Document:

Exhibit 10.2(e)

 

AMENDED
AND RESTATED CREDIT AGREEMENT

 

AMONG:

 

LOUISIANA-PACIFIC
CANADA LTD.

 

AND:

 

LOUISIANA-PACIFIC
CORPORATION

 

AND:

 

ROYAL
BANK OF CANADA

 

 

TABLE OF CONTENTS

 

	
  1.     INTERPRETATION

  
	
   

  	
   

  	
   

  
	
  1.1

  	
   

  	
  Definitions

  
	
  1.2

  	
   

  	
  Applicable Law

  
	
  1.3

  	
   

  	
  Severability

  
	
  1.4

  	
   

  	
  Successors and Assigns

  
	
  1.5

  	
   

  	
  Included Words

  
	
  1.6

  	
   

  	
  Headings and Marginal
  References

  
	
  1.7

  	
   

  	
  Cross References

  
	
  1.8

  	
   

  	
  Use of Word “Including”

  
	
  1.9

  	
   

  	
  Expiration
  of Summary of Terms and Conditions

  
	
  1.10

  	
   

  	
  Currency

  
	
  1.11

  	
   

  	
  Payment Dates
  and Interest Calculation

  
	
  1.12

  	
   

  	
  Accounting Terms

  
	
  1.13

  	
   

  	
  Schedules

  
	
   

  	
   

  	
   

  
	
  2.     REPRESENTATIONS
  AND WARRANTIES

  
	
   

  	
   

  	
   

  
	
  2.1

  	
   

  	
  Representations and
  Warranties

  
	
  2.2

  	
   

  	
  Status of the Borrower

  
	
  2.3

  	
   

  	
  Status of Guarantor

  
	
  2.4

  	
   

  	
  Power and Authority

  
	
  2.5

  	
   

  	
  Due Authorization

  
	
  2.6

  	
   

  	
  No Contravention

  
	
  2.7

  	
   

  	
  No Breach

  
	
  2.8

  	
   

  	
  Leases and Licences

  
	
  2.9

  	
   

  	
  No Financial Default

  
	
  2.10

  	
   

  	
  Disclosure of Material
  Facts

  
	
  2.11

  	
   

  	
  Consents and Approvals

  
	
  2.12

  	
   

  	
  Title

  
	
  2.13

  	
   

  	
  Borrower’s
  Financial Statements Furnished

  
	
  2.14

  	
   

  	
  No Change
  in Borrower’s Financial Condition

  
	
  2.15

  	
   

  	
  Guarantor’s Financial
  Status

  
	
  2.16

  	
   

  	
  No Change
  in Guarantor’s Financial Condition

  
	
  2.17

  	
   

  	
  Financial Statements
  Not Misleading

  
	
  2.18

  	
   

  	
  Taxes

  
	
  2.19

  	
   

  	
  Environmental Law
  Compliance

  
	
  2.20

  	
   

  	
  Insurance

  
	
  2.21

  	
   

  	
  ERISA Compliance by
  Guarantor

  
	
   

  	
   

  	
   

  
	
  3.     THE
  CREDIT FACILITY

  
	
   

  	
   

  	
   

  
	
  3.1

  	
   

  	
  Establishment of
  the Credit Facility

  
	
  3.2

  	
   

  	
  Currencies
  and Other Options Available Under the Credit Facility

  
	
  3.3

  	
   

  	
  Issuance of Documentary
  Credits

  

 

 

	
  3.4

  	
   

  	
  Obligation of Royal

  
	
  3.5

  	
   

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

  
	
  3.6

  	
   

  	
  Drawings and Reimbursements

  
	
  3.7

  	
   

  	
  Obligations Absolute

  
	
  3.8

  	
   

  	
  Role of Royal

  
	
  3.9

  	
   

  	
  Letter of Credit Fees

  
	
  3.10

  	
   

  	
  Conflict with Letter of Credit
  Application

  
	
  3.11

  	
   

  	
  Existing Letters of Credit

  
	
  3.12

  	
   

  	
  Collateral Coverage; Restricted
  Cash Collateral

  
	
  3.13

  	
   

  	
  Security

  
	
  3.14

  	
   

  	
  Swap Contracts, PDS Services and EFT
  Transfers

  
	
  3.15

  	
   

  	
  Interest Act of Canada

  
	
  3.16

  	
   

  	
  Default Interest

  
	
  3.17

  	
   

  	
  Indemnity for
  Out-of-Pocket Expenses

  
	
  3.18

  	
   

  	
  Effective
  Time for Section 3 Notices

  
	
  3.19

  	
   

  	
  Increased Costs

  
	
  3.20

  	
   

  	
  Borrower’s
  Option on Receipt of an Increased Costs Certificate

  
	
  3.21

  	
   

  	
  Increased Costs Limitation

  
	
  3.22

  	
   

  	
  Repayment of Credit
  Facility

  
	
  3.23

  	
   

  	
  Extension of Maturity Date

  
	
  3.24

  	
   

  	
  Currency of All Payments

  
	
  3.25

  	
   

  	
  Borrower’s
  Right to Cancel Available Amount of Credit Facility

  
	
  3.26

  	
   

  	
  Standby Fees

  
	
  3.27

  	
   

  	
  Standby
  Fees Waived

  
	
  3.28

  	
   

  	
  Arrangement Fee

  
	
  3.29

  	
   

  	
  Evidence of Indebtedness

  
	
  3.30

  	
   

  	
  Determination
  of Available Amount of the Credit Facility

  
	
   

  	
   

  	
   

  
	
  4.     SECURITY
  FOR BORROWINGS

  
	
   

  	
   

  	
   

  
	
  4.1

  	
   

  	
  Release of Certain Security

  
	
  4.2

  	
   

  	
  Security for Borrowings

  
	
  4.3

  	
   

  	
  Conflict
  Between the Agreement and Royal’s Security

  
	
  4.4

  	
   

  	
  Payment

  
	
  4.5

  	
   

  	
  Guarantees

  
	
   

  	
   

  	
   

  
	
  5.     CREDIT
  FACILITY CONDITIONS PRECEDENT

  
	
   

  	
   

  	
   

  
	
  5.1

  	
   

  	
  Conditions
  Precedent to Initial Borrowings

  
	
  5.2

  	
   

  	
  Conditions
  Precedent to Subsequent Borrowings

  
	
   

  	
   

  	
   

  
	
  6.     COVENANTS
  OF THE BORROWER AND THE GUARANTOR

  
	
   

  	
   

  	
   

  
	
  6.1

  	
   

  	
  Borrower’s Covenants

  
	
  6.2

  	
   

  	
  Guarantor’s Covenants

  
	
  6.3

  	
   

  	
  Environmental Law

  

 

ii

 

	
  7.     EVENTS
  OF DEFAULT

  
	
   

  	
   

  	
   

  
	
  7.1

  	
   

  	
  Definition of Event of
  Default

  
	
  7.2

  	
   

  	
  Remedies

  
	
  7.3

  	
   

  	
  Remedies Cumulative

  
	
  7.4

  	
   

  	
  Waivers

  
	
  7.5

  	
   

  	
  Application
  of Payments Following Acceleration

  
	
  7.6

  	
   

  	
  Royal May Perform
  Covenants

  
	
  7.7

  	
   

  	
  Waiver
  of Certain Defaults under Prior Credit Agreement

  
	
   

  	
   

  	
   

  
	
  8.     GENERAL

  
	
   

  	
   

  	
   

  
	
  8.1

  	
   

  	
  Waiver

  
	
  8.2

  	
   

  	
  Effect of
  Amendment, Modification or Waiver

  
	
  8.3

  	
   

  	
  Time of the Essence

  
	
  8.4

  	
   

  	
  Further Assurances

  
	
  8.5

  	
   

  	
  Set-Off

  
	
  8.6

  	
   

  	
  Judgement Currency

  
	
  8.7

  	
   

  	
  Account Debit Authorization

  
	
  8.8

  	
   

  	
  Expenses

  
	
  8.9

  	
   

  	
  Survival of
  Representations and Warranties

  
	
  8.10

  	
   

  	
  Notice

  
	
  8.11

  	
   

  	
  General Indemnity

  
	
  8.12

  	
   

  	
  Counterparts

  
	
  8.13

  	
   

  	
  Reasonable
  Consent or Approval of the Parties

  
	
  8.14

  	
   

  	
  Entire Agreement

  
	
  8.15

  	
   

  	
  No Deduction for Taxes

  
	
  8.16

  	
   

  	
  Participations and
  Assignments

  
	
  8.17

  	
   

  	
  Assignment After Default

  
	
  8.18

  	
   

  	
  Obligations
  of Borrower Re Facility Disposition

  
	
  8.19

  	
   

  	
  Confidentiality

  

 

SCHEDULE A  OFFICER’S COMPLIANCE CERTIFICATE

 

SCHEDULE B  UNFUNDED PENSION LIABILITIES

 

SCHEDULE C  BORROWING BASE CERTIFICATE

 

SCHEDULE D  EXISTING LETTERS OF CREDIT

 

iii

 

AMENDED AND RESTATED CREDIT AGREEMENT

 

This Amended and Restated Credit Agreement is dated for reference
September 15, 2003

 

AMONG:

 

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

 

AND:

 

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

 

AND:

 

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

 

WHEREAS:

 

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

 

B.                                     Royal
and the Borrower desire to amend and restate the Prior Credit Agreement to
reduce the commitment of the revolving credit facility, release certain
security, grant new security and to otherwise amend the Prior Credit Agreement
in certain respects, as set forth herein;

 

C.                                     Pursuant
to this amended and restated credit agreement, Royal has offered to make
available to the Borrower:

 

(a)                                  a committed, revolving credit facility in the principal amount of up
to the lesser of:

 

(1)                                  $10,000,000, or the Equivalent Amount in U.S. Funds, or

 

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

 

(b)                                 at Royal’s discretion, on an uncommitted basis, lines of credit in
the aggregate principal amount of up to $50,000,000 to cover Swap Termination
Values and liabilities of the Borrower or, with the consent of Royal, any of
its Subsidiaries in

 

 

respect of EFT
Transfers and PDS Services, including overdrafts and cash management debts and
liabilities.

 

D.                                    The
Borrower has accepted Royal’s offer and the Guarantor has agreed to execute and
deliver the Guarantee.

 

1.                                      INTERPRETATION

 

1.1                               Definitions

 

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

 

“Additional
Amount” means the amount defined as such in §3.19;

 

“Advances”
means Canadian Advances and U.S. Advances;

 

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

 

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

 

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

 

“Borrower Guarantees” means the limited liability guarantees each
dated for reference September 15, 2003 guaranteeing the present and
future, direct and indirect obligations of LP Engineered and LP Forest to Royal
under the credit facility established pursuant to §3.1(b) in favour of the
Borrower and, with the consent of Royal, to be available for utilization by
Subsidiaries of the Borrower in respect of EFT Transfers and PDS Services
including overdrafts and cash management debits and liabilities, as amended,
modified, supplemented extended, renewed or replaced from time to time;

 

“Borrower Subsidiaries” means all Subsidiaries of the Borrower;

 

“Borrower Subsidiaries’ Guarantees” means the limited liability guarantees, each dated for reference
September 15, 2003 executed by LP Engineered and LP Forest and to be
provided by any future Material Canadian Subsidiary, guaranteeing the present
and future, direct or indirect obligations of the Borrower to Royal under the
Agreement, as such guarantees may be amended, modified, supplemented, extended,
renewed or replaced from time to time;

 

“Borrower Subsidiaries’ Security Agreements”
means the security agreements and hypothec (Province of Quebec) dated for
reference November 30, 2001 to be provided by the Borrower Subsidiaries to
support the Borrower Subsidiaries’ Guarantees, in form and content satisfactory
to Royal wherein each Borrower Subsidiary grants to and in

 

2

 

favour of
Royal, subject to no prior financial charges except for permitted encumbrances
a first mortgage charge and security interest in and upon the inventory of the
Borrower Subsidiary and the Borrower Subsidiary’s trade accounts receivable, as
amended, modified, supplemented, extended, renewed or replaced from time to
time;

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

“Cash Equivalents” means:

 

(a)                                  Canadian Funds;

 

(b)                                 U.S. Funds;

 

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

 

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

 

3

 

Reuters Screen
CDOR Page on any particular day, then the CDOR Rate on that day shall be the 30
day rates applicable to Cdn$ bankers’ acceptances quoted by Royal as of
10:00 a.m. local time at Toronto, Ontario on such day, or if such day is
not a Business Day, then on the immediately preceding Business Day;

 

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

 

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

 

“Closing Date”
means October 10, 2003 or such earlier or later date as agreed by Royal
and the Borrower;

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

“Debtor Relief Laws” means the Bankruptcy
Code of the United States, and all other liquidation, conservatorship,
bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement,
receivership, insolvency, reorganization or similar debtor

 

4

 

relief law of
the United States or other applicable jurisdictions from time to time in effect
and affecting the rights of creditors generally;

 

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

 

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

 

“Documentary
Credit Fee” means the fee for Guarantee Letters and Letters of
Credit charged by Royal pursuant to §3.9;

 

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

 

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

 

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

 

“Eighth Amendment” means the eighth
amendment agreement dated as of September 3, 2003 and effective
September 3, 2003 among the parties to the Guarantor Credit Agreement;

 

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

 

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

 

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

 

5

 

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

 

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

 

“ERISA Event”
means:

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

“Federal
Funds Effective Rate” means on any day, the rate of interest per
annum set forth in the H.15(519) for that day opposite the caption “Federal
Funds Effective”.  If on any day such
rate is not yet published in the H.15(519), the rate for such day will be the
rate set forth in the Composite 3:30 p.m. Quotations for US Government
Securities for such day under the caption “Federal Funds Effective Rate”.  If on any day such rate is not yet published
in either the H.15(519) or the Composite 3:30 p.m. Quotations for US

 

6

 

Government
Securities such rate shall be the average of the quotations for such day on
overnight Federal Funds (such words to have the meaning generally given to them
by money market brokers of recognised standing doing business in the United
States of America) transactions received by Royal from three Federal Funds
brokers of recognised standing selected by Royal;

 

“GAAP”
means generally accepted accounting principles as generally applied by the
Guarantor as at June 30, 2003 and thereafter as set forth from time to
time in the opinions and pronouncements of the Accounting Principles Board and
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or such other
principles as may be approved by a significant segment of the accounting
profession, which are applicable to the circumstances as of the date of
determination, consistently applied;

 

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

 

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

 

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

 

“Guarantee
Letters” means the letters of guarantee issued by Royal pursuant to §3.3;

 

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

 

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

 

“Guarantor Credit Agreement” means the credit agreement in respect of the Guarantor Credit
Facility, unless otherwise provided, as amended, restated, modified,
supplemented, extended, renewed or replaced from time to time;

 

“Guarantor Credit Facility” means the credit facility made available to the Guarantor pursuant
to the terms of a Credit Agreement entered into as of November 15, 2001
among the Guarantor, as borrower, Bank of America, N.A., as the Administrative
Agent, Wachovia Bank, N.A., as the Syndication Agent, Royal, as Documentation
Agent and the other lenders party to the credit agreement as amended and
restated by the Eighth Amendment;

 

7

 

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

 

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

 

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

 

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

 

(b)                                 boiler, furnace and machinery insurance,

 

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

 

(d)                                 business interruption insurance,

 

(e)                                  public liability insurance, and

 

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

 

“Judgment
Currency” shall have the meaning ascribed thereto in §8.6;

 

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

 

“Letters of
Credit” means letters of credit issued by Royal pursuant to §3.3
and Existing Letters of Credit;

 

“Lien”
means any mortgage, lien, charge, pledge, hypothecation, security interest or
other encumbrance or title retention agreement and any other agreement or arrangement
having substantially the same economic effect;

 

“LP Engineered” means LP Engineered Wood
Products Ltd., its successors and permitted assigns;

 

“LP Forest” means Louisiana-Pacific B.C.
Forest Products Limited, its successors and permitted assigns;

 

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

 

8

 

“Material Adverse Effect” has the meaning
set forth in the Guarantor Credit Agreement as in effect as of
September 3, 2003 (that is, for greater certainty, after the effective
date of the Eighth Amendment but prior to any subsequent amendment,
restatement, modification, supplement, extension, renewal or replacement
thereof);

 

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

 

“Maturity
Date” means February 1, 2005;

 

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

 

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

 

“PBGC”
means the Pension Plan Guaranty Corporation, or any governmental authority
succeeding to any of its principal functions under ERISA;

 

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

 

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

 

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

 

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

 

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

 

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

 

9

 

(a)                                  Royal’s Prime Rate; and

 

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

 

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

 

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

 

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

 

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

 

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

 

“Restricted Cash Collateral Account” means:

 

(a)                                  a blocked deposit account or accounts, as more particularly
identified from time to time in the Restricted Cash Collateral Agreements; and

 

(b)                                 at Borrower’s option prior to the occurrence and continuance of an
Event of Default, investment accounts at Royal in which Royal shall have a
perfected, first priority security interest, subject only to customary and
ordinary Liens in favor of the financial institution acting as the depository
bank or as securities intermediary to secure payment of fees, costs of
administration and payment of other amounts relating to such account payable by
Borrower to such financial institution;

 

“Restricted Cash Collateral Agreements”
means a security agreement, account control agreements or other documents
relating to any account which is a Restricted Cash Collateral Account which
Royal may require in order to have a perfected first priority security interest
therein, which shall be in form and substance satisfactory to Royal, in its
sole discretion, and be accompanied by legal opinion(s) in form and substance
satisfactory to Royal relating to the security interest granted therein, and
such other matters as Royal may request;

 

10

 

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

 

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

 

“Royal’s Security” means all of the security referred to in §4.2;

 

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

 

“Section 427 Security” means the
assignment by the Borrower to Royal pursuant to Section 427 of the Bank Act (Canada) covering all of the
Borrower’s Inventory;

 

“Security Agreement” means the security
agreement and hypothec (Province of Quebec) dated for reference
November 30, 2001 to be provided by the Borrower, in form and content
satisfactory to Royal, wherein the Borrower grants to and in favour of Royal,
subject to no prior financial charges except for Permitted Encumbrances and,
subject only to the Section 427 Security, a first mortgage charge and
security interest in and upon the Borrower’s Inventory and the Borrower’s trade
accounts receivable, as amended, modified, supplemented, extended, renewed or
replaced from time to time;

 

“Senior Note Indentures” means,
collectively:

 

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

 

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

 

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

 

“Spot Buying Rate” means:

 

(a)                                  in respect of conversions from Canadian Funds to U.S. Funds or vice
versa the Bank of Canada noon spot rate for Canadian Funds against U.S. Funds
or U.S. Funds against Canadian Funds (as quoted or

 

11

 

published from
time to time by the Bank of Canada), as the case may be, on the relevant date
of determination, and

 

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

 

“Standby Fees”
means the standby fees payable by the Borrower to Royal pursuant to §3.26;

 

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

 

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

 

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

 

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

 

“Swap Contract” means:

 

(a)                                  any and all rate swap transactions, basis swaps, credit derivative
transactions, forward rate transactions, commodity swaps, commodity options,
forward commodity contracts, equity or equity index swaps or options, bond or
bond price or bond index swaps or options or forward bond or forward bond price
or forward bond index transactions, interest rate options, forward foreign
exchange transactions, cap transactions, floor transactions, collar
transactions, currency swap transactions, cross-currency rate swap
transactions, currency options, spot

 

12

 

contracts, or
any other similar transactions or any combination of any of the foregoing
(including any options to enter into any of the foregoing), whether or not any
such transaction is governed by or subject to any master agreement; and

 

(b)                                 any and all transactions of any kind, and the related confirmations,
which are subject to the terms and conditions of, or governed by, any form of
master agreement published by the International Swaps and Derivatives
Association, Inc., any International Foreign Exchange Master Agreement, or any
other master agreement (any such master agreement, together with any related
schedules, a “Master Agreement”), including any such obligations or liabilities
under any Master Agreement;

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

13

 

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

 

1.2                               Applicable Law

 

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

 

1.3                               Severability

 

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

 

1.4                               Successors and Assigns

 

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

 

1.5                               Included Words

 

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

 

1.6                               Headings and Marginal
References

 

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

 

1.7                               Cross References

 

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

 

1.8                               Use of Word “Including”

 

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

 

14

 

1.9                               Expiration of
Summary of Terms and Conditions

 

On the Closing
Date, all of the terms and conditions of the “Draft Summary of Terms and
Conditions” dated September 9, 2003 agreed to by the Borrower, the
Guarantor and Royal in connection with the development of the Credit Facility
shall be deemed to be merged herein and to expire and shall thereafter have no
force and effect.

 

1.10                        Currency

 

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

 

1.11                        Payment Dates and
Interest Calculation

 

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

 

1.12                        Accounting Terms

 

(a)                                  Accounting terms which are not specifically defined herein shall
have the meaning accorded thereto and shall be construed in accordance with
GAAP.

 

1.13                        Schedules

 

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

 

	
  Schedule A

  	
   

  	
  Officer’s Compliance Certificate

  
	
  Schedule B

  	
   

  	
  Unfunded Pension Liabilities

  
	
  Schedule C

  	
   

  	
  Borrowing Base Certificate

  
	
  Schedule D

  	
   

  	
  Existing Letters of Credit

  

 

2.                                      REPRESENTATIONS AND WARRANTIES

 

2.1                               Representations and Warranties

 

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

 

2.2                               Status of the Borrower

 

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

 

15

 

2.3                               Status of Guarantor

 

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

 

2.4                               Power and Authority

 

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

 

2.5                               Due Authorization

 

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

 

(a)                                  applicable bankruptcy, insolvency, moratorium, reorganization and
similar laws at the time in effect affecting the rights of creditors generally;

 

(b)                                 equitable principles which may limit the availability of certain
remedies, including the remedy of specific performance; and

 

(c)                                  the inability of the courts of Canada to give judgement for payment
in foreign currencies.

 

2.6                               No Contravention

 

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

 

2.7                               No Breach

 

Neither the
Borrower nor the Guarantor is in default under any agreement or instrument to
which it is a party in any way which materially adversely affects its ability
to perform its respective obligations under the Agreement or the Guarantee, as
the case may be, and there are no suits or judicial proceedings or proceedings
before any governmental commission, board or other agency pending or to the
knowledge of the Borrower or the Guarantor, as the case may

 

16

 

be, threatened
against it which could reasonably be expected to give rise to a judgement or liability
which, if satisfied, would have a materially adverse effect on the ability of
the Borrower to meet its obligations under the Agreement or the Guarantor to
meet its obligations under the Guarantee.

 

2.8                               Leases and Licences

 

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

 

2.9                               No Financial Default

 

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

 

2.10                        Disclosure of Material Facts

 

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

 

2.11                        Consents and Approvals

 

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

 

2.12                        Title

 

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

 

17

 

2.13                        Borrower’s
Financial Statements Furnished

 

The Borrower
has furnished Royal with its most recent unaudited financial statements for the
fiscal year ended December 31, 2002 and the fiscal quarter ended
June 30, 2003, all such financial statements have been prepared in
accordance with GAAP applied on a consistent basis, except as stated therein or
in the notes thereto, the balance sheets as therein contained present fairly in
all material respects the consolidated financial position of the Borrower and
its Subsidiaries as at the dates thereof and the consolidated statements of
income present fairly in all material respects the results of the operations of
the Borrower and its Subsidiaries for the period indicated.

 

2.14                        No Change in
Borrower’s Financial Condition

 

Since
June 30, 2003 there has been no material adverse change in the financial
condition of the Borrower from that shown on the consolidated financial
statements of the Borrower as at that date, except as disclosed to Royal, and
any such change will not materially adversely affect the ability of the
Borrower to perform its obligations under the Agreement.

 

2.15                        Guarantor’s Financial Status

 

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

 

2.16                        No Change in
Guarantor’s Financial Condition

 

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

 

(a)                                  there has been no change in the consolidated financial condition of
the Guarantor and its Subsidiaries as shown on the Guarantor’s balance sheet as
at that date sufficient to impair the Guarantor’s ability to perform its
obligations under the Agreement or the Guarantee except as disclosed to Royal,
and

 

(b)                                 the business, operations and assets of the Guarantor and its
Subsidiaries on a consolidated basis have not been materially adversely
affected as a result of any act or event including, without limitation, fire,
explosion, casualty, flood, drought, riot, storm, condemnation, act of God,
accident, labour trouble, expropriation or act of any government.

 

2.17                        Financial Statements
Not Misleading

 

The
consolidated financial statements referred to above or any other statement or
report furnished to Royal by or on behalf of the Borrower or the Guarantor in
connection with the negotiation or confirmation of the transactions
contemplated herein do not contain, as at the

 

18

 

time such
statements or reports were furnished, any untrue statement of a material fact
or any omission of a material fact necessary to make the statements contained
therein not materially misleading, it being understood by Royal that such
statements were prepared by the Guarantor and certain of them do not contain
explanatory footnotes, and all such statements and reports, taken as a whole
together with the Agreement do not contain any untrue statement of material
fact or omit a material fact necessary to make the statements contained therein
not materially misleading.

 

2.18                        Taxes

 

Each of the
Borrower and the Guarantor has filed all material income tax returns which were
required to be filed, paid or made provisions for payment of all material taxes
(including interest and penalties) which are due and payable, and provided
adequate reserves established in accordance with GAAP for the payment of any
tax, the payment of which is being disputed.

 

2.19                        Environmental Law Compliance

 

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

 

2.20                        Insurance

 

Each of the
Borrower and the Guarantor:

 

(a)                                  has insured by financially sound and reputable insurers all assets
and property of a character customarily insured by Persons engaged in the same
or a similar business, similarly situated, including inventory and business
interruption insurance, in such amounts as are customarily insured for by such
Persons, or

 

(b)                                 maintains a program of self-insurance, with reserves, in accordance
with sound business practices.

 

2.21                        ERISA Compliance by
Guarantor

 

(a)                                  each Plan is in compliance in all material respects with the
applicable provisions of ERISA, the Code and other federal or state laws.  Each Plan that is intended to qualify under
the Section 401(a) of the Code has received a favourable determination
letter from the IRS or an application for such a letter is currently being or
will be processed by the IRS with respect thereto and such application is or
will be within a remedial amendment period and, to the Guarantor’s knowledge,
nothing has occurred which would prevent, or cause the loss of, such
qualification which is not correctable without cost or at a cost that is
immaterial.  The Guarantor and each
ERISA Affiliate have made all required contributions to each Plan subject to
Section 412 of the Code, and no application for a funding waiver or an extension
of any amortization period pursuant to Section 412 of the Code has been
made with respect to any Plan.

 

19

 

(b)                                 there are no pending or, to the Guarantor’s knowledge, threatened
claims, actions or lawsuits, or action by any Governmental Body, with respect
to any Plan that could be reasonably expected to have a Material Adverse
Effect.  There has been no prohibited
transaction or violation of the fiduciary responsibility rules with respect to
any Plan that has resulted or could be reasonably expected to result in a
Material Adverse Effect.

 

(c)

 

(1)                                  except as specifically disclosed in Annexure I to Schedule B no
ERISA Event has occurred within the past 12 years or is reasonably expected to
occur;

 

(2)                                  except as specifically disclosed in Schedule B, no Pension Plan
has any Unfunded Pension Liability;

 

(3)                                  neither the Guarantor nor any ERISA Affiliate has incurred, or
reasonably expects to incur, any liability under Title IV of ERISA, with
respect to any Pension Plan (other than premiums due and not delinquent under
Section 4007 of ERISA);

 

(4)                                  neither the Guarantor nor any ERISA Affiliate has incurred, or
reasonably expects to incur, any liability (and no event has occurred which,
with the giving of notice under Section 4219 of ERISA, could be reasonably
expected to result in such liability) under Section 4201 or 4243 of ERISA
with respect to a Multiemployer Plan; and

 

(5)                                  neither the Guarantor nor any ERISA Affiliate has engaged in a
transaction that could be subject to Section 4069 or 4212(c) of ERISA.

 

3.                                      THE CREDIT FACILITY

 

3.1                               Establishment of the
Credit Facility

 

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

 

(a)                                  a committed, revolving credit facility in the principal amount of up
to the lesser of:

 

(1)                                  $10,000,000, or the Equivalent Amount in U.S. Funds; or

 

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

 

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

 

20

 

to be used by
the Borrower (and, in the case of §3.1(b), with the consent of Royal, any
Subsidiaries of the Borrower in respect of EFT Transfers and PDS Services) for
its general corporate purposes which shall include the refinancing by the
Borrower of its existing credit facility with Royal.

 

3.2                               Currencies and
Other Options Available Under the Credit Facility

 

Subject to the provisions of the Agreement:

 

(a)                                  the Borrower may, at its option utilize the credit facility established pursuant to §3.1(a)
by way of Documentary Credits, and

 

(b)                                 the Borrower and, with the consent of Royal, any of its Subsidiaries
may, at the discretion of Royal, avail themselves of Royal’s facilities in
respect of EFT Transfers and PDS Services and Royal may, at its discretion,
make Canadian Advances or U.S. Advances available to the Borrower, to provide
for Swap Termination Values, and cover for liabilities in respect of EFT
Transfers and PDS Services.  Any
liabilities in respect of EFT Transfers and PDS Services including overdrafts
and cash management debts and liabilities, shall be obligations under the
credit facility established pursuant to §3.1(b) and shall be secured by the
Guarantee, the Borrower Guarantees and the Borrower Subsidiaries’ Guarantees
and otherwise be subject to the applicable provisions of the Agreement.

 

3.3                               Issuance of Documentary
Credits

 

Subject to the
provisions of the Agreement, from time to time on any Business Day during the
period from the Closing Date until the Maturity Date, Royal will issue
Documentary Credits in Canadian Funds or U.S. Funds for the account of the
Borrower and its Subsidiaries, and will amend or renew Documentary Credits previously
issued by it, in accordance with §3.5, and will honour drafts under the
Documentary Credits; provided that Royal will not be obligated issue, renew,
increase or extend any Documentary Credits, if as of the date of such
Borrowing, the Borrowings under the facility established under §3.1(a)
of the Agreement would exceed the lesser of $10,000,000 and the Collateral
Value of the Borrowing Base.  Within the
foregoing limits, and subject to the terms and conditions of the Agreement, the
Borrower’s ability to obtain Documentary Credits shall be fully revolving, and
accordingly the Borrower may, during the foregoing period, obtain Documentary
Credits to replace Documentary Credits that have expired or that have been
drawn upon and reimbursed.  The undrawn
face amount of each Existing Letter of Credit shall constitute Borrowings under
the credit facility provided for in §3.1(a), and the reimbursement obligations
with respect thereto shall be governed by the terms and conditions of the
Agreement.

 

3.4                               Obligation of
Royal

 

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

 

(a)                                  any order, judgment or decree of any Governmental Body or arbitrator
shall by its terms purport to enjoin or restrain Royal from issuing such
Documentary Credit,

 

21

 

or any law
applicable to Royal or any request or directive (whether or not having the
force of law) from any Governmental Body with jurisdiction over Royal shall
prohibit, or request that Royal refrain from, the issuance of documentary
credits generally or such Documentary Credit in particular or shall impose upon
Royal with respect to such Documentary Credit any restriction, reserve or
capital requirement (for which Royal is not otherwise compensated hereunder)
not in effect on the Closing Date, or shall impose upon such Royal any
unreimbursed loss, cost or expense which was not applicable on the Closing Date
and which Royal in good faith deems material to it;

 

(b)                                 subject to §3.5(b), the expiry date of such requested Documentary
Credit would occur more than twelve months after the date of issuance or last
renewal, unless Royal has approved such expiry date;

 

(c)                                  the expiry date of such requested Documentary Credit would occur after
the Letter of Credit Expiration Date, unless Royal has approved such expiry
date;

 

(d)                                 the issuance of such Documentary Credit would violate the policies
of Royal; or

 

(e)                                  such Letter of Credit is to be denominated in a currency other than
Canadian Funds or U.S. Funds,

 

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

 

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

 

(a)                                  Each Documentary Credit shall be issued or amended, as the case may
be, upon the request of the Borrower delivered Royal in the form of a
Documentary Credit Application, appropriately completed and signed by an
authorized signatory of the Borrower. 
Such Documentary Credit Application must be received by Royal not later
than 8:00 a.m. Toronto time at least three Business Days (or such later
date and time as Royal may agree in a particular instance in its sole
discretion) prior to the proposed issuance date or date of amendment, as the
case may be.  In the case of a request for
an initial issuance of a Documentary Credit, such Documentary Credit
Application shall specify in form and detail satisfactory to Royal:

 

(1)                                  the proposed issuance date of the requested Documentary Credit
(which shall be a Business Day);

 

(2)                                  the amount thereof;

 

(3)                                  the expiry date thereof;

 

22

 

(4)                                  the name and address of the beneficiary thereof;

 

(5)                                  the documents to be presented by such beneficiary in case of any
drawing thereunder;

 

(6)                                  the full text of any certificate to be presented by such beneficiary
in case of any drawing thereunder; and

 

(7)                                  such other matters as Royal may require,

 

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

 

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

 

(A)                              the Documentary Credit to be amended;

 

(B)                                the proposed date of amendment thereof (which shall be a Business
Day);

 

(C)                                the nature of the proposed amendment; and

 

(D)                               such other matters as Royal may require.

 

(b)                                 If the Borrower so requests in any applicable Documentary Credit
Application, Royal may, in its sole and absolute discretion, agree to issue a
Documentary Credit that has automatic renewal provisions (each, an
“Auto-Renewal Documentary Credit”); provided that any such Auto-Renewal
Documentary Credit must permit Royal to prevent any such renewal at least once
in each twelve-month period (commencing with the date of issuance or renewal of
such Documentary Credit) by giving prior notice to the beneficiary thereof not
later than a day (the “Nonrenewal Notice Date”) in each such twelve-month
period to be agreed upon at the time such Documentary Credit is issued.  Unless otherwise directed by Royal, the
Borrower shall not be required to make a specific request to Royal for any such
renewal.  Royal shall not permit any
such renewal if:

 

(1)                                  Royal has determined that it would have no obligation at such time
to issue such Documentary Credit in its renewed form under the terms of the
Agreement (by reason of the provisions of §3.3, §3.4 or otherwise),

 

(2)                                  one or more of the applicable conditions specified in §3.5 is not
then satisfied.  Notwithstanding
anything to the contrary contained herein, Royal shall have no obligation to
permit the renewal of any Auto-Renewal

 

23

 

Documentary
Credit at any time to the extent such non-renewal is permitted by the terms of
such Auto-Renewal Documentary Credit.

 

(c)                                  Promptly after its delivery of any Documentary Credit or any
amendment to a Documentary Credit to an advising bank with respect thereto or
to the beneficiary thereof, Royal will also deliver to the Borrower a true and
complete copy of such Documentary Credit or amendment.

 

3.6                               Drawings and Reimbursements

 

(a)                                  Upon receipt from the beneficiary of any Documentary Credit of any
notice of a drawing under such Documentary Credit, Royal shall notify the
Borrower thereof.  Not later than
12:00 noon Toronto time on the date of any payment by Royal under a
Documentary Credit (each such date, an “Honour Date”), the Borrower shall
reimburse Royal , in an amount equal to the amount of such drawing.  At the Borrower’s option, it may in, lieu of
remitting the amount necessary to reimburse such drawing, send written
instruction to Royal not later than 12:00 noon Toronto time, directing
Royal to debit the Restricted Cash Collateral Account in the amount necessary
to reimburse such drawing.  Such
instruction shall be accompanied by a Borrowing Base Certificate showing that
after giving effect to such reimbursement (and any permanent reduction in the
amount of the Documentary Credit effected by such drawing), there will be no
shortfall in the Collateral Value of the Borrowing Base.

 

(b)                                 With respect to any amount not reimbursed to Royal pursuant to (a),
the Borrower shall be deemed to have obtained from Royal an Advance in that
amount, which Borrowing shall be due and payable on demand (together with
interest) and shall bear interest at the Prime Rate.

 

3.7                               Obligations Absolute

 

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

 

(a)                                  any lack of validity or enforceability of such Documentary Credit,
this Agreement, or any other agreement or instrument relating thereto;

 

(b)                                 the existence of any claim, counterclaim, set-off, defense or other
right that the Borrower may have at any time against any beneficiary or any
transferee of such Documentary Credit (or any Person for whom any such
beneficiary or any such transferee may be acting), Royal or any other Person,
whether in connection with the Agreement, the transactions contemplated hereby
or by such Documentary Credit or any agreement or instrument relating thereto,
or any unrelated transaction;

 

24

 

(c)                                  any draft, demand, certificate or other document presented under
such Documentary Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or inaccurate
in any respect; or any loss or delay in the transmission or otherwise of any
document required in order to make a drawing under such Documentary Credit;

 

(d)                                 any payment by Royal under such Documentary Credit against
presentation of a draft or certificate that does not strictly comply with the
terms of such Documentary Credit; or any payment made by Royal under such
Documentary Credit to any Person purporting to be a trustee in bankruptcy,
debtor-in-possession, assignee for the benefit of creditors, liquidator,
receiver or other representative of or successor to any beneficiary or any
transferee of Documentary Credit, or

 

(e)                                  any other circumstance or happening whatsoever, whether or not
similar to any of the foregoing, including any other circumstance that might
otherwise constitute a defense available to, or a discharge of, the Borrower.

 

The Borrower
shall promptly examine a copy of each Documentary Credit and each amendment
thereto that is delivered to it and, in the event of any claim of noncompliance
with the Borrower’s instructions or other irregularity, the Borrower will
immediately notify Royal.  The Borrower
shall be conclusively deemed to have waived any such claim against Royal and
its correspondents unless such notice is given.

 

3.8                               Role of Royal

 

In paying any
drawing under a Documentary Credit, Royal shall not have any responsibility to
obtain any document (other than any sight draft, certificates and documents
expressly required by the Documentary Credit) or to ascertain or inquire as to
the validity or accuracy of any such document or the authority of the Person
executing or delivering any such document. 
The Borrower assumes all risks of the acts or omissions of any
beneficiary or transferee with respect to its use of any Documentary Credit;
provided that this assumption is not intended to, and shall not, preclude the
Borrower’s pursuing such rights and remedies as it may have against the
beneficiary or transferee at law or under any other agreement.  Neither Royal nor any of its correspondents,
participants or assignees, shall be liable or responsible for any of the
matters described in §3.7(a) through (e); provided that anything in §3.7(a)
through (e) or this §3.8 notwithstanding, the Borrower may have a claim against
Royal, and Royal may be liable to the Borrower, to the extent, but only to the
extent, of any direct, as opposed to consequential or exemplary, damages
suffered by the Borrower which the Borrower proves were caused by Royal’s
willful misconduct or gross negligence or Royal’s willful failure to pay under
any Documentary Credit after the presentation to it by the beneficiary of a
sight draft and certificate(s) strictly complying with the terms and conditions
of a Documentary Credit.  In furtherance
and not in limitation of the foregoing, Royal may accept documents that appear
on their face to be in order, without responsibility for further investigation,
regardless of any notice or information to the contrary, and Royal shall not be
responsible for the validity or sufficiency of any instrument transferring or
assigning or purporting to transfer or assign a Documentary

 

25

 

Credit or the
rights or benefits thereunder or proceeds thereof, in whole or in part, which
may prove to be invalid or ineffective for any reason.

 

3.9                               Letter of Credit Fees

 

The Borrower
shall pay to Royal documentary credit fee for each Documentary Credit equal to
the greater of $250 and .375% (37.5 Basis Points) per annum times the daily
maximum amount available to be drawn under such Letter of Credit (calculated
with reference to the maximum amount in effect under such Documentary Credit at
the time of calculation and not calculated with reference to the maximum face
amount of such Documentary Credit after giving effect to any increases
contemplated therein until such increases occur).  Such documentary credit fees shall be computed on a quarterly
basis in arrears.  Such documentary
credit fees shall be due and payable on the last Business Day after the end of
each March, June, September and December, commencing with the first such
date to occur after the issuance of such Documentary Credit, on the expiry date
of that Document Credit and thereafter on demand.

 

3.10                        Conflict with
Letter of Credit Application

 

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

 

3.11                        Existing Letters of Credit

 

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

 

3.12                        Collateral Coverage; Restricted Cash Collateral

 

On or prior to
the tenth (10th) Business Day of each month, the Borrower shall deliver to
Royal a Borrowing Base Certificate as of the last Business Day of the
immediately preceding month (each such date a “Re-Margin Date”).  If as of any Re-Margin Date total Borrowings
under the credit facility provided for in §3.1(a) exceed the lesser of
$10,000,000 and the Collateral Value of the Borrowing Base, the Borrower shall
deposit or direct Royal in writing to deposit into the Restricted Cash
Collateral Account an amount equal to such excess on or prior to such tenth
(10th) Business Day.  If, as of any
Re-Margin Date, the Collateral Value of the Borrowing Base exceeds the then
outstanding Borrowings under the credit facility provided for in §3.1(a), Royal
provided no Event of Default exists as of such Re-Margin Date, shall, upon
written request by the Borrower made in the related Borrowing Base Certificate,
remit the amount of such excess (the “Excess Amount”) from the Restricted Cash
Collateral Account to the Borrower promptly if the Excess Amount consists of
Canadian Funds or U.S. Funds and promptly on maturity of each Cash Equivalent
if the Excess Amount consists of certificates of deposit or term deposits.  The Excess Amount will be free and clear of
the Lien granted in the Restricted Cash Collateral Agreement as of such
Re-Margin Date.  The Borrower shall
comply with all of its obligations under this §3.12 so long as Royal shall have
any commitment under the Agreement, any Obligation hereunder for the payment of
money that has accrued and is payable shall remain unpaid or unsatisfied, or
any Documentary Credit shall remain outstanding.

 

26

 

3.13                        Security

 

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

 

3.14                        Swap Contracts,
PDS Services and EFT Transfers

 

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

 

(a)                                  the Borrower may request that Royal enter into Swap Contracts with
the Borrower from time to time.  Royal
may decline such request or may agree to enter into Swap Contracts, provided:

 

(1)                                  the Borrower agrees to the terms and conditions of the current
applicable Master Agreement or such other similar or standard form of agreement
appropriate to the type of Swap Contract, requested by the Borrower as may be
required by Royal and enters into and delivers such agreement to Royal;

 

(2)                                  the Borrower pays all required fees in connection with a Swap
Contract and indemnifies Royal against any loss, cost or expense incurred by
Royal including any Swap Termination Values;

 

(3)                                  the Borrower indemnifies Royal against any loss, cost or expense
suffered or incurred by Royal as a result of acting upon instructions given or
agreements made over the telephone or by electronic transmission of any type
with persons reasonably believed by Royal to have been acting on the Borrower’s
behalf;

 

(4)                                  the Borrower agrees that if there is any inconsistency at any time
between the terms of the Agreement and any Master Agreement, the terms of such
Master Agreement shall prevail; and

 

(b)                                 the Borrower may request that Royal provide PDS Services and EFT
Transfers from time to time.  Royal may
decline such request or may agree to provide PDS Services and EFT Transfers,
subject to the execution and delivery of Royal’s standard form of agreement
appropriate to the type of PDS Services or EFT Transfers requested.

 

27

 

3.15                        Interest Act of
Canada

 

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

 

3.16                        Default Interest

 

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

 

3.17                        Indemnity for
Out-of-Pocket Expenses

 

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

 

3.18                        Effective Time for
Section 3 Notices

 

For the purposes of Section 3 of the Agreement, and unless
otherwise specified in Section 3, notices from the Borrower to Royal must
be received by Royal prior to 10:00 a.m. local time at Vancouver, British
Columbia to be effective on the date on which they are given. Notices received
after that local time will take effect from the next Banking Day or Business
Day, as the case may be.

 

3.19                        Increased Costs

 

Subject to §3.21, if, after the Closing Date, the implementation or
introduction of or any change in any applicable law, regulation, treaty, or
official directive or regulatory requirement now or hereafter in effect
(whether or not having the force of law), or any change in the interpretation
or application thereof by any court or by any judicial or governmental
authority charged with the interpretation or administration thereof, or if
compliance by Royal with any request from any central bank or other fiscal,
monetary, or other authority (whether or not having the force of law):

 

(a)                                  subjects Royal to any tax, changes the basis of taxation of payments
due to Royal or increases any existing tax, on payments of principal, interest,
or other amounts payable by the Borrower to Royal under the Agreement (except
for taxes on the overall net income of Royal imposed by the jurisdiction in
which it is

 

28

 

incorporated
or resident or from which it is acting for the purposes of the Agreement, and
except for taxes on Royal’s capital or other similar taxes); or

 

(b)                                 imposes on Royal any other condition with respect to the Agreement,

 

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

 

3.20                        Borrower’s Option on
Receipt of an Increased Costs Certificate

 

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

 

3.21                        Increased Costs Limitation

 

Royal agrees that:

 

(a)                                  the increased costs payable by the Borrower pursuant to §3.19 shall
not include:

 

(1)                                  those resulting from any law, regulation, treaty, or official
directive or regulatory requirement or amendments thereto of which Royal had
knowledge prior to the Closing Date, or

 

(2)                                  any tax, penalty or other charges payable by Royal due to its
failure to pay or delay in paying any amount required to be paid by it referred
to in §3.19(a);

 

(b)                                 it will not charge the Borrower for any increased costs payable by
it referred to in §3.19 if it is not at the same time passing similar costs on
to substantially all of its customers to whom Royal is, by agreement, entitled
to pass on such costs; and

 

29

 

(c)                                  it will use all reasonable efforts to minimize amounts payable by
the Borrower hereunder including all reasonable efforts to obtain refunds or
credits.

 

3.22                        Repayment of Credit Facility

 

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

 

3.23                        Extension of Maturity Date

 

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

 

3.24                        Currency of All Payments

 

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

 

3.25                        Borrower’s Right to
Cancel Available Amount of Credit Facility

 

If the Borrower delivers to Royal three Business Days’ prior irrevocable
notice, the Borrower may, without penalty, cancel the available amount of the
Credit Facility or a portion thereof in minimum increments of $5,000,000 or any
greater amount in whole multiples of $100,000. 
Such cancellation shall be effective on the later of the effective
Business Day set out in such notice and the third Business Day after such
notice.  No cancellation under this §3.25 shall be effective in respect
of any portion of the Credit Facility which has been advanced or utilized until
such advance or utilization has been repaid or reduced and all interest and
fees accruing thereon have been paid. 
Any such amount so cancelled shall permanently reduce the available
amount of the Credit Facility thereafter available for Borrowings by a like
amount.

 

30

 

3.26                        Standby Fees

 

Subject to §3.27, the Borrower shall pay to Royal a Standby
Fee on the amount of the Credit Facility established pursuant to §3.1(a) not utilized by the Borrower
from and including the Closing Date to and including the Maturity Date.  In determining the amount of the Credit
Facility established pursuant to §3.1(a) not utilized by the Borrower,
the face amounts of Documentary Credits denominated in U.S. Funds shall be
deemed to be the Equivalent Amount thereof in Canadian Funds.  The Standby Fee shall be paid in Canadian
Funds calculated on a daily basis and shall be equal to .20% (20 Basis Points)
per annum times the amount not utilized under the Credit Facility established
pursuant to §3.1(a) (computed on the basis of a year of 365 days), accruing from and
including the Closing Date.  The
Borrower will pay Standby Fees quarterly, in arrears, commencing on
November 1, 2003 and thereafter on the first Business Day of each ensuing
third month until the Maturity Date on which the Credit Facility is repaid by
the Borrower at which time the Borrower will pay to Royal all accrued and
unpaid Standby Fees.

 

3.27                        Standby
Fees Waived

 

If Royal terminates its obligations to make the Credit Facility
available to the Borrower pursuant to §7.2(a) the Borrower shall cease to be obligated
to pay Standby Fees from the Business Day next following the effective date of
such termination.

 

3.28                        Arrangement Fee

 

The Borrower
shall pay to Royal an arrangement fee of $15,000 on the Closing Date.

 

3.29                        Evidence of Indebtedness

 

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

 

3.30                        Determination of
Available Amount of the Credit Facility

 

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

 

31

 

4.                                      SECURITY FOR BORROWINGS

 

4.1                               Release of Certain Security

 

As of the
Closing Date, the Security Agreement, the Section 427 Security and
Borrower Subsidiaries’ Security Agreements are hereby terminated and any
security interests granted thereunder are hereby released.  On the Closing Date, Royal will execute and
deliver to the Borrower such releases, reconveyances, termination statements or
other documents (“Release Documents”) as may be required to release the
security interests granted thereunder.

 

4.2                               Security for Borrowings

 

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

 

(a)                                  the Restricted Cash Collateral Agreements;

 

(b)                                 the Subordination Agreement;

 

(c)                                  the Guarantee;

 

(d)                                 the Borrower Subsidiaries’ Guarantees; and

 

(e)                                  Borrower Guarantees.

 

4.3                               Conflict Between
the Agreement and Royal’s Security

 

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

 

4.4                               Payment

 

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

 

4.5                               Guarantees

 

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

 

32

 

5.                                      CREDIT FACILITY CONDITIONS PRECEDENT

 

5.1                               Conditions
Precedent to Initial Borrowings

 

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

 

(a)                                  delivery by the Borrower to Royal of the following:

 

(1)                                  duly executed copies of the Agreement together with all documents
which the Borrower has covenanted to deliver under the Agreement and any other
documents or instruments as in the opinion of counsel for Royal are reasonably
necessary or appropriate to render effective the Agreement;

 

(2)                                  a certificate of good standing for the Borrower and each of the
Borrower Subsidiaries from the Office of the British Columbia Registrar of
Companies;

 

(3)                                  a certified copy of a resolution or resolutions of the board of
directors of the Borrower or a duly constituted and authorized committee of its
directors and each of the Borrower Subsidiaries authorizing it to execute,
deliver and perform its obligations under the Agreement and Royal’s Security
and the instruments, agreements, certificates, papers and other documents
contemplated herein and therein and the manner in which and by whom the
foregoing documents are to be executed and delivered;

 

(4)                                  an incumbency certificate of the Borrower and each of the Borrower
Subsidiaries setting forth the names of its directors and officers and specimen
signatures of the individuals who sign the Agreement and Royal’s Security and
the instruments, agreements, certificates, papers and other documents provided
for or contemplated therein;

 

(5)                                  a certificate signed by the Chief Financial Officer or other
responsible person certifying:

 

(A)                              that the Guarantor is not in default under the Guarantor Credit Agreement;

 

(B)                                there is no material litigation pending or threatened against the
Borrower other than as disclosed in the June 30, 2003 quarterly report;

 

(C)                                there has been no material adverse change in the financial
conditions and operations of Guarantor or any of its Subsidiaries since the
date of the Guarantor’s most recent financial statements referred to in §2.15
of the Agreement;

 

33

 

(6)                                  a favourable opinion of counsel for the Borrower (in form and content
satisfactory to the solicitors for Royal) to the effect that:

 

(A)                              the Borrower and each of the Borrower Subsidiaries validly exists as
a company under the British Columbia Company
Act and is, according to the records of the office of the Registrar
of Companies for the Province of British Columbia, in good standing with
respect to the filing of its annual reports;

 

(B)                                the Borrower and each of the Borrower Subsidiaries have the
corporate power and capacity to borrow money and grant security therefore in the
manner contemplated by the Agreement and Royal’s Security and to enter into,
observe and perform the terms and obligations on its part to be observed and
performed under the Agreement and Royal’s Security;

 

(C)                                the Borrower has duly authorized, executed and delivered the
Agreement and that Royal’s Security to which it is a party and each of the
Borrower Subsidiaries have duly authorized, executed and delivered that Royal’s
Security to which it is a party, the Agreement and such Royal’s Security
constitute valid, binding and enforceable obligations of the Borrower and the
Borrower Subsidiaries (as applicable) in accordance with its terms, save as
enforcement may be limited by:

 

(i)                                     applicable bankruptcy, insolvency, moratorium or reorganization or
other laws affecting creditors’ rights generally;

 

(ii)                                  the unavailability of equitable remedies such as the remedy of
specific performance and injunction in any particular instance;

 

(iii)                               the inability of the Courts of Canada to give judgement for payment
in foreign currencies; and

 

(iv)                              such other qualifications and limitations as counsel for Royal may
accept acting reasonably;

 

(D)                               so far as they are aware in their capacity as counsel for the
Borrower in respect of this transaction, there are no actions, proceedings or
investigations pending or threatened against the Borrower which question the
validity of the Agreement or Royal’s Security or the validity of any act to be
taken pursuant thereto,

 

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

 

34

 

(7)                                  an opinion of Messrs. Bull, Housser & Tupper, counsel for Royal
(in form and content satisfactory to Royal but subject to the usual assumptions
and qualifications) to the effect that the Agreement and Royal’s Security have
been executed by all parties thereto and delivered to Royal and that such items
of Royal’s Security which require registration or filing have been registered
or filed in all places and offices in British Columbia and elsewhere (as may be
determined by counsel for Royal) where such registration or filing is
necessary;

 

(b)                                 delivery by the Guarantor to Royal of the following:

 

(1)                                  the duly executed Guarantee and Subordination Agreement;

 

(2)                                  a certificate of good standing for the Guarantor;

 

(3)                                  a certified copy of a resolution or resolutions of the Guarantor’s
board of directors or a duly constituted and authorized committee of the
Guarantor’s board of directors authorizing the Guarantor to execute, deliver
and perform its obligations under the Agreement and the instruments,
agreements, certificates, papers and other documents contemplated herein,
including the Guarantee and the Subordination Agreement and the manner in which
and by whom the foregoing documents are to be executed and delivered;

 

(4)                                  an incumbency certificate of the Guarantor setting forth the names
of its directors and officers and specimen signatures of the individuals who
sign the Agreement, the Guarantee, the Subordination Agreement and the other
instruments, agreements, certificates, papers and other documents provided for
or contemplated therein;

 

(5)                                  a favourable opinion of counsel for the Guarantor (in form and
content satisfactory to the solicitors for Royal) substantially to the effect
that:

 

(A)                              the Guarantor is a corporation duly organized and existing under the
laws of the State of Delaware, U.S.A., and is in good standing in that
jurisdiction;

 

(B)                                the Guarantor has all requisite corporate power and capacity to
guarantee the obligations of the Borrower, to enter into, observe and perform
its obligations under the Agreement, the Guarantee and the Subordination
Agreement;

 

(C)                                the Guarantor has taken all necessary corporate action to authorize
the execution, delivery and performance of its obligations under the Agreement,
the Guarantee and the Subordination Agreement;

 

35

 

(D)                               each of the Agreement, the Guarantee and the Subordination Agreement
has been duly authorized, executed and delivered by the Guarantor and
constitutes legal, valid and binding obligations of the Guarantor, enforceable
against the Guarantor in accordance with its respective terms, save as
enforceability may be limited by:

 

(i)                                     applicable bankruptcy, insolvency, fraudulent transfer, moratorium
or reorganization or other similar laws affecting creditors’ rights generally,
and

 

(ii)                                  general principles of equity and the unavailability of the remedies
of specific performance and injunction in any particular instance;

 

(E)                                 so far as they are aware in their capacity as counsel to the
Guarantor, there is no action, suit, proceeding or investigation pending or
threatened against the Guarantor which questions the validity of the Agreement,
the Guarantee or the Subordination Agreement or the validity of any act to be
taken pursuant thereto;

 

(F)                                 so far as they are aware in their capacity as counsel to the
Guarantor, neither the execution and delivery of the Agreement, the Guarantee
or the Subordination Agreement by the Guarantor nor the fulfilment or
compliance with the terms thereof:

 

(i)                                     contravenes or results in a breach of any of the terms, conditions
or provisions of the Charter of the Guarantor, or

 

(ii)                                  contravenes or results in any breach of or constitutes a default
under any material agreement to which the Guarantor is a party or by which it
is bound;

 

(c)                                  the Borrower shall have paid all fees and expenses then due to Royal
including the arrangement fee due under §3.28 and any reasonable legal fees
invoiced prior to the Closing Date.

 

5.2                               Conditions
Precedent to Subsequent Borrowings

 

It shall be a condition of each advance, renewal or conversion that the
representations and warranties contained in Section 2 hereof shall be true
on and as of the date of each advance, renewal or conversion and that Royal is
satisfied that there has been no material adverse change in the financial
condition or operation of the Borrower or the Guarantor.  The Borrower will, upon request of Royal,
deliver to Royal a certificate or certificates of an officer on behalf of the
Borrower or the Guarantor to that effect.

 

36

 

6.                                      COVENANTS OF THE BORROWER AND THE GUARANTOR

 

6.1                               Borrower’s Covenants

 

The Borrower
covenants and agrees with Royal as follows:

 

Positive Covenants of Borrower

 

(a)                                  that it will duly and punctually pay or cause to be paid all amounts
required to be paid by it to Royal pursuant to the Agreement, including
principal, interest, default interest, Documentary Credit Fees, Swap
Termination Values, Standby Fees, fees for Swap Contracts and any other fees
and amounts, on the day, at the place, in the Currencies and in the manner set
forth herein;

 

(b)                                 that it will duly observe and perform or cause to be observed and
performed each and all of the covenants and agreements required by it to be
observed and performed as set forth in the Agreement and Royal’s Security;

 

(c)                                  that it will maintain Insurance Coverage at all times and will
forthwith notify Royal upon the happening of any loss which could reasonably be
expected to have a material adverse effect on the financial condition or
operations of the Borrower and if Insurance Coverage is provided by third party
insurers, it shall duly and punctually pay all premiums and other sums of money
for maintaining such insurance;

 

(d)                                 that it will and it will cause each of its Subsidiaries to file all
material tax returns including income tax returns, corporation capital tax
returns and other tax filings in all required jurisdictions;

 

(e)                                  that it will and it will cause each of its Subsidiaries to pay all
material taxes (except taxes in dispute which are being contested in good
faith) including interest and penalties and will pay or make adequate reserves
for the ultimate payment of any tax payment which is being contested;

 

(f)                                    that it will and it will cause each of its Subsidiaries to actively
and diligently contest or cause to be contested in good faith, by appropriate
and timely proceedings, or effect a timely and provident settlement of any
action, suit, litigation or other proceeding the result of which could
reasonably be expected to have a material adverse effect on the financial
condition or operations of the Borrower;

 

(g)                                 that it will and it will cause each of its Subsidiaries to effect a
timely and provident settlement of or bring an application to stay any writ of
execution, attachment or similar process issued or levied against all, or a
substantial portion of, its property or the property of any of its Subsidiaries
in connection with any judgement against it or any of its Subsidiaries in an
amount which materially adversely affects the financial condition or operations
of the Borrower;

 

37

 

(h)                                 that it will and it will cause each of its Subsidiaries to observe
and comply with the provisions of all applicable laws, regulations, bylaws,
ordinances and orders of any Governmental Body dealing in relation to its
business or the business of any of its Subsidiaries with pollution of the
environment, toxic and hazardous materials and waste and other environmental
hazards, unless the failure to so observe and comply would not, in the
judgement of the Borrower, reasonably exercised, materially adversely affect
the ability of the Borrower to meet its obligations under the Agreement;

 

(i)                                     that it will, as soon as practical after it becomes aware thereof,
provide Royal with prompt notice of:

 

(1)                                  any spills of Contaminants which are required to be reported to any
Governmental Body, and

 

(2)                                  of any investigations, control orders, stop orders, injunctions,
prosecutions or lawsuits under any federal, provincial, municipal or other laws
relating to pollution of the environment, the handling of toxic or hazardous
materials and waste or any other environmental or public health and safety
laws,

 

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

 

(j)                                     that it will cause its Chief Financial Officer, such other senior
officer as may be appropriate or its auditor, to meet with Royal to discuss and
explain, as the case may be, any of its affairs, finances and accounts and to
provide such other information pertaining to its business and operations
together with such reports and documents as Royal may reasonably require;

 

(k)                                  that it will permit representatives and independent contractors of
Royal to visit and inspect any of its or its Subsidiaries’ properties, to
examine their respective corporate, financial and operating records, and make
copies thereof or abstracts therefrom, and to discuss their corporate affairs,
finances and accounts with directors, officers, and independent chartered
accountants, all at the expense of the Borrower and at such reasonable times
during normal business hours and as often as may be reasonably desired, upon
reasonable advance notice to the Borrower except that, when an Event of Default
exists, Royal may do any of the foregoing at the expense of the Borrower at any
time during normal business hours and without advance notice;

 

(l)                                     that it will maintain and it will cause each of its Subsidiaries to
maintain in full force and effect all material leases, licences, permits,
consents and regulatory approvals necessary for the due carrying on of their
respective businesses;

 

38

 

(m)                               that it will maintain and it will cause each of its Subsidiaries to
maintain their respective corporate existences as validly subsisting
corporations;

 

(n)                                 that it will give to Royal prompt notice of any Event of Default or
any event that with notice or lapse of time would be an Event of Default;

 

(o)                                 that it will use Borrowings solely for the purposes set forth in §3.1
and for no other purpose;

 

Negative Covenants of the Borrower

 

(p)                                 that, without the prior written consent of Royal, and except for
mergers, amalgamations and corporate reorganizations between or among any of
the Borrower, LP Forest and LP Engineered, with respect to LP Forest and with
respect to LP Engineered, it will not, nor will it permit any Subsidiary to
merge, amalgamate, enter into any corporate reorganization or otherwise modify
its corporate structure in any way which would materially adversely affect its
asset base or consolidated cash flow or impair the ability of the Borrower to
observe and perform its obligations under the Agreement;

 

(q)                                 that, except for Dispositions among or between any of the Borrower,
LP Forest and LP Engineered, by LP Forest and by LP Engineered, it will not and
it will cause each of its Subsidiaries not to make any Disposition of any of
its property or assets except for:

 

(1)                                  Dispositions of inventory or current assets in the ordinary course
of business and on commercially reasonable terms it being acknowledged that
sales and transfers of inventory and related property and assets to the
Guarantor are in the ordinary course of business;

 

(2)                                  Dispositions of individual items of property or assets in any fiscal
year having an aggregate value of $5,000,000 or less based on the greater of
net book value or the value determined by the value of the sale or disposition,
or

 

(3)                                  Dispositions of assets as approved in writing by Royal;

 

(r)                                    that it will not allow the aggregate of the principal amount of
Borrowings under the credit facility established pursuant to §3.1(a)
to exceed at any time the Collateral Value of the Borrowing Base set out in the
then current Borrowing Base Certificate;

 

(s)                                  that, without the prior written consent, of Royal, it will not
grant, create, assume, suffer or permit any Lien on the Restricted Cash
Collateral except for Royal’s Security;

 

39

 

Reporting Covenants of the Borrower

 

(t)                                    that it will and it will cause each of its Subsidiaries to at all
times keep or cause to be kept proper books of account and that it will furnish
to Royal within 90 days after the close of each fiscal year Sufficient Copies
of its unaudited consolidated financial statements, signed by a Responsible
Officer;

 

(u)                                 except for the year end fiscal quarter, it will deliver to Royal
within 45 days of the close of each fiscal quarter Sufficient Copies of its
quarterly unaudited consolidated financial statements signed by a Responsible
Officer;

 

(v)                                 that it will deliver to Royal on or prior to the date reasonably
stipulated by Royal Sufficient Copies of the Borrower’s (or any of its
Subsidiaries), financial and operating statements, budgets, business and capex
plans together with such other information, reports and documents as Royal may
reasonably request;

 

(w)                               that it will provide prompt notice to Royal of any change to the
financial position or business of the Borrower or any of its Subsidiaries which
could have a material adverse effect on its financial position, business or
ability to perform its obligations under the Agreement;

 

(x)                                   that it will deliver to Royal the Borrowing Base Certificate as
required by §3.5 and §3.12.

 

6.2                               Guarantor’s Covenants

 

The Guarantor
covenants with Royal as follows:

 

Positive Covenants of the Guarantor

 

(a)                                  that it will duly observe and perform or cause to be observed and
performed each and all of the covenants and agreements required by it to be
performed and observed as set forth in the Agreement and the Guarantee;

 

(b)                                 that it will at all times maintain such insurance as is usually
maintained by others in the business of the same nature as the business of the
Guarantor and each of its Subsidiaries, as the case may be, or maintain a
program of self-insurance, with reserves, in accordance with sound business
practices;

 

(c)                                  that it will, maintain its web site and post in a timely manner
copies of all public documents filed with the U.S. Securities and Exchange
Commission (with the exception of Forms S-8);

 

(d)                                 that it will give Royal at least 15 days’ notice of its intention to
transfer, mortgage, pledge, charge or otherwise encumber or grant a security
interest in any shares of the Borrower in which it has a legal or beneficial
interest;

 

40

 

(e)                                  it will provide Royal with copies of all certificates, notices and
other information it is required to deliver to the administrative agent
pursuant to sections 6.02 and 6.03 of the Guarantor Credit Agreement;

 

Negative Covenants of the Guarantor

 

(f)                                    that it will not, without the consent in writing of Royal, merge or
consolidate with any other Person or liquidate or dissolve except for mergers
or consolidations with any other Person if the Guarantor (or the resulting
corporation in a consolidation) will be the surviving corporation and the
Guarantor (or such resulting corporation) will not be in default under any of
the terms of the Guarantor Credit Agreement immediately after the merger or
consolidation;

 

Reporting Covenants of the Guarantor

 

(g)                                 that it will at all times maintain its corporate existence and will
carry on and conduct its business in a proper and efficient manner and it will
and will cause each of its Subsidiaries to at all times keep or cause to be
kept proper books of account and that it will furnish to Royal at the Branch of
Account within 90 days after the close of each fiscal year Sufficient Copies of
its annual consolidated audited financial statements, all in reasonable detail
and prepared in accordance with GAAP, reported on by its auditor and
accompanied by their signed report which shall contain no material
qualifications as to the scope of their examination except as to the furnishing
of information to them, and, except for the year end fiscal quarter, within 45
days of the close of each fiscal quarter Sufficient Copies of its quarterly
consolidated unaudited financial statements prepared in accordance with GAAP
subject only to normal year-end audited adjustments and the absence of
footnotes including a consolidated summary balance sheet, a consolidated
summary statement of income and a consolidated statement of cash flows, signed
by a Responsible Officer;

 

(h)                                 that it will, contemporaneously with delivery to the administrative
agent pursuant to the Guarantor Credit Agreement, deliver Sufficient Copies of
the Compliance Certificate to Royal;

 

(i)                                     that, except for the year-end fiscal quarter, within 45 days of the
close of each fiscal quarter and within 90 days of the close of each fiscal
year, it will deliver to Royal a certificate signed by a Responsible Officer in
substantially the form attached as Schedule A;

 

(j)                                     that it will, contemporaneously with delivery to Bank of America,
N.A., the administrative agent under the Guarantor Credit Agreement, deliver to
Royal a copy of the US$ Borrowing Base Certificate;

 

6.3                               Environmental Law

 

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

 

41

 

7.                                      EVENTS OF DEFAULT

 

7.1                               Definition of Event of
Default

 

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

 

(a)                                  if the Borrower makes default in any payment of principal, interest,
acceptance fees, Documentary Credit Fees, default interest, Standby Fees, Swap
Termination Values, fees for Swap Contracts, any other fees or other like
amounts when the same becomes due under the Agreement or with respect to an
Obligation and such default shall have continued for a period of five Business
Days after notice has been given by Royal to the Borrower;

 

(b)                                 if the Borrower or Guarantor makes, suffers or permits a material
default in observing or performing any other covenant or condition of the
Agreement, or, in the case of the Borrower, any Swap Contract or any other
material agreement with Royal and such default shall have continued for a
period of five Business Days after notice in writing has been given by Royal to
the Borrower specifying such default;

 

(c)                                  if the Borrower makes default in any payment of an Additional Amount
or like payment when the same becomes due under the Agreement and such default
shall have continued for a period of ten Business Days after notice has been
given by Royal to the Borrower;

 

(d)                                 if an “Event of Default” (as defined therein) resulting from the
failure to make any payment of principal, interest or premium when due and
payable under the Indentures (after giving effect to any cure or grace period
provided therein) or to repurchase or redeem any note issued under the
Indentures when required thereby occurs and is continuing or any other “Event
of Default” occurs and is continuing under the Indentures and results in the
“Indebtedness” (as defined in the Indentures) under the Indentures being
accelerated;

 

(e)                                  if there is a default by the Borrower (other than a default under
the Agreement) which results in the acceleration of payment by the Borrower or
any of its Material Canadian Subsidiaries of obligations for borrowed money in
excess of $5,000,000;

 

(f)                                    if any representation, warranty or statement made by the Borrower,
the Borrower Subsidiaries in the Borrower Subsidiaries’ Guarantees or the
Guarantor herein or in the Guarantee or in any certificate pursuant to the
Agreement or the Guarantee shall, in Royal’s opinion, prove to have been
materially incorrect on the date as of which it was made in any respect
materially adverse to Royal and Royal shall have so notified the Borrower;

 

(g)                                 if:

 

42

 

(1)                                  an order be made or an effective resolution be passed for the winding-up
of the Borrower or, without the prior written consent of Royal, any of its
Material Canadian Subsidiaries or if the Borrower or any of its Subsidiaries on
its own behalf shall make an assignment for the benefit of its creditors or if
the Borrower or any of its Subsidiaries shall be declared bankrupt or make an
authorized assignment or if a custodian or receiver be appointed under the Bankruptcy and Insolvency Act or if a
compromise or arrangement (including a compromise, arrangement, reorganization
or other like restructuring commenced by the Borrower which adversely affects
its creditors under any Federal or Provincial statute including the Companies’ Creditors Arrangement Act or
the British Columbia Company Act)
is proposed by the Borrower or any of its Subsidiaries to creditors generally
or any significant class of creditors, or if a receiver, receiver-manager or
other officer with like powers shall be appointed, or if an encumbrancer shall
take possession of the property of the Borrower or any of its Subsidiaries or
any part thereof, which is, in the reasonable opinion of Royal, material to the
business of the Borrower and its ability to perform its obligations under the
Agreement or if a distress or execution or any similar process be levied or
enforced against a substantial or essential part of such property and remain
unsatisfied for a period of thirty days, unless such distress, execution or
similar process is in good faith disputed by the Borrower or any such
Subsidiary and, if so required by Royal, the Borrower or any such Subsidiary
provides adequate security to pay in full the amount claimed; or

 

(2)                                  the Guarantor institutes or consents to the institution of any
proceeding under any Debtor Relief Law, or makes an assignment for the benefit
of creditors; or applies for or consents to the appointment of any receiver,
trustee, custodian, conservator, liquidator, rehabilitator or similar officer
for it or for all or any material part of its property; or any receiver,
trustee, custodian, conservator, liquidator, rehabilitator or similar officer
is appointed without the application or consent of such Person and the
appointment continues undischarged or unstayed for 60 calendar days; or any
proceeding under any Debtor Relief Law relating to any such Person or to all or
any material part of its property is instituted without the consent of such
Person and continues undismissed or unstayed for 60 calendar days, or an order
for relief is entered in any such proceeding;

 

(h)                                 if the Agreement or any of Royal’s Security shall at any time cease
to be in full force and effect (other than by expiration or termination in
accordance with its terms for reasons other than the default of the Borrower)
or if a Court of competent jurisdiction shall declare the Agreement to be null
and void or if the Borrower shall contest the validity or enforceability
thereof or if the Borrower shall deny that it has any further liability or
obligation hereunder or if any of Royal’s Security for any reason ceases, other
than in accordance with its terms, to

 

43

 

constitute
valid and subsisting security upon any material part of the property and assets
of the Borrower or its Subsidiaries as described therein;

 

(i)                                     if a writ of execution, attachment or similar process has been
issued or levied against all, or a substantial portion of, the property of the
Borrower or any of its Subsidiaries in connection with any judgement against
the Borrower or any of its Subsidiaries in any amount in excess of $1,000,000
which materially affects the property of the Borrower or any of its
Subsidiaries, and no application has been brought to stay such writ of
execution, attachment or similar process which application has, in the
reasonable opinion of Royal, a reasonable chance of success;

 

(j)                                     if it shall become illegal or unlawful for the Borrower or any of
its Subsidiaries or the Guarantor to carry on its business or to perform its
obligations under the Agreement;

 

(k)                                  if the Borrower or any of its Subsidiaries suspends or ceases or
threatens to suspend or cease business, unless otherwise permitted under
§6.1(p) hereof;

 

(l)                                     if the Borrower or any of its Subsidiaries makes or threatens to
make a Disposition of all or a substantial part of its undertaking, property
and assets, whether in one transaction or in a series of related transactions,
unless otherwise permitted under §6.1(q) hereof;

 

(m)                               An ERISA Event occurs with respect to a Pension Plan or
Multiemployer Plan which has resulted or could reasonably be expected to result
in liability of the Guarantor under Title IV of ERISA to the Pension Plan,
Multiemployer Plan or the PBGC in an aggregate amount in excess of the
Threshold Amount, or (ii) the Guarantor or any ERISA Affiliate fails to pay
when due, after the expiration of any applicable grace period, any instalment
payment with respect to its withdrawal liability under Section 4201 of
ERISA under a Multiemployer Plan in an aggregate amount in excess of the
Threshold Amount.

 

7.2                               Remedies

 

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

 

(a)                                  terminate its obligations hereunder to make the Credit Facility
available to the Borrower, issue Documentary Credits, enter into Swap Contracts
or provide EFT Transfers or PDS Services;

 

(b)                                 declare Borrowings under the Credit Facility, interest, Standby
Fees, Documentary Credit, Fees, costs including Swap Termination Values and any
other moneys owing to Royal by the Borrower under the Agreement, including
amounts owing or liabilities in respect of Documentary Credits, EFT Transfers

 

44

 

and PDS
Services which have not yet matured, to be immediately due and payable on the
date which is fifteen Business Days after Royal delivers such notice to the
Borrower, or that earlier date on or after delivery of such notice when Royal
determines in its reasonable discretion that the business or operations of the
Borrower may be materially prejudiced, endangered or adversely affected
(“Acceleration Date”) and such moneys and liabilities shall forthwith become
due and payable on the Acceleration Date without presentment, demand, protest
or other notice of any kind to the Borrower, all of which are hereby expressly
waived;

 

(c)                                  enforce all rights and remedies granted under Royal’s Security
provided that any enforcement shall not be commenced until after the
Acceleration Date;

 

(d)                                 convert U.S. Advances to Canadian Funds;

 

(e)                                  terminate any Swap Contract in accordance with its terms;

 

(f)                                    terminate any agreement relating to EFT Transfer or PDS Services in
accordance with its terms.

 

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

 

If there are Documentary Credits outstanding on the Acceleration Date,
amounts held in Restricted Cash Collateral Accounts may be applied by Royal to
Royal’s payment obligations, if any, pursuant to Documentary Credits, and any
balances in such accounts shall be retained by Royal as security for Royal’s
obligations under Documentary Credits which have not yet matured.

 

7.3                               Remedies Cumulative

 

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

 

7.4                               Waivers

 

Royal may, by written instrument at any time and from time to time waive
any breach by either the Borrower or the Guarantor of any of the covenants or
Events of Default herein.  No course

 

45

 

of dealing between either the Borrower or the Guarantor and Royal nor
any delay in exercising any rights hereunder shall operate as a waiver of any
rights of Royal.

 

7.5                               Application of
Payments Following Acceleration

 

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

 

7.6                               Royal May Perform
Covenants

 

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

 

7.7                               Waiver of Certain Defaults under Prior Credit Agreement

 

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

 

8.                                      GENERAL

 

8.1                               Waiver

 

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

 

8.2                               Effect of Amendment,
Modification or Waiver

 

No amendment, modification or waiver of any condition of the Agreement
or consent to any departure by the Borrower therefrom shall, in any event, be
effective unless the same shall be in

 

46

 

writing signed by Royal.  No
notice to or demand on the Borrower shall by reason thereof entitle the
Borrower to any other or further notice or demand in similar or other
circumstances unless specifically provided for in the Agreement.

 

8.3                               Time of the Essence

 

Time shall be of the essence hereof.

 

8.4                               Further Assurances

 

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

 

8.5                               Set-Off

 

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

 

8.6                               Judgement Currency

 

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

 

47

 

8.7                               Account Debit Authorization

 

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

 

8.8                               Expenses

 

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

 

8.9                               Survival of
Representations and Warranties

 

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

 

8.10                        Notice

 

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

 

(a)                                  if delivered personally, when received;

 

(b)                                 if sent by facsimile, on the Business Day when the appropriate
confirmation of receipt has been received if the confirmation of receipt has
been received before 3:00 p.m. on that Business Day or, if the
confirmation of receipt has been received after 3:00 p.m. on that Business
Day, on the next succeeding Business Day; and

 

(c)                                  if sent by facsimile on a day which is not a Business Day, on the
next succeeding Business Day on which confirmation of receipt has been
received.

 

48

 

8.11                        General Indemnity

 

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

 

8.12                        Counterparts

 

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

 

8.13                        Reasonable Consent
or Approval of the Parties

 

The parties hereto acknowledge and confirm that:

 

(a)                                  where either of them is required to exercise its discretion or grant
its approval or consent pursuant to a provision in the Agreement, it shall act
reasonably in the exercise of its discretion and will not unreasonably withhold
or delay the granting of its approval or consent, and

 

(b)                                 the Borrower may rely on any consent, approval, calculation or
determination provided to it by Royal pursuant to the Agreement.

 

8.14                        Entire Agreement

 

Save as provided herein and in the instruments and documents
contemplated or provided for hereunder, the Agreement contains the whole
agreement between the parties with respect to the Credit Facility and there are
no other terms, conditions, representations or warranties with respect thereto
except as contained herein.

 

8.15                        No Deduction for Taxes

 

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

 

49

 

8.16                        Participations and
Assignments

 

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

 

(a)                                  shall be entitled to the benefits of
the provisions of the Agreement as fully as though it were an original party to
the Agreement; and

 

(b)                                 may, subject to the terms of the
Agreement, exercise any and all rights of banker’s lien, set-off or
counterclaim with respect to any and all amounts owed by the Borrower to such
purchaser, assignee or transferee as fully as if such purchaser, assignee or
transferee had made advances in the amount of the obligation which is sold,
assigned or transferred to it.

 

8.17                        Assignment After Default

 

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

 

8.18                        Obligations of
Borrower Re Facility Disposition

 

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

 

50

 

respective
parties hereto and thereto and their permitted successors and assignees any
benefit or any legal or equitable right, remedy or other claim under the
Agreement.

 

8.19                        Confidentiality

 

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

 

51

 

IN WITNESS WHEREOF the parties hereto have caused the
Agreement to be duly executed on
October                       ,
2003.

 

	
  LOUISIANA-PACIFIC
  CANADA LTD.

  	
  )

  	
  Address for Notice

  
	
   

  	
  )

  	
  c/o Louisiana-Pacific Corporation

  
	
   

  	
  )

  	
  Suite 1200, 805 S.W. Broadway

  
	
   

  	
  )

  	
  Portland, Oregon

  
	
  Per:

  	
   

  	
   

  	
  )

  	
  U.S.A. 
  97205

  
	
  Authorized
  Signatory

  	
  )

  	
   

  
	
   

  	
  )

  	
  Phone:   (503) 821-5100

  
	
   

  	
  )

  	
  Fax:       (503)
  821-5322

  
	
   

  	
  )

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

  
	
  Per:

  	
   

  	
   

  	
  )

  	
   

  
	
  Authorized Signatory

  	
  )

  	
  With a copy to

  
	
   

  	
  )

  	
  Louisiana-Pacific Canada Ltd.

  
	
   

  	
  )

  	
  2100 - 1075 West Georgia Street

  
	
   

  	
  )

  	
  Vancouver, British Columbia

  
	
   

  	
  )

  	
  V6E 3G2

  
	
   

  	
  )

  	
   

  
	
   

  	
  )

  	
  Phone:      (604) 631-3131

  
	
   

  	
  )

  	
  Fax:                      (604) 631-3232

  
						

 

52

 

	
  LOUISIANA-PACIFIC
  CORPORATION

  	
  )

  	
  Address for Notice

  
	
   

  	
  )

  	
  Suite 1200, 805 S.W. Broadway

  
	
   

  	
  )

  	
  Portland, Oregon

  
	
  Per:

  	
   

  	
   

  	
  )

  	
  U.S.A. 
  97205

  
	
  Authorized
  Signatory

  	
  )

  	
   

  
	
   

  	
  )

  	
  Phone:   (503) 821-5100

  
	
   

  	
  )

  	
  Fax:       (503)
  821-5322

  
	
   

  	
  )

  	
   

  
	
   

  	
  )

  	
   

  
	
  Per:

  	
   

  	
   

  	
  )

  	
   

  
	
  Authorized
  Signatory

  	
  )

  	
   

  
	
   

  	
  )

  	
   

  
	
   

  	
  )

  	
   

  
						

 

53

 

	
  ROYAL BANK OF CANADA

  	
  )

  	
  RBC Capital Markets

  
	
   

  	
  )

  	
  Suite 2100, Park Place

  
	
   

  	
  )

  	
  666 Burrard Street

  
	
   

  	
  )

  	
  Vancouver, British Columbia

  
	
  By:

  	
   

  	
   

  	
  )

  	
  V6C 3B1

  
	
    Baljit
  Mann

  	
  )

  	
  Attention:  Corporate Credit

  
	
    Authorized Signatory

  	
  )

  	
  Phone:   (604) 257-7100

  
	
   

  	
  )

  	
  Fax:       (604) 665-6465

  
	
   

  	
  )

  	
   

  
	
   

  	
  )

  	
   

  
					

 

54Exhibit
10.1

 

EMPLOYMENT AGREEMENT

 

 

This Employment
Agreement (the “Agreement”) is made and entered into effective as of October 1,
2003, by and between James M. Caltrider (the “Employee”) and Cymer, Inc., a
Nevada corporation (the “Company”).

 

 

RECITALS

 

A.            The Company may from
time to time need to address the possibility of an acquisition transaction or
change of control event.  The Board of
Directors of the Company (the “Board”) recognizes that such events can be a distraction
to the Employee and can cause the Employee to consider alternative employment
opportunities.  The Board has determined
that it is in the best interests of the Company and its stockholders to assure
that the Company will have the continued dedication and objectivity of the
Employee, notwithstanding the possibility, threat or occurrence of a Change of
Control (as defined below) of the Company, although no such Change of Control
is now contemplated.

 

B.            The Board believes
that it is in the best interests of the Company and its stockholders to provide
the Employee with an incentive to continue his employment and to motivate the
Employee to maximize the value of the Company upon a Change of Control for the
benefit of its stockholders.

 

C.            The Board believes
that it is imperative to provide the Employee with certain benefits upon a
Change of Control and, under certain circumstances, upon termination of the
Employee’s employment in connection with a Change of Control, which benefits
are intended to provide the Employee with financial security and provide
sufficient incentive and encouragement to the Employee to remain with the
Company notwithstanding the possibility of a Change of Control.

 

D.            To accomplish the
foregoing objectives, the Board has directed the Company, upon execution of
this Agreement by the Employee, to agree to the terms provided herein.

 

E.             Certain capitalized
terms used in this Agreement are defined in Section 7 below.

 

 

AGREEMENT

 

In consideration
of the mutual covenants herein contained, and in consideration of the continuing
employment of the Employee by the Company, the parties agree as follows:

 

1.             Duties
and Scope of Employment.  The
Company shall employ the Employee in the position of Executive Vice President,
Manufacturing Operations Business Unit, as such position

 

 

has been defined in terms
of responsibilities and compensation as of the effective date of this
Agreement; provided, however, that the Board shall have the right, at any time
prior to the occurrence of a Change of Control, to revise such responsibilities
and compensation as the Board in its discretion may deem necessary or
appropriate.  The Employee shall comply
with and be bound by the Company’s operating policies, procedures and practices
from time to time in effect during his employment.  During the term of the Employee’s employment with the Company,
the Employee shall continue to devote his full time, skill and attention to his
duties and responsibilities, and shall perform them faithfully, diligently and
competently, and the Employee shall use his best efforts to further the
business of the Company and its affiliated entities.

 

2.             Base
Compensation.  The Company shall pay
the Employee as compensation for his services a base salary at the annualized
rate of $240,000 (“Base Compensation”). 
Such salary shall be paid periodically in accordance with normal Company
payroll practices.  The Board or the
Compensation Committee of the Board shall review the base salary of the
Employee according to normal Company practice, but no less frequently than
annually, and may in its discretion increase but not decrease the base salary
below the amount specified in this agreement.

 

3.             Annual
Incentive.  Beginning with the
Company’s current fiscal year and for each fiscal year thereafter during the
term of this Agreement, the Employee shall be eligible to receive an annual
bonus under the Company’s annual incentive plan (the “Annual Incentive”) based
upon performance targets approved by the Compensation Committee of the Board
(the “Target Incentive”) in its sole discretion.  The Annual Incentive payable hereunder shall be payable in
accordance with the Company’s normal practices and policies.

 

4.             Employee
Benefits.  The Employee shall be
eligible to participate in the employee benefit plans and executive compensa­tion
programs maintained by the Company applicable to other key executives of the
Company, including (without limitation) retirement plans, savings or
profit-sharing plans, stock option, incentive or other bonus plans, life,
disability, health, accident and other insurance programs, paid vacations, and
similar plans or programs, subject in each case to the generally applicable
terms and conditions of the applicable plan or program in question and to the
sole determination of the Board or any committee administering such plan or
program.

 

5.             Employment
Relationship.  The Company and the
Employee acknowledge that the Employee’s employment is and shall continue to be
at-will, as defined under applicable law. 
If the Employee’s employment terminates for any reason, the Employee
shall not be entitled to any payments, benefits, damages, awards or
compensation other than as provided by this Agreement, or as may otherwise be
available in accordance with any Company plan or policy approved by the Board.

 

6.             Termination
Benefits.

 

(a)           Subject
to Sections 8 and 9 below, in the event the Employee’s employment terminates as
a result of an Involuntary Termination other than for Cause upon or within
eighteen (18) months after a Change of Control, then the Employee shall be
entitled to receive severance and other benefits as follows:

 

2

 

(i)            Pay
Continuation.  The Employee shall be
entitled to monthly payments equal to the Employee’s monthly Base Compensation
as in effect immediately prior to the Change of Control plus one-twelfth (1/12)
of the average of the annual bonus amount paid to the Employee with respect to
the three previous calendar years.  Such
monthly amounts shall be paid according to the normal payroll practice of the
Company for 12 months following the date of termination (the “Termination
Period”).

 

(ii)           Annual
Incentive.  The Employee shall be
entitled to receive a percentage of the Employee’s Target Incentive for the
calendar year in which such termination occurs. Such percentage shall equal a
fraction, the numerator of which shall be the number of days in such calendar
year up to and including the date of such termination and the denominator of
which shall be the number of days in such calendar year.  Such amount shall be payable according to
the normal practice of the Company with respect to the payment of bonuses.

 

(iii)         Options.  The unvested portion of any stock
option(s) held by the Employee under the Company’s stock option plans shall
vest and become exercisable in full upon the date of such termination. Employee
shall have one year from the date of such termination to exercise any vested
options.

 

(iv)          Medical
Benefits. The Company shall reimburse the Employee for the cost of the
Employee’s group health, vision and dental plan coverage in effect until the
end of the Termination Period.  The
Employee may use this payment, as well as any other payment made under this
Section 6, for such continuation coverage or for any other purpose.  To the extent the Employee pays the cost of
such coverage, and the cost of such coverage is not deductible as a medical
expense by the Employee, the Company shall “gross-up” the amount of such
reimbursement for all taxes payable by the Employee on the amount of such
reimbursement and the amount of such gross-up.

 

(b)           In
the event the Employee voluntarily resigns his employment with the Company
within the 30-day period beginning one year after a Change of Control, the
Employee shall receive the severance and other benefits set forth in Sections
6(a)(i)-(iv) above.

 

7.             Definition
of Terms.  The following terms
referred to in this Agreement shall have the following meanings:

 

(a)           Cause.  “Cause” shall mean any of the following: (i)
any act of personal dishonesty taken by the Employee in connection with his
responsibilities as an employee and intended to result in substantial personal
enrichment of the Employee, (ii) conviction of a felony that is injurious to
the Company, (iii) a willful act by the Employee which constitutes gross
misconduct and which is injurious to the Company, or (iv) continued violations
by the Employee of the Employee’s obligations under Section 1 of this Agreement
after there has been delivered to the Employee a written demand for performance
from the Company which describes the basis for the Company’s belief that the
Employee has not substantially performed his duties.

 

(b)           Change
of Control.  “Change of Control”
shall mean the occurrence of any of the following events:

 

3

 

(i)            The
acquisition by any “person” (as such term is used in Sections 13(d) and 14(d)
of the Exchange Act) (other than the Company or a person that directly or
indirectly controls, is controlled by, or is under common control with, the
Company) of the “beneficial ownership” (as defined in Rule 13d-3 under said
Act), directly or indirectly, of securities of the Company representing fifty
percent (50%) or more of the total voting power represented by the Company’s
then outstand­ing voting securities; or

 

(ii)           A
change in the composition of the Board of Directors of the Company occurring
within a two-year period, as a result of which fewer than a majority of the
directors are Incumbent Directors. 
“Incumbent Directors” shall mean directors who either (A) are directors
of the Company as of the date hereof, or (B) are elected, or nominated for
election, to the Board of Directors of the Company with the affirmative votes
of at least a majority of the Incumbent Directors at the time of such election
or nomination (but shall not include an individual not otherwise an Incumbent
Director whose election or nomination is in connection with an actual or
threatened proxy contest relating to the election of directors to the Company);
or

 

(iii)         A
merger or consolidation of the Company with any other corporation, other than a
merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either
by remaining outstanding or by being converted into voting securities of the
surviving entity) at least fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation.

 

(c)           Disability.  “Disability” shall mean that the Employee
has been unable to substantially perform his duties under this Agreement as the
result of his incapacity due to physical or mental illness, and such inability,
at least 26 weeks after its commencement, is determined to be total and
permanent by a physician selected by the Company or its insurers and acceptable
to the Employee or the Employee’s legal representative (such agreement as to
acceptability not to be unreasonably withheld).

 

(d)           Exchange
Act.  “Exchange Act” shall mean the
Securities Exchange Act of 1934, as amended.

 

(e)           Involuntary
Termination.  “Involuntary
Termination” shall mean (i) without the Employee’s express written consent, the
significant reduction of the Employee’s duties or responsibilities relative to
the Employee’s duties or responsibilities in effect immediately prior to such
reduction; provided, however, that a reduction in duties or responsibilities
solely by virtue of the Company being acquired and made part of a larger entity
(as, for example, when the Chief Financial Officer of Company remains as such
following a Change of Control and is not made the Chief Financial Officer of
the acquiring corporation) shall not constitute an “Involuntary Termination”;
(ii) without the Employee’s express written consent, a substantial reduction,
without good business reasons, of the facilities and perquisites (including
office space and location) available to the Employee immediately prior to such
reduction; (iii) without the Employee’s express written consent, a material
reduction by the Company in the Base Compensation or Target Incentive of the
Employee as in effect immediately prior to such reduction, or the ineligibility
of the Employee to continue to participate in any long-term incentive plan of
the Company; (iv) a material reduction by the Company in the kind or level of

 

4

 

employee benefits to which the Employee is entitled
immediately prior to such reduction with the result that the Employee’s overall
benefits package is significantly reduced; (v) the relocation of the Employee
to a facility or a location more than 50 miles from the Employee’s then present
location, without the Employee’s express written consent; (vi) any purported
termination of the Employee by the Company which is not effected for death or
Disability or for Cause; or (vii) the failure of the Company to obtain the
assumption of this agreement by any successors contemplated in Section 10
below.

 

8.             Limitation
on Payments.

 

(a)           In
the event that the severance and other benefits provided for in this Agreement
or otherwise payable to the Employee (i) constitute “parachute payments” within
the meaning of Section 280G of the Internal Revenue Code of 1986, as amended
(the “Code”) and (ii) but for this Section 8 would be subject to the excise tax
imposed by Section 4999 of the Code, then the Employee’s severance benefits
under Section 6 shall be payable either (i) in full, or (ii) as to such lesser
amount which would result in no portion of such severance benefits being
subject to excise tax under Section 4999 of the Code, whichever of the
foregoing amounts, taking into account the applicable federal, state and local
income taxes and the excise tax imposed by Section 4999, results in the receipt
by the Employee on an after-tax basis, of the greatest amount of severance
benefits under this Agreement, notwithstanding that all or some portion of such
severance benefits may be taxable under Section 4999 of the Code.

 

(b)           If
a reduction in the payments and benefits that would otherwise be paid or
provided to the Employee under the terms of this Agreement is necessary to
comply with the provisions of Section 8(a), the Employee shall be entitled to
select which payments or benefits will be reduced and the manner and method of
any such reduction of such payments or benefits (including but not limited to
the number of options that would vest under Section 6(b) subject to reasonable
limitations (including, for example, express provisions under the Company’s benefit
plans) (so long as the requirements of Section 8(a) are met).  Within thirty (30) days after the amount of
any required reduction in payments and benefits is finally determined in
accordance with the provisions of Section 8(c), the Employee shall notify the
Company in writing regarding which payments or benefits are to be reduced.  If no notification is given by the Employee,
the Company will determine which amounts to reduce.  If, as a result of any reduction required by Section 8(a),
amounts previously paid to the Employee exceed the amount to which the Employee
is entitled, the Employee will promptly return the excess amount to the
Company.

 

(c)           Unless
the Company and the Employee otherwise agree in writing, any determination
required under this Section 8 shall be made in writing by the Company’s
independent public accountants (the “Accountants”), whose determination shall
be conclusive and binding upon the Employee and the Company for all
purposes.  For purposes of making the
calculations required by this Section 8, the Accountants may make reasonable
assumptions and approximations concerning applicable taxes and may rely on
reasonable, good faith interpretations concerning the application of Sections
280G and 4999 of the Code. The Company and the Employee shall furnish to the
Accountants such information and documents as the Accountants may reasonably
request in order to make a determination under this Section.  The Company shall bear all costs the
Accountants may reasonably incur in connection with any calculations
contemplated by this Section 8.

 

5

 

9.             Certain
Business Combinations.  In the event
it is determined by the Board, upon receipt of a written opinion of the
Company’s independent public accountants, that the enforcement of any Section
or subsection of this Agreement, including, but not limited to, Section 6(b)
hereof, which allows for the acceleration of vesting of options to purchase
shares of the Company’s common stock upon a termination in connection with a
Change of Control, would preclude accounting for any proposed business
combination of the Company involving a Change of Control as a pooling of
interests, and the Board otherwise desires to approve such a proposed business
transaction which requires as a condition to the closing of such transaction
that it be accounted for as a pooling of interests, then any such Section of
this Agreement shall be null and void, but only if the absence of enforcement
of such Section would preserve the pooling treatment.  For purposes of this Section 9, the Board’s determination shall
require the unanimous approval of the disinterested Board members.

 

10.          Successors.

 

(a)           Company’s
Successors.  Any successor to the
Company (whether direct or indirect and whether by purchase, lease, merger,
consolidation, liquidation or otherwise) to all or substantially all of the
Company’s business and assets shall assume the obligations under this Agreement
and agree expressly to perform the obligations under this Agreement in the same
manner and to the same extent as the Company would be required to perform such
obligations in the absence of a succession. 
For all purposes under this Agreement, the term “Company” shall include
any successor to the Company’s business and assets which executes and delivers
the assumption agreement described in this Section 10(a) or which becomes bound
by the terms of this Agreement by operation of law.

 

(b)           Employee’s
Successors.  The terms of this
Agreement and all rights of the Employee hereunder shall inure to the benefit
of, and be enforceable by, the Employee’s personal or legal representatives,
executors, administrators, successors, heirs, devisees and legatees.

 

11.          Notice.  Notices and all other communications
contemplated by this Agreement shall be in writing and shall be deemed to have
been duly given when personally delivered or when mailed by U.S. registered or
certified mail, return receipt requested and postage prepaid.  In the case of the Employee, mailed notices
shall be addressed to him at the home address which he most recently
communicated to the Company in writing. 
In the case of the Company, mailed notices shall be addressed to its
corporate headquarters, and all notices shall be directed to the attention of
its Secretary.

 

12.          Miscellaneous
Provisions.

 

(a)           Waiver.
 No provision of this Agreement
shall be modified, waived or discharged unless the modification, waiver or
discharge is agreed to in writing and signed by the Employee and by an
authorized officer of the Company (other than the Employee).  No waiver by either party of any breach of,
or of compliance with, any condition or provision of this Agreement by the
other party shall be considered a waiver of any other condition or provision or
of the same condition or provision at another time.

 

6

 

(b)           Whole
Agreement.  No agreements,
representations or understandings (whether oral or written and whether express
or implied) which are not expressly set forth in this Agreement have been made
or entered into by either party with respect to the subject matter hereof.

 

(c)           Choice
of Law.  The validity,
interpretation, construction and performance of this Agreement shall be
governed by the laws of the State of California.

 

(d)           Severability.  The invalidity or unenforceability of
any provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provision hereof, which shall remain in full force
and effect.

 

(e)           Arbitration.  Any dispute or controversy arising out
of, relating to or in connection with this Agreement shall be settled
exclusively by binding arbitration in San Diego, California, in accordance with
the National Rules for the Resolution of Employment Disputes of the American
Arbitration Association then in effect. 
Judgment may be entered on the arbitrator’s award in any court having
jurisdiction.  The arbitrator shall: a)
have the authority to compel adequate discovery for the resolution of the
dispute and to award such relief as would otherwise be permitted by law; and
(b) issue a written arbitration decision including the arbitrator’s essential
findings and conclusions and a statement of the award.  Both the Employee and the Company shall be entitled
to all rights and remedies they would have in a court of law.  The Company shall pay all fees in excess of
those which will be required if the dispute were decided in a court of law.

 

(f)            No
Assignment of Benefits.  The rights
of any person to payments or benefits under this Agreement shall not be made
subject to option or assignment, either by voluntary or involuntary assignment
or by operation of law, including (without limitation) bankruptcy, garnishment,
attachment or other creditor’s process, and any action in violation of this
Section 12(g) shall be void.

 

(g)           Assignment
by Company.  The Company may assign
its rights under this Agreement to an affiliate, and an affiliate may assign
its rights under this Agreement to another affiliate of the Company or to the
Company; provided, however, that no assignment shall be made if the net worth
of the assignee is less than the net worth of the Company at the time of
assignment.  In the case of any such
assignment, the term “Company” when used in a section of this Agreement shall
mean the corporation that actually employs the Employee.

 

(h)           Counterparts.  This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together will constitute one and the same instrument.

 

7

 

IN WITNESS
WHEREOF, each of the parties has executed this Agreement, in the case of the
Company by its duly authorized officer, as of the day and year first above
written.

 

	
  COMPANY:

  	
  CYMER, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
  Hugh Grinolds

  
	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
  Executive Vice
  President, Corporate Processes and Services

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Hugh
  Grinolds

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  EMPLOYEE:

  	
  /s/ James M.
  Caltrider

  	
   

  
	
   

  	
  James M. Caltrider

  
							

 

8

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