MATERIAL ADVERSE CHANGE IN THE FINANCIAL CONDITION OR OPERATION OF THE BORROWER
OR THE GUARANTOR; AND

 

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(C)                                  NO DEFAULT OR EVENT OF DEFAULT SHALL HAVE
OCCURRED AND BE CONTINUING ON SUCH DATE OR AFTER GIVING EFFECT TO SUCH ADVANCE,
RENEWAL OR CONVERSION.

The Borrower will, upon request of Royal, deliver to Royal a certificate or
certificates of an officer on behalf of the Borrower or the Guarantor to that
effect.

6.                                      COVENANTS OF THE BORROWER AND THE
GUARANTOR

6.1                               BORROWER’S COVENANTS

The Borrower covenants and agrees with Royal as follows:

Positive Covenants of the Borrower

(A)                                  THAT IT WILL DULY AND PUNCTUALLY PAY OR
CAUSE TO BE PAID ALL AMOUNTS REQUIRED TO BE PAID BY IT TO ROYAL PURSUANT TO THE
AGREEMENT, INCLUDING PRINCIPAL, INTEREST, DEFAULT INTEREST, DOCUMENTARY CREDIT
FEES, SWAP TERMINATION VALUES, THE FACILITY FEE, FEES FOR SWAP CONTRACTS AND ANY
OTHER FEES AND AMOUNTS, ON THE DAY, AT THE PLACE, IN THE CURRENCIES AND IN THE
MANNER SET FORTH HEREIN;

(B)                                 THAT IT WILL DULY OBSERVE AND PERFORM OR
CAUSE TO BE OBSERVED AND PERFORMED EACH AND ALL OF THE COVENANTS AND AGREEMENTS
REQUIRED BY IT TO BE OBSERVED AND PERFORMED AS SET FORTH IN THE AGREEMENT AND
ROYAL’S SECURITY;

(C)                                  THAT IT WILL MAINTAIN INSURANCE COVERAGE AT
ALL TIMES AND WILL FORTHWITH NOTIFY ROYAL UPON THE HAPPENING OF ANY LOSS WHICH
COULD REASONABLY BE EXPECTED TO HAVE A MATERIAL ADVERSE EFFECT ON THE FINANCIAL
CONDITION OR OPERATIONS OF THE BORROWER AND IF INSURANCE COVERAGE IS PROVIDED BY
THIRD PARTY INSURERS, IT SHALL DULY AND PUNCTUALLY PAY ALL PREMIUMS AND OTHER
SUMS OF MONEY FOR MAINTAINING SUCH INSURANCE;

(D)                                 THAT IT WILL AND IT WILL CAUSE EACH OF ITS
SUBSIDIARIES TO FILE ALL MATERIAL TAX RETURNS INCLUDING INCOME TAX RETURNS,
CORPORATION CAPITAL TAX RETURNS AND OTHER TAX FILINGS IN ALL REQUIRED
JURISDICTIONS;

(E)                                  THAT IT WILL AND IT WILL CAUSE EACH OF ITS
SUBSIDIARIES TO PAY ALL MATERIAL TAXES (EXCEPT TAXES IN DISPUTE WHICH ARE BEING
CONTESTED IN GOOD FAITH) INCLUDING INTEREST AND PENALTIES AND WILL PAY OR MAKE
ADEQUATE RESERVES FOR THE ULTIMATE PAYMENT OF ANY TAX PAYMENT WHICH IS BEING
CONTESTED;

(F)                                    THAT IT WILL AND IT WILL CAUSE EACH OF
ITS SUBSIDIARIES TO ACTIVELY AND DILIGENTLY CONTEST OR CAUSE TO BE CONTESTED IN
GOOD FAITH, BY APPROPRIATE AND TIMELY PROCEEDINGS, OR EFFECT A TIMELY AND
PROVIDENT SETTLEMENT OF ANY ACTION, SUIT, LITIGATION OR OTHER PROCEEDING THE
RESULT OF WHICH COULD REASONABLY BE EXPECTED TO HAVE A MATERIAL ADVERSE EFFECT
ON THE FINANCIAL CONDITION OR OPERATIONS OF THE BORROWER;

 

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(G)                                 THAT IT WILL AND IT WILL CAUSE EACH OF ITS
SUBSIDIARIES TO EFFECT A TIMELY AND PROVIDENT SETTLEMENT OF OR BRING AN
APPLICATION TO STAY ANY WRIT OF EXECUTION, ATTACHMENT OR SIMILAR PROCESS ISSUED
OR LEVIED AGAINST ALL, OR A SUBSTANTIAL PORTION OF, ITS PROPERTY OR THE PROPERTY
OF ANY OF ITS SUBSIDIARIES IN CONNECTION WITH ANY JUDGEMENT AGAINST IT OR ANY OF
ITS SUBSIDIARIES IN AN AMOUNT WHICH MATERIALLY ADVERSELY AFFECTS THE FINANCIAL
CONDITION OR OPERATIONS OF THE BORROWER;

(H)                                 THAT IT WILL AND IT WILL CAUSE EACH OF ITS
SUBSIDIARIES TO OBSERVE AND COMPLY WITH THE PROVISIONS OF ALL APPLICABLE LAWS,
REGULATIONS, BYLAWS, ORDINANCES AND ORDERS OF ANY GOVERNMENTAL BODY DEALING IN
RELATION TO ITS BUSINESS OR THE BUSINESS OF ANY OF ITS SUBSIDIARIES WITH
POLLUTION OF THE ENVIRONMENT, TOXIC AND HAZARDOUS MATERIALS AND WASTE AND OTHER
ENVIRONMENTAL HAZARDS, UNLESS THE FAILURE TO SO OBSERVE AND COMPLY WOULD NOT, IN
THE JUDGEMENT OF THE BORROWER, REASONABLY EXERCISED, MATERIALLY ADVERSELY AFFECT
THE ABILITY OF THE BORROWER TO MEET ITS OBLIGATIONS UNDER THE AGREEMENT;

(I)                                     THAT IT WILL, AS SOON AS PRACTICAL AFTER
IT BECOMES AWARE THEREOF, PROVIDE ROYAL WITH PROMPT NOTICE OF:

(1)                                  ANY SPILLS OF CONTAMINANTS WHICH ARE
REQUIRED TO BE REPORTED TO ANY GOVERNMENTAL BODY, AND

(2)                                  OF ANY INVESTIGATIONS, CONTROL ORDERS, STOP
ORDERS, INJUNCTIONS, PROSECUTIONS OR LAWSUITS UNDER ANY FEDERAL, PROVINCIAL,
MUNICIPAL OR OTHER LAWS RELATING TO POLLUTION OF THE ENVIRONMENT, THE HANDLING
OF TOXIC OR HAZARDOUS MATERIALS AND WASTE OR ANY OTHER ENVIRONMENTAL OR PUBLIC
HEALTH AND SAFETY LAWS,

and which, in either such case, would, in the judgement of the Borrower,
reasonably exercised, have a material adverse effect on the business or
financial condition of the Borrower or any of its Subsidiaries and which would
materially adversely affect the ability of the Borrower to meet its obligations
under the Agreement;

(J)                                     THAT IT WILL CAUSE ITS CHIEF FINANCIAL
OFFICER, SUCH OTHER SENIOR OFFICER AS MAY BE APPROPRIATE OR ITS AUDITOR, TO MEET
WITH ROYAL TO DISCUSS AND EXPLAIN, AS THE CASE MAY BE, ANY OF ITS AFFAIRS,
FINANCES AND ACCOUNTS AND TO PROVIDE SUCH OTHER INFORMATION PERTAINING TO ITS
BUSINESS AND OPERATIONS TOGETHER WITH SUCH REPORTS AND DOCUMENTS AS ROYAL MAY
REASONABLY REQUIRE;

(K)                                  THAT IT WILL PERMIT REPRESENTATIVES AND
INDEPENDENT CONTRACTORS OF ROYAL TO VISIT AND INSPECT ANY OF ITS OR ITS
SUBSIDIARIES’ PROPERTIES, TO EXAMINE THEIR RESPECTIVE CORPORATE, FINANCIAL AND
OPERATING RECORDS, AND MAKE COPIES THEREOF OR ABSTRACTS THEREFROM, AND TO
DISCUSS THEIR CORPORATE AFFAIRS, FINANCES AND ACCOUNTS WITH DIRECTORS, OFFICERS,
AND INDEPENDENT CHARTERED ACCOUNTANTS, ALL AT THE EXPENSE OF THE BORROWER AND AT
SUCH REASONABLE TIMES DURING NORMAL BUSINESS HOURS AND AS OFTEN AS MAY BE
REASONABLY DESIRED, UPON REASONABLE ADVANCE NOTICE TO THE

 

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BORROWER EXCEPT THAT, WHEN AN EVENT OF DEFAULT EXISTS, ROYAL MAY DO ANY OF THE
FOREGOING AT THE EXPENSE OF THE BORROWER AT ANY TIME DURING NORMAL BUSINESS
HOURS AND WITHOUT ADVANCE NOTICE;

(L)                                     THAT IT WILL MAINTAIN AND IT WILL CAUSE
EACH OF ITS SUBSIDIARIES TO MAINTAIN IN FULL FORCE AND EFFECT ALL MATERIAL
LEASES, LICENCES, PERMITS, CONSENTS AND REGULATORY APPROVALS NECESSARY FOR THE
DUE CARRYING ON OF THEIR RESPECTIVE BUSINESSES;

(M)                               THAT IT WILL MAINTAIN AND IT WILL CAUSE EACH
OF ITS SUBSIDIARIES TO MAINTAIN THEIR RESPECTIVE CORPORATE EXISTENCES AS VALIDLY
SUBSISTING CORPORATIONS;

(N)                                 THAT IT WILL GIVE TO ROYAL PROMPT NOTICE OF
ANY EVENT OF DEFAULT OR ANY EVENT THAT WITH NOTICE OR LAPSE OF TIME WOULD BE AN
EVENT OF DEFAULT;

(O)                                 THAT IT WILL USE BORROWINGS SOLELY FOR THE
PURPOSES SET FORTH IN SECTION 3.1 AND FOR NO OTHER PURPOSE;

Negative Covenants of the Borrower

(P)                                 THAT, WITHOUT THE PRIOR WRITTEN CONSENT OF
ROYAL, IT WILL NOT, NOR WILL IT PERMIT ANY SUBSIDIARY TO MERGE, AMALGAMATE,
ENTER INTO ANY CORPORATE REORGANIZATION OR OTHERWISE MODIFY ITS CORPORATE
STRUCTURE IN ANY WAY WHICH WOULD MATERIALLY ADVERSELY AFFECT ITS ASSET BASE OR
CONSOLIDATED CASH FLOW OR IMPAIR THE ABILITY OF THE BORROWER TO OBSERVE AND
PERFORM ITS OBLIGATIONS UNDER THE AGREEMENT;

(Q)                                 THAT, IT WILL NOT AND IT WILL CAUSE EACH OF
ITS SUBSIDIARIES NOT TO MAKE ANY DISPOSITION OF ANY OF ITS PROPERTY OR ASSETS
EXCEPT FOR:

(1)                                  DISPOSITIONS OF INVENTORY OR CURRENT ASSETS
IN THE ORDINARY COURSE OF BUSINESS AND ON COMMERCIALLY REASONABLE TERMS IT BEING
ACKNOWLEDGED THAT SALES AND TRANSFERS OF INVENTORY AND RELATED PROPERTY AND
ASSETS TO THE GUARANTOR ARE IN THE ORDINARY COURSE OF BUSINESS;

(2)                                  DISPOSITIONS OF INDIVIDUAL ITEMS OF
PROPERTY OR ASSETS IN ANY FISCAL YEAR HAVING AN AGGREGATE VALUE OF $5,000,000 OR
LESS BASED ON THE GREATER OF NET BOOK VALUE OR THE VALUE DETERMINED BY THE VALUE
OF THE SALE OR DISPOSITION, OR

(3)                                  DISPOSITIONS OF ASSETS AS APPROVED IN
WRITING BY ROYAL;

(R)                                    THAT IT WILL NOT ALLOW THE AGGREGATE OF
THE PRINCIPAL AMOUNT OF BORROWINGS UNDER THE CREDIT FACILITY ESTABLISHED
PURSUANT TO SECTION 3.1(A) TO EXCEED AT ANY TIME DURING THE CASH COLLATERAL
PERIOD THE COLLATERAL VALUE OF THE BORROWING BASE SET OUT IN THE THEN CURRENT
BORROWING BASE CERTIFICATE;

(S)                                  THAT, WITHOUT THE PRIOR WRITTEN CONSENT, OF
ROYAL, IT WILL NOT GRANT, CREATE, ASSUME, SUFFER OR PERMIT ANY LIEN ON THE
RESTRICTED CASH COLLATERAL EXCEPT FOR ROYAL’S SECURITY;

 

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Reporting Covenants of the Borrower

(T)                                    THAT IT WILL AND IT WILL CAUSE EACH OF
ITS SUBSIDIARIES TO AT ALL TIMES KEEP OR CAUSE TO BE KEPT PROPER BOOKS OF
ACCOUNT AND THAT IT WILL FURNISH TO ROYAL WITHIN 90 DAYS AFTER THE CLOSE OF EACH
FISCAL YEAR SUFFICIENT COPIES OF ITS ANNUAL UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS, SIGNED BY A RESPONSIBLE OFFICER;

(U)                                 EXCEPT FOR THE YEAR END FISCAL QUARTER, IT
WILL DELIVER TO ROYAL WITHIN 45 DAYS OF THE CLOSE OF EACH FISCAL QUARTER
SUFFICIENT COPIES OF ITS QUARTERLY UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SIGNED BY A RESPONSIBLE OFFICER;

(V)                                 THAT IT WILL DELIVER TO ROYAL ON OR PRIOR TO
THE DATE REASONABLY STIPULATED BY ROYAL SUFFICIENT COPIES OF THE BORROWER’S (OR
ANY OF ITS SUBSIDIARIES), FINANCIAL AND OPERATING STATEMENTS, BUDGETS, BUSINESS
AND CAPEX PLANS TOGETHER WITH SUCH OTHER INFORMATION, REPORTS AND DOCUMENTS AS
ROYAL MAY REASONABLY REQUEST;

(W)                               THAT IT WILL PROVIDE PROMPT NOTICE TO ROYAL OF
ANY CHANGE TO THE FINANCIAL POSITION OR BUSINESS OF THE BORROWER OR ANY OF ITS
SUBSIDIARIES WHICH COULD HAVE A MATERIAL ADVERSE EFFECT ON ITS FINANCIAL
POSITION, BUSINESS OR ABILITY TO PERFORM ITS OBLIGATIONS UNDER THE AGREEMENT;

(X)                                   THAT IT WILL DELIVER TO ROYAL THE
BORROWING BASE CERTIFICATE AS REQUIRED BY SECTION 3.7 AND SECTION 3.14;

6.2                               GUARANTOR’S COVENANTS

The Guarantor covenants with Royal as follows:

Positive Covenants of the Guarantor

(A)                                  THAT IT WILL DULY OBSERVE AND PERFORM OR
CAUSE TO BE OBSERVED AND PERFORMED EACH AND ALL OF THE COVENANTS AND AGREEMENTS
REQUIRED BY IT TO BE PERFORMED AND OBSERVED AS SET FORTH IN THE AGREEMENT AND
THE GUARANTEE;

(B)                                 THAT IT WILL AT ALL TIMES MAINTAIN SUCH
INSURANCE AS IS USUALLY MAINTAINED BY OTHERS IN THE BUSINESS OF THE SAME NATURE
AS THE BUSINESS OF THE GUARANTOR AND EACH OF ITS SUBSIDIARIES, AS THE CASE MAY
BE, OR MAINTAIN A PROGRAM OF SELF-INSURANCE, WITH RESERVES, IN ACCORDANCE WITH
SOUND BUSINESS PRACTICES;

(C)                                  THAT IT WILL, MAINTAIN ITS WEB SITE AND
POST IN A TIMELY MANNER COPIES OF ALL PUBLIC DOCUMENTS FILED WITH THE U.S.
SECURITIES AND EXCHANGE COMMISSION (WITH THE EXCEPTION OF FORMS S-8);

(D)                                 THAT IT WILL GIVE ROYAL AT LEAST 15 DAYS’
NOTICE OF ITS INTENTION TO TRANSFER, MORTGAGE, PLEDGE, CHARGE OR OTHERWISE
ENCUMBER OR GRANT A SECURITY INTEREST IN ANY SHARES OF THE BORROWER IN WHICH IT
HAS A LEGAL OR BENEFICIAL INTEREST;

(E)                                  THAT IT WILL, FURNISH TO ROYAL:

 

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(1)                                  AS SOON AS AVAILABLE, BUT IN ANY EVENT
WITHIN NINETY (90) DAYS AFTER THE END OF EACH FISCAL YEAR OF THE GUARANTOR, A
COPY OF THE CONSOLIDATED BALANCE SHEET OF THE GUARANTOR AND ITS CONSOLIDATED
SUBSIDIARIES AS AT THE END OF SUCH FISCAL YEAR AND THE RELATED CONSOLIDATED
STATEMENTS OF INCOME, CASH FLOWS AND STOCKHOLDERS’ EQUITY OF THE GUARANTOR AND
ITS CONSOLIDATED SUBSIDIARIES FOR SUCH YEAR WHICH SHALL BE AUDITED BY A FIRM OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS OF NATIONALLY RECOGNIZED STANDING
REASONABLY ACCEPTABLE TO ROYAL, SETTING FORTH IN EACH CASE IN COMPARATIVE FORM
THE FIGURES FOR THE PREVIOUS YEAR, REPORTED ON WITHOUT A “GOING CONCERN” OR LIKE
QUALIFICATION, ASSUMPTION OR EXCEPTION, OR QUALIFICATION INDICATING THAT THE
SCOPE OF THE AUDIT WAS INADEQUATE TO PERMIT SUCH INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS TO CERTIFY SUCH FINANCIAL STATEMENTS WITHOUT SUCH QUALIFICATION;

(2)                                  AS SOON AS AVAILABLE AND IN ANY EVENT
WITHIN FORTY-FIVE (45) DAYS AFTER THE END OF EACH OF THE FIRST THREE FISCAL
QUARTERS OF THE GUARANTOR, A COPY OF THE CONSOLIDATED BALANCE SHEET OF THE
GUARANTOR AND ITS CONSOLIDATED SUBSIDIARIES AS AT THE END OF SUCH PERIOD AND
RELATED CONSOLIDATED STATEMENTS OF INCOME AND CASH FLOWS FOR THE GUARANTOR AND
ITS CONSOLIDATED SUBSIDIARIES FOR SUCH QUARTERLY PERIOD AND FOR THE PORTION OF
THE FISCAL YEAR ENDING WITH SUCH PERIOD, IN EACH CASE SETTING FORTH IN
COMPARATIVE FORM CONSOLIDATED FIGURES FOR THE CORRESPONDING PERIOD OR PERIODS OF
THE PRECEDING FISCAL YEAR (SUBJECT TO NORMAL RECURRING YEAR-END AUDIT
ADJUSTMENTS);

(3)                                  AS SOON AS AVAILABLE, BUT IN ANY EVENT
PRIOR TO THE END OF EACH FISCAL YEAR, A COPY OF THE DETAILED ANNUAL OPERATING
BUDGET OR PLAN INCLUDING CASH FLOW PROJECTIONS OF THE GUARANTOR AND ITS
SUBSIDIARIES FOR THE NEXT FOUR FISCAL QUARTER PERIOD PREPARED ON A QUARTERLY
BASIS, IN FORM AND DETAIL REASONABLY ACCEPTABLE TO ROYAL, TOGETHER WITH A
SUMMARY OF THE MATERIAL ASSUMPTIONS MADE IN THE PREPARATION OF SUCH ANNUAL
BUDGET OR PLAN; PROVIDED, THAT SUCH BUDGET OR PLAN SHALL NOT BE REQUIRED FOR A
FISCAL YEAR IF (I) AS OF THE END OF SUCH FISCAL YEAR THE GUARANTOR HAS AN
INVESTMENT GRADE DEBT RATING OR (II) THE END OF SUCH FISCAL YEAR FALLS WITHIN
THE CASH COLLATERAL PERIOD;

ALL SUCH FINANCIAL STATEMENTS TO BE COMPLETE AND CORRECT IN ALL MATERIAL
RESPECTS (SUBJECT, IN THE CASE OF INTERIM STATEMENTS, TO NORMAL RECURRING
YEAR-END ADJUSTMENTS) AND TO BE PREPARED IN REASONABLE DETAIL AND, IN THE CASE
OF THE ANNUAL AND QUARTERLY FINANCIAL STATEMENTS PROVIDED IN ACCORDANCE WITH
SUBSECTIONS (1) AND (2) ABOVE, IN ACCORDANCE WITH GAAP APPLIED CONSISTENTLY
THROUGHOUT THE PERIODS REFLECTED THEREIN AND FURTHER ACCOMPANIED BY A
DESCRIPTION OF, AND AN ESTIMATION OF THE EFFECT ON THE FINANCIAL STATEMENTS ON
ACCOUNT OF, A MATERIAL CHANGE, IF ANY, IN THE APPLICATION OF ACCOUNTING
PRINCIPLES AS PROVIDED IN SECTION 1.11;

 

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(F)                                    THAT IT WILL FURNISH TO ROYAL
CONCURRENTLY WITH THE DELIVERY OF THE FINANCIAL STATEMENTS REFERRED TO IN
SECTION 6.2(E)(1) ABOVE, A CERTIFICATE OF THE INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS REPORTING ON SUCH FINANCIAL STATEMENTS STATING THAT IN MAKING THE
EXAMINATION NECESSARY THEREFOR NO KNOWLEDGE WAS OBTAINED OF ANY DEFAULT OR EVENT
OF DEFAULT, EXCEPT AS SPECIFIED IN SUCH CERTIFICATE;

(G)                                 THAT, CONCURRENTLY WITH THE DELIVERY OF THE
FINANCIAL STATEMENTS REFERRED TO IN SECTIONS 6.2(E)(1) AND (2) ABOVE, IT WILL
FURNISH TO ROYAL A CERTIFICATE OF A RESPONSIBLE OFFICER STATING THAT, TO THE
BEST OF SUCH RESPONSIBLE OFFICER’S KNOWLEDGE, EACH OF THE CREDIT PARTIES DURING
SUCH PERIOD OBSERVED OR PERFORMED IN ALL MATERIAL RESPECTS ALL OF ITS COVENANTS
AND OTHER AGREEMENTS, AND SATISFIED IN ALL MATERIAL RESPECTS EVERY CONDITION,
CONTAINED IN THE GUARANTOR CREDIT AGREEMENT TO BE OBSERVED, PERFORMED OR
SATISFIED BY IT, AND THAT SUCH RESPONSIBLE OFFICER HAS OBTAINED NO KNOWLEDGE OF
ANY DEFAULT OR EVENT OF DEFAULT (EACH AS DEFINED IN THE GUARANTOR CREDIT
AGREEMENT) EXCEPT AS SPECIFIED IN SUCH CERTIFICATE AND SUCH CERTIFICATE SHALL
INCLUDE THE CALCULATIONS IN REASONABLE DETAIL REQUIRED TO INDICATE COMPLIANCE
WITH SECTIONS 6.2(NN) AND (OO) AS OF THE LAST DAY OF SUCH PERIOD;

(H)                                 THAT, (I) WITHIN THIRTY (30) DAYS AFTER THE
SAME ARE SENT, IT WILL FURNISH TO ROYAL NOTICE OF AND COPIES OF ALL REPORTS
(OTHER THAN THOSE OTHERWISE PROVIDED PURSUANT TO SECTION 6.2(E) AND THOSE WHICH
ARE OF A PROMOTIONAL NATURE) AND OTHER FINANCIAL INFORMATION WHICH THE GUARANTOR
SENDS TO ITS STOCKHOLDERS, AND WITHIN THIRTY (30) DAYS AFTER THE SAME ARE FILED,
NOTICE OF AND COPIES OF ALL FINANCIAL STATEMENTS AND NON-CONFIDENTIAL REPORTS
WHICH THE GUARANTOR MAY FILE WITH THE SECURITIES AND EXCHANGE COMMISSION OR ANY
SUCCESSOR OR ANALOGOUS GOVERNMENTAL BODY; PROVIDED, HOWEVER, THAT TO THE EXTENT
THAT (A) NOTIFICATION OF SUCH REPORTS, INFORMATION OR STATEMENTS IS PROVIDED ON
THE GUARANTOR’S AUTHORIZED WEBSITE AND (B) COPIES OF SUCH REPORTS, INFORMATION
OR STATEMENTS ARE PUBLICLY AVAILABLE, THE REQUIREMENTS OF THIS SUBSECTION (H)
SHALL BE SATISFIED;

(I)                                     THAT, PROMPTLY UPON RECEIPT THEREOF, IT
WILL FURNISH TO ROYAL A COPY OF ANY OTHER REPORT OR “MANAGEMENT LETTER”
SUBMITTED BY INDEPENDENT ACCOUNTANTS TO THE GUARANTOR OR ANY OF ITS SUBSIDIARIES
IN CONNECTION WITH ANY ANNUAL, INTERIM OR SPECIAL AUDIT OF THE BOOKS OF SUCH
PERSON;

(J)                                     THAT, NOT LESS THAN TEN (10) DAYS PRIOR
TO THE CONSUMMATION OF ANY PERMITTED ACQUISITION FOR WHICH CONSIDERATION GIVEN
BY THE GUARANTOR IS $100,000,000 OR GREATER, IT WILL FURNISH TO ROYAL:

(1)                                  A REASONABLY DETAILED DESCRIPTION OF THE
MATERIAL TERMS OF SUCH PERMITTED ACQUISITION (INCLUDING, WITHOUT LIMITATION, THE
PURCHASE PRICE AND METHOD AND STRUCTURE OF PAYMENT) AND OF EACH TARGET;

(2)                                  TO THE EXTENT AVAILABLE, AUDITED FINANCIAL
STATEMENTS OF THE TARGET FOR ITS TWO (2) MOST RECENT FISCAL YEARS PREPARED BY
INDEPENDENT CERTIFIED PUBLIC

 

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ACCOUNTANTS ACCEPTABLE TO ROYAL AND UNAUDITED FISCAL YEAR-TO-DATE STATEMENTS FOR
THE TWO (2) MOST RECENT INTERIM PERIODS; AND

(3)                                  TO THE EXTENT AVAILABLE, CONSOLIDATED
PROJECTED BALANCE SHEETS, INCOME STATEMENTS, AND CASH FLOW STATEMENTS OF THE
GUARANTOR AND ITS CONSOLIDATED SUBSIDIARIES (GIVING EFFECT TO SUCH PERMITTED
ACQUISITION AND THE CONSOLIDATION WITH THE GUARANTOR OF EACH RELEVANT TARGET)
FOR THE THREE (3)-YEAR PERIOD FOLLOWING THE CONSUMMATION OF SUCH PERMITTED
ACQUISITION, IN REASONABLE DETAIL, TOGETHER WITH ANY APPROPRIATE STATEMENT OF
ASSUMPTIONS AND PRO FORMA ADJUSTMENTS REASONABLY ACCEPTABLE TO THE REQUIRED
LENDERS;

(K)                                  THAT, PROMPTLY, BUT IN NO EVENT LATER THAN
THREE BUSINESS DAYS AFTER A RESPONSIBLE OFFICER OF THE GUARANTOR KNOWS OF ANY
CHANGE IN THE DEBT RATING, IT WILL FURNISH TO ROYAL NOTICE OF THE NEW DEBT
RATING;

(L)                                     THAT IT WILL FURNISH TO ROYAL, PROMPTLY,
SUCH OTHER DOCUMENTS AND INFORMATION ABOUT THE BUSINESS, OPERATIONS, REVENUES,
FINANCIAL CONDITION, PROPERTY OR BUSINESS PROSPECTS OF THE GUARANTOR OR ANY OF
ITS SUBSIDIARIES AS ROYAL, MAY FROM TIME TO TIME REASONABLY REQUEST;

(M)                               THAT IT WILL FURNISH TO ROYAL, PROMPTLY PRIOR
TO THE COMMENCEMENT OF ANY NO COLLATERAL PERIOD (AS DEFINED IN THE GUARANTOR
CREDIT AGREEMENT), NOTICE OF SUCH NO COLLATERAL PERIOD UNDER THE TERMS OF THE
GUARANTOR CREDIT AGREEMENT;

(N)                                 THAT IT, WILL PERFORM ALL OF ITS OBLIGATIONS
UNDER EACH CONTRACT TO WHICH IT IS A PARTY, IF A FAILURE TO SO PERFORM MAY HAVE
A MATERIAL ADVERSE EFFECT, EXCEPT TO THE EXTENT SUCH OBLIGATION IS BEING
CONTESTED IN GOOD FAITH OR A BONA FIDE DISPUTE EXISTS WITH RESPECT THERETO SO
LONG AS SUCH CREDIT PARTY HAS ESTABLISHED ADEQUATE RESERVES ON THE BOOKS OF SUCH
CREDIT PARTY TO ACCOUNT THEREFOR IN ACCORDANCE WITH GAAP;

(O)                                 THAT IT, WILL PAY AND PERFORM ALL OF ITS
OBLIGATIONS UNDER THE GUARANTOR CREDIT DOCUMENTS AND PAY AND PERFORM (I) ALL
TAXES, ASSESSMENTS AND OTHER GOVERNMENTAL CHARGES THAT MAY BE LEVIED OR ASSESSED
UPON IT OR ITS PROPERTY, WHICH IF NOT PAID OR PERFORMED WOULD HAVE A MATERIAL
ADVERSE EFFECT AND (II) ALL OTHER INDEBTEDNESS, OBLIGATIONS AND LIABILITIES IN
ACCORDANCE WITH CUSTOMARY TRADE PRACTICES, WHICH IF NOT PAID WOULD HAVE A
MATERIAL ADVERSE EFFECT; PROVIDED THAT IT MAY CONTEST ANY TAX, ASSESSMENT OR
OTHER GOVERNMENTAL CHARGE IN GOOD FAITH SO LONG AS ADEQUATE RESERVES ARE
MAINTAINED WITH RESPECT THERETO IN ACCORDANCE WITH GAAP;

(P)                                 THAT IT, WILL CONTINUE TO ENGAGE IN BUSINESS
OF THE SAME GENERAL TYPE AS CONDUCTED BY IT ON SEPTEMBER 1, 2004 AND PRESERVE
AND MAINTAIN ITS CORPORATE EXISTENCE AND ALL RIGHTS, FRANCHISES, LICENSES AND
PRIVILEGES NECESSARY TO THE CONDUCT OF ITS BUSINESS, AND QUALIFY AND REMAIN
QUALIFIED AS A FOREIGN CORPORATION (OR PARTNERSHIP, LIMITED LIABILITY COMPANY OR
OTHER SUCH SIMILAR ENTITY, AS THE CASE MAY BE) AND AUTHORIZED TO DO BUSINESS IN
EACH JURISDICTION IN WHICH THE FAILURE TO SO

 

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QUALIFY WOULD HAVE A MATERIAL ADVERSE EFFECT AND SHALL MAINTAIN ALL LICENSES,
PERMITS AND REGISTRATIONS NECESSARY FOR THE CONDUCT OF ITS OPERATIONS, EXCEPT TO
THE EXTENT THAT THE FAILURE TO DO SO COULD NOT REASONABLY EXPECTED TO RESULT IN
A MATERIAL ADVERSE EFFECT;

(Q)                                 THAT IT, WILL KEEP ALL MATERIAL PROPERTY
USEFUL AND NECESSARY IN ITS BUSINESS IN GOOD WORKING ORDER AND CONDITION
(ORDINARY WEAR AND TEAR AND OBSOLESCENCE EXCEPTED);

(R)                                    THAT IT, WILL MAINTAIN WITH FINANCIALLY
SOUND AND REPUTABLE INSURANCE COMPANIES INSURANCE ON ALL ITS MATERIAL PROPERTY
IN AT LEAST SUCH AMOUNTS AND AGAINST AT LEAST SUCH RISKS AS ARE USUALLY INSURED
AGAINST IN THE SAME GENERAL AREA BY COMPANIES ENGAGED IN THE SAME OR A SIMILAR
BUSINESS; AND FURNISH TO ROYAL, UPON REASONABLE WRITTEN REQUEST, FULL
INFORMATION AS TO THE INSURANCE CARRIED; PROVIDED, HOWEVER, THAT THE GUARANTOR
AND ITS SUBSIDIARIES MAY MAINTAIN SELF INSURANCE PLANS TO THE EXTENT COMPANIES
OF SIMILAR SIZE AND IN SIMILAR BUSINESSES DO SO;

(S)                                  THAT IT, WILL KEEP PROPER BOOKS AND RECORDS
OF ACCOUNTS IN WHICH FULL, TRUE AND CORRECT ENTRIES IN CONFORMITY WITH GAAP AND
ALL REQUIREMENTS OF LAW SHALL BE MADE OF ALL DEALINGS AND TRANSACTIONS IN
RELATION TO ITS BUSINESSES AND ACTIVITIES; AND, PROVIDED THAT ROYAL USES
REASONABLE EFFORTS TO MINIMIZE DISRUPTION TO THE BUSINESS OF THE GUARANTOR AND
ITS SUBSIDIARIES, PERMIT REPRESENTATIVES OF ROYAL, FROM TIME TO TIME, TO VISIT
AND INSPECT ITS PROPERTIES AND TO INSPECT, AUDIT AND MAKE EXTRACTS FROM ITS
BOOKS, RECORDS AND FILES, INCLUDING WITHOUT LIMITATION MANAGEMENT LETTERS
PREPARED BY INDEPENDENT ACCOUNTANTS AND TO DISCUSS WITH ITS PRINCIPAL OFFICERS,
AND ITS INDEPENDENT ACCOUNTANTS, ITS BUSINESS, ASSETS, LIABILITIES, FINANCIAL
CONDITION, RESULTS OF OPERATIONS AND BUSINESS PROSPECTS;

(T)                                    THAT IT, WILL GIVE NOTICE IN WRITING TO
ROYAL OF:

(1)                                  PROMPTLY, BUT IN ANY EVENT WITHIN FIVE (5)
BUSINESS DAYS AFTER A RESPONSIBLE OFFICER OF THE GUARANTOR KNOWS THEREOF, THE
OCCURRENCE OF ANY DEFAULT OR EVENT OF DEFAULT;

(2)                                  PROMPTLY AND IN ANY EVENT WITHIN FIVE
(5) BUSINESS DAYS AFTER A RESPONSIBLE OFFICER OF THE GUARANTOR KNOWS THEREOF,
THE COMMENCEMENT OF ANY (I) MATERIAL PROCEEDING, (II) LOSS OF OR DAMAGE TO ANY
ASSETS OF THE GUARANTOR OR ANY SUBSIDIARY THAT LIKELY WILL RESULT IN A MATERIAL
ADVERSE EFFECT AND (III) LITIGATION, INVESTIGATION OR PROCEEDING INVOLVING AN
ENVIRONMENTAL CLAIM OR POTENTIAL LIABILITY UNDER ENVIRONMENTAL LAWS THAT IF
ADVERSELY DETERMINED COULD REASONABLY BE EXPECTED TO HAVE A MATERIAL ADVERSE
EFFECT;

(3)                                  PROMPTLY AND IN ANY EVENT WITHIN FIVE
(5) BUSINESS DAYS AFTER A RESPONSIBLE OFFICER OF THE GUARANTOR KNOWS THEREOF,
DEFAULT BY GUARANTOR OR ANY SUBSIDIARY UNDER ANY NOTE, INDENTURE, LOAN
AGREEMENT, MORTGAGE OR OTHER SIMILAR AGREEMENT TO WHICH THE GUARANTOR OR ANY
SUBSIDIARY IS A PARTY OR BY WHICH THE GUARANTOR OR ANY SUBSIDIARY IS BOUND,
WHICH RELATES TO BORROWED MONEY, OR OF ANY OTHER DEFAULT UNDER ANY OTHER NOTE,
INDENTURE, LOAN AGREEMENT, MORTGAGE

 

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OR OTHER SIMILAR AGREEMENT TO WHICH THE GUARANTOR OR ANY SUBSIDIARY IS A PARTY
OR BY WHICH THE GUARANTOR OR ANY SUBSIDIARY IS BOUND IF, IN EACH CASE IN THIS
SUBSECTION, SUCH DEFAULT COULD REASONABLY BE EXPECTED TO HAVE A MATERIAL ADVERSE
EFFECT;

(4)                                  PROMPTLY AND IN ANY EVENT WITHIN THIRTY
(30) DAYS AFTER A RESPONSIBLE OFFICER OF THE GUARANTOR KNOWS THEREOF: (I) THE
OCCURRENCE OR EXPECTED OCCURRENCE OF ANY REPORTABLE EVENT WITH RESPECT TO ANY
PLAN, A FAILURE TO MAKE ANY REQUIRED CONTRIBUTION TO A PLAN, THE CREATION OF ANY
LIEN IN FAVOR OF THE PBGC (OTHER THAN A PERMITTED LIEN) OR A PLAN OR ANY
WITHDRAWAL FROM, OR THE TERMINATION, REORGANIZATION OR INSOLVENCY OF, ANY
MULTIEMPLOYER PLAN OR (II) THE INSTITUTION OF PROCEEDINGS OR THE TAKING OF ANY
OTHER ACTION BY THE PBGC OR THE GUARANTOR OR ANY COMMONLY CONTROLLED ENTITY OR
ANY MULTIEMPLOYER PLAN WITH RESPECT TO THE WITHDRAWAL FROM, OR THE TERMINATING,
REORGANIZATION OR INSOLVENCY OF, ANY PLAN; AND

(5)                                  PROMPTLY AND IN ANY EVENT WITHIN FIVE
(5) BUSINESS DAYS AFTER A RESPONSIBLE OFFICER OF THE GUARANTOR KNOWS THEREOF,
ANY OTHER DEVELOPMENT OR EVENT WHICH COULD REASONABLY BE EXPECTED TO HAVE A
MATERIAL ADVERSE EFFECT,

EACH NOTICE PURSUANT TO THIS SECTION SHALL BE ACCOMPANIED BY A STATEMENT OF A
RESPONSIBLE OFFICER SETTING FORTH DETAILS OF THE OCCURRENCE REFERRED TO THEREIN
AND STATING WHAT ACTION THE GUARANTOR PROPOSES TO TAKE WITH RESPECT THERETO. IN
THE CASE OF ANY NOTICE OF A DEFAULT OR EVENT OF DEFAULT, THE GUARANTOR SHALL
SPECIFY THAT SUCH NOTICE IS A DEFAULT OR EVENT OF DEFAULT NOTICE ON THE FACE
THEREOF;

(U)                                 THAT IT, WILL DEFEND, INDEMNIFY AND HOLD
HARMLESS ROYAL, AND ITS RESPECTIVE EMPLOYEES, AGENTS, OFFICERS AND DIRECTORS,
FROM AND AGAINST ANY AND ALL CLAIMS, DEMANDS, PENALTIES, FINES, LIABILITIES,
SETTLEMENTS, DAMAGES, COSTS AND EXPENSES OF WHATEVER KIND OR NATURE KNOWN OR
UNKNOWN, CONTINGENT OR OTHERWISE, ARISING OUT OF, OR IN ANY WAY RELATING TO THE
VIOLATION OF, NONCOMPLIANCE WITH OR LIABILITY UNDER, ANY ENVIRONMENTAL LAW
APPLICABLE TO THE OPERATIONS OF THE GUARANTOR, ANY OF ITS SUBSIDIARIES OR THE
PROPERTIES (AS DEFINED IN THE GUARANTOR CREDIT AGREEMENT), OR ANY ORDERS,
REQUIREMENTS OR DEMANDS OF GOVERNMENTAL BODIES RELATED THERETO, INCLUDING,
WITHOUT LIMITATION, REASONABLE SOLICITOR’S/ATTORNEY’S AND CONSULTANT’S FEES,
INVESTIGATION AND LABORATORY FEES, RESPONSE COSTS, COURT COSTS AND LITIGATION
EXPENSES, EXCEPT TO THE EXTENT THAT ANY OF THE FOREGOING ARISE OUT OF THE GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT OF THE PARTY SEEKING INDEMNIFICATION THEREFOR.
THE AGREEMENTS IN THIS PARAGRAPH SHALL SURVIVE REPAYMENT OF THE CREDIT PARTY
OBLIGATIONS AND TERMINATION OF THE COMMITMENTS (AS DEFINED IN THE GUARANTOR
CREDIT AGREEMENT) UNDER THE GUARANTOR AGREEMENT AND THE GUARANTOR CREDIT
DOCUMENTS;

 

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(V)                                 THAT, TO THE EXTENT FAILURE TO DO SO WOULD
HAVE A MATERIAL ADVERSE EFFECT, IT WILL, AND WILL CAUSE EACH OF ITS SUBSIDIARIES
TO (A) OBSERVE AND REMAIN IN COMPLIANCE WITH ALL APPLICABLE REQUIREMENTS OF LAW,
INCLUDING ALL APPLICABLE ENVIRONMENTAL LAWS, EXCEPT TO THE EXTENT SUCH
REQUIREMENT OF LAW IS BEING CONTESTED IN GOOD FAITH OR A BONA FIDE DISPUTE
EXISTS WITH RESPECT THERETO SO LONG AS THE GUARANTOR HAS ESTABLISHED ADEQUATE
RESERVES ON THE BOOKS OF THE GUARANTOR TO ACCOUNT THEREFOR IN ACCORDANCE WITH
GAAP, AND (B) MAINTAIN IN FULL FORCE AND EFFECT ALL PERMITS, AUTHORIZATIONS,
REGISTRATIONS AND CONSENTS FROM ANY GOVERNMENTAL BODY, IN EACH CASE APPLICABLE
TO THE CONDUCT OF ITS BUSINESS.

(W)                               WHERE DOMESTIC SUBSIDIARIES OF THE GUARANTOR
(EXCLUDING SECURITIZATION VEHICLES) THAT ARE NOT CREDIT PARTIES UNDER THE
GUARANTOR CREDIT AGREEMENT (THE “NON-GUARANTOR SUBSIDIARIES”) SHALL AT ANY TIME
CONSTITUTE MORE THAN EITHER

(1)                                  FIFTEEN PERCENT (15%), IN THE AGGREGATE, OF
CONSOLIDATED TOTAL ASSETS, OR

(2)                                  FIFTEEN PERCENT (15%), IN THE AGGREGATE, OF
CONSOLIDATED NET INCOME,

(COLLECTIVELY, THE “THRESHOLD REQUIREMENT”), THE GUARANTOR SHALL SO NOTIFY ROYAL
AND SHALL CAUSE ONE OR MORE DOMESTIC SUBSIDIARIES TO BECOME A “GUARANTOR” UNDER
THE GUARANTOR CREDIT AGREEMENT BY (A) EXECUTING A JOINDER AGREEMENT AND (B)
DELIVERING SUCH OTHER DOCUMENTATION AS ROYAL MAY REASONABLY REQUEST IN
CONNECTION WITH THE FOREGOING, INCLUDING, WITHOUT LIMITATION, CERTIFIED
RESOLUTIONS AND OTHER ORGANIZATIONAL AND AUTHORIZING DOCUMENTS OF SUCH PERSON
AND FAVORABLE OPINIONS OF COUNSEL TO SUCH PERSON (WHICH SHALL COVER, AMONG OTHER
THINGS, THE LEGALITY, VALIDITY, BINDING EFFECT AND ENFORCEABILITY OF THE
DOCUMENTATION REFERRED TO ABOVE), ALL IN FORM, CONTENT AND SCOPE REASONABLY
SATISFACTORY TO ROYAL SUCH THAT IMMEDIATELY AFTER THE JOINDER OF SUCH DOMESTIC
SUBSIDIARIES AS GUARANTORS UNDER THE GUARANTOR CREDIT AGREEMENT, THE REMAINING
NON-GUARANTOR SUBSIDIARIES SHALL NOT, EITHER INDIVIDUALLY OR AS A GROUP, EXCEED
THE THRESHOLD REQUIREMENT.

Negative Covenants of the Guarantor

(X)                                   THAT IT WILL NOT, WITHOUT THE CONSENT IN
WRITING OF ROYAL, MERGE OR CONSOLIDATE WITH ANY OTHER PERSON OR LIQUIDATE OR
DISSOLVE EXCEPT FOR MERGERS OR CONSOLIDATIONS WITH ANY OTHER PERSON IF THE
GUARANTOR (OR THE RESULTING CORPORATION IN A CONSOLIDATION) WILL BE THE
SURVIVING CORPORATION AND THE GUARANTOR (OR SUCH RESULTING CORPORATION) WILL NOT
BE IN DEFAULT UNDER ANY OF THE TERMS OF THE GUARANTOR CREDIT AGREEMENT
IMMEDIATELY AFTER THE MERGER OR CONSOLIDATION;

(Y)                                 DURING ANY NO COLLATERAL PERIOD, THE
GUARANTOR WILL NOT, NOR WILL IT PERMIT ANY SUBSIDIARY TO, CONTRACT, CREATE,
INCUR, ASSUME OR PERMIT TO EXIST ANY INDEBTEDNESS, EXCEPT:

(1)                                  INDEBTEDNESS ARISING OR EXISTING UNDER THE
GUARANTOR CREDIT AGREEMENT AND THE GUARANTOR CREDIT DOCUMENTS OR THE GUARANTEE;

 

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(2)                                  INDEBTEDNESS OF THE GUARANTOR AND ITS
SUBSIDIARIES EXISTING AS OF SEPTEMBER 1, 2004, AS REFERENCED IN THE FINANCIAL
STATEMENTS REFERENCED IN SECTION 6.2(E) (AND SET OUT MORE SPECIFICALLY IN
SCHEDULE 6.1(B) TO THE GUARANTOR CREDIT AGREEMENT) HERETO AND RENEWALS,
EXTENSIONS AND REFINANCINGS THEREOF INCURRED AT ANY TIME DURING THE TERM OF THE
GUARANTOR CREDIT AGREEMENT, IN A PRINCIPAL AMOUNT NOT IN EXCESS OF THAT
OUTSTANDING AS OF THE DATE OF SUCH RENEWAL, REFINANCING OR EXTENSION;

(3)                                  (I) INDEBTEDNESS OF THE GUARANTOR AND ITS
SUBSIDIARIES INCURRED AFTER THE SEPTEMBER 1, 2004 CONSISTING OF CAPITAL LEASES
OR INDEBTEDNESS INCURRED TO PROVIDE ALL OR A PORTION OF THE PURCHASE PRICE OR
COST OF CONSTRUCTION OF AN ASSET AND (II) OFF-BALANCE SHEET LIABILITIES AND/OR
INDEBTEDNESS, LIABILITIES AND OBLIGATIONS INCURRED IN CONNECTION WITH A TRADE
RECEIVABLES SECURITIZATION TRANSACTION INVOLVING THE GUARANTOR OR ANY OF ITS
SUBSIDIARIES AND A SECURITIZATION VEHICLE (REGARDLESS OF WHETHER SUCH
INDEBTEDNESS, LIABILITIES AND OBLIGATIONS CONSTITUTE OFF-BALANCE SHEET
LIABILITIES); PROVIDED, THAT IN EACH CASE (A) SUCH INDEBTEDNESS WHEN INCURRED
SHALL NOT EXCEED THE PURCHASE PRICE OR COST OF CONSTRUCTION OF SUCH ASSET AND
(B) NO SUCH INDEBTEDNESS SHALL BE REFINANCED FOR A PRINCIPAL AMOUNT IN EXCESS OF
THE PRINCIPAL BALANCE OUTSTANDING THEREON AT THE TIME OF SUCH REFINANCING;

(4)                                  UNSECURED INTERCOMPANY INDEBTEDNESS AMONG
THE CREDIT PARTIES AND THEIR RESPECTIVE SUBSIDIARIES, PROVIDED THAT ANY SUCH
INDEBTEDNESS SHALL BE FULLY SUBORDINATED TO THE CREDIT PARTY OBLIGATIONS UNDER
THE GUARANTOR CREDIT AGREEMENT ON TERMS REASONABLY SATISFACTORY TO THE
ADMINISTRATIVE AGENT;

(5)                                  INDEBTEDNESS AND OBLIGATIONS OWING UNDER
SWAP CONTRACTS ENTERED INTO IN ORDER TO MANAGE EXISTING OR ANTICIPATED INTEREST
RATE, EXCHANGE RATE OR COMMODITY RISKS AND NOT FOR SPECULATIVE PURPOSES;

(6)                                  INDEBTEDNESS AND OBLIGATIONS OF THE CREDIT
PARTIES OWING UNDER TRADE LETTERS OF CREDIT FOR THE PURCHASE OF GOODS OR OTHER
MERCHANDISE (BUT NOT UNDER STANDBY, DIRECT PAY OR OTHER LETTERS OF CREDIT EXCEPT
FOR THE LETTERS OF CREDIT UNDER THE GUARANTOR CREDIT AGREEMENT) GENERALLY;

(7)                                  GUARANTY OBLIGATIONS IN RESPECT OF
INDEBTEDNESS OF A CREDIT PARTY TO THE EXTENT SUCH INDEBTEDNESS IS PERMITTED TO
EXIST OR BE INCURRED PURSUANT TO THIS SECTION 6.2(Y);

(8)                                  INDEBTEDNESS THAT IS NON-RECOURSE TO ANY OF
THE GUARANTOR OR ITS SUBSIDIARIES OR ANY OF THEIR RESPECTIVE ASSETS;

(9)                                  INDEBTEDNESS INCURRED UNDER TAKE-OR-PAY
ARRANGEMENTS ENTERED INTO IN THE ORDINARY COURSE OF BUSINESS; AND

 

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(10)                            OTHER INDEBTEDNESS OF THE GUARANTOR AND ITS
SUBSIDIARIES IN AN AGGREGATE AMOUNT NOT TO EXCEED THE FOLLOWING (MEASURED AT THE
TIME OF INCURRENCE): (I) IF THE GUARANTOR HAS AN INVESTMENT GRADE DEBT RATING,
30% OF CONSOLIDATED NET WORTH AT ANY TIME OUTSTANDING AND (II) IF THE GUARANTOR
DOES NOT HAVE AN INVESTMENT GRADE DEBT RATING, 15% OF CONSOLIDATED NET WORTH AT
ANY TIME OUTSTANDING;

(Z)                                   THAT IT WILL NOT, NOR WILL IT PERMIT ANY
SUBSIDIARY TO, CONTRACT, CREATE, INCUR, ASSUME OR PERMIT TO EXIST ANY LIEN WITH
RESPECT TO ANY OF THE RESTRICTED CASH COLLATERAL EXCEPT FOR THE LIENS IN FAVOR
OF THE COLLATERAL AGENT (AS DEFINED IN THE GUARANTOR CREDIT AGREEMENT) TO SECURE
THE CREDIT PARTY OBLIGATIONS. DURING ANY NO COLLATERAL PERIOD, THE GUARANTOR
WILL NOT, NOR WILL IT PERMIT ANY SUBSIDIARY TO, CONTRACT, CREATE, INCUR, ASSUME
OR PERMIT TO EXIST ANY LIEN WITH RESPECT TO ANY OF ITS PROPERTY OR ASSETS OF ANY
KIND (WHETHER REAL OR PERSONAL, TANGIBLE OR INTANGIBLE), WHETHER NOW OWNED OR
HEREAFTER ACQUIRED, EXCEPT FOR PERMITTED LIENS;

(AA)                            THAT IT WILL NOT, NOR WILL IT PERMIT ANY
SUBSIDIARY TO, ALTER THE CHARACTER OF ITS BUSINESS IN ANY MATERIAL RESPECT FROM
THAT CONDUCTED AS OF SEPTEMBER 1, 2004;

(BB)                          THAT IT WILL NOT, NOR WILL IT PERMIT ANY
SUBSIDIARY TO,

(1)                                  DISSOLVE, LIQUIDATE OR WIND UP ITS AFFAIRS,
SELL, TRANSFER, LEASE OR OTHERWISE DISPOSE OF ITS PROPERTY OR ASSETS OR AGREE TO
DO SO AT A FUTURE TIME EXCEPT THE FOLLOWING, WITHOUT DUPLICATION, SHALL BE
EXPRESSLY PERMITTED:

(A)                              SPECIFIED SALES;

(B)                                THE SALE, TRANSFER, LEASE OR OTHER
DISPOSITION OF PROPERTY OR ASSETS (A) TO AN UNRELATED PARTY NOT IN THE ORDINARY
COURSE OF BUSINESS (OTHER THAN SPECIFIED SALES), WHERE AND TO THE EXTENT THAT
THEY ARE THE RESULT OF A RECOVERY EVENT OR (B) THE SALE, LEASE, TRANSFER OR
OTHER DISPOSITION OF REAL PROPERTY, MACHINERY, PARTS AND EQUIPMENT NO LONGER
USED OR USEFUL IN THE CONDUCT OF THE BUSINESS OF THE GUARANTOR OR ANY OF ITS
SUBSIDIARIES, AS APPROPRIATE, IN ITS REASONABLE DISCRETION;

(C)                                THE SALE, LEASE OR TRANSFER OF PROPERTY OR
ASSETS FROM A CREDIT PARTY TO ANOTHER CREDIT PARTY;

(D)                               THE SALE OF TRADE RECEIVABLES SOLD OR
OTHERWISE CONVEYED TO OR BY A SECURITIZATION VEHICLE; AND

(E)                                 THE SALE, LEASE OR TRANSFER OF PROPERTY OR
ASSETS NOT TO EXCEED 10% OF CONSOLIDATED TOTAL ASSETS IN THE AGGREGATE IN ANY
FISCAL YEAR; OR

(2)                                  (I) PURCHASE, LEASE OR OTHERWISE ACQUIRE
(IN A SINGLE TRANSACTION OR A SERIES OF RELATED TRANSACTIONS) THE PROPERTY OR
ASSETS OF ANY PERSON (OTHER

 

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THAN PURCHASES OR OTHER ACQUISITIONS OF INVENTORY, LEASES, MATERIALS, PROPERTY
AND EQUIPMENT IN THE ORDINARY COURSE OF BUSINESS, EXCEPT AS OTHERWISE LIMITED OR
PROHIBITED HEREIN) OR (II) ENTER INTO ANY TRANSACTION OF MERGER OR
CONSOLIDATION, EXCEPT FOR (A) INVESTMENTS OR ACQUISITIONS (INCLUDING PERMITTED
ACQUISITIONS) PERMITTED PURSUANT TO SECTION 6.2(CC), (B) THE MERGER OR
CONSOLIDATION OF A CREDIT PARTY WITH AND INTO ANOTHER CREDIT PARTY, PROVIDED
THAT IF THE GUARANTOR IS A PARTY THERETO, THE GUARANTOR WILL BE THE SURVIVING
CORPORATION AND (C) THE MERGER OR CONSOLIDATION OF A SUBSIDIARY WITH AND INTO
ANOTHER SUBSIDIARY OR THE GUARANTOR; PROVIDED THAT IF A CREDIT PARTY IS A PARTY
THERETO, THE CREDIT PARTY WILL BE THE SURVIVING CORPORATION;

(CC)                            THAT IT WILL NOT, NOR WILL IT PERMIT ANY
SUBSIDIARY TO, MAKE ANY INVESTMENT EXCEPT FOR PERMITTED INVESTMENTS;

(DD)                          THAT IT WILL NOT, NOR WILL IT PERMIT ANY
SUBSIDIARY TO, ENTER INTO ANY TRANSACTION OR SERIES OF TRANSACTIONS, WHETHER OR
NOT IN THE ORDINARY COURSE OF BUSINESS, WITH ANY OFFICER, DIRECTOR, SHAREHOLDER
OR AFFILIATE OF SUCH PERSON OTHER THAN ON TERMS AND CONDITIONS SUBSTANTIALLY AS
FAVOURABLE AS WOULD BE OBTAINABLE IN A COMPARABLE ARM’S-LENGTH TRANSACTION WITH
A PERSON OTHER THAN AN OFFICER, DIRECTOR, SHAREHOLDER OR AFFILIATE; PROVIDED,
THAT THIS SECTION 6.2(DD) SHALL NOT APPLY TO COMPENSATION AND EMPLOYEE STOCK
PLANS OF THE CREDIT PARTIES;

(EE)                            THAT IT WILL NOT, NOR WILL IT PERMIT ANY
SUBSIDIARY TO, CREATE, FORM OR ACQUIRE ANY SUBSIDIARIES, EXCEPT FOR
SECURITIZATION VEHICLES AND OTHER DOMESTIC SUBSIDIARIES WHICH ARE JOINED AS
ADDITIONAL CREDIT PARTIES (AS DEFINED IN THE GUARANTOR CREDIT AGREEMENT) TO THE
EXTENT REQUIRED BY SECTION 6.2(W) HEREOF. THE GUARANTOR WILL NOT SELL, TRANSFER,
PLEDGE OR OTHERWISE DISPOSE OF ANY CAPITAL STOCK OR OTHER EQUITY INTERESTS IN
ANY OF ITS SUBSIDIARIES (OTHER THAN SECURITIZATION VEHICLES), NOR WILL IT PERMIT
ANY OF ITS SUBSIDIARIES (OTHER THAN SECURITIZATION VEHICLES) TO ISSUE, SELL,
TRANSFER, PLEDGE OR OTHERWISE DISPOSE OF ANY OF THEIR CAPITAL STOCK OR OTHER
EQUITY INTERESTS, EXCEPT IN A TRANSACTION PERMITTED BY SECTION 6.2(BB);

(FF)                                THAT IT WILL NOT, NOR WILL IT PERMIT ANY OF
ITS SUBSIDIARIES TO (A) CHANGE ITS FISCAL YEAR, (B) AMEND, MODIFY OR CHANGE ITS
ARTICLES OF INCORPORATION (OR CORPORATE CHARTER OR OTHER SIMILAR ORGANIZATIONAL
OR FORMATION DOCUMENT) OR BYLAWS (OR OTHER SIMILAR DOCUMENT) IN ANY MATERIAL
RESPECT OR IN ANY RESPECT ADVERSE TO THE INTERESTS OF THE LENDERS WITHOUT THE
PRIOR WRITTEN CONSENT OF THE REQUIRED LENDERS OR (C) DURING ANY NO COLLATERAL
PERIOD, AMEND, MODIFY, CANCEL, TERMINATE OR FAIL TO RENEW OR EXTEND OR PERMIT
THE AMENDMENT, MODIFICATION, CANCELLATION OR TERMINATION OF ANY MATERIAL
CONTRACT WITHOUT THE PRIOR WRITTEN CONSENT OF THE REQUIRED LENDERS, EXCEPT IN
THE EVENT THAT SUCH AMENDMENTS, MODIFICATIONS, CANCELLATIONS OR TERMINATIONS
COULD NOT REASONABLY BE EXPECTED TO HAVE A MATERIAL ADVERSE EFFECT;

(GG)                          THAT IT WILL NOT, NOR WILL IT PERMIT ANY
SUBSIDIARY TO, DIRECTLY OR INDIRECTLY, CREATE OR OTHERWISE CAUSE OR SUFFER TO
EXIST OR BECOME EFFECTIVE ANY ENCUMBRANCE OR RESTRICTION ON THE ABILITY OF ANY
SUCH PERSON TO (A) PAY DIVIDENDS OR MAKE ANY

 

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OTHER DISTRIBUTIONS TO ANY CREDIT PARTY ON ITS CAPITAL STOCK OR WITH RESPECT TO
ANY OTHER INTEREST OR PARTICIPATION IN, OR MEASURED BY, ITS PROFITS, (B) PAY ANY
INDEBTEDNESS OR OTHER OBLIGATION OWED TO ANY CREDIT PARTY, (C) MAKE LOANS OR
ADVANCES TO ANY CREDIT PARTY, (D) SELL, LEASE OR TRANSFER ANY OF ITS PROPERTIES
(AS DEFINED IN THE GUARANTOR CREDIT AGREEMENT) OR ASSETS TO ANY CREDIT PARTY, OR
(E) ACT AS A GUARANTOR AND PLEDGE ITS ASSETS PURSUANT TO THE GUARANTOR CREDIT
DOCUMENTS OR ANY RENEWALS, REFINANCINGS, EXCHANGES, REFUNDINGS OR EXTENSION
THEREOF, EXCEPT (IN RESPECT OF ANY OF THE MATTERS REFERRED TO IN CLAUSES (A)-(D)
ABOVE) FOR SUCH ENCUMBRANCES OR RESTRICTIONS EXISTING UNDER OR BY REASON OF
(I) THE GUARANTOR CREDIT AGREEMENT AND THE OTHER GUARANTOR CREDIT DOCUMENTS,
(II) APPLICABLE LAW, (III) ANY DOCUMENT OR INSTRUMENT GOVERNING INDEBTEDNESS
INCURRED PURSUANT TO SECTION 6.2(Y)(3), PROVIDED THAT ANY SUCH RESTRICTION
CONTAINED THEREIN RELATES ONLY TO THE ASSET OR ASSETS CONSTRUCTED OR ACQUIRED IN
CONNECTION THEREWITH OR (IV) ANY PERMITTED LIEN OR ANY DOCUMENT OR INSTRUMENT
GOVERNING ANY PERMITTED LIEN, PROVIDED THAT ANY SUCH RESTRICTION CONTAINED
THEREIN RELATES ONLY TO THE ASSET OR ASSETS SUBJECT TO SUCH PERMITTED LIEN;

(HH)                          DURING ANY NO COLLATERAL PERIOD, THE GUARANTOR
WILL NOT, NOR WILL IT PERMIT ANY SUBSIDIARY TO, DIRECTLY OR INDIRECTLY, DECLARE,
ORDER, MAKE OR SET APART ANY SUM FOR OR PAY ANY RESTRICTED PAYMENT; PROVIDED,
THAT TO THE EXTENT THAT (A) NO DEFAULT OR EVENT OF DEFAULT SHALL HAVE OCCURRED
AND BE CONTINUING OR WOULD RESULT THEREFROM AND (B) THE GUARANTOR SHALL BE IN
COMPLIANCE WITH THE FINANCIAL COVENANTS SET FORTH IN SECTION 6.2(NN) AND (OO) ON
A PRO FORMA BASIS AFTER GIVING EFFECT THERETO, THE GUARANTOR SHALL BE PERMITTED:
(I) TO MAKE DIVIDENDS PAYABLE SOLELY IN THE COMMON STOCK OR EQUIVALENT EQUITY
INTERESTS OF SUCH PERSON, (II) TO MAKE DIVIDENDS OR OTHER DISTRIBUTIONS PAYABLE
TO THE GUARANTOR OR ANY WHOLLY OWNED SUBSIDIARY OF THE GUARANTOR THAT IS A
GUARANTOR (DIRECTLY OR INDIRECTLY THROUGH SUBSIDIARIES), AND (III) TO MAKE OTHER
RESTRICTED PAYMENTS AS MAY BE APPROVED BY THE GUARANTOR’S BOARD OF DIRECTORS;

(II)                                  THAT IT WILL NOT, NOR WILL IT PERMIT ANY
SUBSIDIARY TO, ENTER INTO, ASSUME OR BECOME SUBJECT TO ANY AGREEMENT PROHIBITING
OR OTHERWISE RESTRICTING THE CREATION OR ASSUMPTION OF ANY LIEN UPON ITS
PROPERTIES (AS DEFINED IN THE GUARANTOR CREDIT AGREEMENT) OR ASSETS, WHETHER NOW
OWNED OR HEREAFTER ACQUIRED, OR REQUIRING THE GRANT OF ANY SECURITY FOR SUCH
OBLIGATION IF SECURITY IS GIVEN FOR SOME OTHER OBLIGATION, EXCEPT (A) PURSUANT
TO THE GUARANTOR CREDIT AGREEMENT AND THE OTHER GUARANTOR CREDIT DOCUMENTS,
(B) PURSUANT TO ANY DOCUMENT OR INSTRUMENT GOVERNING INDEBTEDNESS INCURRED
PURSUANT TO SECTION 6.2(Y)(3), PROVIDED THAT ANY SUCH RESTRICTION CONTAINED
THEREIN RELATES ONLY TO THE ASSET OR ASSETS CONSTRUCTED OR ACQUIRED IN
CONNECTION THEREWITH AND (C) IN CONNECTION WITH ANY PERMITTED LIEN OR ANY
DOCUMENT OR INSTRUMENT GOVERNING ANY PERMITTED LIEN, PROVIDED THAT ANY SUCH
RESTRICTION CONTAINED THEREIN RELATES ONLY TO THE ASSET OR ASSETS SUBJECT TO
SUCH PERMITTED LIEN;

 

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Reporting Covenants of the Guarantor

(JJ)                                  THAT IT WILL AT ALL TIMES MAINTAIN ITS
CORPORATE EXISTENCE AND WILL CARRY ON AND CONDUCT ITS BUSINESS IN A PROPER AND
EFFICIENT MANNER AND IT WILL AND WILL CAUSE EACH OF ITS SUBSIDIARIES TO AT ALL
TIMES KEEP OR CAUSE TO BE KEPT PROPER BOOKS OF ACCOUNT AND THAT IT WILL FURNISH
TO ROYAL AT THE BRANCH OF ACCOUNT WITHIN 90 DAYS AFTER THE CLOSE OF EACH FISCAL
YEAR SUFFICIENT COPIES OF ITS ANNUAL CONSOLIDATED AUDITED FINANCIAL STATEMENTS,
ALL IN REASONABLE DETAIL AND PREPARED IN ACCORDANCE WITH GAAP, REPORTED ON BY
ITS AUDITOR AND ACCOMPANIED BY THEIR SIGNED REPORT WHICH SHALL CONTAIN NO
MATERIAL QUALIFICATIONS AS TO THE SCOPE OF THEIR EXAMINATION EXCEPT AS TO THE
FURNISHING OF INFORMATION TO THEM, AND, EXCEPT FOR THE YEAR END FISCAL QUARTER,
WITHIN 45 DAYS OF THE CLOSE OF EACH FISCAL QUARTER SUFFICIENT COPIES OF ITS
QUARTERLY CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS PREPARED IN ACCORDANCE
WITH GAAP SUBJECT ONLY TO NORMAL YEAR-END AUDITED ADJUSTMENTS AND THE ABSENCE OF
FOOTNOTES INCLUDING A CONSOLIDATED SUMMARY BALANCE SHEET, A CONSOLIDATED SUMMARY
STATEMENT OF INCOME AND A CONSOLIDATED STATEMENT OF CASH FLOWS, SIGNED BY A
RESPONSIBLE OFFICER;

(KK)                            THAT IT WILL, CONTEMPORANEOUSLY WITH DELIVERY TO
THE ADMINISTRATIVE AGENT PURSUANT TO THE GUARANTOR CREDIT AGREEMENT, DELIVER
SUFFICIENT COPIES OF THE COMPLIANCE CERTIFICATE TO ROYAL;

(LL)                                  THAT, EXCEPT FOR THE YEAR-END FISCAL
QUARTER, WITHIN 45 DAYS OF THE CLOSE OF EACH FISCAL QUARTER AND WITHIN 90 DAYS
OF THE CLOSE OF EACH FISCAL YEAR, IT WILL DELIVER TO ROYAL A CERTIFICATE SIGNED
BY A RESPONSIBLE OFFICER IN SUBSTANTIALLY THE FORM ATTACHED AS SCHEDULE A;

(MM)                      [INTENTIONALLY DELETED];

Financial Covenants of the Guarantor

(NN)                          THAT AT ALL TIMES DURING THE CASH COLLATERAL
PERIOD, CONSOLIDATED NET WORTH SHALL NOT AT ANY TIME BE LESS THAN THE SUM OF (A)
$1,150,000,000 PLUS (B) ON A CUMULATIVE BASIS AS OF THE END OF EACH FISCAL YEAR
OF THE GUARANTOR, COMMENCING WITH THE FISCAL YEAR ENDING DECEMBER 31, 2005, AN
AMOUNT EQUAL TO 25% OF CONSOLIDATED NET INCOME FOR THE FISCAL YEAR THEN ENDED,
AFTER GIVING EFFECT TO THE PAYMENT OF DIVIDENDS FOR SUCH PERIOD; PROVIDED, THAT
CONSOLIDATED NET WORTH SHALL NOT AT ANY TIME BE LESS THAN $1,150,000,000;

(OO)                          THAT AT ALL TIMES DURING THE NO COLLATERAL PERIOD,
THE GUARANTOR SHALL COMPLY WITH THE FOLLOWING ADDITIONAL FINANCIAL COVENANTS:

(1)                                  THE CONSOLIDATED LEVERAGE RATIO, AS OF THE
LAST DAY OF EACH FISCAL QUARTER OF THE GUARANTOR, SHALL BE LESS THAN OR EQUAL TO
3.00 TO 1.00.

(2)                                  THE CONSOLIDATED INTEREST COVERAGE RATIO,
AS OF THE LAST DAY OF EACH FISCAL QUARTER OF THE GUARANTOR, SHALL BE GREATER
THAN OR EQUAL TO 4.00 TO 1.00.

 

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6.3                               ENVIRONMENTAL LAW

Nothing in the Agreement shall abridge or affect the rights of Royal in respect
of the Borrower pursuant to any Environmental Law.

7.                                      EVENTS OF DEFAULT

7.1                               DEFINITION OF EVENT OF DEFAULT

The occurrence of any one or more of the following events constitutes an Event
of Default hereunder:

(A)                                  IF THE BORROWER MAKES DEFAULT IN ANY
PAYMENT OF PRINCIPAL, INTEREST, ACCEPTANCE FEES, DOCUMENTARY CREDIT FEES,
DEFAULT INTEREST, THE FACILITY FEE, SWAP TERMINATION VALUES, FEES FOR SWAP
CONTRACTS, ANY OTHER FEES OR OTHER LIKE AMOUNTS WHEN THE SAME BECOMES DUE UNDER
THE AGREEMENT OR WITH RESPECT TO AN OBLIGATION AND SUCH DEFAULT SHALL HAVE
CONTINUED FOR A PERIOD OF FIVE BUSINESS DAYS AFTER NOTICE HAS BEEN GIVEN BY
ROYAL TO THE BORROWER;

(B)                                 IF THE BORROWER OR GUARANTOR MAKES, SUFFERS
OR PERMITS A MATERIAL DEFAULT IN OBSERVING OR PERFORMING ANY OTHER COVENANT OR
CONDITION OF THE AGREEMENT, OR, IN THE CASE OF THE BORROWER, ANY SWAP CONTRACT
OR ANY OTHER MATERIAL AGREEMENT WITH ROYAL AND SUCH DEFAULT SHALL HAVE CONTINUED
FOR A PERIOD OF FIVE BUSINESS DAYS AFTER NOTICE IN WRITING HAS BEEN GIVEN BY
ROYAL TO THE BORROWER SPECIFYING SUCH DEFAULT;

(C)                                  IF THE BORROWER MAKES DEFAULT IN ANY
PAYMENT OF AN ADDITIONAL AMOUNT OR LIKE PAYMENT WHEN THE SAME BECOMES DUE UNDER
THE AGREEMENT AND SUCH DEFAULT SHALL HAVE CONTINUED FOR A PERIOD OF TEN BUSINESS
DAYS AFTER NOTICE HAS BEEN GIVEN BY ROYAL TO THE BORROWER;

(D)                                 IF AN “EVENT OF DEFAULT” (AS DEFINED
THEREIN) RESULTING FROM THE FAILURE TO MAKE ANY PAYMENT OF PRINCIPAL, INTEREST
OR PREMIUM WHEN DUE AND PAYABLE UNDER THE INDENTURES (AFTER GIVING EFFECT TO ANY
CURE OR GRACE PERIOD PROVIDED THEREIN) OR TO REPURCHASE OR REDEEM ANY NOTE
ISSUED UNDER THE INDENTURES WHEN REQUIRED THEREBY OCCURS AND IS CONTINUING OR
ANY OTHER “EVENT OF DEFAULT” OCCURS AND IS CONTINUING UNDER THE INDENTURES AND
RESULTS IN THE “INDEBTEDNESS” (AS DEFINED IN THE INDENTURES) UNDER THE
INDENTURES BEING ACCELERATED;

(E)                                  IF THERE IS A DEFAULT BY THE BORROWER
(OTHER THAN A DEFAULT UNDER THE AGREEMENT) WHICH RESULTS IN THE ACCELERATION OF
PAYMENT BY THE BORROWER OR ANY OF ITS MATERIAL CANADIAN SUBSIDIARIES OF
OBLIGATIONS FOR BORROWED MONEY IN EXCESS OF $5,000,000;

(F)                                    IF ANY REPRESENTATION, WARRANTY OR
STATEMENT MADE BY THE BORROWER, THE BORROWER SUBSIDIARIES IN THE BORROWER
SUBSIDIARIES’ GUARANTEES OR THE GUARANTOR HEREIN OR IN THE GUARANTEE OR IN ANY
CERTIFICATE PURSUANT TO THE AGREEMENT OR THE GUARANTEE SHALL, IN ROYAL’S
OPINION, PROVE TO HAVE BEEN MATERIALLY INCORRECT ON

 

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THE DATE AS OF WHICH IT WAS MADE IN ANY RESPECT MATERIALLY ADVERSE TO ROYAL AND
ROYAL SHALL HAVE SO NOTIFIED THE BORROWER;

(G)                                 IF:

(1)                                  AN ORDER BE MADE OR AN EFFECTIVE RESOLUTION
BE PASSED FOR THE WINDING-UP OF THE BORROWER OR, WITHOUT THE PRIOR WRITTEN
CONSENT OF ROYAL, ANY OF ITS MATERIAL CANADIAN SUBSIDIARIES OR IF THE BORROWER
OR ANY OF ITS SUBSIDIARIES ON ITS OWN BEHALF SHALL MAKE AN ASSIGNMENT FOR THE
BENEFIT OF ITS CREDITORS OR IF THE BORROWER OR ANY OF ITS SUBSIDIARIES SHALL BE
DECLARED BANKRUPT OR MAKE AN AUTHORIZED ASSIGNMENT OR IF A CUSTODIAN OR RECEIVER
BE APPOINTED UNDER THE BANKRUPTCY AND INSOLVENCY ACT OR IF A COMPROMISE OR
ARRANGEMENT (INCLUDING A COMPROMISE, ARRANGEMENT, REORGANIZATION OR OTHER LIKE
RESTRUCTURING COMMENCED BY THE BORROWER WHICH ADVERSELY AFFECTS ITS CREDITORS
UNDER ANY FEDERAL OR PROVINCIAL STATUTE INCLUDING THE COMPANIES’ CREDITORS
ARRANGEMENT ACT OR THE BRITISH COLUMBIA BUSINESS CORPORATIONS ACT) IS PROPOSED
BY THE BORROWER OR ANY OF ITS SUBSIDIARIES TO CREDITORS GENERALLY OR ANY
SIGNIFICANT CLASS OF CREDITORS, OR IF A RECEIVER, RECEIVER-MANAGER OR OTHER
OFFICER WITH LIKE POWERS SHALL BE APPOINTED, OR IF AN ENCUMBRANCER SHALL TAKE
POSSESSION OF THE PROPERTY OF THE BORROWER OR ANY OF ITS SUBSIDIARIES OR ANY
PART THEREOF, WHICH IS, IN THE REASONABLE OPINION OF ROYAL, MATERIAL TO THE
BUSINESS OF THE BORROWER AND ITS ABILITY TO PERFORM ITS OBLIGATIONS UNDER THE
AGREEMENT OR IF A DISTRESS OR EXECUTION OR ANY SIMILAR PROCESS BE LEVIED OR
ENFORCED AGAINST A SUBSTANTIAL OR ESSENTIAL PART OF SUCH PROPERTY AND REMAIN
UNSATISFIED FOR A PERIOD OF THIRTY DAYS, UNLESS SUCH DISTRESS, EXECUTION OR
SIMILAR PROCESS IS IN GOOD FAITH DISPUTED BY THE BORROWER OR ANY SUCH SUBSIDIARY
AND, IF SO REQUIRED BY ROYAL, THE BORROWER OR ANY SUCH SUBSIDIARY PROVIDES
ADEQUATE SECURITY TO PAY IN FULL THE AMOUNT CLAIMED; OR

(2)                                  THE GUARANTOR INSTITUTES OR CONSENTS TO THE
INSTITUTION OF ANY PROCEEDING UNDER ANY DEBTOR RELIEF LAW, OR MAKES AN
ASSIGNMENT FOR THE BENEFIT OF CREDITORS; OR APPLIES FOR OR CONSENTS TO THE
APPOINTMENT OF ANY RECEIVER, TRUSTEE, CUSTODIAN, CONSERVATOR, LIQUIDATOR,
REHABILITATOR OR SIMILAR OFFICER FOR IT OR FOR ALL OR ANY MATERIAL PART OF ITS
PROPERTY; OR ANY RECEIVER, TRUSTEE, CUSTODIAN, CONSERVATOR, LIQUIDATOR,
REHABILITATOR OR SIMILAR OFFICER IS APPOINTED WITHOUT THE APPLICATION OR CONSENT
OF SUCH PERSON AND THE APPOINTMENT CONTINUES UNDISCHARGED OR UNSTAYED FOR 60
CALENDAR DAYS; OR ANY PROCEEDING UNDER ANY DEBTOR RELIEF LAW RELATING TO ANY
SUCH PERSON OR TO ALL OR ANY MATERIAL PART OF ITS PROPERTY IS INSTITUTED WITHOUT
THE CONSENT OF SUCH PERSON AND CONTINUES UNDISMISSED OR UNSTAYED FOR 60 CALENDAR
DAYS, OR AN ORDER FOR RELIEF IS ENTERED IN ANY SUCH PROCEEDING;

(H)                                 IF THE AGREEMENT OR ANY OF ROYAL’S SECURITY
SHALL AT ANY TIME CEASE TO BE IN FULL FORCE AND EFFECT (OTHER THAN BY EXPIRATION
OR TERMINATION IN ACCORDANCE WITH ITS TERMS FOR REASONS OTHER THAN THE DEFAULT
OF THE BORROWER) OR IF A COURT OF

 

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COMPETENT JURISDICTION SHALL DECLARE THE AGREEMENT TO BE NULL AND VOID OR IF THE
BORROWER SHALL CONTEST THE VALIDITY OR ENFORCEABILITY THEREOF OR IF THE BORROWER
SHALL DENY THAT IT HAS ANY FURTHER LIABILITY OR OBLIGATION HEREUNDER OR IF ANY
OF ROYAL’S SECURITY FOR ANY REASON CEASES, OTHER THAN IN ACCORDANCE WITH ITS
TERMS, TO CONSTITUTE VALID AND SUBSISTING SECURITY UPON ANY MATERIAL PART OF THE
PROPERTY AND ASSETS OF THE BORROWER OR ITS SUBSIDIARIES AS DESCRIBED THEREIN;

(I)                                     IF A WRIT OF EXECUTION, ATTACHMENT OR
SIMILAR PROCESS HAS BEEN ISSUED OR LEVIED AGAINST ALL, OR A SUBSTANTIAL PORTION
OF, THE PROPERTY OF THE BORROWER OR ANY OF ITS SUBSIDIARIES IN CONNECTION WITH
ANY JUDGEMENT AGAINST THE BORROWER OR ANY OF ITS SUBSIDIARIES IN ANY AMOUNT IN
EXCESS OF $1,000,000 WHICH MATERIALLY AFFECTS THE PROPERTY OF THE BORROWER OR
ANY OF ITS SUBSIDIARIES, AND NO APPLICATION HAS BEEN BROUGHT TO STAY SUCH WRIT
OF EXECUTION, ATTACHMENT OR SIMILAR PROCESS WHICH APPLICATION HAS, IN THE
REASONABLE OPINION OF ROYAL, A REASONABLE CHANCE OF SUCCESS;

(J)                                     IF IT SHALL BECOME ILLEGAL OR UNLAWFUL
FOR THE BORROWER OR ANY OF ITS SUBSIDIARIES OR THE GUARANTOR TO CARRY ON ITS
BUSINESS OR TO PERFORM ITS OBLIGATIONS UNDER THE AGREEMENT;

(K)                                  IF THE BORROWER OR ANY OF ITS SUBSIDIARIES
SUSPENDS OR CEASES OR THREATENS TO SUSPEND OR CEASE BUSINESS, UNLESS OTHERWISE
PERMITTED UNDER SECTION 6.1(Q) HEREOF;

(L)                                     IF THE BORROWER OR ANY OF ITS
SUBSIDIARIES MAKES OR THREATENS TO MAKE A DISPOSITION OF ALL OR A SUBSTANTIAL
PART OF ITS UNDERTAKING, PROPERTY AND ASSETS, WHETHER IN ONE TRANSACTION OR IN A
SERIES OF RELATED TRANSACTIONS, UNLESS OTHERWISE PERMITTED UNDER SECTION 6.1(Q)
HEREOF;

(M)                               AN ERISA EVENT OCCURS WITH RESPECT TO A
PENSION PLAN OR MULTIEMPLOYER PLAN WHICH HAS RESULTED OR COULD REASONABLY BE
EXPECTED TO RESULT IN LIABILITY OF THE GUARANTOR UNDER TITLE IV OF ERISA TO THE
PENSION PLAN, MULTIEMPLOYER PLAN OR THE PBGC IN AN AGGREGATE AMOUNT IN EXCESS OF
THE THRESHOLD AMOUNT, OR (II) THE GUARANTOR OR ANY ERISA AFFILIATE FAILS TO PAY
WHEN DUE, AFTER THE EXPIRATION OF ANY APPLICABLE GRACE PERIOD, ANY INSTALMENT
PAYMENT WITH RESPECT TO ITS WITHDRAWAL LIABILITY UNDER SECTION 4201 OF ERISA
UNDER A MULTIEMPLOYER PLAN IN AN AGGREGATE AMOUNT IN EXCESS OF THE THRESHOLD
AMOUNT;

(N)                                 IF THERE IS A DEFAULT BY THE GUARANTOR UNDER
THE GUARANTOR CREDIT AGREEMENT (AFTER GIVING EFFECT TO ANY CURE OR GRACE PERIOD
PROVIDED THEREIN);

(O)                                 (I) THE GUARANTOR SHALL FAIL TO PAY ANY
PRINCIPAL ON ANY LOAN WHEN DUE IN ACCORDANCE WITH THE TERMS OF THE GUARANTOR
CREDIT AGREEMENT; OR (II) THE GUARANTOR SHALL FAIL TO REIMBURSE THE APPLICABLE
ISSUING LENDER (AS DEFINED IN THE GUARANTOR CREDIT AGREEMENT) FOR ANY LOC
OBLIGATIONS (AS DEFINED IN THE GUARANTOR CREDIT AGREEMENT) WHEN DUE IN
ACCORDANCE WITH THE TERMS OF THE GUARANTOR CREDIT AGREEMENT; OR (III) THE
GUARANTOR SHALL FAIL TO PAY ANY INTEREST ON

 

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ANY LOAN OR ANY FEE OR OTHER AMOUNT PAYABLE UNDER THE GUARANTOR CREDIT AGREEMENT
WHEN DUE IN ACCORDANCE WITH THE TERMS OF THE GUARANTOR CREDIT AGREEMENT AND SUCH
FAILURE SHALL CONTINUE UNREMEDIED FOR FIVE (5) DAYS; OR (IV) OR ANY GUARANTOR
SHALL FAIL TO PAY ON THE GUARANTY (AS DEFINED IN THE GUARANTOR CREDIT AGREEMENT)
IN RESPECT OF ANY OF THE FOREGOING OR IN RESPECT OF ANY OTHER GUARANTY
OBLIGATIONS UNDER THE GUARANTOR CREDIT AGREEMENT (AFTER GIVING EFFECT TO THE
GRACE PERIOD IN CLAUSE (III));

(P)                                 ANY REPRESENTATION OR WARRANTY MADE OR
DEEMED MADE IN THE GUARANTOR CREDIT AGREEMENT OR IN ANY OF THE OTHER GUARANTOR
CREDIT DOCUMENTS OR WHICH IS CONTAINED IN ANY CERTIFICATE, DOCUMENT OR FINANCIAL
OR OTHER STATEMENT FURNISHED AT ANY TIME UNDER OR IN CONNECTION WITH THE
GUARANTOR CREDIT AGREEMENT SHALL PROVE TO HAVE BEEN INCORRECT, FALSE OR
MISLEADING IN ANY MATERIAL RESPECT ON OR AS OF THE DATE MADE OR DEEMED MADE;

(Q)                                 (I) THE GUARANTOR SHALL FAIL TO PERFORM,
COMPLY WITH OR OBSERVE ANY TERM, COVENANT OR AGREEMENT APPLICABLE TO IT
CONTAINED IN SECTION 6.2 HEREOF; OR (II) ANY CREDIT PARTY SHALL FAIL TO COMPLY
WITH ANY OTHER COVENANT, CONTAINED IN THE GUARANTOR CREDIT AGREEMENT OR THE
OTHER GUARANTOR CREDIT DOCUMENTS OR ANY OTHER AGREEMENT, DOCUMENT OR INSTRUMENT
AMONG ANY CREDIT PARTY, THE ADMINISTRATIVE AGENT AND THE LENDERS OR EXECUTED BY
ANY CREDIT PARTY IN FAVOUR OF THE ADMINISTRATIVE AGENT, THE COLLATERAL AGENT OR
THE LENDERS (OTHER THAN AS DESCRIBED IN SECTIONS 7.1(O) OR 7.1(Q)(I) ABOVE), AND
IN THE EVENT SUCH BREACH OR FAILURE TO COMPLY IN (I) AND (II) IS CAPABLE OF
CURE, IS NOT CURED WITHIN THIRTY (30) DAYS OF ITS OCCURRENCE;

(R)                                    THE GUARANTOR OR ANY OF ITS SUBSIDIARIES
SHALL (I) DEFAULT IN ANY PAYMENT OF PRINCIPAL OF OR INTEREST ON ANY INDEBTEDNESS
(OTHER THAN THE CREDIT PARTY OBLIGATIONS) IN A PRINCIPAL AMOUNT OUTSTANDING OF
AT LEAST U.S. $20,000,000 IN THE AGGREGATE FOR THE GUARANTOR AND ANY OF ITS
SUBSIDIARIES BEYOND THE PERIOD OF GRACE, IF ANY, PROVIDED IN THE INSTRUMENT OR
AGREEMENT UNDER WHICH SUCH INDEBTEDNESS WAS CREATED; (II) DEFAULT IN THE
OBSERVANCE OR PERFORMANCE OF ANY OTHER AGREEMENT OR CONDITION RELATING TO ANY
INDEBTEDNESS IN A PRINCIPAL AMOUNT OUTSTANDING OF AT LEAST U.S. $20,000,000 IN
THE AGGREGATE FOR THE GUARANTOR AND ITS SUBSIDIARIES OR CONTAINED IN ANY
INSTRUMENT OR AGREEMENT EVIDENCING, SECURING OR RELATING THERETO AFTER GIVING
EFFECT TO ANY CURE OR GRACE PERIOD PROVIDED THEREIN, OR ANY OTHER EVENT SHALL
OCCUR OR CONDITION EXIST, THE EFFECT OF WHICH DEFAULT OR OTHER EVENT OR
CONDITION IS TO CAUSE, OR TO PERMIT THE HOLDER OR HOLDERS OF SUCH INDEBTEDNESS
OR BENEFICIARY OR BENEFICIARIES OF SUCH INDEBTEDNESS (OR A TRUSTEE OR AGENT ON
BEHALF OF SUCH HOLDER OR HOLDERS OR BENEFICIARY OR BENEFICIARIES) TO CAUSE, WITH
THE GIVING OF NOTICE IF REQUIRED, SUCH INDEBTEDNESS TO BECOME DUE PRIOR TO ITS
STATED MATURITY; OR (III) BREACH OR DEFAULT UNDER ANY SWAP CONTRACT BETWEEN ANY
CREDIT PARTY AND ANY SWAP CONTRACT PROVIDER AFTER GIVING EFFECT TO ANY CURE OR
GRACE PERIOD PROVIDED THEREIN;

(S)                                  ONE OR MORE JUDGMENTS OR DECREES (OTHER
THAN JUDGMENTS ADEQUATELY RESERVED FOR OR WHICH ARE COVERED BY INSURANCE FOR
WHICH THE INSURER HAS ACKNOWLEDGED

 

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COVERAGE) SHALL BE ENTERED AGAINST THE GUARANTOR OR ANY OF ITS SUBSIDIARIES
INVOLVING IN THE AGGREGATE A LIABILITY (TO THE EXTENT NOT PAID WHEN DUE OR
COVERED BY INSURANCE) OF U.S. $20,000,000 OR MORE AND ALL SUCH JUDGMENTS OR
DECREES SHALL NOT HAVE BEEN PAID AND SATISFIED, VACATED, DISCHARGED, STAYED OR
BONDED PENDING APPEAL WITHIN THIRTY (30) DAYS FROM THE ENTRY THEREOF OR ANY
INJUNCTION, TEMPORARY RESTRAINING ORDER OR SIMILAR DECREE SHALL BE ISSUED
AGAINST A CREDIT PARTY OR ANY OF ITS SUBSIDIARIES THAT COULD REASONABLY BE
EXPECTED TO RESULT IN A MATERIAL ADVERSE EFFECT;

(T)                                    (I) ANY PERSON SHALL ENGAGE IN ANY
“PROHIBITED TRANSACTION” (AS DEFINED IN SECTION 406 OF ERISA OR SECTION 4975 OF
THE CODE) INVOLVING ANY PLAN, (II) ANY “ACCUMULATED FUNDING DEFICIENCY” (AS
DEFINED IN SECTION 302 OF ERISA), WHETHER OR NOT WAIVED, SHALL EXIST WITH
RESPECT TO ANY PLAN OR ANY LIEN IN FAVOR OF THE PBGC OR A PLAN (OTHER THAN A
PERMITTED LIEN) SHALL ARISE ON THE ASSETS OF THE GUARANTOR OR ANY COMMONLY
CONTROLLED ENTITY, (III) A REPORTABLE EVENT SHALL OCCUR WITH RESPECT TO, OR
PROCEEDINGS SHALL COMMENCE TO HAVE A TRUSTEE APPOINTED, OR A TRUSTEE SHALL BE
APPOINTED, TO ADMINISTER OR TO TERMINATE, ANY SINGLE EMPLOYER PLAN, WHICH
REPORTABLE EVENT OR COMMENCEMENT OF PROCEEDINGS OR APPOINTMENT OF A TRUSTEE IS,
IN THE REASONABLE OPINION OF THE REQUIRED LENDERS, LIKELY TO RESULT IN THE
TERMINATION OF SUCH PLAN FOR PURPOSES OF TITLE IV OF ERISA, (IV) ANY SINGLE
EMPLOYER PLAN SHALL TERMINATE FOR PURPOSES OF TITLE IV OF ERISA, (V) THE
BORROWER, ANY OF ITS SUBSIDIARIES OR ANY COMMONLY CONTROLLED ENTITY SHALL, OR IN
THE REASONABLE OPINION OF THE REQUIRED LENDERS IS LIKELY TO, INCUR ANY LIABILITY
IN CONNECTION WITH A WITHDRAWAL FROM, OR THE INSOLVENCY OR REORGANIZATION OF,
ANY MULTIEMPLOYER PLAN OR (VI) ANY OTHER SIMILAR EVENT OR CONDITION SHALL OCCUR
OR EXIST WITH RESPECT TO A PLAN; AND IN EACH CASE IN CLAUSES (I) THROUGH (VI)
ABOVE, SUCH EVENT OR CONDITION, TOGETHER WITH ALL OTHER SUCH EVENTS OR
CONDITIONS, IF ANY, COULD HAVE A MATERIAL ADVERSE EFFECT;

(U)                                 THERE SHALL OCCUR A CHANGE OF CONTROL;

(V)                                 AT ANY TIME AFTER THE EXECUTION AND DELIVERY
THEREOF, THE GUARANTY (AS DEFINED IN THE GUARANTOR CREDIT AGREEMENT) FOR ANY
REASON, OTHER THAN THE SATISFACTION IN FULL OF ALL CREDIT PARTY OBLIGATIONS,
SHALL CEASE TO BE IN FULL FORCE AND EFFECT (OTHER THAN IN ACCORDANCE WITH ITS
TERMS) OR SHALL BE DECLARED TO BE NULL AND VOID, OR ANY CREDIT PARTY SHALL
CONTEST THE VALIDITY OR ENFORCEABILITY OF THE GUARANTY (AS DEFINED IN THE
GUARANTOR CREDIT AGREEMENT) OR ANY GUARANTOR CREDIT DOCUMENT IN WRITING OR DENY
IN WRITING THAT IT HAS ANY FURTHER LIABILITY, INCLUDING WITH RESPECT TO FUTURE
ADVANCES BY THE LENDERS, UNDER ANY GUARANTOR CREDIT DOCUMENT TO WHICH IT IS A
PARTY; OR

(W)                               ANY OTHER GUARANTOR CREDIT DOCUMENT SHALL FAIL
TO BE IN FULL FORCE AND EFFECT OR TO GIVE THE ADMINISTRATIVE AGENT, THE
COLLATERAL AGENT AND/OR THE LENDERS THE RIGHTS, POWERS AND PRIVILEGES PURPORTED
TO BE CREATED THEREBY (EXCEPT AS SUCH DOCUMENTS MAY BE TERMINATED OR NO LONGER
IN FORCE AND EFFECT IN ACCORDANCE WITH THE TERMS THEREOF, OTHER THAN THOSE
INDEMNITIES AND PROVISIONS WHICH BY THEIR TERMS SHALL SURVIVE).

 

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7.2                               REMEDIES

If an Event of Default occurs and is continuing, provided the Event of Default
has not been waived by Royal or the Borrower has not theretofore remedied all
outstanding Events of Default within the prescribed time period or such longer
period of time as Royal may permit, Royal may, by notice to the Borrower:

(A)                                  TERMINATE ITS OBLIGATIONS HEREUNDER TO MAKE
THE CREDIT FACILITY AVAILABLE TO THE BORROWER, ISSUE DOCUMENTARY CREDITS, ENTER
INTO SWAP CONTRACTS OR PROVIDE EFT TRANSFERS OR PDS SERVICES;

(B)                                 DECLARE BORROWINGS UNDER THE CREDIT
FACILITY, INTEREST, FACILITY FEE, DOCUMENTARY CREDIT, FEES, COSTS INCLUDING SWAP
TERMINATION VALUES AND ANY OTHER MONEYS OWING TO ROYAL BY THE BORROWER UNDER THE
AGREEMENT, INCLUDING AMOUNTS OWING OR LIABILITIES IN RESPECT OF DOCUMENTARY
CREDITS, EFT TRANSFERS AND PDS SERVICES WHICH HAVE NOT YET MATURED, TO BE
IMMEDIATELY DUE AND PAYABLE ON THE DATE WHICH IS FIFTEEN BUSINESS DAYS AFTER
ROYAL DELIVERS SUCH NOTICE TO THE BORROWER, OR THAT EARLIER DATE ON OR AFTER
DELIVERY OF SUCH NOTICE WHEN ROYAL DETERMINES IN ITS REASONABLE DISCRETION THAT
THE BUSINESS OR OPERATIONS OF THE BORROWER MAY BE MATERIALLY PREJUDICED,
ENDANGERED OR ADVERSELY AFFECTED (“ACCELERATION DATE”) AND SUCH MONEYS AND
LIABILITIES SHALL FORTHWITH BECOME DUE AND PAYABLE ON THE ACCELERATION DATE
WITHOUT PRESENTMENT, DEMAND, PROTEST OR OTHER NOTICE OF ANY KIND TO THE
BORROWER, ALL OF WHICH ARE HEREBY EXPRESSLY WAIVED;

(C)                                  ENFORCE ALL RIGHTS AND REMEDIES GRANTED
UNDER ROYAL’S SECURITY PROVIDED THAT ANY ENFORCEMENT SHALL NOT BE COMMENCED
UNTIL AFTER THE ACCELERATION DATE;

(D)                                 CONVERT U.S. ADVANCES TO CANADIAN FUNDS;

(E)                                  TERMINATE ANY SWAP CONTRACT IN ACCORDANCE
WITH ITS TERMS;

(F)                                    TERMINATE ANY AGREEMENT RELATING TO EFT
TRANSFER OR PDS SERVICES IN ACCORDANCE WITH ITS TERMS.

The Borrower expressly acknowledges and agrees that the date which is fifteen
Business Days after Royal delivers such notice to the Borrower affords and will
afford a reasonable period of time to make payment of the outstanding balance
advanced under the Credit Facility, interest, the Facility Fee, Documentary
Credits, Swap Termination Values, outstandings in respect of EFT Transfers and
PDS Services, fees, costs and other moneys owing by the Borrower under the
Agreement. Royal acknowledges and agrees that interest, if any, earned or
received by it as a result of the redeployment or other application of moneys
paid by the Borrower pursuant to a demand made under Section 7.2(b) in respect
of Documentary Credits which have not yet matured shall be credited or otherwise
applied for the benefit of the Borrower.

If there are Documentary Credits outstanding on the Acceleration Date, amounts
held in Restricted Cash Collateral Accounts may be applied by Royal to Royal’s
payment obligations, if any, pursuant to Documentary Credits, and any balances
in such accounts shall be retained by

 

75

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Royal as security for Royal’s obligations under Documentary Credits which have
not yet matured.

7.3                               REMEDIES CUMULATIVE

No remedy conferred on Royal under the Agreement is intended to be exclusive.
Each and every remedy shall be cumulative and shall be in addition to every
other remedy given hereunder or now or hereafter existing at law or equity or by
statute or otherwise. The exercise or commencement of exercise by Royal of any
one or more of such remedies shall not preclude the simultaneous or later
exercise by Royal of any or all other such remedies.

7.4                               WAIVERS

Royal may, by written instrument at any time and from time to time waive any
breach by either the Borrower or the Guarantor of any of the covenants or Events
of Default herein. No course of dealing between either the Borrower or the
Guarantor and Royal nor any delay in exercising any rights hereunder shall
operate as a waiver of any rights of Royal.

7.5                               APPLICATION OF PAYMENTS FOLLOWING ACCELERATION

After the Acceleration Date, Royal may apply any moneys received by it towards
repayment of Borrowings under the Credit Facility as it deems appropriate. Royal
agrees to use reasonable efforts to apply moneys received by it to first repay
Borrowings under the Borrowing Options which do not have redeployment costs
associated with payment prior to the maturity dates of such Borrowings.

7.6                               ROYAL MAY PERFORM COVENANTS

If the Borrower shall fail to perform any of its obligations under any covenant
contained in the Agreement Royal may, after an Event of Default, upon five
Business Days’ prior notice to the Borrower, perform any such covenant capable
of being performed by it and, if any such covenant requires the payment or
expenditure of money, it may make such payment or expenditure with its own
funds. All amounts so paid by Royal hereunder shall be repaid by the Borrower
and shall bear interest at the Prime Rate from and including the date paid by
Royal hereunder to but excluding the date such amounts are repaid in full by the
Borrower.

7.7                               WAIVER OF CERTAIN DEFAULTS UNDER PRIOR CREDIT
AGREEMENT

Royal hereby waives any default or Event of Default occurring prior to the
Closing Date which would not constitute a default or Event of Default under the
Credit Agreement as amended and restated herein had it been in effect at the
time of the occurrence of such default or Event of Default. In addition, Royal
hereby waives any default or Event of Default arising under Section 7.1(f) of
the Agreement to the extent that the representation, warranty or statement which
is the subject of such default or Event of Default is made with respect to a
covenant, term, agreement or provision of the Prior Credit Agreement or the
Credit Agreement and which was applicable under the Prior Credit Agreement or
the Credit Agreement but which is not applicable under the Agreement. Except as
set forth in the immediately preceding sentence, nothing contained

76

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herein shall be deemed a waiver of (or otherwise affect Royal’s ability to
enforce) any default or Event of Default under the Agreement, whether arising
before or after the Closing Date.

8.                                      GENERAL

8.1                               WAIVER

No failure or delay on the part of Royal in exercising any right, power or
privilege hereunder shall impair such right, power or privilege or operate as a
waiver thereof nor shall any single or partial exercise of such right, power or
privilege preclude any further exercise thereof or the exercise of any other
right, power or privilege hereunder.

8.2                               EFFECT OF AMENDMENT, MODIFICATION OR WAIVER

No amendment, modification or waiver of any condition of the Agreement or
consent to any departure by the Borrower therefrom shall, in any event, be
effective unless the same shall be in writing signed by Royal. No notice to or
demand on the Borrower shall by reason thereof entitle the Borrower to any other
or further notice or demand in similar or other circumstances unless
specifically provided for in the Agreement.

8.3                               TIME OF THE ESSENCE

Time shall be of the essence hereof.

8.4                               FURTHER ASSURANCES

Each of the Borrower, the Guarantor and Royal will do, execute and deliver, or
will cause to be done, executed and delivered, all such further acts, documents
(including certificates, declarations, affidavits, reports and opinions) and
things as Royal, the Borrower or the Guarantor may reasonably require for the
purpose of giving effect to the Agreement.

8.5                               SET-OFF

In addition to any rights now or hereafter granted under applicable law and not
by way of limitation of any such rights, Royal is authorized at any time or from
time to time after the Acceleration Date, without notice to the Borrower or to
any other Person, any such notice being expressly waived by the Borrower, to
set-off, compensate and to appropriate and to apply any and all deposits,
matured or unmatured, general or special, held for or in the name of the
Borrower and any other indebtedness or liability at any time owing or payable by
Royal to or for the credit of or the account of the Borrower against and on
account of the obligations and liabilities of the Borrower due and payable to
Royal under the Agreement including all claims of any nature or description
arising out of or connected with the Agreement, irrespective of currency and
whether or not Royal has made any demand under the Agreement and although these
obligations, liabilities or claims of the Borrower are contingent or unmatured.
Royal and the Borrower acknowledge and agree that this paragraph is not intended
to create and shall not be construed as creating and does not create a security
interest in any property of the Borrower.

 

77

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8.6                               JUDGEMENT CURRENCY

If for the purposes of obtaining judgement in any court in any jurisdiction or
for any other purpose hereunder it becomes necessary to convert into the
currency of such jurisdiction (“Judgement Currency”) any amount due hereunder in
any currency other than the Judgement Currency, then such conversion shall be
made at the Spot Buying Rate prevailing on the Business Day before the day on
which judgement is given. In the event that there is a change in the Spot Buying
Rate prevailing between the Business Day before the day on which the judgement
is given and the date of payment of the amount due, the Borrower shall, on the
date of payment, pay such additional amounts (if any) as may be necessary to
ensure that the amount paid on such date is the amount in the Judgement Currency
which, when converted at the Spot Buying Rate prevailing on the date of payment,
is the amount then due under the Agreement in such other currency. Any
additional amount due from the Borrower under this Section 8.6 shall be due as a
separate debt and shall not be affected by judgement being obtained for any
other sums due under or in respect of the Agreement.

8.7                               ACCOUNT DEBIT AUTHORIZATION

The Borrower authorizes and directs Royal to automatically debit, by mechanical,
electronic or manual means, the bank accounts of the Borrower maintained with
Royal for all amounts payable under the Agreement, including but not limited to
the repayment of principal and the payment of interest, fees and all charges for
the keeping of such bank accounts.

8.8                               EXPENSES

Except as otherwise provided in the Agreement all statements, certificates,
opinions and other documents or information required to be furnished to Royal by
the Borrower under the Agreement shall be supplied by the Borrower without cost
to Royal. In addition, the Borrower agrees to pay promptly to Royal on demand,
all reasonable legal fees and other reasonable expenses which are incurred from
time to time by Royal in respect of the documentation, preparation,
registration, execution and enforcement of the Agreement (including any value
added, goods and services, Provincial Sales Tax, business transfer tax or other
similar taxes payable in connection with the execution, delivery or enforcement
of the Agreement).

8.9                               SURVIVAL OF REPRESENTATIONS AND WARRANTIES

The representations and warranties made in Section 2 of the Agreement shall
survive the execution and delivery of the Agreement and the Closing Date and
continue in full force and effect until the full payment and satisfaction of all
monies due hereunder.

8.10                        NOTICE

Unless otherwise specified, any notice, demand, request, consent or other
communication required or permitted to be given to a party under this Agreement
or to a party under any of Royal’s Security shall be in writing and may be
delivered personally or sent by facsimile, to the address or facsimile number of
the party set out beside its name at the foot of this Agreement to the attention
of the Person there indicated or to such other address, facsimile number or
other Person’s attention as the party may have specified by notice in writing
given under this Section.

 

78

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Any notice, demand, consent, request or other communication shall be deemed to
have been given:

(A)                                  IF DELIVERED PERSONALLY, WHEN RECEIVED;

(B)                                 IF SENT BY FACSIMILE, ON THE BUSINESS DAY
WHEN THE APPROPRIATE CONFIRMATION OF RECEIPT HAS BEEN RECEIVED IF THE
CONFIRMATION OF RECEIPT HAS BEEN RECEIVED BEFORE 3:00 P.M. ON THAT BUSINESS DAY
OR, IF THE CONFIRMATION OF RECEIPT HAS BEEN RECEIVED AFTER 3:00 P.M. ON THAT
BUSINESS DAY, ON THE NEXT SUCCEEDING BUSINESS DAY; AND

(C)                                  IF SENT BY FACSIMILE ON A DAY WHICH IS NOT
A BUSINESS DAY, ON THE NEXT SUCCEEDING BUSINESS DAY ON WHICH CONFIRMATION OF
RECEIPT HAS BEEN RECEIVED.

8.11                        GENERAL INDEMNITY

The Borrower hereby indemnifies and holds harmless Royal and its directors,
officers, employees and agents from and against all losses, damages, expenses
(including reasonable fees, charges and disbursements of counsel) and
liabilities (including those arising from any litigation or other proceedings)
related to or arising out of any default hereunder by the Borrower or any
misrepresentation in connection with this Agreement provided that no Person
shall be indemnified in respect of matters arising from such person’s gross
negligence or wilful misconduct.

8.12                        COUNTERPARTS

The Agreement and all documents contemplated by or delivered under or in
connection with the Agreement may be executed and delivered in any number of
counterparts or facsimile counterparts with the same effect as if all parties
had all signed and delivered the same document and all counterparts when
executed and delivered (by facsimile or otherwise) will be construed together to
be an original and will constitute one and the same agreement.

8.13                        REASONABLE CONSENT OR APPROVAL OF THE PARTIES

The parties hereto acknowledge and confirm that:

(A)                                  WHERE EITHER OF THEM IS REQUIRED TO
EXERCISE ITS DISCRETION OR GRANT ITS APPROVAL OR CONSENT PURSUANT TO A PROVISION
IN THE AGREEMENT, IT SHALL ACT REASONABLY IN THE EXERCISE OF ITS DISCRETION AND
WILL NOT UNREASONABLY WITHHOLD OR DELAY THE GRANTING OF ITS APPROVAL OR CONSENT,
AND

(B)                                 THE BORROWER MAY RELY ON ANY CONSENT,
APPROVAL, CALCULATION OR DETERMINATION PROVIDED TO IT BY ROYAL PURSUANT TO THE
AGREEMENT.

8.14                        ENTIRE AGREEMENT

Save as provided herein and in the instruments and documents contemplated or
provided for hereunder, the Agreement contains the whole agreement between the
parties with respect to

 

79

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the Credit Facility and there are no other terms, conditions, representations or
warranties with respect thereto except as contained herein.

8.15                        NO DEDUCTION FOR TAXES

Provided Royal has not assigned its obligations under the Agreement or its
rights to receive payments in respect thereof or changed the booking location of
Borrowings, all payments required to be made by the Borrower pursuant to the
Agreement whether for principal, interest, acceptance fees, the Facility Fee,
Documentary Credit Fees, Swap Termination Values, fees for Swap Contracts or any
other fees or otherwise shall be made free and clear of and without deduction,
withholding or reserve for or on account of taxes, imposts, levies or other
charges of any nature or kind whatsoever, unless otherwise agreed by Royal.

8.16                        PARTICIPATIONS AND ASSIGNMENTS

Subject to Section 8.17, Royal may, with the consent of the Borrower, which
consent shall not be unreasonably withheld, subject to the provisions of this
Section 8.16 at any time grant participations in, sell, assign, transfer or
otherwise dispose of all or any portion of the Credit Facility or Borrowings
(“Facility Disposition”) to any financial institution carrying on business in,
and for the purpose of the Income Tax Act (Canada) residing in, Canada; provided
no Facility Disposition may be made which would result in an increase in the
cost of the Credit Facility to the Borrower. In all cases an assignment shall be
of at least $5,000,000 with increments of $1,000,000 and a participation shall
be of at least $2,500,000 with increments of $500,000. No Facility Disposition
shall be effective until Royal shall have received an instrument (in form and
substance satisfactory to Royal) in which the transferee or assignee, as the
case may be, shall agree to be bound by all of the terms of the Agreement as
fully as though it were an original party hereto except that any participant
shall not be entitled to grant subparticipations. The Borrower hereby agrees
that, upon compliance with the foregoing, any purchaser, assignee or transferee
of all or any portion of any amount owed by the Borrower under the Agreement:

(A)                                  SHALL BE ENTITLED TO THE BENEFITS OF THE
PROVISIONS OF THE AGREEMENT AS FULLY AS THOUGH IT WERE AN ORIGINAL PARTY TO THE
AGREEMENT; AND

 

80

--------------------------------------------------------------------------------

 

(B)                                 MAY, SUBJECT TO THE TERMS OF THE AGREEMENT,
EXERCISE ANY AND ALL RIGHTS OF BANKER’S LIEN, SET-OFF OR COUNTERCLAIM WITH
RESPECT TO ANY AND ALL AMOUNTS OWED BY THE BORROWER TO SUCH PURCHASER, ASSIGNEE
OR TRANSFEREE AS FULLY AS IF SUCH PURCHASER, ASSIGNEE OR TRANSFEREE HAD MADE
ADVANCES IN THE AMOUNT OF THE OBLIGATION WHICH IS SOLD, ASSIGNED OR TRANSFERRED
TO IT.

8.17                        ASSIGNMENT AFTER DEFAULT

Notwithstanding anything to the contrary herein contained, where an Event of
Default has occurred and is continuing and has not been waived, nothing in the
Agreement shall limit or otherwise restrict the right of Royal to assign all or
any part of its rights and obligations under or with respect to the Agreement.
Without limiting the generality of the foregoing, any such assignment shall not
require the consent of the Borrower nor be restricted to financial institutions
resident in Canada.

8.18                        OBLIGATIONS OF BORROWER RE FACILITY DISPOSITION

The Borrower shall, at the request and at the expense of Royal, execute and
deliver to such party or parties as Royal may designate any and all further
instruments, use its reasonable efforts to obtain any and all further
authorizations or approvals and make any and all further registrations, filings
or notifications, as may be necessary or desirable to give full force and effect
to such Facility Disposition. The term “Royal” as used in the Agreement shall
include all purchasers, assignees and transferees permitted hereunder of all or
any portion of any amount owed to Royal under the Agreement. Except as
specifically set forth in this Section 8.18 nothing in the Agreement expressed
or implied, is intended to or shall confer on any Person other than the
respective parties hereto and thereto and their permitted successors and
assignees any benefit or any legal or equitable right, remedy or other claim
under the Agreement.

8.19                        CONFIDENTIALITY

Royal agrees to maintain the confidentiality of the Information (as defined
below), except that Information may be disclosed (a) to its and its Affiliates’
directors, officers, employees and agents, including accountants, legal counsel
and other advisors (it being understood that the Persons to whom such disclosure
is made will be informed of the confidential nature of such Information and
instructed to keep such Information confidential), (b) to the extent requested
by any regulatory authority, (c) to the extent required by applicable laws or
regulations or by any subpoena or similar legal process, (d) in connection with
the exercise of any remedies hereunder or under any documents governing Royal’s
Security or the enforcement of rights hereunder or thereunder, (e) subject to an
agreement containing provisions substantially the same as those of this Section,
to any assignee of or participant in, or any prospective assignee of or
participant in, any of its rights or obligations under this Agreement, (f) with
the prior written consent of the Borrower or (g) to the extent such Information
(x) is or become publicly available other than as a result of a breach of this
Section or (y) becomes available to Royal on a non-confidential basis from a
source other than the Borrower, provided that such source is not bound by a
confidentiality agreement with the Guarantor or any of its Subsidiaries known to
Royal. For purposes of this Section, “Information” means all information
received from Borrower, Guarantor or any of Borrower or Guarantor’s Subsidiaries
relating to Borrower,

 

81

--------------------------------------------------------------------------------

 

Guarantor, their respective Subsidiaries or any of their respective businesses,
other than any such information that is available to Royal on a non-confidential
basis prior to disclosure by Borrower. Any Person required to maintain the
confidentiality of Information as provided in this Section shall be considered
to have complied with its obligations to do so if such Person has exercised the
same degree of care to maintain the confidentiality of such Information as such
Person would accord its own confidential information.

IN WITNESS WHEREOF the parties hereto have caused the Agreement to be duly
executed on December 21, 2004.

 

LOUISIANA-PACIFIC CANADA LTD. 

)

Address for Notice

 

 

)

c/o Louisiana-Pacific Corporation

 

 

)

414 Union Street, Suite 2000

 

 

)

Nashville, TN

Per:

 

)

U.S.A. 37219

 

Authorized Signatory

)

 

 

 

)

Phone:  (877) 744-5600

 

 

)

Fax:       (615) 986-5666

 

 

)

Attention:      Vice-President and C.F.O.

Per:

 

)

 

 

Authorized Signatory

)

With a copy to

 

 

)

Louisiana-Pacific Canada Ltd.

 

 

)

2100 - 1075 West Georgia Street

 

 

)

Vancouver, British Columbia

 

 

)

V6E 3G2

 

 

)

 

 

 

)

Phone:  (604) 631-3131

 

 

)

Fax:       (604) 631-3232

 

82

--------------------------------------------------------------------------------

 

LOUISIANA-PACIFIC CORPORATION

)

Address for Notice

 

 

)

414 Union Street, Suite 2000

 

 

)

Nashville, TN

 

 

)

U.S.A. 37219

Per:

 

)

 

 

Authorized Signatory

)

Phone:  (877) 744-5600

 

 

)

Fax:       (615) 986-5666

 

 

)

 

 

 

)

 

Per:

 

)

 

 

Authorized Signatory

)

 

 

 

)

 

 

 

)

 

 

83

--------------------------------------------------------------------------------

 

ROYAL BANK OF CANADA

)

RBC Capital Markets

 

 

)

Suite 2100, Park Place

 

 

)

666 Burrard Street

 

 

)

Vancouver, British Columbia

By:

 

)

V6C 3B1

 

Gerry Derbyshire

)

Attention: Corporate Credit

 

Attorney-in-Fact

)

Phone:  (604) 257-7100

 

 

)

Fax:       (604) 665-6465

 

 

)

 

 

 

)

 

 

84

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SCHEDULE A

OFFICER’S COMPLIANCE CERTIFICATE

6.2(i)

 

 

 

                I,                                               , of the City
of                             , in the State of                             ,
hereby certify on behalf of Louisiana-Pacific Corporation and Louisiana-Pacific
Canada Ltd. and without personal liability as follows:

 

1.             That I am                                                      of
Louisiana Pacific Corporation and Louisiana-Pacific Canada Ltd.

 

2.             All capitalized terms used herein and not otherwise defined
herein shall have the same meaning as ascribed thereto in the Credit Agreement
(as hereinafter defined).

 

3.             That I am familiar with and have examined the provisions of the
Third Amended and Restated Credit Agreement dated for reference December 20,
2004 (“Credit Agreement”) as amended, modified, supplemented, extended,
consolidated, restated, renewed or replaced from time to time among
Louisiana-Pacific Canada Ltd., as Borrower, Louisiana-Pacific Corporation, as
Guarantor, and Royal Bank of Canada (“Royal”) and to best of my knowledge having
made reasonable investigations of corporate records and inquiries of other
officers and senior personnel of the Borrower and the Guarantor and relying on
the foregoing, as of the date of this Certificate: (a) the representations and
warranties of the Borrower and the Guarantor contained in the Credit Agreement
are true and correct, and (b) none of the covenants of the Borrower and the
Guarantor contained in the Credit Agreement has been breached,

 

and I further certify without personal liability that:

 

4.             [SPECIFY ANY DEFAULT];

 

5.             I am authorized to give this certificate;

 

--------------------------------------------------------------------------------

 

6.                                       I am aware that Royal is entitled to
rely upon the accuracy of the information herein contained.

 

 

This Certificate has been executed at the City of
                                      , in the State of
                                              , this                day of
                                          , 200

 

 

 

Title:

Louisiana-Pacific Corporation and

Title:

Louisiana-Pacific Canada Ltd.

 

 

2

--------------------------------------------------------------------------------

 

SCHEDULE B

UNFUNDED PENSION LIABILITIES

 

 

The Guarantor sponsors the Louisiana-Pacific Corporation Retirement Account
Plan. Originally this was a defined benefit pension plan covering certain hourly
employees of the Guarantor. Effective January 1, 2000, this was converted to a
cash balance plan covering most non-bargained employees. As of January 1, 2003,
on an ongoing basis, the Plan has a surplus of approximately US$1,800,000. As of
January 1, 2003, on a plan termination basis, the Plan has an unfunded liability
of approximately US$33,600,000.

 

The Guarantor sponsors the ABTco, Inc. Retirement Plan. This is a defined
benefit plan covering bargained and non-bargained employees of ABTco. As of
January 1, 2003, on an ongoing basis the Plan has a surplus of approximately
US$1,200,000. As of January 1, 2003, on a plan termination basis, the Plan has
an unfunded liability of approximately US$16,600,000.

 

--------------------------------------------------------------------------------

 

ANNEXURE I TO SCHEDULE B

 

On May 8, 2002, the Guarantor announced a program of facility sales and closures
that to the extent implemented could result in a reduction under ERISA Section
4040(c)(3) of more than 20 percent of the active participants in 2002 and 2003,
or more than 25 percent of the active participants in 2002 and 2003, in either
or both of the Louisiana-Pacific Retirement Account Plan or the ABTco. Inc.
Retirement Plan.

 

The Plan participant data indicated that a reportable event occurred as of
September 13, 2002, with regard to the Louisiana-Pacific Corporation Retirement
Account Plan only, as a result of an active participant reduction of 20% in 2002
for that plan. Plan actuaries have determined that there is no waiver applicable
to the PBGC Form 10 filing, and the Guarantor timely filed the PBGC Form 10
within the thirty day period. The current and anticipated future levels of
participant reductions may constitute a partial termination of either or both
plans, in which event the affected participants must under tax qualified plan
law be vested to the extent their benefits are already funded. The Guarantor
decided to fully vest the affected participants who are not already vested, by
Plan amendment, instead of incurring the substantial administrative expenses and
uncertainties of a vesting to the extent funded determination. The value of the
benefits to be fully vested will not exceed US$5,000,000.00.

 

 

--------------------------------------------------------------------------------

 

SCHEDULE C

BORROWING BASE CERTIFICATE

 

 

TO:         Royal Bank of Canada (“Royal”)

 

 

                This Certificate is given as of the        day of
                              , 20     pursuant to the Third Amended and
Restated Credit Agreement dated for reference December 20, 2004 (as amended or
modified from time to time, the “Credit Agreement”) between Louisiana-Pacific
Canada Ltd. (the “Borrower”) and Royal. Unless otherwise defined herein,
capitalized terms used herein shall have the same meanings attributed to such
terms in the Credit Agreement.

 

                The Borrower hereby represents and warrants as of [insert last
date of relevant month or other relevant date][before] [after] giving effect to
                        (1)  ]:

--------------------------------------------------------------------------------

(1) describe transaction:  either (i) the concurrent documentary Credit
Application and deposit to be made to the Restricted Cash Collateral Account
under section 3.7; or (ii) the concurrent direction being issued to Royal to
debit the Restricted Cash Collateral Account pursuant to section 3.8 and any
permanent reduction in the amount of the Documentary Credit effected by the
drawing thereunder.

 

1.

amount of Restricted Cash Collateral (as of the

 

 

[Business Day prior to the date of the Borrowing

 

 

Base Certificate] [date hereof] [the Remargin

 

 

Date]), excluding interest accrued on Cash

 

 

Equivalents deposited in the Restricted Cash

 

 

Collateral Account is                                 :

$

 

 

 

2.

the Collateral Value of Borrowing Base

 

 

(91% of Restated Cash Collateral) is

$

 

 

 

3.

the aggregate of all outstanding Canadian

 

 

Advances plus the aggregate face amount

 

 

of outstanding Documentary Credits

 

 

(less any permanent reductions thereof) is:

$

 

 

 

4.

availability (lesser of (x) $10,000,000

 

 

and (y) Collateral Value of the Borrowing Base

 

 

minus (z) the aggregate of all outstanding

 

 

Canadian Advances plus the aggregate face

 

 

amount of outstanding Documentary Credits

 

 

(less any permanent reductions thereof)) is:

$

 

The Borrower hereby certifies:

 

--------------------------------------------------------------------------------

 

                1. The foregoing accurately and correctly reflects the matters
addressed therein as reflected on the records of the Borrower on the date
indicated above.

 

                2. Attached to this Certificate is a list of all outstanding
Documentary Credits, including Documentary Credit number, beneficiary, amount
and expiry date.

 

 

 

[The Borrower directs Royal to cause to be remitted
$                                                                 to the
Borrower from the Restricted Cash Collateral Account in accordance with Section
3.14(a) of the Credit Agreement.]*

--------------------------------------------------------------------------------

* Each Borrowing Base Certificate submitted pursuant to section 3.7 must be
accompanied by a duplicate Borrowing Base Certificate giving effect to the
transaction with respect to which it is submitted.

 

 

LOUISIANA-PACIFIC CANADA LTD.

 

By:

 

 

Name:

 

 

Title:

 

 

Date:

 

 

2

--------------------------------------------------------------------------------

 

SCHEDULE D

EXISTING LETTERS OF CREDIT

l/c no.

 

Beneficiary

 

Amount

 

Expiry

94889

 

H.M. the Queen for the Province of Manitoba

 

C$100,000

 

04/14/04 (auto-renewal)

 

 

 

 

 

 

 

110818

 

Minister of Finance, Prince George

 

C$28,950

 

07/17/04 (a.r.)

 

 

 

 

 

 

 

110821

 

Minister of Finance, Prince George

 

C$1,677,600

 

07/17/04 (a.r.)

 

 

 

 

 

 

 

110824

 

Minister of Finance, Prince George

 

C$722,400

 

07/17/04 (a.r.)

 

 

 

 

 

 

 

112521

 

Minister of Finance, Nelson, B.C.

 

C$53,469.90

 

10/19/03 (a.r.)

 

 

 

 

 

 

 

112523

 

Minister of Finance, Nelson, B.C.

 

C$21,032.55

 

10/19/03 (a.r.)

 

 

 

 

 

 

 

118703

 

Minister of Finance, Province of Ontario

 

C$254,037.08

 

12/27/03 (a.r.)

 

 

 

 

 

 

 

118913

 

Minister of Finance, Province of Ontario

 

C$183,282.78

 

01/31/04 (a.r.)

 

 

 

 

 

 

 

119988

 

Minister of Finance, Kamloops Forest Region

 

C$1,107.00

 

02/06/04 (a.r.)

 

 

 

 

 

 

 

223635

 

Minister of Finance, Province of Manitoba

 

C$250,000

 

07/15/04 (a.r.)

 

 

 

 

 

 

 

910820

 

Minister of Finance, Prince George

 

C$52,200

 

07/17/04 (a.r.)

 

 

 

 

 

 

 

910823

 

Minister of Finance, Prince George

 

C$17,895

 

07/17/04 (a.r.)

 

 

 

 

 

 

 

912524

 

Minister of Finance, Nelson, B.C.

 

C$8,390.90

 

10/19/03 (a.r.)

 

 

 

 

 

 

 

 

--------------------------------------------------------------------------------

 

SCHEDULE E

NOTICE OF BORROWING

Date:

 

To: Royal Bank of Canada

 

                Pursuant to Section 3.5 of the Third Amended and Restated Credit
Agreement, dated for reference December 20, 2004 (as amended, restated or
otherwise modified, the “Credit Agreement”), by and among Louisiana-Pacific
Canada Ltd. (the “Borrower”), Louisiana-Pacific Corporation and Royal Bank of
Canada (“Royal”), the Borrower hereby requests that the following:

 

I.              Canadian Advances be made on [date] as follows (the “Proposed
Borrowing”):

 

                                                                                               
(1)           Total Amount of Canadian Advances             $

 

NOTE:                                    BORROWINGS MUST BE IN MINIMUM AMOUNTS
OF WITH RESPECT TO CANADIAN ADVANCES, $100,000 AND $100,000 INCREMENTS IN EXCESS
THEREOF.

 

                Unless otherwise defined herein, terms defined in the Credit
Agreement shall have the same meanings when used herein.

 

                The undersigned hereby certifies that the following statements
are true on the date hereof and will be true on the date of the Proposed
Borrowing:

 

(A)          the representations and warranties contained in the Credit
Agreement are and will be true and correct in all material respects, both before
and after giving effect to the Proposed Borrowing and to the application of the
proceeds thereof, with the same effect as though such representations and
warranties had been made on and as of the date of such Proposed Borrowing (it
being understood that any representation or warranty which by its terms is made
as of a specified date shall be required to be true and correct only as of such
specified date); and

 

(B)           no Default or Event of Default has occurred and is continuing, or
would result from such Proposed Borrowing or from the application of the
proceeds thereof.

 

 

[Signature on Following Page]

 

--------------------------------------------------------------------------------

IN WITNESS WHEREOF, the undersigned has executed this Notice of Borrowing as of
the date first written above.

 

 

Very truly yours,

 

LOUISIANA-PACIFIC CANADA LTD.

 

By:

 

 

 

Name:

 

Title:

 

 

 

 

2

--------------------------------------------------------------------------------

 

SCHEDULE F

CASH COLLATERAL RELEASE NOTICE

 

Date:

 

To: Royal Bank of Canada

 

Ladies and Gentlemen:

 

                Pursuant to Section 3.14(c) of the Third Amended and Restated
Credit Agreement, dated for reference December 20, 2004 (as amended, restated or
otherwise modified, the “Credit Agreement”), by and among Louisiana-Pacific
Canada Ltd. (the “Borrower”), Louisiana-Pacific Corporation and Royal Bank of
Canada (“Royal”), the Borrower hereby delivers this Cash Collateral Release
Notice to Royal and requests that the Cash Collateral Period end on [date] [fill
in date that is at least 60 days following the date of this notice] (the
“Collateral Release Date”).

 

                Unless otherwise defined herein, terms defined in the Credit
Agreement shall have the same meanings when used herein.

 

                The undersigned hereby certifies that the following statements
are and will be true on the Collateral Release Date:

 

(A)          the representations and warranties contained in the Credit
Agreement are and will be true and correct in all material respects, both before
and after giving effect to this Cash Collateral Release Notice on the Collateral
Release Date, with the same effect as though such representations and warranties
had been made on and as of such date (it being understood that any
representation or warranty which by its terms is made as of a specified date
shall be required to be true and correct only as of such specified date);

 

(B)           no Default or Event of Default has occurred and is continuing, or
will result from giving effect to this Cash Collateral Release Notice (for the
avoidance of doubt, the determination of the existence of a Default or Event of
Default immediately after the Collateral Release Date shall take into account
the effectiveness of the covenants set forth in Section 6 which are effective
only during the No Collateral Period as well as those covenants set forth in
Section 6 which are effective at all times during the term of the Credit
Agreement); and

 

--------------------------------------------------------------------------------

 

(C)           for the twelve month period immediately preceding the Collateral
Release Date, (A) the Consolidated Leverage Ratio for such period was less than
or equal to 2.50 to 1.00 as demonstrated on Exhibit 1 hereto and (B) the
Consolidated Interest Coverage Ratio for such period was greater than or equal
to 4.25 to 1.00 as demonstrated on Exhibit 1 hereto.

 

IN WITNESS WHEREOF, the undersigned has executed this Cash Collateral Release
Notice as of the date first written above.

 

 

Very truly yours,

 

LOUISIANA-PACIFIC CANADA LTD.

 

By:

 

 

 

Name:

 

Title:

 

 

 

 

2

--------------------------------------------------------------------------------

 

EXHIBIT 1

 

[CALCULATIONS TO BE PROVIDED BY BORROWER]

 

 

--------------------------------------------------------------------------------

 

THIRD AMENDED AND RESTATED

CREDIT AGREEMENT

 

 

 

 

AMONG:

 

LOUISIANA-PACIFIC CANADA LTD.

 

AND

 

LOUISIANA-PACIFIC CORPORATION

 

AND

 

ROYAL BANK OF CANADA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BULL, HOUSSER & TUPPER

BARRISTERS & SOLICITORS

#3000 - 1055 WEST GEORGIA

VANCOUVER, B.C. V6E 3R3

(604) 687-6575

Attention: David Bain

File # 8929978

 

 

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