exv10w1






Exhibit 10.1




AMENDED AND RESTATED CREDIT AGREEMENT




dated as of




November 27, 2009




among




ZELLSTOFF CELGAR LIMITED PARTNERSHIP




as Borrower




and




THE LENDERS FROM TIME TO TIME PARTIES HERETO




as Lenders




and




CIT BUSINESS CREDIT CANADA INC.




as Agent










 



 


TABLE OF CONTENTS




	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	Page	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE 1	 	DEFINITIONS	 	 	1	 
	 
	 	1.1	 	Defined Terms	 	 	1	 
	 
	 	1.2	 	Classification of Loans and Borrowings	 	 	27	 
	 
	 	1.3	 	Terms Generally	 	 	27	 
	 
	 	1.4	 	Accounting Terms; GAAP	 	 	28	 
	 
	 	1.5	 	Time	 	 	28	 
	 
	 	1.6	 	Permitted Liens	 	 	28	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE 2	 	THE CREDITS	 	 	28	 
	 
	 	2.1	 	Commitments	 	 	28	 
	 
	 	2.2	 	Loans and Borrowings	 	 	29	 
	 
	 	2.3	 	Requests for Borrowings	 	 	29	 
	 
	 	2.4	 	Funding of Borrowings	 	 	31	 
	 
	 	2.5	 	Interest	 	 	32	 
	 
	 	2.6	 	Termination and Reduction of Commitments	 	 	33	 
	 
	 	2.7	 	Repayment of Loans	 	 	34	 
	 
	 	2.8	 	Evidence of Debt	 	 	34	 
	 
	 	2.9	 	Prepayments	 	 	34	 
	 
	 	2.10	 	Fees	 	 	35	 
	 
	 	2.11	 	B/A Equivalent Loans	 	 	36	 
	 
	 	2.12	 	Increased Costs; Illegality	 	 	37	 
	 
	 	2.13	 	Break Funding Payments	 	 	38	 
	 
	 	2.14	 	Taxes	 	 	39	 
	 
	 	2.15	 	Payments Generally; Pro Rata Treatment; Sharing of Set-offs	 	 	40	 
	 
	 	2.16	 	Currency Indemnity	 	 	42	 
	 
	 	2.17	 	Collection of Accounts	 	 	42	 
	 
	 	2.18	 	Letters of Credit	 	 	43	 
	 
	 	2.19	 	[Intentionally Deleted]	 	 	45	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE 3	 	REPRESENTATIONS AND WARRANTIES	 	 	45	 
	 
	 	3.1	 	Organization; Powers	 	 	46	 
	 
	 	3.2	 	Authorization; Enforceability	 	 	46	 









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TABLE OF CONTENTS
(continued)




	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	Page	 
	 
	 
	 	3.3	 	Governmental Approvals; No Conflicts	 	 	46	 
	 
	 	3.4	 	Financial Condition; No Material Adverse Effect	 	 	46	 
	 
	 	3.5	 	Litigation	 	 	47	 
	 
	 	3.6	 	Compliance with Applicable Laws and Agreements	 	 	47	 
	 
	 	3.7	 	Ownership	 	 	47	 
	 
	 	3.8	 	Taxes	 	 	47	 
	 
	 	3.9	 	Titles to Real Property	 	 	47	 
	 
	 	3.10	 	Titles to Personal Property	 	 	48	 
	 
	 	3.11	 	Pension Plans	 	 	48	 
	 
	 	3.12	 	Disclosure	 	 	48	 
	 
	 	3.13	 	Defaults	 	 	48	 
	 
	 	3.14	 	Casualties; Taking of Properties	 	 	48	 
	 
	 	3.15	 	Subsidiaries	 	 	49	 
	 
	 	3.16	 	Insurance	 	 	49	 
	 
	 	3.17	 	Solvency	 	 	49	 
	 
	 	3.18	 	Material Contracts	 	 	49	 
	 
	 	3.19	 	Environmental Matters	 	 	50	 
	 
	 	3.20	 	Employee Matters	 	 	51	 
	 
	 	3.21	 	Fiscal Year	 	 	51	 
	 
	 	3.22	 	Intellectual Property Rights	 	 	52	 
	 
	 	3.23	 	Residency of Borrower for Tax Purposes	 	 	52	 
	 
	 	3.24	 	Distributions	 	 	52	 
	 
	 	3.25	 	Debt	 	 	52	 
	 
	 	3.26	 	Workers’ Compensation	 	 	52	 
	 
	 	3.27	 	Bank Accounts	 	 	53	 
	 
	 	3.28	 	Real Property and Leases	 	 	53	 
	 
	 	3.29	 	Further Real Property Matters	 	 	53	 
	 
	 	3.30	 	Jurisdictions of Credit Parties	 	 	53	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE 4	 	CONDITIONS	 	 	53	 
	 
	 	4.1	 	Effective Date	 	 	53	 







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TABLE OF CONTENTS
(continued)



	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	Page	 
	 
	 	 	 	 	 	 	 	 
	 
	 	4.2	 	Each Credit Event	 	 	57	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE 5	 	AFFIRMATIVE COVENANTS	 	 	58	 
	 
	 	5.1	 	Financial Statements and Other Information	 	 	58	 
	 
	 	5.2	 	Existence; Conduct of Business	 	 	63	 
	 
	 	5.3	 	Payment of Obligations	 	 	64	 
	 
	 	5.4	 	Maintenance of Properties	 	 	64	 
	 
	 	5.5	 	Books and Records; Inspection Rights	 	 	64	 
	 
	 	5.6	 	Compliance with Applicable Laws and Material Contracts	 	 	64	 
	 
	 	5.7	 	Use of Proceeds and Letters of Credit	 	 	64	 
	 
	 	5.8	 	Further Assurances	 	 	64	 
	 
	 	5.9	 	Insurance	 	 	65	 
	 
	 	5.10	 	Operation and Maintenance of Property	 	 	66	 
	 
	 	5.11	 	Additional Subsidiaries; Additional Liens	 	 	66	 
	 
	 	5.12	 	Financial Covenants	 	 	67	 
	 
	 	5.13	 	Parent Subordinated Debt	 	 	67	 
	 
	 	5.14	 	[Intentionally Deleted]	 	 	67	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE 6	 	NEGATIVE COVENANTS	 	 	67	 
	 
	 	6.1	 	Indebtedness	 	 	67	 
	 
	 	6.2	 	Liens	 	 	68	 
	 
	 	6.3	 	Fundamental Changes	 	 	68	 
	 
	 	6.4	 	Investments, Loans, Advances, Guarantees and Acquisitions	 	 	69	 
	 
	 	6.5	 	Swap Agreements	 	 	69	 
	 
	 	6.6	 	Restricted Payments	 	 	69	 
	 
	 	6.7	 	Transactions with Affiliates	 	 	70	 
	 
	 	6.8	 	Repayment of Debt	 	 	70	 
	 
	 	6.9	 	Restrictive Agreements	 	 	70	 
	 
	 	6.10	 	Capital Lease Obligations; Sale/Leaseback Obligations	 	 	71	 
	 
	 	6.11	 	Pension Plan Compliance	 	 	71	 
	 
	 	6.12	 	Sale or Discount of Receivables	 	 	72	 
	 
	 	6.13	 	Unconditional Purchase Obligations	 	 	72	 







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TABLE OF CONTENTS
(continued)



	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	Page	 
	 
	 	 	 	 	 	 	 	 
	 
	 	6.14	 	Capital Expenditures	 	 	72	 
	 
	 	6.15	 	No Amendments to Material Contracts	 	 	72	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE 7	 	EVENTS OF DEFAULT	 	 	72	 
	 
	 	7.1	 	Events of Default	 	 	72	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE 8	 	THE AGENT	 	 	77	 
	 
	 	8.1	 	Appointment of Agent	 	 	77	 
	 
	 	8.2	 	Limitation of Duties of Agent	 	 	77	 
	 
	 	8.3	 	Lack of Reliance on the Agent	 	 	77	 
	 
	 	8.4	 	Certain Rights of the Agent	 	 	78	 
	 
	 	8.5	 	Reliance by Agent	 	 	78	 
	 
	 	8.6	 	Indemnification of Agent	 	 	78	 
	 
	 	8.7	 	The Agent in its Individual Capacity	 	 	78	 
	 
	 	8.8	 	May Treat Lender as Owner	 	 	78	 
	 
	 	8.9	 	Successor Agent	 	 	79	 
	 
	 	8.10	 	No Independent Legal Action by Lenders	 	 	79	 
	 
	 	8.11	 	Quebec Security	 	 	80	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE 9	 	MISCELLANEOUS	 	 	80	 
	 
	 	9.1	 	Notices	 	 	80	 
	 
	 	9.2	 	Waivers; Amendments	 	 	82	 
	 
	 	9.3	 	Expenses; Indemnity; Damage Waiver	 	 	83	 
	 
	 	9.4	 	Successors and Assigns	 	 	85	 
	 
	 	9.5	 	Survival	 	 	88	 
	 
	 	9.6	 	Counterparts; Integration; Effectiveness	 	 	88	 
	 
	 	9.7	 	Severability	 	 	88	 
	 
	 	9.8	 	Right of Set-Off	 	 	88	 
	 
	 	9.9	 	Governing Law; Jurisdiction; Consent to Service of Process	 	 	89	 
	 
	 	9.10	 	WAIVER OF JURY TRIAL	 	 	89	 
	 
	 	9.11	 	Headings	 	 	90	 
	 
	 	9.12	 	Confidentiality	 	 	90	 
	 
	 	9.13	 	Press Releases and Related Materials	 	 	91	 







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CREDIT AGREEMENT




          THIS
AMENDED AND RESTATED CREDIT AGREEMENT is dated as
of November 27, 2009 and is
entered into among Zellstoff Celgar Limited Partnership, as Borrower, the Lenders from time to time
parties hereto, as Lenders, and CIT Business Credit Canada Inc., as Agent.




RECITALS



WHEREAS the Lenders have agreed to provide certain credit facilities to the Borrower.



NOW THEREFORE, in consideration of the mutual conditions and agreements set forth in this Agreement
and for good and valuable consideration, the receipt of which is hereby acknowledged, the parties
hereto agree as follows:




ARTICLE 1

DEFINITIONS



1.1 Defined Terms. As used in this Agreement, the following terms have the meanings
specified below:




     “Accounts” means, in respect of each Credit Party, all of such Credit Party’s now existing and
future: (a) accounts (as defined in the PPSA), and any and all other receivables (whether or not
specifically listed on schedules furnished to the Agent), including all accounts created by, or
arising from, all of such Credit Party’s sales, leases, loans, rentals of goods or renditions of
services to its customers, including those accounts arising under any of such Credit Party’s trade
names or styles, or through any of such Credit Party’s divisions; (b) any and all instruments,
documents, chattel paper (including electronic chattel paper) (all as defined in the PPSA); (c)
unpaid seller’s or lessor’s rights (including rescission, replevin, reclamation, repossession and
stoppage in transit) relating to the foregoing or arising therefrom; (d) rights to any goods
represented by any of the foregoing, including rights to returned, reclaimed or repossessed goods;
(e) reserves and credit balances arising in connection with or pursuant hereto; (f) guarantees,
indemnification rights, supporting obligations, payment intangibles, tax refunds and letter of
credit rights; (g) insurance policies or rights relating to any of the foregoing; (h) intangibles
pertaining to any and all of the foregoing (including all rights to payment, including those
arising in connection with bank and non-bank credit cards), and including books and records and any
electronic media and software relating thereto; (i) notes, deposits or property of borrowers or
other account debtors securing the obligations of any such borrowers or other account debtors to
such Credit Party; (j) cash and non cash proceeds (as defined in the PPSA) of any and all of the
foregoing; and (k) all monies and claims for monies now or hereafter due and payable in connection
with any and all of the foregoing or otherwise.



     “Acquisition” means any transaction, or any series of related transactions, consummated after
the Original Effective Date, by which any Credit Party, directly or indirectly, by means of a
take-over bid, tender offer, amalgamation, merger, purchase of assets or otherwise (a) acquires any
business or all or substantially all of the assets of any Person engaged in any business, (b)
acquires control of securities of a Person engaged in a business representing more than 50% of the
ordinary voting power for the election of directors or other governing position if the









 



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business
affairs of such Person are managed by a board of directors or other governing body, (c) acquires
control of more than 50% of the ownership interest in any Person engaged in any business that is
not managed by a board of directors or other governing body, or (d) otherwise acquires Control of a
Person engaged in a business.




     “Administrative Questionnaire” means an administrative questionnaire in a form supplied by the
Agent.



     “Affiliate” means, (a) any Person which, directly or indirectly, Controls, is Controlled by or
is under common Control with any other Person; (b) any Person which beneficially owns or holds,
directly or indirectly, 10% or more of any class of voting stock or equity interest (including
partnership interests) of any other Person; (c) any Person, 10% or more of any class of the voting
stock (or if such Person is not a corporation, 10% or more of the equity interest, including
partnership interests) of which is beneficially owned or held, directly or indirectly, by any other
Person; or (d) any Person related within the meaning of the ITA to any such Person and includes any
“Affiliate” within the meaning specified in the Canada Business Corporations Act on the date
hereof. The term control (including the terms “controlled by” and “under common control with”),
means the possession, directly or indirectly, of the power to direct or cause the direction of the
management and policies of the Person in question.



     “Agent” means CIT Business Credit Canada Inc., in its capacity as Agent for the Lenders
hereunder, or any successor Agent appointed pursuant to Section 8.9.



     “Agreement” means this Amended and Restated Credit Agreement, as it may be amended, modified,
supplemented or restated from time to time.



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



     “Applicable Percentage” means with respect to any Lender, the percentage of the total
Commitments represented by such Lender’s Commitment. If any Commitments have terminated or
expired, the Applicable Percentages in respect of the terminated or expired Commitments shall be
determined based upon the relevant Commitments most recently in effect (i.e., prior to their
termination or expiry), giving effect to any assignments.



     “Assignment and Transfer” means an assignment and transfer entered into by a Lender and an
assignee (with the consent of any party whose consent is required by Section 9.4), and accepted by
the Agent, in the form of Exhibit E or any other form approved by the Agent.



     “Availability Reserves” means, as of any date of determination, such amounts as the Agent may
from time to time establish and revise in its reasonable business judgment reducing









 



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the Borrowing Base which would otherwise be available to the Borrower under the lending
formulas provided for herein (a) to reflect criteria, events, conditions, contingencies or risks
which, as determined by the Agent in its sole discretion, do or may affect either (i) any component
of the Borrowing Base or its value, (ii) the assets, business, operations, industry, financial
performance, financial condition of the Borrower, or (iii) the security interests and other rights
of the Agent in the Collateral (including the enforceability, perfection and priority thereof), or
(b) to reflect the Agent’s customary lending practice or its reasonable belief that any collateral
report or financial information furnished by or on behalf of the Borrower to the Agent is or may
have been incomplete, inaccurate or misleading, or (c) in respect of any state of facts which the
Agent determines constitutes a Default or an Event of Default. Without limiting the foregoing, the
Agent, in its reasonable business judgment, may establish and/or increase Availability Reserves in
respect of: (a) (i) three months rental payments or similar charges for any of the Borrower’s
leased premises or other collateral locations for which the Borrower has not delivered to the Agent
a landlord’s waiver or bailee’s letter substantially in the form attached hereto as Exhibits C and
D, respectively, plus (ii) three months estimated payments plus any other fees or charges owing by
the Borrower to any applicable warehousemen or third party processor (as determined by the Agent in
its reasonable business judgement), provided that any of the foregoing amounts shall be
adjusted from time to time hereafter upon (x) delivery to the Agent of any such acceptable waiver,
(y) the opening or closing of a collateral location and/or (z) any change in the amount of rental,
storage or processor payments or similar charges; (b) any reserve established by the Agent on
account of statutory claims, deemed trusts, or inventory subject to rights of suppliers under
Section 81.1 of the BIA (generally known as the “30-day goods” rule), any amendments to the BIA to
the extent such become Applicable Law and which have the effect of implementing any aspect of Bill
C-55 as of the date hereof, or any other Applicable Law; (c) liabilities of any Credit Party under
any Blocked Account Agreement, Swap Agreement or other swap, cap, floor, collar, futures contract
or option designed to hedge against fluctuations in commodity prices, securities prices or other
financial market conditions, (d) employee or employee benefit related liabilities, (e) any other
claims which may have priority over the claims of the Agent and the Lenders, including Priority
Payables; and (f) such other reserves as the Agent may at any time or times deem necessary in its
reasonable business judgment as a result of (x) negative forecasts and/or trends in the Borrower’s
business, operations, industry, profits, operations or financial condition or assets or (y) other
issues, circumstances or facts that could otherwise negatively impact the Borrower, its business,
operations, industry, prospects, profits, operations or financial condition or assets.



     “Authorization” means, with respect to any Person, any authorization, order, permit, approval,
grant, licence, consent, right, franchise, privilege, certificate, judgment, writ, injunction,
award, determination, direction, decree, by-law, rule or regulation of any Governmental Authority
having jurisdiction over such Person, whether or not having the force of Law.



     “B/A Borrowing” means a Borrowing comprised of one or more B/A Equivalent Loans.



     “B/A Equivalent Loan” means a Loan denominated in Canadian dollars made by the Lenders to the
Borrower hereunder pursuant to a drawdown, rollover, conversion of a Loan which bears interest at a
rate based upon the B/A Rate.









 



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     “B/A Rate” means, for any day and relative to a BA Equivalent Loan having any specified term,
the simple average of the annual rates applicable to a Canadian Dollar bankers’ acceptances
displayed and identified as such on the display referred to as the “CDOR Page” (or any display
substituted therefore) of Reuter Monitor Money Rates Service as at approximately 10:00 a.m.
(Toronto time) on such day (or, if such day is not a Business Day, as of 10:00 a.m. on the
immediate preceding Business Day), provided that if such rates do not appear on the CDOR Page at
such time on such date, the rate for such date will be the annual discount rate (rounded upward to
the nearest whole basis point) as of 10:00 a.m. on such day at which CIBC is then offering to
purchase Canadian Dollar bankers’ acceptances accepted by it having such specified term (or a term
as closely as possible comparable to such specified term).



     “Base Rate” means, on any day, the annual rate of interest equal to the annual rate of
interest announced from time to time by CIBC and in effect as its base rate at its principal office
in Toronto, Ontario on such day for determining interest rates on U.S. Dollar-denominated
commercial loans made in Canada. The Base Rate is a rate set by CIBC based upon various factors
including CIBC’s cost and desired return, general economic conditions and other factors, and is
used as a reference point for pricing some loans; however, CIBC may price loans at, above or below
such announced rate.



     “Base Rate Borrowing” means a Borrowing comprised of one or more Base Rate Loans.



     “Base Rate Loan” means a Loan denominated in U.S. Dollars made by the Lenders to the Borrower
hereunder pursuant to a drawdown, rollover or conversion of a Loan on which interest is payable
upon the Base Rate.



     “BIA” means the Bankruptcy and Insolvency Act (Canada).



     “Blocked Account Agreement” has the meaning set out in Section 2.17(c).



     “Blocked Accounts” has the meaning set out in Section 2.17(c).



     “Borrower” means Zellstoff Celgar Limited Partnership, a British Columbia limited partnership,
its successors and permitted assigns.



     “Borrowing” means any availment of the Credit, which includes a Loan and the issuance of a
Letter of Credit Guarantee in accordance with Section 2.18, and a Borrowing includes a rollover or
conversion of any outstanding Loan and the provision of any Loan as required for the Agent to
honour any obligations pursuant to any Letter of Credit Guarantee.



     “Borrowing Base” means, at any time, an amount (which may not be less than zero) equal to the
sum, without duplication, of (i) 85% of the aggregate amount of all Eligible Accounts (other than
Insured Accounts) and 90% of the aggregate amount of all Eligible Accounts which are Insured
Accounts, plus (ii) the lesser of (a) 65% of all Eligible Inventory (valued at the lower of cost
(on a first in, first out basis and excluding any component of cost representing intercompany
profit in the case of Inventory acquired from an Affiliate) or market basis in accordance with
GAAP) and (b) 85% of the appraised net orderly liquidation value of all









 



-5-



Eligible Inventory, minus (iii) an amount equal to all Priority Payables, and minus (iv) an
amount equal to all other Availability Reserves.



     “Borrowing Base Report” means the report of the Borrower concerning the amount of the
Borrowing Base, to be delivered pursuant to Section 5.1, substantially in the form attached as
Exhibit A.



     “Borrowing Request” means a request by the Borrower for a Borrowing substantially in the form
of Exhibit B.



     “Business Day” means any day that is not (i) a Saturday, Sunday or other day on which
commercial banks in Toronto, Ontario are authorized or required by Applicable Law to remain closed,
or (ii) in the case of any U.S. Dollar-denominated Borrowing, any other day on which commercial
banks in New York, New York are authorized or required by Applicable Law to remain closed, or (iii)
in the case of any LIBO Rate Loan any other day on which commercial banks in London, England are
authorized or required by Applicable Law to remain closed.



     “Canadian Dollars” and “Cdn.$” refer to lawful money of Canada.



     “Canadian $ Equivalent” means, on any day, the amount of Canadian Dollars that the Agent could
purchase, in accordance with its normal practice, with a specified amount of U.S. Dollars based on
the spot rate at which Canadian Dollars are offered at the start of such day by CIBC in Toronto,
Ontario.



     “Canadian Prime Borrowing” means a Borrowing comprised of one or more Canadian Prime Loans.



     “Canadian Prime Loan” means a Loan denominated in Canadian Dollars made by the Lenders to the
Borrower hereunder pursuant to a drawdown, rollover or conversion of a Loan which bears interest at
a rate based upon the Canadian Prime Rate.



     “Canadian Prime Rate” means, the rate of interest publicly announced from time to time by CIBC
as its reference rate of interest for loans made in Canadian Dollars to Canadian customers and
designated as its “prime” rate. It is a rate set by CIBC based upon various factors including
CIBC’s costs and desired return, general economic conditions and other factors and is used as a
reference point for pricing some loans. However, CIBC may price loans at, above or below such
announced rate.



     “Canadian Resident Lender” means, in respect of a particular Loan, (i) a Lender which holds
such Loan and which is resident in Canada for the purposes of the ITA, and (ii) a Lender which is
an “authorized foreign bank”, as defined in section 2 of the Bank Act (Canada) and in section
248(1) of the ITA, and which holds the Loan as part of its “Canadian banking business”, as defined
in subsection 248(1) of the ITA.



     “Capital Expenditures” means all payments due or accruing due (whether or not paid) during a
Fiscal Year in respect of the cost (including expenditures on materials, contract labour and direct
labour, but excluding expenditures properly chargeable to repairs and maintenance in









 



-6-



accordance with GAAP) of any fixed asset or improvement, or replacement, substitution, or
addition thereto, which have a useful life of more than one (1) year, including, without
limitation, those arising in connection with the direct or indirect acquisition of such assets by
way of increased product or service charges or offset items or in connection with Capital Leases.



     “Capital Expenditure Plan” means the annual plan in respect of Capital Expenditures for the
Borrower and each Restricted Subsidiary for a Fiscal Year of the Borrower. Each such plan shall be
in comparative and consistent form to preceding Fiscal Years and Capital Expenditure Plans
previously submitted to the Lenders and shall be comprised of (i) an itemized listing of Capital
Expenditures made in the immediately preceding Fiscal Year, and (ii) proposed Capital Expenditures
for such Fiscal Year. This program shall be reviewed by the Lenders and such other consultants as
the Lenders may elect, such review being satisfactory to the Lenders.



     “Capital Lease Obligations” of any Person means the obligations of such Person to pay rent or
other amounts under any lease of (or other arrangement conveying the right to use) real or personal
property, or a combination thereof, which obligations are required to be classified and accounted
for as capital leases on a balance sheet of such Person under GAAP, and the amount of such
obligations shall be the capitalized amount thereof determined in accordance with GAAP.



     “CDOR Rate” means, on any day and for any period, an annual rate of interest equal to the
average rate applicable to Canadian Dollar bankers’ acceptances for the applicable period appearing
on the “Reuters Screen CDOR Page” (as defined in the International Swaps and Derivatives
Association, Inc. 2000 definitions, as modified and amended from time to time), rounded to the
nearest 1/100th of 1% (with .005% being rounded up), at approximately 10:00 a.m.,
Toronto time, on such day, or if such day is not a Business Day, then on the immediately preceding
Business Day, provided that if such rate does not appear on the Reuters Screen CDOR Page on
such day as contemplated, then the CDOR Rate on such day shall be calculated as the rate for such
period applicable to Canadian Dollar bankers’ acceptances quoted by CIBC as of 10:00 a.m., Toronto
time, on such day or, if such day is not a Business Day, then on the immediately preceding Business
Day.



     “Change in Law” means (i) the adoption of any new Applicable Law after the date of this
Agreement, (ii) any change in any existing Applicable Law or in the interpretation or application
thereof by any Governmental Authority after the date of this Agreement, or (iii) compliance by any
Lender (or, for purposes of Section 2.12(b), by any lending office of such Lender or by such
Lender’s holding company, if any) with any request, guideline or directive (whether or not having
the force of law, but in the case of a request, guideline or directive not having the force of law,
being a request, guideline or directive with which persons customarily comply) of any Governmental
Authority made or issued after the date of this Agreement.



     “CIBC” means Canadian Imperial Bank of Commerce and its successors.



     “Collateral” means the property described in and subject to the Liens, privileges, priorities
and security interests purported to be created by any Security Document.









 



-7-


     “Commitment” means, with respect to each Lender, the commitment(s) of such Lender to make
Loans hereunder as such commitment may be reduced from time to time pursuant to Sections 2.6 and/or
2.9, and as such commitments may be reduced or increased from time to time pursuant to assignments
by or to such Lender pursuant to Section 9.4. The initial amount(s) of each Lender’s Commitment(s)
are set forth on Schedule A, or in the Assignment and Transfer pursuant to which such Lender shall
have assumed its Commitment(s), as applicable. The initial aggregate amount of the Commitments is
Cdn.$40,000,000.



     “Consolidated Net Income” means, for any period, the net income on a consolidated basis of the
Borrower and its consolidated Subsidiaries; provided, however, that Consolidated Net Income
shall not include or take into account:




	 	(i)	 	any net income (or loss) of any Unrestricted Subsidiary, except that (subject
to the exclusions contained in clauses (iii) and (iv) below), the Borrower’s equity in
the net income of any such Person for such period shall be included in such
Consolidated Net Income up to the aggregate amount of cash actually distributed by such
Person during such period to the Borrower or a Restricted Subsidiary as a dividend or
other distribution (subject, in the case of a dividend or other distribution paid to a
Restricted Subsidiary, to the limitations contained in clause (ii) below);
	 
	 	(ii)	 	any net income of any Restricted Subsidiary which is subject to restrictions,
directly or indirectly, on the payment of dividends or the making of distributions,
directly or indirectly, to the Borrower, except that (A) subject to the exclusion
contained in clauses (iii) and (iv) below, the Borrower’s equity in the net income of
any such Restricted Subsidiary for such period shall be included in such Consolidated
Net Income up to the aggregate amount of cash that could have been distributed by such
Restricted Subsidiary consistent with such restriction during such period to the
Borrower or another Restricted Subsidiary as a dividend or other distribution (subject,
in the case of a dividend or other distribution paid to another Restricted Subsidiary,
to the limitation contained in this clause), and (B) the Borrower’s equity in a net
loss of any such Restricted Subsidiary for such period shall be included in determining
such Consolidated Net Income;
	 
	 	(iii)	 	any gain (or loss) realized upon the sale or other disposition of any assets
of the Borrower or any Subsidiary (including pursuant to any sale-and-leaseback
arrangement) which is not sold or otherwise disposed of in the ordinary course of
business and any gain (or loss) realized upon the sale or other disposition of any
capital stock of any Person;
	 
	 	(iv)	 	extraordinary or nonrecurring gains or non-cash losses; and
	 
	 	(v)	 	the effect of a change in GAAP.





     “Contract Period” means the term of any B/A Equivalent Loan selected by the Borrower in
accordance with Section 2.3(a)(iv) commencing on the date of such B/A Equivalent Loan and expiring
on a Business Day which shall be either one month, two months, or three









 



-8-



months thereafter (or such other terms as may be requested by the Borrower and approved
unanimously by the Lenders); provided that (i) subject to subparagraph (ii) below, each
such period shall be subject to such extensions or reductions as may be determined by the Agent to
ensure that each Contract Period will expire on a Business Day, and (ii) no Contract Period shall
extend beyond the Maturity Date.



     “Control” means, in respect of a particular Person, the possession, directly or indirectly, of
the power to direct or cause the direction of the management or policies of such Person, whether
through the ability to exercise voting power, by contract or otherwise. “Controlling” and
“Controlled” have meanings correlative thereto.



     “Cover” means the aggregate amount of Letter of Credit Exposure at such time and such amount
shall be paid by the Borrower to the Agent and retained by the Agent in a collateral account
maintained by the Agent at its Payment Office and collaterally assigned to the Agent as security
until such time as the applicable Letters of Credit shall have expired or matured and Reimbursement
Obligations, if any, with respect thereto shall have been fully satisfied; provided that if any
such Reimbursement Obligations are not satisfied when due hereunder, the Agent may apply any or all
amounts in such collateral account in satisfaction of any or all such Reimbursement Obligations.



     “Credit Party” means the Borrower, the General Partner, each Restricted Subsidiary and any
other Person which is a party to a Loan Document (other than the Agent and the Lenders).



     “Credit” means the maximum Cdn.$40,000,000 revolving credit facility established pursuant to
the Commitments of the Lenders.



     “DBRS” shall mean Dominion Bond Rating Service Limited, or its successor.



     “Default” means any event or condition which constitutes an Event of Default or which, upon
notice, lapse of time or both, would, unless cured or waived, become an Event of Default.



     “Disclosed Matters” means the actions, suits and proceedings and the environmental matters
disclosed in Schedule B.



     “Early Termination Fee” means the fee due and payable by the Borrower to the Agent on behalf
of the Lenders in the event of termination of this Agreement or reduction of the Commitment on a
date prior to the Maturity Date by the Borrower or, upon the occurrence of an Event of Default, by
the Agent, as determined by multiplying (a) $40,000,000, in the case of termination of this
Agreement or the Commitment; or (b) the amount by which the Commitment is reduced, in the case of
the reduction of the Commitment, by (i) 2.00% if the Commitment is cancelled or reduced at any time
on or prior to one year following the date of this Agreement, (ii) 1.00% if the Commitment is
cancelled or reduced at any time following the first anniversary of the date of this Agreement but
on or prior to two years following the date of this Agreement, and (iii) 0.50% if the Commitment is
cancelled or reduced at any time following the second anniversary of the date of this Agreement









 



-9-


     “EBITDA” means, for the Credit Parties on a consolidated basis and for any period, without
duplication, an amount equal to the Consolidated Net Income for such period less any non-cash
income included in Consolidated Net Income less non-cash write downs to Inventory, plus to the
extent deducted from Consolidated Net Income, Interest Expense, depreciation, depletion and
impairment, amortization expense and income tax expenses. For greater certainty, EBITDA for any
period shall be determined after the payment of all management and employee bonuses and non-arm’s
length consulting fees for such period.



     “Eligible Account” means, at any time, the invoice amount (which shall be the Canadian $
Equivalent at such time of any amount denominated in U.S.$) owing on each Account of a Credit Party
(net of any credit balance, returns, trade discounts, unapplied cash, unbilled amounts or retention
or finance charges) which meet such standards of eligibility as the Agent shall establish from time
to time in its reasonable discretion; provided that, in any event, no Account shall be
deemed an Eligible Account unless each of the following statements is accurate and complete (and by
including such Account in any computation of the applicable Borrowing Base, the Borrower shall be
deemed to represent and warrant to the Agent, each Issuing Bank and the Lenders the accuracy and
completeness of such statements and the compliance of each such Account with each such other
eligibility standard established by the Agent):



     (1) Such Account is a binding and valid obligation of the obligor thereon and is in full force
and effect;



     (2) Such Account is evidenced by an invoice and is payable in either Canadian Dollars or U.S.
Dollars;



     (3) Such Account is genuine as appearing on its face or as represented in the books and
records of the Borrower and the applicable Credit Party;



     (4) Such Account is free from claims regarding rescission, cancellation or avoidance, whether
by operation of Applicable Law or otherwise;



     (5) Payment of such Account is less than 90 days past the original invoice date thereof and
less than 60 days past the original due date thereof;



     (6) Such Account is net of concessions, offset, deduction, contras, returns, chargebacks or
understandings with the obligor thereon that in any way could reasonably be expected to adversely
affect the payment of, or the amount of, such Account;



     (7) The Agent on behalf of the Lenders, has a first-priority perfected Lien covering such
Account and such Account is, and at all times will be, free and clear of all other Liens;



     (8) The obligor on such Account is not an Affiliate or a director, officer or employee of any
Credit Party;



     (9) Such Account arose in the ordinary course of business of the Credit Party out of the sale
of goods or services by the Credit Party;









 



-10-


     (10) Such Account is not payable by an obligor in respect of which 50% or more (by amount) of
the total aggregate Accounts owed to the Credit Party by such obligor or any of its Affiliates are
more than 90 days past the original invoice date thereof or more than 60 days past the original due
date thereof;



     (11) All consents, licenses, approvals or authorizations of, or registrations or declarations
with, any Governmental Authority required to be obtained, effected or given in connection with the
execution, delivery and performance of such Account by each party obligated thereunder, or in
connection with the enforcement and collection thereof by the Agent, have been duly obtained,
effected or given and are in full force and effect;



     (12) The obligor on such Account is not an individual, and is not the subject of any
bankruptcy or insolvency proceeding, does not have a trustee or receiver appointed for all or a
substantial part of its property, has not made an assignment for the benefit of creditors, admitted
its inability to pay its debts as they mature, suspended its business or initiated negotiations
regarding a compromise of its debt with its creditors, and the Agent, in its reasonable discretion,
is otherwise satisfied with the credit standing of such obligor;



     (13) The chief executive office of the obligor of such Account is located in the United States
of America or Canada and the obligor of such Account is organized and existing under the laws of
the United States of America or a state thereof or the federal laws of Canada, a province or
territory thereof, or if the obligor is not so organized and existing, such Account is covered
under letters of credit or export/import insurance provided by the Export Development Corporation,
AIG Global Trade & Political Risk, or Euler Hermes (including their respective successors or
permitted assigns) (or such other credit insurance as acceptable to the Agent and Lenders) on terms
and in a manner reasonably satisfactory to the Agent;



     (14) The obligor of such Account is not a Governmental Authority, if the enforceability or
effectiveness against such Governmental Authority of an assignment of such Account is subject to
any precondition which has not been fulfilled;



     (15) In the case of the sale of goods, the subject goods have been completed, sold and
shipped, on a true sale basis on open account, or subject to contract, and not on consignment, on
approval, on a “sale or return” basis, or on a “bill and hold” or “pre-sale” basis or subject to
any other repurchase or return agreement; no material part of the subject goods has been returned,
rejected, lost or damaged; and such Account is not evidenced by chattel paper or a promissory note
or an instrument of any kind, unless such chattel paper, promissory note or other instrument has
been delivered to the Agent and is subject to a Lien under the Security Documents;



     (16) Each of the representations and warranties set forth herein and in the Loan Documents
with respect to such Account is true and correct on such date;



     (17) A cheque, promissory note, draft, trade acceptance or other instrument has not been
received with respect to such Account (or with respect to any other account due from the same
account debtor), presented for payment and returned uncollected for any reason;



     (18) Such Account is not in respect of a volume rebate;









 



-11-


     (19) The Agent does not believe, in the exercise of its reasonable discretion, that the
prospect of collection of such Account is impaired or that the Account may not be paid because of
the account debtor’s inability to pay;



     (20) Such Account is not a pre-billed account or an account arising from progress billing;



     (21) The assignment (whether absolutely or by way of security) of such Account is not limited
or restricted by the terms of the contract evidencing or relating to such Account or, if assignment
of such Account is so restricted, such limitation or restriction has been complied with and the
laws of the jurisdiction(s) governing the validity of such assignment do not provide that such
limitation or restriction is ineffective as against the secured creditor with a security interest
therein; and



     (22) Such Account is not an Account which the Agent, in the exercise of its good faith credit
discretion, determines to be ineligible for any other reasons deemed necessary by Agent in its
reasonable business judgment, including those which are customary either in the commercial lending
industry or in the lending practices of the Agent.



     “Eligible Assignee” means (a) another Lender, (b) with respect to any Lender, any Affiliate of
that Lender, (c) any commercial bank having total assets of $25,000,000,000 or more, (d) any (i)
trust company, savings bank, savings and loan association or similar financial institution, or (ii)
insurance company engaged in the business of writing insurance which, in either case (A) has total
assets of $25,000,000,000 or more, (B) is engaged in the business of lending money and extending
credit under credit facilities substantially similar to those extended under this Agreement, (C) is
operationally and procedurally able to meet the obligations of a Lender hereunder to the same
degree as a commercial bank, and (e) any other financial institution (including a mutual fund or
other fund) having total assets of $25,000,000,000 or more which meets the requirements set forth
in subclauses (B) and (C) of clause (d) above.



     “Eligible Inventory” means, at any time with respect to a Credit Party, all raw materials,
finished goods and pulp log inventory of such Credit Party valued in Canadian Dollars on a lower of
cost (on a first-in, first out basis and excluding any component of cost representing intercompany
profit in the case of Inventory acquired from an Affiliate) or market basis in accordance with
GAAP, with detailed calculations of lower of cost or market to occur on at least a monthly basis,
which meets such standards of eligibility as the Agent shall establish from time to time in its
reasonable discretion; provided that, in any event, no Inventory shall be deemed Eligible
Inventory unless each of the following statements is accurate and complete (and by including such
Inventory in any computation of the applicable Borrowing Base, the Borrower shall be deemed to
represent and warrant to the Agent, each Issuing Bank and the Lenders the accuracy and completeness
of such statements and the compliance of such Inventory with each such other eligibility standard
established by the Agent):



     (1) Such Inventory is in good condition, merchantable, meets all standards imposed by any
Governmental Authority having regulatory authority over it or its use and/or sale and is not
obsolete and is either currently usable or currently saleable in the normal course of business of a
Credit Party;









 



-12-


     (2) Such Inventory is




	 	(a)	 	in possession of such Credit Party and located on real property
owned or leased by such Credit Party within the United States of America or
Canada (provided that if such Inventory is located on real property
leased by such Credit Party, the landlord of such real property shall have
executed and delivered to the Agent a landlord waiver substantially in the form
attached hereto as Exhibit C), or
	 
	 	(b)	 	in the possession of a bailee within Canada and such bailee
shall have executed and delivered to the Agent, a bailee letter substantially
in the form attached hereto as Exhibit D, or
	 
	 	(c)	 	in transit within the United States of America or Canada
(provided that the jurisdictions through which such Inventory is in
transit are jurisdictions where the Liens in such inventory under the Security
Documents are validly perfected first-priority Liens, subject to Permitted
Liens) and between Credit Parties, and upon arrival at its destination, will
comply with either paragraph (a) or (b) above until title to such Inventory
passes to purchaser;





     (3) Each of the representations and warranties set forth in the Loan Documents with respect to
such Inventory is true and correct on such date;



     (4) The Agent on behalf of the Lenders, has a first-priority perfected Lien covering such
Inventory, and such Inventory is, and at all times will be, free and clear of all Liens other than
Permitted Liens;



     (5) Such Inventory does not include goods (i) that are not owned by such Credit Party, (ii)
that are held by such Credit Party pursuant to a consignment agreement, (iii) which have been sold
by such Credit Party on a bill and hold basis, or (iv) that are special order goods or discontinued
goods;



     (6) Such Inventory is not subject to repossession under the BIA except to the extent the
applicable vendor has entered into an agreement with the Agent, in form and substance reasonably
satisfactory to the Agent, waiving its right to repossession;



     (7) Such Inventory does not consist of work-in-process, store room materials, supplies, parts,
samples, prototypes, or packing and shipping materials;



     (8) Such Inventory does not consist of goods that are discontinued, obsolete, slow-moving or
returned or repossessed or used goods taken in trade;



     (9) Any portion of the value of such Inventory which results from a profit or gain resulting
from an inter-company sale or other disposition of such inventory shall be excluded;



     (10) Such Inventory is not evidenced by negotiable documents of title unless delivered to the
Agent with endorsements;









 



-13-


     (11) Such Inventory does not constitute Hazardous Materials;



     (12) Such Inventory is covered by casualty insurance;



     (13) Such Inventory is not Inventory which the Agent has determined in the exercise of its
reasonable discretion that the Agent may not sell or otherwise dispose of in accordance with the
terms of the applicable Security Documents without infringing upon the rights of another Person or
violating any contract with any other Person;



     (14) Such Inventory is not Inventory which the Agent, in the exercise of its good faith credit
discretion, determines to be not acceptable for any other reasons deemed necessary by Agent in its
reasonable business judgment, including those which are customary either in the commercial lending
industry or in the lending practices of the Agent; and



     (15) Such Inventory is located on real property where there is Inventory of such Credit Party
in the aggregate amount of at least Cdn.$100,000.



     “Environmental Laws” means all federal, provincial, local or foreign laws, rules, regulations,
codes, ordinances, orders, decrees, judgements, injunctions, notices or binding agreements issued,
promulgated or entered into by any Governmental Authority, relating in any way to the environment,
preservation or reclamation of natural resources, the generation, use, handling, collection,
treatment, storage, transportation, recovery, recycling, release, threatened release or disposal of
any Hazardous Material, or to health and safety matters.



     “Environmental Liability” means any liability, contingent or otherwise (including any
liability for damages, costs of environmental remediation, fines, penalties or indemnities), of any
Credit Party directly or indirectly resulting from or based upon (a) violation of any Environmental
Laws, (b) the generation, use, handling, collection, treatment, storage, transportation, recovery,
recycling or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the
Release or threatened Release of any Hazardous Materials into the environment, or (e) any contract,
agreement or other consensual arrangement pursuant to which liability is assumed or imposed with
respect to any of the foregoing.



     “Equity Securities” means, with respect to any Person, any and all shares, interests,
participations, rights in, or other equivalents (however designated and whether voting and
non-voting) of, such Person’s capital, whether outstanding on the date hereof or issued after the
date hereof, including any interest in a partnership, limited partnership or other similar Person
and any beneficial interest in a trust, and any and all rights, warrants, debt securities, options
or other rights exchangeable for or convertible into any of the foregoing.



     “ETA” means Part IX of the Excise Tax Act (Canada).



     “Event of Default” has the meaning set out in Section 7.1.



     “Excess Availability” means, as of any date, the remainder of (a) the remainder of (i) the
Borrowing Base as of such date, minus, without duplication, (ii) the Availability Reserves with
respect to the Borrowing Base as of such date, less (b) the aggregate outstanding balance of the









 



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Indebtedness of the Borrower hereunder as of such date and the aggregate face amount of
undrawn Letters of Credit as of such date. Excess Availability shall always be determined on the
basis that all debts and obligations shall be current, and all accounts payable shall be handled in
the normal course of the Borrower’s business consistent with its past practices.



     “Excluded Taxes” means, with respect to the Agent, any Lender or any other recipient of any
payment to be made by or on account of any obligation of the Borrower hereunder, income or
franchise Taxes imposed on (or measured by) its taxable income, in each case by Canada, or by the
jurisdiction under the Applicable Laws of which such recipient is organized or in which its
principal office is located.



     “Exposure” means, with respect to any Lender at any time, the sum of the outstanding principal
amount of such Lender’s Revolving Loans and its LC Exposure at such time.



     “Financial Officer” means the chief financial officer, principal accounting officer,
treasurer, controller or such other officer of the Borrower acceptable to the Agent.



     “Fiscal Quarter” means, in relation to the Borrower, the Parent or any Subsidiary thereof, any
fiscal quarter of such Person.



     “Fiscal Year” means, in relation to the Borrower, the Parent or any Subsidiary thereof, any
fiscal year of such Person.



     “Fixed Charge Coverage Ratio” means, as of the last day of any calendar month, the ratio of
(a) without duplication EBITDA for the Rolling Period ended on that date minus non-finance
Capital Expenditures made by the Borrower during such Rolling Period to (b) the sum of (i)
Interest Expense of the Borrower for such Rolling Period plus (ii) the aggregate of all
dividends, distributions and principal payments on Indebtedness made by the Borrower during such
Rolling Period plus (iii) income taxes paid in cash or cash equivalents by the Borrower
during such Rolling Period.



     “Foreign Lender” means any Lender that is not a Canadian Resident Lender.



     “General Partner” means Zellstoff Celgar Limited, a British Columbia corporation, its
successors and permitted assigns.



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



     “GST” means all amounts payable under the ETA or any similar legislation in any other
jurisdiction of Canada, including QST and HST.









 



-15-


     “Guarantee” of or by any Person (in this definition, the “guarantor”) means any obligation,
contingent or otherwise, of the guarantor guaranteeing or having the economic effect of
guaranteeing any Indebtedness or other obligation of any other Person (in this definition, the
“primary credit party”) in any manner, whether directly or indirectly, and including any obligation
of the guarantor, direct or indirect, (a) to purchase or pay (or advance or supply funds for the
purchase or payment of) such Indebtedness or other obligation or to purchase (or to advance or
supply funds for the purchase of) any security for the payment thereof (whether in the form of a
loan, advance, stock purchase, capital contribution or otherwise), (b) to purchase or lease
property, securities or services for the purpose of assuring the owner of such Indebtedness or
other obligation of the payment thereof, (c) to maintain working capital, equity capital solvency,
or any other balance sheet, income statement or other financial statement condition or liquidity of
the primary credit party so as to enable the primary credit party to pay such Indebtedness or other
obligation, (d) as an account party in respect of any letter of credit or letter of guarantee
issued to support such Indebtedness or other obligation, or (e) to purchase, sell or lease (as
lessor or lessee) property, or to purchase or sell services, primarily for the purpose of enabling
the debtor to make payment of such Indebtedness or to assure the holder of such Indebtedness
against loss.



     “Hazardous Materials” means any substance, product, liquid, waste, pollutant, chemical,
contaminant, insecticide, pesticide, gaseous or solid matter, organic or inorganic matter, fuel,
micro-organism, ray, odour, radiation, energy, vector, plasma, constituent or material which (a) is
or becomes listed, regulated or addressed under any Environmental Laws, or (b) is, or is deemed to
be, alone or in any combination, hazardous, hazardous waste, toxic, a pollutant, a deleterious
substance, a contaminant or a source of pollution or contamination under any Environmental Laws,
including, asbestos, petroleum and polychlorinated biphenyls, including petroleum or petroleum
distillates, asbestos or asbestos containing materials, polychlorinated biphenyls, radon gas,
infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to
any Environmental Laws.



     “HST” means all amounts payable as harmonised sales tax in the Provinces of Nova Scotia,
Newfoundland and New Brunswick under the ETA.



     “Indebtedness” of any Person means, without duplication, (a) all obligations of such Person
for borrowed money or with respect to deposits or advances of any kind, (b) all obligations of such
Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such
Person upon which interest charges are customarily paid, (d) all obligations of such Person under
conditional sale or other title retention agreements relating to property acquired by such Person,
(e) all obligations of such Person in respect of the deferred purchase price of property or
services (excluding current accounts payable incurred in the ordinary course of business), (f) all
Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing
right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such
Person, whether or not the Indebtedness secured thereby has been assumed, (g) all Guarantees by
such Person of Indebtedness of others, (h) all Capital Lease Obligations of such Person, (i) all
obligations, contingent or otherwise, of such Person as an account party in respect of letters of
credit and letters of guarantee, (j) all obligations, contingent or otherwise, of such Person in
respect of bankers’ acceptances, (k) the net amount of obligations









 



-16-



of such Person (determined on a mark-to-market basis) under Swap Agreements, and (l) all
obligations of such Person to purchase, redeem, retire, defease or otherwise acquire for value
(other than for other Equity Securities) any Equity Securities of such Person, valued, in the case
of redeemable Equity Securities, at the greater of voluntary or involuntary liquidation preference,
plus accrued and unpaid dividends. The Indebtedness of any Person shall include the Indebtedness
of any other entity (including any partnership in which such Person is a general or limited
partner) to the extent such Person is liable therefor as a result of such Person’s ownership
interest in or other relationship with such entity, except to the extent the terms of such
Indebtedness provide that such Person is not liable therefor.



     “Indemnified Taxes” means all Taxes other than Excluded Taxes and for greater certainty,
includes, without limitation, capital Taxes imposed on (or measured by) the taxable capital of the
Lenders as a result of the Borrower’s status as a limited partnership.



     “Indemnitee” has the meaning set out in Section 9.3(b).



     “Insured Account” means an Account which is fully insured by export/import insurance provided
by Export Development Corporation (Canada), AIG Global Trade & Political Risk or Euler Hermes
(including their respective successors and permitted assigns) or such other credit insurance as
acceptance to the Agent and Lenders.



     “Interest Expense” shall mean, for any period, the total interest expense of the Borrower and
its Restricted Subsidiaries on a consolidated basis, plus, to the extent not included in such total
interest expense, and to the extent incurred by the Borrower or any of its Restricted Subsidiaries,
(i) interest expense attributable to Capital Lease Obligations of the Borrower or its Restricted
Subsidiaries, (ii) amortization of debt discount or financing fees, (iii) capitalized interest,
(iv) non-cash interest expense, (v) commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers’ acceptance financing, (vi) net costs associated with Swap
Agreements (including amortization of fees), (vii) standby fees , (viii) preferred stock dividends
in respect of all preferred stock issued by the Borrower or a Restricted Subsidiary and held by
Persons other than the Borrower or a Restricted Subsidiary, and (ix) interest actually paid by the
Borrower or any Restricted Subsidiary on any Indebtedness of any other Person.



     “Interest Payment Date” means, (a) in the case of any Loan other than a LIBO Rate Loan or a
B/A Equivalent Loan, the first Business Day of each month, (b) in the case of a LIBO Rate Loan, the
last day of each Interest Period relating to such LIBO Rate Loan, and (c) in the case of a B/A
Equivalent Loan, on the last day of each Contract Period relating to such B/A Equivalent Loan.



     “Interest Period” means, with respect to a LIBO Rate Borrowing, the period commencing on the
date of such Borrowing and ending on the numerically corresponding day in the calendar month that
is 30, 60 or 90 days thereafter, as the Borrower may elect; provided that (i) if any
Interest Period would end on a day other than a Business Day, such Interest Period shall be
extended to the immediately succeeding Business Day unless such next succeeding Business Day would
fall in the next calendar month, in which case such Interest Period shall end on the next preceding
Business Day, (ii) any Interest Period that commences on the last Business Day of a calendar month
(or on a day for which there is no numerically corresponding day in the last









 



-17-



calendar month of such Interest Period) shall end on the last Business Day of the last
calendar month of such Interest Period, (iii) no Interest Period shall extend beyond any date that
any principal payment or prepayment is scheduled to be due unless the aggregate principal amount of
(A) Canadian Prime Borrowings and Base Rate Borrowings and (B) B/A Borrowings and LIBO Rate
Borrowings which have Interest Periods or Contract Periods which will expire on or before such
date, less the aggregate amount of any other principal payments or prepayments due during such
Interest Period, is equal to or in excess of the amount of such principal payment or prepayment,
and (iv) no Interest Period shall extend beyond the Maturity Date. For purposes hereof, the date
of a Borrowing initially shall be the date on which such Borrowing is made and, in the case of a
converted or continued Borrowing, thereafter shall be the effective date of the most recent
conversion or continuation of such Borrowing.



     “Inventory” means, in respect of each Credit Party, all of such Credit Party’s present and
hereafter acquired inventory (as defined in the PPSA) and including all merchandise, inventory and
goods, and all additions, substitutions and replacements thereof, wherever located, together with
all goods and materials used or usable in manufacturing, processing, packaging or shipping same in
all stages of production from raw materials through work in process to finished goods, and all
“stores” inventory or “operating and maintenance supplies” inventory, and all proceeds of any
thereof (of whatever sort).



     “Investment” means, as applied to any Person (the “investor”), any direct or indirect purchase
or other acquisition by the investor of, or a beneficial interest in, Equity Securities of any
other Person, including any exchange of Equity Securities for Indebtedness, or any direct or
indirect loan, advance (other than advances to employees for moving and travel expenses, drawing
accounts and similar expenditures in the ordinary course of business) or capital contribution by
the investor to any other Person, including all Indebtedness and Accounts owing to the investor
from such other Person that did not arise from sales or services rendered to such other Person in
the ordinary course of the investor’s business, or any direct or indirect purchase or other
acquisition of bonds, notes, debentures or other debt securities of, any other Person. The amount
of any Investment shall be the original cost of such Investment plus the cost of all
additions thereto, without any adjustments for increases or decreases in value, or write-ups,
write-downs or write-offs with respect to such Investment minus any amounts (a) realized
upon the disposition of assets comprising an Investment (including the value of any liabilities
assumed by any Person other than the Borrower or any Restricted Subsidiary in connection with such
disposition), (b) constituting repayments of Investments that are loans or advances or (c)
constituting cash returns of principal or capital thereon (including any dividend, redemption or
repurchase of equity that is accounted for, in accordance with GAAP, as a return of principal or
capital).



     “Issuing Bank” means the bank issuing Letters of Credit for the Borrower with the assistance
of the Agent in accordance with Section 2.18.



     “ITA” means the Income Tax Act (Canada).



     “Lender” means any Lender having a Commitment hereunder and/or a Revolving Loan outstanding
hereunder.









 



-18-


     “Lender Affiliate” means, with respect to any Lender, an Affiliate of such Lender.



     “Lenders” means the Persons listed as lenders on Schedule A and any other Person that shall
have become a party hereto pursuant to an Assignment and Transfer, other than any such Person that
ceases to be a party hereto pursuant to an Assignment and Transfer.



     “Letter of Credit” means a letter of credit issued by the Issuing Bank for or on behalf of the
Borrower with the assistance of the Agent in accordance with Section 2.18.



     “Letter of Credit Exposure” means, at any time and subject to the Letter of Credit Sub-Line,
the sum of: (a) the aggregate face amount of all outstanding Letters of Credit at such time, plus
(b) the aggregate amount of all Reimbursement Obligations in respect of all Letter of Guarantees at
such time. The Letter of Credit Exposure of any Lender at any time shall be its Applicable
Percentage of the total Letter of Credit Exposure at such time with the total of all such Letter of
Credit Exposure of all Lenders not to exceed the Letter of Credit Sub-Line. Any Letter of Credit
Exposure denominated in U.S. Dollars shall be the Cdn.$ Equivalent thereof.



     “Letter of Credit Guarantee” means the agreement for the substitution of applicants or such
other form of guarantee or indemnity agreement which is acceptable to the Issuing Bank and the
Agent, supporting the issuance of Letters of Credit by the Issuing Bank provided the aggregate
amount of all such Letters of Credit issued and to be issued shall not exceed the Letter of Credit
Sub-Line.



     “Letter of Credit Sub-Line” means the amount of the commitment by the Agent and the Lenders
hereunder, in an aggregate amount up to but not exceeding Cdn.$3,000,000, to assist the Borrower in
obtaining Letters of Credit.



     “LIBO Rate” means, for any Interest Period, the rate for U.S. Dollar borrowings appearing on
Page 3750 of the Telerate Service or Page LIBOR01 of the Reuters Service (or on any successor or
substitute page of such Service, or any successor to or substitute for such Service providing rate
quotations comparable to those currently provided on such page of such Service, as determined by
the Agent from time to time for purposes of providing quotations of interest rates applicable to
U.S. Dollar deposits in the London interbank market) at approximately 11:00 a.m., London time, two
Business Days prior to the commencement of such Interest Period, as the rate for U.S. Dollar
deposits with a maturity comparable to such Interest Period. In the event that such rate is not
available at such time for any reason, then the “LIBO Rate” for such Interest Period shall be the
rate at which U.S. Dollar deposits of $5,000,000 and for a maturity comparable to such Interest
Period are offered by the principal London office of CIBC in immediately available funds in the
London interbank market at approximately 11:00 a.m., London time, two Business Days prior to the
commencement of such Interest Period.



     “LIBO Rate Borrowing” means a Borrowing comprised of one or more LIBO Rate Loans.



     “LIBO Rate Loan” means a Loan denominated in U.S. Dollars which bears interest at a rate based
upon the LIBO Rate.









 



-19-


     “Lien” means, (a) with respect to any asset, any mortgage, deed of trust, lien, pledge,
hypothec, hypothecation, encumbrance, charge, security interest, royalty interest, adverse claim,
defect of title or right of set off in, on or of such asset, (b) the interest of a vendor or a
lessor under any conditional sale agreement, capital lease, title retention agreement or
consignment agreement (or any financing lease having substantially the same economic effect as any
of the foregoing) relating to any asset, (c) in the case of securities, any purchase option, call
or similar right of a third party with respect to such securities, (d) any netting arrangement,
defeasance arrangement or reciprocal fee arrangement, and (e) any other arrangement having the
effect of providing security.



     “Limited Partnership Agreement” means the limited partnership agreement dated January 10, 2006
among the General Partner, as general partner and the Parent, as limited partner, constituting
Zellstoff Celgar Limited Partnership, a limited partnership organized under the laws of British
Columbia.



     “Loan” means any loan made by the Lenders to the Borrower pursuant to this Agreement.



     “Loan Documents” means this Agreement, the Security Documents, the Subordination Agreement,
the Blocked Account Agreement, the Parent Indemnity, the Borrowing Requests and the Borrowing Base
Reports, together with any other document, instrument or agreement (other than participation,
agency or similar agreements among the Lenders or between any Lender and any other bank or creditor
with respect to any indebtedness or obligations of any Credit Party hereunder or thereunder) now or
hereafter entered into in connection with this Agreement (including any Swap Agreements), as such
documents, instruments or agreements may be amended, modified or supplemented from time to time.



     “Material Adverse Change” means any event, development or circumstance that has had or could
in the opinion of the Required Lenders reasonably be expected to have a Material Adverse Effect.



     “Material Adverse Effect” means a material adverse effect on (a) the business, assets,
operations or condition, financial or otherwise, of the Credit Parties taken as a whole, or (b) the
validity or enforceability of any of the Loan Documents, the priority of the Liens created thereby
or the rights and remedies of the Agent and the Lenders thereunder or (c) any Material Contract, or
(d) the amount which the Lenders would be likely to receive (after giving effect to delays in
payment and costs of enforcement) upon the liquidation of the Collateral.



     “Material Contract” means (a) the contracts, licences and agreements listed and described on
Schedule C, and (b) any other contract, licence or agreement (i) to which any Credit Party is a
party or bound, (ii) which is material to, or necessary in, the operation of the business of any
Credit Party, and (iii) which a Credit Party cannot promptly replace by an alternative and
comparable contract with comparable commercial terms.



     “Material Indebtedness” means (a) the Parent Subordinated Debt, and (b) any Indebtedness
(other than the Loans and the Parent Subordinated Debt) of any one or more of the Credit Parties in
an aggregate principal amount exceeding Cdn.$2,000,000.









 



-20-


     “Maturity Date” means May 20, 2013.



     “Moody’s” means Moody’s Investors Service, Inc.



     “Obligations” means all obligations, liabilities and indebtedness of the Borrower to the
Agent, the Lenders or a Lender with respect to the principal of and interest on the Loans and the
payment or performance of all other obligations, liabilities and indebtedness of the Borrower to
the Agent, the Lenders or a Lender hereunder or arising under or pursuant to any one or more of the
other Loan Documents or with respect to the Loans, including, without limitation, all reimbursement
and indemnity obligations of the Borrower to the Agent, the Lenders or a Lender hereunder or in
connection with any Letter of Credit Guarantee or otherwise.



     “Operating Account” means the bank account maintained by the Borrower at a financial
institution acceptable to the Agent, acting reasonably.



     “Original Effective Date” means the date on which all of the conditions specified in Section
4.1 were satisfied or waived in accordance with Section 9.2, as confirmed in a written notice from
the Agent to the Borrower pursuant to the credit agreement dated as of May 19, 2006 among the
Borrower, the Lenders and the Agent.



     “Out-of-Pocket Expenses” means all of the Agent’s present and future expenses incurred
relative to this Agreement or any other Loan Documents, whether incurred heretofore or hereafter,
which expenses shall include, without being limited to: the reasonable cost of retaining external
legal counsel, record searches, all costs and expenses incurred by the Agent in opening bank
accounts, depositing cheques, receiving and transferring funds, and wire transfer charges, any
charges imposed on the Agent due to returned items and “insufficient funds” of deposited cheques
and the Agent’s standard fees relating thereto, any amounts paid by, incurred by or charged to, the
Agent by the Issuing Bank under a Letter of Credit Guarantee or the reimbursement agreements
related thereto, applications for Letters of Credit or other like document which pertain either
directly or indirectly to such Letters of Credit, and the Agent’s standard fees relating to the
Letters of Credit and any drafts thereunder, reasonable travel, lodging and similar expenses of the
Agent’s personnel (or any of its agents) in connection with inspecting and monitoring the
Collateral from time to time at reasonable intervals hereunder, any applicable reasonable counsel
fees and disbursements, fees and taxes relative to the filing of financing statements, and all
expenses, costs and fees set forth incurred by or imposed on the Agent by reason of the exercise of
any of its rights and remedies under this Agreement or any of the other Loan Documents.



     “Parent” means Mercer International Inc. and its successors and permitted assigns.



     “Parent Credit Agreement” means the revolving demand credit facility agreement dated February
14, 2005 between the Parent and 0706906 B.C. Ltd. (predecessor of the General Partner), with such
obligations of 0706906 B.C. Ltd. assumed by the Borrower, as amended, modified, supplemented or
restated from time to time.



     “Parent Guarantee” means a guarantee dated May 19, 2006 made by the Parent to and in favour of
the Agent in form and substance satisfactory to the Agent and the Lenders.









 



-21-


     “Parent Indemnity” means the indemnity dated May 19, 2006 made by the Parent to and in favour
of the Agent and the Borrower in respect of certain tax liabilities of the Borrower assumed by the
Parent.



     “Parent Pulp Agency Agreement” means the pulp agency agreement to be entered into between the
Parent and the Borrower after the Original Effective Date pursuant to which the Parent will agree
to market pulp on behalf of the Borrower on commercially reasonable terms provided that the
commission rate payable by the Borrower to the Parent thereunder will not exceed 2% based on net
product sales..



     “Parent Subordinated Debt” means the unsecured Indebtedness of the Borrower to the Parent in
the aggregate principal amount of U.S.$15,000,000 as such amount may be increased or decreased from
time to time, as evidenced by the Parent Credit Agreement.



     “Participant” has the meaning set out in Section 9.4.



     “Payment Office” means the Agent’s office located at 207 Queen’s Quay West, Suite 700,
Toronto, Ontario, M5J 1A7, Attention: Chief Credit Officer (or such other office or individual as
the Agent may hereafter designate in writing to the other parties hereto).



     “Pension Plan” means any pension benefit plan within the meaning of the Pension Benefits Act
(Ontario) in respect of which any Credit Party makes or has made contributions in respect of its
employees.



     “Permitted Investments” means:




	(a)	 	direct obligations of, or obligations the principal of and interest on which are
unconditionally guaranteed by, the Government of Canada or of any Canadian province (or by any
agency thereof to the extent such obligations are backed by the full faith and credit of the
Government of Canada or of such Canadian province), in each case maturing within one year from
the date of acquisition thereof;
	 
	(b)	 	investments in commercial paper maturing within 270 days from the date of acquisition thereof
and having, at such date of acquisition, the highest credit rating obtainable from any of
Moody’s, S&P or DBRS;
	 
	(c)	 	investments in certificates of deposit, bankers’ acceptances and time deposits maturing
within 180 days from the date of acquisition thereof issued or guaranteed by or placed with,
and money market deposit accounts issued or offered by, any Schedule I bank under the Bank Act
(Canada).





     “Permitted Liens” means:




	(a)	 	Liens in favour of the Lenders for the obligations of the Borrower or any other Credit Party
under or pursuant to the Loan Documents;










 



-22-








	(b)	 	Liens granted by a Credit Party in favour of another Credit Party in order to secure any of
its indebtedness to such other Credit Party, provided that such Liens are subject to
assignment and postponement arrangements satisfactory to the Agent;






	(c)	 	Purchase Money Liens securing Indebtedness and Liens to secure Capital Lease Obligations, in
each case only to the extent permitted by Section 6.1(f);






	(d)	 	Liens imposed by any Governmental Authority for Taxes not yet due and delinquent or which are
being contested in good faith in compliance with Section 5.3, and, during such period during
which such Liens are being so contested, such Liens shall not be executed on or enforced
against any of the assets of any Credit Party;






	(e)	 	carrier’s, warehousemen’s, mechanics’, materialmen’s, repairmen’s, construction and other
like Liens arising by operation of Applicable Law, arising in the ordinary course of business,
which are not overdue for a period of more than 30 days or which are being contested in good
faith and by appropriate proceedings, and, during such period during which such Liens are
being so contested, such Liens shall not be executed on or enforced against any of the assets
of the Credit Party, provided that the Credit Party shall have set aside on its books
reserves deemed adequate therefor and not resulting in qualification by auditors;






	(f)	 	statutory Liens incurred or pledges or deposits made under worker’s compensation,
unemployment insurance and other social security legislation;






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






	(h)	 	servitudes, easements, rights-of-way, restrictions and other similar encumbrances on real
property imposed by Applicable Law or incurred in the ordinary course of business and
encumbrances consisting of zoning or building restrictions, easements, licenses, restrictions
on the use of property or minor imperfections in title thereto which, in the aggregate, are
not material, and which do not in any case materially detract from the value of the property
subject thereto or interfere with the ordinary conduct of the business of the Credit Parties;






	(i)	 	Liens of or resulting from any judgement or award, the time for the appeal or petition for
rehearing of which shall not have expired, or in respect of which the Credit Parties shall at
any time in good faith be prosecuting an appeal or proceeding for review and in respect of
which a stay of execution pending such appeal or proceeding for review shall have been
secured;






	(j)	 	undetermined or inchoate Liens and charges arising or potentially arising under statutory
provisions which have not at the time been filed or registered in accordance with Applicable
Law or of which written notice has not been duly given in accordance with










 



-23-








	 	 	Applicable Law or which although filed or registered, relate to obligations not due or
delinquent;
	 
	(k)	 	the rights reserved to or vested in Governmental Authorities by statutory provisions or by
the terms of leases, licenses, franchises, grants or permits, which affect any land, to
terminate the leases, licenses, franchises, grants or permits or to require annual or other
periodic payments as a condition of the continuance thereof;






	(l)	 	securities to public utilities or to any municipalities or Governmental Authorities or other
public authority when required by the utility, municipality or Governmental Authorities or
other public authority in connection with the supply of services or utilities to a Credit
Party;






	(m)	 	Liens or covenants restricting or prohibiting access to or from lands abutting on controlled
access highways or covenants affecting the use to which lands may be put; provided
that, in the case of a Credit Party such Liens or covenants do not materially and adversely
affect the use of the lands by the Credit Party;






	(n)	 	Liens consisting of royalties payable with respect to any asset or property of a Credit Party
existing as of the Original Effective Date; provided that the existence of any such
Lien on any material property or asset of a Credit Party shall have been disclosed in writing
to the Lenders prior to the Original Effective Date;






	(o)	 	Liens securing reimbursement obligations relating to letters of credit issued pursuant to
this Agreement, provided that the value of the collateral subject to any such Lien
does not exceed the amount of the related reimbursement obligation;






	(p)	 	statutory Liens incurred or pledges or deposits made in favour of a Governmental Authority to
secure the performance of obligations of a Credit Party under Environmental Laws to which any
assets of such Credit Party are subject, provided that no Default or Event of Default
shall have occurred and be continuing;






	(q)	 	a Lien granted by a Credit Party to a landlord to secure the payment of arrears of rent in
respect of leased properties in the Province of Quebec leased from such landlord,
provided that such Lien is limited to the assets located at or about such leased
properties;






	(r)	 	any Lien on any property or asset of a Credit Party existing on the date hereof and set forth
in Schedule 3.10; provided that (i) such Lien shall not apply to any other property or
asset of such Credit Party, and (ii) such Lien shall secure only those obligations which it
secures on the date hereof;






	(s)	 	any Lien existing on any property or asset prior to the acquisition thereof by a Credit Party
or existing on any property or asset of any Person that becomes a Credit Party after the date
hereof prior to the time such Person becomes a Credit Party; provided that (i) such Lien is
not created in contemplation of or in connection with such acquisition or such Person becoming
a Credit Party, as the case may be, (ii) such Lien shall not apply to any other property or
assets of such Credit Party, and (iii) such Lien shall secure only










 



-24-


	 	 	those obligations which it secures on the date of such acquisition or the date such Person
becomes a Credit Party, as the case may be; and






	(t)	 	any extension, renewal or replacement of any of the foregoing; provided, however,
that the Liens permitted hereunder shall not be extended to cover any additional Indebtedness
of the Credit Parties or their property (other than a substitution of like property), except
Liens in respect of Capital Lease Obligations and Purchase Money Liens as permitted by (c)
above.





     “Person” includes any natural person, corporation, company, limited liability company, trust,
joint venture, association, incorporated organization, partnership, Governmental Authority or other
entity.



     “Phase I Environmental Report” means the existing phase I environmental assessment report
prepared by URS Canada Inc. dated November, 2004.



     “PPSA” means the Personal Property Security Act (British Columbia), as amended from time to
time.



     “Priority Payables” means, with respect to any Person, any amount payable by such Person which
is secured by a Lien in favour of a Governmental Authority which ranks or is capable of ranking
prior to or pari passu with the Liens created by the Security Documents in respect of any Eligible
Accounts or Eligible Inventory, including amounts owing for wages, vacation pay, severance pay,
employee deductions, sales tax, excise tax, Tax payable pursuant to Part IX of the Excise Tax Act
(Canada) (net of GST input credits), income tax, workers compensation, government royalties,
pension fund obligations, overdue rents or Taxes, and other statutory or other claims that have or
may have priority over, or rank pari passu with, such Liens created by the Security Documents.



     “PST” means all taxes payable under the Retail Sales Tax Act (Ontario) or any similar statute
of another jurisdiction of Canada.



     “Purchase Money Lien” means a Lien taken or reserved in personal property to secure payment of
all or part of its purchase price, provided that such Lien (i) secures an amount not
exceeding the purchase price of such personal property, (ii) extends only to such personal property
and its proceeds, and (iii) is granted prior to or within 30 days after the purchase of such
personal property.



     “QST” means the Quebec sales tax imposed pursuant to an Act respecting the Québec sales tax.



     “Register” has the meaning set out in Section 9.4(c).



     “Reimbursement Obligations” means, at any date, the sum of the outstanding obligations of the
Borrower to reimburse the Agent at such time to the extent that the Agent is obligated to reimburse
the Issuing Bank at such time pursuant to any Letter of Credit Guarantee.









 



-25-


     “Related Parties” means, with respect to any Person, such Person’s Affiliates and the
respective directors, officers, employees, agents and advisors of such Person and of such Person’s
Affiliates.



     “Release” is to be broadly interpreted and shall include an actual or potential discharge,
deposit, spill, leak, pumping, pouring, emission, emptying, injection, escape, leaching, seepage or
disposal of a Hazardous Materials which is or may be in breach of any Environmental Laws.



     “Required Lenders” means, at any time, Lenders having Exposure and unused Commitments
representing more than 50% of the sum of the total Exposure and unused Commitments at such time.



     “Responsible Officer” means, with respect to any Person, the chairman, the president, any vice
president, the chief executive officer, the chief operating officer, or such other officer
acceptable to the Agent and, in respect of financial or accounting matters, any Financial Officer
of such Person; unless otherwise specified, all references herein to a Responsible Officer mean a
Responsible Officer of the Borrower.



     “Restricted Payment” shall mean, with respect to any Person, any payment by such Person (i) of
any dividends on any of its Equity Securities, (ii) on account of, or for the purpose of setting
apart any property for a sinking or other analogous fund for, the purchase, redemption, retirement
or other acquisition of any of its Equity Securities or any warrants, options or rights to acquire
any such shares, or the making by such Person of any other distribution in respect of any of its
Equity Securities, (iii) of any principal of or interest or premium on or of any amount in respect
of a sinking or analogous fund or defeasance fund for any Indebtedness of such Person ranking in
right of payment subordinate to any liability of such Person under the Loan Documents, (iv) of any
principal of or interest or premium on or of any amount in respect of a sinking or analogous fund
or defeasance fund for any Indebtedness of such Person to a shareholder of such Person or to an
Affiliate of a shareholder of such Person, (v) in respect of an Investment, or (vi) of any
management, consulting or similar fee or any bonus payment or comparable payment, or by way of gift
or other gratuity, to any Affiliate of such Person or to any director or officer thereof.



     “Restricted Subsidiary” means each Subsidiary of the Borrower which is not an Unrestricted
Subsidiary.



     “Revolving Loan” has the meaning set out in Section 2.1.



     “Rolling Period” means, as at the end of any calendar month such calendar month taken together
with the eleven immediately preceding calendar months.



     “S&P” means Standard & Poor’s Ratings Services, a division of the McGraw-Hill Companies, Inc.



     “Sale/Leaseback Obligations” of any Person means the obligations of such Person to pay rent or
other amounts under a Sale/Leaseback Transaction.









 



-26-


     “Sale/Leaseback Transaction” means any arrangement between a Credit Party or any Restricted
Subsidiary with any Person whereby the Credit Party or any such Restricted Subsidiary shall sell or
transfer any property, whether now owned or hereafter acquired, and whereby the Credit Party or any
such Restricted Subsidiary shall then or thereafter rent or lease as lessee such property or any
part thereof or other property which the Credit Party or any such Restricted Subsidiary intends to
use for substantially the same purpose or purposes as the property sold or transferred.



     “Scheduled Capital Expenditures” means Capital Expenditures of the Borrower and its Restricted
Subsidiaries permitted for any Fiscal Year pursuant to Section 6.14.



     “Security Documents” means the agreements, documents or instruments described or referred to
in Section 4.1 and Section 5.11 (including, to the extent such Section describes an amendment, the
agreement, document or instrument amended thereby) and any and all other agreements, documents or
instruments now or hereafter executed and delivered by any Credit Party or any other Person as
security for the payment or performance of all or part of the obligations of the Borrower (or such
Credit Party or other Person) hereunder or under any other Loan Documents, as any of the foregoing
may have been, or may hereafter be, amended, modified or supplemented.



     “Settlement Date” means the date, which shall be weekly, or more frequently at the discretion
of the Agent upon the occurrence of an Event of Default or a continuing decline or increase of the
Loans, that the Agent and the Lenders shall settle among themselves so that (a) the Agent shall not
at any time have, as the agent for the Lenders, any money at risk, and (b) on such Settlement Date
each Lender shall be responsible for its pro rata amount of the Revolving Loan, calculated on the
basis of each of their Applicable Percentages in respect of the outstanding Exposure as at such
date, provided that each Settlement Date shall be a Business Day.



     “Subordination Agreement” means the subordination agreement between the Agent and the Parent
in respect of the Parent Subordinated Debt.



     “Subsidiary” means, with respect to any Person (in this definition, the “parent”) at any date,
any other Person the accounts of which would be consolidated with those of the parent in the
parent’s consolidated financial statements if such financial statements were prepared in accordance
with GAAP as of such date, as well as any other Person (a) of which securities or other ownership
interests representing more than 50% of the equity or more than 50% of the ordinary voting power
or, in the case of a partnership, more than 50% of the general partnership interests are, as of
such date, owned, controlled or held, or (b) that is, as of such date, otherwise Controlled, by the
parent or one or more Subsidiaries of the parent or by the parent and one or more Subsidiaries of
the parent.



     “Swap Agreement” means any agreement with respect to any swap, forward, future or derivative
transaction or option or similar agreement involving, or settled by reference to, one or more
rates, currencies, commodities, equity or debt instruments or securities, or economic, financial or
pricing indices or measures of economic, financial or pricing risk or value or any similar
transaction or any combination of these transactions.









 



-27-


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



     “Transactions” means the execution, delivery and performance by the Borrower of this Agreement
and the other Loan Documents, the borrowing of Loans, the use of the proceeds thereof and the
issuance of Letters of Credit hereunder.



     “Type”, when used in reference to any Loan or Borrowing, refers to whether the rate of
interest on such Loan, or on the Loans comprising such Borrowing, is determined by reference to the
Canadian Prime Rate, the CDOR Rate, the Base Rate, the LIBO Rate, or is an LC.



     “Unrestricted Subsidiary” means any Subsidiary of the Borrower which, together with its
Subsidiaries, represents less than 5% of the consolidated assets or consolidated gross revenues of
the Borrower.



     “U.S. Dollars” and “U.S.$” refer to lawful money of the United States of America.



     “U.S.$ Equivalent” means, on any day, the amount of U.S. Dollars that the Agent could
purchase, in accordance with its normal practice, with a specified amount of Canadian Dollars based
on the spot rate at which U.S. Dollars are offered at the start of such day by CIBC in Toronto,
Ontario.


1.2 Classification of Loans and Borrowings. For purposes of this Agreement, Loans may be
classified and referred to by Type (e.g., a “Canadian Prime Rate Loan”) and Borrowings also may be
classified and referred to by Type (e.g., a “Canadian Prime Rate Borrowing”).



1.3 Terms Generally. The definitions of terms herein shall apply equally to the singular
and plural forms of the terms defined. Whenever the context may require, any pronoun shall include
the corresponding masculine, feminine and neuter forms. The words “include”, “includes” and
“including” shall be deemed to be followed by the phrase “without limitation”. The word “will”
shall be construed to have the same meaning and effect as the word ‘shall”. The word “or” is
disjunctive; the word “and” is conjunctive. The word “shall” is mandatory; the word “may” is
permissive. The words “to the knowledge of” means, when modifying a representation, warranty or
other statement of any Person, that the fact or situation described therein is known by the Person
(or, in the case or a Person other than a natural Person, known by the Responsible Officer of that
Person) making the representation, warranty or other statement, or with the exercise of reasonable
due diligence under the circumstances (in accordance with the standard of what a reasonable Person
in similar circumstances would have done) would have been known by the Person (or, in the case of a
Person other than a natural Person, would have been known by such Responsible Officer of that
Person). Unless the context requires otherwise (a) any definition of








 



-28-


or reference to any agreement, instrument or other document herein shall be construed as referring
to such agreement, instrument or other document as from time to time amended, supplemented or
otherwise modified (subject to any restrictions on such amendments, supplements or modifications
set forth herein), (b) any reference herein to any statute or any section thereof shall, unless
otherwise expressly stated, be deemed to be a reference to such statute or section as amended,
restated or re-enacted from time to time, (c) any reference herein to any Person shall be construed
to include such Person’s successors and permitted assigns, (d) the words “herein”, “hereof” and
“hereunder”, and words of similar import, shall be construed to refer to this Agreement in its
entirety and not to any particular provision hereof, (e) all references herein to Articles,
Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and
Exhibits and Schedules to, this Agreement, and (f) the words “asset” and “property” shall be
construed to have the same meaning and effect and to refer to any and all tangible and intangible
assets and properties, including cash, securities, accounts and contract rights.



1.4 Accounting Terms; GAAP. Except as otherwise expressly provided herein, all terms of an
accounting or financial nature shall be construed in accordance with GAAP. All calculations for
the purposes of determining compliance with the financial ratios and financial covenants contained
herein shall be made on a basis consistent with GAAP in existence from time to time and used in the
preparation of the financial statements of the Borrower referred to in Section 5.1(a).



1.5 Time. All time references herein shall, unless otherwise specified, be references to
local time in Toronto, Ontario. Time is of the essence of this Agreement and the other Loan
Documents.



1.6 Permitted Liens. Any reference in any of the Loan Documents to a Permitted Lien is not
intended to subordinate or postpone, and shall not be interpreted as subordinating or postponing,
or as any agreement to subordinate or postpone, any Lien created by any of the Loan Documents to
any Permitted Lien.




ARTICLE 2

THE CREDITS



2.1 Commitments. Subject to the terms and conditions set forth herein, each Lender commits
to make Loans (each such Loan made under this Section 2.1, a “Revolving Loan”) to the Borrower from
time to time during the period commencing on the Original Effective Date and ending on the Maturity
Date (each such commitment, a “Commitment”) in an aggregate principal amount equal to the amount
set forth beside such Lender’s name in Schedule A under the heading “Commitment”, provided
that any Revolving Loans made by any Lender as requested by the Borrower will not result in (i)
such Lender’s Exposure exceeding such Lender’s Commitment, or (ii) the sum of the total Exposure
exceeding either the total Commitment or the Borrowing Base. Within the foregoing limits and
subject to the terms and conditions set forth herein, the Borrower may borrow, repay and reborrow
Revolving Loans.










 



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2.2 Loans and Borrowings.





     (a) Each Revolving Loan shall be made as part of a Borrowing consisting of Revolving Loans
made by the Lenders ratably in accordance with their respective Commitments. The failure of any
Lender to make any Loan required to be made by it shall not relieve any other Lender of its
obligations hereunder; provided that the Commitments of the Lenders are several and no
Lender shall be responsible for any other Lender’s failure to make Loans as required.




     (b) Subject to the Letter of Credit Sub-Line limitation, the Borrowing Base limitations and
the other limitations on Loans and Borrowings as provided in this Agreement, each Borrowing shall
be comprised entirely of Canadian Prime Loans, B/A Equivalent Loans, Base Rate Loans, LIBO Rate
Loans and/or the delivery of Letters of Credit Guarantees as the Borrower may request in
accordance herewith.




     (c) Each Lender may at its option make any LIBO Rate Loan by causing any domestic or foreign
branch or Affiliate of such Lender to make such Loan; provided that any exercise of such
option shall not result in any increased costs for the Borrower or affect the obligation of the
Borrower to repay such Loan in accordance with the terms of this Agreement. At the commencement
of each Interest Period for any LIBO Rate Borrowing, such Borrowing shall be in an aggregate
amount that is an integral multiple of Cdn.$500,000 and not less than Cdn.$1,000,000. At the
commencement of each Contract Period for any B/A Borrowing, such Borrowing shall be in an
aggregate amount that is an integral multiple of Cdn.$500,000 and not less than Cdn.$1,000,000.
Borrowings of more than one Type and Class may be outstanding at the same time; provided
that there shall not at any time be more than a total of five B/A Borrowings or five LIBO Rate
Borrowings outstanding.



2.3 Requests for Borrowings.





     (a) To request a Borrowing, the Borrower shall notify the Agent of such request by written
Borrowing Request (i) in the case of a LIBO Rate Borrowing, not later than 1:00 p.m., Toronto
time, three Business Days before the date of the proposed Borrowing, (ii) in the case of a B/A
Borrowing, not later than 1:00 p.m., Toronto time, two Business Days before the date of the
proposed Borrowing, or (iii) in the case of a Canadian Prime Borrowing or a Base Rate Borrowing,
not later than 1:00 p.m., Toronto time, one Business Day before the date of the proposed
Borrowing; provided that any such notice of a Canadian Prime Borrowing or a Base Rate
Borrowing to finance the reimbursement of an LC Disbursement may be given not later than 1:00
p.m., Toronto time, on the date of the proposed Borrowing, or (iv) in the case of the issuance of
a Letter of Credit Guarantee in accordance with Section 2.18, not later than 1:00 p.m., Toronto
time, five (5) Business Days before the date of the proposed Borrowing. The Agent and each Lender
are entitled to rely and act upon any written Borrowing Request given or purportedly given by the
Borrower, and the Borrower hereby waives the right to dispute the authenticity and validity of any
such request or resulting transaction once the Agent or any Lender has advanced funds or made a
B/A Equivalent Loan or issued a Letter a Credit Guarantee based on such written Borrowing Request.
Each such written Borrowing Request shall be substantially in the form of Exhibit B and shall
specify the following information:




	 	(i)	 	the aggregate amount of each requested Borrowing and the Class
thereof;










 



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	 	(ii)	 	the date of such Borrowing, which shall be a Business Day;
	 
	 	(iii)	 	whether such Borrowing is to be a Canadian Prime Borrowing, a
B/A Borrowing, a Base Rate Borrowing, a LIBO Rate Borrowing, the issuance of a
Letter of Credit Guarantee in accordance with Section 2.18;
	 
	 	(iv)	 	in the case of a LIBO Rate Borrowing, the initial Interest
Period to be applicable thereto, which shall be a period contemplated by the
definition of the term “Interest Period”, and in the case of a B/A Borrowing,
the initial Contract Period to be applicable thereto, which shall be a period
contemplated by the definition of the term “Contract Period”; and
	 
	 	(v)	 	the location and number of the Borrower’s account to which
funds are to be disbursed, which shall comply with the requirements of this
Agreement.






     (b) If no election as to the Type of Borrowing is specified, then the requested Borrowing
shall be a Canadian Prime Borrowing (if denominated in Canadian Dollars) or a Base Rate Borrowing
(if denominated in U.S. Dollars). If no currency is specified, the Borrowing shall be denominated
in Canadian Dollars. If no Interest Period is specified with respect to any requested LIBO Rate
Borrowing, then the Borrower shall be deemed to have selected an Interest Period of a one month
duration. If no Contract Period is specified with respect to any requested B/A Borrowing, then
the Borrower shall be deemed to have selected a Contract Period of a one month duration.




     (c) Each Borrowing initially shall be of the Type specified in the applicable Borrowing
Request. Thereafter, the Borrower may elect to convert a Borrowing to a different Type or to
continue such Borrowing and, in the case of (i) a LIBO Rate Borrowing, may elect a new Interest
Period therefor, or (ii) a B/A Borrowing, may elect a new Contract Period therefor, all as
provided in this Section 2.3(c). The Borrower may elect different options with respect to
different portions of the affected Borrowing, in which case each such portion shall be allocated
ratably among the Lenders holding the Loans comprising such Borrowing in accordance with their
Applicable Percentage, and the Loans comprising each such portion shall be considered a separate
Borrowing. To make an election pursuant to this Section 2.3(c), the Borrower shall notify the
Agent of such election in the manner and by the time that a Borrowing Request would be required
under Section 2.3(a) if the Borrower were requesting a Borrowing of the Type resulting from such
election to be made on the effective date of such election. In addition to the information
specified in Section 2.3(a), each Borrowing Request shall specify the Borrowing to which such
request applies and, if different options are being elected with respect to different portions
thereof, the portions thereof to be allocated to each resulting Borrowing.




     (d) In the absence of a timely and proper election with regard to (i) LIBO Rate Borrowings,
the Borrower shall be deemed to have elected to convert such LIBO Rate Borrowings to Base Rate
Borrowings on the last day of the Interest Period of the relevant LIBO Rate Borrowings, and (ii)
B/A Borrowings, the Borrower shall be deemed to have elected to convert such B/A Borrowings to
Canadian Prime Borrowings on the last day of the Contract Period of the relevant B/A Borrowings.









 



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2.4 Funding of Borrowings.





     (a) Each Lender shall make each Loan to be made by it hereunder on the proposed date thereof
by wire transfer of immediately available funds by 2:00 p.m., Toronto time, to the account of the
Agent most recently designated by it for such purpose by notice to the Lenders. The Agent will
make such Loans available to the Borrower by promptly crediting the amounts so received, in like
funds, to an account of the Borrower and designated by the Borrower in the applicable Borrowing
Request. The Borrower shall satisfy Reimbursement Obligations promptly as they arise by way of a
request for a Loan and all Loans made hereunder to satisfy Reimbursement Obligations in respect of
any Letter of Credit Guarantee shall be remitted by the Agent to the Issuing Bank in accordance
with such Letter of Credit Guarantee (unless the Issuing Bank has already been fully reimbursed
directly by the Borrower in respect of drawings under the Letter of Credit which is the subject of
such Letter of Credit Guarantee).




     (b) The Agent may, upon notice given by the Agent no later than 2:00 p.m., Toronto time on
any Settlement Date, request each Lender to make, and each Lender hereby agrees to make, a
Revolving Loan in an amount equal to such Lender’s Applicable Percentage (calculated with respect
to the aggregate Commitments then outstanding) of the aggregate amount of the Revolving Loans made
by the Agent from the preceding Settlement Date to the date of such notice. Each Lender’s
obligation to make the Revolving Loans and to make the settlements pursuant to this Section 2.4
shall not be affected by any circumstance, including (i) any set-off, counterclaim, recoupment,
defence or other right which any such Lender or the Borrower may have against the Agent, the
Borrower, any Lender or any other Person for any reason whatsoever; (ii) any adverse change in the
condition (financial or otherwise) of the Borrower; or (iii) any other circumstance, happening or
event whatsoever, whether or not similar to any of the foregoing. Without limiting the liability
and obligation of each Lender to make such advances, the Borrower authorizes the Agent to charge
the Borrower’s Operating Account to the extent amounts received from the Lenders are not
sufficient to repay in full the amount of any such deficiency. To the extent that any Lender has
failed to fund all such payments and Revolving Loans, the Agent shall be entitled to set off the
funding short-fall against that Lender’s pro rata share of all payments received from the
Borrower.




     (c) The Agent, for the account of the Lenders, shall disburse all amounts to the Borrower and
shall handle all collections. It is understood that for purposes of advances to the Borrower and
for purposes of this Section 2.4, the Agent is using the funds of the Agent.




     (d) Unless the Agent shall have been notified in writing by any Lender prior to any advance
to the Borrower that such Lender will not make the amount which would constitute its share of the
Borrowing on such date available to the Agent, the Agent may assume that such Lender shall make
such amount available to the Agent on a Settlement Date, and the Agent may, in reliance upon such
assumption, make available to the Borrower a corresponding amount. A certificate of the Agent
submitted to any Lender with respect to any amount owing under this Section 2.4 shall be
conclusive, absent manifest error. If such Lender’s share of such Borrowing is not in fact made
available to the Agent by such Lender on the Settlement Date, the Agent shall be entitled to
recover such amount with interest thereon at the rate per annum applicable to Revolving Loans
hereunder, on demand, from the Borrower without prejudice to any rights which the Agent may have
against such Lender hereunder. Nothing









 



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contained in this shall relieve any Lender which has failed to make available its Applicable
Percentage of any borrowing hereunder from its obligation to do so in accordance with the terms
hereof. Nothing contained herein shall be deemed to obligate the Agent to make available to the
Borrower the full amount of a requested advance when the Agent has any notice (written or
otherwise) that any of the Lenders will not advance its Applicable Percentage thereof.




     (e) On the Settlement Date, the Agent and the Lenders shall each remit to the other, in
immediately available funds, all amounts necessary so as to ensure that, as of the Settlement
Date, the Lenders shall have their Applicable Percentage share of all outstanding Obligations.




     (f) The Agent shall forward to each Lender, at the end of each calendar month, a copy of the
account statement rendered by the Agent to the Borrower.




     (g) The Agent shall, after receipt of any interest and fees earned under this Agreement,
promptly remit to the Lenders their Applicable Percentage of any (i) fees they are entitled to
receive, and (ii) interest computed at the rate and as provided for in this Agreement on all
outstanding amounts advanced by the Lenders on each Settlement Date, prior to adjustment, that are
subsequent to the last remittance by the Agent to the Lenders of such interest amounts.



2.5 Interest.





     (a) The Loans comprising each Canadian Prime Borrowing shall bear interest (computed on the
basis of the actual number of days elapsed over a year of 365 days or 366 days, as the case may
be) at a rate per annum equal to the Canadian Prime Rate plus 2%. The Loans comprising each B/A
Borrowing shall bear interest (computed in advance on the basis of the actual number of days in
the relevant Contract Period over a year of 365 days or 366 days, as the case may be) at a rate
per annum equal to the B/A Rate plus 3.75%. The Loans comprising each Base Rate Borrowing shall
bear interest (computed on the basis of the actual number of days elapsed over a year of 360 days)
at a rate per annum equal to the Base Rate plus 2%. The Loans comprising each LIBO Rate Borrowing
shall bear interest (computed on the basis of the actual number of days in the relevant Interest
Period over a year of 360 days) at the LIBO Rate for the Interest Period in effect for such LIBO
Rate Borrowing plus 3.75%.




     (b) If there is a Default or an Event of Default has occurred and is continuing, all amounts
outstanding hereunder (including all Loans and all Letter of Credit Exposure shall bear interest,
after as well as before judgment, at a rate per annum equal to 2% plus the rate otherwise
applicable to such Loan or, in the case of any amount not constituting principal or interest on a
Loan, at a rate equal to 2% plus the rate otherwise applicable to, in the case of Canadian Dollar
amounts, Canadian Prime Loans, or in the case of U.S. Dollar amounts, Base Rate Loans.




     (c) Accrued interest on each Loan shall be payable in arrears on the earlier of (i) each
applicable Interest Payment Date, and (ii) the date of termination of the Commitments. In
addition, in the event of any repayment or prepayment of any Loan, accrued interest on the
principal amount repaid or prepaid shall be payable on the date of such repayment or prepayment.









 



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     (d) All interest hereunder shall be payable for the actual number of days elapsed (including
the first day but excluding the last day). Any Loan that is repaid on the same day on which it is
made shall bear interest for one day. The applicable Canadian Prime Rate, Base Rate, LIBO Rate or
B/A Rate shall be determined by the Agent, and such determination shall be conclusive absent
manifest error.




     (e) For the purposes of the Interest Act (Canada) and disclosure thereunder, whenever any
interest or any fee to be paid hereunder or in connection herewith is to be calculated on the
basis of a 360-day, 365-day or 366-day year, the yearly rate of interest to which the rate used in
such calculation is equivalent is the rate so used multiplied by the actual number of days in the
calendar year in which the same is to be ascertained and divided by 360, 365 or 366, as
applicable. The rates of interest under this Agreement are nominal rates, and not effective rates
or yields. The principle of deemed reinvestment of interest does not apply to any interest
calculation under this Agreement.




     (f) If any provision of this Agreement would oblige the Borrower to make any payment of
interest or other amount payable to any Lender in an amount or calculated at a rate which would be
prohibited by any Applicable Law or would result in a receipt by that Lender of “interest” at a
“criminal rate” (as such terms are construed under the Criminal Code (Canada)), then,
notwithstanding such provision, such amount or rate shall be deemed to have been adjusted with
retroactive effect to the maximum amount or rate of interest, as the case may be, as would not be
so prohibited by Applicable Law or so result in a receipt by that Lender of “interest” at a
“criminal rate”, such adjustment to be effected, to the extent necessary (but only to the extent
necessary), as follows:




	 	(i)	 	first, by reducing the amount or rate of interest required to
be paid to the affected Lender under Section 2.5; and
	 
	 	(ii)	 	thereafter, by reducing any fees, commissions, costs, expenses,
premiums and other amounts required to be paid to the affected Lender which
would constitute interest for purposes of section 347 of the Criminal Code
(Canada).




2.6 Termination and Reduction of Commitments.





     (a) Unless previously terminated, the Commitments shall terminate on the Maturity Date.




     (b) The Borrower may, upon five Business Days prior written notice to the Agent, permanently
cancel any unused portion of the Commitments, provided, however, that the Borrower shall pay to
the Agent, on the date on which such cancellation becomes effective, the Early Termination Fee in
respect of the cancelled portion of the Commitments.




     (c) Subject to the other terms and conditions of this Agreement and unless the Commitments
have been earlier terminated, the Commitments shall be available hereunder until the Maturity
Date.









 



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2.7 Repayment of Loans. The Borrower hereby unconditionally promises to pay to the Agent
for the account of each Lender the then unpaid principal amount of each Revolving Loan on the
earlier of the Maturity Date and the date that the Commitment is terminated pursuant to Section
2.6(b) or Section 7.1.



2.8 Evidence of Debt.





     (a) Each Lender shall maintain in accordance with its usual practice an account or accounts
evidencing the Indebtedness of the Borrower to such Lender resulting from each Borrowing made by
such Lender hereunder, including the amounts of principal and interest payable and paid to such
Lender from time to time hereunder.




     (b) The Agent shall maintain accounts in which it shall record (i) the amount of each
Borrowing made hereunder, the Type thereof and, in the cases of B/A Equivalent Loans and LIBO Rate
Loans, the relevant Contract Period or Interest Period, applicable thereto, (ii) the amount of any
principal or interest due and payable or to become due and payable from the Borrower to each
Lender hereunder, and (iii) the amount of any sum received by the Agent hereunder for the account
of the Lenders and each Lender’s share thereof.




     (c) The entries made in the accounts maintained pursuant to Sections 2.8(a) and (b) shall be
conclusive evidence (absent manifest error) of the existence and amounts of the obligations
recorded therein; provided that the failure of any Lender or the Agent to maintain such
accounts or any error therein shall not in any manner affect the obligation of the Borrower to
repay the Borrowings in accordance with the terms of this Agreement. In the event of a conflict
between the records maintained by the Agent and any Lender, the records maintained by the Agent
shall govern.




     (d) Any Lender may request that Loans (other than B/A Equivalent Loans) made by it be
evidenced by a promissory note. In such event, the Borrower shall prepare, execute and deliver to
such Lender a promissory note payable to the order of such Lender (or, if requested by such
Lender, to such Lender and its registered assigns) and in a form approved by the Agent.
Thereafter, the Loans evidenced by such promissory note and interest thereon shall at all times be
represented by one or more promissory notes in such form payable to the order of the payee named
therein (or, if such promissory note is a registered note, to such payee and its registered
assigns).


2.9 Prepayments.





     (a) Mandatory Borrowing Base Prepayments. If at any time the aggregate Exposure of
all Lenders is in excess of the Borrowing Base, the Borrower shall immediately pay to the Agent,
for the account of the Lenders, the amount of such excess to be applied (i) first, in satisfaction
of all Reimbursement Obligations, if any, outstanding at such time, (ii) second, as a prepayment
of the Revolving Loans, and (iii) third, as Cover for any remaining Letter of Credit Exposure in
an amount of such remaining excess.




     (b) Currency Fluctuations. If, at any time, the Canadian $ Equivalent of the Loans
made by any Lender to the Borrower under any Credit exceeds the Commitment of such









 



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Lender under such Credit (any such excess being referred to in this Section as an “Excess
Amount”), then the Borrower will repay to the Agent, for the account of each applicable Lender, an
amount equal to the Excess Amount with respect to such Lender. If the amount of any Excess Amount
with respect to any Lender is equal to or greater than 3% of the Commitment of such Lender for the
applicable Credit, then the repayment of the Excess Amount to such Lender shall be made by the
Borrower within one Business Day after the Agent requests such repayment. If the amount of any
Excess Amount with respect to any Lender is less than 3% of the Commitment of such Lender for such
credit, then the repayment of the Excess Amount to such Lender shall be made on the next Quarterly
Date. The Agent shall request repayment of any Excess Amount forthwith upon request therefor by
any Lender, but the Agent is not otherwise required to monitor Excess Amount levels or to request
repayment thereof.




     (c) Notice by Borrower. Each prepayment notice provided by the Borrower hereunder in
respect of any permanent repayment or prepayment hereunder shall be in a form acceptable to the
Agent and shall be irrevocable.




     (d) Notice by Agent. Upon receipt of a notice of prepayment pursuant to this Section
2.9, the Agent shall promptly notify each applicable Lender of the contents thereof and of such
Lender’s Applicable Percentage of such prepayment and the corresponding Early Termination Fee, if
any.


2.10 Fees.





     (a) The Borrower shall pay to the Agent for the account of and distribution to each Lender
rateably in accordance with each such Lender’s Applicable Percentage a standby fee for the period
commencing on the date of this Agreement to and including the Maturity Date (or such earlier date
as the Commitments shall have been terminated entirely) computed at a rate of 0.50% per annum on
the average daily excess amount of the aggregate Commitments over the aggregate Exposure. The
standby fees on the Commitments shall be calculated monthly in arrears on the last Business Day of
each calendar month (and on the date on which the Commitments terminate) and each such calculated
amount shall be payable on the first Business Day of the immediately following calendar month (or
on the date on which the Commitments terminate, as the case may be). All standby fees shall be
computed on the basis of a year of 365 or 366 days, as the case may be, and shall be payable for
the actual number of days elapsed (including the first day but excluding the last day).




     (b) The Borrower agrees to pay to the Agent for the account of each Lender rateably in
accordance with each Lender’s Applicable Percentage, a guarantee fee (an “LC Guarantee Fee”) with
respect to the provision of Letter of Credit Guarantees, at the rate of 3.25% per annum on the
average daily amount of the Letter of Credit Exposure during the period from and including the
date of this Agreement (or the date on which any Letter of Credit Exposure first exists to but
excluding the latter of: (i) the date of termination of the Commitments and (ii) the date on which
there ceases to be any Letter of Credit Exposure. All such LC Guarantee Fees (the “LC Fees”)
shall be calculated monthly in arrears on the last Business Day of each calendar month (and on the
date on which the Commitments terminate) and each such calculated amount shall be payable on the
first Business Day of the immediately following









 



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calendar month (or on the date on which the Commitments terminate, as the case may be);
provided that all LC Fees, together with all Standard LC Fees (as defined below), accruing after
the date on which the Commitments terminate shall be payable on demand. All LC Fees payable
pursuant to this Section 2.10(b) shall be computed on the basis of a year of 365 or 366 days, as
the case may be, and shall be payable for the actual number of days elapsed (including the first
day but excluding the last day). The Borrower also agrees to pay to the Agent, for the account of
the Issuing Bank, the Issuing Bank’s standard fees (the “Standard LC Fees”) with respect to the
issuing, administration, handling, amendment, renewal or extension of any Letter of Credit or
processing of drawings thereunder. Such standard fees shall be payable within 10 days after
demand by the Agent or the Issuing Bank.




     (c) The Borrower agrees to pay to the Agent, for its own account, on the date of this
Agreement and on the first Business Day of each calendar month thereafter an administrative
management fee in an amount equal to Cdn.$2,000, which the Borrower acknowledges and agrees shall
be fully earned when paid.




     (d) The Borrower agrees to pay to the Agent, for its own account, the Agent’s standard
charges, fees, costs and expenses for its field examinations, verifications and audits in an
amount equal to $1,200 per person per day plus such field examiner’s and auditor’s reasonable
out-of-pocket expenses.




     (e) The Borrower agrees to pay to the Agent, for its own account, fees payable in the amounts
and at the times separately agreed upon in writing between the Borrower and the Agent.




     (f) All fees payable hereunder shall be paid on the dates due, in immediately available
funds, to the Agent, for its own account or for distribution to the Lenders or CIBC, as the case
may be. Fees paid shall not be refundable except in the case of manifest error in the calculation
of any fee payment.


2.11 B/A Equivalent Loans.





     (a) Subject to the terms and conditions of this Agreement, the Borrower may request a B/A
Borrowing in accordance with Section 2.3. Promptly following receipt of a Borrowing Request
specifying a B/A Borrowing, the Agent shall so advise the Lenders and provide information as to
the applicable Contract Period and the B/A Rate of such B/A Equivalent Loan.




     (b) No Contract Period with respect to a B/A Equivalent Loan under the Credit shall extend
beyond the Maturity Date.




     (c) Subject to repayment requirements, on the last day of the relevant Contract Period for a
B/A Equivalent Loan, the Borrower shall be entitled to convert such B/A Equivalent Loan into
another Type of Loan, or to roll over such B/A Equivalent Loan into another B/A Equivalent Loan,
all in accordance with the applicable provisions of this Agreement.









 



-37-



     (d) With respect to each B/A Borrowing, at or before 10:00 a.m. two Business Days before the
last day of the Contract Period of such B/A Borrowings, the Borrower shall notify the Agent in
writing, if the Borrower intends to roll over such B/A Equivalent Loan into another B/A Equivalent
Loan on such last day of the Contract Period. If the Borrower fails to notify the Agent of its
intention to roll over such B/A Equivalent Loan into another B/A Equivalent Loan on such last day
of the Contract Period, the Borrower shall provide payment to the Agent on behalf of the Lenders
of an amount equal to the aggregate face amount of such B/A Borrowings on the last day of the
Contract Period thereof. If the Borrower fails to make such payment, such maturing B/A Borrowings
shall be deemed to have been converted on the last day of the Contract Period into a Canadian
Prime Loan in an amount equal to the aggregate amount of such B/A Borrowings.




     (e) Except as required by any Lender upon the occurrence of an Event of Default, no B/A
Equivalent Loan may be repaid by the Borrower prior to the expiry date of the Contract Period
applicable to such B/A Equivalent Loan; provided, however, that the Borrower may defease
any B/A Equivalent Loan by depositing with the Agent an amount that is sufficient to repay such
B/A Equivalent Loan on the expiry date of the Contract Period applicable to such B/A Equivalent
Loan.



2.12 Increased Costs; Illegality.





     (a) If any Change in Law shall:




	 	(i)	 	impose, modify or deem applicable any reserve, special
deposit or similar requirement against assets of, deposits with or for the
account of, or credit extended by, any Lender; or
	 
	 	(ii)	 	impose on any Lender or the Issuing Bank or the London
interbank market any other condition affecting this Agreement (including the
imposition on any Lender of, or any change to, any Indemnified Tax or other
charge with respect to its LIBO Rate Loans or any Letter of Credit or
participation therein, or its obligation to make LIBO Rate Loans or any
Letter of Credit);




and the result of any of the foregoing shall be to increase the cost to such Lender of making or
maintaining any Loan (or of maintaining its obligation to make any such Loan) or to increase the
cost to such Lender of participating in, issuing or maintaining any Letter of Credit or any Loan or
to reduce the amount of any sum received or receivable by such Lender hereunder (whether of
principal, interest or otherwise), then the Borrower will pay to such Lender, such additional
amount or amounts as will compensate such Lender, for such additional costs incurred or reduction
suffered.





     (b) If any Lender determines that any Change in Law regarding capital requirements has or
would have the effect of reducing the rate of return on such Lender’s capital or on the capital of
such Lender’s, if any, as a consequence of this Agreement or the Loans made by, or participations
in Letters of Credit held by such Lender, or the Letters of Credit issued by the Issuing Bank, to
a level below that which such Lender or such Lender’s holding company









 



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could have achieved but for such Change in Law (taking into consideration such Lender’s
policies and the policies of such Lender’s holding company with respect to capital adequacy) and
such Lender’s desired return on capital, then from time to time the Borrower will pay to such
Lender, such additional amount or amounts as will compensate such Lender or such Lender’s holding
company for any such reduction suffered.


     (c) A certificate of a Lender setting forth amount or amounts necessary to compensate such
Lender as specified in Sections 2.12(a) or (b), together with a brief description of the Change of
Law, shall be delivered to the Borrower, and shall be conclusive absent manifest error. In
preparing any such certificate, a Lender shall be entitled to use averages and to make reasonable
estimates, and shall not be required to “match contracts” or to isolate particular transactions.
The Borrower shall pay such Lender the amount shown as due on any such certificate within 10 days
after receipt thereof.



     (d) Failure or delay on the part of any Lender to demand compensation pursuant to this
Section 2.12 shall not constitute a waiver of such Lender’s right to demand such compensation.



     (e) In the event that any Lender shall have determined (which determination shall be
reasonably exercised and shall, absent manifest error, be final, conclusive and binding upon all
parties) at any time that the current or reasonably expected foreign currency markets are
unusually unstable or that the making or continuance of any Loan denominated in a currency other
than Canadian Dollars has become unlawful or materially restricted as a result of compliance by
such Lender in good faith with any Applicable Law, or by any applicable guideline or order
(whether or not having the force of law and whether or not failure to comply therewith would be
unlawful), then, in any such event, such Lender shall give prompt notice (by telephone and
confirmed in writing) to the Borrower and to the Agent of such determination (which notice the
Agent shall promptly transmit to the other Lenders). Upon the giving of the notice to the
Borrower referred to in this Section 2.12(e), the Borrower’s right to request (by continuation,
conversion or otherwise), and such Lender’s obligation to make, Loans denominated in a currency
other than Canadian Dollars shall be immediately suspended, and thereafter any requested Borrowing
of Loans denominated in a currency other than Canadian Dollars shall, as to such Lender only, be
deemed to be a request for a Canadian Prime Loan, and if the affected Loan or Loans are then
outstanding, the Borrower shall immediately, or if permitted by Applicable Law, no later than the
date permitted thereby, upon at least one Business Day prior written notice to the Agent and the
affected Lender, convert each such Loan denominated in a currency other than Canadian Dollars into
a Canadian Prime Loan, provided that if more than one Lender is affected at any time, then
all affected Lenders must be treated the same pursuant to this Section 2.12(e).



2.13 Break Funding Payments. In the event of (a) the failure by the Borrower to borrow,
convert, continue or prepay any Loan on the date specified in any notice delivered by the Borrower
pursuant hereto, or (b) the payment or conversion of any principal of any B/A Borrowing or LIBO
Rate Loan other than on the last day of a Contract Period or, as applicable, Interest Period
applicable thereto (including as a result of an Event of Default), or (c) the prepayment or
conversion of any B/A Borrowing or LIBO Rate Loan other than on the last day of the Interest Period
applicable thereto, then, in any such event, the Borrower shall compensate each Lender for the
loss, cost and expense attributable to such event. A certificate of any Lender








 



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setting forth any amount or amounts that such Lender is entitled to receive pursuant to this
Section 2.13 shall be delivered to the Borrower and shall be conclusive absent manifest error. The
Borrower shall pay such Lender the amount shown as due on any such certificate within 10 days after
receipt thereof.




2.14 Taxes.





     (a) Any and all payments by or on account of any obligation of the Borrower hereunder shall
be made free and clear of and without deduction or withholding for any Indemnified Taxes;
provided that if the Borrower shall be required to deduct or withhold any Indemnified
Taxes from such payments, then (i) the sum payable shall be increased as necessary so that, after
making all required deductions or withholdings (including deductions or withholdings applicable to
additional sums payable under this Section 2.14), the Agent, or Lender (as the case may be)
receives an amount equal to the sum it would have received had no such deduction or withholding
been made, (ii) the Borrower shall make such deduction or withholding, and (iii) the Borrower
shall pay to the relevant Governmental Authority in accordance with Applicable Law the full amount
deducted or withheld.




     (b) In addition to the payments by the Borrower required by Section 2.14(a), the Borrower
shall pay any and all present or future stamp or documentary Taxes or any other excise or property
Taxes, charges or similar levies arising from any payment made hereunder or from the execution,
delivery or enforcement of, or otherwise with respect to, this Agreement to the relevant
Governmental Authority in accordance with Applicable Law.




     (c) The Borrower shall indemnify the Agent, and each Lender, within 10 days after written
demand therefor, for the full amount of any Indemnified Taxes paid by the Agent, such Lender, as
the case may be, on or with respect to any payment by or on account of any obligation of the
Borrower hereunder (including Indemnified Taxes imposed or asserted on or attributable to amounts
payable under this Section 2.14) and any penalties, interest and reasonable expenses arising
therefrom or with respect thereto, whether or not such Indemnified Taxes were correctly or legally
imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of
such payment or liability delivered to the Borrower by a Lender, or by the Agent on its own behalf
or on behalf of a Lender, shall be conclusive absent manifest error.




     (d) As soon as practicable after any payment of Indemnified Taxes by the Borrower to a
Governmental Authority, the Borrower shall deliver to the Agent the original or a certified copy
of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return
reporting such payment or other evidence of such payment reasonably satisfactory to the Agent.




     (e) If, following the imposition of any Taxes on any payment by the Borrower to any Lender in
respect of which the Borrower is required to make an additional payment pursuant to this Section
2.14, any Lender receives or is granted a credit against or remission for or deduction from or in
respect of any Taxes paid by it or shall obtain any other relief which, in such Lender’s opinion,
is both reasonably identifiable and quantifiable by it without involving it in an unacceptable
administrative burden (any of the foregoing being a “saving”), such









 



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Lender will reimburse the Borrower with such amount as such Lender shall have concluded, in
its absolute discretion but in good faith, to be the amount or value of the relevant saving.
Nothing herein contained shall interfere with the right of any Lender to arrange its affairs in
whatever manner it thinks fit and, in particular, no Lender shall be under any obligation to claim
relief for tax purposes on its corporate profits or otherwise, or to claim such relief in priority
to any other claims, reliefs, credits or deductions available to it or to disclose details of its
affairs. Each Lender will notify the Borrower promptly of the receipt by such Lender of any such
saving and of such Lender’s opinion as to the amount or value thereof, and any reimbursement to be
made by such Lender will be made promptly on the date of receipt of such saving by such Lender or,
if later, on the last date on which the applicable taxation authority would be able in accordance
with applicable law to reclaim or reduce such saving.


2.15 Payments Generally; Pro Rata Treatment; Sharing of Set-offs.





     (a) The Borrower shall make each payment required to be made by it hereunder (whether of
principal, interest, fees or amounts payable in respect of Reimbursement Obligations, amounts
payable under any of Sections 2.12, 2.13 or 2.14, or amounts otherwise payable hereunder) prior to
1:00 p.m., Toronto time, on the date when due, in immediately available funds, without set-off or
counterclaim. Any amounts received after such time on any date may, in the discretion of the
Agent, be deemed to have been received on the next succeeding Business Day for purposes of
calculating interest thereon. All such payments shall be made to the Agent at the Payment Office,
except that payments pursuant to any indemnities contained herein shall be made directly to the
Persons entitled thereto. The Agent shall distribute any such payments received by it for the
account of any other Person to the appropriate recipient promptly following receipt thereof. If
any payment hereunder shall be due on a day that is not a Business Day, the date for payment shall
be extended to the next succeeding Business Day, and, in the case of any payment accruing
interest, interest thereon shall be payable for the period of such extension, provided
that, in the case of any payment with respect to a LIBO Rate Loan, the date for payment shall be
advanced to the next preceding Business Day if the next succeeding Business Day is in a subsequent
calendar month. All payments under this Section 2.15 in respect of LIBO Rate Loans and Base Rate
Loans shall be made in U.S. Dollars. All other payments under this Section 2.15 shall be made in
Canadian Dollars. The Borrower hereby authorizes the Agent to debit the Operating Account to
effect any payment due to the Lenders or the Agent pursuant to this Agreement. Any resulting
overdraft in such account shall be payable by the Borrower to the Agent in same day funds.




     (b) If at any time insufficient funds are received by and available to the Agent to pay fully
all amounts of principal, interest, fees, amounts payable in respect of Repayment Obligations,
amounts payable under any of Sections 2.12, 2.13 or 2.14 and other amounts payable hereunder, any
available funds shall be applied (i) first, towards payment of interest and fees then due
hereunder, rateably among the parties entitled thereto in accordance with the amounts of interest
and fees then due to such parties, (ii) second, towards payment of principal and in satisfaction
of Reimbursement Obligations then due hereunder, rateably among the parties entitled thereto in
accordance with the amounts of principal and Reimbursement









 



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Obligations, and (iii) third, towards payment of amounts payable under any of Sections 2.12,
2.13 or 2.14 and other amounts otherwise payable hereunder.




     (c) If any Lender shall, by exercising any right of set-off or counterclaim or otherwise,
obtain payment in respect of any principal of or interest on or fees in respect of any of its
Revolving Loans or its share of Reimbursement Obligations resulting in such Lender receiving
payment of a greater proportion of the aggregate amount of any principal of or interest on or fees
in respect of any of its Revolving Loans or participations in Reimbursement Obligations than the
proportion to which it is entitled, then the Lender receiving such greater proportion shall
purchase (for cash at face value) participations in the Revolving Loans or participations in
Reimbursement Obligations owed to other Lenders (as the case may be) to the extent necessary so
that the benefit of all such payments shall be shared by the Lenders rateably taking into account
each of the Applicable Percentages in respect of each Lender; provided that (i) if any
such participations are purchased and all or any portion of the payment giving rise thereto is
recovered, such participations shall be rescinded and the purchase price restored to the extent of
such recovery, without interest, and (ii) this Section 2.15(c) shall not apply to any payment made
by the Borrower pursuant to and in accordance with the express terms of this Agreement or any
payment obtained by a Lender as consideration for the assignment of or sale of a participation in
any of its Loans or participations in Reimbursement Obligations to any assignee or participant,
other than to the Borrower or any Subsidiary or Affiliate thereof (as to which the provisions of
this paragraph shall apply). The Borrower consents to the foregoing and agrees, to the extent it
may effectively do so under Applicable Law, that any Lender acquiring a participation pursuant to
the foregoing arrangements may exercise against the Borrower rights of set-off and counterclaim
with respect to such participation as fully as if such Lender were a direct creditor of the
Borrower in the amount of such participation.




     (d) Unless the Agent shall have received written notice from the Borrower prior to the date
on which any payment is due to the Agent for the account of the Lenders hereunder that the
Borrower will not make such payment, the Agent may assume that the Borrower has made such payment
on such date in accordance herewith and may, in reliance upon such assumption, distribute to the
Lenders, the amount due. In such event, if the Borrower has not in fact made such payment, then
each of the Lenders, severally agrees to repay to the Agent forthwith on demand the amount so
distributed to such Lender with interest thereon, for each day from and including the date such
amount is distributed to it to but excluding the date of payment to the Agent, at the applicable
rate for Canadian Prime Loans (if such amount is denominated in Canadian Dollars) or the
applicable rate for Base Rate Loans (if such amount is denominated in U.S. Dollars).




     (e) If any Lender shall fail to make any payment required to be made by it pursuant to
Section 2.15(d), then the Agent may, in its discretion (notwithstanding any contrary provision
hereof), apply any amounts thereafter received by the Agent for the account of such Lender to
satisfy such Lender’s obligations under such Section 2.15(d) until all such unsatisfied
obligations are fully paid.




     (f) Nothing in this Agreement shall be deemed to obligate any Lender to obtain the funds for
any Loan in any particular place or manner or to constitute a representation by any









 



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Lender that it has obtained or will obtain the funds for any Loan in any particular place or
manner.


2.16 Currency Indemnity. If, for the purposes of obtaining judgment in any court in any
jurisdiction with respect to this Agreement or any other Loan Document, it becomes necessary to
convert into a particular currency (the “Judgment Currency”) any amount due under this Agreement or
under any other Loan Document in any currency other than the Judgment Currency (the “Currency
Due”), then conversion shall be made at the rate of exchange prevailing on the Business Day before
the day on which judgment is given. For this purpose “rate of exchange” means the rate at which
the Agent is able, on the relevant date, to purchase the Currency Due with the Judgment Currency in
accordance with its normal practice at its head office in Toronto, Ontario. In the event that
there is a change in the rate of exchange prevailing between the Business Day before the day on
which the judgment is given and the date of receipt by the Agent of the amount due, the Borrower
will, on the date of receipt by the Agent, pay such additional amounts, if any, or be entitled to
receive reimbursement of such amount, if any, as may be necessary to ensure that the amount
received by the Agent on such date is the amount in the Judgment Currency which when converted at
the rate of exchange prevailing on the date of receipt by the Agent is the amount then due under
this Agreement or such other Loan Document in the Currency Due. If the amount of the Currency Due
which the Agent is so able to purchase is less than the amount of the Currency Due originally due
to it, the Borrower shall indemnify and save the Agent and the Lenders harmless from and against
all loss or damage arising as a result of such deficiency. This indemnity shall constitute an
obligation separate and independent from the other obligations contained in this Agreement and the
other Loan Documents, shall give rise to a separate and independent cause of action, shall apply
irrespective of any indulgence granted by the Agent from time to time and shall continue in full
force and effect notwithstanding any judgment or order for a liquidated sum in respect of an amount
due under this Agreement or any other Loan Document or under any judgment or order.



2.17 Collection of Accounts.





     (a) The Borrower shall, and shall cause each other Credit Party to, at its expense, enforce,
collect and receive all amounts owing on its Accounts in the ordinary course of its business and
any proceeds it so receives shall be subject to the terms hereof. Any proceeds received by a
Credit Party in respect of Accounts, and any cheques, cash, credit card sales and receipts, notes
or other instruments or property received by a Credit Party with respect to any Collateral, shall
be held by such Credit Party in trust for the Agent, separate from such Credit Party’s own
property and funds, and promptly turned over to the Agent with proper assignments or endorsements
by deposit to the Blocked Accounts.




     (b) The Borrower shall, and shall cause each other Credit Party to at the request of the
Agent: (i) indicate on all of its invoices that funds should be delivered to and deposited in a
lock box or a Blocked Account; (ii) direct all of its account debtors to deposit any and all
proceeds of Collateral into the lock boxes or the Blocked Accounts; (iii) irrevocably authorize
and direct any bank which maintains any Credit Party’s initial receipt of cash, cheques and other
items to promptly wire transfer all available funds to a Blocked Account; and (iv) advise all such
banks of the Agent’s security interest in such funds. The Borrower shall, and shall cause each
other Credit Party to, provide the Agent with prior written notice of any and all









 



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deposit accounts opened or to be opened subsequent to the Original Effective Date. All
amounts received by the Agent in payment of Accounts will be credited to the Operating Account
when the Agent is advised by its bank of its receipt of “collected funds” at the Agent’s bank
account in Toronto, Ontario on the Business Day of such advise if advised no later than 12:00
noon, Toronto time, or on the next succeeding Business Day if so advised after 12:00 noon, Toronto
time. No cheques, drafts or other instrument received by the Agent shall constitute final payment
to the Agent unless and until such instruments have actually been collected.




     (c) The Borrower shall, and shall cause each other Credit Party to, establish and maintain,
in its own respective name and at its expense, deposit accounts and lock boxes with such banks as
are acceptable to the Agent (the “Blocked Accounts”) into which the Borrower shall promptly cause
to be deposited: (i) all proceeds of Collateral received by any Credit Party, including all
amounts payable to any Credit Party from credit card issuers and credit card processors, and (ii)
all amounts on deposit in deposit accounts used by any Credit Party at each of its locations, all
as further provided in Section 2.17(b). The banks at which the Blocked Accounts are established
and the applicable Credit Parties shall enter into three-party agreements, in form and substance
satisfactory to the Agent (the “Blocked Account Agreements”), providing that, among other things,
all cash, cheques and items received or deposited in the Blocked Accounts are subject to Liens in
favour of the Agent, that the depository bank has no Lien upon, or right of set off against, the
Blocked Accounts and any cash, cheques, items, wires or other funds from time to time on deposit
therein, except as otherwise provided in the Blocked Account Agreements, and that on a daily basis
the depository bank will wire, or otherwise transfer, in immediately available funds, all funds
received or deposited into the Blocked Accounts to such bank account as the Agent may from time to
time designate for such purpose. The Borrower hereby confirms and agrees that all amounts
deposited in such Blocked Accounts and any other funds received and collected by the Agent,
whether as proceeds of Inventory or other Collateral or otherwise, shall be subject to the Liens
in favour of the Agent. The Blocked Accounts Agreements will be “springing dominion agreements”
and the Agent will be entitled to exercise full dominion and control over the blocked accounts at
any time when Excess Availability is less than Cdn.$2,000,000.


2.18 Letters of Credit. In order to assist the Borrower in establishing Letters of Credit
with the Issuing Bank, the Borrower has requested the Agent and the Agent has agreed to execute a
Letter of Credit Guarantee subject to the following terms and conditions:





     (a) Within the limits of the Commitments and the Borrowing Base, and the other limitations
contained in this Agreement, the Agent shall assist the Borrower in obtaining Letters of Credit,
denominated in Canadian Dollars or U.S. Dollars, in an amount not to exceed the outstanding amount
of the Letter of Credit Sub-Line. The Agent’s assistance for amounts in excess of the limitation
set forth herein shall at all times and in all respects be in the Agent’s sole discretion. It is
understood that the term, form and purpose of each Letter of Credit and all documentation in
connection therewith, and any amendments, modifications or extensions thereof, must be mutually
acceptable to the Agent, the Issuing Bank and the Borrower and it is further understood the term
of each Letter of Credit issued cannot be for a term that extends beyond the Maturity Date. Any
and all outstanding Letter of Credit Guarantees shall be









 



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reserved dollar for dollar from the Borrowing Base as an Availability Reserve. Upon the
expiry of a Letter of Credit Guarantee, amounts reserved as an Availability Reserve in respect of
such Letter of Credit Guarantee, as the case may be, shall no longer be reserved from the
Borrowing Base as an Availability Reserve.




     (b) The Agent shall have the right, without notice to the Borrower, to charge the Borrower’s
Operating Account with the amount of any and all indebtedness, liability or obligation of any kind
incurred by the Agent under the Letter of Credit Guarantees at the earlier of (a) payment by the
Agent under the Letter of Credit Guarantee; or (b) the occurrence and continuance of an Event of
Default. Any amount so charged to the Borrower’s Operating Account shall be deemed a Canadian
Prime Rate Loan or a US Base Rate Loan hereunder, depending on the currency of the Borrower’s
payment obligation thereunder, and shall incur interest at the rate provided in Section 2.5.




     (c) The Borrower unconditionally indemnifies the Agent and holds the Agent harmless from any
and all loss, claim or liability incurred by the Agent arising from any transactions or
occurrences relating to Letters of Credit established or opened for the Borrower’s account, the
collateral relating thereto and any drafts or acceptances thereunder, and all Obligations
thereunder, including any such loss or claim due to any errors, omissions, negligence, misconduct
or action taken by any Issuing Bank, other than for any such loss, claim or liability arising out
of the gross negligence or willful misconduct by the Agent under the Letter of Credit Guarantee.
This indemnity shall survive termination of this Agreement. The Borrower agrees that any charges
incurred by the Agent for the Borrower’s account from the Issuing Bank shall be conclusive upon
the Agent and may be charged to the Borrower’s Operating Account.




     (d) The Agent shall not be responsible for: (a) the existence, character, quality, quantity,
condition, packing, value or delivery of the goods purporting to be represented by any documents;
(b) any difference or variation in the character, quality, quantity, condition, packing, value or
delivery of the goods from that expressed in the documents; (c) the validity, sufficiency or
genuineness of any documents or of any endorsements thereon, even if such documents should in fact
prove to be in any or all respects invalid, insufficient, fraudulent or forged; (d) the time,
place, manner or order in which shipment is made; partial or incomplete shipment, or failure or
omission to ship any or all of the goods referred to in the Letters of Credit or documents; (e)
any deviation from instructions; (f) delay, default, or fraud by the shipper and/or anyone else in
connection with the goods or the shipping thereof; or (g) any breach of contract between the
shipper or vendors and the Borrower.




     (e) The Borrower agrees that any action taken by the Agent, if taken in good faith, or any
action taken by any Issuing Bank, under or in connection with the Letters of Credit, the Letter of
Credit Guarantees, the drafts or acceptances, or the Collateral, shall be binding on the Borrower
and shall not result in any liability whatsoever of the Agent to the Borrower. In furtherance
thereof, the Agent shall have the full right and authority to: (a) clear and resolve any questions
of non compliance of documents; (b) give any instructions as to acceptance or rejection of any
documents or goods; (c) execute any and all steamship or airways guarantees (and applications
therefor), indemnities or delivery orders; (d) grant any extensions of the maturity of, time of
payment for, or time of presentation of, any drafts, acceptances, or









 



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documents; and (e) agree to any amendments, renewals, extensions, modifications, changes or
cancellations of any of the terms or conditions of any of the applications, Letters of Credit,
drafts or acceptances or Letters of Credit Guarantees; all in the Agent’s sole discretion. The
Issuing Bank shall be entitled to comply with and honor any and all such documents or instruments
executed by or received solely from the Agent, all without any consent from the Borrower. In
addition, without the Agent’s express consent and endorsement in writing, the Borrower agrees: (a)
not to (i) execute any applications for steamship or airway guarantees, indemnities or delivery
orders; (ii) grant any extensions of the maturity of, time of payment for, or time of presentation
of, any drafts, acceptances or documents; or (iii) agree to any amendments, renewals, extensions,
modifications, changes or cancellations of any of the terms or conditions of any of the
applications, Letters of Credit, drafts or acceptances or Letters of Credit Guarantees; and (b)
upon the occurrence and during the continuance of an Event of Default, not to (i) clear and
resolve any questions of non compliance of documents, or (ii) give any instructions as to
acceptances or rejection of any documents or goods.




     (f) The Borrower shall, and shall cause each other Credit Party to: (a) procure any necessary
import, export or other licenses or certificates for the import or handling of the Collateral; (b)
comply with all Applicable Law in regard to the shipment and importation of the Collateral, or the
financing thereof; and (c) deliver to the Agent any certificates in that regard that the Agent may
at any time request to be furnished. In connection herewith, the Borrower warrants and represents
that all shipments made under any such Letters of Credit are in accordance with Applicable Law of
the countries in which the shipments originate and terminate, and are not prohibited by any such
Applicable Law. The Borrower assumes all risk, liability and responsibility for, and agrees to
pay and discharge, all present and future local, provincial, state, federal or foreign Taxes,
duties, or levies with respect to such Collateral. Any embargo, restriction, laws, customs or
regulations of any country, state, city, or other political subdivision, where the Collateral is
or may be located, or wherein payments are to be made, or wherein drafts may be drawn, negotiated,
accepted, or paid, shall be solely the Borrower’s risk, liability and responsibility.




     (g) Upon any payments made to the Issuing Bank under the Letter of Credit Guarantee, the
Agent shall acquire by subrogation, any rights, remedies, duties or obligations granted or
undertaken by the Borrower to the Issuing Bank in any application for Letters of Credit, any
standing agreement relating to Letters of Credit or otherwise, all of which shall be deemed to
have been granted to the Agent and apply in all respects to the Agent and shall be in addition to
any rights, remedies, duties or obligations contained herein.


2.19 [Intentionally Deleted]..




ARTICLE 3

REPRESENTATIONS AND WARRANTIES




          In order to induce the Agent and the Lenders to enter into this Agreement, to make any Loans
hereunder and to issue any Letters of Credit hereunder, each Credit Party hereby represents and
warrants to the Agent and each Lender that each statement set forth in this Article 3 is true and
correct on the date hereof, and will be true and correct on the date of each










 



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Borrowing, on the date each Letter of Credit is requested hereunder and on the date each
Letter of Credit is issued hereunder:



3.1 Organization; Powers. The Borrower and each other Credit Party is duly organized,
validly existing and in good standing under the laws of the jurisdiction of its organization, has
all requisite power and authority to carry on its business as now and formerly conducted and,
except where the failure to do so, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect, is qualified to do business in, and is in good
standing in, every jurisdiction where such qualification is required.



3.2 Authorization; Enforceability. The Transactions are within each Credit Party’s
corporate or partnership powers and have been duly authorized by all necessary corporate and, if
required, shareholder action. This Agreement and the other Loan Documents have been duly executed
and delivered by the Borrower and each other Credit Party party thereto and constitute legal, valid
and binding obligations of the Borrower and each other Credit Party party thereto, enforceable in
accordance with their terms, subject to applicable bankruptcy, insolvency, reorganisation,
moratorium or other Applicable Laws affecting creditors’ rights generally and subject to general
principles of equity, regardless of whether considered in a proceeding in equity or at law.



3.3 Governmental Approvals; No Conflicts. The Transactions (a) do not require any consent
or approval of, registration or filing with, or any other action by, any Governmental Authority,
except as disclosed in Schedule 3.3, (b) will not violate any Applicable Law or the charter,
by-laws or other organizational documents of the Borrower or any other Credit Party or any order of
any Governmental Authority, (c) will not violate or result in a default under any indenture,
agreement or other instrument binding upon the Borrower or any other Credit Party or their
respective assets, or give rise to a right thereunder to require any payment to be made by the
Borrower or any other Credit Party, and (d) will not result in the creation or imposition of any
Lien on any asset of the Borrower or any other Credit Party, except for any Lien arising in favour
of the Agent, for the benefit of the Lenders, under the Loan Documents.



3.4 Financial Condition; No Material Adverse Effect.





     (a) The Borrower has furnished to the Lenders its consolidated balance sheets and statements
of income, retained earnings and changes in financial position as of and for the portion of the
Fiscal Quarter ended September 30, 2009. Such financial statements present fairly, in all
material respects, the consolidated financial position and results of operations and cash flows of
the Borrower as of such dates and for such periods in accordance with GAAP.




     (b) Since September 30, 2009, there has been no event, development or circumstance that has
had or could reasonably be expected to have a Material Adverse Effect.




     (c) All information (including that disclosed in all financial statements) pertaining to the
Borrower and its Subsidiaries (other than projections) (in this Section 3.4(c), the “Information”)
that has been or will be made available to the Lenders, or the Agent by the Borrower or any
representative of the Borrower and the other Credit Parties, taken as a whole, is or will be, when
furnished, complete and correct in all material respects and does not or will not, when furnished,
contain any untrue statement of a material fact or omit to state a material









 



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fact necessary in order to make the statements contained therein not materially misleading in
light of the circumstances under which such statements are made. The projections that have been
or will be made available to the Lenders, or the Agent by the Borrower or any representative of
the Borrower have been or will be prepared in good faith based upon reasonable assumptions.


3.5 Litigation.





     (a) Except as disclosed in Schedule 3.5, there are no actions, suits, counterclaims or
proceedings (including any Tax-related matter) by any Person or investigation by any Governmental
Authority pending against or, to the knowledge of the Borrower, threatened against or affecting
the Borrower or any of the other Credit Parties (i) as to which there is a reasonable possibility
of an adverse determination and that, if adversely determined, could reasonably be expected,
individually or in the aggregate, to result in a Material Adverse Effect (other than the Disclosed
Matters), or (ii) that involve this Agreement, any other Loan Document, or the Transactions.




     (b) Since the date of this Agreement, there has been no change in the status of the Disclosed
Matters that, individually or in the aggregate, has resulted in, or materially increased the
likelihood of, a Material Adverse Effect.


3.6 Compliance with Applicable Laws and Agreements. The Borrower and each other Credit
Party is in compliance with all Applicable Laws applicable to it or its property and all
indentures, agreements and other instruments binding upon it or its property, except where the
failure to do so, individually or in the aggregate, could not reasonably be expected to result in a
Material Adverse Effect. Neither the Borrower nor any other Credit Party has violated or failed to
obtain any Authorization necessary to the ownership of any of its property or assets or the conduct
of its business, which violation or failure could reasonably be expected to have (in the event that
such a violation or failure were asserted by any Person through appropriate action) a Material
Adverse Effect.



3.7 Ownership. As at the date of this Agreement, the registered and beneficial holders of
all of the Equity Securities of the Borrower are as set out on Schedule 3.7.



3.8 Taxes. Other than as disclosed in Schedule B, the Borrower and each other Credit Party
has timely filed or caused to be filed all Tax returns and reports required to have been filed and
has paid or caused to be paid all Taxes required to have been paid by it (including all instalments
with respect to the current period) and has made adequate provision for Taxes for the current
period, except Taxes that are being contested in good faith by appropriate proceedings and for
which the Borrower or such other Credit Party, as applicable, has set aside on its books adequate
reserves.



3.9 Titles to Real Property. The Borrower and each other Credit Party have indefeasible
fee simple title to their respective owned real properties (or in Quebec, immoveable properties),
and with respect to leased real properties, indefeasible title to the leasehold estate with respect
thereto, pursuant to valid and enforceable leases, free and clear of all Liens except Permitted
Liens, including the Liens disclosed to the Lenders in Schedule 3.9.










 



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3.10 Titles to Personal Property. The Borrower and each other Credit Party have title to
their respective owned personal properties (or, in Quebec, moveable properties), and with respect
to leased personal properties, title to the leasehold estate with respect thereto, pursuant to
valid and enforceable leases, free and clear of all Liens except Permitted Liens, including the
Liens disclosed in Schedule 3.10.



3.11 Pension Plans. The Pension Plans are duly registered under the ITA and any other
Applicable Laws which require registration, have been administered in accordance with the ITA and
such other Applicable Laws and no event has occurred which could reasonably be expected to cause
the loss of such registered status, except to the extent that any failure to do so could not
reasonably be expected to have a Material Adverse Effect. All material obligations of the Borrower
and each other Credit Party (including fiduciary, funding, investment and administration
obligations) required to be performed in connection with the Pension Plans and the funding
agreements therefor have been performed on a timely basis, except to the extent that any failure to
do so could not reasonably be expected to have a Material Adverse Effect. There are no outstanding
disputes concerning the assets of the Pension Plans or any benefit plans. No promises of benefit
improvements under the Pension Plans or any benefit plans have been made except where such
improvement could not reasonably be expected to have a Material Adverse Effect. All contributions
or premiums required to be made or paid by the Borrower and each other Credit Party to the Pension
Plans or any benefit plans have been made on a timely basis in accordance with the terms of such
plans and all Applicable Laws. There have been no improper withdrawals or applications of the
assets of the Pension Plans or any benefit plans. Except as disclosed in Schedule 3.11, as of the
date hereof, each of the Pension Plans is fully funded on a solvency basis and going concern basis
(using actuarial methods and assumptions which are consistent with the valuations last filed with
the applicable Governmental Authorities and which are consistent with GAAP).



3.12 Disclosure. The Borrower has disclosed to the Lenders all agreements, instruments and
corporate or other restrictions to which it or any other Credit Party is subject, and all other
matters known to it, that, individually or in the aggregate, could reasonably be expected to result
in a Material Adverse Effect.



3.13 Defaults. Neither the Borrower nor any other Credit Party is in default nor has any
event or circumstance occurred which, but for the passage of time or the giving of notice, or both,
would constitute a default (in any respect that would have a Material Adverse Effect) under any
loan or credit agreement, indenture, mortgage, deed of trust, security agreement or other
instrument or agreement evidencing or pertaining to any Indebtedness of or Lien against the
Borrower or any other Credit Party, or under any material agreement or instrument to which the
Borrower or any other Credit Party is a party or by which the Borrower or any other Credit Party is
bound, except as disclosed to the Lenders in Schedule 3.13. No Default has occurred and is
continuing.



3.14 Casualties; Taking of Properties. Since September 30, 2009, neither the business nor
the properties of the Borrower or any other Credit Party have been affected in a manner that has
had, or could reasonably be expected to have, a Material Adverse Effect as a result of any fire,
explosion, earthquake, flood, drought, windstorm, accident, strike or other labour disturbance,
embargo, requisition or taking of property or cancellation of contracts, permits or concessions by








 



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any domestic or foreign Governmental Authority, riot, activities of armed forces, or acts of God or
of any public enemy.



3.15 Subsidiaries. As of the date of this Agreement, Schedule 3.15 correctly sets forth
the (i) names, (ii) form of legal entity, (iii) Equity Securities issued and outstanding, (iv)
Equity Securities owned by the Borrower or a Subsidiary of the Borrower (and specifying such
owner), and (v) jurisdictions of organization of all Subsidiaries of the Borrower. Except as
described in Schedule 3.15, as of the date of this Agreement, the Borrower does not own any Equity
Securities or debt security which is convertible, or exchangeable, for Equity Securities of any
other Person. Unless otherwise indicated in Schedule 3.15, as of the date of this Agreement, all
of the outstanding Equity Securities of each Restricted Subsidiary is owned of record and
beneficially by the Borrower, there are no outstanding options, warrants or other rights to
purchase Equity Securities of any such Restricted Subsidiary, and all such Equity Securities so
owned are duly authorized, validly issued, fully paid and non-assessable, and were issued in
compliance with all applicable federal, provincial or foreign securities and other Applicable Laws,
and are free and clear of all Liens, except for Permitted Liens.



3.16 Insurance. All policies of fire, liability, workers’ compensation, casualty, flood,
business interruption and other forms of insurance owned or held by the Borrower or any other
Credit Party are (a) sufficient for compliance with all requirements of Applicable Law and of all
agreements to which the Borrower or any other Credit Party is a party, (b) are valid, outstanding
and enforceable policies, (c) provide adequate insurance coverage in at least such amounts and
against at least such risks (but including in any event public liability) as are usually insured
against in the same general area by Persons engaged in the same or a similar business to the assets
and operations of the Borrower and each other Credit Party, and (d) will not in any way be
adversely affected by, or terminate or lapse by reason of, the Transactions. All such material
policies are in full force and effect, all premiums with respect thereto have been paid in
accordance with their respective terms, and no notice of cancellation or termination has been
received with respect to any such policy. Neither the Borrower nor any other Credit Party
maintains any formalized self-insurance program with respect to its assets or operations or
material risks with respect thereto. The certificate of insurance delivered to the Agent pursuant
to Section 4.1(f) contains an accurate and complete description of all material policies of
insurance owned or held by the Borrower and each other Credit Party on the date of this Agreement
that relate to the Collateral and business interruption.



3.17 Solvency. Neither the Borrower nor any other Credit Party is an “insolvent person”
within the meaning of the BIA.



3.18 Material Contracts. Schedule C sets out all Material Contracts as of the date of this
Agreement. A true and complete copy of each Material Contract has been delivered to the Agent as
of the date of this Agreement. Each of the Material Contracts is in full force and effect.
Neither the Borrower nor any Restricted Subsidiary is in default under or in breach of any term or
condition of any Material Contract that would have, either individually or in the aggregate, a
Material Adverse Effect, nor is the Borrower or any Restricted Subsidiary aware of any default
under or breach of any term or condition of any Material Contract by any other party thereto that
would have a Material Adverse Effect. No contract to which the Borrower or any Restricted
Subsidiary is a party contains any material provisions which impose burdensome or onerous








 



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obligations on the Borrower or any Restricted Subsidiary which are inconsistent with prudent
commercial activity by the Borrower or any Restricted Subsidiary.



3.19 Environmental Matters. Except as disclosed to the Lenders in the Disclosed Matters or
set out in the Phase I Environmental Report:





     (a) Environmental Laws. Neither any property of the Borrower or its Subsidiaries nor
the operations conducted thereon violate any applicable order of any court or Governmental
Authority or any Environmental Laws, which violation could reasonably be expected to result in
remedial obligations having a Material Adverse Effect, assuming disclosure to the applicable
Governmental Authority of all material relevant facts, conditions and circumstances, if any,
pertaining to the relevant property.




     (b) Notices and Permits. All notices, permits, licenses or similar authorizations,
if any, required to be obtained or filed by the Borrower or its Subsidiaries in connection with
the operation or use of any and all property of the Borrower or its Subsidiaries, including but
not limited to past or present treatment, transportation, storage, disposal or Release of
Hazardous Materials into the environment, have been duly obtained or filed, except to the extent
the failure to obtain or file such notices, permits, licenses or similar authorizations could not
reasonably be expected to have a Material Adverse Effect, or which could not reasonably be
expected to result in remedial obligations having a Material Adverse Effect, assuming disclosure
to the applicable Governmental Authority of all material relevant facts, conditions and
circumstances, if any, pertaining to the relevant property.




     (c) Hazardous Substances Carriers. All Hazardous Materials generated at any and all
property of the Borrower or its Subsidiaries have been treated, transported, stored and disposed
of only in accordance with all Environmental Laws applicable to them, except to the extent the
failure to have such Hazardous Materials transported, treated or disposed by such carriers could
not reasonably be expected to have a Material Adverse Effect, and only at treatment, storage and
disposal facilities maintaining valid permits under applicable Environmental Laws, which carriers
and facilities have been and are operating in compliance with such permits, except to the extent
the failure to have such Hazardous Materials treated, transported, stored or disposed at such
facilities, or the failure of such carriers or facilities to so operate, could not reasonably be
expected to have a Material Adverse Effect or which could not reasonably be expected to result in
remedial obligations having a Material Adverse Effect, assuming disclosure to the applicable
Governmental Authority of all material relevant facts, conditions and circumstances, if any,
pertaining to the relevant property.




     (d) Hazardous Materials Disposal. The Borrower and its Subsidiaries have taken all
reasonable steps necessary to determine and have determined that no Hazardous Materials have been
disposed of or otherwise released and there has been no threatened Release of any Hazardous
Materials on or to any property of the Borrower or its Subsidiaries other than in compliance with
Environmental Laws, except to the extent the failure to do so could not reasonably be expected to
have a Material Adverse Effect or which could not reasonably be expected to result in remedial
obligations having a Material Adverse Effect, assuming disclosure to the applicable Governmental
Authority of all material relevant facts, conditions and circumstances, if any, pertaining to the
relevant property.









 



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     (e) No Contingent Liability. The Borrower and its Subsidiaries have no material
contingent liability in connection with any Release or threatened Release of any Hazardous
Materials into the environment other than such contingent liabilities at any one time and from
time to time which could reasonably be expected to exceed Cdn.$250,000 in excess of applicable
insurance coverage and for which adequate reserves for the payment thereof as required by GAAP
have been provided, or which could reasonably be expected to result in remedial obligations having
a Material Adverse Effect, assuming disclosure to the applicable Governmental Authority of all
relevant facts, conditions and circumstances, if any, pertaining to such Release or threatened
Release.


3.20 Employee Matters.





     (a) Except as set forth on Schedule 3.20 as of the date of this Agreement, none of the
Borrower or any of the other Credit Parties, nor any of their respective employees, is subject to
any collective bargaining agreement. There are no strikes, slowdowns, work stoppages or
controversies pending or, to the best knowledge of the Borrower, threatened against the Borrower
or any other Credit Party, or their respective employees, which could reasonably be expected to
have, either individually or in the aggregate, a Material Adverse Effect. Except as set forth in
Schedule 3.20 as of the date of this Agreement, none of the Borrower nor any other Credit Party is
subject to an employment contract providing for a fixed term of employment or providing for
special payments on termination of employment.




     (b) Each of the Borrower and the other Credit Parties has withheld from each payment to each
of their respective officers, directors and employees the amount of all Taxes, including income
tax, pension plan, unemployment insurance and other payments and deductions required to be
withheld therefrom, and has paid the same to the proper taxation or other receiving authority in
accordance with Applicable Law. None of the Borrower nor any other Credit Party is subject to any
claim by or liability to any of their respective officers, directors or employees for salary
(including vacation pay) or benefits which would rank in whole or in part pari passu with or prior
to the Liens created by the Security Documents, other than Permitted Liens to the extent reserved
for as Priority Payables. No Pension Plan or fund maintained by or on behalf of the Borrower or
any of other Credit Party for the benefit of any officer, director or employee of the Borrower or
any other Credit Party is a so-called defined benefit plan. For any Pension Plan or fund, and for
any other employee benefit plan, which is a defined contribution plan requiring the Borrower or
any Restricted Subsidiary to contribute thereto, or to deduct from payments to any individual and
pay such deductions into or to the credit of such Pension Plan or fund, all required employer
contributions have been properly withheld by the Borrower or such Restricted Subsidiary and fully
paid into the funding arrangements for the applicable Pension Plan or fund. Any assessments owed
to the Pension Benefits Guarantee Fund established under the Pension Benefits Act (Ontario), or
other assessments or payments required under similar legislation in any other jurisdiction, have
been paid when due. None of the Borrower, any Restricted Subsidiary or any of their respective
Affiliates is subject to the United States Employee Retirement Income Security Act of 1974, as
amended.


3.21 Fiscal Year. The Fiscal Year of the Borrower ends on December of each calendar year.










 



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3.22 Intellectual Property Rights. The Borrower and each Restricted Subsidiary is the
registered and beneficial owner of, with good and marketable title, free of all licenses,
franchises and Liens other than Permitted Liens, to all patents, patent applications, trade marks,
trade mark applications, trade names, service marks, copyrights, industrial designs, integrated
circuit topographies, or other rights with respect to the foregoing and other similar property,
used in or necessary for the present and planned future conduct of its business, without any
conflict with the rights of any other Person, other than as listed on Schedule 3.22, or other than
for such conflicts as could not reasonably be expected to have a Material Adverse Effect. All
material patents, trade marks, trade names, service marks, copyrights, industrial designs,
integrated circuit topographies, and other similar rights owned or licensed by the Borrower or any
Restricted Subsidiary, and all rights of the Borrower and each Restricted Subsidiary to the use of
any patents, trade marks, trade names, service marks, copyrights, industrial designs, integrated
circuit topographies, or other similar rights, are described in Schedule 3.22 (collectively, the
“Intellectual Property Rights”). Except as set forth in Schedule 3.22, no material claim has been
asserted and is pending by any Person with respect to the use by the Borrower or any Restricted
Subsidiary of any intellectual property or challenging or questioning the validity, enforceability
or effectiveness of any intellectual property necessary for the conduct of the business of the
Borrower or any Restricted Subsidiary. Except as disclosed in Schedule 3.22 or except as could not
reasonably be expected to have a Material Adverse Effect, (i) the Borrower and each Restricted
Subsidiary has the exclusive right to use the intellectual property which the Borrower (or each
Restricted Subsidiary) owns, (ii) all applications and registrations for such intellectual property
are current, and (iii) to the knowledge of the Borrower, the conduct of the Borrower’s and each
Restricted Subsidiary’s business does not infringe the intellectual property rights of any other
Person.



3.23 Residency of Borrower for Tax Purposes. The Borrower is a resident of Canada for
Canadian tax purposes.



3.24 Distributions. No Distribution has been declared, paid, or made upon or in respect of
Equity Securities in any Credit Party since September 30, 2009.



3.25 Debt. None of the Credit Parties nor any of their Subsidiaries has any Indebtedness
except (a) the Obligations, (b) the Indebtedness set forth in the most recent financial statements
delivered to the Agent, or the notes thereto, (c) Tax obligations (including deferred Taxes), trade
payables and other contractual obligations arising in the ordinary course of business as carried on
by the Credit Parties and their Subsidiaries since the date of such financial statements, and (d)
Indebtedness created in accordance with Section 6.1.



3.26 Workers’ Compensation. None of the Credit Parties has any unpaid workers’
compensation or like obligations except as are being incurred, and paid on a current basis in the
ordinary course of business, and there are no proceedings, claims, actions, orders or
investigations of any Governmental Authority relating to workers’ compensation outstanding, pending
or, to their knowledge, threatened relating to them or any of their employees or former employees
which could reasonably be expected to have a Material Adverse Effect.










 



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3.27 Bank Accounts. Schedule 3.27 contains as of the date of this Agreement a complete and
accurate list of all bank accounts maintained by the Credit Parties with any bank or other
financial institution.



3.28 Real Property and Leases. Schedule 3.28 hereto is a correct and complete list, of all
real property owned by each Credit Party, all leases and subleases of real property or movable or
personal property by any Credit Party, as lessee or sublessee, and all leases and subleases of real
property or movable or personal property by any Credit Party, as lessor or sublessor.



3.29 Further Real Property Matters.





     (a) Except as advised in writing to the Agent, to the best of the knowledge of the Borrower,
no investigation or proceeding of any Governmental Authority is pending in respect of real
property owned by any of the Credit Parties. No part of any such real property has been
condemned, taken or expropriated by any Governmental Authority, federal, state, provincial,
municipal or any other competent authority.




     (b) Except as advised in writing to the Agent, all present uses in respect of any real
property of the Credit Parties may lawfully be continued and all permitted uses are satisfactory
for the Credit Parties’ current and intended purposes; and




     (c) No Inventory is located at any leased real property of the Credit Parties except as
indicated in Schedule 3.28.


3.30 Jurisdictions of Credit Parties. Schedule 3.30 sets out the various jurisdictions in
which the Borrower and each other Credit Party carries on business or has tangible assets having an
aggregate value in excess of Cdn.$250,000.




ARTICLE 4

CONDITIONS



4.1 Effective Date. The obligations of the Lenders to make Loans or provide a Letter of
Credit Guarantee hereunder shall not become effective until the date on which each of the following
conditions is satisfied (or waived in accordance with Section 9.2):





     (a) Credit Agreement. The Agent (or its counsel), each Lender, and the Issuing Bank
shall have received from each party hereto either (i) a counterpart of this Agreement signed on
behalf of each party hereto, or (ii) written evidence satisfactory to the Agent (which may include
facsimile transmission of a signed signature page of this Agreement) that each such party has
signed a counterpart of this Agreement.




     (b) Legal Opinions. The Agent shall have received a favourable written opinion of
counsel to the Borrower, and covering such matters relating to the Borrower, the Credit Parties,
this Agreement, the other Loan Documents, or the Transactions as the Lenders shall reasonably
request (together with copies of all factual certificates and legal opinions delivered to such
counsel in connection with such opinion upon which counsel has relied). The Agent shall also have
received favourable written opinions of such special and local counsel as may be required









 



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by the Agent (together with copies of all factual certificates and legal opinions delivered
to such counsel in connection with such opinion upon which such counsel has relied). The Borrower
hereby requests each such counsel to deliver such opinions and supporting materials. All opinions
and certificates referred to in this Section 4.1(b) shall be addressed to the Agent and the
Lenders and dated as of the date hereof.




     (c) Corporate Certificates. The Agent shall have received:




	 	(i)	 	certified copies of the resolutions of the Board of
Directors of the General Partner, and any other Credit Party which is a
party to any Loan Document, dated as of the date hereof, and approving, as
appropriate, the Loans, this Agreement and the other Loan Documents, and
all other documents, if any, to which the Borrower or such other Credit
Party is a party and evidencing corporate authorization with respect to
such documents; and
	 
	 	(ii)	 	a certificate of the Secretary or an Assistant
Secretary of the Borrower, and any other Credit Party which is a party to
any Loan Document, dated as of the date hereof, and certifying (A) the
name, title and true signature of each officer of such Person authorized to
execute this Agreement and the other Loan Documents to which it is a party,
(B) the name, title and true signature of each officer of such Person
authorized to provide the certifications required pursuant to this
Agreement, including certifications required pursuant to Section 5.1 and
Borrowing Requests, and (C) that attached thereto is a true and complete
copy of the Certificate of Limited Partnership and Limited Partnership
Agreement of the Borrower, and any other Credit Party which is a party to
any Loan Document, as amended to date, and a recent certificate of status,
certificate of compliance, good standing certificate or analogous
certificate.






     (d) Closing Conditions Certificate. The Agent shall have received a certificate,
dated as of September 30, 2009 and signed by a Responsible Officer of the Borrower, confirming
compliance with the financial covenants set forth in Section 5.12 and with the conditions set
forth in Section 4.2(a) and (b).




     (e) Fees. The Agent and the Lenders shall have received all fees and other amounts
due and payable on or prior to the date of this Agreement, including, to the extent invoiced,
reimbursement or payment of all legal fees and other Out-of-Pocket Expenses required to be
reimbursed or paid by the Borrower hereunder or under any other Loan Document.




     (f) Insurance. The Agent shall have received a certificate of insurance coverage,
naming CIT, as agent, as first loss payee in respect of the Collateral and in respect of business
interruption insurance dated not more than 30 days prior to the date of this Agreement, evidencing
that the Borrower and its Restricted Subsidiaries are carrying insurance in accordance with
Section 5.9 hereof.









 



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     (g) Inventory Control Systems; Appraisal; Field Audit; Opening Availability. The
Agent shall have reviewed and be satisfied with the Collateral, the inventory control systems, the
books and records and the reporting capability of the Credit Parties. The Agent shall have
received appraisals, completed by a reputable and independent appraisal firm at the expense of the
Borrower, determining the value-in-use of the real and personal property of the Credit Parties.
In addition, the Agent shall have received the results of an updated field audit, and the
Borrowing Base on the Original Effective Date shall be sufficient in value, as determined by
Agent, to provide Borrower with a Borrowing Base, after giving effect to the extensions of credit
to be made hereunder on the Original Effective Date (on a pro forma basis, with trade payables
being paid currently, and expenses and liabilities being paid in the ordinary course of business
and without acceleration of sales or deterioration of working capital) of at least Cdn.$5,000,000.




     (h) [Intentionally Deleted.]




     (i) No Cessation of Financing Market. There shall have not been occurred and be
continuing on the date of this Agreement any general banking moratorium or any practical cessation
in the bank or private debt financing markets, and there shall not have been introduced any
material governmental restrictions imposed on lending institutions, which materially affect the
type of lending transactions contemplated by this Agreement.




     (j) Execution and Delivery of Documentation. The Borrower and any other Credit Party
which is a party to any Loan Document shall have duly authorized, executed and delivered all
documents, including Loan Documents, required hereunder, all in form and substance satisfactory to
the Agent, acting reasonably, and all of the Security Documents shall have been registered in all
offices in which, in the opinion of the Agent or its counsel, registration is necessary or of
advantage to preserve the priority of the Liens intended to be created thereby, and duplicate
copies of such Security Documents bearing or accompanied by appropriate endorsements or
certificates of registration shall have been delivered to the Agent. The Agent shall have
received and be satisfied with the results of all personal property, pending litigation, judgment,
bankruptcy, bulk sale, execution and other searches conducted by the Agent and its counsel with
respect to the Borrower and any other Credit Party in all jurisdictions selected by the Agent and
its counsel.




     (k) Security Documents. The Agent shall have received:




	 	(i)	 	the Parent Guarantee and a guarantee executed by each
Credit Party other than the Borrower (if any) in favour of the Agent, as
agent for the Lenders, dated as of the Original Effective Date;
	 
	 	(ii)	 	a security agreement executed by each Credit Party in
favour of the Agent, as agent for the Lenders, dated as of the Original
Effective Date, constituting a first-priority Lien on all present and after
acquired (a) accounts receivable, (b) inventory, (c) intangibles, (d)
collateral proceeds accounts and (e) Equity Securities, of each Subsidiary
of the Borrower, subject only to Permitted Liens; and










 



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	 	(iii)	 	securities pledge agreements executed by each Credit
Party in favour of the Agent, as agent for the Lenders, dated as of the
Original Effective Date, together with all stock certificates, instruments
and other documents required to be delivered to the Agent pursuant to such
securities pledge agreements,






provided that if any of the foregoing documents are not suitable for use in any
jurisdiction, the applicable Credit Party shall provide to the Agent alternative document(s)
with substantially equivalent substantive effect and which are suitable for use in such
jurisdiction.




     (l) Landlord Waivers; Bailee Letters. The Agent shall have received (i) executed
copies of a landlord waiver, in form and substance satisfactory to the Agent, acting reasonably,
from each landlord of Real Property where any Collateral of any of the Credit Parties is located
and (ii) bailee letters, in form and substance reasonably satisfactory to the Agent, from each
bailee who is in possession of any Collateral of any of the Credit Parties.




     (m) Regulatory Approval; Consents; Waivers. The Agent and the Lenders shall be
satisfied, acting reasonably, that all material Authorizations required in connection with the
Transactions contemplated hereby have been obtained and are in full force and effect (including
all approvals listed in Schedule 3.3), and that all consents and waivers required to consummate
the Transactions have been obtained, to the extent that consummation of the Transactions would
otherwise be restricted or prohibited under the terms of any Material Contract to which the
Borrower or any other Credit Party is a party, or by which it is bound, in each case without the
imposition of any burdensome provisions.




     (n) Delivery of Financial Statements. The Agent and the Lenders shall have received
and be satisfied with the unaudited consolidated and consolidating balance sheets, statements of
income and retained earnings and statements of changes in financial position of the Borrower and
its Subsidiaries for the Fiscal Quarter ended September 30, 2009.




     (o) No Material Adverse Change. The Agent and the Lenders shall be satisfied that,
since September 30, 2009, there has not been a Material Adverse Change.




     (p) Other Documentation. The Agent and the Lenders shall have received such other
documents and instruments as are customary for transactions of this type or as they may reasonably
request.




     (q) Indebtedness. The Transactions contemplated in this Agreement and the other Loan
Documents shall not have caused any event or condition to occur which has resulted, or which will
result, in any Material Indebtedness becoming due prior to its scheduled maturity or that permits
(with or without the giving of notice, the lapse of time, or both) the holder or holders of any
Material Indebtedness or any trustee or agent on its or their behalf to cause any Material
Indebtedness to become due, or to require the prepayment, repurchase, redemption or defeasance
thereof, prior to its scheduled maturity, or which will result in the creation of any Liens under
any Indebtedness.









 



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     (r) Blocked Account/Cash Management Systems. The Agent shall have received evidence
satisfactory to the Agent that, as of the Original Effective Date, blocked account and cash
management systems complying with Section 2.17 have been established and are currently being
maintained in the manner set forth in such Section 2.17, and the Agent shall have received copies
of duly executed tri-party blocked account and other control agreements satisfactory to the Agent,
acting reasonably, with the banks and other Persons as required hereunder or pursuant to Section
5.14.




     (s) Material Contracts. The Agent and the Lenders shall be satisfied with the terms
and conditions of each of the Material Contracts.




     (t) Cancellation of Existing Credit Lines. Other than the Parent Subordinated Debt,
the Borrower shall have repaid all amounts outstanding under its existing credit lines or will
irrevocably direct the Lenders to do so from the first advance hereunder, and all such existing
credit lines shall have been or will, concurrent with such advance, be cancelled permanently.




     (u) Capitalization Arrangement. The Lenders shall be satisfied with the capital
structure of the Borrower, that the Borrower is solvent, and that the Borrower has sufficient
working capital to pay its debts as they become due.




     (v) [Intentionally Deleted].




The obligations of the Lenders to make Loans or provide a Letter of Credit Guarantee hereunder
shall not become effective unless each of the foregoing conditions is satisfied (or waived
pursuant to Section 9.2) at or prior to 3:00 p.m., Toronto time, on November 27, 2009 (and, in the
event such conditions are not so satisfied or waived by such time, the Commitments shall terminate
at such time).


4.2 Each Credit Event. The obligation of each Lender to make a Loan or provide a Letter of
Credit Guarantee on the occasion of any Borrowing, (including on the occasions of the initial
Borrowings hereunder), is subject to the satisfaction of the following conditions:





     (a) the representations and warranties of the Borrower set forth in this Agreement shall be
true and correct on and as of the date of each such Borrowing (including the date of issuance,
amendment, renewal or extension of such Letter of Credit, as applicable) as if made on such date
(except where such representation or warranty refers to a different date);




     (b) at the time of and immediately after giving effect to such Borrowing (including the
issuance, amendment, renewal or extension of such Letter of Credit, as applicable), no Default
shall have occurred and be continuing;




     (c) the Agent shall have received a Borrowing Request in the manner and within the time
period required by Section 2.3; and




     (d) except as may be otherwise agreed to from time to time by the Agent and the Borrower in
writing, after giving effect to the extension of credit requested to be made by the









 



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Borrower on such date, the aggregate Exposure will not exceed the lesser of (i) the
Commitments, or (ii) an amount equal to the Borrowing Base.


Each Borrowing, including each issuance, amendment, renewal or extension of a Letter of Credit,
shall be deemed to constitute a representation and warranty by the Borrower on the date thereof as
to the accuracy of the matters specified in paragraphs (a) and (b) above. This requirement does
not apply on the conversion or rollover of an existing Borrowing provided that the
aggregate outstanding Borrowings will not be increased as a consequence thereof.




ARTICLE 5

AFFIRMATIVE COVENANTS




          From (and including) the Original Effective Date until the Commitments have expired or been
terminated and the principal of and interest on each Loan and all fees payable hereunder shall have
been paid in full and all Letters of Credit and Letter of Credit Guarantees shall have expired and
been terminated and all Reimbursement Obligations have been satisfied by the Borrower, the Borrower
and each other Credit Party covenants and agrees with the Lenders that:



5.1 Financial Statements and Other Information. The Borrower will furnish to the Agent and
each Lender:





     (a) as soon as available and in any event within 120 days after the end of each Fiscal Year
of the Borrower, its audited consolidated balance sheet and related statements of income, retained
earnings and changes in financial position as of the end of and for such Fiscal Year, setting
forth in each case in comparative form the figures for the previous Fiscal Year, all reported on
by independent auditors of recognized national standing (without a “going concern” or like
qualification or exception and without any qualification or exception as to the scope of such
audit) to the effect that such consolidated financial statements present fairly in all material
respects the financial condition and results of operations of the Borrower and its Subsidiaries on
a consolidated basis in accordance with GAAP consistently applied;




     (b) as soon as available and in any event within 90 days after the end of each Fiscal Year of
the Parent, its audited consolidated balance sheet and related statements of income, retained
earnings and changes in financial position as of the end of and for such Fiscal Year, setting
forth in each case in comparative form the figures for the previous Fiscal Year, all reported on
by independent auditors of recognized national standing (without a “going concern” or like
qualification or exception and without any qualification or exception as to the scope of such
audit) to the effect that such consolidated financial statements present fairly in all material
respects the financial condition and results of operations of the Parent and its Subsidiaries on a
consolidated basis in accordance with GAAP consistently applied;




     (c) as soon as available and in any event within: (i) 30 days after the end of each calendar
month, except in respect of its first, second and third Fiscal Quarters; and (ii) 45 days after
the end of its first, second and third Fiscal Quarters, its unaudited consolidated balance sheet
and related statements of income, retained earnings and changes in financial position as of the
end of such month and the then elapsed portion of the Fiscal Year which includes such









 



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calendar month, setting forth in each case in comparative form the figures for the
corresponding period or periods of (or, in the case of the balance sheet, as of the end of) the
previous Fiscal Year, all certified by a Responsible Officer as presenting fairly in all material
respects the financial condition and results of operations of the Borrower and its Subsidiaries on
a consolidated basis in accordance with GAAP consistently applied, subject to normal year-end
audit adjustments, together with a management discussion and analysis of results, if any;




     (d) concurrently with the financial statements required pursuant to Sections 5.1(a) and (b)
above, a certificate of the Borrower, signed by a Responsible Officer (i) stating that a review of
such financial statements during the period covered thereby and of the activities of the Borrower
and the Subsidiaries has been made under such Responsible Officer’s supervision with a view to
determining whether the Borrower and the Subsidiaries have fulfilled all of their obligations
under this Agreement and the other Loan Documents, (ii) stating that the Borrower and the
Subsidiaries have fulfilled their obligations under this Agreement and the other Loan Documents
and that all representations made in this Agreement continue to be true and correct as if made on
the date of such certification (or specifying the nature of any change), except where such
representation or warranty refers to a different date, or, if there shall be a Default or Event of
Default, specifying the nature and status thereof and the Borrower’s proposed response thereto,
(iii) demonstrating in reasonable detail compliance (including showing all material calculations)
as at the end of the most recently completed Fiscal Year or the most recently completed calendar
month, as the case may be, with the covenants in Section 5.12, and (iv) containing or accompanied
by such financial or other details, information and material as the Agent may reasonably request
to evidence such compliance;




     (e) concurrently with the financial statements required pursuant to Section 5.1(a) and (b), a
certificate of the Borrower, signed by a Responsible Officer, demonstrating in reasonable detail
compliance (including showing all material calculations) as at the end of the most recently
completed Fiscal Year or the most recently completed calendar month, as the case may be, with
Section 6.3, describing by category (utilizing the same categories as are used by the Borrower in
its internal financial reports) any Acquisitions permitted by Section 6.4 and any Capital
Expenditures made by the Borrower or any Restricted Subsidiary as of the end of such Fiscal Year;




     (f) copies of each management letter issued to the Borrower by its auditors promptly
following consideration or review thereof by the Board of Directors of the Borrower, or any
committee thereof (together with any response thereto prepared by the Borrower);




     (g) promptly upon the request of the Agent, and in any event no less frequently than monthly,
within 20 days of the last day of each calendar month, (together with a copy of all or any part of
the following reports requested by any Lender in writing after the Original Effective Date), each
of the following reports and certificates, each of which shall be prepared by the Borrowers as of
the last day of the immediately preceding calendar month (in a manner satisfactory to the Agent):




	 	(i)	 	a certified Borrowing Base Report, accompanied by
such supporting detail and documentation as shall be requested by the
Agent in its reasonable discretion;










 



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	 	(ii)	 	a monthly accounts receivable aging (including both
summary and detail format); showing Accounts outstanding aged from invoice
date as follows: 1 to 30 days past due, 31 to 60 days past due, 61-90
days past due, and 91 days or more past due, accompanied by such
supporting detail and documentation as shall be requested by the Agent in
its reasonable discretion, including the ledger for disputed/legal
accounts;
	 
	 	(iii)	 	a monthly accounts payable aging (including both
summary and detail format when available);
	 
	 	(iv)	 	a reconciliation of Accounts aging to the general
ledger and to the financial statement as at the month end;
	 
	 	(v)	 	a calculation of the Accounts which would not meet
the criteria of an Eligible Account Receivable;
	 
	 	(vi)	 	a copy of the internally generated monthly sales,
credit memo, debit memo journals and invoice register;
	 
	 	(vii)	 	a copy of the internally generated month end cash
receipts and collections journal;
	 
	 	(viii)	 	a reconciliation of the cash receipts journal to the blocked depository
account;
	 
	 	(ix)	 	an aged listing of the ten largest customer accounts
for the month;
	 
	 	(x)	 	an aged listing of the ten largest accounts payable
for the month;
	 
	 	(xi)	 	a detailed, monthly, Inventory listing based on a
perpetual inventory listing system (as determined by the Agent in its
audit process);
	 
	 	(xii)	 	a summary of Inventory of the Borrowers by location
and type with a supporting perpetual Inventory report, in each case,
accompanied by such supporting detail and documentation as shall be
requested by the Agent in its reasonable discretion; such summaries and
reports shall include the dollar value thereof (both at cost, determined
on a first in, first out basis, and at fair market value) by location and
product group;
	 
	 	(xiii)	 	a reconciliation of the monthly inventory perpetual listing to the
general ledger and to the financial statement as at month end;
	 
	 	(xiv)	 	a monthly general ledger/trial balance;
	 
	 	(xv)	 	a calculation and report as to the Inventory which
does not meet the definition of Eligible Inventory;










 



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     (h) promptly upon the request of the Agent, and in any event no less frequently than weekly,
on the 4th business day of the week (together with a copy of all or any part of the following
reports requested by any Lender in writing after the Original Effective Date), each of the
following reports and certificates, each of which shall be prepared by the Borrowers as of the last
day of the immediately preceding week (in a manner satisfactory to the Agent):




	 	(i)	 	a Borrowing Base Report (such weekly Borrowing Base
Reports to include Inventory values set out in the most recent month end
delivery unless requested otherwise by the Agent in consultation with the
Borrower);
	 
	 	(ii)	 	a weekly accounts receivable aging (including both
summary and detail format); showing Accounts outstanding aged from invoice
date as follows: 1 to 30 days past due, 31 to 60 days past due, 61-90
days past due, and 91 days or more past due, accompanied by such
supporting detail and documentation as shall be requested by the Agent in
its reasonable discretion, including the ledger for disputed/legal
accounts;
	 
	 	(iii)	 	a copy of the internally generated weekly sales
journal, invoice register;
	 
	 	(iv)	 	a copy of the internally generated credit memo
journal (if not included in the weekly sales journal);
	 
	 	(v)	 	a copy of the internally generated debit memo journal
(if not included in the weekly sales journal);
	 
	 	(vi)	 	a copy of the internally generated weekly cash
receipts and collections journal;






     (i) by the 25th day of each calendar month, as at the 15th day of the current calendar month,
(until the Agent advises the Borrowers otherwise, the Agent is requesting Inventory information on
a twice-monthly basis, however, the Agent may, in its sole discretion, determine that twice-monthly
inventory information is unnecessary and amend to monthly) a perpetual inventory listing, by
location, which reflects any differences from the month end Borrowing Base submitted as to such
Inventory;




     (j) such other reports designating, identifying and describing the Accounts as required by the
Agent and on a more frequent basis as the Agent may reasonably request in its reasonable credit
discretion;




     (k) such other reports designating, identifying and describing the Inventory as required by
the Agent and on a more frequent basis as the Agent may reasonably request in its reasonable credit
discretion;




     (l) at the time of delivery of each of the monthly financial statements delivered pursuant to
Section 5.1(c), (i) a listing of Accounts the assignment of which would be subject to the Financial
Administration Act (Canada) or the Federal Assignment of Claims Act of 1940 of









 



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the United States of America or any similar law of any jurisdiction or subject to a limitation
or restriction contained in the contract evidencing or relating to such Accounts and (ii) a list of
any applications for the registration of any patent, trademark or copyright filed by the Borrowers
or any Subsidiary with the Canadian Intellectual Property Office or any similar office or agency in
the prior calendar month;




     (m) the results of each physical verification, if any, that the Borrower may have made, or
caused any other Person to have made on its behalf, of all or any portion of its Inventory, within
10 Business Days of completion of any such physical verification (and, if a Default or an Event of
Default has occurred and be continuing, the Borrower shall, upon the request of the Agent,
conduct, and deliver the results of, such physical verifications as the Agent may require);




     (n) such appraisals determining the net orderly liquidation value of the Inventory of the
Borrower and the Restricted Subsidiaries as the Agent may request at any time, such appraisals to
be conducted by an appraiser that is acceptable to the Agent, and shall be in scope, form and
substance acceptable to the Agent; provided that if no Default or Event of Default has occurred
during a Fiscal Year of the Borrower, then the Borrower will only be liable for the expense of two
(2) such appraisals that are requested by the Agent in such Fiscal Year;




     (o) promptly after the Borrower learns of the receipt or occurrence of any of the following,
a certificate of the Borrower, signed by a Responsible Officer, specifying (i) any official notice
of any violation, possible violation, non-compliance or possible non-compliance, or claim made by
any Governmental Authority pertaining to all or any part of the properties of the Borrower or any
of the Subsidiaries which could reasonably be expected to have a Material Adverse Effect, (ii) any
event which constitutes a Default or Event of Default, together with a detailed statement
specifying the nature thereof and the steps being taken to cure such Default or Event of Default,
(iii) the receipt of any notice from, or the taking of any other action by, the holder of any
promissory note, debenture or other evidence of Indebtedness of the Borrower or any of the
Subsidiaries in an amount in excess of Cdn.$2,000,000 with respect to an actual or alleged
default, together with a detailed statement specifying the notice given or other action taken by
such holder and the nature of the claimed default and what action the Borrower or the relevant
Subsidiary is taking or proposes to take with respect thereto, (iv) any default or non-compliance
of any party to any of the Loan Documents with any of the terms and conditions thereof or any
notice of termination or other proceedings or actions which could reasonably be expected to
adversely affect any of the Loan Documents, (v) the creation, dissolution, merger or acquisition
of any Restricted Subsidiary, (vi) any event or condition not previously disclosed to the Agent,
which violates any Environmental Law and which could potentially, in the Borrower’s reasonable
judgment, have a Material Adverse Effect, (vii) any material amendment to, termination of, or
material default under a Material Contract or any execution of, or material amendment to,
termination of, or material default under, any material collective bargaining agreement, and
(viii) any other event, development or condition which may reasonably be expected to have a
Material Adverse Effect;




     (p) promptly after the occurrence thereof, notice of the institution of or any material
adverse development in any action, suit or proceeding or any governmental investigation or any
arbitration before any court or arbitrator or any Governmental Authority or official against









 



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the Borrower or any Restricted Subsidiary or any material property of any thereof which could
reasonably be expected to have a Material Adverse Effect;




     (q) annually, together with its delivery pursuant to Section 5.1(a), copies of each annual
and other report (including applicable schedules) with respect to each Pension Plan of the
Borrower or any Restricted Subsidiary or any trust created thereunder;




     (r) at the cost of the Borrower, up to a maximum amount of Cdn.$75,000 per year (and without
limit if a Default or Event of Default shall have occurred and be continuing), a report or reports
of an independent collateral field examiner (which collateral field examiner may be the Agent or
an Affiliate thereof) approved (i) by the Borrower, whose approval shall not be unreasonably
withheld, and (ii) by the Agent with respect to the Eligible Accounts and Eligible Inventory
components included in the Borrowing Base. The calculation of the foregoing maximum amount shall
not include reasonable out-of-pocket expenses incurred in connection therewith, which shall also
be for the account of the Borrower. The Agent may (and, at the direction of the Required Lenders,
shall) request such reports or additional reports as it (or the Required Lenders) shall reasonably
deem necessary;




     (s) upon request by the Agent, a summary of the insurance coverages of the Borrower and the
other Credit Parties, in form and substance reasonably satisfactory to the Agent, and upon renewal
of any insurance policy, a copy of an insurance certificate summarizing the terms of such policy,
and upon request by the Agent, copies of the applicable policies;




     (t) on or before the earlier of the 10th day after approval by the Board of Directors of the
Borrower and the 30th day before each Fiscal Year end, an annual budget of the Borrower and each
Restricted Subsidiary, approved by the Board of Directors of the General Partner, setting forth in
reasonable detail and on a monthly basis the projected revenues and expenses of the Borrower for
the following Fiscal Year, and shall include the Capital Expenditure Plan, it being recognized by
the Lenders that projections as to future results are not to be viewed as fact and that the actual
results for the period or periods covered by such projections may differ from the projected
results; and




     (u) concurrently with any delivery of financial statements under Section 5.1 (a) or (b)
above, a certificate of a Responsible Officer of the Borrower (i) stating whether any change in
GAAP or in the application thereof has occurred since the date of the audited financial statements
referred to in Section 5.1(a) and, if any such change has occurred, specifying the effect of such
change on the financial statements accompanying such certificate, (ii) identifying all its
Subsidiaries existing on the date of such certificate and indicating, for each such Subsidiary,
whether such Subsidiary is a Restricted Subsidiary and whether such Subsidiary was formed or
acquired since the end of the previous calendar month, (iii) identifying any parcels of real
property or improvements thereto that have been acquired by any Credit Party since the end of the
previous calendar month, and (iv) identifying any Permitted Acquisitions that have been completed
since the end of the previous calendar month, including the date on which each such Permitted
Acquisition was completed and the consideration therefor.


5.2 Existence; Conduct of Business. The Borrower will, and will cause each Restricted
Subsidiary to, do or cause to be done all things necessary to preserve, renew and keep in full








 



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force and effect its legal existence (subject only to Section 6.3), and obtain, preserve, renew and
keep in full force and effect any and all rights, licenses, permits, privileges and franchises
material to the conduct of its business.



5.3 Payment of Obligations. The Borrower will, and will cause each Restricted Subsidiary
to, pay its obligations, including Tax liabilities, that, if not paid, could result in a Material
Adverse Effect before the same shall become delinquent or in default, except where (a) the validity
or amount thereof is being contested in good faith by appropriate proceedings, (b) the Borrower or
such Restricted Subsidiary has set aside on its books adequate reserves with respect thereto in
accordance with GAAP, and (c) the failure to make payment pending such contest could not reasonably
be expected to result in a Material Adverse Effect.



5.4 Maintenance of Properties. The Borrower will, and will cause each Restricted
Subsidiary to, keep and maintain all property material to the conduct of its business in good
working order and condition, ordinary wear and tear excepted, except to the extent that the failure
to do so could not reasonably be expected to have a Material Adverse Effect.



5.5 Books and Records; Inspection Rights. The Borrower will, and will cause Restricted
Subsidiary to, keep proper books of record and account in which full, true and correct entries are
made of all dealings and transactions in relation to its business and activities. The Borrower
will, and will cause each Restricted Subsidiary to, permit any representatives designated by the
Agent or any Lender, upon reasonable prior notice, to visit and inspect its properties, to examine
and make extracts from its books and records, and to discuss its affairs, finances and condition
with its officers and independent accountants, all at such reasonable times and as often as
reasonably requested.



5.6 Compliance with Applicable Laws and Material Contracts. The Borrower will, and will
cause each Restricted Subsidiary to, comply with all Applicable Laws and orders of any Governmental
Authority applicable to it or its property and with all of its material contractual obligations,
except where the failure to do so, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect. The Borrower shall not modify, amend or alter its
Limited Partnership Agreement other than in a manner which does not adversely affect the rights of
the Lenders or the Agent.



5.7 Use of Proceeds and Letters of Credit. The proceeds of the Revolving Loans will be
used to repay existing Indebtedness to Royal Bank of Canada and for working capital and other
general corporate purposes of the Borrower. Letters of Credit will be issued only to support
general corporate purposes of the Borrower.



5.8 Further Assurances. The Borrower will and will cause each other Credit Party to cure
promptly any defects in the execution and delivery of the Loan Documents, including this Agreement.
Upon request, the Borrower will, at its expense, as promptly as practical, execute and deliver to
the Agent, all such other and further documents, agreements and instruments (and cause each other
Credit Party to take such action) in compliance with or performance of the covenants and agreements
of the Borrower or any other Credit Party in any of the Loan Documents, including this Agreement,
or to further evidence and more fully describe the Collateral, or to correct any omissions in any
of the Loan Documents, or more fully to state the








 



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security obligations set out herein or in any of the Loan Documents, or to perfect, protect or
preserve any Liens created pursuant to any of the Loan Documents, or to make any recordings, to
file any notices, or obtain any consents, all as may be necessary or appropriate in connection
therewith, in the judgment of the Agent, acting reasonably.



5.9 Insurance. The Borrower shall, and shall cause each other Credit Party to, maintain
insurance on its property and assets under such policies of insurance, with such insurance
companies, in such reasonable amounts and covering such insurable risks as are at all times
reasonably satisfactory to the Agent. All such policies are subject to the rights of any holders
of Permitted Liens holding claims senior to the Agent, to be made payable to the Agent, to the
extent required herein, in case of loss, under a standard non contributory “mortgagee”, “lender” or
“secured party” clause and are to contain such other provisions as the Agent may require to fully
protect the Agent’s interest in the property and assets subject to the Liens in favour of the Agent
and to any payments to be made under such policies. All original policies or true copies thereof
are to be delivered to the Agent, premium prepaid, with a loss payable endorsement in respect of
the Collateral and in respect of business interruption insurance in the Agent’s favour, and shall
provide for not less than thirty (30) days prior written notice to the Agent of the exercise of any
right of cancellation. Upon the occurrence and continuance of an Event of Default which is not
waived in writing by the Agent, the Agent shall, subject to the rights of any holders of Permitted
Liens holding claims senior to the Agent, have the sole right, in the name of the Agent, the
Borrower or any other applicable Credit Party, to file claims under any insurance policies in
respect of the Collateral and in respect of business interruption insurance, to receive, receipt
and give acquittance for any payments that may be payable thereunder, and to execute any and all
endorsements, receipts, releases, assignments, reassignments or other documents that may be
necessary to effect the collection, compromise or settlement of any such claims under any such
insurance policies. Upon the occurrence and during the continuance of an Event of Default, all
insurance proceeds in respect of any Collateral shall be paid to the Agent. The Agent may apply
such insurance proceeds to the Obligations in such manner as it may deem advisable in its sole
discretion. In the event the Borrower fails to provide the Agent with timely evidence, acceptable
to the Agent, of the maintenance of insurance coverage required pursuant to this Section 5.9, or in
the event that any Credit Party fails to maintain such insurance, the Agent may purchase or
otherwise arrange for such insurance, but at the Borrower’s expense and without any responsibility
on the Agent’s part for: (i) obtaining the insurance; (ii) the solvency of the insurance companies;
(iii) the adequacy of the coverage; or (iv) the collection of claims. The insurance acquired by
the Agent may, but need not, protect the Borrower’s or any other Credit Party’s interest in the
Collateral, and therefore such insurance may not pay claims which the Borrower may have with
respect to the Collateral or pay any claim which may be made against the Borrower in connection
with the Collateral. In the event the Agent purchases, obtains or acquires insurance covering all
or any portion of the Collateral, the Borrower shall be responsible for all of the applicable costs
of such insurance, including premiums, interest (at the applicable interest rate for Revolving
Loans set forth in Section 2.5), fees and any other charges with respect thereto, until the
effective date of the cancellation or the expiration of such insurance. The Agent may charge all
of such premiums, fees, costs, interest and other charges to the Borrower’s Operating Account. The
Borrower hereby acknowledges that the costs of the premiums of any insurance acquired by the Agent
may exceed the costs of insurance which the Borrower may be able to purchase on its own. In the
event that the Agent purchases such








 



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insurance, the Agent will promptly, and in any event within fifteen (15) days, notify the Borrower
of said purchase.



5.10 Operation and Maintenance of Property. The Borrower will, and will cause each other
Credit Party to, manage and operate its business or cause its business to be managed and operated
(i) in accordance with prudent industry practice in all material respects and in compliance in all
material respects with the terms and provisions of all applicable licenses, leases, contracts and
agreements, and (ii) in compliance with all Applicable Laws of the jurisdiction in which such
businesses are carried on, and all Applicable Laws of every other Governmental Authority from time
to time constituted to regulate the ownership, management and operation of such businesses, except
in each instance where a failure to so manage and operate would not have a Material Adverse Effect.



5.11 Additional Subsidiaries; Additional Liens. If, at any time on or after the Original
Effective Date, the Borrower or any Restricted Subsidiary creates or acquires an additional
Subsidiary or in some other fashion becomes the holder of any Equity Securities of a new
Subsidiary:





     (a) the Borrower will, and will cause any relevant Restricted Subsidiary, to immediately
execute and deliver to the Agent a securities pledge agreement, in form and substance satisfactory
to the Agent, granting a security interest in 100% of the Equity Securities of such new Subsidiary
owned by the Borrower or such Restricted Subsidiary; and




     (b) to the extent permitted by Applicable Law, the Borrower will cause such new Subsidiary to
immediately execute and deliver to the Agent (i) a Guarantee, and (ii) mortgages, security
agreements and other security-related documents covering such new Subsidiary’s property, all in
form and substance satisfactory to the Agent, acting reasonably;


provided that, if such new Subsidiary does not have, but only for so long as such new
Subsidiary does not have, assets of more than Cdn.$1,000,000, the Borrower shall not be required to
comply with this Section with respect to such new Subsidiary. If, at any time after the Original
Effective Date, the Borrower or any Restricted Subsidiary makes a permitted acquisition with
respect to a Person that is not a Restricted Subsidiary, the Borrower shall, and shall cause such
Restricted Subsidiary, to execute and deliver to the Agent at the time of such permitted
acquisition, additional pledge agreements granting a security interest in 100% of the Equity
Securities of such Person owned by the Borrower or such Restricted Subsidiary, respectively. In
connection with the execution and delivery of any guarantee, pledge agreement, mortgage, security
agreement or related document pursuant to this Section, the Borrower will, or will cause the
relevant Credit Party to, deliver to the Agent such corporate resolutions, certificates, legal
opinions and such other related documents as shall be reasonably requested by the Agent and
consistent with the relevant forms and types thereof delivered on the Original Effective Date or as
shall be otherwise reasonably acceptable to the Agent. Each guarantee, pledge agreement, mortgage,
security agreement and other document delivered pursuant to this Section shall be deemed to be a
Security Document from and after the date of execution thereof.










 



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5.12 Financial Covenants.





     (a) If, at any time, the Excess Availability is less than Cdn.$2,000,000 (the “Threshold
Amount”), and until the Excess Availability thereafter becomes greater than or equal to the
Threshold Amount for a period of not less than 7 Business Days, the Borrower shall maintain a
Fixed Charge Coverage Ratio of not less than 1.10:1.00 for each Rolling Period, provided that, if
the Excess Availability becomes greater than or equal to the Threshold Amount for a period of not
less than 7 Business Days immediately thereafter, upon each such occurrence, such Excess
Availability greater than or equal to the Threshold Amount shall be deemed to have been in effect
from the date such Threshold Amount was first re-established, solely for the purpose of allowing
the Borrower to comply with Fixed Charge Coverage Ratio hereunder.




     (b) The Borrowing Base shall be subject to an Availability Reserve of Cdn.$3,000,000 at all
times.


5.13 Parent Subordinated Debt. The Borrower shall maintain the Parent Subordinated Debt
with a commitment level of no less than U.S.$15,000,000.



5.14 [Intentionally Deleted].




ARTICLE 6

NEGATIVE COVENANTS




          From (and including) the Original Effective Date until the Commitments have expired or been
terminated and the principal of and interest on each Loan and all fees payable hereunder shall have
been paid in full and all Letters of Credit, F/X Contacts, Letter of Credit Guarantees and
Reimbursement Obligations have been satisfied by the Borrower, the Borrower and each Credit Party
covenants and agrees with the Lenders that:



6.1 Indebtedness. No Credit Party will, and will not permit any Restricted Subsidiary to,
create, incur, assume or permit to exist any Indebtedness, except:





     (a) any Indebtedness created hereunder;




     (b) any Indebtedness existing on the date hereof and set forth in Schedule 6.1 (including,
any extensions or renewals but excluding any replacements of any such Indebtedness);




     (c) the Parent Subordinated Debt;




     (d) any Indebtedness of one Credit Party to another Credit Party;




     (e) any Guarantee by a Credit Party of Indebtedness of any other Credit Party;




     (f) any Indebtedness of the Credit Parties incurred under Purchase Money Liens, Sale and
Leasebacks or to Capital Lease Obligations in an aggregate amount not exceeding Cdn.$5,000,000 for
all Credit Parties;









 



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     (g) any Indebtedness of any Person that becomes a Credit Party after the date hereof,
provided that (i) such Indebtedness exists at the time such Person becomes a Credit Party
and is not created in contemplation of or in connection with such Person becoming a Credit Party
and is on terms reasonably satisfactory to the Lenders, and (ii) the aggregate principal amount of
Indebtedness permitted by this clause (g) shall not exceed Cdn.$250,000 at any time outstanding;




     (h) any Indebtedness in respect of trade letters of credit;




     (i) any Indebtedness in respect of Swap Agreements permitted hereunder, provided that
the aggregate notional amounts under all such Swap Agreements shall not exceed Cdn.$25,000,000;




     (j) annually, if no Default or Event of Default shall have occurred and be continuing and
there is an Excess Availability equal to or greater than such amount, any Indebtedness of the
Borrower to the Parent incurred on the Business Day immediately prior to the fiscal year end of
the Lenders, such Indebtedness being permitted only up to and including the Business Day
immediately following the fiscal year end of the Lenders; and




     (k) any Indebtedness of the Borrower to the Parent (on terms and conditions satisfactory to
the Agent and Lenders) in respect of funds used solely for the purpose of curing any Default
occurring as a result of the Borrower being in breach of its Fixed Charge Coverage Ratio.


6.2 Liens. No Credit Party will, and will not permit any Restricted Subsidiary to, create,
incur, assume or permit to exist any Lien on any property or asset now owned or hereafter acquired
by the Credit Party or any Restricted Subsidiary, or assign or sell any income or revenues
(including Receivables) or rights in respect of any thereof, except Permitted Liens.



6.3 Fundamental Changes.





     (a) No Credit Party will, and will not permit any Restricted Subsidiary to, merge into or
amalgamate or consolidate with any other Person, or permit any other Person to merge into or
amalgamate or consolidate with it, or sell, transfer, lease or otherwise dispose of (in one
transaction or in a series of transactions) all or substantially all of its assets, or all or any
of the Equity Securities of any of its Subsidiaries (in each case, whether now owned or hereafter
acquired), or liquidate or dissolve, except that, if at the time thereof and immediately after
giving effect thereto no Default shall have occurred and be continuing, (i) any Restricted
Subsidiary may amalgamate with the Borrower, (ii) any Restricted Subsidiary may amalgamate with
any other Restricted Subsidiary, (iii) any Restricted Subsidiary may sell, transfer, lease or
otherwise dispose of its assets to the Borrower or to another Restricted Subsidiary, and (iv) any
Restricted Subsidiary may liquidate or dissolve if the Borrower determines in good faith that such
liquidation or dissolution is in the best interests of the Borrower and the Agent determines that
such liquidation or dissolution is not disadvantageous to the Lenders; provided that any
amalgamation pursuant to Sections 6.3(a)(i) or (ii) shall not be permitted unless permitted by
Section 6.4 and unless the amalgamated corporation confirms to the Agent in writing that the









 



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amalgamated corporation is liable, by operation of law or otherwise, for the obligations of
the Borrower under this Agreement.




     (b) No Credit Party will, and will not permit any Restricted Subsidiary to, engage to any
material extent in any material business other than businesses of the type conducted by the Credit
Party on the date of execution of this Agreement and businesses reasonably related thereto.


6.4 Investments, Loans, Advances, Guarantees and Acquisitions. No Credit Party will, and
will not permit any Restricted Subsidiary to, purchase, hold or acquire (including pursuant to any
amalgamation with any Person that was not a wholly-owned Restricted Subsidiary prior to such
amalgamation) any Equity Securities, evidences of indebtedness or other securities (including any
option, warrant or other right to acquire any of the foregoing) of, make or permit to exist any
loans or advances to, Guarantee any obligations of, or make or permit to exist any investment or
any other interest in, any other Person, or purchase or otherwise acquire (in one transaction or a
series of transactions) any assets of any other Person or otherwise make an Acquisition, except:





     (a) investments by a Credit Party in the Equity Securities of any other Credit Party;




     (b) loans or advances made by one Credit Party to any other Credit Party;




     (c) Guarantees constituting Indebtedness permitted by Section 6.1; and




     (d) Permitted Investments.


6.5 Swap Agreements. No Credit Party will, and will not permit any Restricted Subsidiary
to, enter into any Swap Agreement, except (i) Swap Agreements entered into to hedge or mitigate
risks to which the Borrower or any other Credit Party has actual exposure (other than those in
respect of Equity Securities, (ii) Swap Agreements entered into in order to effectively cap, collar
or exchange interest rates (from fixed to floating rates, from one floating rate to another
floating rate or otherwise) with respect to any interest-bearing liability or investment of the
Borrower or any other Credit Party, and (iii) other Swap Agreements entered into pursuant to
Section 2.19.



6.6 Restricted Payments. No Credit Party will, and will not permit any Restricted
Subsidiary to, declare, pay or make, or agree to pay or make, directly or indirectly, any
Restricted Payment, except that, provided that no Default or Event of Default shall have occurred
and be continuing before or immediately after any of the following, the Credit Parties may make the
following Restricted Payments (and for greater certainty, subject to the occurrence and continuance
of a Default or an Event of Default, the exceptions listed below are each permitted payments):





     (a) the Borrower may declare and pay dividends with respect to its Equity Securities;




     (b) any Restricted Subsidiary may declare and pay dividends to the Borrower or any
wholly-owned Restricted Subsidiary and any wholly-owned Restricted Subsidiary may redeem or
repurchase its own Equity Securities;




     (c) the Borrower may make Restricted Payments pursuant to and in accordance with stock option
plans, profit sharing plans and/or other benefit plans for management or









 



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employees of the Borrower and its Subsidiaries, provided that the aggregate amount of
cash payments made by the Borrower and the Subsidiaries in any Fiscal Year pursuant to all such
stock option plans, profit sharing plans and other compensation benefit plans shall not exceed
Cdn.$2,000,000;




     (d) the Borrower may pay to the Parent any amounts required to pay income taxes on earnings
attributed from the Borrower’s business to the Parent;




     (e) the Borrower may make payments of (i) interest under the Parent Subordinated Debt at any
time and (ii) principal under the Parent Subordinated Debt;




     (f) the Borrower may make any payment to the Parent which is permitted by any of Sections
6.7(d), (e) or (f);




     (g) the Borrower may distribute any amount to the Parent in any Fiscal Year.


6.7 Transactions with Affiliates. No Credit Party will, and will not permit any Restricted
Subsidiary to, sell, lease or otherwise transfer any property or assets to, or purchase, lease or
otherwise acquire any property or assets from, or otherwise engage in any other transactions with,
any of its Affiliates, except (a) in the ordinary course of business at prices and on terms and
conditions not less favourable to the Credit Party than could be obtained on an arm’s-length basis
from unrelated third parties, (b) transactions between or among the Credit Parties not involving
any other Affiliate, (c) any Restricted Payment permitted by Section 6.6, (d) foreign exchange
transactions with the Parent at market rates in the normal course of business and any agreements
existing as at the Original Effective Date with the Parent provided no material change shall be
permitted thereunder without consent of the Agent, (e) pursuant to the Parent Credit Agreement, and
(f) pursuant to the Parent Pulp Agency Agreement. The foregoing restrictions shall not apply to:
(i) the payment of reasonable and customary fees to directors of the Credit Party, (ii) any other
transaction with any employee, officer or director of a Credit Party pursuant to employee profit
sharing and/or benefit plans and compensation and non-competition arrangements in amounts customary
for corporations similarly situated to the Credit Party and entered into in the ordinary course of
business and approved by the board of directors of the Credit Party, or (iii) any reimbursement of
reasonable out-of-pocket costs incurred by an Affiliate of the Credit Party on behalf of or for the
account of the Credit Party.



6.8 Repayment of Debt. No Credit Party will, and will not permit any Restricted Subsidiary
to, repay, prepay, redeem, repurchase, defease or otherwise make any payment on account of any
Indebtedness for borrowed money except for (a) payment on account of Indebtedness owing to the
Agent or the Lenders under this Agreement, (b) any payment consented to in writing by the Required
Lenders, and (c) payment on account of Indebtedness for borrowed money permitted by Section 6.1,
the repayment of which is not restricted by Section 6.6.



6.9 Restrictive Agreements. No Credit Party will, and will not permit any Restricted
Subsidiary to, directly or indirectly, enter into, incur or permit to exist any agreement or other
arrangement that prohibits, restricts or imposes any condition upon (a) the ability of the Borrower
or any Restricted Subsidiary to create, incur or permit to exist any Lien upon any of its property
or assets, (b) the ability of any Restricted Subsidiary to pay dividends or other








 



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distributions with respect to any Equity Securities or with respect to, or measured by, its profits
or to make or repay loans or advances to the Borrower or any Restricted Subsidiary or to provide a
Guarantee of any Indebtedness of the Borrower or any Restricted Subsidiary, (c) the ability of the
Borrower or any Restricted Subsidiary to make any loan or advance to the Borrower or any of the
Subsidiaries, or (d) the ability of the Borrower or any Restricted Subsidiary to sell, lease or
transfer any of its property to the Borrower or any of the Subsidiaries; provided that (i)
the foregoing shall not apply to restrictions and conditions imposed by Applicable Law or by this
Agreement, (ii) the foregoing shall not apply to restrictions and conditions existing on the date
hereof identified on Schedule 6.9 (but shall apply to any extension or renewal of, or any amendment
or modification expanding the scope of, any such restriction or condition), (iii) the foregoing
shall not apply to customary restrictions and conditions contained in agreements relating to the
sale of an Restricted Subsidiary pending such sale, provided such restrictions and
conditions apply only to the Restricted Subsidiary that is to be sold and such sale is permitted
hereunder, (iv) clause (a) of the foregoing shall not apply to restrictions or conditions imposed
by any agreement relating to secured Indebtedness permitted by this Agreement if such restrictions
or conditions apply only to the property or assets securing such Indebtedness, and (v) clause (a)
of the foregoing shall not apply to customary provisions in leases and other ordinary course
contracts restricting the assignment thereof.



6.10 Capital Lease Obligations; Sale/Leaseback Obligations. No Credit Party will, and will
not permit any Restricted Subsidiary to, create, incur, assume or suffer to exist, any Capital
Lease Obligations or Sale/Leaseback Obligations, whether directly or as a guarantor, if, after
giving effect thereto, the aggregate amount of all payments required to be made by the Credit
Parties on a consolidated basis pursuant to Capital Lease Obligations and Sale/Leaseback
Obligations would exceed Cdn.$2,500,000 in any Fiscal Year.



6.11 Pension Plan Compliance. No Credit Party will (a) terminate, or permit any Restricted
Subsidiary to terminate, any Pension Plan in a manner, or take any other action with respect to any
Pension Plan, which could reasonably be expected to result in any material liability of the
Borrower or a Restricted Subsidiary of the Borrower, (b) fail to make, or permit any Restricted
Subsidiary to fail to make, full payment when due of all amounts which, under the provisions of any
Pension Plan, agreement relating thereto or Applicable Law, the Credit Party or any Restricted
Subsidiary is required to pay as contributions thereto, except where the failure to make such
payments could not reasonably be expected to have a Material Adverse Effect, (c) permit to exist,
or allow any Restricted Subsidiary to permit to exist, any accumulated funding deficiency, whether
or not waived, with respect to any Pension Plan in an amount which could reasonably be expected to
cause a Material Adverse Effect, (d) contribute to or assume an obligation to contribute to, or
permit any Restricted Subsidiary (other than any Restricted Subsidiary acquired as permitted
pursuant to Section 5.11) to contribute to or assume an obligation to contribute to, any
“multi-employer pension plan” as such term is defined in the Pension Benefits Act (Ontario), (e)
acquire, or permit any Restricted Subsidiary to acquire, an interest in any Person if such Person
sponsors, maintains or contributes to, or at any time in the six-year period preceding such
acquisition has sponsored, maintained, or contributed to any “multi-employer pension plan” as such
term is defined in the Pension Benefits Act (Ontario); provided that, the Credit Party or
any Restricted Subsidiary may acquire an interest in any such Person if such Person is acquired as
a Permitted Acquisition and neither the Credit Party nor any








 



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of its other Subsidiaries has any legal liability to perform such Person’s obligations or assume
such Person’s liabilities, and (f) permit, or allow any Restricted Subsidiary to permit, the
actuarial present value of the benefit liabilities (computed on an accumulated benefit obligation
basis in accordance with GAAP) under all Pension Plans in the aggregate to exceed the current value
of the assets of all Pension Plans in the aggregate that are allocable to such benefit liabilities,
in each case only to the extent such liabilities and assets relate to benefits to be paid to
employees of the Credit Parties, by an amount that could reasonably be expected to cause a Material
Adverse Effect.



6.12 Sale or Discount of Receivables. No Credit Party will, and will not permit any
Restricted Subsidiary to, discount or sell (with or without recourse) any of its or the Restricted
Subsidiaries’ Accounts, provided the Borrower shall be entitled to compromise, adjust, or extend
the time for payment of its Accounts, in the ordinary course of business, consistent with past
practice or existing arrangements with customers or agents.



6.13 Unconditional Purchase Obligations. No Credit Party will, and will not permit any
Restricted Subsidiary to, enter into or be a party to, any material contract for the purchase of
materials, supplies or other property or services, if such contract requires that payment be made
by it regardless of whether or not delivery of such materials, supplies or other property or
services is ever made, provided that this Section 6.13 shall not restrict the ability of any Credit
Party or any Restricted Subsidiary to enter into any such contract in the ordinary course of its
business to the extent that the materials, supplies or other property or services which are the
subject matter of such contract are reasonably expected to be used by the applicable Credit Party
in the ordinary course of its business.



6.14 Capital Expenditures. No Credit Party will make, and will not permit any Restricted
Subsidiary to, make Capital Expenditures in any period for the Credit Parties on a consolidated
basis in excess of the 1.20 times the Borrower’s budgeted Capital Expenditures, measured annually
using the Capital Expenditure Plan.



6.15 No Amendments to Material Contracts. No Credit Party will, and will not permit any
Restricted Subsidiary to, amend, modify or terminate (or waive any provision of or provide any
consent under), any Material Contract in a manner which may reasonably be expected to have a
Material Adverse Effect.




ARTICLE 7

EVENTS OF DEFAULT



7.1 Events of Default. If any of the following events (“Events of Default”) shall occur:





     (a) the Borrower shall fail to pay any principal of any Loan or any reimbursement obligation
in respect of any LC Disbursement within 2 Business Days of the due date thereof;




     (b) the Borrower shall fail to pay any interest on any Loan or any fee or any other amount
(other than an amount referred to in clause (a) above) payable under this Agreement within 2
Business Days of the due date thereof;









 



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     (c) any representation or warranty made or deemed made by or on behalf of any Credit Party in
or in connection with any Loan Document or any amendment or modification thereof or waiver
thereunder, or in any report, certificate, financial statement or other document furnished
pursuant to or in connection with any Loan Document or any amendment or modification thereof or
waiver thereunder, shall prove to have been incorrect when made or deemed to be made;




     (d) any Credit Party shall fail to observe or perform any covenant, condition or agreement
contained in Section 5.1(o) (notices of Defaults or Events of Default), 5.2 (with respect to the
Credit Party’s existence), 5.9 or in Article 6 (or in any comparable provision of any other Loan
Document);




     (e) any Credit Party shall fail to observe or perform any covenant, condition or agreement
contained in Section 5.12, and such failure shall continue unremedied for a period of seven days
after notice thereof from the Agent to the Borrower (which shall be given at the request of any
Lender);




     (f) any Credit Party shall fail to observe or perform any covenant, condition or agreement
contained in this Agreement (other than those specified in clauses (a), (b) or (d) above) or any
other Loan Document, and such failure shall continue unremedied for a period of 30 days after
notice thereof from the Agent to the Borrower (which notice will be given at the request of any
Lender);




     (g) any Credit Party shall fail to make any payment whether of principal or interest, and
regardless of amount, in respect of any Material Indebtedness, when and as the same shall become
due and payable within 2 Business Days after receipt of notice thereof;




     (h) any event or condition occurs that results in any Material Indebtedness becoming due
prior to its scheduled maturity or that enables or permits (with or without the giving of notice,
the lapse of time or both) the holder or holders of any Material Indebtedness or any trustee or
agent on its or their behalf to cause any Material Indebtedness to become due, or to require the
prepayment, repurchase, redemption or defeasance thereof, prior to its scheduled maturity;
provided that this Section 7.1(h) shall not apply to secured Indebtedness that becomes due
as a result of the voluntary sale or transfer of the property or assets securing such Indebtedness
so long as the proceeds of such sale or transfer are sufficient to, and are applied to, reduce
such secured Indebtedness to nil within 2 Business Days after receipt of notice thereof;




     (i) any Credit Party:




	 	(i)	 	becomes insolvent, or generally does not or becomes
unable to pay its debts or meet its liabilities as the same become due, or
admits in writing its inability to pay its debts generally, or declares any
general moratorium on its indebtedness, or proposes a compromise or
arrangement between it and any class of its creditors;










 



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	 	(ii)	 	commits an act of bankruptcy under the BIA, or makes an
assignment of its property for the general benefit of its creditors under
the BIA, or makes a proposal (or files a notice of its intention to do so)
under the BIA;
	 
	 	(iii)	 	institutes any proceeding seeking to adjudicate it an
insolvent, or seeking liquidation, dissolution, winding-up, reorganization,
compromise, arrangement, adjustment, protection, moratorium, relief, stay
of proceedings of creditors generally (or any class of creditors), or
composition of it or its debts or any other relief, under any federal,
provincial or foreign Applicable Law now or hereafter in effect relating to
bankruptcy, winding-up, insolvency, reorganization, receivership, plans of
arrangement or relief or protection of debtors (including the BIA, the
Companies’ Creditors Arrangement Act (Canada), the United States Bankruptcy
Code and any applicable corporations legislation) or at common law or in
equity, or files an answer admitting the material allegations of a petition
filed against it in any such proceeding;
	 
	 	(iv)	 	applies for the appointment of, or the taking of
possession by, a receiver, interim receiver, receiver/manager,
sequestrator, conservator, custodian, administrator, trustee, liquidator or
other similar official for it or any substantial part of its property; or
	 
	 	(v)	 	threatens to do any of the foregoing, or takes any
action, corporate or otherwise, to approve, effect, consent to or authorize
any of the actions described in this Section 7.1(i) or in Section 7.1(j),
or otherwise acts in furtherance thereof or fails to act in a timely and
appropriate manner in defense thereof,






     (j) any petition is filed, application made or other proceeding instituted against or in
respect of any Credit Party:




	 	(i)	 	seeking to adjudicate it an insolvent;
	 
	 	(ii)	 	seeking a receiving order against it under the BIA;
	 
	 	(iii)	 	seeking liquidation, dissolution, winding-up,
reorganization, compromise, arrangement, adjustment, protection,
moratorium, relief, stay of proceedings of creditors generally (or any
class of creditors), or composition of it or its debts or any other relief
under any federal, provincial or foreign Applicable Law now or hereafter in
effect relating to bankruptcy, winding-up, insolvency, reorganization,
receivership, plans of arrangement or relief or protection of debtors
(including the BIA, the Companies’ Creditors Arrangement Act (Canada) or
the United States Bankruptcy Code and any applicable corporations
legislation) or at common law or in equity; or










 



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	 	(iv)	 	seeking the entry of an order for relief or the
appointment of, or the taking of possession by, a receiver, interim
receiver, receiver/manager, sequestrator, conservator, custodian,
administrator, trustee, liquidator or other similar official for it or any
substantial part of its property;




and such petition, application or proceeding continues undismissed, or unstayed and in effect, for
a period of 30 days after the institution thereof, provided that if an order, decree or
judgment is granted or entered (whether or not entered or subject to appeal) against the Credit
Party thereunder in the interim, such grace period will cease to apply, and provided
further that if the Credit Party files an answer admitting the material allegations of a
petition filed against it in any such proceeding, such grace period will cease to apply;





     (k) any other event occurs which, under the Applicable Laws of any applicable jurisdiction,
has an effect equivalent to any of the events referred to in either of Sections 7.1(i) or (j);




     (l) one or more judgments for the payment of money in a cumulative amount in excess of
Cdn.$1,000,000 (or its then equivalent in any other currency) in the aggregate is rendered against
the Borrower, any other Credit Party or any combination thereof and the Borrower or the other
Credit Party has not (i) provided for its discharge in accordance with its terms within 30 days
from the date of entry thereof, or (ii) procured a stay of execution thereof within 30 days from
the date of entry thereof and within such period, or such longer period during which execution of
such judgment has not been stayed, appealed such judgment and caused the execution thereof to be
stayed during such appeal, provided that if enforcement and/or realization proceedings are
lawfully commenced in respect thereof in the interim, such grace period will cease to apply;




     (m) any property of any Credit Party having a fair market value in excess of Cdn.$2,000,000
(or its then equivalent in any other currency) in the aggregate is seized (including by way of
execution, attachment, garnishment, levy or distraint), or any Lien thereon securing Indebtedness
in excess of Cdn.$2,000,000 (or its then equivalent in any other currency) is enforced, or such
property has become subject to any charging order or equitable execution of a Governmental
Authority, or any writ of execution or distress warrant exists in respect of the Borrower, any
other Credit Party or the property of any of them, or any sheriff or other Person becomes lawfully
entitled by operation of law or otherwise to seize or distrain upon such property and in any case
such seizure, enforcement, execution, attachment, garnishment, distraint, charging order or
equitable execution, or other seizure or right, continues in effect and is not released or
discharged for more than 45 days or such longer period during which entitlement to the use of such
property continues with the Credit Party (as the case may be), and the Credit Party (as the case
may be) is contesting the same in good faith and by appropriate proceedings, provided that
if the property is removed from the use of the Credit Party (as the case may be), or is sold, in
the interim, such grace period will cease to apply;




     (n) one or more final judgments, not involving the payment of money and not otherwise
specified in this Section 7.1(n), has been rendered against any Credit Party, the result of which
could reasonably be expected to result in a Material Adverse Effect, so long as the









 



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Credit Party (as the case may be) has not (i) provided for its discharge in accordance with
its terms within 30 days from the date of entry thereof, or (ii) procured a stay of execution
thereof within 30 days from the date of entry thereof and within such period, or such longer
period during which execution of such judgment has been stayed, appealed such judgment and caused
the execution thereof to be stayed during such appeal, provided that if enforcement and/or
realization proceedings are lawfully commenced in respect thereof in the interim, such grace
period will cease to apply;




     (o) this Agreement, any other Loan Document or any material obligation or other provision
hereof or thereof at any time for any reason (other than through the fault of the Agent or the
Lenders, except where the Borrower refuses to reinstate such obligation or provision) terminates
or ceases to be in full force and effect and a legally valid, binding and enforceable obligation
of any Credit Party, is declared to be void or voidable or is repudiated, or the validity, binding
effect, legality or enforceability hereof or thereof is at any time contested by any Credit Party,
or any Credit Party denies that it has any or any further liability or obligation hereunder or
thereunder or any action or proceeding is commenced to enjoin or restrain the performance or
observance by any Credit Party of any material terms hereof or thereof or to question the validity
or enforceability hereof or thereof, or at any time it is unlawful or impossible for any Credit
Party to perform any of its material obligations hereunder or thereunder;




     (p) any Lien purported to be created by any Security Document shall cease to be, or shall be
asserted by any Credit Party not to be, a valid, perfected, first priority (except as otherwise
expressly provided in this Agreement or such Security Document) Lien in Collateral with a fair
market value or book value (whichever is greater) in excess, individually or in the aggregate, of
$1,000,000 (except where such Lien ceases to be a valid, perfected first priority Lien through the
failure or inaction of the Agent or the Lenders);




     (q) a Material Adverse Change shall occur;




     (r) the Parent fails to directly own (i) 50% or more of the aggregate issued and outstanding
limited partnership units in the capital of the Borrower or (ii) 100% of the aggregate issued and
outstanding shares in the capital of the General Partner;


then, and in every such event, and at any time thereafter during the continuance of such event or
any other such event, the Agent may, and at the request of the Required Lenders shall, by notice to
the Borrower, take any or all of the following actions, at the same or different times: (i)
terminate the Commitments, and thereupon the Commitments shall terminate immediately, (ii) declare
the Loans then outstanding to be due and payable in whole (or in part, in which case any principal
not so declared to be due and payable may thereafter be declared to be due and payable), and
thereupon the principal of the Loans so declared to be due and payable, together with accrued
interest thereon and all fees and other obligations of the Borrower accrued hereunder, shall become
due and payable immediately, without presentment, demand, protest or other notice of any kind
except as set forth earlier in this paragraph, all of which are hereby waived by the Borrower,
(iii) apply any amounts outstanding to the credit of the Borrower to repayment of all amounts
outstanding under this Agreement, and (iv) declare any or all of the Security Documents to be
immediately enforceable.










 



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ARTICLE 8

THE AGENT



8.1 Appointment of Agent. Each Lender hereby designates CIT Business Credit Canada Inc. as
Agent to act as herein specified and as specified in the other Loan Documents. Each Lender hereby
irrevocably authorizes the Agent to take such action on its behalf under the provisions of the Loan
Documents and to exercise such powers and to perform such duties thereunder as are specifically
delegated to or required of the Agent by the terms thereof and such other powers as are reasonably
incidental thereto. The Agent may perform any of its duties hereunder by or through its agents or
employees.



8.2 Limitation of Duties of Agent. The Agent shall have no duties or responsibilities
except those expressly set forth with respect to the Agent in this Agreement and as specified in
the other Loan Documents. Neither the Agent nor any of its Related Parties shall be liable for any
action taken or omitted by it hereunder or in connection herewith, unless caused by its or their
gross negligence or willful misconduct. The duties of the Agent shall be mechanical and
administrative in nature; the Agent shall not have, by reason of this Agreement or the other Loan
Documents, a fiduciary relationship in respect of any Lender. Nothing in this Agreement or the
other Loan Documents, expressed or implied, is intended to or shall be so construed as to impose
upon the Agent any obligations in respect of this Agreement except as expressly set forth herein.
The Agent shall be under no duty to take any discretionary action permitted to be taken by it
pursuant to this Agreement or the other Loan Documents unless it is requested in writing to do so
by the Required Lenders.



8.3 Lack of Reliance on the Agent.





     (a) Independent Investigation. Independently, and without reliance upon the Agent,
each Lender, to the extent it deems appropriate, has made and shall continue to make (i) its own
independent investigation of the financial condition and affairs of the Borrower and its
Subsidiaries in connection with the taking or not taking of any action in connection herewith, and
(ii) its own appraisal of the creditworthiness of the Borrower and its Subsidiaries, and, except
as expressly provided in this Agreement and the other Loan Documents, the Agent shall have no duty
or responsibility, either initially or on a continuing basis, to provide any Lender with any
credit or other information with respect thereto, whether coming into its possession before the
consummation of the Transactions or at any time or times thereafter.




     (b) Agent Not Responsible. The Agent shall not be responsible to any Lender for any
recitals, statements, information, representations or warranties herein or in any document,
certificate or other writing delivered in connection herewith or for the execution, effectiveness,
genuineness, validity, enforceability, collectibility, priority or sufficiency of this Agreement
or the other Loan Documents or the financial condition of the Borrower and its Subsidiaries or be
required to make any inquiry concerning either the performance or observance of any of the terms,
provisions or conditions of this Agreement or the other Loan Documents, or the financial condition
of the Borrower and its Subsidiaries, or the existence or possible existence of any Default or
Event of Default.









 



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8.4 Certain Rights of the Agent. If the Agent shall request instructions from the Lenders
or the Required Lenders (as the case may be) with respect to any act or action (including the
failure to act) in connection with this Agreement or the other Loan Documents, the Agent shall be
entitled to refrain from such act or taking such action unless and until the Agent shall have
received written instructions from the Lenders or the Required Lenders, as applicable, and the
Agent shall not incur liability to any Person by reason of so refraining. Without limiting the
foregoing, no Lender shall have any right of action whatsoever against the Agent as a result of the
Agent acting or refraining from acting under this Agreement and the other Loan Documents in
accordance with the instructions of the Required Lenders, or, to the extent required by Section
9.2, all of the Lenders.



8.5 Reliance by Agent. The Agent shall be entitled to rely, and shall be fully protected
in relying, upon any note, writing, resolution, notice, statement, certificate, telex, teletype or
facsimile message, electronic mail, cablegram, radiogram, order or other documentary
teletransmission or telephone message believed by it to be genuine and correct and to have been
signed, sent or made by the proper Person. The Agent may consult with legal counsel (including
counsel for the Borrower), independent public accountants and other experts selected by it and
shall not be liable for any action taken or omitted to be taken by it in good faith in accordance
with the advice of such counsel, accountants or experts.



8.6 Indemnification of Agent. To the extent the Agent is not reimbursed and indemnified by
the Borrower, each Lender will reimburse and indemnify the Agent, in proportion to its aggregate
Applicable Percentage, for and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses (including reasonable counsel fees and
disbursements) or disbursements of any kind or nature whatsoever which may be imposed on, incurred
by or asserted against the Agent in performing its duties hereunder, in any way relating to or
arising out of this Agreement or any other Loan Document; provided that no Lender shall be
liable to the Agent for any portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements resulting from the Agent’s gross
negligence (it being acknowledged that ordinary negligence does not necessarily constitute gross
negligence) or willful misconduct.



8.7 The Agent in its Individual Capacity. With respect to its obligations under this
Agreement and the Loans made by it, CIT Business Credit Canada Inc., in its capacity as a Lender
hereunder, shall have the same rights and powers hereunder as any other Lender and may exercise the
same as though it were not performing the duties, if any, specified herein; and the terms
“Lenders”, “Required Lenders”, and any similar terms shall, unless the context clearly otherwise
indicates, include CIT Business Credit Canada Inc., in its capacity as a Lender hereunder. The
Agent may accept deposits from, lend money to, and generally engage in any kind of banking, trust,
financial advisory or other business with the Borrower or any affiliate of the Borrower as if it
were not performing the duties, if any, specified herein, and may accept fees and other
consideration from the Borrower for services in connection with this Agreement and otherwise
without having to account for the same to the Lenders.



8.8 May Treat Lender as Owner. The Borrower and the Agent may deem and treat each Lender
as the owner of the Loans recorded on the Register maintained pursuant to Section 9.4(c) for all
purposes hereof until a written notice of the assignment or transfer thereof shall have been








 



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filed with the Agent. Any request, authority or consent of any Person who at the time of making
such request or giving such authority or consent is the owner of a Loan shall be conclusive and
binding on any subsequent owner, transferee or assignee of such Loan.



8.9 Successor Agent.





     (a) Agent Resignation. The Agent may resign at any time by giving written notice
thereof to the Lenders, the Issuing Bank and the Borrower. Upon any such resignation or removal,
the Required Lenders shall have the right, upon five Business Days’ notice to the Borrower, to
appoint a successor Agent (who shall not be a non-resident of Canada within the meaning of the
ITA), subject to the approval of the Borrower, such approval not to be unreasonably withheld. If
no successor Agent shall have been so appointed by the Required Lenders, and shall have accepted
such appointment, within 30 days after the retiring Agent’s giving of notice of resignation or the
Required Lenders’ removal of the retiring Agent, then, upon five Business Days’ notice to the
Borrower, the retiring Agent may, on behalf of the Lenders, appoint a successor Agent (subject to
approval of the Borrower, such approval not to be unreasonably withheld), which shall be a
financial institution organized under the laws of Canada having a combined capital and surplus of
at least Cdn.$100,000,000 or having a parent company with combined capital and surplus of at least
Cdn.$100,000,000.




     (b) Rights, Powers, etc. Upon the acceptance of any appointment as Agent hereunder
by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all
the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be
discharged from its duties and obligations under this Agreement. After any retiring Agent’s
resignation or removal hereunder as Agent, the provisions of this Article 8 shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was Agent under this
Agreement.


8.10 No Independent Legal Action by Lenders. No Lender may take any independent legal
action to enforce any obligation of the Borrower hereunder. Each Lender hereby acknowledges that,
to the extent permitted by Applicable Law, the Security Documents and the remedies provided
thereunder to the Lenders are for the benefit of the Lenders collectively and acting together and
not severally, and further acknowledges that each Lender’s rights hereunder and under the Security
Documents are to be exercised collectively, not severally, by the Agent upon the decision of the
Required Lenders. Accordingly, notwithstanding any of the provisions contained herein or in the
Security Documents, each of the Lenders hereby covenants and agrees that it shall not be entitled
to take any action hereunder or thereunder, including any declaration of default hereunder or
thereunder, but that any such action shall be taken only by the Agent with the prior written
agreement of the Required Lenders, provided that, notwithstanding the foregoing, in the
absence of instructions from the Lenders (or the Required Lenders) and where in the sole opinion of
the Agent the exigencies of the situation so warrant such action, the Agent may without notice to
or consent of the Lenders (or the Required Lenders) take such action on behalf of the Lenders as it
deems appropriate or desirable in the interests of the Lenders. Each Lender hereby further
covenants and agrees that upon any such written consent being given by the Required Lenders, it
shall co-operate fully with the Agent to the extent requested by the Agent, and each Lender further
covenants and agrees that all proceeds from the realization of or under the Security Documents, to
the extent permitted by Applicable Law, are held for the








 



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benefit of all of the Lenders and shall be shared among the Lenders rateably in accordance with
this Agreement, and each Lender acknowledges that all costs of any such realization (including all
amounts for which the Agent is required to be indemnified under the provisions hereof) shall be
shared among the Lenders rateably in accordance with this Agreement. Each Lender covenants and
agrees to do all acts and things and to make, execute and deliver all agreements and other
instruments, so as to fully carry out the intent and purpose of this Section and each Lender hereby
covenants and agrees that it shall not seek, take, accept or receive any security for any of the
obligations and liabilities of the Borrower hereunder or under the other Loan Documents, or any
other document, instrument, writing or agreement ancillary hereto or thereto, other than such
security as is provided hereunder or thereunder, and that it shall not enter into any agreement
with any of the parties hereto or thereto relating in any manner whatsoever to the Credit(s),
unless all of the Lenders shall at the same time obtain the benefit of any such security or
agreement, as the case may be.



8.11 Quebec Security. For greater certainty, and without limiting the powers of the Agent
or any other Person acting as an agent or mandatary for the Agent hereunder or under any of the
other Loan Documents, the Borrower hereby acknowledges that, for purposes of holding any security
granted by the Borrower or any Restricted Subsidiary on property pursuant to the laws of the
Province of Quebec to secure obligations of the Borrower or any Restricted Subsidiary under any
debenture, the Agent shall be the holder of an irrevocable power of attorney (fondé de pouvoir)
(within the meaning of the Civil Code of Quebec) for all present and future Lenders and in
particular for all present and future holders of any such debenture. Each Lender hereby
irrevocably constitutes, to the extent necessary, the Agent as the holder of an irrevocable power
of attorney (fondé de pouvoir) (within the meaning of Article 2692 of the Civil Code of Quebec) in
order to hold security granted by the Borrower or any Restricted Subsidiary in the Province of
Quebec to secure the obligations of the Borrower or any Restricted Subsidiary under any debenture.
Each assignee of a Lender shall be deemed to have confirmed and ratified the constitution of the
Agent as the holder of such irrevocable power of attorney (fondé de pouvoir) by execution of an
Assignment and Transfer. Notwithstanding the provisions of section 32 of the An Act respecting the
special powers of legal persons (Quebec), the Agent may acquire and be the holder of any debenture.
The Borrower hereby acknowledges that such debenture constitutes a title of indebtedness, as such
term is used in Article 2692 of the Civil Code of Quebec.




ARTICLE 9

MISCELLANEOUS



9.1 Notices. (a) Except in the case of notices and other communications expressly
permitted to be given by telephone (and subject to paragraph (b) below), all notices and other
communications provided for herein shall be in writing and shall be delivered by hand or overnight
courier service, mailed by certified or registered mail or sent by facsimile in each case to the
addressee, as follows:










 



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	 	(i)	 	if to the Borrower or any other Credit Party:


Suite 2840

650 West Georgia Street

Vancouver, B.C. V6B 4N8

Attention: David Gandossi

Facsimile: (604) 684-1094


with a copy to:


SANGRA MOLLER LLP

1000 Cathedral Place

925 West Georgia Street

Vancouver, B.C. V6C 3L2

Attention: Kim Moller

Facsimile: (604) 669-8803
	 
	 	(ii)	 	if to the Agent:


CIT BUSINESS CREDIT CANADA INC.

207 Queen’s Quay West, Suite 700

Toronto, Ontario M5J 1A7

Attention: Chief Credit Officer

Facsimile: (416) 507-5100


with a copy to:


BLAKE, CASSELS & GRAYDON LLP

Suite 2600, Three Bentall Centre

595 Burrard Street

P.O. Box 49314

Vancouver, B.C. V7X 1L3

Attention: Neal B. Wang

Facsimile: (604) 631-3309





     (iii) if to any Lender or any Issuing Bank, to it at its address (or facsimile number) set
forth opposite its name in the execution page(s) of this Agreement or the applicable Assignment and
Transfer Agreement, as the case may be.




     (b) Notices and other communications to the Lenders hereunder may be delivered or furnished by
electronic communications pursuant to procedures approved by the Agent. The Agent or the Borrower
may, in its discretion, agree to accept notices and other communication to it hereunder by
electronic communications pursuant to procedures approved by it; provided that approval of
such procedures may be limited to particular notices or communications.









 



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     (c) Any party hereto may change its address or facsimile number for notices and other
communications hereunder by notice to the other parties hereto. All notices and other
communications given to any party hereto in accordance with the provisions of this Agreement shall
be deemed to have been given on the date of receipt.


9.2 Waivers; Amendments.





     (a) No failure or delay by the Agent or any Lender in exercising any right or power hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or
power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude
any other or further exercise thereof or the exercise of any other right or power. The rights and
remedies of the Agent and the Lenders hereunder are cumulative and are not exclusive of any rights
or remedies that they would otherwise have. No waiver of any provision of this Agreement or
consent to any departure by the Borrower therefrom shall in any event be effective unless the same
shall be permitted by Section 9.2(b), and then such waiver or consent shall be effective only in
the specific instance and for the purpose for which given. Without limiting the generality of the
foregoing, the making of a Loan or issuance of a Letter of Credit shall not be construed as a
waiver of any Default, regardless of whether the Agent or any Lender may have had notice or
knowledge of such Default at the time.




     (b) Neither this Agreement nor any other Loan Document (or any provision hereof or thereof)
may be waived, amended or modified except pursuant to an agreement or agreements in writing
entered into by the Borrower and the Required Lenders or by the Borrower and the Agent with the
consent of the Required Lenders (and for greater certainty, any such waiver, amendment or
modification shall not require any consent or other agreement of any Credit Party other than the
Borrower, notwithstanding that any such Credit Party may be a party to this Agreement or any other
Loan Document); provided that no such agreement shall:




	 	(i)	 	increase the amount or extend the expiry date of any
Commitment of any Lender;
	 
	 	(ii)	 	reduce the principal amount of any Loan or reduce the
rate of interest or any fee applicable to any Loan;
	 
	 	(iii)	 	postpone the scheduled date of payment of the
principal amount of any Loan, or any interest thereon, or any fees payable
in respect thereof, or reduce the amount of, waive or excuse any such
payment, or postpone the scheduled date of expiration of any Commitment;
	 
	 	(iv)	 	change any aspect of this Agreement in a manner that
would alter the pro rata sharing of payments required herein;
	 
	 	(v)	 	change any of the provisions of this Section 9.2 or
the definition of “Required Lenders” or any other provision hereof
specifying the number or percentage of Lenders required to waive, amend or
modify any rights hereunder or make any determination or grant any consent
hereunder;










 



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	 	(vi)	 	waive any Event of Default under Section 7.1(i), (j)
or (k); or
	 
	 	(vii)	 	release the Borrower or any Subsidiary from any
material obligations under the Security Documents and other instruments
contemplated by this Agreement, release or discharge any of the Liens
arising under the Security Documents, permit the creation of any Liens,
other than Permitted Liens, on any of the assets subject to the Liens
arising under the Security Documents, lower the priority of any Lien
arising under any of the Security Documents, or lower the priority of any
payment obligation of the Borrower or any Subsidiary under any of the Loan
Documents or, in the case of clauses (i), (ii), (iii) or (iv), without the
prior written consent of each Lender directly affected thereby;




in each case without the prior written consent of each Lender; or, in the case of the matters
referred to in clauses (i), (ii), (iii) and (iv), without the prior written consent of each Lender
directly affected thereby and provided further that no such agreement shall amend, modify
or otherwise affect the rights or duties of the Agent hereunder, without the prior written consent
of the Agent. For greater certainty, the Agent may release and discharge the Liens constituted by
the Security Documents to the extent necessary to enable the Borrower to complete any asset sale
which is not prohibited by this Agreement or the other Loan Documents.



9.3 Expenses; Indemnity; Damage Waiver.





     (a) The Borrower shall pay (i) all reasonable Out-of-Pocket Expenses incurred by the Agent
and its Affiliates, including the reasonable fees, charges and disbursements of counsel for the
Agent and all applicable Taxes, in connection with the syndication of the credit facilities
provided for herein and the preparation and administration of this Agreement and the other Loan
Documents, (ii) all reasonable Out-of-Pocket Expenses incurred by the Agent and its Affiliates,
including the reasonable fees, charges and disbursements of counsel for the Agent and applicable
Taxes, in connection with any amendments, modifications or waivers of the provisions hereof or of
any of the other Loan Documents, (whether or not the transactions contemplated hereby or thereby
shall be consummated), and (iii) all Out-of-Pocket Expenses incurred by the Agent or any Lender,
including the fees, charges and disbursements of any counsel for the Agent or any Lender and all
applicable Taxes, in connection with the enforcement or protection of their rights in connection
with this Agreement, including its rights under this Section, or in connection with the Loans made
hereunder, including all such Out-of-Pocket Expenses incurred during any workout, restructuring or
negotiations in respect of such Loans.




     (b) The Borrower shall indemnify the Agent and each Lender, as well as each Related Party and
each assignee of any of the foregoing Persons (each such Person and each such assignee being
called an “Indemnitee”) against, and hold each Indemnitee harmless from, any and all losses,
claims, cost recovery actions, damages, expenses and liabilities of whatsoever nature or kind and
all Out-of-Pocket Expenses and all applicable Taxes to which any Indemnitee may become subject
arising out of or in connection with (i) the execution or delivery of the Loan Documents or any
agreement or instrument contemplated thereby, the performance by the parties thereto of their
respective obligations thereunder, and the









 



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consummation of the Transactions or any other transactions thereunder, (ii) any Loan or
Letter of Credit or any actual or proposed use of the proceeds therefrom, including any refusal by
the Issuing Bank to honour a demand for payment under a Letter of Credit if the documents
presented in connection with such demand do not strictly comply with the terms of such Letter of
Credit, (iii) any actual or alleged presence or release of Hazardous Materials on or from any
property owned or operated by the Borrower or any of its Subsidiaries, or any Environmental
Liability related in any way to the Borrower or any of its Subsidiaries, (iv) any actual or
prospective claim, litigation, investigation or proceeding relating to any of the foregoing,
whether based on contract, tort or any other theory and regardless of whether any Indemnitee is a
party thereto, (v) any other aspect of this Agreement and the other Loan Documents, or (vi) the
enforcement of any Indemnitee’s rights hereunder and any related investigation, defence,
preparation of defence, litigation and enquiries, in each case regardless of whether or not the
Acquisition is consummated; provided that such indemnity shall not, as to any Indemnitee,
be available to the extent that such losses, claims, damages, liabilities or related expenses are
determined by a court of competent jurisdiction by final and nonappealable judgment to have
resulted from the gross negligence (it being acknowledged that ordinary negligence does not
necessarily constitute gross negligence) or wilful misconduct of or material breach of this
Agreement by such Indemnitee.




     (c) To the extent that the Borrower fails to pay any amount required to be paid under
Sections 9.3 (a) or (b), each Lender severally agrees to pay to the Agent such Lender’s Applicable
Percentage (determined as of the time that the applicable unreimbursed expense or indemnity
payment is sought) of such unpaid amount; provided that the unreimbursed expense or
indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by
or asserted against the Agent, in its capacity as such.




     (d) The Borrower shall not assert, and hereby waives (to the fullest extent permitted by
applicable Law), any claim against any Indemnitee, on any theory of liability, for special,
indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out
of, in connection with, or as a result of, any Loan Document, or any agreement or instrument
contemplated thereby, the Transactions, any Loan or Letter of Credit or the use of the proceeds
thereof.




     (e) Any inspection of any property of the Borrower or any of its Subsidiaries made by or
through the Agent or any Lender is for purposes of administration of the Credits only, and neither
the Borrower nor any of its Subsidiaries is entitled to rely upon the same (whether or not such
inspections are at the expense of the Borrower).




     (f) By accepting or approving anything required to be observed, performed, fulfilled or given
to the Agent or the Lenders pursuant to the Loan Documents, neither the Agent nor the Lenders
shall be deemed to have warranted or represented the sufficiency, legality, effectiveness or legal
effect of the same, or of any term, provision or condition thereof, and such acceptance or
approval thereof shall not constitute a warranty or representation to anyone with respect thereto
by the Agent or the Lenders.




     (g) The relationship between the Borrower and the Agent and the Lenders is, and shall at all
times remain, solely that of borrowers and lenders. Neither the Agent nor the Lenders









 



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shall under any circumstance be construed to be partners or joint venturers of the Borrower
or its Affiliates. Neither the Agent nor the Lenders shall under any circumstance be deemed to be
in a relationship of confidence or trust or a fiduciary relationship with the Borrower or its
Affiliates, or to owe any fiduciary duty to the Borrower or its Affiliates. Neither the Agent nor
the Lenders undertake or assume any responsibility or duty to the Borrower or its Affiliates to
select, review, inspect, supervise, pass judgment upon or inform the Borrower or its Affiliates of
any matter in connection with their property or the operations of the Borrower or its Affiliates.
The Borrower and its Affiliates shall rely entirely upon their own judgment with respect to such
matters, and any review, inspection, supervision, exercise of judgment or supply of information
undertaken or assumed by the Agent or the Lenders in connection with such matters is solely for
the protection of the Agent and the Lenders, and neither the Borrower nor any other Person is
entitled to rely thereon.




     (h) The Agent and the Lenders shall not be responsible or liable to any Person for any loss,
damage, liability or claim of any kind relating to injury or death to Persons or damage to
Property caused by the actions, inaction or negligence of the Borrower or any Subsidiary and/or
their Affiliates and the Borrower hereby indemnifies and holds the Agent and the Lenders harmless
from any such loss, damage, liability or claim.




     (i) This Agreement is made for the purpose of defining and setting forth certain obligations,
rights and duties of the Borrower, the Agent and the Lenders in connection with the Loans, and is
made for the sole benefit of the Borrower, the Agent and the Lenders, and the Agent’s and each
Lender’s successors and assigns. Except as provided in Sections 9.3(b) and 9.4, no other Person
shall have any rights of any nature hereunder or by reason hereof.




     (j) All amounts due under this Section 9.3 shall be payable not later than three Business
Days after written demand therefor.


9.4 Successors and Assigns.





     (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns permitted hereby, except that (i) the
Borrower may not assign or otherwise transfer any of its rights or obligations hereunder without
the prior written consent of each Lender (and any attempted assignment or transfer by the Borrower
without such consent shall be null and void), and (ii) no Lender may assign or otherwise transfer
its rights or obligations hereunder except in accordance with this Section. Nothing in this
Agreement, expressed or implied, shall be construed to confer upon any Person (other than the
parties hereto, their respective successors and assigns permitted hereby and, to the extent
expressly contemplated hereby, the Related Parties of each of the Agent and the Lenders) any legal
or equitable right, remedy or claim under or by reason of this Agreement.




     (b) Any Lender may assign to one or more assignees (treating any fund that invests in bank
loans and any other fund that invests in bank loans and is managed by the same investment advisor
of such fund or by an Affiliate of such investment advisor as a single assignee) all or a portion
of its rights and obligations under this Agreement and the other Loan Documents (including all or
a portion of its Commitments and the Loans at the time owing to it); provided that (i)
except in the case of an assignment of any Commitment to an assignee that









 



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is a Lender with a Commitment immediately prior to giving effect to such assignment, each of
the Agent and the Borrower must give its prior written consent to such assignment (which consent
shall not be unreasonably withheld or delayed); and provided further that (ii) the
Borrower’s consent shall not be required with respect to any assignment made at any time after the
occurrence and during the continuance of an Event of Default, (iii) except in the case of an
assignment to a Lender or a Lender Affiliate or an assignment of the entire remaining amount of
the assigning Lender’s Commitment, the amount of the Commitment of the assigning Lender subject to
each such assignment (determined as of the date on which the Assignment and Transfer relating to
such assignment is delivered to the Agent) shall not be less than Cdn.$5,000,000 (or, in the case
of a U.S. Dollar-denominated Commitment, the U.S.$ Equivalent of Cdn.$5,000,000), unless each of
the Borrower and the Agent otherwise consent in writing and the amount held by each Lender after
each such assignment shall not be less than Cdn.$5,000,000 (or, in the case of a U.S.
Dollar-denominated Commitment, the U.S.$ Equivalent of Cdn.$5,000,000), unless each of the
Borrower and the Agent otherwise consent in writing, (iv) each partial assignment in respect of a
Commitment and the related Loans shall be made as an assignment of a proportionate part of all the
assigning Lender’s rights and obligations under this Agreement in respect of such Commitment and
the related Loans, (v) the parties to each assignment shall execute and deliver to the Agent an
Assignment and Transfer, together with (except in the case of an assignment to a Lender or a
Lender Affiliate) a processing and recordation fee of Cdn.$7,500, payable by the assigning Lender,
(vi) in the case of an assignment to a Foreign Lender, such Foreign Lender shall not be entitled
to require any payment under Section 2.14(a)(i) as a result of any withholding tax exigible in
respect of any payment by the Borrower to such Foreign Lender hereunder, and (vii) the assignee,
if it shall not be a Lender, shall deliver to the Agent an Administrative Questionnaire. The
Agent shall provide the Borrower and each Lender with written notice of any change in (or new)
address of a Lender disclosed in an Administrative Questionnaire. Subject to acceptance and
recording thereof pursuant to Section 9.4(d), from and after the effective date specified in each
Assignment and Transfer, the assignee thereunder shall be a party hereto and, to the extent of the
interest assigned by such Assignment and Transfer, shall have all of the rights and obligations of
a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the
interest assigned by such Assignment and Transfer, be released from its obligations under this
Agreement (and, in the case of an Assignment and Transfer covering all of the assigning Lender’s
rights and obligations under this Agreement, such Lender shall cease to be a party hereto but
shall continue to be entitled to the benefits of Sections 2.12, 2.13, and 2.14 and 9.3). Any
assignment or transfer by a Lender of rights or obligations under this Agreement that does not
comply with this Section 9.4 shall be treated for purposes of this Agreement as a sale by such
Lender of a participation in such rights and obligations in accordance with Section 9.4(e).




     (c) The Agent, acting for this purpose as an agent of the Borrower, shall maintain at one of
its offices in Toronto, Ontario a copy of each Assignment and Transfer delivered to it and a
register for the recordation of the names and addresses of the Lenders, and the Commitment of, and
principal amount of the Loans and the amount of the Reimbursement Obligations owing to, each
Lender pursuant to the terms hereof from time to time (the “Register”). The entries in the
Register shall be conclusive, and the Borrower, the Agent, and the Lenders may treat each Person
whose name is recorded in the Register pursuant to the









 



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terms hereof as a Lender hereunder for all purposes of this Agreement. The Register shall be
available for inspection by the Borrower and any Lender at any reasonable time and from time to
time upon reasonable prior notice.




     (d) Upon its receipt of a duly completed Assignment and Transfer executed by an assigning
Lender and an assignee, the assignee’s completed Administrative Questionnaire (unless the assignee
shall already be a Lender hereunder), the processing and recordation fee referred to in Section
9.4(b) and any written consent to such assignment required by Section 9.4(b), the Agent shall
accept such Assignment and Transfer and record the information contained therein in the Register.
No assignment shall be effective for purposes of this Agreement unless it has been recorded in the
Register as provided in this Section 9.4(d).




     (e) Any Lender may, without notice to the Borrower or the consent of the Borrower or the
Agent, sell participations to one or more Persons (a “Participant”) in all or a portion of such
Lender’s rights and obligations under this Agreement and the other Loan Documents (including all
or a portion of its Commitment and the Loans owing to it); provided that (i) such Lender’s
obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely
responsible to the other parties hereto for the performance of such obligations, and (iii) the
Borrower, the Agent, and the other Lenders shall continue to deal solely and directly with such
Lender in connection with such Lender’s rights and obligations under this Agreement. Any
agreement or instrument pursuant to which a Lender sells such a participation shall provide that
such Lender shall retain the sole right to enforce this Agreement and to approve any amendment,
modification or waiver of any provision of this Agreement; provided that such agreement or
instrument may provide that such Lender will not, without the consent of the Participant, agree to
any amendment, modification or waiver described in the first proviso to Section 9.2(b) that
affects such Participant. Subject to Section 9.4(f), the Borrower agrees that each Participant
shall be entitled to the benefits of Sections 2.12, 2.13 and 2.14 to the same extent as if it were
a Lender and had acquired its interest by assignment pursuant to this Section 9.4(b). To the
extent permitted by Applicable Law, each Participant also shall be entitled to the benefits of
Section 9.8 as though it were a Lender, provided that such Participant agrees to be
subject to Section 2.15(c) as though it were a Lender.




     (f) A Participant shall not be entitled to receive any greater payment under Section 2.13 or
2.14 than the applicable Lender would have been entitled to receive with respect to the
participation sold to such Participant, unless the sale of the participation to such Participant
is made with the Borrower’s prior written consent. A Participant that would be a Foreign Lender
if it were a Lender shall not be entitled to the benefits of Section 2.14 unless the Borrower is
notified of the participation sold to such Participant and such Participant agrees, for the
benefit of the Borrower, to comply with Section 2.14(e) as though it were a Lender.




     (g) Any Lender may at any time pledge or assign a security interest in all or any portion of
its rights under this Agreement to secure obligations of such Lender, including any pledge or
assignment to secure obligations to a Federal Reserve Bank, and Section 9.4 shall not apply to any
such pledge or assignment of a security interest; provided that no such pledge or
assignment of a security interest shall release a Lender from any of its obligations hereunder or
substitute any such pledgee or assignee for such Lender as a party hereto.









 



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     (h) Any assignment or grant of a participation pursuant to Section 9.4 shall constitute
neither a repayment by the Borrower to the assigning or granting Lender of any Loan included
therein, nor a new advance of any such Loan to the Borrower by such Lender or by the Assignee or
Participant, as the case may be. The parties acknowledge that the Borrower’s obligations
hereunder with respect to any such Loans will continue and will not constitute new obligations as
a result of such assignment or participation.


9.5 Survival. All covenants, agreements, representations and warranties made by the
Borrower herein and in the certificates or other instruments delivered in connection with or
pursuant to this Agreement shall be considered to have been relied upon by the other parties hereto
and shall survive the execution and delivery of this Agreement and the making of any Loans and
issuance of any Letters of Credit, regardless of any investigation made by any such other party or
on its behalf and notwithstanding that the Agent or any Lender may have had notice or knowledge of
any Default or incorrect representation or warranty at the time any credit is extended hereunder,
and shall continue in full force and effect as long as the principal of or any accrued interest on
any Loan or any fee or any other amount payable under this Agreement is outstanding and unpaid or
any Letter of Credit is outstanding and so long as the Commitments have not expired or terminated.
Sections 2.12, 2.13, 2.14 and 9.3 and Article 8 shall survive and remain in full force and effect,
regardless of the consummation of the Transactions, the repayment of the Loans, the expiration or
termination of the Letters of Credit and the Commitments or the termination of this Agreement or
any provision hereof.



9.6 Counterparts; Integration; Effectiveness. This Agreement may be executed in
counterparts (and by different parties hereto on different counterparts), each of which shall
constitute an original, but all of which when taken together shall constitute a single contract.
This Agreement, the other Loan Documents and any separate letter agreements with respect to fees
payable to the Agent, constitute the entire contract among the parties relating to the subject
matter hereof and supersede any and all previous agreements and understandings, oral or written,
relating to the subject matter hereof. Except as provided in Section 4.1, this Agreement shall
become effective when it shall have been executed by the Agent and when the Agent shall have
received counterparts hereof which, when taken together, bear the signatures of each of the other
parties hereto, and thereafter shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns. Delivery of an executed original counterpart of a
signature page of this Agreement by facsimile or other electronically scanned method of delivery
shall be as effective as delivery of a manually executed original counterpart of this Agreement.



9.7 Severability. Any provision of this Agreement held to be invalid, illegal or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such invalidity, illegality or unenforceability without affecting the validity, legality and
enforceability of the remaining provisions hereof, and the invalidity of a particular provision in
a particular jurisdiction shall not invalidate such provision in any other jurisdiction.



9.8 Right of Set-Off. If an Event of Default shall have occurred and be continuing, each
Lender and each of its Affiliates is hereby authorized at any time and from time to time, to the
fullest extent permitted by Applicable Law, to set off and apply any and all deposits (general or
special, time or demand, provisional or final) at any time held and other obligations at any time
owing by such Lender or Affiliate to or for the credit or the account of the Borrower against any
of and all








 



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of the obligations of the Borrower now or hereafter existing under this Agreement held by such
Lender, irrespective of whether or not such Lender shall have made any demand under this Agreement
and although such obligations may be unmatured. The rights of each Lender under this Section are
in addition to other rights and remedies (including other rights of set off) which such Lender may
have.



9.9 Governing Law; Jurisdiction; Consent to Service of Process.





     (a) This Agreement shall be construed in accordance with and governed by the Laws of the
Province of British Columbia.




     (b) The Borrower hereby irrevocably and unconditionally submits, for itself and its property,
to the non-exclusive jurisdiction of the Courts of the Province of British Columbia, and any
appellate court thereof, in any action or proceeding arising out of or relating to this Agreement,
or any other Loan Document or for recognition or enforcement of any judgment, and each of the
parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any
such action or proceeding may be heard and determined in British Columbia. Each of the parties
hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may
be enforced in other jurisdictions by suit on the judgment or in any other manner provided by
Applicable Law. Nothing in this Agreement shall affect any right that the Agent or any Lender may
otherwise have to bring any action or proceeding relating to this Agreement or any other Loan
Document against the Borrower or its properties in the courts of any other jurisdiction.




     (c) The Borrower hereby irrevocably and unconditionally waives, to the fullest extent it may
legally and effectively do so, any objection which it may now or hereafter have to the laying of
venue of any suit, action or proceeding arising out of or relating to this Agreement in any court
referred to in this Section 9.9. Each of the parties hereto hereby irrevocably waives, to the
fullest extent permitted by Applicable Law, any forum non conveniens defence to the maintenance of
such action or proceeding in any such court.




     (d) Each party to this Agreement irrevocably consents to service of process in the manner
provided for notices in Section 9.1. Nothing in this Agreement will affect the right of any party
to this Agreement to serve process in any other manner permitted by Applicable Law.


9.10 WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING
DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT, OR
THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER
THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER
PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES
HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY,








 



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AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.



9.11 Headings. Article and Section headings and the Table of Contents used herein are for
convenience of reference only, are not part of this Agreement and shall not affect the construction
of, or be taken into consideration in interpreting, this Agreement.



9.12 Confidentiality. Each of the Agent and each Lender agrees to maintain the
confidentiality of the Information (as defined below), except that Information may be disclosed (a)
to each of their, and each of their Affiliates’, directors, officers, employees, agents and
advisors, 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 rating agency, regulatory authority or other Governmental Authority, or their legal counsel,
(c) to the extent required by applicable laws or regulations or by any subpoena or similar legal
process, (d) to any other party to this Agreement, (e) in connection with the exercise of any
remedies under any Loan Document or any suit, action or proceeding relating to any Loan Document or
the enforcement of rights thereunder, (f) subject to an agreement containing provisions
substantially the same as those of this Section, to (i) any actual or prospective assignee of or
Participant (or such assignee’s or Participant’s advisors) in any of its rights or obligations
under this Agreement, or (ii) any actual or prospective counterparty (or its advisors) to any swap
or derivative transaction relating to the Borrower and its obligations, (g) any financial
institution, credit reporting agency or credit bureau, (h) any Person with whom the Borrower may
have or proposes to have financial dealings, or (i) with the consent of the Borrower. For greater
certainty, the Borrower acknowledges that from time to time as a result of the co-ownership of the
Agent by CIT Financial Limited and Canadian Imperial Bank of Commerce (“CIBC”), the Borrower may
request the Agent to facilitate the provision of certain financial services offered by CIBC (the
“CIBC Services”). In such circumstances, CIBC policies and procedures (“CIBC’s Policies”) will
apply in respect of all transactions undertaken by CIBC in connection with the provision of the
CIBC Services, including any required due diligence investigation and related business approval
processes conducted in respect of the Borrower. In such circumstances, it may be prudent,
necessary or cost effective for the Agent to provide to CIBC information regarding the Borrower
that is in the possession or control of the Agent solely for the purpose of facilitating compliance
with CIBC’s Policies. The Borrower consents to the disclosure of Information by the Agent to CIBC
for the purpose of facilitating compliance with CIBC’s Policies. For the purposes of this Section,
“Information” means all information received from the Borrower or any Credit Party relating to the
Borrower, any of the Credit Parties, or their respective business, other than Information that is
(i) is or becomes publicly available other than as a result of a breach of this Section, (ii) any
such information that is or becomes available to the Agent, the Issuing Bank, any Lender or CIBC on
a non-confidential basis prior to disclosure by the Borrower, or (iii) was already in the
possession of the Agent, the Issuing Bank, or any CIBC Lender prior to its disclosure by the
Borrower; provided that, in the case of information received from the Borrower after the
date hereof, such information is clearly identified as confidential in writing at the time of
delivery. Any Person required to maintain the confidentiality of Information as provided in this
Section shall be considered to have complied with its obligation to do so if such Person has
exercised the same








 



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degree of care to maintain the confidentiality of such Information as such Person would accord to
its own confidential information.



9.13 Press Releases and Related Materials. Each Credit Party agrees that neither it nor its
Affiliates will in the future issue any press releases or other public disclosure using the name of
the Agent or referring to this Agreement, or the other Loan Documents without prior notice to the
Agent unless (and only to the extent that) such Credit Party or Affiliate is required to do so by
law or pursuant to any applicable regulatory policy protocol or rule. Each Credit Party consents
to the publication by the Agent or any Lender of advertising material relating to the financing
transactions contemplated by this Agreement using its name, product photographs, logo or trademark.
The Agent or such Lender shall provide a draft of any advertising material to Borrower for review
and comment prior to the publication thereof. The Agent reserves the right to provide to industry
trade organizations information necessary and customary for inclusion in league table measurements.




[Remainder of this page intentionally left blank. Signature pages follow.]











 



S-1




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




	 	 	 	 	 
	Address:
 	ZELLSTOFF CELGAR LIMITED PARTNERSHIP, By its General
Partner, ZELLSTOFF CELGAR LIMITED

 	 
	Attention: 	  	 	 
	Facsimile No.: 	By:  	/s/ David M. Gandossi	 
	 	 	Name:  	 David M. Gandossi 	 
	 	 	Title:  	Chief Financial Officer  	 
	 










SIGNATURE PAGE TO AMENDED AND RESTATED CREDIT AGREEMENT DATED AS OF
NOVEMBER 27, 2009 BETWEEN CIT BUSINESS CREDIT CANADA INC. AND
ZELLSTOFF CELGAR LIMITED PARTNERSHIP.



Signature Page to A&R Credit Agreement










 



S-2



	 	 	 	 	 
	Address:
 	CIT BUSINESS CREDIT CANADA INC., as Agent

and as Lender
 	 
	207 Queen’s Quay West, Suite 700

Toronto, Ontario M5J 1A7
	  	 	 
	 	By:  	/s/ Lawrence Clement 	 
	Attention: Chief Credit Officer 	 	Name:  	Lawrence Clement 	 
	 	 	Title:  	Vice President 	 
	 
	Facsimile No.: (416) 507-5100 	 	 
	 	By:  	/s/
Donald Rogers 	 
	 	 	Name:  	Donald Rogers 	 
	 	 	Title:  	SVP and Chief Credit Officer 	 
	 










SIGNATURE PAGE TO AMENDED AND RESTATED
CREDIT AGREEMENT DATED AS OF
NOVEMBER 27, 2009 BETWEEN CIT BUSINESS CREDIT CANADA INC. AND
ZELLSTOFF CELGAR LIMITED PARTNERSHIP.