Document:

Exhibit 10.3

  	
   

  	
  EXECUTION COPY

  

 

 

 

CREDIT AGREEMENT

dated as of

June 12, 2006

among

CELLU PAPER HOLDINGS, INC.,

CELLU TISSUE HOLDINGS, INC.,

as US Borrower

INTERLAKE ACQUISITION CORPORATION LIMITED,

as Canadian Borrower

The Loan Guarantors Party Hereto,

The Lenders Party Hereto,

JPMORGAN CHASE BANK, N.A.,

as US Administrative Agent

and

JPMORGAN CHASE BANK, N.A., TORONTO BRANCH,

as Canadian Administrative Agent

 

J.P. MORGAN SECURITIES INC.,

as Sole Bookrunner and Sole Lead Arranger

 

 

CHASE BUSINESS
CREDIT

 

 

TABLE OF CONTENTS

	
  

  	
   

  	
   

  	
   

  	
  Page

  	
   

  
	
  ARTICLE I. Definitions

  	
   

  	
    1

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 1.01

  	
   

  	
  Defined Terms

  	
   

  	
    1

  	
   

  
	
  SECTION 1.02

  	
   

  	
  Classification of Loans
  and Borrowings

  	
   

  	
  31

  	
   

  
	
  SECTION 1.03

  	
   

  	
  Terms Generally

  	
   

  	
  32

  	
   

  
	
  SECTION 1.04

  	
   

  	
  Accounting Terms; GAAP

  	
   

  	
  32

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE II. The Credits

  	
   

  	
  32

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 2.01

  	
   

  	
  Commitments

  	
   

  	
  32

  	
   

  
	
  SECTION 2.02

  	
   

  	
  Loans and Borrowings

  	
   

  	
  33

  	
   

  
	
  SECTION 2.03

  	
   

  	
  Requests for Revolving
  Borrowings

  	
   

  	
  33

  	
   

  
	
  SECTION 2.04

  	
   

  	
  Acceptances

  	
   

  	
  35

  	
   

  
	
  SECTION 2.05

  	
   

  	
  Protective Advances and
  Overadvances; Settlement

  	
   

  	
  40

  	
   

  
	
  SECTION 2.06

  	
   

  	
  Swingline Loans

  	
   

  	
  44

  	
   

  
	
  SECTION 2.07

  	
   

  	
  Letters of Credit

  	
   

  	
  45

  	
   

  
	
  SECTION 2.08

  	
   

  	
  Funding of Borrowings

  	
   

  	
  48

  	
   

  
	
  SECTION 2.09

  	
   

  	
  Interest Elections

  	
   

  	
  49

  	
   

  
	
  SECTION 2.10

  	
   

  	
  Termination and
  Reduction of Commitments

  	
   

  	
  50

  	
   

  
	
  SECTION 2.11

  	
   

  	
  Repaymen and
  Amortization of Loans; Evidence of Debt

  	
   

  	
  51

  	
   

  
	
  SECTION 2.12

  	
   

  	
  Prepayment of Loans

  	
   

  	
  52

  	
   

  
	
  SECTION 2.13

  	
   

  	
  Fees

  	
   

  	
  53

  	
   

  
	
  SECTION 2.14

  	
   

  	
  Interest

  	
   

  	
  54

  	
   

  
	
  SECTION 2.15

  	
   

  	
  Alternate Rate of
  Interest

  	
   

  	
  55

  	
   

  
	
  SECTION 2.16

  	
   

  	
  Increased Costs

  	
   

  	
  56

  	
   

  
	
  SECTION 2.17

  	
   

  	
  Break Funding Payments

  	
   

  	
  57

  	
   

  
	
  SECTION 2.18

  	
   

  	
  Taxes

  	
   

  	
  57

  	
   

  
	
  SECTION 2.19

  	
   

  	
  Payments Generally;
  Allocation of Proceeds; Sharing of Set-offs

  	
   

  	
  59

  	
   

  
	
  SECTION 2.20

  	
   

  	
  Mitigation Obligations;
  Replacement of US Lenders

  	
   

  	
  61

  	
   

  
	
  SECTION 2.21

  	
   

  	
  Returned Payments

  	
   

  	
  62

  	
   

  
	
  SECTION 2.22

  	
   

  	
  Determination of US
  Dollar Equivalent

  	
   

  	
  62

  	
   

  
	
  SECTION 2.23

  	
   

  	
  Canadian Illegality

  	
   

  	
  62

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE III. Representations
  and Warranties

  	
   

  	
  63

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 3.01

  	
   

  	
  Organization; Powers

  	
   

  	
  63

  	
   

  
	
  SECTION 3.02

  	
   

  	
  Authorization;
  Enforceability

  	
   

  	
  63

  	
   

  
	
  SECTION 3.03

  	
   

  	
  Governmental Approvals;
  No Conflicts

  	
   

  	
  63

  	
   

  
	
  SECTION 3.04

  	
   

  	
  Financial Condition; No
  Material Adverse Change

  	
   

  	
  63

  	
   

  
	
  SECTION 3.05

  	
   

  	
  Properties

  	
   

  	
  64

  	
   

  
	
  SECTION 3.06

  	
   

  	
  Litigation and
  Environmental Matters

  	
   

  	
  64

  	
   

  
	
  SECTION 3.07

  	
   

  	
  Compliance with Laws
  and Agreements

  	
   

  	
  64

  	
   

  
	
  SECTION 3.08

  	
   

  	
  Investment Company
  Status

  	
   

  	
  65

  	
   

  
	
  SECTION 3.09

  	
   

  	
  Taxes

  	
   

  	
  65

  	
   

  
	
  SECTION 3.10

  	
   

  	
  ERISA

  	
   

  	
  65

  	
   

  
	
  SECTION 3.11

  	
   

  	
  Disclosure

  	
   

  	
  65

  	
   

  
	
  SECTION 3.12

  	
   

  	
  Material Agreements

  	
   

  	
  66

  	
   

  
	
  SECTION 3.13

  	
   

  	
  Solvency

  	
   

  	
  66

  	
   

  
	
  SECTION 3.14

  	
   

  	
  Insurance

  	
   

  	
  66

  	
   

  
	
  SECTION 3.15

  	
   

  	
  Capitalization and
  Subsidiaries

  	
   

  	
  66

  	
   

  
	
  SECTION 3.16

  	
   

  	
  Security Interest in Collateral

  	
   

  	
  67

  	
   

  

 

 i
 

 

 

	
  

  	
   

  	
   

  	
   

  	
  Page

  	
   

  
	
  SECTION 3.17

  	
   

  	
  Labor Disputes

  	
   

  	
  67

  	
   

  
	
  SECTION 3.18

  	
   

  	
  Affiliate Transactions

  	
   

  	
  67

  	
   

  
	
  SECTION 3.19

  	
   

  	
  Federal Regulations

  	
   

  	
  67

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE IV. Conditions

  	
   

  	
  67

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 4.01

  	
   

  	
  Effective Date

  	
   

  	
  67

  	
   

  
	
  SECTION 4.02

  	
   

  	
  Each Credit Event

  	
   

  	
  71

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE V. Affirmative
  Covenants

  	
   

  	
  71

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 5.01

  	
   

  	
  Financial Statements;
  Borrowing Base and Other Information

  	
   

  	
  71

  	
   

  
	
  SECTION 5.02

  	
   

  	
  Notices of Material
  Events

  	
   

  	
  74

  	
   

  
	
  SECTION 5.03

  	
   

  	
  Existence; Conduct of
  Business

  	
   

  	
  75

  	
   

  
	
  SECTION 5.04

  	
   

  	
  Payment of Obligations

  	
   

  	
  75

  	
   

  
	
  SECTION 5.05

  	
   

  	
  Maintenance of
  Properties

  	
   

  	
  75

  	
   

  
	
  SECTION 5.06

  	
   

  	
  Books and Records;
  Inspection Rights

  	
   

  	
  75

  	
   

  
	
  SECTION 5.07

  	
   

  	
  Compliance with Laws

  	
   

  	
  75

  	
   

  
	
  SECTION 5.08

  	
   

  	
  Use of Proceeds

  	
   

  	
  76

  	
   

  
	
  SECTION 5.09

  	
   

  	
  Insurance

  	
   

  	
  76

  	
   

  
	
  SECTION 5.10

  	
   

  	
  Casualty and
  Condemnation

  	
   

  	
  76

  	
   

  
	
  SECTION 5.11

  	
   

  	
  Appraisals and Field
  Examinations

  	
   

  	
  76

  	
   

  
	
  SECTION 5.12

  	
   

  	
  Securities Account
  Control Agreements; Deposit Account Control Agreements; Depository Banks

  	
   

  	
  76

  	
   

  
	
  SECTION 5.13

  	
   

  	
  Additional Collateral;
  Further Assurances

  	
   

  	
  77

  	
   

  
	
  SECTION 5.14

  	
   

  	
  Environmental Laws

  	
   

  	
  78

  	
   

  
	
  SECTION 5.15

  	
   

  	
  Canadian Pension Plans

  	
   

  	
  79

  	
   

  
	
  SECTION 5.16

  	
   

  	
  Post-Closing Covenants

  	
   

  	
  79

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE VI. Negative
  Covenants

  	
   

  	
  80

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 6.01

  	
   

  	
  Indebtedness

  	
   

  	
  80

  	
   

  
	
  SECTION 6.02

  	
   

  	
  Liens

  	
   

  	
  82

  	
   

  
	
  SECTION 6.03

  	
   

  	
  Fundamental Changes

  	
   

  	
  83

  	
   

  
	
  SECTION 6.04

  	
   

  	
  Investments, Loans,
  Advances, Guarantees and Acquisitions

  	
   

  	
  83

  	
   

  
	
  SECTION 6.05

  	
   

  	
  Asset Sales

  	
   

  	
  85

  	
   

  
	
  SECTION 6.06

  	
   

  	
  Sale and Leaseback
  Transactions

  	
   

  	
  86

  	
   

  
	
  SECTION 6.07

  	
   

  	
  Swap Agreements

  	
   

  	
  86

  	
   

  
	
  SECTION 6.08

  	
   

  	
  Restricted Payments;
  Certain Payments of Indebtedness

  	
   

  	
  86

  	
   

  
	
  SECTION 6.09

  	
   

  	
  Transactions with
  Affiliates

  	
   

  	
  88

  	
   

  
	
  SECTION 6.10

  	
   

  	
  Restrictive Agreements

  	
   

  	
  88

  	
   

  
	
  SECTION 6.11

  	
   

  	
  Amendment of Material
  Documents

  	
   

  	
  88

  	
   

  
	
  SECTION 6.12

  	
   

  	
  Fixed Charge Coverage
  Ratio

  	
   

  	
  89

  	
   

  
	
  SECTION 6.13

  	
   

  	
  Changes in Fiscal
  Periods

  	
   

  	
  89

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE VII. Events of
  Default

  	
   

  	
  89

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE VIII. The
  Administrative Agents

  	
   

  	
  92

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE IX.
  Miscellaneous

  	
   

  	
  94

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 9.01

  	
   

  	
  Notices

  	
   

  	
  94

  	
   

  
	
  SECTION 9.02

  	
   

  	
  Waivers; Amendments

  	
   

  	
  95

  	
   

  
	
  SECTION 9.03

  	
   

  	
  Expenses; Indemnity;
  Damage Waiver

  	
   

  	
  97

  	
   

  
	
  SECTION 9.04

  	
   

  	
  Successors and Assigns

  	
   

  	
  99

  	
   

  

 

 ii
 

 

 

	
  

  	
   

  	
  

  	
   

  	
  Page

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 9.05

  	
   

  	
  Survival

  	
   

  	
  102

  	
   

  
	
  SECTION 9.06

  	
   

  	
  Counterparts;
  Integration; Effectiveness

  	
   

  	
  102

  	
   

  
	
  SECTION 9.07

  	
   

  	
  Severability

  	
   

  	
  102

  	
   

  
	
  SECTION 9.08

  	
   

  	
  Right of Setoff

  	
   

  	
  102

  	
   

  
	
  SECTION 9.09

  	
   

  	
  Governing Law;
  Jurisdiction; Consent to Service of Process

  	
   

  	
  103

  	
   

  
	
  SECTION 9.10

  	
   

  	
  WAIVER OF JURY TRIAL

  	
   

  	
  103

  	
   

  
	
  SECTION 9.11

  	
   

  	
  Headings

  	
   

  	
  104

  	
   

  
	
  SECTION 9.12

  	
   

  	
  Confidentiality

  	
   

  	
  104

  	
   

  
	
  SECTION 9.13

  	
   

  	
  Several Obligations;
  Nonreliance; Violation of Law

  	
   

  	
  104

  	
   

  
	
  SECTION 9.14

  	
   

  	
  USA PATRIOT Act

  	
   

  	
  104

  	
   

  
	
  SECTION 9.15

  	
   

  	
  Disclosure

  	
   

  	
  104

  	
   

  
	
  SECTION 9.16

  	
   

  	
  Appointment for
  Perfection

  	
   

  	
  105

  	
   

  
	
  SECTION 9.17

  	
   

  	
  True-Up

  	
   

  	
  105

  	
   

  
	
  SECTION 9.18

  	
   

  	
  Intercreditor Agreement

  	
   

  	
  105

  	
   

  
	
  SECTION 9.19

  	
   

  	
  Conversion of
  Currencies

  	
   

  	
  105

  	
   

  
	
  SECTION 9.20

  	
   

  	
  Quebec

  	
   

  	
  106

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE X. Loan
  Guaranty

  	
   

  	
  106

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 10.01

  	
   

  	
  Guaranty

  	
   

  	
  106

  	
   

  
	
  SECTION 10.02

  	
   

  	
  Guaranty of Payment

  	
   

  	
  107

  	
   

  
	
  SECTION 10.03

  	
   

  	
  No Discharge or
  Diminishment of Loan Guaranty

  	
   

  	
  107

  	
   

  
	
  SECTION 10.04

  	
   

  	
  Defenses Waived

  	
   

  	
  108

  	
   

  
	
  SECTION 10.05

  	
   

  	
  Rights of Subrogation

  	
   

  	
  108

  	
   

  
	
  SECTION 10.06

  	
   

  	
  Reinstatement; Stay of
  Acceleration

  	
   

  	
  108

  	
   

  
	
  SECTION 10.07

  	
   

  	
  Information

  	
   

  	
  108

  	
   

  
	
  SECTION 10.08

  	
   

  	
  Termination

  	
   

  	
  108

  	
   

  
	
  SECTION 10.09

  	
   

  	
  Taxes

  	
   

  	
  109

  	
   

  
	
  SECTION 10.10

  	
   

  	
  Maximum Liability

  	
   

  	
  109

  	
   

  
	
  SECTION 10.11

  	
   

  	
  Contribution

  	
   

  	
  109

  	
   

  
	
  SECTION 10.12

  	
   

  	
  Liability Cumulative

  	
   

  	
  110

  	
   

  

 

SCHEDULES:

	
  US Commitment Schedule

  
	
  Canadian Commitment Schedule

  
	
  Schedule 1.01

  	
   

  	
  Existing Letters of Credit

  
	
  Schedule 3.05(a)

  	
   

  	
  Real Property

  
	
  Schedule 3.05(b)

  	
   

  	
  Intellectual Property

  
	
  Schedule 3.06

  	
   

  	
  Disclosed Matters

  
	
  Schedule 3.12

  	
   

  	
  Material Agreements

  
	
  Schedule 3.14

  	
   

  	
  Insurance

  
	
  Schedule 3.15

  	
   

  	
  Capitalization and Subsidiaries

  
	
  Schedule 3.18

  	
   

  	
  Affiliate Transactions

  
	
  Schedule 4.01(o)

  	
   

  	
  Mortgaged Real Property

  
	
  Schedule 6.01

  	
   

  	
  Existing Indebtedness

  
	
  Schedule 6.02

  	
   

  	
  Existing Liens

  
	
  Schedule 6.04

  	
   

  	
  Existing Investments

  
	
  Schedule 6.10

  	
   

  	
  Existing Restrictions

  

 

 

 iii
 

 

EXHIBITS:

	
  Exhibit A

  	
   

  	
  Form of Assignment and Assumption

  
	
  Exhibit B-1

  	
   

  	
  Form of Opinion of US Borrower’s Counsel

  
	
  Exhibit B-2

  	
   

  	
  Form of Opinion of Canadian Borrower’s Counsel

  
	
  Exhibit C

  	
   

  	
  Form of Borrowing Base Certificate

  
	
  Exhibit D

  	
   

  	
  Form of Compliance Certificate

  
	
  Exhibit E

  	
   

  	
  Joinder Agreement

  
	
  Exhibit F-1

  	
   

  	
  US Pledge and Security Agreement

  
	
  Exhibit F-2

  	
   

  	
  General Security Agreement

  
	
  Exhibit G

  	
   

  	
  Intercreditor Agreement

  
	
  Exhibit H

  	
   

  	
  Canadian Notice of Drawing

  
	
  Exhibit I

  	
   

  	
  Discount Note

  

 

 iv

 

CREDIT
AGREEMENT dated as of June 12, 2006 (as the same may be amended or
modified from time to time, this “Agreement”), among CELLU PAPER
HOLDINGS, INC., CELLU TISSUE HOLDINGS, INC., INTERLAKE ACQUISITION CORPORATION
LIMITED, the other Loan Guarantors party hereto, the Lenders party hereto,
JPMORGAN CHASE BANK, N.A., TORONTO BRANCH, as Canadian Administrative Agent,
and JPMORGAN CHASE BANK, N.A., as US Administrative Agent.

W I T N E S S E T H

WHEREAS,
pursuant to the Acquisition Agreement (as this and other capitalized terms used
in these recitals are defined in Section 1.01 below), Parent has agreed to
acquire all of the Equity Interests of Holdings (the “Acquisition”);

WHEREAS,
in connection with the Acquisition, Cellu Acquisition Corporation, a newly formed
subsidiary of Holdings (“Acquisition Corp.”), will merge with and into
Cellu Tissue with Cellu Tissue being the surviving corporation;

WHEREAS,
in connection with the Acquisition, Cellu Tissue is seeking to (a) obtain
the consent of holders of its Senior Secured Notes to amendments to, and
waivers of, certain provisions of the Senior Secured Notes Indenture (the “Consent
Solicitation”) and (b) terminate and replace its Existing CIT
Facility;

WHEREAS,
in connection with the Acquisition, Cellu Tissue has requested that the Lenders
make available the senior secured credit facility set forth herein;

WHEREAS,
the Lenders are willing to make such facility available upon and subject to the
terms and conditions hereinafter set forth;

NOW
THEREFORE, in consideration of the premises and the agreements hereinafter set
forth, the parties hereto hereby agree as follows

ARTICLE I

Definitions

SECTION 1.01       Defined Terms. As used in this
Agreement, the following terms have the meanings specified below:

“ABR”,
when used in reference to any Loan or Borrowing, refers to whether such Loan,
or the Loans comprising such Borrowing, are bearing interest at a rate
determined by reference to the Alternate Base Rate.

“Acceptance” means
a Draft drawn by the Canadian Borrower on a Canadian Lender conforming to the
requirements of Section 2.04 and accepted by such Canadian Lender in accordance
with Section 2.04(c). As the context shall require, “Acceptance” shall
also have the meaning ascribed to it in Section 2.04(j).

“Acceptance Collateral
Account” has the meaning assigned to such term in Section 2.04(p).

 

 

 

“Acceptance Equivalent
Loan” means an advance made under this Agreement by a Canadian Lender
evidenced by a Discount Note.

“Acceptance Exposure”
means, at any time, the US Dollar Equivalent of the aggregate face amount of
the outstanding Acceptances and Acceptance Equivalent Loans at such time. The
Acceptance Exposure of any Canadian Lender at any time shall be its Applicable
Canadian Percentage of the aggregate Acceptance Exposure at such time.

“Acceptance Fee”
has the meaning assigned to such term in Section 2.04(m).

“Acceptance Obligation”
means, in respect of each Acceptance, the obligation of the Canadian Borrower
to pay to the Canadian Lender that accepted such Acceptance the face amount
thereof as required by Section 2.04(e).

“Account”
has the meaning assigned to such term in the UCC or in the PPSA, as applicable.

“Account
Debtor” means any Person obligated on an Account.

“Acquisition”
has the meaning assigned to such term in the recitals to this Agreement.

“Acquisition
Agreement” means the Agreement and Plan of Merger dated as of May 8,
2006, by and among Parent, Holdings and Acquisition Corp., as amended by the
Amendment to Agreement and Plan of Merger dated as of June 12, 2006.

“Acquisition
Corp.” has the meaning assigned to such term in the recitals to this
Agreement.

“Acquisition
Documentation” means, collectively, the Acquisition Agreement and all
schedules, exhibits and annexes thereto and all side letters and agreements
affecting the terms thereof or entered into in connection therewith.

“Adjusted
LIBO Rate” means, with respect to any Eurodollar Borrowing for any Interest
Period, an interest rate per annum (rounded upwards, if necessary, to the next
1/16 of 1%) equal to (a) the LIBO Rate for such Interest Period multiplied
by (b) the Statutory Reserve Rate.

“Administrative
Agents” means, collectively, the US Administrative Agent and the Canadian
Administrative Agent.

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

“Affiliate”
means, with respect to a specified Person, another Person that directly, or
indirectly through one or more intermediaries, Controls or is Controlled by or
is under common Control with the Person specified.

“Aggregate
Credit Exposure” means, at any time, the aggregate Credit Exposure of all
the Lenders.

“Agreement”
has the meaning assigned to such term in the preamble hereto.

“Agreement
Currency” has the meaning assigned to such term in Section 9.19(b).

 

 2
 

 

 

“Alternate
Base Rate” means, for any day, a rate per annum equal to the greater of
(a) the Prime Rate in effect on such day and (b) the Federal Funds
Effective Rate in effect on such day plus 1⁄2 of 1%. Any change in the
Alternate Base Rate due to a change in the Prime Rate or the Federal Funds
Effective Rate shall be effective from and including the effective date of such
change in the Prime Rate or the Federal Funds Effective Rate, respectively.

“Applicable
Canadian Percentage” means, with respect to any Canadian Lender, a
percentage equal to a fraction the numerator of which is such Canadian Lender’s
Canadian Commitment and the denominator of which is the aggregate Canadian
Commitments of all Canadian Lenders (if the Canadian Commitments have
terminated or expired, the Applicable Canadian Percentages shall be determined
based upon such Canadian Lender’s share of the aggregate Canadian Credit
Exposures at that time).

“Applicable
Creditor” has the meaning assigned to such term in Section 9.19(b).

“Applicable
Percentage” means, with respect to any Lender, a percentage equal to a
fraction the numerator of which is the aggregate amount of such Lender’s
Commitments and the denominator of which is the aggregate Commitments of all
Lenders (if the Commitments have terminated or expired, the Applicable
Percentages shall be determined based upon such Lender’s share of the aggregate
Credit Exposures at that time).

“Applicable
Rate” means, for any day, with respect to any ABR Loan, Canadian ABR Loan,
Canadian Prime Rate Loan, Eurodollar Revolving Loan or Acceptance Fee, as the
case may be, the applicable rate per annum set forth below under the caption
“ABR/Canadian ABR/Canadian Prime Rate Spread” or “Eurodollar Spread/Acceptance
Fee”, as the case may be, based upon the US Borrower’s Net Leverage Ratio as of
the most recent determination date, provided that until the delivery to
the Administrative Agents, pursuant to Section 5.01, of the US Borrower’s
consolidated financial information for the US Borrower’s first fiscal quarter
ending after the Effective Date, the “Applicable Rate” shall be the applicable
rate per annum set forth below in Category 2: 

	
  

  	
  Net Leverage Ratio

  	
   

  	
   

  	
  ABR/Canadian ABR/

  Canadian Prime Rate Spread

  	
   

  	
   

  	
  Eurodollar

  Spread/Acceptance Fee

  	
   

  
	
  Category 1

  3 6.50 to 1.0

  	
  1.00%

  	
  2.25%

  
	
  Category 2

  < 6.50 to 1.0
  but

  3
  5.00 to 1.0

  	
  0.75%

  	
  2.00%

  
	
  Category 3

  < 5.00 to 1.0
  but

  3
  3.50 to 1.0

  	
  0.50%

  	
  1.75%

  
	
  Category 4

  < 3.50 to 1.0

  	
  0.25%

  	
  1.50%

  

 

For
purposes of the foregoing, (a) the Applicable Rate shall be determined as
of the end of each fiscal quarter of the US Borrower based upon the US
Borrower’s annual or quarterly consolidated financial statements delivered
pursuant to Section 5.01 and (b) each change in the Applicable Rate
resulting from a change in the Net Leverage Ratio shall be effective during the
period commencing on and including the date of delivery to the Administrative
Agents of such consolidated financial statements indicating such change and
ending on the date immediately preceding the effective date of the next such

 

 3
 

 

 

change, provided that the Net Leverage Ratio shall be deemed to
be in Category 2 at the option of either Administrative Agent or at the
request of the Required Lenders if the US Borrower fails to deliver the annual
or quarterly consolidated financial statements required to be delivered by it
pursuant to Section 5.01, during the period from the expiration of the
time for delivery thereof until such consolidated financial statements are
delivered.

“Applicable
US Percentage” means, with respect to any US Lender, a percentage equal to
a fraction the numerator of which is such US Lender’s US Commitment and the
denominator of which is the aggregate US Commitments of all US Lenders (if the
US Commitments have terminated or expired, the Applicable US Percentages shall
be determined based upon such US Lender’s share of the aggregate US Credit
Exposures at that time).

“Approved
Fund” has the meaning assigned to such term in Section 9.04(b)(ii).

“Assignment
and Assumption” means an assignment and assumption entered into by a Lender
and an assignee (with the consent of any party whose consent is required by
Section 9.04), and accepted by the US Administrative Agent, in the form of
Exhibit A or any other form approved by the US Administrative Agent.

“Availability”
means, at any time, an amount equal to (a) the lesser of (i) the
Commitments and (ii) the Borrowing Base, minus
(b) the Credit Exposure of all Lenders, in each case, at such time.

“Availability
Period” means the period from and including the Effective Date to but
excluding the earlier of the Maturity Date and the date of termination of the
Commitments.

“Available
Canadian Commitment” means, at any time, the aggregate Canadian Commitments
at such time minus the Canadian Credit
Exposure of all Canadian Lenders at such time.

“Available
US Commitment” means, at any time, the aggregate US Commitments at such
time minus the US Credit Exposure of all
US Lenders at such time.

“Average
Monthly Availability” means, at any time, (a) the average Availability
for the most recently ended month for which a Borrowing Base Certificate has
been delivered pursuant to Section 5.01(g) or (b) if weekly
Borrowing Base Certificates are required to be delivered under
Section 5.01(g), the average Availability for the most recently ended four
weeks for which Borrowing Base Certificates have been delivered.

“Banking
Services” means each and any of the following bank services provided to any
Loan Party by any Lender or any of its Affiliates: (a) commercial credit
cards, (b) stored value cards and (c) treasury management services
(including, without limitation, controlled disbursement, automated
clearinghouse transactions, return items, overdrafts and interstate depository
network services).

“Banking
Services Obligations” of the Loan Parties means any and all obligations of
the Loan Parties, whether absolute or contingent and howsoever and whensoever
created, arising, evidenced or acquired (including all renewals, extensions and
modifications thereof and substitutions therefor) in connection with Banking
Services.

“Banking
Services Reserves” means all Reserves which the US Administrative Agent or
the Canadian Administrative Agent from time to time establishes in its
Permitted Discretion for Banking Services then provided or outstanding.

 

 4
 

 

 

“Board”
means the Board of Governors of the Federal Reserve System of the United
States.

“Borrowers”
means, collectively, the US Borrower and the Canadian Borrower

“Borrowing”
means (a) US Revolving Loans or Canadian Revolving Loans, as applicable,
of the same Type, made, converted or continued on the same date and, in the
case of Eurodollar Loans, as to which a single Interest Period is in effect,
(b) a Swingline Loan, (c) a Protective Advance and (d) an Overadvance.

“Borrowing
Base” means, at any time, the sum of (a) 85% of the Eligible Accounts
of the Loan Parties at such time, plus
(b) the lesser of (i) 65% of the Eligible Inventory of the Loan
Parties, valued at the lower of cost or market value, determined on a
first-in-first-out basis, at such time and (ii) 85% of the Net Orderly
Liquidation Value of Inventory of the Loan Parties identified as “eligible” in
the most recent inventory appraisal ordered by the Administrative Agent, minus (c) Reserves. The maximum
amount of Availability based on Inventory which may be included as part of the
Borrowing Base is an amount equal to 50% of the Commitments at such time. The
Administrative Agent may, in its Permitted Discretion, reduce the advance rates
set forth above or adjust Reserves.

“Borrowing
Base Certificate” means a certificate, signed and certified as accurate and
complete by a Financial Officer of the US Borrower and the Canadian Borrower,
in substantially the form of Exhibit C or another form which is acceptable
to the Administrative Agents in their sole discretion.

“Borrowing
Request” means a request by the US Borrower or the Canadian Borrower for a
Revolving Borrowing in accordance with Section 2.02.

“Business
Day” means any day that is not a Saturday, Sunday or other day on which
commercial banks in New York City are authorized or required by law to remain
closed; provided that, when used in connection with a Eurodollar Loan,
the term “Business Day” shall also exclude any day on which banks are
not open for dealings in dollar deposits in the London interbank market.

“Calculation
Date” means, with respect to CDN Dollars, the fifteenth and last day of
each calendar month (or, if such day is not a Business Day, the next succeeding
Business Day) and such other days from time to time as the US Administrative
Agent shall designate as a “Calculation Date”, provided that the
following shall also be a “Calculation Date”: (a) the second Canadian
Business Day preceding each Borrowing Date with respect to, and each date of
any continuation of, any C$ Canadian Revolving Loan or Acceptance Equivalent
Loan and (b) the date of issuance of an Acceptance.

“Canada”
means Canada (including the Provinces and Territories thereof).

“Canadian
ABR” means, for any day, the floating rate per annum equal to the higher of
(a) the rate of interest per annum publicly announced from time to time by
the Canadian Administrative Agent as its reference rate of interest then in
effect for determining interest rates on commercial loans denominated in US
Dollars made by it in Canada to Canadian borrowers and (b) the Federal
Funds Effective Rate from time to time plus 0.5%. When used in reference
to any Loan or Borrowing, “Canadian ABR” refers to whether such Loan, or the
Loans comprising such Borrowing, are bearing interest at a rate determined by
reference to the Canadian ABR.

“Canadian
Administrative Agent” means JPMorgan Chase Bank, N.A., Toronto Branch, in
its capacity as Canadian administrative agent for the Canadian Lenders
hereunder.

 5

 

 

“Canadian Benefit
Plans” means all material employee benefit plans of any nature or kind
whatsoever that are not Canadian Pension Plans and are maintained or
contributed to by any Loan Party having employees in Canada.

“Canadian
Borrower” means Interlake Acquisition Corporation Limited, a Nova Scotia
company.

“Canadian
Borrower Funding Account” has the meaning assigned to such term in Section 4.01(h).

“Canadian
Business Day” means a day other than a Saturday, Sunday or other day on
which commercial banks in the Province of Ontario or in New York City are
authorized or required to close by law and which, in the case of a LIBO Rate
Loan, is a Business Day.

“Canadian
Commitment” means, with respect to each Canadian Lender, the commitment, if
any, of such Canadian Lender to make Canadian Revolving Loans and Acceptance
Equivalent Loans and to accept Acceptances hereunder and to participate in
Canadian Overadvances and Canadian Protective Advances, expressed as an amount
representing the maximum possible aggregate amount of such Canadian Lender’s
Canadian Credit Exposure hereunder, as such commitment may be reduced or
increased from time to time pursuant to assignments by or to such Canadian
Lender pursuant to Section 9.04. The initial amount of each Canadian Lender’s
Canadian Commitment is set forth on the Canadian Commitment Schedule, or in the
Assignment and Assumption pursuant to which such Canadian Lender shall have
assumed its Canadian Commitment, as applicable. The initial aggregate amount of
the Canadian Lenders’ Canadian Commitments is US$3,000,000.

“Canadian
Commitment Schedule” means the Schedule attached hereto identified as such.

“Canadian
Credit Exposure” means, with respect to any Canadian Lender at any time,
the US Dollar Equivalent of the sum of (i) the aggregate amount of such
Canadian Lender’s outstanding Acceptance Exposure and Canadian Revolving Loans
made to the Canadian Borrower at such time, (ii) the aggregate principal
amount of such Canadian Lender’s outstanding Canadian Revolving Loans made to
the US Borrower at such time and (iii) such Canadian Lender’s Applicable
Canadian Percentage of the aggregate principal amount of the Canadian
Protective Advances and Canadian Overadvances then outstanding.

“Canadian
Lenders” means, as of any date of determination, a Person with a Canadian
Commitment or, if the Canadian Commitments have terminated or expired, a Person
with Canadian Credit Exposure. The term “Canadian Lenders” shall include the
Persons listed on the Canadian Commitment Schedule and any other Person that
shall have become a party hereto pursuant to an Assignment and Assumption,
other than any such Person that ceases to be a party hereto pursuant to an
Assignment and Assumption. Each Canadian Lender shall make available US
Borrower/Canadian Revolving Loans to the US Borrower through its Counterpart
Lender. Every Canadian Lender shall be, as of the Effective Date, either
resident of Canada or deemed to be a resident in Canada for the purpose of
subsection 212(13.3) of the Income Tax Act
(Canada) in respect of any amount paid or credited hereunder.

“Canadian Notice of
Drawing” means a notice of borrowing substantially in the form of Exhibit H.

“Canadian
Overadvances” has the meaning assigned to such term in Section 2.05(d).

 

 6
 

 

 

“Canadian Pension Plans”
means each plan which is considered to be a pension plan for the purposes of
any applicable pension benefits standards statute and/or regulation in Canada
or a registered pension plan under the Income Tax Act (Canada) established,
maintained or contributed to by any Loan Party for its employees or former
employees, but shall not mean the Canadian Pension Plan that is maintained by
the Government of Canada or the Quebec Pension Plan that is maintained by the
Government of Quebec.

“Canadian
Prime Rate” means, for any day, the floating rate per annum (rounded
upwards, if necessary, to the next 1/100 of 1%) equal to the higher of (a) the
rate per annum publicly announced from time to time by the Canadian
Administrative Agent as its prime rate in effect at its principal office in
Toronto for commercial loans in CDN Dollars made in Canada to Canadian
borrowers and (b) the average annual rate as determined by the Canadian
Administrative Agent as being the “BA 1 month” rates applicable to banker’s
acceptances in CDN Dollars displayed and identified as such on the “Reuters
screen CDOR page” (the “CDOR Rate”) at approximately 10:00 a.m.
(Toronto, Ontario time) on such day, or if such day is not a Canadian Business
Day, then on the immediately preceding day, plus 1% or if such rate is not
available at or about such time on the Reuters Screen CDOR Page, then the CDOR
Rate shall be the annual rate for banker’s acceptances in CDN Dollars, for the
term referred to above, quoted by any one of the Schedule 1 Bank BA Reference
Lenders, as selected by the Canadian Administrative Agent, to the Canadian
Administrative Agent as of 10:00 a.m. (Toronto, Ontario time) on such day
or if such day is not a Canadian Business Day, then on the immediately
preceding day plus 1%. When used in reference to any Loan or Borrowing, “Canadian
Prime Rate” refers to whether such Loan, or the Loans comprising such
Borrowing, are bearing interest at a rate determined by reference to the
Canadian Prime Rate.

“Canadian Protective
Advances” has the meaning assigned to such term in Section 2.05(b).

“Canadian
Revolving Loans” has the meaning assigned to such term in Section 2.01(b).

“Canadian
Security Agreement” means the General Security Agreement dated as of the
date hereof, among the Canadian Borrower, any Canadian Subsidiaries party
thereto, and the Canadian Administrative Agent, for the benefit of the Canadian
Administrative Agent and the Lenders, substantially in the form of Exhibit F-2.

“Capital
Expenditures” means, without duplication, any expenditure or commitment to
expend money for any purchase or other acquisition of any asset which would be
classified as a fixed or capital asset on a consolidated balance sheet of the
US Borrower and its Subsidiaries prepared in accordance with GAAP.

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

“CDN
Dollars” and the symbol “C$” means the freely transferable lawful
money of Canada.

“C$
Canadian Revolving Loans” has the meaning assigned to such term in Section 2.01(b).

 

 7
 

 

 

“Cellu
Tissue” means Cellu Tissue Holdings, Inc., a Delaware corporation.

“Cellu
Tissue Management Agreements” means, collectively, each management services
agreement dated as of February 28, 2003, as may be amended from time to
time, entered into by the US Borrower with each Subsidiary of the US Borrower
pursuant to which the US Borrower will provide certain services (including, without
limitation, marketing, human resources and payroll and other financial
services) to each such Subsidiary in exchange for certain fees and expenses.

“Cellu
Tissue Purchasing Agreements” means, collectively, each purchasing services
agreement dated as of February 28, 2003, as may be amended from time to
time, entered into by the US Borrower with each Subsidiary of the US Borrower
pursuant to which the US Borrower will engage in group purchasing of pulp for
each such Subsidiary in exchange for certain fees and expenses.

“Change
in Control” means (a) the Sponsor shall cease to own, free and clear
of all Liens other than Permitted Encumbrances, directly or indirectly, at
least 51% of the outstanding voting Equity Interests of Holdings on a fully
diluted bass; (b) Holdings shall cease to own, free and clear of all Liens
other than Permitted Encumbrances, 100% of the outstanding Equity Interests of
the US Borrower; (c) the US Borrower shall cease to own, free and clear of
all Liens other than Permitted Encumbrances, 100% of the outstanding Equity
Interests of the Canadian Borrower; or (d) occupation of a majority of the
seats (other than vacant seats) on the board of directors of Holdings by
Persons who were neither (i) nominated by the board of directors of Holdings
nor (ii) appointed by directors so nominated.

“Change
in Law” means (a) the adoption of any law, rule or regulation
after the date of this Agreement, (b) any change in any law, rule or
regulation or in the interpretation or application thereof by any Governmental
Authority after the date of this Agreement or (c) compliance by any Lender
or the Issuing Bank (or, for purposes of Section 2.16(b), by any lending
office of such Lender or by such Lender’s or the Issuing Bank’s holding
company, if any) with any request, guideline or directive (whether or not
having the force of law) of any Governmental Authority made or issued after the
date of this Agreement.

“Chase”
means JPMorgan Chase Bank, N.A., a national banking association, in its
individual capacity, and its successors.

“Class”,
when used in reference to any Loan or Borrowing, refers to whether such Loan,
or the Loans comprising such Borrowing, are US Revolving Loans, Canadian
Revolving Loans, Acceptance Equivalent Loans, Swingline Loans, Protective
Advances or Overadvances.

“Code”
means the Internal Revenue Code of 1986, as amended from time to time.

“Collateral”
means any and all property owned, leased or operated by a Person covered by the
Collateral Documents and any and all other property of any Loan Party, now
existing or hereafter acquired, that may at any time be or become subject to a
security interest or Lien in favor of either Administrative Agent, on behalf of
the Administrative Agents and the Lenders, to secure the Secured Obligations.

“Collateral
Access Agreement” means any landlord waiver or other agreement, in form and
substance satisfactory to the US Administrative Agent or the Canadian
Administrative Agent, as applicable, between such Administrative Agent and any
third party (including any bailee, consignee, customs broker, or other similar
Person) in possession of any Collateral or any landlord of any Loan Party for
any real property where any Collateral is located, as such landlord waiver or
other agreement may be amended, restated, or otherwise modified from time to
time.

 

 8
 

 

 

“Collateral
Documents” means, collectively, the Security Agreements, each Deposit
Account Control Agreement, each Securities Account Control Agreement, the
Mortgages and any other documents granting a Lien upon the Collateral as
security for payment of the Secured Obligations.

“Collection
Account” has the meaning assigned to such term in the US Security Agreement
or the Canadian Security Agreement, as applicable.

“Commitments”
mean, collectively, the US Commitments and the Canadian Commitments.

“Consent
Solicitation” has the meaning assigned to such term in the recitals to this
Agreement.

“Consent
Solicitation Statement” means the Consent Solicitation Statement under the
Senior Secured Notes Indenture filed by the US Borrower on May 9, 2006, as
supplemented by the Supplement to Consent Solicitation Statement dated May 24,
2006.

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

“Controlled
Disbursement Account” means, collectively, the following accounts: Cellu
Tissue LLC, account numbers 6018 61479 and 6018 61503; Cellu Tissue Corporation
— Neenah, account number 6018 61511; Coastal Paper Company, account number 6018
61487, Cellu Tissue Corporation - Natural Dam, account number 6018 61461;
Menominee Acquisition Corporation, account number 6018 61495; and any
replacement or additional accounts of the US Borrower maintained with the US
Administrative Agent as a zero balance, cash management account pursuant to and
under any agreement between the US Borrower and the US Administrative Agent, as
modified and amended from time to time, and through which all disbursements of
the US Borrower, any Loan Party and any designated Subsidiary of the US
Borrower are made and settled on a daily basis with no uninvested balance
remaining overnight.

“Counterpart
Lender” means, as to any Canadian Lender, the US Affiliate or US branch
office through which it intends to fund Canadian Revolving Loans to the US
Borrower, as set forth opposite such Canadian Lender’s name in the Canadian
Commitment Schedule or Assignment and Assumption pursuant to which it became a
party to this Agreement.

“Credit
Exposure” means, as to any Lender at any time, the sum of such Lender’s US
Credit Exposure and Canadian Credit Exposure at that time.

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

“Departing
Lender” has the meaning assigned to such term in Section 2.20(b).

“Deposit
Account Control Agreement” means an agreement substantially in the form of
Annex 3 to the US Security Agreement (or, if applicable, the Canadian Security
Agreement), among any Loan Party, a banking institution holding such Loan Party’s
funds, and the relevant Administrative Agent, with respect to collection and
control of all deposits and balances held in a deposit account maintained by
any Loan Party with such banking institution.

 

 9
 

 

 

“Designated
Account Debtors” has the meaning assigned to such term in the definition of
“Eligible Accounts”.

“Disclosed
Matters” means the actions, suits and proceedings and the environmental
matters disclosed in Schedule 3.06.

“Discount Note”
means a non- interest bearing, non-negotiable promissory note of the Canadian
Borrower denominated in Canadian Dollars, issued by the Canadian Borrower to a
Canadian Lender, substantially in the form of Exhibit I.

“Discount Rate”
means, with respect to an issue of Acceptances with the same maturity date, (a) for
a Canadian Lender which is a Schedule 1 Bank BA Reference Lender, (i) the
average CDOR Rate for the applicable term and (b) for a Canadian Lender
which is not a Schedule I Lender, the rate determined by the Canadian
Administrative Agent based on the arithmetic average (rounded upwards to the
nearest multiple of 0.01%) of the actual discount rates, calculated on the
basis of a year of 365 days, for Acceptances for such term accepted by the
Schedule II or III Reference Banks established in accordance with their normal
practices at or about 10:00 A.M. (Toronto time) on the date of issuance of
such Acceptances, but not to exceed the actual rate of discount applicable to
Acceptances established pursuant to clause (a) for the same Acceptances
issue plus 0.10% per annum.

“Document”
has the meaning assigned to such term in the US Security Agreement or the
Canadian Security Agreement, as applicable.

“Domestic
Subsidiary” means any Subsidiary of the Borrower organized under the laws
of any jurisdiction within the United States.

“Draft” means a
depository bill issued in accordance with the Depository
Bills and Notes Act (Canada) or a bill of exchange within the
meaning of the Bills of Exchange Act (Canada) in the form used from time to
time by each Canadian Lender, respectively, in connection with the creation of
bankers’ acceptances in accordance with the provisions of Section 2.04 and
payable in Canadian Dollars.

“EBITDA”
means, for any period, Net Income for such period plus
(a) without duplication and to the extent deducted in determining Net
Income for such period, the sum of (i) Interest Expense for such period, (ii) income
tax expense for such period, (iii) all amounts attributable to
depreciation and amortization expense for such period, (iv) any
non-recurring or extraordinary charges for such period, including without
limitation charges incurred in connection with any restructuring, any
disposition of assets and any damage to properties of the Borrower or any
Subsidiary (not covered by insurance) caused by hurricanes or other natural
disasters in an aggregate amount not to exceed US$10,000,000 for any such
period, (v) non-recurring charges related to property damage associated
with Hurricane Katrina in an aggregate amount not to exceed US$1,000,000, (vi) any
other non-cash charges for such period, including without limitation the
effects of any purchase accounting and any write-down of or impairment charges
with respect to goodwill and other intangibles (but excluding any non-cash
charge in respect of an item that was included in Net Income in a prior
period), (vii) any non-recurring fees, cash charges and other cash
expenses (including severance costs) made or incurred in connection with the
Transactions that are paid or otherwise accounted for within 120 days of the
consummation of the Transactions in an amount not to exceed US$10,000,000, (viii) non-cash
compensation expenses relating to restricted stock and stock options and (ix) fees
paid to the Sponsor pursuant to the Sponsor Management  Agreement, minus
(b) without duplication and to the extent included in Net Income, (i) any
cash payments made during such period in respect of non-cash charges described
in clause (a)(vi) taken in a prior period and (ii) any extraordinary
gains and any non-cash items of income for such period, all calculated for the
US Borrower and its Subsidiaries on a consolidated basis.

 

 10
 

 

 

“Effective
Date” means the date on which the conditions specified in Section 4.01
are satisfied (or waived in accordance with Section 4.01).

“Eligible
Accounts” means, at any time, the Accounts of the Loan Parties which the
Administrative Agent determines in its Permitted Discretion are eligible as the
basis for the extension of Revolving Loans, Swingline Loans and the issuance of
Letters of Credit hereunder. Without limiting the Administrative Agent’s discretion
provided herein, Eligible Accounts shall not include any Account:

(a)           which is not subject to a first
priority perfected security interest in favor of the US Administrative Agent or
the Canadian Administrative Agent, as applicable;

(b)           which is subject to any Lien other
than (i) a Lien in favor of the US Administrative Agent or the Canadian
Administrative Agent, as applicable, and (ii) a Permitted Encumbrance
which does not have priority over the Lien in favor of the US Administrative
Agent or the Canadian Administrative Agent, as applicable;

(c)           which is unpaid more than 90 days
after the date of the original invoice therefor, or which has been written off
the books of the US Borrower or otherwise designated as uncollectible;

(d)           which is owing by an Account Debtor
for which more than 50% of the Accounts owing from such Account Debtor and its
Affiliates are ineligible under clause (c) above;

(e)           which is owing by an Account Debtor
to the extent the aggregate amount of Accounts owing from such Account Debtor
and its Affiliates to the Loan Parties exceeds (i) in the case of Accounts
owed by Procter & Gamble Co., Georgia-Pacific Corporation, Kimberly
Clark Corp., Tyco International Ltd. or Irving Tissue Inc. (collectively, the “Designated
Account Debtors”) (in each case together with Accounts owed by their
respective Affiliates), 25% of the aggregate Eligible Accounts and (ii) in
the case of Accounts owed by other Account Debtors (together with Accounts owed
by their respective Affiliates), 10% of the aggregate Eligible Accounts;

(f)            with respect to which any covenant,
representation, or warranty contained in this Agreement or in any Security
Agreement has been materially breached or is not true in all material respects;

(g)           which (i) does not arise from the
sale of goods or performance of services in the ordinary course of business, (ii) is
not evidenced by an invoice or other documentation satisfactory to the relevant
Administrative Agent which has been sent to the Account Debtor, (iii) represents
a progress billing, (iv) is contingent upon the relevant Loan Party’s
completion of any further performance or (v) represents a sale on a
bill-and-hold, guaranteed sale, sale-and-return, sale on approval, consignment,
cash-on-delivery or any other repurchase or return basis;

(h)           for which the goods giving rise to
such Account have not been shipped to the Account Debtor or for which the
services giving rise to such Account have not been performed by the relevant
Loan Party or if such Account was invoiced more than once;

(i)            which is owed by an Account Debtor
which has (i) applied for, suffered, or consented to the appointment of
any receiver, custodian, trustee, or liquidator of its assets, (ii)

 

 11
 

 

 

has had possession of all or a material part of its property taken by
any receiver, custodian, trustee or liquidator, (iii) filed, or had filed
against it, any request or petition for liquidation, reorganization,
arrangement, adjustment of debts, adjudication as bankrupt, winding-up, or
voluntary or involuntary case under any state, provincial or federal bankruptcy
laws (other than post-petition accounts payable of an Account Debtor that is a
debtor-in-possession under the Bankruptcy Code and reasonably acceptable to the
relevant Administrative Agent), (iv) has admitted in writing its
inability, or is generally unable to, pay its debts as they become due, (v) become
insolvent, or (vi) ceased operation of its business;

(j)            which is owed by an Account Debtor
which (i) does not maintain its chief executive office in the US or Canada
(except for an Account Debtor that (x) is a Subsidiary of a Designated
Account Debtor or otherwise affiliated with a Designated Account Debtor and (y) has
operations in Mexico or South America, provided that the aggregate
amount of Eligible Accounts which qualify under this parenthetical shall not
exceed US$7,000,000 at any time) or (ii) is not organized under applicable
law of the US, any state of the US or Canada unless, in either case, such
Account is backed by a Letter of Credit acceptable to the relevant
Administrative Agent which is in the possession of, has been assigned to and is
directly drawable by such Administrative Agent;

(k)           which is owed in any currency other
than US Dollars or CDN Dollars;

(l)            which is owed by (i) the
government (or any department, agency, public corporation, or instrumentality
thereof) of any country other than the US and Canada unless such Account is
backed by a Letter of Credit reasonably acceptable to the relevant
Administrative Agent which is in the possession of such Administrative Agent, (ii) the
government of the US, or any department, agency, public corporation, or
instrumentality thereof, unless the Federal Assignment of Claims Act of 1940,
as amended (31 USC. § 3727 et  seq. and 41 USC. § 15 et  seq.),
and any other steps necessary to perfect the Lien of the US Administrative
Agent in such Account have been complied with to the US Administrative Agent’s
reasonable satisfaction or (iii) Her Majesty the Queen in Right of Canada,
the government of Canada, or any Province or Territory thereof, or any
department, agency, public corporation or instrumentality thereof, unless the
Financial Administration Act (Canada) and/or any provincial or territorial
equivalent have been fully complied with to the Canadian Administrative Agent’s
reasonable satisfaction;

(m)          which is owed by any Affiliate,
employee, officer, director, agent or stockholder of any Loan Party;

(n)           which is owed by an Account Debtor to
which any Loan Party is indebted, but only to the extent of such
indebtedness or is subject to any security, deposit, progress payment,
retainage or other similar advance made by or for the benefit of an Account
Debtor, in each case to the extent thereof;

(o)           which
is subject to any counterclaim, deduction, defense, setoff or dispute but only
to the extent of any such counterclaim, deduction, defense, setoff or dispute;

(p)           which is evidenced by any promissory
note, chattel paper or instrument unless such promissory note, chattel paper or
instrument shall have been delivered to either Administrative Agent;

(q)           which is owed by an Account Debtor
located in any jurisdiction which requires filing of a “Notice of Business
Activities Report” or other similar report in order to

 

 12
 

 

 

permit the relevant Loan party to seek judicial enforcement in such
jurisdiction of payment of such Account, unless such Loan Party has filed such
report or qualified to do business in such jurisdiction;

(r)            with respect to which the relevant
Loan Party has made any agreement with the Account Debtor for any reduction
thereof, other than discounts and adjustments given in the ordinary course of
business, or any Account which was partially paid and such Loan Party created a
new receivable for the unpaid portion of such Account;

(s)           which does not comply in all material
respects with the requirements of all applicable laws and regulations, whether
Federal, state, provincial, territorial or local, including without limitation
the Federal Consumer Credit Protection Act, the Federal Truth in Lending Act
and Regulation Z of the Board;

(t)            which is for goods that have been
sold under a purchase order or pursuant to the terms of a contract or other
agreement or understanding (written or oral) that indicates or purports that
any Person other than the relevant Loan Party has or has had an ownership
interest in such goods, or which indicates any party other than such Loan Party
as payee or remittance party;

(u)           which was created on cash on delivery
terms; or

(v)           which either Administrative Agent
determines, in its Permitted Discretion, is unacceptable for any reason that is
customary either in the commercial finance industry or in the lending practices
of the Administrative Agents and/or the Lenders.

In
determining the amount of an Eligible Account, the face amount of an Account
shall be reduced by, without duplication, to the extent not reflected in such
face amount, (i) the amount of all accrued and actual discounts, claims,
credits or credits pending, promotional program allowances, price adjustments,
finance charges or other allowances (including any amount that the Loan Parties
may be obligated to rebate to an Account Debtor pursuant to the terms of any
agreement or understanding (written or oral)) and (ii) the aggregate
amount of all cash received in respect of such Account but not yet applied by
the Loan Parties to reduce the amount of such Account.

“Eligible
Inventory” means, at any time, the Inventory of the Loan Parties which the
Administrative Agents determine in their Permitted Discretion is eligible as
the basis for the extension of US Revolving Loans, Canadian Revolving Loans,
Swingline Loans and the issuance of Letters of Credit hereunder. Without
limiting the Administrative Agents’ discretion provided herein, Eligible
Inventory shall not include any Inventory:

(a)           which is not subject to a first
priority perfected security interest in favor of the US Administrative Agent or
the Canadian Administrative Agent, as applicable;

(b)           which is subject to any Lien other
than (i) a Lien in favor of the US Administrative Agent or the Canadian
Administrative Agent, as applicable, and (ii) a Permitted Encumbrance
which does not have  priority over the
Lien in favor of the US Administrative Agent or the Canadian Administrative
Agent, as applicable, unless such Permitted Encumbrance is disclosed and
reasonably acceptable to the relevant Administrative Agent in its Permitted
Discretion and such Administrative Agent shall have established a reserve with
respect thereto;

 

 13
 

 

 

(c)           which is slow moving, obsolete,
unmerchantable, defective, used, unfit for sale, not salable at prices
approximating at least the cost of such Inventory in the ordinary course of
business or unacceptable due to age, type, category and/or quantity;

(d)           with respect to which any covenant,
representation, or warranty contained in this Agreement or any Security
Agreement has been materially breached or is not true in all material respects
and which does not conform in all material respects to all standards imposed by
any Governmental Authority;

(e)           in which any Person other than the a
Loan Party shall (i) have any direct or indirect ownership, interest or
title to such Inventory or (ii) be indicated on any purchase order or
invoice with respect to such Inventory as having or purporting to have an
interest therein;

(f)            which is not finished goods (it
being understood that finished goods include goods in finished form but which
require packaging or similar preparation prior to sale) or which constitutes
work-in-process, spare or replacement parts, subassemblies, packaging and
shipping material, manufacturing supplies, samples, prototypes, displays or
display items, bill-and-hold goods, goods that are returned or marked for
return, repossessed goods, defective or damaged goods, goods held on
consignment, or goods which are not of a type held for sale in the ordinary
course of business, provided that raw materials, but not packaging,
felt, fabric, wires, opened chemicals, dyes or wax shall be eligible for
inclusion as Eligible Inventory;

(g)           which is not located in the US or Canada
or is in transit with a common carrier from vendors and suppliers;

(h)           at any time after the date that is 60
days following the Effective Date, which is located in any location leased by
any Loan Party unless (i) the
lessor has delivered to the US Administrative Agent or the Canadian
Administrative Agent, as applicable, a Collateral Access Agreement or (ii) a
Reserve for rent, charges, and other amounts due or to become due with respect
to such facility has been established by the relevant Administrative Agent in
its Permitted Discretion;

(i)            at any time
after the date that is 60 days following the Effective Date, which is located in any third party warehouse
or is in the possession of a bailee (other than a third party processor) and is
not evidenced by a Document (other than bills of lading to the extent permitted
pursuant to clause (g) above), unless (i) such warehouseman or bailee
has delivered to the US Administrative Agent or the Canadian Administrative
Agent, as applicable, a Collateral Access Agreement and such other
documentation as such Administrative Agent may require or (ii) an
appropriate Reserve has been established by such Administrative Agent in its
Permitted Discretion;

(j)            which is being processed offsite at
a third party location or outside processor, or is in-transit to or from said
third party location or outside processor;

(k)           which is a discontinued product or
component thereof;

(l)            which is the subject of a
consignment by any Loan Party as consignor;

(m)          which is perishable;

 

 14

 

 

(n)           which contains or bears any
intellectual property rights licensed to any Loan Party unless the US
Administrative Agent or the Canadian Administrative Agent, as applicable, is
reasonably satisfied that it may sell or otherwise dispose of such Inventory
without (i) infringing the rights of such licensor, (ii) violating
any contract with such licensor, or (iii) incurring any liability with
respect to payment of royalties other than royalties incurred pursuant to sale
of such Inventory under the current licensing agreement; or

(p)           which either Administrative Agent
otherwise determines is unacceptable for any reason whatsoever.

“Energy
Hedging Contract” means any forward contract, commodity swap, purchase or
option agreement, other commodity price hedging arrangement and all other
similar agreements or arrangements designed to alter the risks of any Person
arising from fluctuations in the price of electricity, natural gas or other
energy sources.

 “Environmental Laws” means all laws,
rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions
or binding agreements issued, promulgated or entered into by any Governmental
Authority, relating in any way to the environment, preservation or reclamation
of natural resources, the management, release or threatened release of any
Hazardous Material or to health and safety matters.

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

“Equity
Interests”  means shares of capital
stock, partnership interests, membership interests in a limited liability
company, beneficial interests in a trust or other equity ownership interests in
a Person, and any warrants, options or other rights entitling the holder
thereof to purchase or acquire any such equity interest.

“ERISA”
means the Employee Retirement Income Security Act of 1974, as amended from time
to time.

“ERISA
Affiliate” means any trade or business (whether or not incorporated) that,
together with the US Borrower, is treated as a single employer under Section 414(b) or
(c) of the Code or, solely for purposes of Section 302 of ERISA and Section 412
of the Code, is treated as a single employer under Section 414 of the
Code.

“ERISA
Event” means (a) any “reportable event”, as defined in Section 4043
of ERISA or the regulations issued thereunder with respect to a Plan (other
than an event for which the 30-day notice period is waived); (b) the
existence with respect to any Plan of an “accumulated funding deficiency” (as
defined in Section 412 of the Code or Section 302 of ERISA), whether
or not waived; (c) the filing pursuant to Section 412(d) of the
Code or Section 303(d) of ERISA of an application for a waiver of the
minimum funding standard with respect to any Plan; (d) the incurrence by
the US Borrower or any of its ERISA Affiliates of any liability under
Title IV of ERISA with respect to the termination of any Plan; (e) the
receipt by the US Borrower or any ERISA Affiliate from the PBGC or a plan
administrator of any notice relating to an intention to terminate any Plan or
Plans or to appoint a trustee to

 

 15
 

 

 

administer any Plan; (f) the incurrence by the US Borrower or any
of its ERISA Affiliates of any liability with respect to the withdrawal or
partial withdrawal from any Plan or Multiemployer Plan; or (g) the receipt
by the US Borrower or any ERISA Affiliate of any notice, or the receipt by any
Multiemployer Plan from the US Borrower or any ERISA Affiliate of any notice,
concerning the imposition of Withdrawal Liability or a determination that a
Multiemployer Plan is, or is expected to be, insolvent or in reorganization,
within the meaning of Title IV of ERISA.

“Eurodollar”,
when used in reference to any Loan or Borrowing, refers to whether such Loan,
or the Loans comprising such Borrowing, are bearing interest at a rate
determined by reference to the Adjusted LIBO Rate.

“Events
of Default” has the meaning assigned to such term in Article VII.

“Excess
Cash Flow” means,
for any fiscal year, (a) EBITDA less (without duplication) (b) the
sum of (i) all cash interest payments in respect of Indebtedness of the US
Borrower and its Subsidiaries during such fiscal year, (ii) scheduled
payments in respect of Capital Lease Obligations of the US Borrower and its
Subsidiaries permitted hereunder made during such fiscal year, (iii) all
scheduled principal payments of Indebtedness of the US Borrower and its
Subsidiaries made during such fiscal year and all optional prepayments of
Indebtedness of the US Borrower and its Subsidiaries made during such fiscal
year (other than optional prepayments pursuant to Section 6.08(b)(iii)),
provided that optional prepayments pursuant to this Agreement shall only be
deducted pursuant to this clause (iii) to the extent accompanied by a
permanent reduction of the Commitments, (iv) the cash portion of funded Capital
Expenditures incurred during such fiscal year, (v) all cash payments in
respect of federal, state, provincial, local and foreign tax obligations of the
US Borrower and its Subsidiaries made during such fiscal year and (vi) all cash
payments made during such fiscal year in respect of Permitted Acquisitions or
dividends or distributions paid by the US Borrower to Holdings pursuant
Sections 6.08(a)(iii) and 6.08(a)(v).

“Excluded
Taxes” means, with respect to either Administrative Agent, any Lender, the
Issuing Bank or any other recipient of any payment to be made by or on account
of any obligation of either Borrower hereunder, (a) income or franchise
(imposed in lieu of net income taxes) taxes imposed on (or measured by) its net
income by the jurisdiction under the laws of which such recipient is organized
or in which its principal office or lending office is located or, in the case
of any Lender, in which its applicable lending office is located and (b) any
United States or Canadian withholding tax that is imposed on amounts payable to
any Lender at the time such Lender becomes a party to this Agreement (or
designates a new lending office) or is attributable to such Lender’s failure to
comply with Section 2.18(e), except to the extent that such Lender (or its
assignor, if any) was entitled, at the time of designation of a new lending
office (or assignment), to receive additional amounts from either Borrower with
respect to such withholding tax pursuant to Section 2.18(a).

“Existing
CIT Facility” means the Financing Agreement, dated as of March 12,
2004, among the US Borrower, the Canadian Borrower, certain other borrowers
party thereto from time to time, Holdings and the other guarantors party
thereto from time to time, the lenders party thereto from time to time, and The
CIT Group/Business Credit, Inc., as agent, and all security agreements and
related documents entered into in connection therewith.

“Existing Letters of Credit” means the letters
of credit outstanding on the Effective Date and set forth on
Schedule 1.01.

“Federal
Funds Effective Rate” means, for any day, the weighted average (rounded
upwards, if necessary, to the next 1/100 of 1%) of the rates on overnight
Federal funds transactions with

 

 16
 

 

 

members of the Federal Reserve System arranged by Federal funds
brokers, as published on the next succeeding Business Day by the Federal
Reserve Bank of New York, or, if such rate is not so published for any day
that is a Business Day, the average (rounded upwards, if necessary, to the next
1/100 of 1%) of the quotations for such day for such transactions received by
the US Administrative Agent from three Federal funds brokers of recognized
standing selected by it.

“Financial
Officer” means the chief financial officer, principal accounting officer,
treasurer or controller of the US Borrower.

“Fixed
Charges” means, with reference to any period, without duplication, cash
Interest Expense, plus
scheduled mandatory principal payments on Indebtedness made during such period,
plus expense for taxes paid in cash, plus
dividends or distributions paid in cash by the US Borrower to Holdings other
than dividends paid pursuant to Section 6.08(a)(v), plus
Capital Lease Obligation payments, plus
mandatory cash contributions to any Plan, all calculated for the US Borrower
and its Subsidiaries on a consolidated basis.

“Fixed
Charge Coverage Ratio” means, the ratio, determined as of the end of each
fiscal month of the US Borrower for the most-recently ended 12-month
period, of (a) EBITDA minus the
unfinanced portion of Capital Expenditures to (b) Fixed Charges, all
calculated for the US Borrower and its Subsidiaries on a consolidated basis in
accordance with GAAP.

“Foreign
Lender” means any Lender that is organized under the laws of a jurisdiction
other than that in which the applicable Borrower is located. For purposes of
this definition, the United States, each State thereof and the District of
Columbia shall be deemed to constitute a single jurisdiction. For the purposes
of this definition, Canada, each Province and Territory shall be deemed to
constitute a single jurisdiction.

“Foreign
Subsidiary” means any Subsidiary of the US Borrower that is not a Domestic
Subsidiary.

“GAAP”
means generally accepted accounting principles in the United States.

“Governmental
Authority” means the government of the United States, Canada, any other
nation or any political subdivision thereof, whether state, provincial,
territorial or local, and any agency, authority, instrumentality, regulatory
body, court, central bank or other entity exercising executive, legislative,
judicial, taxing, regulatory or administrative powers or functions of or
pertaining to government.

“Guarantee”
of or by any Person (the “guarantor”) means any obligation, contingent
or otherwise, of the guarantor guaranteeing or having the economic effect of
guaranteeing any Indebtedness or other obligation of any other Person (the “primary
obligor”) in any manner, whether directly or indirectly, and including any
obligation of the guarantor, direct or indirect, (a) to purchase or pay
(or advance or supply funds for the purchase or payment of) such Indebtedness
or other obligation or to purchase (or to advance or supply funds for the
purchase of) any security for the payment thereof, (b) to purchase or
lease property, securities or services for the purpose of assuring the owner of
such Indebtedness or other obligation of the payment thereof, (c) to
maintain working capital, equity capital or any other financial statement
condition or liquidity of the primary obligor so as to enable the primary
obligor to pay such Indebtedness or other obligation or (d) as an account
party in respect of any letter of credit or letter of guaranty issued to
support such Indebtedness or obligation; provided, that the term
Guarantee shall not include endorsements for collection or deposit in the
ordinary course of business.

 

 17
 

 

 

“Guaranteed
Obligations” has the meaning assigned to such term in Section 10.01.

“Hazardous
Materials”  means all explosive or
radioactive substances or wastes and all hazardous or toxic substances, wastes
or other pollutants, including petroleum or petroleum distillates, asbestos or
asbestos containing materials, polychlorinated biphenyls, radon gas, infectious
or medical wastes and all other substances or wastes of any nature regulated
pursuant to any Environmental Law.

“Holdings”
means Cellu Paper Holdings, Inc., a Delaware corporation.

“Indebtedness”
of any Person means, without duplication, (a) all obligations of such
Person for borrowed money or with respect to deposits or advances of any kind, (b) all
obligations of such Person evidenced by bonds, debentures, notes or similar
instruments, (c) all obligations of such Person under conditional sale or
other title retention agreements relating to property acquired by such Person, (d) all
obligations of such Person in respect of the deferred purchase price of
property or services (excluding current accounts payable incurred in the
ordinary course of business), (e) all Indebtedness of others secured by
(or for which the holder of such Indebtedness has an existing right, contingent
or otherwise, to be secured by) any Lien on property owned or acquired by such
Person, whether or not the Indebtedness secured thereby has been assumed, (f) all
Guarantees by such Person of Indebtedness of others, (g) all Capital Lease
Obligations of such Person, (h) all obligations, contingent or otherwise,
of such Person as an account party in respect of letters of credit and letters
of guaranty, (i) all obligations, contingent or otherwise, of such Person
in respect of bankers’ acceptances, bills of exchange (within the meaning of
the Bills of Exchange Act (Canada)) and
similar facilities, (j) obligations under any liquidated earn-out and (k) any
other Off-Balance Sheet Liability. The Indebtedness of any Person shall include
the Indebtedness of any other entity (including any partnership in which such
Person is a general partner) to the extent such Person is liable therefor as a
result of such Person’s ownership interest in or other relationship with such
entity, except to the extent the terms of such Indebtedness provide that such
Person is not liable therefor.

“Indemnified
Taxes” means Taxes other than Excluded Taxes.

“Indemnitee”
has the meaning assigned to such term in Section 9.03(b).

“Information”
has the meaning assigned to such term in Section 9.12.

“Intercreditor
Agreement” means the Amended and Restated Intercreditor Agreement, dated as
of June 12, 2006, among Holdings, the US Borrower, certain subsidiaries of
the US Borrower, the Bank of New York, as note collateral agent, the US
Administrative Agent, the Canadian Administrative Agent and The CIT
Group/Business Credit, Inc., substantially in the form of Exhibit G.

“Interest
Election Request” means a request by the US Borrower or the Canadian
Borrower to convert or continue a Revolving Borrowing in accordance with Section 2.09.

“Interest
Expense” means, with reference to any period, total interest expense
(including that attributable to Capital Lease Obligations) of the US Borrower
and its Subsidiaries for such period with respect to all outstanding
Indebtedness of the US Borrower and its Subsidiaries (including all
commissions, discounts and other fees and charges owed with respect to letters
of credit and bankers’ acceptance financing and net costs under Swap Agreements
in respect of interest rates to the extent such net costs are allocable to such
period in accordance with GAAP), calculated on a consolidated basis for the US
Borrower and its Subsidiaries for such period in accordance with GAAP.

 

 18
 

 

 

“Interest
Payment Date” means (a) with respect to any ABR Loan, Canadian ABR
Loan, Canadian Prime Rate Loan, Protective Advance, Overadvance or Acceptance
Equivalent Loan, the first day of each calendar month and the Maturity Date and
(b) with respect to any Eurodollar Loan, the last day of the Interest
Period applicable to the Borrowing of which such Loan is a part and, in the
case of a Eurodollar Borrowing with an Interest Period of more than three
months’ duration, each day prior to the last day of such Interest Period that
occurs at intervals of three months’ duration after the first day of such
Interest Period and the Maturity.

“Interest
Period” means with respect to any Eurodollar Borrowing, the period
commencing on the date of such Borrowing and ending on the numerically
corresponding day in the calendar month that is one, two, three or
six months (or, with the consent of each affected Lender, nine or twelve
months) thereafter, as the US Borrower may elect; provided, that (i) if
any Interest Period would end on a day other than a Business Day, such Interest
Period shall be extended to the next succeeding Business Day unless, in the
case of a Eurodollar Borrowing only, such next succeeding Business Day would
fall in the next calendar month, in which case such Interest Period shall end
on the next preceding Business Day and (ii) any Interest Period pertaining
to a Eurodollar Borrowing that commences on the last Business Day of a calendar
month (or on a day for which there is no numerically corresponding day in the
last calendar month of such Interest Period) shall end on the last Business Day
of the last calendar month of such Interest Period. For purposes hereof, the
date of a Borrowing initially shall be the date on which such Borrowing is made
and, in the case of a Revolving Borrowing, thereafter shall be the effective
date of the most recent conversion or continuation of such Borrowing.

“Inventory”
has the meaning assigned to such term in the UCC or the PPSA, as applicable.

“Issuing
Bank” means Chase, in its capacity as the issuer of Letters of Credit
(including Existing Letters of Credit) hereunder, and its successors in such
capacity as provided in Section 2.07(i). The Issuing Bank may, in its
discretion, arrange for one or more Letters of Credit to be issued by
Affiliates of the Issuing Bank, in which case the term “Issuing Bank” shall
include any such Affiliate with respect to Letters of Credit issued by such
Affiliate.

“Joinder
Agreement” has the meaning assigned to such term in Section 5.13(a).

“Judgment
Currency” has the meaning assigned to such term in Section 9.19(b).

“LC
Collateral Account” has the meaning assigned to such term in Section 2.07(j).

“LC Disbursement”
means a payment made
by the Issuing Bank pursuant to a Letter of Credit.

“LC
Exposure” means, at any time, the sum of (a) the aggregate undrawn
amount of all outstanding Letters of Credit at such time and (b) the
aggregate amount of all LC Disbursements that have not yet been reimbursed by
or on behalf of the US Borrower at such time. The LC Exposure of any US Lender
at any time shall be its Applicable US Percentage of the aggregate LC Exposure
at such time.

“Lenders”
means, collectively, the US Lenders and the Canadian Lenders.

“Letter
of Credit” means any letter of credit issued pursuant to this Agreement.

“LIBO
Rate” means, with respect to any Eurodollar Borrowing for any Interest
Period, the rate appearing on Page 3750 (or, with respect to Canadian Dollar
Deposits, Page 3740) of the Dow

 

 19
 

 

 

Jones Market Service (or on any successor or substitute page of
such Service, or any successor to or substitute for such Service, providing
rate quotations comparable to those currently provided on such page of
such Service, as determined by the US Administrative Agent or the Canadian
Administrative Agent, as applicable, from time to time for purposes of
providing quotations of interest rates applicable to US Dollar or CDN Dollar
deposits, as applicable, in the London interbank market) at approximately 11:00 a.m.,
London time, two Business Days prior to the commencement of such Interest
Period, as the rate for US Dollar or CDN Dollar deposits, as applicable, with a
maturity comparable to such Interest Period. In the event that such rate is not
available at such time for any reason, then the “LIBO Rate” with respect
to such Eurodollar Borrowing for such Interest Period shall be the rate at
which US Dollar or CDN Dollar deposits, as applicable, of US$2,000,000 or
C$500,000, as applicable and for a maturity comparable to such Interest Period
are offered by the principal London office of the US Administrative Agent in
immediately available funds in the London interbank market at approximately
11:00 a.m., London time, two Business Days prior to the commencement of
such Interest Period.

“Lien”
means, with respect to any asset, (a) any mortgage, deed of trust, lien,
pledge, hypothecation, encumbrance, charge or security interest in, on or of
such asset, (b) the interest of a vendor or a lessor under any conditional
sale agreement, capital lease or title retention agreement (or any financing
lease having substantially the same economic effect as any of the foregoing)
relating to such asset and (c) in the case of securities, any purchase
option, call or similar right of a third party with respect to such securities.

“Loan
Documents” means this Agreement, any promissory notes issued pursuant to
the Agreement, any Letter of Credit applications, the Collateral Documents, the
Loan Guaranty, the Intercreditor Agreement and all other agreements,
instruments, documents and certificates identified in Section 4.01
executed and delivered to, or in favor of, the US Administrative Agent, the
Canadian Administrative Agent or any Lender and including all other pledges,
powers of attorney, consents, assignments, contracts, notices, letter of credit
agreements and all other written matter whether heretofore, now or hereafter
executed by or on behalf of any Loan Party, or any employee of any Loan Party,
and delivered to either Administrative Agent or any Lender in connection with
the Agreement or the credit facility contemplated thereby. Any reference in the
Agreement or any other Loan Document to a Loan Document shall include all
appendices, exhibits or schedules thereto, and all amendments, restatements,
supplements or other modifications thereto, and shall refer to the Agreement or
such Loan Document as the same may be in effect at any and all times such
reference becomes operative.

“Loan
Guarantor” each Loan Party (other than Foreign Subsidiaries which are
organized in any jurisdiction other than Canada).

“Loan
Guaranty” means Article X of this Agreement and each separate Guarantee, in form and substance reasonably
satisfactory to the US Administrative Agent, delivered by each Loan Guarantor
that is not a party to this Agreement, as it may be amended or modified and in
effect from time to time.

“Loan
Parties” means Holdings, the US Borrower, the Canadian Borrower, the
Domestic Subsidiaries and any Canadian Subsidiaries of the Canadian Borrower
and any other Person who becomes a party to this Agreement pursuant to a
Joinder Agreement and their respective successors and assigns.

“Loans”
means the loans and advances made by the Lenders pursuant to this Agreement
(including, without limitation, each Acceptance Equivalent Loan, Revolving
Loan, each Swing Line Loan, each Protective Advance and each Overadvance).

 

 20
 

 

 

“Material
Adverse Effect” means any event, development or circumstance that has had
or could reasonably be expected to have a material adverse effect on (a) the
business, assets, operations or financial condition of the US Borrower and its
Subsidiaries, taken as a whole, (b) the ability of any Loan Party to
perform any of its obligations under the Loan Documents to which it is a party
(other than for any reason set forth in clause (a) above), (c) the
Collateral, or the US Administrative Agent’s or the Canadian Administrative
Agent’s, as applicable, Liens (in each case on behalf of the Administrative Agents
and the Lenders) on the Collateral or the priority of such Liens, or (d) the
rights of or benefits available to the Administrative Agents, the Issuing Bank
or the Lenders thereunder.

“Material
Indebtedness” means Indebtedness (other than the Loans and Letters of
Credit), or obligations in respect of one or more Swap Agreements, of any one
or more of the US Borrower and its Subsidiaries in an aggregate principal
amount exceeding US$2,500,000 (or the equivalent thereof). For purposes of
determining Material Indebtedness, the “obligations” of either Borrower or any
Subsidiary in respect of any Swap Agreement at any time shall be the maximum
aggregate amount (giving effect to any netting agreements) that the US Borrower
or such Subsidiary would be required to pay if such Swap Agreement were
terminated at such time.

“Materials
of Environmental Concern” means any gasoline or petroleum (including crude
oil or any fraction thereof) or petroleum products, polychlorinated biphenyls,
urea-formaldehyde insulation, asbestos, molds, pollutants, contaminants,
radioactivity, and any other substances of any kind, regulated pursuant to or
that could give rise to liability under any Environmental Law.

“Maturity
Date” means the earliest of (x) June 12, 2011, (y) the date
which is 90 days prior to the maturity date of the Senior Secured Notes or any
Permitted Refinancing Indebtedness or (z) the date on which the
Commitments are reduced to zero or otherwise terminated pursuant to the terms
hereof; provided, that with respect to clause (y) above, in the
event that the maturity of the Senior Secured Notes is extended, then the date
referred to in clause (y) shall, subject to clauses (x) and (z) above,
be deemed to be automatically extended to the date which is 90 days prior to
such later maturity date.

“Maximum
Liability” has the meaning assigned to such term in Section 10.10.

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

“Mortgages” means any mortgage, deed of trust
or other agreement which conveys or evidences a Lien in favor of the US Administrative Agent or the Canadian Administrative Agent,
for the benefit of the Administrative Agents and the Lenders, on real property
of a Loan Party, including any amendment, modification or supplement thereto.

“Multiemployer
Plan” means a multiemployer plan as defined in Section 4001(a)(3) of
ERISA.

“Net
Income” means, for any period, the consolidated net income (or loss) of the
US Borrower and its Subsidiaries, determined on a consolidated basis in
accordance with GAAP; provided that there shall be excluded (a) the
income (or deficit) of any Person accrued prior to the date it becomes a
Subsidiary of the US Borrower or is merged into or consolidated with the US
Borrower or any of its Subsidiaries, (b) the income (or deficit) of any
Person (other than a Subsidiary of the US Borrower) in which the US Borrower or
any of its Subsidiaries has an ownership interest, except to the extent that
any such income is actually received by the US Borrower or such Subsidiary in
the form of dividends or similar distributions and (c) the undistributed
earnings of any Subsidiary of the US Borrower to the extent that the
declaration or payment of dividends or similar distributions by such Subsidiary
is not at the time

 

 21
 

 

 

permitted by the terms of any contractual obligation (other than under
any Loan Document) or Requirement of Law applicable to such Subsidiary.

“Net
Leverage Ratio” means, the ratio, determined as of the end of each fiscal
quarter of the US Borrower for the most-recently ended four fiscal quarter period,
of (a) Total Indebtedness on such date to (b) EBITDA, all calculated
for the US Borrower and its Subsidiaries on a consolidated basis in accordance
with GAAP.

“Net
Orderly Liquidation Value” means, with respect to Inventory of any Person,
the orderly liquidation value thereof as determined in a manner acceptable to
the Administrative Agents by an appraiser reasonably acceptable to the
Administrative Agents, net of all costs of liquidation thereof.

“Net
Proceeds” means, with respect to any event, (a) the cash proceeds
received in respect of such event including (i) any cash received in
respect of any non-cash proceeds (including any cash payments received by way
of deferred payment of principal pursuant to a note or installment receivable
or purchase price adjustment receivable or otherwise, but excluding any
interest payments), but only as and when received, (ii) in the case of a
casualty, insurance proceeds and (iii) in the case of a condemnation or
similar event, condemnation awards and similar payments, net of (b) the
sum of (i) all reasonable fees and out-of-pocket expenses paid to third
parties (other than Affiliates) in connection with such event, (ii) in the
case of a sale, transfer or other disposition of an asset (including pursuant
to a sale and leaseback transaction or a casualty or a condemnation or similar
proceeding), the amount of all payments required to be made as a result of such
event to repay Indebtedness (other than the Loans) secured by such asset or
otherwise subject to mandatory prepayment as a result of such event and (iii) the
amount of all taxes paid (or reasonably estimated to be payable) and the amount
of any reserves established to fund contingent liabilities reasonably estimated
to be payable (as determined reasonably and in good faith by a Financial
Officer).

“New York Mortgage”
means the Mortgage relating to the property located at 4921 Route 58 North,
Gouverneur, NY 13842.

“Non-Acceptance
Canadian Lender” has the meaning assigned to such term in Section 2.04(i).

“Non-Consenting Lender” has the meaning
assigned to such term in Section 9.02(d).

“Non-Paying Guarantor” has the meaning
assigned to such term in Section 10.11.

“Note
Priority Collateral” has the meaning assigned to such term in the
Intercreditor Agreement.

“Obligated Party” has the meaning assigned to
such term in Section 10.02.

“Obligations”
means all unpaid principal of and accrued and unpaid interest on the Loans, all
LC Exposure, the Protective Advances, the Overadvances, the Acceptance
Equivalent Loans and the Acceptances, all accrued and unpaid fees and all
expenses, reimbursements, indemnities and other obligations of the Loan Parties
to the Lenders or to any Lender, either Administrative Agent, the Issuing Bank
or any indemnified party arising under the Loan Documents.

“Off-Balance
Sheet Liability” of a Person means (a) any repurchase obligation or
liability of such Person with respect to accounts or notes receivable sold by
such Person, (b) any indebtedness, liability or obligation under any
so-called “synthetic lease” transaction entered into by such Person, or (c)

 

 22
 

 

 

any indebtedness, liability or obligation arising with respect to any
other transaction which is the functional equivalent of or takes the place of
borrowing but which does not constitute a liability on the balance sheets of
such Person (other than operating leases).

“Other
Taxes” means any and all present or future stamp or documentary taxes or
any other excise or property taxes, charges or similar levies arising from any
payment made hereunder or from the execution, delivery or enforcement of, or
otherwise with respect to, this Agreement.

“Overadvances”
means the collective reference to US Overadvances and Canadian Overadvances.

“Parent”
means Cellu Parent Corporation, a Delaware corporation.

“Participant”
has the meaning set forth in Section 9.04(c).

“Paying Guarantor” has the meaning
assigned to such term in Section 10.11.

“PBGC”
means the Pension Benefit Guaranty Corporation referred to and defined in ERISA
and any successor entity performing similar functions.

“Permitted
Acquisition” means any transaction, or series of transactions, consummated
after the Effective Date in which either Borrower or any of its Domestic
Subsidiaries or Canadian Subsidiaries (1) acquires any business or all or
substantially all of the assets of any Person or any division or business unit
thereof, whether through a purchase of assets, merger or otherwise, (2) directly
or indirectly acquires control of all of the outstanding Capital Stock of a
Person; provided that each of the following requirements has been
satisfied:

(a)           such transaction is not a hostile or
contested transaction;

(b)           the assets acquired in connection
with such transaction are not used, directly or indirectly, in any line of business other than the businesses in
which the Borrowers and their respective Subsidiaries are engaged on the date
of this Agreement (after giving effect to the Transactions) and any business
reasonably related, complementary or ancillary thereto and are not located
outside the United States or Canada;

(c)           if the consideration for such
transaction is greater than US$10,000,000, as soon as available, but not less
than ten days prior to such
transaction, the US Borrower has delivered to the Administrative Agents and the
Lenders (i) notice of such transaction and (ii) a copy of all
business and financial information reasonably requested by the Administrative
Agents, including pro forma historical and projected financial information and
cash flow and Availability calculations provided in a manner reasonably
acceptable to the Administrative Agents;

(d)           if the Accounts and Inventory acquired in connection with
such transaction are proposed to be included in the determination of the
Borrowing Base, the Administrative Agents shall have conducted or received the
results of an audit and field examination of (and, if reasonably requested,
other Reports with respect to) such Accounts and Inventory to their reasonable
satisfaction;

 

 23
 

 

 

(e)           (i) the consideration for any
individual transaction does not exceed US$30,000,000, and (ii) the
purchase price for all such transactions made during the Availability Period
does not exceed US$60,000,000 in the aggregate;

(f)            the provisions of Section 5.13
shall have been complied with;

(g)           the US Borrower shall certify (and
shall deliver to the Administrative Agents with a pro forma calculation in form
and substance reasonably satisfactory to the Administrative Agents) that, after
giving effect to the completion of such transaction, Availability was not less
than US$10,000,000 on the last day of any month during the most recent 12-month
period prior to the date on which such transaction was consummated; and

(h)           no Default or Event of Default has
occurred and is continuing or would result therefrom.

With respect to any period during which a Permitted
Acquisition has occurred, EBITDA shall be calculated with respect to such
period on a pro forma basis using the historical financial statements of the
business so acquired, and the consolidated financial statements of the US
Borrower and its Subsidiaries, which shall be reformulated as if such Permitted
Acquisition and any Indebtedness incurred or repaid in connection therewith had
been consummated or incurred or repaid at the beginning of such period.

“Permitted
Discretion” means a determination made in good faith and in the exercise of
reasonable (from the perspective of a secured asset-based lender) business
judgment.

“Permitted
Encumbrances” means:

(a)           Liens imposed by law for taxes that
are not yet due or are being contested in compliance with Section 5.04;

(b)           carriers’, warehousemen’s, storers’,
repairers’, mechanics’, materialmen’s, repairmen’s and other like Liens imposed
by law, arising in the ordinary
course of business and securing obligations that are not overdue by more than
30 days or are being contested in compliance with Section 5.04;

(c)           pledges and deposits made in the
ordinary course of business in compliance with workers’ compensation, unemployment insurance and other
social security laws or regulations;

(d)           deposits to secure the performance of
bids, trade contracts, leases, statutory obligations, surety and appeal bonds, performance bonds and other
obligations of a like nature, in each case in the ordinary course of business;

(e)           judgment liens in respect of judgments that do not constitute an
Event of Default under clause (k) of Article VII;

(f)            easements, zoning restrictions,
rights-of-way and similar encumbrances on real property imposed by law or
arising in the ordinary course of business that do not secure any monetary
obligations and do not materially detract from the current use of the affected
property or interfere with the ordinary conduct of business of either Borrower
or any Subsidiary; and

 

 24
 

 

 

(g)           exceptions to the commitments for
title insurance issued in connection with the mortgage of any real property of
the Loan Parties granted to secure the Loan Parties’ obligations under the Loan
Documents or the Senior Secured Notes;

provided that, the term
“Permitted Encumbrances” shall not include any Lien securing Indebtedness.

“Permitted
Investments” means:

(a)           direct obligations of, or obligations
the principal of and interest on which are unconditionally guaranteed by, the
United States or Canada (or by any agency thereof to the extent such
obligations are backed by the full faith and credit of the United States or
Canada), in each case maturing within one year from the date of acquisition
thereof;

(b)           investments in commercial paper maturing within 270 days from the date of
acquisition thereof and having, at such date of acquisition, the highest credit
rating obtainable from S&P or from Moody’s;

(c)           investments in certificates of deposit, banker’s acceptances and time deposits
maturing within 180 days from the date of acquisition thereof issued or
guaranteed by or placed with, and money market deposit accounts issued or
offered by, any domestic office of any commercial bank organized under the laws
of the United States or Canada or any state or province thereof which has a
combined capital and surplus and undivided profits of not less than
US$500,000,000;

(d)           repurchase agreements with a term of
not more than 30 days for securities described in clause (a) above
and entered into with a financial institution satisfying the criteria described in clause (c) above;

(e)           money market funds that (i) comply
with the criteria set forth in Securities and Exchange Commission Rule 2a-7
under the Investment Company Act of 1940, (ii) are rated AAA by S&P
and Aaa by Moody’s and (iii) have portfolio assets of at least
US$5,000,000,000; and

(f)            money market funds that are issued
or offered by any commercial bank organized under the laws of Canada or of any
Canadian province that are rated AAA by S&P and Aaa by Moody’s.

“Permitted Refinancing Indebtedness” means
Indebtedness of the US Borrower or any Loan Guarantor which satisfies each of
the following conditions:  (a) to
the extent that such Indebtedness is to be secured by a Lien on any assets, the
terms of such Indebtedness (including the Liens which secure such Indebtedness)
shall be substantially the same as those applicable to the Senior Secured Notes
(other than changes which extend the maturity thereof, decrease the interest
rate applicable thereto, release a portion of the assets subject to such Liens or
otherwise amend the terms in a manner not materially adverse to the Lenders); (b) such
Indebtedness shall consist of (i) senior secured notes which satisfy the
requirements of clause (a) above or (ii) senior unsecured notes
and/or senior subordinated notes (and Guarantees in respect in respect thereof)
with terms customary for notes of such type at such time; (c) no Default
or Event of Default shall have occurred and be continuing or would result from
the incurrence of such Indebtedness; (d) the Administrative Agents shall
have received a copy of all the documents relating to such Indebtedness at
least five Business Days prior to the funding of any such Indebtedness; (e) the
terms and conditions of any such Indebtedness shall not be materially more
restrictive taken as a whole to the US Borrower and its Subsidiaries than the
terms of the Indebtedness being refinanced as determined

 

 25
 

 

 

in good faith by the US Borrower; (f) such
Indebtedness shall not be subject to any amortization or required repurchase or
redemption obligations (other than as contemplated by clause (a) above) on
or prior to the Maturity Date; (g) the Net Proceeds of such Indebtedness
are concurrently applied to the prepayment of the Indebtedness to be refinanced
with such Net Proceeds; and (h) the Administrative Agents shall have
received a certificate of a Financial Officer certifying compliance with the
conditions set forth in this definition (and attaching any other information
reasonably required by the Administrative Agents).

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

“Plan”
means any employee pension benefit plan (other than a Multiemployer Plan)
subject to the provisions of Title IV of ERISA or Section 412 of the
Code or Section 302 of ERISA, and in respect of which the US Borrower or
any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069
of ERISA be deemed to be) an “employer” as defined in Section 3(5) of
ERISA.

“PPSA”
means the Personal Property Security Act (Nova Scotia) or similar personal
property security legislation in the provinces or territories of Canada other
than Nova Scotia, as the same may be in effect from time to time on the date of
determination of the applicable jurisdiction.

“Prepayment
Event” means:

(a)           any sale, transfer or other
disposition (including pursuant to a sale and leaseback transaction) of any property or asset of any Loan Party;
or

(b)           the issuance by Holdings or the US
Borrower of any Equity Interests, or the receipt by Holdings or the US Borrower
of any capital contribution, other than any issuance by the US Borrower of
common Equity Interests to, or receipt of any such capital contribution from, Holdings;
or

(c)           the incurrence by any Loan Party of any Indebtedness, other than
Indebtedness permitted under Section 6.01; or

(d)           any casualty or other insured damage
to, or any taking under power of eminent domain or by condemnation or similar proceeding of, any property or asset of
any Loan Party.

“Prime
Rate” means the rate of interest per annum publicly announced from time to
time by Chase as its prime rate at its offices at 270 Park Avenue in New York
City; each change in the Prime Rate shall be effective from and including the
date such change is publicly announced as being effective.

“Projections” has the meaning assigned to such term in Section 5.01(f).

“Protective
Advances” means the collective reference to the US Protective Advances and
the Canadian Protective Advances.

“Pulp
Hedging Contract” means any forward contract, commodity swap, purchase or
option agreement, other commodity price hedging arrangement and all other
similar agreements or arrangements designed to alter the risks of any Person arising
from fluctuations in the price of pulp.

 “Register” has the meaning set forth in
Section 9.04(b)(iv).

 

 26

 

 

“Regulation
U” means Regulation U of the Board as in effect from time to time.

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

“Report”
means any report prepared by either Administrative Agent or another Person
showing the results of appraisals, field examinations or audits pertaining to
the Loan Parties’ assets from information furnished by or on behalf of any Loan
Party, after the Administrative Agents have exercised their rights of
inspection pursuant to this Agreement or which are otherwise required under
this Agreement, which Reports may be distributed to the Lenders by either
Administrative Agent.

“Required
Canadian Lenders” means, at any time, Canadian Lenders having Canadian
Credit Exposure and unused Canadian Commitments representing more than 50% of
the sum of (a) the aggregate Canadian Credit Exposures and (b) aggregate
unused Canadian Commitments at such time.

“Required
Lenders” means, at any time, Lenders having Credit Exposure and unused
Commitments representing more than 50% of the sum of (a) the aggregate
Credit Exposures and (b) aggregate unused Commitments at such time.

“Required
US Lenders” means, at any time, US Lenders having US Credit Exposure and
unused US Commitments representing more than 50% of the sum of (a) the
aggregate US Credit Exposures and (b) aggregate unused US Commitments at
such time.

“Requirement
of Law” means, as to any Person, the Certificate of Incorporation and By-Laws
or other organizational or governing documents of such Person, and any law,
treaty, rule or regulation or determination of an arbitrator or a court or
other Governmental Authority, in each case applicable to or binding upon such
Person or any of its property or to which such Person or any of its property is
subject.

“Reserves”
means any and all reserves which the Administrative Agent deems necessary, in
its Permitted Discretion, to maintain (including, without limitation, reserves
for accrued and unpaid interest on the Secured Obligations, Banking Services
Reserves, reserves for rent at locations leased by any Loan Party and for
consignee’s, warehousemen’s and bailee’s charges, reserves for dilution of Accounts,
reserves for Inventory shrinkage, reserves for customs charges and shipping
charges related to any Inventory in transit, reserves for Swap Obligations
owing to one or more Lenders or their respective Affiliates, reserves for
contingent liabilities of any Loan Party, reserves for uninsured losses of any
Loan Party, reserves for uninsured, underinsured, un-indemnified or
under-indemnified liabilities or potential liabilities with respect to any
litigation and reserves for taxes, fees, assessments, and other governmental
charges) with respect to the Collateral or any Loan Party.

“Reset
Date” has the meaning assigned to such term in Section 2.22(a).

“Restricted
Payment” means any dividend or other distribution (whether in cash,
securities or other property) with respect to any Equity Interests in either
Borrower or any Subsidiary, or any payment (whether in cash, securities or
other property), including any sinking fund or similar deposit, on account of
the purchase, redemption, retirement, acquisition, cancellation or termination
of any such Equity Interests in such Borrower or such Subsidiary or any option,
warrant or other right to acquire any such Equity Interests in such Borrower or
such Subsidiary.

 27
 

 

 

“Revolving
Loans” means the collective reference to the US Revolving Loans and the
Canadian Revolving Loans.

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

“Schedule
1 Bank BA Reference Lender” means either Bank of Montreal or Canadian
Imperial Bank of Commerce.

“Schedule II or III
Lender” means any Canadian Lender named on Schedule II or Schedule III to
the Bank Act (Canada).

“Schedule II or III
Reference Banks” means JPMorgan Chase Bank, N.A., Toronto Branch, or any
bank named on Schedule II or Schedule III to the Bank Act
(Canada) and agreed upon by the Canadian Administrative Agent and the Canadian
Borrower.

“Secured
Obligations” means all Obligations, together with all (i) Banking
Services Obligations and (ii) Swap Obligations owing to one or more
Lenders or their respective Affiliates; provided that
at or prior to the time that any transaction relating to such Swap Obligation
is executed, the Lender party thereto (other than Chase) shall have delivered
written notice to the Administrative Agents that such a transaction has been
entered into and that it constitutes a Secured Obligation entitled to the
benefits of the Collateral Documents.

“Securities
Account Control Agreement” means an agreement substantially in the form of
Annex 4 to the US Security Agreement among any Loan Party, the relevant
securities intermediary, and the relevant Administrative Agent, with respect to
collection and control of all deposits and balances held in a securities
account maintained by any Loan Party with such securities intermediary.

“Security
Agreements” means the US Security Agreement, the Canadian Security
Agreement and any other pledge or security agreement entered into, after the
date of this Agreement by any other Loan Party (as required by this Agreement
or any other Loan Document), or any other Person, as the same may be amended,
restated or otherwise modified from time to time.

“Senior
Secured Notes” means the 93⁄4% senior secured notes due 2010 issued under the
Senior Secured Notes Indenture.

“Senior
Secured Notes Indenture” means the Indenture dated as of March 12,
2004, among the US Borrower, the subsidiary guarantors party thereto and The
Bank of New York, as trustee, as amended by the First Supplemental Indenture
dated June 2, 2006 and as such Indenture may be further amended,
supplemented or otherwise modified from time to time pursuant to Section 6.11.

“Settlement”
has the meaning assigned to such term in Section 2.05(f).

“Settlement
Date” has the meaning assigned to such term in Section 2.05(f).

“Sponsor”
means Weston Presidio, together with its Affiliates.

“Sponsor
Management Agreement” means the Management Agreement dated as of June 12,
2006, among Weston Presidio Service Company, LLC, Parent, Acquisition Corp. and
Cellu Tissue.

 

 28
 

 

 

“Statutory
Reserve Rate” means a fraction (expressed as a decimal), the numerator of
which is the number one and the denominator of which is the number one minus
the aggregate of the maximum reserve percentages (including any marginal,
special, emergency or supplemental reserves) expressed as a decimal established
by the Board to which either Administrative Agent is subject with respect
to the Adjusted LIBO Rate, for eurocurrency funding (currently referred to as “Eurocurrency
Liabilities” in Regulation D of the Board). Such reserve percentages shall
include those imposed pursuant to such Regulation D. Eurodollar Loans
shall be deemed to constitute eurocurrency funding and to be subject to such
reserve requirements without benefit of or credit for proration, exemptions or
offsets that may be available from time to time to any Lender under such
Regulation D or any comparable regulation. The Statutory Reserve Rate
shall be adjusted automatically on and as of the effective date of any change
in any reserve percentage.

“Subordinated
Indebtedness” of a Person means any Indebtedness of such Person the payment
of which is subordinated to payment of the Secured Obligations to the written
satisfaction of the Administrative Agents.

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

“Subsidiary”
means any subsidiary of (a) the US Borrower, (b) the Borrowers or (c) a
Loan Party, as applicable.

“Super-Majority
Lenders” means, at any time, Lenders having Credit Exposure and unused
Commitments representing more than 75% of the sum of (a) the aggregate
Credit Exposures and (b) aggregate unused Commitments at such time.

“Swap
Agreement” means any agreement with
respect to any swap, forward, future or derivative transaction or option or similar agreement involving, or settled by reference to,
one or more rates, currencies, commodities, equity or debt instruments or
securities, or economic, financial or pricing indices or measures of economic,
financial or pricing risk or value or any similar transaction or any
combination of these transactions; provided that no Energy
Hedging Contract and no Pulp Hedging Contract, and no phantom stock or similar
plan providing for payments only on account of services provided by current or former
directors, officers, employees or consultants of the Borrowers or their
respective Subsidiaries, shall be a Swap Agreement.

“Swap
Obligations” of a Person means any and all obligations of such Person,
whether absolute or contingent and howsoever and whensoever created, arising,
evidenced or acquired (including all renewals, extensions and modifications
thereof and substitutions therefor), under (a) any and all Swap
Agreements, and (b) any and all cancellations, buy backs, reversals,
terminations or assignments of any Swap Agreement transaction.

“Swingline
Lender” means JPMorgan Chase Bank, N.A., in its capacity as lender of
Swingline Loans hereunder.

 

 29
 

 

 

“Swingline
Loan” means a Loan made pursuant to Section 2.06.

“Taxes”
means any and all present or future taxes, levies, imposts, duties, deductions,
charges or withholdings imposed, levied, collected, withheld or assessed by any
Governmental Authority.

“Total
Indebtedness” means, for any date, the aggregate principal amount of all
Indebtedness of the US Borrower and its Subsidiaries at such date calculated on
a consolidated basis, minus the aggregate amount of cash and Permitted
Investments (in each case, free and clear of all Liens other than Permitted
Encumbrances) included in the consolidated balance sheet of the US Borrower and
its Subsidiaries as of such date.

“Transactions”
means, collectively, (i) the Acquisition, (ii) the Consent
Solicitation, (iii) the termination of the Existing CIT Facility and (iv) the
execution, delivery and performance by the Loan Parties of this Agreement, the
borrowing of Loans and other credit extensions, the use of the proceeds thereof
and the issuance of Letters of Credit hereunder.

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

“UCC”
means the Uniform Commercial Code as in effect from time to time in the State
of New York or any other state the laws of which are required to be applied in
connection with the issue of perfection of security interests.

“United
States” means the United States of America.

“Unliquidated
Obligations” means, at any time, any Secured Obligations (or portion
thereof) that are contingent in nature or unliquidated at such time, including
any Secured Obligation that is: (i) an obligation to reimburse a bank for
drawings not yet made under a letter of credit issued by it; (ii) any
other obligation (including any guarantee) that is contingent in nature at such
time; or (iii) an obligation to provide collateral to secure any of the
foregoing types of obligations.

“US
Administrative Agent” means JPMorgan Chase Bank, N.A., in its capacity as
administrative agent for the US Lenders hereunder.

“US
Borrower” means Cellu Tissue.

“US
Borrower/Canadian Revolving Loans” has the meaning assigned to such term in
Section 2.01(b).

“US
Borrower Funding Account” has the meaning assigned to such term in Section 4.01(h).

“US
Commitment” means, with respect to each US Lender, the commitment, if any,
of such US Lender to make US Revolving Loans and to acquire participations in
Letters of Credit, US Protective Advances, US Overadvances and Swingline Loans
hereunder, expressed as an amount representing the maximum possible aggregate
amount of such US Lender’s US Credit Exposure hereunder, as such commitment may
be reduced or increased from time to time pursuant to assignments by or to such
US Lender pursuant to Section 9.04. The initial amount of each US Lender’s
US Commitment is set forth on the US Commitment Schedule, or in the Assignment
and Assumption

 

 30
 

 

 

pursuant to which such US Lender shall have assumed its US Commitment,
as applicable. The initial aggregate amount of the US Lenders’ US Commitments
is US$32,000,000.

“US
Commitment Schedule” means the Schedule attached hereto identified as such.

“US
Credit Exposure” means, with respect to any US Lender at any time, the sum
of (a) the outstanding principal amount of such US Lender’s US Revolving Loans
and its LC Exposure and an amount equal to its Applicable US Percentage of the
aggregate principal amount of Swingline Loans at such time and (b) an
amount equal to its Applicable US Percentage of the aggregate principal amount
of Overadvances and Protective Advances outstanding at such time.

“US
Dollar Equivalent” means, with respect to CDN Dollars, on the date of
determination thereof, the amount of US Dollars which could be purchased with
the amount of such CDN Dollars involved in such computation at the spot rate at
which such CDN Dollars may be exchanged into US Dollars as set forth on such
date on (i) the applicable Reuters pages, or (ii) if such rate is not
set forth on such Reuters pages, on the applicable Telerate Service pages, or (iii) if
such rate does not appear on such Reuters or Telerate Service pages, at the
spot exchange rate therefor as determined by the US Administrative Agent, in
each case as of 11:00 A.M. (New York time, as applicable, or such other
local time as the US Administrative Agent shall deem appropriate) on such date
of determination thereof.

“US
Dollars” and “US$” means dollars in lawful currency of the United
States.

“US$
Canadian Revolving Loans” has the meaning assigned to such term in Section 2.01(b).

“US
Lenders” means, as of any date of determination, a Person with a US
Commitment or, if the US Commitments have terminated or expired, a Person with
US Credit Exposure. The term “US Lenders” shall include the Persons listed on
the US Commitment Schedule and any other Person that shall have become a party
hereto pursuant to an Assignment and Assumption, other than any such Person
that ceases to be a party hereto pursuant to an Assignment and Assumption. Unless
the context otherwise requires, the term “US Lenders” includes the Swingline
Lender.

“US
Overadvances” has the meaning assigned to such term in Section 2.05(c).

“US Protective Advances” has the meaning assigned to such term in Section 2.05(a).

“US
Revolving Loans” has the meaning assigned to such term in Section 2.01(a).

“US
Security Agreement” means the Pledge and Security Agreement dated as of the
date hereof, between the Loan Parties and the US Administrative Agent, for the
benefit of the US Administrative Agent and the US Lenders, substantially in the
form of Exhibit F-1.

“Withdrawal
Liability” means liability to a Multiemployer Plan as a result of a
complete or partial withdrawal from such Multiemployer Plan, as such terms are
defined in Part I of Subtitle E of Title IV of ERISA.

SECTION 1.02       Classification
of Loans and Borrowings.   For purposes of this Agreement, Loans may be
classified and referred to by Class (e.g., a “US Revolving Loan”) or by
Type (e.g., a “Eurodollar Loan”) or by Class and Type (e.g., a “Eurodollar
Revolving Loan”). Borrowings also may be classified and referred to by Class (e.g.,
a “Revolving Borrowing”) or by Type (e.g., a “Eurodollar Borrowing”) or by Class and
Type (e.g., a “Eurodollar Revolving Borrowing”).

 

 31
 

 

 

SECTION 1.03       Terms
Generally.   The definitions of terms herein shall apply equally to the
singular and plural forms of the terms defined. Whenever the context may
require, any pronoun shall include the corresponding masculine, feminine and
neuter forms. The words “include”, “includes” and “including” shall be deemed
to be followed by the phrase “without limitation”. The word “will” shall be
construed to have the same meaning and effect as the word “shall”. Unless the
context requires otherwise (a) any definition of or reference to any
agreement, instrument or other document herein shall be construed as referring
to such agreement, instrument or other document as from time to time amended,
supplemented or otherwise modified (subject to any restrictions on such
amendments, supplements or modifications set forth herein), (b) any
reference herein to any Person shall be construed to include such Person’s
successors and assigns, (c) the words “herein”, “hereof” and “hereunder”,
and words of similar import, shall be construed to refer to this Agreement in
its entirety and not to any particular provision hereof, (d) all
references herein to Articles, Sections, Exhibits and Schedules shall be
construed to refer to Articles and Sections of, and Exhibits and Schedules to,
this Agreement and (e) the words “asset” and “property” shall be construed
to have the same meaning and effect and to refer to any and all tangible and
intangible assets and properties, including cash, securities, accounts and
contract rights.

SECTION 1.04       Accounting
Terms; GAAP.   Except as otherwise expressly provided herein, all terms
of an accounting or financial nature shall be construed in accordance with
GAAP, as in effect from time to time; provided that, if the US Borrower
notifies the US Administrative Agent that the US Borrower requests an amendment
to any provision hereof to eliminate the effect of any change occurring after
the date hereof in GAAP or in the application thereof with respect to the
operation of such provision (or if the US Administrative Agent notifies the US
Borrower that the Required Lenders request an amendment to any provision hereof
for such purpose), regardless of whether any such notice is given before or
after such change in GAAP or in the application thereof, then such provision
shall be interpreted on the basis of GAAP as in effect and applied immediately
before such change shall have become effective until  such notice shall have been withdrawn or such
provision  amended in accordance
herewith.

ARTICLE II.

The Credits

SECTION 2.01       Commitments.   (a)              Subject to the terms and
conditions set forth herein, each US Lender agrees to make loans denominated in
US Dollars (the “US Revolving Loans”) to the US Borrower from time to
time during the Availability Period in an aggregate principal amount that will not
result in (i) such US Lender’s US Credit Exposure exceeding such US Lender’s
US Commitment, (ii) the aggregate US Credit Exposures exceeding the
aggregate US Commitments or (iii) the aggregate Credit Exposures exceeding
the lesser of (x) the aggregate Commitments or (y) the Borrowing Base, subject to the
US Administrative Agent’s authority, in its sole discretion, to make US
Protective Advances and US Overadvances pursuant to the terms of Section 2.05.
Within the foregoing limits and subject to the terms and conditions set
forth herein, the US Borrower may borrow, prepay and reborrow US Revolving
Loans.

(b)           Subject to the terms
and conditions set forth herein, each Canadian Lender agrees to make (i) through
its Counterpart Lender, loans denominated in US Dollars to the US Borrower (the
“US Borrower/Canadian Revolving Loans”), (ii) loans denominated in
US Dollars to the Canadian Borrower (the “US$ Canadian Revolving Loans”)
and (iii) loans denominated in CDN Dollars to the Canadian Borrower (the “C$
Canadian Revolving Loans”; and, together with the US Borrower/Canadian
Revolving Loans and the US$ Canadian Revolving Loans, the “Canadian
Revolving Loans”) from time to time during the Availability Period in an
aggregate principal amount that will not result in (x) such Canadian
Lender’s Canadian Credit Exposure exceeding such Canadian Lender’s Canadian
Commitment,

 

 32
 

 

 

(y) the
aggregate Canadian Credit Exposures exceeding the aggregate Canadian
Commitments or (z) the aggregate Credit Exposures exceeding the lesser of (A) the
aggregate Commitments or (B) the Borrowing Base, subject to the
Canadian Administrative Agent’s authority, in its sole discretion, to make
Canadian Protective Advances and Canadian Overadvances pursuant to the terms of
Section 2.05. Within the foregoing limits and subject to the terms
and conditions set forth herein, each of the US Borrower and the Canadian
Borrower may borrow, prepay and reborrow Canadian Revolving Loans made to it.

SECTION 2.02       Loans
and Borrowings.   (a)              Each
Loan (other than a Swingline Loan) shall be made as part of a Borrowing
consisting of Loans of the same Class and Type made by the US Lenders or
the Canadian Lenders, as the case may be, ratably in accordance with their
respective US Commitments or Canadian Commitments, as the case may be, of the
applicable Class. Any Protective Advance, any Overadvance and any Swingline
Loan shall be made in accordance with the procedures set forth in Section 2.05
and 2.06.

(b)           Subject to Section 2.15,
each Borrowing of US Revolving Loans and US Borrower/Canadian Revolving Loans
shall be comprised entirely of ABR Loans or Eurodollar Loans as the US Borrower
may request in accordance herewith, provided that any such Borrowings
made on the Effective Date must be made as ABR Borrowings but may be converted
into Eurodollar Borrowings in accordance with Section 2.09. Subject to Section 2.15,
each Borrowing of US$ Canadian Revolving Loans shall be comprised entirely of
Canadian ABR Loans or Eurodollar Loans as the Canadian Borrower may request in accordance
herewith; provided that any such Borrowings made on the Effective Date
must be made as Canadian ABR Borrowings but may be converted into Eurodollar
Borrowings in accordance with Section 2.09. Subject to Section 2.15,
each Borrowing of C$ Canadian Revolving Loans shall be comprised entirely of
Canadian Prime Rate Loans or Acceptances made pursuant to Section 2.04. Each
Swingline Loan shall be an ABR Loan. Each Lender at its option may make any
Eurodollar Loan by causing any domestic or foreign branch or Affiliate of such
Lender to make such Loan; provided that any exercise of such option
shall not affect the obligation of the relevant Borrower to repay such Loan in
accordance with the terms of this Agreement.

(c)           At the commencement
of each Interest Period for any Eurodollar Revolving Borrowing, such Borrowing
shall be in an aggregate amount that is an integral multiple of US$100,000 or
C$100,000, as applicable, and not less than US$1,000,000 or C$1,000,000, as
applicable. At the time that each ABR Revolving Borrowing is made, such
Borrowing shall be in an aggregate amount that is an integral multiple of
US$100,000 and not less than US$500,000; provided that an ABR Revolving
Borrowing may be in an aggregate amount that is equal to the entire unused balance
of the aggregate US Commitments or that is required to finance the
reimbursement of an LC Disbursement as contemplated by Section 2.07(e).  Each Canadian ABR Borrowing shall be in an
aggregate amount that is an integral multiple of US$100,000 and not less than
US$500,000. Each Canadian Prime Rate Borrowing shall be in an aggregate amount
that is an integral multiple of C$100,000 and not less than C$500,000. Each
Swingline Loan shall be in an amount that is an integral multiple of US$100,000
and not less than US$500,000.  Borrowings
of more than one Type and Class may be outstanding at the same time; provided
that there shall not at any time be more than a total of ten Eurodollar
Borrowings outstanding.

(d)           Notwithstanding any
other provision of this Agreement, neither Borrower shall be entitled to
request, or to elect to convert or continue, any Borrowing if the Interest
Period requested with respect thereto would end after the Maturity Date.

SECTION 2.03       Requests for Revolving Borrowings.   (a)      To request a Borrowing of US Revolving
Loans or US Borrower/Canadian Revolving Loans, the US Borrower shall notify the
US Administrative Agent  (and, with
respect to a Borrowing of US Borrower/Canadian Revolving Loans, the Canadian
Administrative Agent) of such request either in writing (delivered by hand or
facsimile) in a

 

 33
 

 

 

form approved by the US Administrative Agent and signed by the US
Borrower or by telephone (a) in the case of a Eurodollar Borrowing, not
later than 1 p.m., New York City time, three Business Days before the date
of the proposed Borrowing or (b) in the case of an ABR Borrowing, not
later than 1 p.m., New York City time, on the date of the proposed
Borrowing; provided that any such notice of an ABR Revolving Borrowing
to finance the reimbursement of an LC Disbursement as contemplated by Section 2.07(e) may
be given not later than 9:00 a.m., New York City time, on the date of the
proposed Borrowing. Each such telephonic Borrowing Request shall be irrevocable
and shall be confirmed promptly by hand delivery or facsimile to the US
Administrative Agent (and, with respect to a Borrowing of US Borrower/Canadian
Revolving Loans, the Canadian Administrative Agent) of a written Borrowing
Request in a form approved by the US Administrative Agent and signed by the US
Borrower. Each such telephonic and written Borrowing Request shall specify the
following information in compliance with Section 2.01:

(i)            whether such Borrowing is to consist
of US Revolving Loans or US Borrower/Canadian Revolving Loans;

(ii)           the aggregate amount of the requested
Borrowing and a breakdown of the separate wires comprising such Borrowing;

(iii)          the date of such Borrowing, which
shall be a Business Day;

(iv)          whether such Borrowing is to be an ABR
Borrowing or a Eurodollar Borrowing; and

(v)           in the case of a Eurodollar
Borrowing, the initial Interest Period to be applicable thereto, which shall be
a period contemplated by the definition of the term “Interest Period.”

If
no election as to the Type of Revolving Borrowing is specified, then the
requested Revolving Borrowing shall be an ABR Borrowing. If no Interest Period
is specified with respect to any requested Eurodollar Revolving Borrowing, then
the US Borrower shall be deemed to have selected an Interest Period of one
month’s duration. Promptly following receipt of a Borrowing Request in
accordance with this Section, the US Administrative Agent shall advise each US
Lender or Canadian Lender, as applicable, of the details thereof and of the
amount of each relevant Lender’s Loan to be made as part of the requested
Borrowing.

(b)           To request a
Borrowing of US$ Canadian Revolving Loans or C$ Canadian Revolving Loans, the
Canadian Borrower shall notify the US Administrative Agent and the Canadian
Administrative Agent of such request either in writing (delivered by hand or
facsimile) in a form approved by the Canadian Administrative Agent and signed
by the Canadian Borrower or by telephone (a) in the case of a Eurodollar
Borrowing, not later than 1:00 p.m., Toronto time, three Canadian Business
Days before the date of the proposed Borrowing, (b) in the case of a
Canadian ABR Borrowing or a Canadian Prime Rate Borrowing, not later than 1:00 p.m.,
Toronto time, on the date of the proposed Borrowing. Each such telephonic
Borrowing Request shall be irrevocable and shall be confirmed promptly by hand
delivery or facsimile to the US Administrative Agent and the Canadian
Administrative Agent of a written Borrowing Request in a form approved by the
Canadian Administrative Agent and signed by the Canadian Borrower. Each such
telephonic and written Borrowing Request shall specify the following
information in compliance with Section 2.01:

(i)            whether such Canadian Revolving Loan
is to be a US$ Canadian Revolving Loan or a C$ Canadian Revolving Loan;

 

 34
 

 

 

(ii)           the aggregate amount of the requested
Borrowing (in US Dollars or CDN Dollars, as applicable) and a breakdown of the
separate wires comprising such Borrowing;

(iii)          the date of such Borrowing, which
shall be a Canadian Business Day;

(iv)          whether such Borrowing is to be a
Canadian ABR Borrowing, a Canadian Prime Rate Borrowing or a Eurodollar
Borrowing; and

(v)           in the case of a Eurodollar
Borrowing, the initial Interest Period to be applicable thereto, which shall be
a period contemplated by the definition of the term “Interest Period.”

If
no election as to the Type of Revolving Borrowing is specified, then the
requested Revolving Borrowing shall be (i) if such Borrowing consists of
US$ Canadian Revolving Loans, a Canadian ABR Borrowing or (ii) if such
Borrowing consists of C$ Canadian Revolving Loans, a Canadian Prime Rate
Borrowing. If no Interest Period is specified with respect to any requested
Eurodollar Revolving Borrowing, then the Canadian Borrower shall be deemed to
have selected an Interest Period of one month’s duration. Promptly following
receipt of a Borrowing Request in accordance with this Section, the Canadian
Administrative Agent shall advise each Canadian Lender of the details thereof
and of the amount of such Canadian Lender’s Loan to be made as part of the
requested Borrowing.

SECTION 2.04       Acceptances.   (a)  Acceptance
Commitment.   Subject to the terms and conditions hereof, each Canadian
Lender severally agrees that the Canadian Borrower may issue Acceptances
denominated in Canadian Dollars, in minimum denominations of C$100,000 or a
whole multiple thereof and in minimum aggregate amounts of C$2,000,000 or any
greater whole multiple of C$100,000, each in accordance with the provisions of
this Section 2.04 from time to time until the Maturity Date with respect
to such Canadian Lender; provided, that (A)  the US Dollar
equivalent of the aggregate Canadian Credit Exposure shall not exceed the
aggregate Canadian Commitments at such time and (B) the aggregate Credit
Exposure shall not exceed the sum of the aggregate US Commitments and the
aggregate Canadian Commitments at such time; provided, further,
that at all times the outstanding aggregate face amount of all Acceptances
accepted by a Canadian Lender shall, subject to subparagrah (c)(ii) below,
equal its Applicable Canadian Percentage of the outstanding face amount of all
Acceptances made by all Canadian Lenders. For purposes of this Agreement, the
full face value of an Acceptance, without discount, shall be used when
calculations are made to determine the outstanding amount of a Canadian Lender’s
Acceptances; provided that in computing the face amount of Acceptances
outstanding, the face amount of an Acceptance in respect of which the
Acceptance Obligation has been prepaid by the Canadian Borrower and received by
the Canadian Lender that created the same in accordance with the terms of this
Agreement shall not be included.

(b)           Terms of Acceptance.   Each
Draft shall be accepted by a Canadian Lender, upon the written request of the
Canadian Borrower given in accordance with paragraph (c) below, by the
completion and acceptance by such Canadian Lender of a Draft (i) payable
in Canadian Dollars, drawn by the Canadian Borrower on the Canadian Lender in
accordance with this Agreement, to the order of the Canadian Lender and (ii) maturing
prior to the Maturity Date with respect to such Canadian Lender on a Canadian
Business Day not less than 28 days nor more than 180 days after the date of
such Draft (and in integral maturities of 30, 60, 90 or 180 days, or, from time
to time, such other nonstandard periods as the Canadian Borrower and the
affected Canadian Lender(s) may agree), excluding days of grace, all as
specified in the relevant Canadian Notice of Drawing to be delivered under
paragraph (c) of this Section 2.04.

 

 35
 

 

 

(c)           Notice of Drawing and Discount of
Acceptances.

(i)            With
respect to each requested acceptance of Drafts, the Canadian Borrower shall give
the Canadian Administrative Agent a Canadian Notice of Drawing (which shall be
irrevocable and may be by telephone confirmed in writing within one Canadian
Business Day) to be received prior to 1:00 p.m., Toronto time, at least
two Canadian Business Days prior to the date of the requested acceptance,
specifying:

(A)                              the date on which such
Drafts are to be accepted;

(B)                                the aggregate face
amount of such Drafts;

(C)                                the maturity date of
such Acceptances; and

(D)                               such additional
information as the Canadian Administrative Agent or any Canadian Lenders may
reasonably from time to time request to be included in such notices.

(ii)           Upon
receipt of a Canadian Notice of Drawing the Canadian Administrative Agent shall
promptly notify each Canadian Lender of the contents thereof and of such
Canadian Lender’s ratable share of the Acceptances requested thereunder. The
aggregate face amount of the Drafts to be accepted by a Canadian Lender shall
be determined by the Canadian Administrative Agent by reference to the respective
Canadian Commitments of the Canadian Lenders; provided that, if the face
amount of an Acceptance which would otherwise be accepted by a Canadian Lender
is not C$100,000, or a whole multiple thereof, the face amount shall be
increased or reduced by the Canadian Administrative Agent, in its sole
discretion, to C$100,000, or the nearest integral multiple thereof, as
appropriate. Further, the Canadian Administrative Agent is authorized by the
Borrowers and the Lenders to cause the proportionate share of one or more
Lender’s Canadian Commitment to be exceeded by no more than C$100,000 each as a
result of such allocations; provided that the principal amount of
outstanding Credit Exposure shall not thereby exceed the principal maximum
amount of such Lender’s Commitments. Any resulting amount by which the
requested face amount of such Acceptances shall have been so reduced shall be
advanced, converted or continued as a Canadian Prime Rate Loan.

(iii)          On each date upon which Acceptances
are to be accepted, the Canadian Administrative Agent shall advise the Canadian
Borrower of the Discount Rate. Not later than 1:00 p.m., Toronto time, on
such date each Canadian Lender shall, and subject to each Non-Acceptance
Canadian Lender’s making Acceptance Equivalent Loans pursuant to paragraph (i) of
this Section 2.04, (A) on the basis of the information supplied by
the Canadian Administrative Agent, as aforesaid, complete a Draft or Drafts of
the Canadian Borrower by filling in the amount, date and maturity date thereof
in accordance with the applicable Canadian Notice of Drawing, (B) duly
accept such Draft or Drafts, (C) discount such Acceptance or Acceptances, (D) give
the Canadian Administrative Agent telegraphic or telex notice of such Canadian
Lender’s acceptance of such Draft or Drafts and confirming the discount rate at
which it discounted the Acceptance or Acceptances and the amount paid to the
Canadian Administrative Agent for the account of the Canadian Borrower and (E) remit
to the Canadian Administrative Agent in Canadian Dollars in immediately
available funds an amount equal to the proceeds of such Acceptances discounted
on the basis of the Discount Rate less the Acceptance Fee.

 

 36
 

 

 

Upon receipt by the Canadian Administrative
Agent of such sums from the Canadian Lenders, the Canadian Administrative Agent
shall make the aggregate amount thereof available to the Canadian Borrower.

(iv)          Each extension of credit hereunder
through the acceptance of Drafts shall be made simultaneously and, subject to
subparagraph (ii) above, pro rata by the Canadian Lenders in accordance
with their respective Canadian Commitments.

(d)           Sale of
Acceptances.   The Canadian Borrower shall have the right to sell any
Acceptance; provided that if so specified in the Canadian Notice of
Drawing the Canadian Lenders shall purchase or arrange for the purchase of all
of the Acceptances in the market and each Canadian Lender shall provide to the
Canadian Administrative Agent the discount proceeds for the account of the
Canadian Borrower. The Acceptance Fee in respect of such Acceptances may, at
the option of the Canadian Lender, be set off against the discount proceeds payable
by such Canadian Lender hereunder,

(e)           Acceptance
Obligation.   The Canadian Borrower is obligated, and hereby
unconditionally agrees, to pay to each Canadian Lender the face amount of each
Acceptance created by such Lender in accordance with a Canadian Notice of
Drawing pursuant to paragraph (c) on the maturity date thereof, or on such
earlier date as may be required pursuant to provisions of this Agreement. With
respect to each Acceptance which is outstanding hereunder, the Canadian
Borrower shall notify the Canadian Administrative Agent prior to 1:00 p.m.,
Toronto time, two Canadian Business Days prior to the maturity date of such
Acceptance (which notice shall be irrevocable) of the Canadian Borrower’s
intention to issue Acceptances on such maturity date to provide for the payment
of such maturing Acceptance and shall deliver a Canadian Notice of Drawing to
the Canadian Administrative Agent or that the Canadian Borrower intends to
repay the maturing Acceptances on the maturity date. Any repayment of an
Acceptance must be made at or before 3:00 p.m. (Toronto time) on the
maturity date of such Acceptance. If the Canadian Borrower fails to provide
such notice to the Canadian Administrative Agent or fails to repay the maturing
Acceptances, or if a Default or an Event of Default has occurred and is
continuing on such maturity date, the Canadian Borrower’s obligations in
respect of the maturing Acceptances shall be deemed to have been converted on
the maturity date thereof into a Canadian Prime Rate Loan in an amount equal to
the face amount of the maturing Acceptances. The Canadian Borrower waives
presentment for payment and any other defense to payment of any amounts due to
a Canadian Lender in respect of any Acceptances accepted or purchased by such
Canadian Lender under this Agreement which might exist solely by reason of
those Acceptances being held, at the maturity thereof, by that Canadian Lender
in its own right and the Canadian Borrower agrees not to claim any days of
grace if that Canadian Lender, as holder, sues the Canadian Borrower on those
Acceptances for payment of the amounts payable by the Canadian Borrower
thereunder.

(f)            Supply of Drafts
and Power of Attorney.   To enable the Canadian Lenders to accept
Drafts in the manner specified in this Section 2.04, the Canadian Borrower
shall supply each Lender with such number of blank forms of Drafts and Discount
Notes as such Lenders may reasonably request, duly endorsed in the case of
Drafts and executed in the case of Discount Notes on behalf of the Canadian
Borrower. In addition, the Canadian Borrower hereby appoints each Canadian
Lender as its attorney to sign and endorse on its behalf, in handwriting or by
facsimile or mechanical signature as and when deemed necessary by such Canadian
Lender, blank forms of Acceptances. In this respect, it is each Canadian Lender’s
responsibility to maintain an adequate supply of blank forms of Acceptances for
acceptance under this Agreement. The Canadian Borrower recognizes and agrees
that all Acceptances signed and/or endorsed on its behalf by a Canadian Lender
shall bind the Canadian Borrower as fully and effectually as if signed in the
handwriting of and duly issued by the proper signing officers of the Canadian
Borrower; provided, that such acts in each case are to be undertaken in
accordance with such Canadian Lender’s obligations under this Agreement. Each
Canadian Lender is hereby authorized to

 

 37
 

 

 

issue such
Acceptances endorsed in blank in such face amounts as may be determined by such
Canadian Lender; provided that the aggregate amount thereof is equal to
the aggregate amount of Acceptances required to be accepted by such Canadian
Lender. Drafts drawn by the Canadian Borrower to be accepted as Acceptances
shall be signed by a duly authorized officer or officers of the Canadian
Borrower or by its attorney-in-fact including any attorney-in-fact
appointed pursuant to this Section 2.04(f). The Canadian Borrower hereby
authorizes and requests each Canadian Lender in accordance with each Canadian
Notice of Drawing received from the Canadian Borrower pursuant to paragraph (c) to
take the measures with respect to a Draft or Drafts of the Canadian Borrower
then in possession of such Lender specified in paragraph (c)(iii) of this
Section. A Draft or Discount Note manually signed by any duly authorized
officer of the Canadian Borrower or the signature of any duly authorized
officer on a Draft or Discount Note may be mechanically reproduced in facsimile
and such Draft or Discount Note bearing such facsimile signature shall be
binding on the Canadian Borrower as if it had been manually signed. In case any
authorized signatory of the Canadian Borrower whose signature shall appear on
any Draft shall cease to have such authority before the acceptance of a Draft
with respect to such Draft, the obligations of the Canadian Borrower hereunder
and under such Acceptance shall nevertheless be valid for all purposes as if
such authority had remained in force until such creation. The Canadian
Administrative Agent and each Canadian Lender shall be fully protected in
relying upon any instructions received from the Canadian Borrower (orally or
otherwise) without any duty to make inquiry as to the genuineness of such
instructions. The Canadian Administrative Agent and each Canadian Lender shall
be entitled to rely on instructions received from any person identifying
himself (orally or otherwise) as a duly authorized officer of the Canadian
Borrower and shall not be liable for any errors, omissions, delays or
interruptions in the transmission of such instructions.

(g)           Exculpation.   No
Canadian Lender shall be responsible or liable for its failure to accept a
Draft or a Discount Note if the cause of such failure is, in whole or in part,
due to the failure of the Canadian Borrower to provide the Drafts or Discount
Notes or the power of attorney described in paragraph (f) above to such
Canadian Lender on a timely basis nor shall any Canadian Lender be liable for
any damage, loss or other claim arising by reason of any loss or improper use
of any such Draft except loss or improper use arising by reason of the gross
negligence or willful misconduct of such Canadian Lender.

(h)           Rights of
Canadian Lender as to Acceptances.   Neither the Canadian
Administrative Agent nor any Canadian Lender shall have any responsibility as
to the application of the proceeds by the Canadian Borrower of any discount of
any Acceptances. For greater certainty, each Canadian Lender may, at any time,
purchase Acceptances issued by the Canadian Borrower and may at any time and
from time to time hold for its own account, sell, rediscount or otherwise
dispose of any or all Acceptances accepted and/or purchased by it.

(i)            Acceptance
Equivalent Loans.   Whenever the Canadian Borrower delivers a Canadian
Notice of Drawing to the Canadian Administrative Agent under this Agreement
requesting the Canadian Lenders to accept Drafts, a Canadian Lender which
cannot accept Drafts (a “Non-Acceptance Canadian Lender”) shall, in lieu
of accepting Drafts, make an Acceptance Equivalent Loan. On each date on which
Drafts are to be accepted, subject to the same terms and conditions applicable
to the acceptance of Drafts, any Non-Acceptance Canadian Lender that makes an
Acceptance Equivalent Loan, upon delivery by the Canadian Borrower of an
executed Discount Note payable to the order of such Non-Acceptance Canadian
Lender, will remit to the Canadian Administrative Agent in immediately
available funds for the account of the Canadian Borrower the Acceptance
equivalent discount proceeds based on the Discount Rate in respect of the
Discount Notes issued by the Canadian Borrower to the Non-Acceptance Canadian
Lender. Each Non-Acceptance Canadian Lender may agree, in lieu of receiving any
Discount Notes, that such Discount Notes may be uncertificated and the
applicable Acceptance Equivalent Loan shall be evidenced by a loan account which
such Non-Acceptance Canadian Lender shall

 

 38
 

 

 

maintain in
its name, and reference to such uncertificated Discount Notes elsewhere in this
Agreement shall be deemed to include reference to the relevant Acceptance
Equivalent Loan or loan account, as applicable.

(j)            Terms Applicable
to Discount Notes.   The term “Acceptance” when used in this Agreement
shall be construed to include Discount Notes and all terms of this Agreement
applicable to Acceptances shall apply equally to Discount Notes evidencing
Acceptance Equivalent Loans with such changes as may in the context be
necessary (except that no Discount Note may be sold, rediscounted or otherwise
disposed of by the Non-Acceptance Canadian Lender making Acceptance Equivalent
Loans). For greater certainty:

(i)            a Discount Note shall mature and be
due and payable on the same date as the maturity date for Acceptances specified
in the applicable Canadian Notice of Drawing;

(ii)           an Acceptance Fee will be payable in
respect of a Discount Note and shall be calculated at the same rate and in the
same manner as the Acceptance Fee in respect of an Acceptance;

(iii)          a discount applicable to a Discount
Note shall be calculated in the same manner and at the Discount Rate that would
be applicable to Acceptances accepted by a Schedule II or III Lender pursuant
to the applicable Canadian Notice of Drawing;

(iv)          an Acceptance Equivalent Loan made by
a Non-Acceptance Canadian Lender will be considered to be part of a
Non-Acceptance Canadian Lender’s outstanding Acceptances for all purposes of
this Agreement; and

(v)           the Canadian Borrower shall deliver
Discount Notes to each Non-Acceptance Canadian Lender and grants to each
Non-Acceptance Canadian Lender a power of attorney in respect of the completion
and execution of Discount Notes, each in accordance with Section 2.04(f).

(k)           Prepayment of
Acceptances and Discount Notes.   No Acceptance or Discount Note may be
repaid or prepaid prior to the maturity date of such Acceptance or Discount
Note, except in accordance with the provisions of Article VII.

(l)            Depository Bills
and Notes Act.   At the option of the Canadian Borrower and any
Canadian Lender, Acceptances and Discount Notes under this Agreement to be
accepted by such Lender may be issued in the form of depository bills and
depository notes, respectively, for deposit with The Canadian Depository for
Securities Limited pursuant to the Depository Bills and Notes
Act (Canada). All depository bills and depository notes so issued
shall be governed by the Depository Bills and Notes
Act (Canada) and the provisions of this Section 2.04.

(m)          Acceptance Fee.   The
Canadian Borrower agrees to pay to each Canadian Lender a fee (the “Acceptance
Fee”) in advance and in Canadian Dollars, at a rate per annum equal to the
Applicable Rate, on the date of acceptance of each Acceptance. All Acceptance
Fees shall be calculated on the face amount of the Acceptance issued and
computed on the basis of the actual number of days in the term thereof and a
year of 365 days. The Acceptance Fee shall be in addition to any other fees
payable to each Canadian Lender in connection with the issuance or discounting
of such Acceptance. The discount rate for Acceptance Fees shall be calculated
under terms customary to the practice of the Canadian Lenders and shall be
based upon a year of 365 days and the term of such Acceptance.

 

 39

 

 

(n)           Discount Rate
Cannot Be Established; Market for Bankers’ Acceptances No Longer Exists.   If
the Canadian Administrative Agent determines in good faith, which determination
shall be final, conclusive and binding upon the Canadian Borrower, and notifies
the Canadian Borrower that, by reason of circumstances or changes affecting the
market for bankers’ acceptances in Canada it is no longer possible to establish
the Discount Rate or that the market for bankers’ acceptances  in Canada no longer exists, is too weak for
its normal use by the Lenders or is not capable, in the normal course of
business, to absorb the Acceptances proposed to be accepted by the Lenders on
any date pursuant to this Agreement, then, (i) the right of the Canadian
Borrower to request an Acceptance Loan or an Acceptance Equivalent Loan shall
be suspended until the Canadian Administrative Agent determines that such
circumstances no longer exist and the Canadian Administrative Agent so notifies
the Canadian Borrower; and (ii) any Canadian Notice of Drawing for any
Acceptance or Discount Note which is outstanding shall be deemed to constitute
a request for a Loan by way of a Canadian Prime Rate Loan.

(o)           Notification of
Suspension of the Canadian Borrower’s right to request Acceptances or Discount
Notes.   The Canadian Administrative Agent shall promptly notify the
Canadian Borrower of the suspension of the Canadian Borrower’s right to request
Acceptances or Discount Note Loans and of the termination of any such
suspension.

(p)           Default or Event of
Default.   If an Event of Default shall occur and be continuing, on the
Canadian Business Day that the Canadian Borrower receives notice from the
Canadian Administrative Agent or the Required Canadian Lenders demanding the
deposit of cash collateral pursuant to this paragraph, notwithstanding the date
of maturity of any outstanding Acceptances, the Canadian Borrower shall deposit
in an account with the Canadian Administrative Agent, in the name of the
Canadian Administrative Agent and for the benefit of the Canadian Lenders (the “Acceptance
Collateral Account”), an amount in cash equal to 105% of the aggregate face
amount of such Acceptances; provided that the obligation to deposit such
cash collateral shall become effective immediately, and such deposit shall
become immediately due and payable, without demand or other notice of any kind,
upon the occurrence of any Event of Default with respect to the Canadian
Borrower described in clause (h) or (i) of Article VII. Such
deposit shall be held by the Canadian Administrative Agent as collateral for
the payment and performance of the Secured Obligations. The Canadian
Administrative Agent shall have exclusive dominion and control, including the
exclusive right of withdrawal, over such account and the Canadian Borrower
hereby grants the Canadian Administrative Agent a security interest in the
Acceptance Collateral Account. Other than any interest earned on the investment
of such deposits, which investments shall be made at the option and sole
discretion of the Canadian Administrative Agent and at the Canadian Borrower’s
risk and expense, such deposits shall not bear interest. Interest or profits,
if any, on such investments shall accumulate in such account. Such funds shall
be retained by the Canadian Administrative Agent in the Acceptance Collateral
Account until such time as the applicable Acceptances shall have matured and
the related liabilities shall have been fully satisfied. If the Canadian
Borrower is required to provide an amount of cash collateral hereunder as a
result of the occurrence of an Event of Default, such amount (to the extent not
applied as aforesaid) shall be returned to the Canadian Borrower within three
Canadian Business Days after all such Defaults have been cured or waived.

SECTION 2.05       Protective
Advances and Overadvances; Settlement.   (a)         Subject to the limitations set forth below, the US
Administrative Agent is authorized by the US Borrower and the US Lenders, from
time to time in the US Administrative Agent’s sole discretion (but shall have absolutely
no obligation to), to make Loans to the US Borrower, on behalf of all US
Lenders, which the US Administrative Agent, in its Permitted Discretion, deems
necessary or desirable (i) to preserve or protect the Collateral, or any
portion thereof, (ii) to enhance the likelihood of, or maximize the amount
of, repayment of the Loans and other Obligations, or (iii) to pay any
other amount chargeable to or required to be paid by the US Borrower pursuant
to the terms of this Agreement, including payments of

 

 40
 

 

 

reimbursable expenses (including costs, fees, and expenses as described
in Section 9.03) and other sums payable under the Loan Documents (any of
such Loans are herein referred to as “US Protective Advances”); provided that, the aggregate amount of US Protective Advances
outstanding at any time shall not at any time exceed US$1,750,000; provided,
further, that, after giving effect thereto, the aggregate US Credit
Exposure shall not exceed the aggregate US Commitments. US Protective Advances
may be made even if the conditions precedent set forth in Section 4.02
have not been satisfied. The US Protective Advances shall be secured by the
Liens in favor of the Administrative Agents in and to the Collateral and shall
constitute Obligations hereunder. All US Protective Advances shall be ABR
Borrowings. The US Administrative Agent’s authorization to make US Protective
Advances may be revoked at any time by the Required US Lenders. Any such
revocation must be in writing and shall become effective prospectively upon the
US Administrative Agent’s receipt thereof. At any time that there is sufficient
Availability and the conditions precedent set forth in Section 4.02 have
been satisfied, the US Administrative Agent may request the US Lenders to make
a US Revolving Loan to repay a US Protective Advance. At any other time the US
Administrative Agent may require the US Lenders to fund their risk
participations described in Section 2.05(e).

(b)           Subject to the
limitations set forth below, the Canadian Administrative Agent is authorized by
the Canadian Borrower and the Canadian Lenders, from time to time in the
Canadian Administrative Agent’s sole discretion (but shall have absolutely no
obligation to), to make Canadian Revolving Loans denominated in Canadian
Dollars to the Canadian Borrower, on behalf of all Canadian Lenders, which the
Canadian Administrative Agent, in its Permitted Discretion, deems necessary or
desirable (i) to preserve or protect the Collateral, or any portion
thereof, (ii) to enhance the likelihood of, or maximize the amount of,
repayment of the Loans and other Obligations, or (iii) to pay any other
amount chargeable to or required to be paid by the Canadian Borrower pursuant
to the terms of this Agreement, including payments of reimbursable expenses
(including costs, fees, and expenses as described in Section 9.03) and
other sums payable under the Loan Documents (any of such Loans are herein
referred to as “Canadian Protective Advances”); provided that, the aggregate amount of Canadian Protective Advances outstanding
at the time any such Protective Advance is made shall not exceed US$1,750,000
(or the equivalent thereof); provided, further, that, after
giving effect thereto, the aggregate Canadian Credit Exposure shall not exceed
the aggregate Canadian Commitments. Canadian Protective Advances may be made
even if the conditions precedent set forth in Section 4.02 have not been
satisfied.  Canadian Protective Advances
shall be secured by the Liens in favor of the Administrative Agents in and to
the Collateral and shall constitute Obligations hereunder. All Canadian
Protective Advances shall be Canadian Prime Rate Borrowings. The Canadian
Administrative Agent’s authorization to make Canadian Protective Advances may
be revoked at any time by the Required Canadian Lenders. Any such revocation
must be in writing and shall become effective prospectively upon the Canadian
Administrative Agent’s receipt thereof. At any time that there is sufficient
Availability and the conditions precedent set forth in Section 4.02 have
been satisfied, the Canadian Administrative Agent may request the Canadian
Lenders to make a Canadian Revolving Loan to repay a Canadian Protective
Advance. At any other time the Canadian Administrative Agent may require the
Canadian Lenders to fund their risk participations described in Section 2.05(e).

(c)           Any provision of
this Agreement to the contrary notwithstanding, at the request of the US
Borrower, the US Administrative Agent may in its sole discretion (but shall
have absolutely no obligation to), make US Revolving Loans to the US Borrower,
on behalf of the US Lenders, in amounts that exceeds Availability (any such
excess Advances are herein referred to collectively as “US Overadvances”);
provided, that, (i) no such event or
occurrence shall cause or constitute a waiver of the US Administrative Agent’s
or the Lenders’ right to refuse to make any further US Overadvances or other
Loans or issue Letters of Credit, as the case may be, at any time that an US
Overadvance exists, and (ii) no US Overadvance shall result in a Default
or an Event of Default for so long as the US Administrative Agent permits such
US Overadvance to remain outstanding, but solely with respect to the

 

 41
 

 

 

amount of such
US Overadvance. In addition, US Overadvances may be made even if a Default or
an Event of Default exists, but may not be made if the conditions precedent set
forth in Section 4.02 have not been satisfied (other than the conditions
set forth in Section 4.02(b) and 4.02(c) (solely to the extent
such lack of Availability is caused by Borrowing Base noncompliance)). All US
Overadvances shall be secured by the Liens in favor of the Administrative
Agents in and to the Collateral and shall constitute Obligations hereunder. All
US Overadvances shall be ABR Loans, shall bear interest at the rate set forth
in Section 2.14(d)) and shall be payable on the earlier of demand or the
Maturity Date. The authority of the US Administrative Agent to make US
Overadvances is limited to: (x) an aggregate amount not to exceed
US$1,750,000 at any time, (y) US
Overadvances (whether borrowed on the same date or on different dates) may not
be outstanding hereunder for a period of more than thirty days and (z) no
US Overadvance shall cause any Lender’s US Credit Exposure to exceed its US
Commitment or the aggregate US Credit Exposure of all US Lenders to exceed the
aggregate US Commitments of all US Lenders; provided that,
the Required US Lenders may at any time revoke the US Administrative Agent’s
authorization to make US Overadvances. Any such revocation must be in writing
and shall become effective prospectively upon the US Administrative Agent’s
receipt thereof.

(d)           Any provision of
this Agreement to the contrary notwithstanding, at the request of the Canadian
Borrower, the Canadian Administrative Agent may in its sole discretion (but
shall have absolutely no obligation to), make Canadian Revolving Loans
denominated in Canadian Dollars to the Canadian Borrower, on behalf of the
Canadian Lenders, in amounts that exceeds Availability (any such excess
Advances are herein referred to collectively as “Canadian Overadvances”);
provided, that, (i) no such event or
occurrence shall cause or constitute a waiver of the Canadian Administrative
Agent’s or the Canadian Lenders’ right to refuse to make any further Canadian
Overadvances or other Loans or issue Acceptances, as the case may be, at any
time that an Canadian Overadvance exists, and (ii) no Canadian Overadvance
shall result in a Default or an Event of Default for so long as the Canadian
Administrative Agent permits such Canadian Overadvance to remain outstanding,
but solely with respect to the amount of such Canadian Overadvance. In
addition, Canadian Overadvances may be made even if a Default or an Event of
Default exists, but may not be made if the conditions precedent set forth in Section 4.02
have not been satisfied (other than the conditions set forth in Section 4.02(b) and
4.02(c) (solely to the extent such lack of Availability is caused by
Borrowing Base noncompliance)). All Canadian Overadvances shall be secured by
the Liens in favor of the Administrative Agents in and to the Collateral and
shall constitute Obligations hereunder. All Canadian Overadvances shall be
Canadian Prime Rate Loans, shall bear interest at the rate set forth in Section 2.14(d) and
shall be payable on the earlier of demand or the Maturity Date. The authority
of the Canadian Administrative Agent to make Canadian Overadvances is limited
to: (x) an aggregate amount not to exceed US$1,750,000 (or the equivalent
thereof) at the time any such Canadian Overadvances is made, (y) Canadian Overadvances (whether
borrowed on the same date or on different dates) may not be outstanding
hereunder for a period of more than thirty days and (z) no Canadian
Overadvance shall cause any Lender’s Canadian Credit Exposure to exceed its
Canadian Commitment or the aggregate Canadian Credit Exposure of all Canadian
Lenders to exceed the aggregate Canadian Commitments of all Lenders; provided that, the Required Canadian Lenders may at any time revoke the
Canadian Administrative Agent’s authorization to make Canadian Overadvances. Any
such revocation must be in writing and shall become effective prospectively
upon the Canadian Administrative Agent’s receipt thereof.

(e)           Upon the making of a
Protective Advance or an Overadvance by the US Administrative Agent or the
Canadian Administrative Agent, as the case may be (whether before or after the
occurrence of a Default or an Event of Default and regardless of whether the
applicable Administrative Agent has requested a Settlement with respect to such
Protective Advance or Overadvance), such Administrative Agent shall be deemed,
without further action by any party

 

 42
 

 

 

hereto, to
have unconditionally and irrevocably sold to each US Lender or Canadian Lender,
as applicable, and each US Lender or Canadian Lender, as applicable, shall be
deemed, without further action by any party hereto, to have unconditionally and
irrevocably purchased from the applicable Administrative Agent, without
recourse or warranty, an undivided interest and participation in such
Protective Advance or Overadvance in proportion to its Applicable US Percentage
or Applicable Canadian Percentage, as the case may be. From and after the date,
if any, on which any Lender is required to fund its participation in any
Protective Advance or Overadvance purchased hereunder, the US Administrative
Agent or the Canadian Administrative Agent, as the case may be, shall promptly
distribute to such US Lender or such Canadian Lender, as the case may be, such
Lender’s Applicable US Percentage or Applicable Canadian Percentage, as the
case may be, of all payments of principal and interest and all proceeds of
Collateral received by the applicable Administrative Agent in respect of such
Protective Advance or Overadvance; provided that, any such payment so
distributed shall be repaid to the US Administrative Agent or the Canadian
Administrative Agent, as the case may be, if and to the extent such payment is
required to be refunded for any reason.

(f)            Each US Lender’s or
Canadian Lender’s, as the case may be, funded portion of the US Revolving Loans
or Canadian Revolving Loans, as the case may be, is intended by the relevant
Lenders to be equal at all times to such Lender’s Applicable US Percentage or
Applicable Canadian Percentage, as the case may be, of the outstanding US
Revolving Loans or Canadian Revolving Loans, as the case may be. Notwithstanding
such agreement, the Administrative Agents and the Lenders agree (which
agreement shall not be for the benefit of or enforceable by the Loan Parties)
that in order to facilitate the administration of this Agreement and the other
Loan Documents, settlement among them as to the US Revolving Loans and the
Canadian Revolving Loans, as applicable, including the applicable Protective Advances
and the applicable Overadvances, shall take place on a periodic basis as
follows. The US Administrative Agent and the Canadian Administrative Agent
shall request settlement (a “Settlement”) with the US Lenders or the
Canadian Lenders, as applicable, on at least a weekly basis, or on a more
frequent basis at either Administrative Agent’s election, by notifying the US
Lenders or Canadian Lenders, as applicable, of such requested Settlement by
telecopy, telephone, or e-mail no later than 1:00 p.m., New York City
time, on the date of such requested Settlement (the “Settlement Date”). Each
US Lender (other than the US Administrative Agent, in the case of the US
Protective Advances and US Overadvances) shall transfer the amount of such
Lender’s Applicable US Percentage of the outstanding principal amount of the
applicable Loan with respect to which Settlement is requested to the US
Administrative Agent, to such account of the US Administrative Agent as the US
Administrative Agent may designate, not later than 3:00 p.m., New York
City time, on the Settlement Date applicable thereto. Each Canadian Lender
(other than the Canadian Administrative Agent, in the case of the Canadian
Protective Advances and Canadian Overadvances) shall transfer the amount of
such Lender’s Applicable Canadian Percentage of the outstanding principal
amount of the applicable Loan with respect to which Settlement is requested to
the Canadian Administrative Agent, to such account of the Canadian
Administrative Agent as the Canadian Administrative Agent may designate, not
later than 3:00 p.m., New York City time, on the Settlement Date
applicable thereto. Settlements may occur during the existence of a Default or
an Event of Default and whether or not the applicable conditions precedent set
forth in Section 4.02 have then been satisfied. Any such amounts
transferred to the US Administrative Agent shall be applied against the amounts
of the applicable Loan and, together with the US Administrative Agent’s
Applicable US Percentage of such US Protective Advance or US Overadvance, shall
constitute US Revolving Loans of such US Lenders, respectively. Any such
amounts transferred to the Canadian Administrative Agent shall be applied
against the amounts of the applicable Loan and, together with the Canadian
Administrative Agent’s Applicable Canadian Percentage of such Canadian
Protective Advance or Canadian Overadvance, shall constitute Canadian Revolving
Loans of such Canadian Lenders, respectively. If any such amount is not
transferred to the applicable Administrative Agent by any relevant Lender on
the Settlement Date applicable thereto, such Administrative Agent shall be
entitled to recover such amount on demand from such Lender together with
interest thereon at a rate equal to the greater of the daily average Federal
Funds Effective Rate and a rate determined by such Administrative Agent in
accordance with banking industry rules on interbank compensation for the
period until such Lender makes

 

 43
 

 

 

such amount
immediately available to such Administrative Agent. If such amount is not made
available to such Administrative Agent by such Lender within three US Business
Days of such due date, such Administrative Agent shall also be entitled to
recover such amount with interest thereon at the rate per annum applicable to
ABR Loans (with respect to amounts owed to the US Administrative Agent (to the
extent denominated in US Dollars) or the Canadian Administrative Agent) or
Canadian Prime Rate Loans (with respect to amounts denominated in Canadian
Dollars owed to the Canadian Administrative Agent), on demand.

SECTION 2.06       Swingline
Loans.   (a)         Subject to
the terms and conditions set forth herein, to the extent that there is more
than one Lender (not including any Affiliate of any such Lender) at any time,
the Swingline Lender agrees to make Swingline Loans to the US Borrower from
time to time during the Availability Period, in an aggregate principal amount
at any time outstanding that will not result in (i) the aggregate
principal amount of outstanding Swingline Loans exceeding US$7,500,000, (ii) the
aggregate US Credit Exposures exceeding the aggregate US Commitments or (iii) the
aggregate Credit Exposures exceeding the lesser of the aggregate Commitments
and the Borrowing Base; provided that the Swingline Lender shall not be
required to make a Swingline Loan to refinance an outstanding Swingline Loan. Within
the foregoing limits and subject to the terms and conditions set forth herein,
the US Borrower may borrow, prepay and reborrow Swingline Loans. To request a
Swingline Loan, the US Borrower shall notify the US Administrative Agent of
such request by telephone (confirmed by facsimile), not later than 1:00 p.m.,
New York City time, on the day of a proposed Swingline Loan. Each such notice
shall be irrevocable and shall specify the requested date (which shall be a
Business Day) and amount of the requested Swingline Loan. The US Administrative
Agent will promptly advise the Swingline Lender of any such notice received
from the US Borrower. The Swingline Lender shall make each Swingline Loan
available to the US Borrower by means of a credit to the US Borrower Funding
Account (or, in the case of a Swingline Loan made to finance the reimbursement
of an LC Disbursement as provided in Section 2.07(e), by remittance to the
Issuing Bank, and in the case of repayment of another Loan or fees or expenses as
provided by Section 2.19(c), by remittance to the US Administrative Agent
to be distributed to the US Lenders) by 3:00 p.m., New York City time, on
the requested date of such Swingline Loan. In addition, the US Borrower hereby
authorizes the Swingline Lender to, and the Swingline Lender shall, subject to
the terms and conditions set forth herein (but without any further written
notice required), not later than 1:00 p.m., New York City time, on each
Business Day, make available to the US Borrower by means of a credit to the US
Borrower Funding Account, the proceeds of a Swingline Loan to the extent
necessary to pay items to be drawn on any Controlled Disbursement Account that
day (as determined based on notice from the US Administrative Agent).

(b)           The Swingline Lender
may by written notice given to the US Administrative Agent not later than 9:00 a.m.,
New York City time, on any Business Day require the US Lenders to acquire
participations on such Business Day in all or a portion of the Swingline Loans
outstanding. Such notice shall specify the aggregate amount of Swingline Loans
in which US Lenders will participate. Promptly upon receipt of such notice, the
US Administrative Agent will give notice thereof to each US Lender, specifying
in such notice such US Lender’s Applicable US Percentage of such Swingline Loan
or Loans. Each US Lender hereby absolutely and unconditionally agrees, upon
receipt of notice as provided above, to pay to the US Administrative Agent, for
the account of the Swingline Lender, such US Lender’s Applicable US Percentage
of such Swingline Loan or Loans. Each US Lender acknowledges and agrees that
its obligation to acquire participations in Swingline Loans pursuant to this
paragraph is absolute and unconditional and shall not be affected by any
circumstance whatsoever, including the occurrence and continuance of a Default
or reduction or termination of the US Commitments, and that each such payment
shall be made without any offset, abatement, withholding or reduction
whatsoever. Each US Lender shall comply with its obligation under this
paragraph by wire transfer of immediately available funds, in the same manner
as provided in Section 2.08 with respect to Loans made by such US Lender
(and Section 2.08 shall apply, mutatis  mutandis, to the
payment obligations of the US Lenders), and the US

 

 44
 

 

 

Administrative
Agent shall promptly pay to the Swingline Lender the amounts so received by it
from the US Lenders. The US Administrative Agent shall notify the US Borrower
of any participations in any Swingline Loan acquired pursuant to this
paragraph, and thereafter payments in respect of such Swingline Loan shall be
made to the US Administrative Agent and not to the Swingline Lender. Any
amounts received by the Swingline Lender from the US Borrower (or other party
on behalf of the US Borrower) in respect of a Swingline Loan after receipt by
the Swingline Lender of the proceeds of a sale of participations therein shall
be promptly remitted to the US Administrative Agent; any such amounts received
by the US Administrative Agent shall be promptly remitted by the US
Administrative Agent to the US Lenders that shall have made their payments
pursuant to this paragraph and to the Swingline Lender, as their interests may
appear; provided that any such payment so remitted shall be repaid to the
Swingline Lender or to the US Administrative Agent, as applicable, if and to
the extent such payment is required to be refunded to the US Borrower for any
reason. The purchase of participations in a Swingline Loan pursuant to this
paragraph shall not relieve the US Borrower of any default in the payment
thereof.

SECTION 2.07       Letters
of Credit.   (a)         General.
On and after the Effective Date, the Existing Letters of Credit will constitute
Letters of Credit under this Agreement and for purposes hereof will be deemed
to have been issued on the Effective Date. Subject to the terms and conditions
set forth herein, the US Borrower may request the issuance of Letters of Credit
for its own account, in a form reasonably acceptable to the US Administrative
Agent and the Issuing Bank, at any time and from time to time during the
Availability Period. In the event of any inconsistency between the terms and
conditions of this Agreement and the terms and conditions of any form of letter
of credit application or other agreement submitted by the US Borrower to, or
entered into by the US Borrower with, the Issuing Bank relating to any Letter
of Credit, the terms and conditions of this Agreement shall control.

(b)           Notice of
Issuance, Amendment, Renewal, Extension; Certain Conditions.   To
request the issuance of a Letter of Credit (or the amendment, renewal or
extension of an outstanding Letter of Credit), the US Borrower shall hand
deliver or facsimile (or transmit by electronic communication, if arrangements
for doing so have been approved by the Issuing Bank) to the Issuing Bank and
the US Administrative Agent (prior to 9:00 am, New York City time, at least
three Business Days prior to the requested date of issuance, amendment, renewal
or extension) a notice requesting the issuance of a Letter of Credit, or
identifying the Letter of Credit to be amended, renewed or extended, and
specifying the date of issuance, amendment, renewal or extension (which shall
be a Business Day), the date on which such Letter of Credit is to expire (which
shall comply with paragraph (c) of this Section), the amount of such
Letter of Credit, the name and address of the beneficiary thereof and such
other information as shall be necessary to prepare, amend, renew or extend such
Letter of Credit. If requested by the Issuing Bank, the US Borrower also shall
submit a letter of credit application on the Issuing Bank’s standard form in
connection with any request for a Letter of Credit. A Letter of Credit shall be
issued, amended, renewed or extended only if (and upon issuance, amendment,
renewal or extension of each Letter of Credit the US Borrower shall be deemed
to represent and warrant that), after giving effect to such issuance,
amendment, renewal or extension (i) the LC Exposure shall not exceed
US$7,500,000, (ii) the aggregate US Credit Exposures shall not exceed the
aggregate US Commitments and (iii) the aggregate Credit Exposures shall
not exceed the lesser of the aggregate Commitments and the Borrowing Base.

(c)           Expiration Date.   Each
Letter of Credit shall expire at or prior to the close of business on the
earlier of (i) the date one year after the date of the issuance of such
Letter of Credit (or, in the case of any renewal or extension thereof, one year
after such renewal or extension) and (ii) the date that is five Business
Days prior to the Maturity Date.

(d)           Participations.   By
the issuance of a Letter of Credit (or an amendment to a Letter of Credit
increasing the amount thereof) and without any further action on the part of the
Issuing Bank or

 

 45
 

 

 

the US
Lenders, the Issuing Bank hereby grants to each US Lender, and each US Lender
hereby acquires from the Issuing Bank, a participation in such Letter of Credit
equal to such US Lender’s Applicable US Percentage of the aggregate amount
available to be drawn under such Letter of Credit. In consideration and in
furtherance of the foregoing, each US Lender hereby absolutely and
unconditionally agrees to pay to the US Administrative Agent, for the account
of the Issuing Bank, such US Lender’s Applicable US Percentage of each LC
Disbursement made by the Issuing Bank and not reimbursed by the US Borrower on
the date due as provided in paragraph (e) of this Section, or of any
reimbursement payment required to be refunded to the US Borrower for any reason.
Each US Lender acknowledges and agrees that its obligation to acquire
participations pursuant to this paragraph in respect of Letters of Credit is
absolute and unconditional and shall not be affected by any circumstance
whatsoever, including any amendment, renewal or extension of any Letter of
Credit or the occurrence and continuance of a Default or reduction or
termination of the US Commitments, and that each such payment shall be made
without any offset, abatement, withholding or reduction whatsoever.

(e)           Reimbursement.   If
the Issuing Bank shall make any LC Disbursement in respect of a Letter of
Credit, the US Borrower shall reimburse such LC Disbursement by paying to the
US Administrative Agent an amount equal to such LC Disbursement not later than
11:00 a.m., New York City time, on the date that such LC Disbursement is
made, if the US Borrower shall have received notice of such LC Disbursement
prior to 9:00 a.m., New York City time, on such date, or, if such notice
has not been received by the US Borrower prior to such time on such date, then
not later than 11:00 a.m., New York City time, on (i) the Business
Day that the US Borrower receives such notice, if such notice is received prior
to 9:00 a.m., New York City time, on the day of receipt, or (ii) the
Business Day immediately following the day that the US Borrower receives such
notice, if such notice is not received prior to such time on the day of
receipt; provided that, if such LC Disbursement is not less than
US$100,000, the US Borrower may, subject to the conditions to borrowing set
forth herein, request in accordance with Section 2.03 or 2.06 that such
payment be financed with an ABR Revolving Borrowing or Swingline Loan in an
equivalent amount and, to the extent so financed, the US Borrower’s obligation
to make such payment shall be discharged and replaced by the resulting ABR
Revolving Borrowing or Swingline Loan. If the US Borrower fails to make such
payment when due, the US Administrative Agent shall notify each US Lender of
the applicable LC Disbursement, the payment then due from the US Borrower in
respect thereof and such US Lender’s Applicable US Percentage thereof. Promptly
following receipt of such notice, each US Lender shall pay to the US
Administrative Agent its Applicable US Percentage of the payment then due from
the US Borrower, in the same manner as provided in Section 2.08 with
respect to Loans made by such US Lender (and Section 2.08 shall apply, mutatis
mutandis, to the payment obligations of the US Lenders), and the US
Administrative Agent shall promptly pay to the Issuing Bank the amounts so
received by it from the US Lenders. Promptly following receipt by the US
Administrative Agent of any payment from the US Borrower pursuant to this
paragraph, the US Administrative Agent shall distribute such payment to the
Issuing Bank or, to the extent that US Lenders have made payments pursuant to
this paragraph to reimburse the Issuing Bank, then to such US Lenders and the
Issuing Bank as their interests may appear. Any payment made by a US Lender
pursuant to this paragraph to reimburse the Issuing Bank for any LC
Disbursement (other than the funding of ABR Revolving Loans or a Swingline Loan
as contemplated above) shall not constitute a Loan and shall not relieve the US
Borrower of its obligation to reimburse such LC Disbursement.

(f)            Obligations
Absolute.   The US Borrower’s obligation to reimburse LC Disbursements
as provided in paragraph (e) of this Section shall be absolute,
unconditional and irrevocable, and shall be performed strictly in accordance
with the terms of this Agreement under any and all circumstances whatsoever and
irrespective of (i) any lack of validity or enforceability of any Letter
of Credit or this Agreement, or any term or provision therein, (ii) any
draft or other document presented under a Letter of Credit proving to be
forged, fraudulent or invalid in any respect or any statement therein being
untrue or inaccurate in any respect, (iii) payment by the Issuing Bank
under a Letter of Credit

 

 46
 

 

 

against
presentation of a draft or other document that does not comply with the terms
of such Letter of Credit, or (iv) any other event or circumstance
whatsoever, whether or not similar to any of the foregoing, that might, but for
the provisions of this Section, constitute a legal or equitable discharge of,
or provide a right of setoff against, the US Borrower’s obligations hereunder. Neither
the US Administrative Agent, the US Lenders nor the Issuing Bank, nor any of
their Related Parties, shall have any liability or responsibility by reason of
or in connection with the issuance or transfer of any Letter of Credit or any
payment or failure to make any payment thereunder (irrespective of any of the
circumstances referred to in the preceding sentence), or any error, omission,
interruption, loss or delay in transmission or delivery of any draft, notice or
other communication under or relating to any Letter of Credit (including any
document required to make a drawing thereunder), any error in interpretation of
technical terms or any consequence arising from causes beyond the control of
the Issuing Bank; provided that the foregoing shall not be construed to
excuse the Issuing Bank from liability to the US Borrower to the extent of any
direct damages (as opposed to consequential damages, claims in respect of which
are hereby waived by the US Borrower to the extent permitted by applicable law)
suffered by the US Borrower that are caused by the Issuing Bank’s failure to
exercise care when determining whether drafts and other documents presented
under a Letter of Credit comply with the terms thereof. The parties hereto
expressly agree that, in the absence of gross negligence or willful misconduct
on the part of the Issuing Bank (as determined by a court of competent
jurisdiction), the Issuing Bank shall be deemed to have exercised care in each
such determination. In furtherance of the foregoing and without limiting the
generality thereof, the parties agree that, with respect to documents presented
which appear on their face to be in substantial compliance with the terms of a
Letter of Credit, the Issuing Bank may, in its sole discretion, either accept
and make payment upon such documents without responsibility for further
investigation, regardless of any notice or information to the contrary, or
refuse to accept and make payment upon such documents if such documents are not
in strict compliance with the terms of such Letter of Credit.

(g)           Disbursement
Procedures.   The Issuing Bank shall, promptly following its receipt
thereof, examine all documents purporting to represent a demand for payment
under a Letter of Credit. The Issuing Bank shall promptly notify the US
Administrative Agent and the US Borrower by telephone (confirmed by facsimile)
of such demand for payment and whether the Issuing Bank has made or will make
an LC Disbursement thereunder; provided that any failure to give or
delay in giving such notice shall not relieve the US Borrower of its obligation
to reimburse the Issuing Bank and the US Lenders with respect to any such LC
Disbursement.

(h)           Interim Interest.   If
the Issuing Bank shall make any LC Disbursement, then, unless the US Borrower
shall reimburse such LC Disbursement in full on the date such LC Disbursement
is made, the unpaid amount thereof shall bear interest, for each day from and
including the date such LC Disbursement is made to but excluding the date that
the US Borrower reimburses such LC Disbursement, at the rate per annum then
applicable to ABR Revolving Loans; provided that, if the US Borrower
fails to reimburse such LC Disbursement when due pursuant to paragraph (e) of
this Section, then Section 2.14(d) shall apply. Interest accrued
pursuant to this paragraph shall be for the account of the Issuing Bank, except
that interest accrued on and after the date of payment by any US Lender
pursuant to paragraph (e) of this Section to reimburse the Issuing
Bank shall be for the account of such US Lender to the extent of such payment.

(i)            Replacement of
the Issuing Bank.   The Issuing Bank may be replaced at any time by
written agreement among the US Borrower, the US Administrative Agent, the
replaced Issuing Bank and the successor Issuing Bank. The US Administrative
Agent shall notify the US Lenders of any such replacement of the Issuing Bank. At
the time any such replacement shall become effective, the US Borrower shall pay
all unpaid fees accrued for the account of the replaced Issuing Bank pursuant
to Section 2.13(b). From and after the effective date of any such
replacement, (i) the successor Issuing Bank shall have all the rights and
obligations of the Issuing Bank under this Agreement with respect to Letters

 

 47
 

 

 

of Credit to
be issued thereafter and (ii) references herein to the term “Issuing Bank”
shall be deemed to refer to such successor or to any previous Issuing Bank, or
to such successor and all previous Issuing Banks, as the context shall require.
After the replacement of an Issuing Bank hereunder, the replaced Issuing Bank
shall remain a party hereto and shall continue to have all the rights and
obligations of an Issuing Bank under this Agreement with respect to Letters of
Credit issued by it prior to such replacement, but shall not be required to
issue additional Letters of Credit.

(j)            Cash
Collateralization.   If any Event of Default shall occur and be
continuing, on the Business Day that the US Borrower receives notice from the
US Administrative Agent or the Required US Lenders (or, if the maturity of the
Loans has been accelerated, US Lenders with LC Exposure representing greater
than 50% of the aggregate LC Exposure) demanding the deposit of cash collateral
pursuant to this paragraph, the US Borrower shall deposit in an account with
the US Administrative Agent, in the name of the US Administrative Agent and for
the benefit of the US Lenders (the “LC Collateral Account”), an amount
in cash equal to 105% of the LC Exposure as of such date plus accrued and
unpaid interest and fees thereon; provided that the obligation to
deposit such cash collateral shall become effective immediately, and such
deposit shall become immediately due and payable, without demand or other
notice of any kind, upon the occurrence of any Event of Default with respect to
the US Borrower described in clause (h) or (i) of Article VII.
Such deposit shall be held by the US Administrative Agent as collateral for the
payment and performance of the Secured Obligations. The US Administrative Agent
shall have exclusive dominion and control, including the exclusive right of
withdrawal, over such account and the US Borrower hereby grants the US
Administrative Agent a security interest in the LC Collateral Account. Other
than any interest earned on the investment of such deposits, which investments
shall be made at the option and sole discretion of the US Administrative Agent
and at the US Borrower’s risk and expense, such deposits shall not bear
interest. Interest or profits, if any, on such investments shall accumulate in
such account. Moneys in such account shall be applied by the US Administrative
Agent to reimburse the Issuing Bank for LC Disbursements for which it has not
been reimbursed and, to the extent not so applied, shall be held for the
satisfaction of the reimbursement obligations of the US Borrower for the LC
Exposure at such time or, if the maturity of the Loans has been accelerated
(but subject to the consent of US Lenders with LC Exposure representing greater
than 50% of the aggregate LC Exposure), be applied to satisfy other Secured
Obligations. If the US Borrower is required to provide an amount of cash
collateral hereunder as a result of the occurrence of an Event of Default, such
amount (to the extent not applied as aforesaid) shall be returned to the US
Borrower within three Business Days after all such Defaults have been cured or
waived.

SECTION 2.08       Funding of Borrowings.   (a)             Each US Lender and each Canadian Lender (with respect to
US Borrower/Canadian Revolving Loans) shall make each Loan to be made by
it hereunder on the proposed date thereof by wire transfer of immediately
available funds by 11:00 a.m., New York City time, to the account of the
US Administrative Agent most recently designated by it for such purpose by
notice to the US Lenders or Canadian Lenders, as applicable, in an amount equal
to such US Lender’s Applicable US Percentage or such Canadian Lender’s Applicable
Canadian Percentage, as applicable; provided that Swingline Loans shall
be made as provided in Section 2.06. The US Administrative Agent will make
such Loans available to the US Borrower by promptly crediting the amounts so
received, in like funds, to the US Borrower Funding Account; provided
that US Revolving Loans made to finance the reimbursement of (i) an LC
Disbursement as provided in Section 2.07(e) shall be remitted by the
US Administrative Agent to the Issuing Bank and (ii) a US Protective Advance
or US Overadvance shall be retained by the US Administrative Agent and applied
to such reimbursement.

(b)           Each Canadian Lender
shall make each US$ Canadian Revolving Loan or C$ Canadian Revolving Loan to be
made by it hereunder on the proposed date thereof by wire transfer of
immediately available funds in the applicable currency by 11:00 a.m.,
Toronto time, to the account of the Canadian Administrative Agent most recently
designated by it for such purpose by notice to the Canadian

 

 48
 

 

 

Lenders in an
amount equal to such Canadian Lender’s Applicable Canadian Percentage. The
Canadian Administrative Agent will make such Loans available to the Canadian
Borrower by promptly crediting the amounts so received, in like funds, to the
Canadian Borrower Funding Account; provided that Canadian Revolving
Loans made to refinance Canadian Protective Advances and Canadian Overadvances
shall be retained by the Canadian Administrative Agent and applied to such
reimbursement.

(c)           Unless the US
Administrative Agent or the Canadian Administrative Agent, as the case may be,
shall have received notice from a Lender prior to the proposed date of any
Borrowing that such Lender will not make available to such Administrative Agent
such Lender’s share of such Borrowing, such Administrative Agent may assume
that such Lender has made such share available on such date in accordance with
paragraph (a) or (b) of this Section and may, in reliance upon
such assumption, make available to the relevant Borrower a corresponding amount.
In such event, if a Lender has not in fact made its share of the applicable
Borrowing available to the relevant Administrative Agent, then the applicable
Lender and the US Borrower or the Canadian Borrower, as applicable, severally
agree to pay to such Administrative Agent forthwith on demand such
corresponding amount with interest thereon, for each day from and including the
date such amount is made available to the relevant Borrower to but excluding
the date of payment to such Administrative Agent, at (i) in the case of
such Lender, the greater of the Federal Funds Effective Rate and a rate
determined by the US Administrative Agent in accordance with banking industry rules on
interbank compensation or (ii) in the case of the US Borrower or the
Canadian Borrower, as applicable, the interest rate applicable to ABR Loans (in
the case of all Loans other than US$ Canadian Revolving Loans or C$ Canadian
Revolving Loans), Canadian ABR Loans (in the case of US$ Canadian Revolving
Loans) or Canadian Prime Rate Loans (in the case of C$ Canadian Revolving
Loans), as applicable. If such Lender pays such amount to such Administrative
Agent, then such amount shall constitute such Lender’s Loan included in such
Borrowing.

SECTION 2.09       Interest
Elections.   (a)       Each
Revolving Borrowing initially shall be of the Type specified in the applicable
Borrowing Request and, in the case of a Eurodollar Revolving Borrowing, shall
have an initial Interest Period as specified in such Borrowing Request. Thereafter,
the US Borrower or the Canadian Borrower, as applicable, may elect to convert
such Borrowing to a different Type or to continue such Borrowing and, in the
case of a Eurodollar Revolving Borrowing, may elect Interest Periods therefor,
all as provided in this Section. The US Borrower or the Canadian Borrower, as
applicable, may elect different options with respect to different portions of
the affected Borrowing, in which case each such portion shall be allocated
ratably among the US Lenders or Canadian Lenders, as applicable, holding the
Loans comprising such Borrowing, and the Loans comprising each such portion
shall be considered a separate Borrowing. This Section shall not apply to
Swingline Borrowings, Overadvances or Protective Advances, which may not be
converted or continued.

(b)           To make an election
pursuant to this Section, the US Borrower or the Canadian Borrower, as
applicable, shall notify the US Administrative Agent (with respect to all Loans
other than Canadian Revolving Loans made to the Canadian Borrower) or the
Canadian Administrative Agent (with respect to all Canadian Revolving Loans
made to the Canadian Borrower), as applicable, of such election by telephone by
the time that a Borrowing Request would be required under Section 2.03 if
such Borrower were requesting a Revolving Borrowing of the Type resulting from
such election to be made on the effective date of such election. Each such
telephonic Interest Election Request shall be irrevocable and shall be
confirmed promptly by hand delivery or facsimile to the US Administrative Agent
or the Canadian Administrative Agent, as applicable, of a written Interest
Election Request in a form approved by the relevant Administrative Agent and
signed by such Borrower.

(c)           Each telephonic and
written Interest Election Request shall specify the following information in
compliance with Section 2.02:

 

 49

 

(i)            the Borrowing to which such Interest
Election Request applies and, if different options are being elected with
respect to different portions thereof, the portions thereof to be allocated to
each resulting Borrowing (in which case the information to be specified
pursuant to clauses (iii) and (iv) below shall be specified for each
resulting Borrowing);

(ii)           the effective date of the election
made pursuant to such Interest Election Request, which shall be a Business Day
or, with respect to US$ Canadian Revolving Loans and C$ Canadian Revolving
Loans, a Canadian Business Day;

(iii)          whether such Borrowing is to be
denominated in US Dollars or CDN Dollars;

(iv)          whether the resulting Borrowing is to
be an ABR Borrowing, a Canadian ABR Borrowing, a Canadian Prime Rate Borrowing
or a Eurodollar Borrowing; and

(v)           if the resulting Borrowing is a
Eurodollar Borrowing, the Interest Period to be applicable thereto after giving
effect to such election, which shall be a period contemplated by the definition
of the term “Interest Period”.

If any such Interest
Election Request requests a Eurodollar Borrowing but does not specify an
Interest Period, then the relevant Borrower shall be deemed to have selected an
Interest Period of one month’s duration.

(d)           Promptly following
receipt of an Interest Election Request, the US Administrative Agent or the
Canadian Administrative Agent, as applicable, shall advise each relevant Lender
of the details thereof and of such Lender’s portion of each resulting
Borrowing.

(e)           If the US Borrower
or the Canadian Borrower, as applicable, fails to deliver a timely Interest
Election Request with respect to a Eurodollar Revolving Borrowing prior to the
end of the Interest Period applicable thereto, then, unless such Borrowing is
repaid as provided herein, at the end of such Interest Period such Borrowing
shall be converted to (x) with respect to Borrowings by the US Borrower,
an ABR Borrowing, (y) with respect to Borrowings by the Canadian Borrower
of US$ Canadian Revolving Loans, a Canadian ABR Borrowing and (z) with
respect to Borrowings by the Canadian Borrower of C$ Canadian Revolving Loans,
a Canadian Prime Rate Borrowing. Notwithstanding any contrary provision hereof,
if an Event of Default has occurred and is continuing and the US Administrative
Agent or the Canadian Administrative Agent, as applicable, at the request of
the Required US Lenders or the Required Canadian Lenders, as applicable, so
notifies the relevant Borrower, then, so long as an Event of Default is
continuing (i) no outstanding Revolving Borrowing may be converted to or
continued as a Eurodollar Borrowing and (ii) unless repaid, each
Eurodollar Revolving Borrowing shall be converted to an ABR Borrowing, a
Canadian ABR Borrowing or a Canadian Prime Rate Borrowing, as applicable, at
the end of the Interest Period applicable thereto.

SECTION 2.10       Termination and Reduction of
Commitments. (a)  Unless previously terminated all Commitments shall
terminate on the Maturity Date.

(b)           The US Borrower and
the Canadian Borrower may at any time terminate the Commitments upon (i) the
payment in full of all outstanding Loans, together with accrued and unpaid
interest thereon, (ii) the cancellation and return of all outstanding
Letters of Credit (or alternatively, with respect to each such Letter of
Credit, the furnishing to the US Administrative Agent of a cash collateral
deposit (or at the discretion of the US Administrative Agent, a back up standby
letter of credit satisfactory 

 50
 

 

to the US
Administrative Agent) equal to 105% of the LC Exposure as of such date plus
accrued interest and fees and pursuant to documentation satisfactory to the US
Administrative Agent), (iii) with respect to each outstanding Acceptance,
the furnishing to the Canadian Administrative Agent of a cash collateral
deposit equal to 105% of the face amount of such Acceptance as of such date
plus accrued interest and fees and pursuant to documentation satisfactory to
the Canadian Administrative Agent), (iv) the payment in full of the
accrued and unpaid fees, and (v) the payment in full of all reimbursable
expenses and other Obligations together with accrued and unpaid interest
thereon.

(c)           The US Borrower and
the Canadian Borrower may from time to time reduce the US Commitments or the
Canadian Commitments, as applicable; provided that (i) each
reduction of the US Commitments or the Canadian Commitments, as applicable,
shall be in an amount that is an integral multiple of US$1,000,000 and not less
than US$3,000,000 and (ii) neither Borrower shall reduce the Revolving
Commitments if, after giving effect to any concurrent prepayment of the
Revolving Loans in accordance with Section 2.12, (i) the aggregate
Canadian Credit Exposures would exceed the aggregate Canadian Commitments, (ii) the
aggregate US Credit Exposures would exceed the aggregate US Commitments or (iii) the
Aggregate Credit Exposures would exceed the lesser of the aggregate Commitments
and the Borrowing Base.

(d)           The US Borrower or
the Canadian Borrower shall notify the US Administrative Agent or the Canadian
Administrative Agent, as applicable, of any election to terminate or reduce the
US Commitments or Canadian Commitments under paragraph (b) or (c) of
this Section at least three Business Days (or, with respect to a
termination or reduction of the Canadian Commitments, three Canadian Business
Days) prior to the effective date of such termination or reduction, specifying
such election and the effective date thereof. Promptly following receipt of any
notice, the relevant Administrative Agent shall advise the relevant Lenders of
the contents thereof. Each notice delivered by either Borrower pursuant to this
Section shall be irrevocable; provided that a notice of termination
of the US Commitments or Canadian Commitments delivered by either Borrower may
state that such notice is conditioned upon the effectiveness of other credit
facilities, in which case such notice may be revoked by such Borrower (by
notice to the relevant Administrative Agent on or prior to the specified
effective date) if such condition is not satisfied. Any termination or
reduction of the US Commitments or Canadian Commitments shall be permanent. Each
reduction of the US Commitments or the Canadian Commitments shall be made
ratably among the US Lenders or Canadian Lenders, as applicable, in accordance
with their respective US Commitments or Canadian Commitments, as applicable.

SECTION 2.11       Repayment and Amortization of
Loans; Evidence of Debt. (a)  The US Borrower hereby unconditionally
promises to pay (i) to the US Administrative Agent for the account of each
US Lender or Canadian Lender, as applicable, the then unpaid principal amount
of each US Revolving Loan and US Borrower/Canadian Revolving Loan on the
Maturity Date, (ii) to the US Administrative Agent the then unpaid amount
of each US Protective Advance on the earlier of the Maturity Date and demand by
the US Administrative Agent, (iii) to the Swingline Lender the then unpaid
principal amount of each Swingline Loan on the earlier of the Maturity Date and
the first date after such Swingline Loan is made that is the 15th or last day
of a calendar month and is at least two Business Days after such Swingline Loan
is made; provided that on each date that a US Revolving Loan is made,
the US Borrower shall repay all Swingline Loans then outstanding and (iv) to
the US Administrative Agent the then unpaid principal amount of each US
Overadvance on the earlier of the Maturity Date and the 30th day after such US Overadvance is made.

(b)           The
Canadian Borrower hereby unconditionally promises to pay (i) to the Canadian
Administrative Agent for the account of each Canadian Lender the then unpaid
principal amount of each US$ Canadian Revolving Loan, C$ Canadian Revolving
Loan and Acceptance Equivalent Loan on the Maturity Date, (ii) to the
Canadian Administrative Agent the then unpaid amount of each 

 51
 

 

Canadian Protective Advance on the earlier of the Maturity Date and
demand by the Canadian Administrative Agent and (iii) to the Canadian
Administrative Agent the then unpaid principal amount of each Canadian
Overadvance on the earlier of the Maturity Date and the 30th day after such Canadian Overadvance is made.

(c)           Each
Borrower shall, jointly and severally, be obligated in respect of the aggregate
principal amount of all Loans and other Secured Obligations, and the aggregate
amount of credit available hereunder to either Borrower at any time shall be
determined by taking into account all outstanding Credit Exposures, regardless
of which Borrower may have received the proceeds of any Loans or the benefit of
any Letters of Credit.

(d)           At
all times that full cash dominion is in effect pursuant to Section 5.12,
on each Business Day, at or before 2:00 p.m., New York City time, the  relevant Administrative Agent shall apply all
immediately available funds credited to the Collection Account, first,
to prepay any Protective Advances and Overadvances that may be outstanding, pro
rata, and, second, without duplication, to prepay the Revolving
Loans (including Swing Line Loans) and Acceptance Equivalent Loans and to cash
collateralize outstanding LC Exposure as provided in Section 2.07(j) and
outstanding Acceptance Exposure as provided in Section 2.04(p).

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

(f)            The
US Administrative Agent and the Canadian Administrative Agent, as applicable,
shall maintain accounts in which it shall record (i) the amount of each
Loan made hereunder, the Class and Type thereof and the Interest Period
applicable thereto, (ii) the amount of any principal or interest due and
payable or to become due and payable from each Borrower to each Lender
hereunder and (iii) the amount of any sum received by the US
Administrative Agent or the Canadian Administrative Agent, as applicable,
hereunder for the account of the relevant Lenders and each relevant Lender’s
share thereof.

(g)           The
entries made in the accounts maintained pursuant to paragraph (e) or (f) of
this Section shall be prima  facie evidence of the existence
and amounts of the obligations recorded therein; provided that the
failure of any Lender or either Administrative Agent to maintain such accounts
or any error therein shall not in any manner affect the obligation of either
Borrower to repay the Loans in accordance with the terms of this Agreement.

(h)           Any
US Lender or Canadian Lender, as applicable, may request that Loans made by it
be evidenced by a promissory note. In such event, the relevant Borrower shall
prepare, execute and deliver to such Lender a promissory note payable to the
order of such Lender (or, if requested by such Lender, to such Lender and its
registered assigns) and in a form approved by the US Administrative Agent or
the Canadian Administrative Agent, as applicable. Thereafter, the Loans
evidenced by such promissory note and interest thereon shall at all times
(including after assignment pursuant to Section 9.04) be represented by
one or more promissory notes in such form payable to the order of the payee
named therein (or, if such promissory note is a registered note, to such payee
and its registered assigns).

SECTION 2.12       Prepayment of Loans. (a)  The
US Borrower and the Canadian Borrower shall have the right at any time and from
time to time to prepay any Borrowing in whole or in part, subject to prior
notice in accordance with paragraph (e) of this Section.

 52
 

 

(b)           In
the event and on such occasion that (i) the aggregate US Credit Exposures
exceeds the aggregate US Commitments, (ii) the aggregate Canadian Credit
Exposures exceed the aggregate Canadian Commitments or (iii) the aggregate
Credit Exposures exceed the lesser of (A) the aggregate Commitments or (B) the
Borrowing Base, the US Borrower and/or the Canadian Borrower, as applicable,
shall prepay and/or cash collateralize the Revolving Loans, LC Exposure,
Acceptance Exposure and/or Swingline Loans as set forth in Section 2.12(d) in
an aggregate amount equal to such excess.

(c)           If
an Event of Default shall have occurred and be continuing, any Net Proceeds
that are received by or on behalf of any Loan Party in respect of any
Prepayment Event shall, immediately after such Net Proceeds are received by
such Loan Party, be used by the US Borrower and/or the Canadian Borrower to
prepay and/or cash collateralize the Obligations as set forth in Section 2.12(d) below
in an aggregate amount equal to 100% of such Net Proceeds; provided that
(i) to the extent any such Net Proceeds constitute Note Priority
Collateral, such Net Proceeds shall be segregated in a separate account of the
relevant Loan Party in accordance with the Senior Secured Notes Indenture until
such time as such Net Proceeds (x) have been reinvested in assets
constituting Note Priority Collateral or (y) are no longer required to be
so segregated, in each case pursuant to the terms of the Senior Secured Notes
Indenture; and provided, further, that any Net Proceeds which
have not been reinvested and no longer constitute Note Priority Collateral
shall, subject to the Intercreditor Agreement, be used to prepay and/or cash
collateralize the Obligations as set forth in Section 2.12(d) below.

(d)           Subject
to the limitations set forth above, the amounts set forth in Section 2.12(c) shall
be applied, first, to prepay any Protective Advances and Overadvances
that may be outstanding, pro  rata and, second, without
duplication, to prepay the Revolving Loans (including Swing Line Loans) and
Acceptance Equivalent Loans without a corresponding reduction in the US
Commitment or Canadian Commitment and to cash collateralize outstanding LC
Exposure as provided in Section 2.07(j) and outstanding Acceptance
Exposure as provided in Section 2.04(p).

(e)           The
US Borrower or the Canadian Borrower, as applicable, shall notify the US
Administrative Agent (and (x) in the case of Canadian Revolving Loans, the
Canadian Administrative Agent and (y) in the case of prepayment of a
Swingline Loan, the Swingline Lender) by telephone (confirmed by facsimile) of
any prepayment hereunder (i) in the case of prepayment of a Eurodollar
Revolving Borrowing, not later than 11:00 a.m., New York City time, three
Business Days before the date of prepayment, (ii) in the case of
prepayment of an ABR Revolving Borrowing, not later than 11:00 a.m., New
York City time, on the date of prepayment, (iii) in the case of prepayment
of a Canadian ABR Revolving Borrowing or a Canadian Prime Rate Borrowing, not
later than 11:00 a.m., Toronto time, on the date of prepayment or (iv) in
the case of prepayment of a Swingline Loan, not later than 11:00 a.m., New
York City time, on the date of prepayment. Each such notice shall be
irrevocable and shall specify the prepayment date and the principal amount of
each Borrowing or portion thereof to be prepaid; provided that, if a
notice of prepayment is given in connection with a conditional notice of
termination of the Commitments as contemplated by Section 2.10, then such
notice of prepayment may be revoked if such notice of termination is revoked in
accordance with Section 2.10. Promptly following receipt of any such
notice relating to a Revolving Borrowing, the US Administrative Agent or the
Canadian Administrative Agent, as applicable, shall advise the relevant Lenders
of the contents thereof.  Each partial
prepayment of any Revolving Borrowing shall be in an amount that would be
permitted in the case of an advance of a Revolving Borrowing of the same Type
as provided in Section 2.02. Each prepayment of a Revolving Borrowing
shall be applied ratably to the Revolving Loans included in the prepaid
Borrowing. Prepayments shall be accompanied by accrued interest to the extent
required by Section 2.14.

SECTION 2.13       Fees. (a)  The US Borrower agrees to
pay to the US Administrative Agent for the account of each US Lender a
commitment fee, which shall accrue at 0.30% per annum on 

 53
 

 

the
average daily amount of the Available US Commitment of such US Lender during
the period from and including the Effective Date to but excluding the date on
which the US Lenders’ US Commitments terminate. Accrued commitment fees shall
be payable in arrears on the first day of each calendar month and on the date
on which the US Commitments terminate, commencing on the first such date to
occur after the date hereof. All commitment fees shall be computed on the basis
of a year of 360 days and shall be payable for the actual number of days
elapsed (including the first day but excluding the last day).

(b)           The
Canadian Borrower agrees to pay to the Canadian Administrative Agent for the
account of each Canadian Lender a commitment fee, which shall accrue at 0.30%
per annum on the average daily amount of the Available Canadian Commitment of
such Canadian Lender during the period from and including the Effective Date to
but excluding the date on which the Canadian Lenders’ Canadian Commitments
terminate. Accrued commitment fees shall be payable in arrears on the first day
of each calendar month and on the date on which the Canadian Commitments
terminate, commencing on the first such date to occur after the date hereof. All
commitment fees shall be computed on the basis of a year of 360 days and shall
be payable for the actual number of days elapsed (including the first day but
excluding the last day).

(c)           The
US Borrower agrees to pay (i) to the US Administrative Agent for the
account of each US Lender a participation fee with respect to its
participations in Letters of Credit, which shall accrue at the same Applicable
Rate used to determine the interest rate applicable to Eurodollar Revolving
Loans on the average daily amount of such US Lender’s LC Exposure (excluding
any portion thereof attributable to unreimbursed LC Disbursements) during the
period from and including the Effective Date to but excluding the later of the
date on which such US Lender’s US Commitment terminates and the date on which
such US Lender ceases to have any LC Exposure, and (ii) if there shall be
more than one Lender which is not an affiliate of the Issuing Bank, to the
Issuing Bank a fronting fee, which shall accrue at the rate of 0.125% per annum
on the average daily amount of the LC Exposure (excluding any portion thereof
attributable to unreimbursed LC Disbursements) during the period from and
including the Effective Date to but excluding the later of the date of
termination of the US Commitments and the date on which there ceases to be any
LC Exposure, as well as the Issuing Bank’s standard fees with respect to the
issuance, amendment, renewal or extension of any Letter of Credit or processing
of drawings thereunder. Participation fees and fronting fees accrued through
and including the last day of each calendar month shall be payable on the third
Business Day following such last day, commencing on the first such date to
occur after the Effective Date; provided that all such fees shall be
payable on the date on which the US Commitments terminate and any such fees
accruing after the date on which the US Commitments terminate shall be payable
on demand. Any other fees payable to the Issuing Bank pursuant to this
paragraph shall be payable within 10 days after demand. All participation fees
and fronting fees shall be computed on the basis of a year of 360 days and
shall be payable for the actual number of days elapsed (including the first day
but excluding the last day).

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

(e)           All
fees payable hereunder shall be paid on the dates due, in immediately available
funds, to the US Administrative Agent or the Canadian Administrative Agent (or
to the Issuing Bank, in the case of fees payable to it or, in the case of an
Acceptance, the Acceptance Fee payable to the Canadian Lender) for
distribution, in the case of commitment fees and participation fees, to the US
Lenders or Canadian Lenders, as applicable. Fees paid shall not be refundable
under any circumstances.

SECTION 2.14       Interest. (a)  The Loans
comprising each ABR Borrowing (including each Swingline Loan) shall bear
interest at the Alternate Base Rate plus the Applicable Rate.

 54
 

 

(b)           The
Loans comprising each Canadian ABR Borrowing shall bear interest at the
Canadian ABR plus the Applicable Rate.

(c)           The
Loans comprising each Canadian Prime Rate Borrowing shall bear interest at
the Canadian Prime Rate plus the Applicable Rate.

(d)           The
Loans comprising each Eurodollar Borrowing shall bear interest at the Adjusted
LIBO Rate for the Interest Period in effect for such Borrowing plus the
Applicable Rate.

(e)           Each
US Protective Advance and each US Overadvance shall bear interest (which
interest shall be for the account of the US Administrative Agent) at a rate per
annum equal to the ABR plus the Applicable Rate plus 2%. Each Canadian
Protective Advance and each Canadian Overadvance shall bear interest (which
interest shall be for the account of the Canadian Administrative Agent) at a
rate per annum equal to the Canadian Prime Rate plus the Applicable Rate plus
2%.

(f)            Notwithstanding
the foregoing, if a Default or Event of Default under clauses (a), (b), (h) or
(i)  of Article VII shall have occurred and be continuing, such
overdue amount shall bear interest, after as well as before judgment, at a rate
per annum equal to (i) in the case of overdue principal of any Loan, 2%
plus the  rate otherwise applicable to
such Loan as provided in the preceding paragraphs of this Section or (ii) in
the case of any other amount, 2% plus the rate applicable to ABR Loans as
provided in paragraph (a) of this Section.

(g)           Accrued
interest on each Loan shall be payable in arrears on each Interest Payment Date
for such Loan and upon termination of the Commitments; provided that (i) interest
accrued pursuant to paragraph (f) of this Section shall be payable on
demand, (ii) in the event of any repayment or prepayment of any Loan
(other than a prepayment of an ABR Revolving Loan, Canadian ABR Loan or
Canadian Prime Rate Loan prior to the end of the Availability Period), accrued
interest on the principal amount repaid or prepaid shall be payable on the date
of such repayment or prepayment and (iii) in the event of any conversion
of any Eurodollar Loan prior to the end of the current Interest Period
therefor, accrued interest on such Loan shall be payable on the effective date
of such conversion.

(h)           All
interest hereunder shall be computed on the basis of a year of 360 days, except
that interest computed by reference to the Alternate Base Rate or Canadian
Prime Rate at times when the Alternate Base Rate or the Canadian Prime Rate, as
applicable, is based on the rate set forth in clause (a) of each
definition shall be computed on the basis of a year of 365 days (or 366 days in
a leap year), and in each case shall be payable for the actual number of days
elapsed (including the first day but excluding the last day). The applicable
Alternate Base Rate, Canadian ABR, Canadian Prime Rate, Adjusted LIBO Rate or
LIBO Rate shall be determined by the US Administrative Agent or Canadian Administrative
Agent, as applicable, and such determination shall be conclusive absent
manifest error.

(i)            For
the purposes of the Interest Act (Canada), in any case in which an interest or
fee rate is stated in this Agreement to be calculated on the basis of a number
of days that is other than the number in a calendar year, the yearly rate, to
which such interest or fee rate is equivalent, is equal to such interest or fee
rate multiplied by the actual number of days in the year in which the relevant
interest or fee payment accrues and divided by the number of days used as the
basis for such calculation.

SECTION 2.15       Alternate Rate of Interest. If
prior to the commencement of any Interest Period for a Eurodollar Borrowing:

 55
 

 

(a)           either
Administrative Agent determines (which determination shall be conclusive absent
manifest error) that adequate and reasonable means do not exist for
ascertaining the Adjusted LIBO Rate or the LIBO Rate, as applicable, for such
Interest Period; or

(b)           either
Administrative Agent is advised by the Required Lenders that the Adjusted LIBO
Rate or the LIBO Rate, as applicable, for such Interest Period will not
adequately and fairly reflect the cost to such Lenders (or Lender) of making or
maintaining their Loans (or its Loan) included in such Borrowing for such
Interest Period;

then the US Administrative
Agent shall give notice thereof to the Borrowers and the Lenders by telephone
or facsimile as promptly as practicable thereafter and, until the US
Administrative Agent notifies the Borrowers and the Lenders that the
circumstances giving rise to such notice no longer exist, (i) any Interest
Election Request that requests the conversion of any Revolving Borrowing to, or
continuation of any Revolving Borrowing as, a Eurodollar Borrowing shall be
ineffective, and (ii) if any Borrowing Request requests a Eurodollar
Revolving Borrowing, such Borrowing shall be made (x) with respect to any
US Revolving Loan or US Borrower/Canadian Revolving Loan, as an ABR Borrowing, (y) with
respect to any US$ Canadian Revolving Loan, as a Canadian ABR Borrowing, or (z) with
respect to any C$ Canadian Revolving Loan, as a Canadian Prime Rate Borrowing.

SECTION 2.16       Increased Costs. (a)  If any
Change in Law shall:

(i)            impose, modify or
deem applicable any reserve, special deposit or similar requirement against
assets of, deposits with or for the account of, or credit extended by, any
Lender (except any such reserve requirement reflected in the Adjusted LIBO
Rate) or the Issuing Bank; or

(ii)           impose on any
Lender or the Issuing Bank or the London interbank market any other condition
affecting this Agreement or Eurodollar Loans made by such Lender or any Letter
of Credit or participation therein;

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

(b)           If
any Lender or the Issuing Bank determines that any Change in Law regarding
capital requirements has or would have the effect of reducing the rate of
return on such Lender’s or the Issuing Bank’s capital or on the capital of such
Lender’s or the Issuing Bank’s holding company, if any, as a consequence of
this Agreement or the Loans or Acceptances made by, or participations in
Letters of Credit held by, such Lender, or the Letters of Credit issued by the
Issuing Bank, to a level below that which such Lender or the Issuing Bank or
such Lender’s or the Issuing Bank’s holding company could have achieved but for
such Change in Law (taking into consideration such Lender’s or the Issuing Bank’s
policies and the policies of such Lender’s or the Issuing Bank’s holding
company with respect to capital adequacy), then from time to time the US
Borrower or the Canadian Borrower, as applicable, will pay to such Lender or
the Issuing Bank, as the case may be, such additional amount or amounts as will
compensate such Lender or the Issuing Bank or such Lender’s or the Issuing Bank’s
holding company for any such reduction suffered.

 56
 

 

(c)           A
certificate of a Lender or the Issuing Bank setting forth the amount or amounts
necessary to compensate such Lender or the Issuing Bank or its holding company,
as the case may be, as specified in paragraph (a) or (b) of this
Section shall be delivered to the relevant Borrower and shall be
conclusive absent manifest error. The relevant Borrower shall pay such Lender
or the Issuing Bank, as the case may be, the amount shown as due on any such
certificate within 10 days after receipt thereof.

(d)           Failure
or delay on the part of any Lender or the Issuing Bank to demand compensation
pursuant to this Section shall not constitute a waiver of such Lender’s or
the Issuing Bank’s right to demand such compensation; provided that
neither Borrower shall be required to compensate a Lender or the Issuing Bank
pursuant to this Section for any increased costs or reductions incurred
more than 270 days prior to the date that such Lender or the Issuing Bank, as
the case may be, notifies such Borrower of the Change in Law giving rise to
such increased costs or reductions and of such Lender’s or the Issuing Bank’s
intention to claim compensation therefor; provided, further, that
if the Change in Law giving rise to such increased costs or reductions is retroactive,
then the 270-day period referred to above shall be extended to include
the period of retroactive effect thereof.

SECTION 2.17       Break Funding Payments. In the
event of (a) the prepayment of any principal of any Eurodollar Loan other
than on the last day of an Interest Period applicable thereto (including as a
result of an Event of Default), (b) the conversion of any Eurodollar Loan
other than on the last day of the Interest Period applicable thereto, (c) the
failure to borrow, convert, continue or prepay any Eurodollar Loan on the date
specified in any notice delivered pursuant hereto (regardless of whether such
notice may be revoked under Section 2.10 and is revoked in accordance
therewith), or (d) the assignment of any Eurodollar Loan other than on the
last day of the Interest Period applicable thereto as a result of a request by
the US Borrower or the Canadian Borrower, as applicable, pursuant to Section 2.20,
then, in any such event, such Borrower shall compensate each US Lender or
Canadian Lender, as applicable, for the loss, cost and expense attributable to
such event. In the case of a Eurodollar Loan, such loss, cost or expense to any
Lender shall be deemed to include an amount determined by such Lender to be the
excess, if any, of (i) the amount of interest which would have accrued on
the principal amount of such Loan had such event not occurred, at the Adjusted
LIBO Rate that would have been applicable to such Loan, for the period from the
date of such event to the last day of the then current Interest Period therefor
(or, in the case of a failure to borrow, convert or continue, for the period
that would have been the Interest Period for such Loan), over (ii) the
amount of interest which would accrue on such principal amount for such period
at the interest rate which such Lender would bid were it to bid, at the
commencement of such period, for deposits in the relevant currency of a
comparable amount and period from other banks in the eurodollar market. A
certificate of any Lender setting forth any amount or amounts that such Lender
is entitled to receive pursuant to this Section shall be delivered to the
relevant Borrower and shall be conclusive absent manifest error. The US
Borrower or the Canadian Borrower, as applicable, shall pay such Lender the
amount shown as due on any such certificate within 10 days after receipt
thereof.

SECTION 2.18       Taxes. (a)  Any and all
payments by or on account of any obligation of either Borrower hereunder shall
be made free and clear of and without deduction for or on account of any
Indemnified Taxes or Other Taxes; provided that if either Borrower shall
be required to deduct any Indemnified Taxes or Other Taxes from such payments,
then (i) the sum payable shall be increased as necessary so that after
making all required deductions (including deductions applicable to additional
sums payable under this Section) the US Administrative Agent, Canadian
Administrative Agent, Lender or Issuing Bank (as the case may be) receives an
amount equal to the sum it would have received had no such deductions been
made, (ii) the US Borrower or the Canadian Borrower, as applicable, shall
make such deductions and (iii) such Borrower shall pay the full amount
deducted to the relevant Governmental Authority in accordance with applicable
law.

 57

 

(b)           In addition, each
Borrower shall pay any Other Taxes to the relevant Governmental Authority in
accordance with applicable law.

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

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

(e)           Any Foreign Lender
that is entitled to an exemption from or reduction of withholding tax under the
law of the jurisdiction in which the applicable Borrower is located, or any
treaty to which such jurisdiction is a party, with respect to payments under
this Agreement shall deliver to the applicable Borrower (with a copy to the
applicable Administrative Agent), prior to the closing date, in the case of
each Foreign Lender that is a signatory hereto, and on the date of assignment
pursuant to which it becomes a Lender in the case of each other Lender, and
from time to time thereafter if reasonably requested by either of the Borrower
or the Administrative Agent, such properly completed and executed documentation
prescribed by applicable law and reasonably requested by the applicable
Borrower as will permit such payments to be made without withholding or at a
reduced rate; provided that such Foreign Lender is legally entitled to
complete, execute and deliver such documentation and in such Foreign Lender’s
judgment such completion, execution or submission would not materially prejudice
the legal position of such Lender.

(f)            If either
Administrative Agent or a Lender determines, in its sole discretion, that it
has received a refund or credit in respect of any Taxes or Other Taxes as to
which it has been indemnified by the US Borrower or the Canadian Borrower, as
applicable, or with respect to which such Borrower has paid additional amounts
pursuant to this Section 2.18, it shall pay over such refund to such
Borrower (but only to the extent of indemnity payments made, or additional amounts
paid, by such Borrower under this Section 2.18 with respect to the Taxes
or Other Taxes giving rise to such refund), net of all out-of-pocket expenses
of such Administrative Agent or such Lender and without interest (other than
any interest paid by the relevant Governmental Authority with respect to such
refund); provided, that such Borrower, upon the request of such
Administrative Agent or such Lender, agrees to repay the amount paid over to
such Borrower (plus any penalties, interest or other charges imposed by the
relevant Governmental Authority) to such Administrative Agent or such Lender in
the event such Administrative Agent or such Lender is required to repay such
refund to such Governmental Authority. Such Administrative Agent or Lender shall,
at the Borrower’s written request, provide the Borrower with a copy of any
notice of assessment or other evidence of the requirement to repay such refund
received from the relevant Governmental Authority. This Section shall not
be construed to require either Administrative 

 58
 

 

Agent or any
Lender to make available its tax returns (or any other information relating to
its taxes which it deems confidential) to the Borrowers or any other Person.

SECTION 2.19       Payments Generally; Allocation of
Proceeds; Sharing of Set-offs. (a) Except as otherwise provided in Section 2.04(e),
each Borrower shall make each payment required to be made by it hereunder
(whether of principal, interest, fees or reimbursement of LC Disbursements, or
of amounts payable under Section 2.16, 2.17 or 2.18, or otherwise) prior
to 11:00 a.m., New York City time, on the date when due, in immediately
available funds, without set-off or counterclaim. Any amounts received after
such time on any date may, in the discretion of the US Administrative Agent or
the Canadian Administrative Agent, as applicable, be deemed to have been
received on the next succeeding Business Day (or Canadian Business Day, if
applicable) for purposes of calculating interest thereon. All such payments
(shall be made to the US Administrative Agent at its offices at 270 Park
Avenue, New York, New York or the Canadian Administrative Agent at its offices
at 200 Bay Street, Toronto, Ontario, as applicable, except payments to be made
directly to the Issuing Bank or Swingline Lender as expressly provided herein
and except that payments pursuant to Section 2.16, 2.17 or 2.18 and 9.03
shall be made directly to the Persons entitled thereto. Each Administrative
Agent shall distribute any such payments received by it for the account of any
other Person to the appropriate recipient promptly following receipt thereof. If
any payment hereunder shall be due on a day that is not a Business Day (or
Canadian Business Day, if applicable), the date for payment shall be extended
to the next succeeding Business Day (or Canadian Business Day, if applicable),
and, in the case of any payment accruing interest, interest thereon shall be
payable for the period of such extension. All payments hereunder shall be made
in US Dollars or CDN Dollars, as applicable. At all times that full cash
dominion is in effect pursuant to Section 7.3 of the US Security
Agreement, solely for purposes of determining the amount of Loans available for
borrowing purposes, checks and cash or other immediately available funds from
collections of items of payment and proceeds of any Collateral shall be applied
in whole or in part against the Obligations, on the day of receipt, subject to
actual collection as provided in Section 2.13(d).

(b)           Subject to the
Intercreditor Agreement, any proceeds of Collateral received by the US
Administrative Agent or the Canadian Administrative Agent, as applicable, (i) not
constituting either (A) a specific payment of principal, interest, fees or
other sum payable under the Loan Documents (which shall be applied as specified
by the US Borrower or Canadian Borrower, as applicable), (B) a mandatory
prepayment (which shall be applied in accordance with Section 2.12) or (C) amounts
to be applied from the Collection Account when full cash dominion is in effect
(which shall be applied in accordance with Section 2.11(d)) or (ii) after
an Event of Default has occurred and is continuing and the Administrative
Agents so elect or the Required Lenders so direct, such funds shall be applied
ratably, first, to pay any fees, indemnities, or expense
reimbursements including amounts then due to the Administrative Agents and the
Issuing Bank from the Borrowers (other than in connection with Banking Services
or Swap Obligations), second, to pay any fees or expense reimbursements
then due to the Lenders from the Borrowers (other than in connection with
Banking Services or Swap Obligations), third, to pay interest due in
respect of the Overadvances and Protective Advances, fourth, to pay the
principal of the Overadvances and Protective Advances, fifth, to pay
interest then due and payable on the Loans (other than the Overadvances and
Protective Advances) ratably, sixth, to (A)(x) prepay principal on
the Loans (other than the Overadvances and Protective Advances) and
unreimbursed LC Disbursements ratably and 
(y) pay an amount to the US Administrative Agent equal to one
hundred five percent (105%) of the aggregate undrawn face amount of all
outstanding Letters of Credit and the aggregate amount of any unpaid LC
Disbursements, to be held as cash collateral for such Obligations, and (B) pay
an amount to the Canadian Administrative Agent equal to one hundred five
percent (105%) of the face amount of all outstanding Acceptances, to be held as
cash collateral for such Obligations, seventh, to payment of any amounts
owing with respect to Banking Services Obligations and Swap Obligations owed to
any Lender or any of their Affiliates, and eighth, to the payment of any
other Secured Obligation due to the Administrative Agents or any Lender by
either Borrower. Notwithstanding anything to the contrary 

 59
 

 

contained in this Agreement, unless so
directed by the US Borrower or the Canadian Borrower, as applicable, or unless
a Default is in existence, neither either Administrative Agent nor any Lender
shall apply any payment which it receives to any Eurodollar Loan of a Class, except (a) on
the expiration date of the Interest Period applicable to any such Eurodollar
Loan or (b) in the event, and only to the extent, that there are no
outstanding ABR Loans, Canadian ABR Loans or Canadian Prime Rate Loans, as
applicable, of the same Class and, in any event, such Borrower shall pay
the break funding payment required in accordance with Section 2.17. The
Administrative Agents and the Lenders shall have the continuing and exclusive
right to apply and reverse and reapply any and all such proceeds and payments
to any portion of the Secured Obligations.

(c)           At
the election of the US Administrative Agent or the Canadian Administrative
Agent, as applicable, all payments of principal, interest, LC Disbursements,
fees, premiums, reimbursable expenses (including, without limitation, all
reimbursement for fees and expenses pursuant to Section 9.03), and other
sums payable under the Loan Documents, may be paid from the proceeds of
Borrowings made hereunder whether made following a request by the US Borrower
or the Canadian Borrower, as applicable, 
pursuant to Section 2.03 or a deemed request as provided in this Section or
may be deducted from any deposit account of such Borrower maintained with the
applicable Administrative Agent. Each Borrower hereby irrevocably authorizes (i) the
applicable Administrative Agent to make a Borrowing for the purpose of paying
each payment of principal, interest and fees as it becomes due hereunder or any
other amount due under the Loan Documents and agrees that all such amounts
charged shall constitute Loans (including Swingline Loans and Overadvances, but
such a Borrowing may only constitute a Protective Advance if it is to reimburse
costs, fees and expenses as described in Section 9.03) and that all such
Borrowings shall be deemed to have been requested pursuant to Section 2.03,
2.05 or 2.06, as applicable and (ii) the applicable Administrative Agent
to charge any deposit account of such Borrower maintained with such
Administrative Agent for each payment of principal, interest and fees as it
becomes due hereunder or any other amount due under the Loan Documents.

(d)           If
any Lender shall, by exercising any right of set-off or counterclaim or otherwise,
obtain payment in respect of any principal of or interest on any of its Loans
or participations in LC Disbursements resulting in such Lender receiving
payment of a greater proportion of the aggregate amount of its Loans and
participations in LC Disbursements and accrued interest thereon than the
proportion received by any other relevant Lender, then the Lender receiving
such greater proportion shall purchase (for cash at face value) participations
in the Loans and participations in LC Disbursements of other relevant Lenders
to the extent necessary so that the benefit of all such payments shall be
shared by the relevant Lenders ratably in accordance with the aggregate amount
of principal of and accrued interest on their respective Loans and participations
in LC Disbursements; provided that (i) if any such participations
are purchased and all or any portion of the payment giving rise thereto is
recovered, such participations shall be rescinded and the purchase price
restored to the extent of such recovery, without interest, and (ii) the
provisions of this paragraph shall not be construed to apply to any payment
made by either Borrower pursuant to and in accordance with the express terms of
this Agreement or any payment obtained by a Lender as consideration for the
assignment of or sale of a participation in any of its Loans or participations
in LC Disbursements to any assignee or participant, other than to either
Borrower or any Subsidiary or Affiliate thereof (as to which the provisions of
this paragraph shall apply). Each Borrower consents to the foregoing and
agrees, to the extent it may effectively do so under applicable law, that any
Lender acquiring a participation pursuant to the foregoing arrangements may
exercise against either Borrower rights of set-off and counterclaim with
respect to such participation as fully as if such Lender were a direct creditor
of such Borrower in the amount of such participation.

(e)           Unless
the US Administrative Agent or the Canadian Administrative Agent, as applicable,
shall have received notice from the US Borrower or the Canadian Borrower, as
applicable, prior to the date on which any payment is due to such
Administrative Agent for the account of the US 

 60
 

 

Lenders, the Canadian Lenders or the Issuing Bank hereunder that such
Borrower will not make such payment, such Administrative Agent may assume that
such Borrower has made such payment on such date in accordance herewith and
may, in reliance upon such assumption, distribute to the relevant Lenders or
the Issuing Bank, as the case may be, the amount due. In such event, if such
Borrower has not in fact made such payment, then each of the relevant Lenders
or the Issuing Bank, as the case may be, severally agrees to repay to such
Administrative Agent forthwith on demand the amount so distributed to such
relevant Lender or Issuing Bank with interest thereon, for each day from and
including the date such amount is distributed to it to but excluding the date
of payment to such Administrative Agent, at the greater of the Federal Funds
Effective Rate and a rate determined by such Administrative Agent in accordance
with banking industry rules on interbank compensation.

(f)            If
any Lender shall fail to make any payment required to be made by it, then the
US Administrative Agent or the Canadian Administrative Agent, as applicable,
may, in its discretion (notwithstanding any contrary provision hereof), apply
any amounts thereafter received by such Administrative Agent for the account of
such Lender to satisfy such Lender’s obligations hereunder until all such
unsatisfied obligations are fully paid.

SECTION 2.20       Mitigation
Obligations; Replacement of US Lenders. If any Lender requests compensation
under Section 2.16, or if either Borrower is required to pay any
additional amount to any Lender or any Governmental Authority for the account
of any Lender pursuant to Section 2.18, then:

(a)           such
Lender shall use reasonable efforts to designate a different lending office for
funding or booking its Loans hereunder or to assign its rights and obligations
hereunder to another of its offices, branches or affiliates, if, in the
judgment of such Lender, such designation or assignment (i) would
eliminate or reduce amounts payable pursuant to Section 2.16 or 2.18, as
the case may be, in the future and (ii) in the sole judgment of the
Lender, would not subject such Lender to any unreimbursed cost or expense and
would not otherwise be disadvantageous to such Lender  (and each Borrower hereby agrees to pay all
reasonable costs and expenses incurred by any Lender in connection with any
such designation or assignment) ; provided that nothing in this Section 2.20(a) shall
affect or postpone any of the obligations of the Borrowers or the rights of any
Lender pursuant to Section 2.18(a);

(b)           such
Borrower may, at its sole expense and effort, require such Lender or any Lender
that defaults in its obligation to fund Loans hereunder (herein, a “Departing
Lender”), upon notice to the Departing Lender and the Administrative
Agents, to assign and delegate, without recourse (in accordance with and
subject to the restrictions contained in Section 9.04), all its interests,
rights and obligations under this Agreement to an assignee that shall assume
such obligations (which assignee may be another Lender, if a Lender accepts
such assignment); provided that (i) such Borrower shall have
received the prior written consent of the Administrative Agents (and if a US
Commitment is being assigned, the Issuing Bank), which consent shall not
unreasonably be withheld, (ii) the Departing Lender shall have received
payment of an amount equal to the outstanding principal of its Loans and
participations in LC Disbursements and Swingline Loans, accrued interest
thereon, accrued fees and all other amounts payable to it hereunder, from the assignee
(to the extent of such outstanding principal and accrued interest and fees) or
the US Borrower and/or Canadian Borrower (in the case of all other amounts) and
(iii) in the case of any such assignment resulting from a claim for
compensation under Section 2.16 or payments required to be made pursuant
to Section 2.18, such assignment will result in a reduction in such
compensation or payments. A Departing Lender shall not be required to make any
such assignment and delegation if, prior thereto, as a result of a waiver by
such Lender or otherwise, the circumstances entitling either Borrower to
require such assignment and delegation cease to apply.

 61
 

 

SECTION 2.21       Returned Payments. If after
receipt of any payment which is applied to the payment of all or any part of
the Obligations, either Administrative Agent or any Lender is for any reason
compelled to surrender such payment or proceeds to any Person because such
payment or application of proceeds is invalidated, declared fraudulent, set
aside, determined to be void or voidable as a preference, impermissible setoff,
or a diversion of trust funds, or for any other reason, then the Obligations or
part thereof intended to be satisfied shall be revived and continued and this
Agreement shall continue in full force as if such payment or proceeds had not
been received by such Administrative Agent or such Lender. The provisions of
this Section 2.21 shall be and remain effective notwithstanding any
contrary action which may have been taken by either Administrative Agent or any
Lender in reliance upon such payment or application of proceeds. The provisions
of this Section 2.21 shall survive the termination of this Agreement.

SECTION 2.22       Determination of US Dollar Equivalent.
(a)  No later than 1:00 P.M., New York City time, on each Calculation
Date with respect to any C$ Canadian Revolving Loan, Acceptance or Acceptance
Equivalent Loan, the US Administrative Agent shall determine the US Dollar
Equivalent as of such Calculation Date with respect to such C$ Canadian Revolving
Loan, Acceptance or Acceptance Equivalent Loan, as the case may be. The US
Dollar Equivalent so determined shall become effective on the relevant
Calculation Date (a “Reset Date”), shall remain effective until the next
succeeding Reset Date, except as otherwise provided, and shall for all purposes
of this Agreement be the US Dollar Equivalent employed in converting any
amounts between US Dollars and CDN Dollars.

(b)           No
later than 5:00 P.M., New York City time, on each Reset Date, the US
Administrative Agent shall determine the aggregate amount of the US Dollar
Equivalent of the principal amounts of the C$ Canadian Revolving Loans and
Acceptance Equivalent Loans then outstanding (after giving effect to any C$
Canadian Revolving Loans to be made or repaid on such date and any Acceptances
then outstanding).

(c)           The
US Administrative Agent shall promptly notify the Borrowers of each
determination pursuant to this Section 2.22.

SECTION 2.23       Canadian Illegality. If any
provision of this Agreement or any of the other Loan Documents would obligate
the Canadian Borrower to make any payment of interest with respect to the
Secured Obligations or other amount payable to either Administrative Agent or
any Lender in an amount or calculated at a rate which would be prohibited by
law or would result in a receipt by such Canadian Administrative Agent or such
Lender of interest with respect to the Secured Obligations at a criminal rate
(as such terms are construed under the Criminal Code (Canada)) then,
notwithstanding such provision, such amount or rates shall be deemed to have
been adjusted with retroactive effect to the maximum amount or rate of
interest, as the case may be, as would not be so prohibited by law or so result
in a receipt by such Administrative Agent or such Lender of interest with
respect to the Secured Obligations at a criminal rate, such adjustment to be
effected, to the extent necessary, as follows:

(i)            first, by reducing
the amount or rates of interest required to be paid to the affected
Administrative Agent or the affected Lender under this Section 2.23; and

(ii)           thereafter, by
reducing any fees, commissions, premiums and other amounts required to be paid
to the affected Administrative Agent or the affected Canadian Lender which
would constitute interest with respect to the Secured Obligations for purposes
of Section 347 of the Criminal Code (Canada).

Notwithstanding the
foregoing, and after giving effect to all adjustments contemplated thereby, if
either Administrative Agent or any Lender shall have received an amount in
excess of the maximum permitted 

 62
 

 

by that section of the
Criminal Code (Canada), then the Canadian Borrower shall be entitled, by notice
in writing to the affected Administrative Agent or the affected Canadian
Lender, to obtain reimbursement from such Administrative Agent or such Lender
in an amount equal to such excess, and pending such reimbursement, such amount
shall be deemed to be an amount payable by such Administrative Agent or such
Lender to the Canadian Borrower. Any amount or rate of interest under the
Secured Obligations referred to in this Section 2.23 shall be determined in
accordance with generally accepted actuarial practices and principles as an
effective annual rate of interest over the term that any Canadian Commitment remains
outstanding on the assumption that any charges, fees or expenses that fall
within the meaning of “interest” (as defined in the Criminal Code (Canada))
shall, if they relate to a specific period of time, be pro-rated over that
period of time and otherwise be pro-rated over the Availability Period and, in
the event of a dispute, a certificate of a Fellow of the Canadian Institute of
Actuaries appointed by the Canadian Administrative Agent shall be conclusive
for the purposes of such determination.

ARTICLE
III.

Representations and Warranties

Each Loan Party represents
and warrants to the Administrative Agents, the Issuing Bank and the Lenders
that:

SECTION 3.01       Organization; Powers. Each of the
Loan Parties and each of its Subsidiaries is duly organized, validly existing
and in good standing under the laws of the jurisdiction of its organization,
has all requisite power and authority to carry on its business as now conducted
and, except where the failure to do so, individually or in the aggregate, could
not reasonably be expected to result in a Material Adverse Effect, is qualified
to do business in, and is in good standing in, every jurisdiction where such
qualification is required.

SECTION 3.02       Authorization; Enforceability. The
Transactions are within each Loan Party’s corporate (or other applicable)
powers and have been duly authorized by all necessary organizational and, if
required, stockholder action. The Loan Documents to which each Loan Party is a
party have been duly executed and delivered by such Loan Party and constitute a
legal, valid and binding obligation of such Loan Party, enforceable in
accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium or other laws affecting creditors’ rights generally
and subject to general principles of equity, regardless of whether considered
in a proceeding in equity or at law.

SECTION 3.03       Governmental Approvals; No Conflicts.
The Transactions (a) do not require any consent or approval of,
registration or filing with, or any other action by, any Governmental
Authority, except such as have been obtained or made and are in full force and
effect or any such approvals in connection with the Acquisition that are
waived  under the Acquisition Agreement
with the reasonable consent of the Administrative Agent and except for filings
necessary to perfect Liens created pursuant to the Loan Documents, (b) will
not violate any Requirement of Law applicable to any Loan Party or any of its
Subsidiaries, (c) will not violate or result in a default under any
indenture, agreement or other instrument binding upon any Loan Party or any of
its Subsidiaries or its assets, or give rise to a right thereunder to require
any payment to be made by any Loan Party or any of its Subsidiaries, and (d) will
not result in the creation or imposition of any Lien on any asset of any Loan
Party or any of its Subsidiaries, except Liens created pursuant to the Loan
Documents.

SECTION 3.04       Financial Condition; No Material
Adverse Change. (a)  The US Borrower has heretofore furnished to the
Lenders its consolidated balance sheet and statements of income, stockholders
equity and cash flows (i) as of and for the fiscal years ended February 28,
2005 and 

 63
 

 

February 28,
2006, reported on by Ernst & Young LLP, independent public
accountants, and (ii) as of and for the fiscal month ended April 20,
2006 and for the portion of the fiscal year elapsed since February 28,
2006, certified by the chief financial officer of the US Borrower. Such
financial statements present fairly, in all material respects, the financial
position and results of operations and cash flows of the US Borrower and its
consolidated Subsidiaries as of such dates and for such periods in accordance
with GAAP, subject to year-end audit adjustments and the absence of footnotes
in the case of the statements referred to in clause (ii) above.

(b)           No event, change or
condition has occurred that has had, or could reasonably be expected to have, a
Material Adverse Effect, since February 28, 2006.

SECTION 3.05       Properties. (a)  As of the
date of this Agreement, Schedule 3.05(a) sets forth the address of each
parcel of real property that is owned or leased by each Loan Party. Each of
such leases and subleases is valid and enforceable in accordance with its terms
and is in full force and effect, and no default by any party to any such lease
or sublease exists, except as could not reasonably be expected to result in a
Material Adverse Effect. Each of the Loan Parties and its Subsidiaries has
marketable and indefeasible title to, or valid leasehold interests in, all its
real and personal property, free of all Liens other than those permitted by Section 6.02.

(b)           Each Loan Party and
its Subsidiaries owns, or is licensed to use, all trademarks, tradenames,
copyrights, patents and other intellectual property necessary to
its business as currently conducted, a correct and complete list of which, as
of the date of this Agreement, is set forth on Schedule 3.05(b), and the
use thereof by the Loan Parties and its Subsidiaries does not infringe in any
material respect upon the rights of any other Person.

SECTION 3.06       Litigation and Environmental Matters.
(a)  There are no actions, suits or proceedings by or before any
arbitrator or Governmental Authority pending against or, to the knowledge of
any Loan Party, threatened against or affecting the Loan Parties or any of
their Subsidiaries (i) that could reasonably be expected, individually or
in the aggregate, to result in a Material Adverse Effect (other than the
Disclosed Matters) or (ii) that involve this Agreement or the
Transactions.

(b)           Except for the
Disclosed Matters and except with respect to any other matters that,
individually or in the aggregate, could not reasonably be expected to result in
a Material Adverse Effect, (i) no Loan Party nor any of its Subsidiaries
has received notice of any claim with respect to any Environmental Liability or
knows of any basis for any Environmental Liability and (ii) no Loan Party
nor any of its Subsidiaries (1) has failed to comply with any Environmental
Law or to obtain, maintain or comply with any permit, license or other approval
required under any Environmental Law or (2) has become subject to any
Environmental Liability.

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

SECTION 3.07       Compliance with Laws and Agreements.
Each Loan Party and its Subsidiaries is in compliance with all Requirements of
Law applicable to it or its property and all indentures, agreements and other
instruments binding upon it or its property, except where the failure to do so,
individually or in the aggregate, could not reasonably be expected to result in
a Material Adverse Effect. No Default has occurred and is continuing.

 64
 

 

SECTION 3.08       Investment Company Status. No Loan
Party nor any of its Subsidiaries is an “investment company” as defined in, or
subject to regulation under, the Investment Company Act of 1940.

SECTION 3.09       Taxes. Each Loan Party and its
Subsidiaries has timely filed or caused to be filed all Tax returns and reports
required to have been filed and has paid or caused to be paid all material
Taxes required to have been paid by it, except (a) Taxes that are being
contested in good faith by appropriate proceedings and for which such Loan
Party or such Subsidiary, as applicable, has set aside on its books adequate
reserves or (b) to the extent that the failure to do so could not be expected
to result in a Material Adverse Effect. No tax liens, other than liens for
Taxes not yet due and payable or for Taxes that the Loan Parties are contesting
in good faith through appropriate proceedings and for which an appropriate
reserve has been established if required by GAAP, have been filed and, to the
knowledge of the Loan Parties, no claims are being asserted with respect to any
such taxes.

SECTION 3.10       ERISA. (a) ERISA. No
ERISA Event has occurred or is reasonably expected to occur that, when taken
together with all other such ERISA Events for which liability is reasonably
expected to occur, could reasonably be expected to result in a Material Adverse
Effect. The present value of all accumulated benefit obligations under each
Plan (based on the assumptions used for purposes of Statement of Financial
Accounting Standards No. 87) did not, as of the date of the most recent
financial statements reflecting such amounts, exceed by more than US$2,500,000
the fair market value of the assets of such Plan, and the present value of all
accumulated benefit obligations of all underfunded Plans (based on the
assumptions used for purposes of Statement of Financial Accounting Standards No. 87)
did not, as of the date of the most recent financial statements reflecting such
amounts, exceed by more than US$2,500,000 the fair market value of the assets
of all such underfunded Plans.

(b)           Canadian Pension
and Benefit Plan Matters. Canadian Pension Plans are duly registered under
the Income Tax Act (Canada) and all other applicable laws which require
registration and no event has occurred which is reasonably likely to cause the
loss of such registered status. All Canadian Pension Plans and Canadian Benefit
Plans are and have been established, operated and administered, in all material
respects, in compliance with applicable laws and the terms of such plans
(including any applicable collective agreements) and there are no outstanding
material defaults or violations thereunder. None of the Loan Parties has
received a notice from any regulator concerning a wind up or potential wind up,
in whole or in part, in respect of any Canadian Pension Plan. All material
obligations of any Loan Party (including fiduciary, funding, investment and
administration obligations) required to be performed in connection with the
Canadian Pension Plans and the funding agreements therefor have been performed
in a timely fashion. There are no outstanding suits, actions claims or
proceedings concerning the assets of the Canadian Pension Plans or the Canadian
Benefit Plans and to the Loan Parties’ knowledge none are reasonably expected
to be asserted against any Canadian Pension Plan or Canadian Benefit Plan or
the assets of any Canadian Pension Plan or Canadian Benefit Plan. Each of the
Canadian Pension Plans is fully funded on a solvency basis and on a going
concern basis (using actuarial methods and assumptions which are consistent
with the valuations last filed with the applicable governmental authorities and
which are consistent with generally accepted actuarial principles). All
employer and employee payments, contributions and premiums to be remitted, paid
to or in respect of each Canadian Pension Plan or Canadian Benefit Plan have
been remitted or paid in a timely fashion in accordance with the terms thereof,
any funding agreement and all applicable laws. The Canadian Borrower does not
employ any employees outside of Canada. All post-retirement benefits, if any,
under any Canadian Benefit Plan, have been properly set out in the applicable
Loan Party’s financial statements.

SECTION 3.11       Disclosure. The Borrowers and
Holdings have disclosed to the Lenders all agreements, instruments and
corporate or other restrictions to which it or any Subsidiary is subject, and
all other matters known to it, that, individually or in the aggregate, could
reasonably be 

 65
 

 

expected
to result in a Material Adverse Effect. None of the reports, financial
statements, certificates or other information furnished by or on behalf of the
any Loan Party to either Administrative Agent or any Lender in connection with
the negotiation of this Agreement or any other Loan Document (as modified or
supplemented by other information so furnished) contains any material
misstatement of fact or omits to state any material fact necessary to make the
statements therein, taken as a whole, in the light of the circumstances under
which they were made, not misleading; provided that, with respect to
projected financial information, the Borrowers and Holdings represent only that
such information was prepared in good faith based upon assumptions believed to
be reasonable at the time delivered and, if such projected financial
information was delivered prior to the Effective Date, as of the Effective
Date.

SECTION 3.12       Material Agreements. All material
agreements and contracts to which any Loan Party is a party or is bound as of
the date of this Agreement are listed on Schedule 3.12. No Loan Party is in
default in the performance, observance or fulfillment of any of the
obligations, covenants or conditions contained in (i) any material
agreement to which it is a party or (ii) any agreement or instrument
evidencing or governing Indebtedness, except for any such default that could
not reasonably be expected to result in a Material Adverse Effect.

SECTION 3.13       Solvency. (a)  Immediately
after the consummation of the Transactions to occur on the Effective Date, (i) the
fair value of the assets of each Loan Party, at a fair valuation, will exceed
its debts and liabilities, subordinated, contingent or otherwise; (ii) the
present fair saleable value of the property of each Loan Party will be greater
than the amount that will be required to pay the probable liability of its
debts and other liabilities, subordinated, contingent or otherwise, as such
debts and other liabilities become absolute and matured; (iii) each Loan
Party will be able to pay its debts and liabilities, subordinated, contingent
or otherwise, as such debts and liabilities become absolute and matured; and (iv) each
Loan Party will not have unreasonably small capital with which to conduct the
business in which it is engaged as such business is now conducted and is
proposed to be conducted after the Effective Date.

(b)           No Loan Party
intends to, or will permit any of its Subsidiaries to, and no Loan Party
believes that it or any of its Subsidiaries will, incur debts beyond its
ability to pay such debts as they mature, taking into account the timing of and
amounts of cash to be received by it or any such Subsidiary and the timing of
the amounts of cash to be payable on or in respect of its Indebtedness or the
Indebtedness of any such Subsidiary.

SECTION 3.14       Insurance. Schedule 3.14 sets
forth a description of all insurance maintained by or on behalf of the Loan
Parties and the Subsidiaries as of the Effective Date. As of the Effective
Date, all premiums in respect of such insurance have been paid. The US Borrower
and Holdings believe that the insurance maintained by or on behalf of the US
Borrower and the Subsidiaries is adequate.

SECTION 3.15       Capitalization and Subsidiaries. Schedule
3.15 sets forth (a) a correct and complete list of the name and
relationship to the US Borrower of each and all of the US Borrower’s
Subsidiaries (including the Canadian Borrower), (b) a true and complete
listing of each class of each of the US Borrower’s authorized Equity Interests,
of which all of such issued shares are validly issued, outstanding, fully paid
and non-assessable, and owned beneficially and of record by the Persons
identified on Schedule 3.15, and (c) the type of entity of the US
Borrower  and each of its Subsidiaries
(including the Canadian Borrower); provided that the US Borrower may
supplement Schedule 3.15 by delivering such supplement in writing to the US
Administrative Agent to reflect any changes to such schedule occurring after
the Effective Date. All of the issued and outstanding Equity Interests owned by
any Loan Party has been (to the extent such concepts are relevant with respect
to such ownership interests) duly authorized and issued and is fully paid and
non-assessable.

 66

 

SECTION 3.16       Security Interest in Collateral. The
provisions of this Agreement and the other Loan Documents create legal and
valid Liens on all the Collateral in favor of the US Administrative Agent or
the Canadian Administrative Agent, as applicable, for the benefit of the
Administrative Agents and the Lenders, and such Liens constitute perfected and
continuing Liens on the Collateral, securing the Secured Obligations,
enforceable against the applicable Loan Party and all third parties, and having
priority over all other Liens on the Collateral except for Liens permitted by Section 6.02
(but without prejudice to the requirements set forth in the definitions of “Eligible
Accounts” and “Eligible Inventory”).

SECTION 3.17       Labor Disputes. As of the Effective
Date, there are no strikes, lockouts or slowdowns against any Loan Party or any
Subsidiary pending or, to the knowledge of the Borrowers, threatened. The hours
worked by and payments made to employees of the Loan Parties and the
Subsidiaries have not been in violation of the Fair Labor Standards Act or any
other applicable Federal, state, provincial, local or foreign law dealing with
such matters. All payments due from any Loan Party or any Subsidiary, or for
which any claim may be made against any Loan Party or any Subsidiary, on
account of wages, vacation pay, severance or termination pay and employee
health and welfare insurance and other benefits, have been paid or accrued as a
liability on the books of the Loan Party or such Subsidiary.

SECTION 3.18       Affiliate Transactions. Except as
set forth on Schedule 3.18, as of the date of this Agreement, there are no
existing or proposed agreements, arrangements, understandings, or transactions
between any Loan Party and any of the officers, members, managers, directors,
stockholders, parents, other interest holders, employees, or Affiliates (other
than Subsidiaries) of any Loan Party or any members of their respective
immediate families, and none of the foregoing Persons are directly or
indirectly indebted to or have any direct or indirect ownership, partnership,
or voting interest in any Affiliate of any Loan Party or any Person with which
any Loan Party has a business relationship or which competes with any Loan
Party (except that any such Persons may own stock in (but not exceeding 2.0% of
the outstanding Equity Interests of) any publicly traded company that may
compete with a Loan Party.

SECTION 3.19       Federal Regulations. No part of the
proceeds of any Loans, and no other extensions of credit hereunder, will be
used (a) for “buying” or “carrying” any “margin stock” within the
respective meanings of each of the quoted terms under Regulation U as now and
from time to time hereafter in effect for any purpose that violates the
provisions of the Regulations of the Board or (b) for any purpose that
violates the provisions of the Regulations of the Board. If requested by any
Lender or either Administrative Agent, the relevant Borrower will furnish to
each Administrative Agent and each Lender a statement to the foregoing effect
in conformity with the requirements of FR Form G-3 or FR Form U-1,
as applicable, referred to in Regulation U.

ARTICLE
IV.

Conditions

SECTION 4.01       Effective Date. The obligations of
the Lenders to make Loans and issue Acceptances and of the Issuing Bank to
issue Letters of Credit hereunder shall not become effective until the date on
which each of the following conditions is satisfied (or waived by the
Administrative Agents):

(a)           Credit
Agreement and Loan Documents. The Administrative Agents (or their counsel)
shall have received (i) from each party hereto either (A) a
counterpart of this Agreement signed on behalf of such party or (B) written
evidence satisfactory to the Administrative Agents (which may include facsimile
or electronic transmission of a signed signature page of this Agreement)
that such party 

 67
 

 

has signed a counterpart of this Agreement and (ii) duly executed
copies of the other Loan Documents (including, among others, the US Security
Agreement, the Canadian Security Agreement, the Loan Guaranty and the
Intercreditor Agreement) and such other certificates, documents, instruments
and agreements as the Administrative Agents shall reasonably request in
connection with the transactions contemplated by this Agreement and the other
Loan Documents, including any promissory notes requested by a Lender pursuant
to Section 2.11 payable to the order of each such requesting Lender and
written opinions of counsel to the Loan Parties, addressed to the
Administrative Agents, the Issuing Bank and the Lenders, substantially in the
form of Exhibit B-1 and Exhibit B-2.

(b)           Financial
Statements and Projections. The Lenders shall have received (i) the
audited consolidated financial statements of the US Borrower for the two most
recent fiscal years ended prior to the Closing Date as to which such financial
statements are available, (ii) the unaudited interim consolidated
financial statements of the US Borrower for each fiscal month and quarterly
period ended subsequent to the date of the latest financial statements
delivered pursuant to clause (i) of this paragraph as to which such
financial statements are available and (iii) the US Borrower’s most recent
projected income statement, balance sheet and cash flows for the fiscal years
ended February 28, 2007 through February 28, 2010, with the projected
statements for the fiscal year ended February 28, 2007 to include
projections on a quarterly basis.

(c)           Closing
Certificates; Certified Certificate of Incorporation; Good Standing
Certificates. The Administrative Agents shall have received (i) a
certificate of each Loan Party, dated the Effective Date and executed by its
Secretary or Assistant Secretary, which shall (A) certify the resolutions
of its Board of Directors, members or other body authorizing the execution, delivery
and performance of the Loan Documents to which it is a party, (B) identify
by name and title and bear the signatures of the Financial Officers and any
other officers of such Loan Party authorized to sign the Loan Documents to
which it is a party, and (C) contain appropriate attachments, including
the certificate or articles of incorporation or organization of each Loan Party
certified by the relevant authority of the jurisdiction of organization of such
Loan Party and a true and correct copy of its by-laws or operating,
management or partnership agreement, and (ii) a long-form good standing
certificate or the equivalent thereof for each Loan Party from its jurisdiction
of organization.

(d)           No
Default Certificate. The Administrative Agents shall have received a certificate, signed
by the chief financial officer of the US Borrower, on the initial
Borrowing date (i) stating that no Default has occurred and is continuing,
(ii) stating that the representations and warranties contained in Article III
are true and correct in all material respects as of such date, and (iii) certifying
any other factual matters as may be reasonably requested by the Administrative
Agents.

(e)           Fees.
The Lenders and the Administrative Agents shall have received all fees required
to be paid, and all expenses for which invoices have been presented (including
the reasonable fees and expenses of legal counsel), on or before the Effective
Date. All such amounts will be paid with proceeds of Loans made on the
Effective Date and will be reflected in the funding instructions given by the
Borrowers to the Administrative Agents on or before the Effective Date.

(f)            Lien
Searches. The Administrative Agents shall have received the results of a
recent lien search in each of the jurisdictions where assets of the Loan
Parties are located, and such search shall reveal no liens on any of the assets
of the Loan Parties except for liens permitted by Section 6.02 or
discharged on or prior to the Effective Date pursuant to a pay-off letter or
other documentation reasonably satisfactory to the Administrative Agents.

(g)           Pay-Off
Letter. The Administrative Agents shall have received a satisfactory
pay-off letter for all existing Indebtedness (including all Indebtedness under
the Existing CIT Facility but 

 68
 

 

excluding the Senior Secured Notes) to be repaid from the proceeds of
the initial Borrowing, confirming that all Liens upon any of the property of
the Loan Parties constituting Collateral (other than Liens in respect of the
Senior Secured Notes) will be terminated concurrently with such payment and all
letters of credit issued or guaranteed as part of such Indebtedness shall have
been cash collateralized or supported by a Letter of Credit.

(h)           Funding
Accounts. The Administrative Agents shall have received a notice setting
forth the deposit accounts of the US Borrower (the “US Borrower Funding
Account”) and the Canadian Borrower (the “Canadian Borrower Funding
Account”) to which the US Lenders or the Canadian Lenders, as applicable,
are authorized by the relevant Borrower to transfer the proceeds of any
Borrowings requested or authorized pursuant to this Agreement.

(i)            Solvency.
The Administrative Agents shall have received a solvency certificate from a
Financial Officer.

(j)            Borrowing
Base Certificate. The Administrative Agents shall have received a Borrowing
Base Certificate which calculates the Borrowing Base as of March 23, 2006.

(k)           Closing
Availability. After giving effect to all Borrowings to be made on the
Effective Date and the issuance of any Letters of Credit on the Effective Date
and payment of all fees and expenses due hereunder, and with all of the Loan
Parties’ indebtedness, liabilities, and obligations current, Availability shall
not be less than US$20,000,000.

(l)            Pledged
Stock; Stock Powers; Pledged Notes. The applicable Administrative Agent
shall have received (i) the certificates representing the shares of
Capital Stock pledged pursuant to the US Security Agreement and the Canadian
Security Agreement, together with an undated stock power for each such
certificate executed in blank by a duly authorized officer of the pledgor
thereof, and (ii) each promissory note (if any) pledged to the US
Administrative Agent or the Canadian Administrative Agent, as the case may be,
pursuant to the US Security Agreement or the Canadian Security Agreement, as
the case may be, endorsed (without recourse) in blank (or accompanied by an
executed transfer form in blank) by the pledgor thereof.

(m)          Filings,
Registrations and Recordings. Each document (including any Uniform
Commercial Code financing statement or PPSA financing statement) required
by the Collateral Documents or under law or reasonably requested by the US
Administrative Agent or the Canadian Administrative Agent, as applicable, to be
filed, registered or recorded in order to create in favor of such
Administrative Agent, for the benefit of the Lenders, a perfected Lien on the
Collateral described therein, prior and superior in right to any other Person
(other than with respect to Liens expressly permitted by Section 6.02),
shall have been filed or shall be in proper form for filing, registration or
recordation.

(n)           Mortgages,
etc. The US Administrative Agent or the Canadian Administrative Agent, as
applicable, shall have received, with respect to each parcel of real property
listed on Schedule 4.01(n) which is required, subject to the Intercreditor
Agreement, to be subject to a Lien in favor of such Administrative Agent, each
of the following, in form and substance reasonably satisfactory to such
Administrative Agent:

(i)            a Mortgage on such
property; and

(ii)           evidence that a
counterpart of the Mortgage has been duly executed, acknowledged and delivered,
in form suitable for filing and recording, as necessary to create a valid and
enforceable second priority Lien in favor of such Administrative Agent 

 69
 

 

for the
benefit of itself and the Lenders, which Lien shall be second in priority to
the Lien securing the Senior Secured Notes.

(o)           Transactions.
The Transactions shall have been consummated in accordance with applicable law
and the Acquisition Agreement and all other related documentation (without
amendment, modification or waiver thereof which is materially adverse to the
Lenders without the consent of the Administrative Agents). The capitalization,
structure and equity ownership of each Loan Party after the Transactions shall
be substantially as described in the Consent Solicitation Statement. The fees
and expenses relating to the Transactions shall not exceed US$17,000,000.

(p)           Consent
Solicitation Statement. The consent solicitation pursuant to the Consent
Solicitation Statement shall have been approved by the relevant Holders (as
defined in the Senior Secured Notes Indenture) on substantially the terms
described in the Consent Solicitation Statement (without amendment,
modification or waiver thereof which is materially adverse to the Lenders
without the consent of the Administrative Agents).

(q)           Governmental
and Third-Party Approvals. All governmental and material third party
approvals necessary in connection with the Transactions, the financing
contemplated hereby and the continuing operations of the Borrowers and their
respective Subsidiaries (including shareholder approvals, if any) shall have
been obtained on reasonably satisfactory terms and shall be in full force and
effect, except for any such approvals in connection with the Acquisition that
are waived under the Acquisition Agreement with the consent of the
Administrative Agents and all applicable waiting periods shall have expired
without any action being taken or threatened by any competent authority that
would restrain, prevent or otherwise impose adverse conditions on the
Transactions or the financing thereof or, any of the transactions contemplated
hereby.

(r)            Insurance.
The Administrative Agents shall have received evidence of insurance coverage in
form, scope, and substance reasonably satisfactory to the Administrative Agents
and otherwise in compliance with the terms of Section 5.09.

(s)           Letter
of Credit Application. The US Administrative Agent shall have received a
properly completed letter of credit application if the issuance of a Letter of
Credit will be required on the Effective Date.

(t)            Inventory
Appraisals. The Administrative Agents shall have received and be reasonably
satisfied with inventory appraisals to be specified by the Administrative
Agents from appraisers reasonably satisfactory to the Administrative Agents. The
appraisers shall be engaged directly by the Administrative Agents and shall
have no direct or indirect interest, financial or otherwise, in the property or
transaction.

(u)           Field
Examinations. The Administrative Agents or their designees shall have
conducted a reasonably satisfactory field examination of the accounts
receivable, inventory and related working capital matters and financial
information of the Borrowers and their Subsidiaries and of the related data
processing and other systems.

(v)           Federal
Regulations. The Borrowers shall have complied with all applicable
requirements of Regulations T, U and X of the Board.

The Administrative Agents
shall notify the Borrowers and the Lenders of the Effective Date, and such
notice shall be conclusive and binding. Notwithstanding the foregoing, the
obligations of the Lenders to make Loans and of the Issuing Bank to issue
Letters of Credit hereunder shall not become effective unless 

 70
 

 

each of the foregoing
conditions is satisfied (or waived by the Administrative Agents) at or prior to
2:00 p.m., New York City time, on August 8, 2006 (and, in the event
such conditions are not so satisfied or waived, the Commitments shall terminate
at such time).

SECTION 4.02       Each Credit Event. The obligation
of each Lender to make a Loan or issue an Acceptance on the occasion of any
Borrowing, and of the Issuing Bank to issue, amend, renew or extend any Letter
of Credit, is subject to the satisfaction of the following conditions:

(a)           The
representations and warranties of the Borrowers set forth in this Agreement
shall be true and correct in all material respects (other than in the case of
representations or warranties qualified by materiality, in which case such
representations and warranties shall be true and correct) on and as of the date
of such Borrowing or the date of issuance, amendment, renewal or extension of
such Letter of Credit, as applicable.

(b)           At
the time of and immediately after giving effect to such Borrowing or the
issuance, amendment, renewal or extension of such Letter of Credit, as
applicable, no Default shall have occurred and be continuing and the US
Administrative Agent or the Canadian Administrative Agent, as applicable, or
the Required US Lenders or the Required Canadian Lenders, as applicable, shall
have determined not to make such Borrowing or instructed the Issuing Bank not
to issue such Letter of Credit as a result of such Default.

(c)           After
giving effect to any Borrowing or the issuance of any Letter of Credit,
Availability is not less than zero.

Each Borrowing and each
issuance, amendment, renewal or extension of a Letter of Credit shall be deemed
to constitute a representation and warranty by the Borrowers on the date
thereof as to the matters specified in paragraphs (a), (b) and (c) of this
Section.

ARTICLE
V.

Affirmative Covenants

Until the Commitments have
expired or been terminated and the principal of and interest on each Loan and
all fees payable hereunder shall have been paid in full and all Letters of
Credit shall have expired or terminated and all LC Disbursements shall have
been reimbursed, each Loan Party executing this Agreement covenants and agrees,
jointly and severally with all of the Loan Parties, with the Lenders that:

SECTION 5.01       Financial Statements; Borrowing Base
and Other Information. The US Borrower will furnish to the Administrative
Agents (to be made available by the Administrative Agents to each Lender):

(a)           within
90 days after the end of each fiscal year of the US Borrower, its audited
consolidated balance sheet and related statements of operations, stockholders’
equity and cash flows as of the end of and for such year, setting forth in each
case in comparative form the figures for the previous fiscal year, all reported
on by Ernst & Young LLP or other nationally recognized auditors
(without a “going concern” or like qualification or exception and without any
qualification or exception as to the scope of such audit) to the effect that
such consolidated financial statements present fairly in all material respects
the financial condition and results of operations of the US Borrower and its
consolidated Subsidiaries on a consolidated basis in accordance with GAAP
consistently applied, accompanied by any management letter prepared by said
accountants;

 71
 

 

(b)           within
45 days after the end of each of the first three fiscal quarters of the US
Borrower, its consolidated balance sheet and related statements of operations,
stockholders’ equity and cash flows as of the end of and for such fiscal
quarter and the then elapsed portion of the fiscal year, setting forth in each
case in comparative form the figures for the corresponding period or periods of
(or, in the case of the balance sheet, as of the end of) the previous fiscal
year, all certified by one of its Financial Officers as presenting fairly in
all material respects the financial condition and results of operations of the
US Borrower and its consolidated Subsidiaries on a consolidated basis in
accordance with GAAP consis­tently applied, subject to normal year-end audit
adjustments and the absence of footnotes;

(c)           within
20 days after the end of each fiscal month of the US Borrower, its consolidated
balance sheet and related statements of operations and cash flows as of the end
of and for such fiscal month and the then elapsed portion of the fiscal year,
prepared and presented in the same form as the US Borrower’s existing practice
for internally generated financial statements;

(d)           concurrently
with any delivery of financial statements under clause (a) or (b) above,
a certificate of a Financial Officer of the US Borrower in substantially the
form of Exhibit D  (i) certifying,
in the case of the financial statements delivered under clause (b) or (c),
as presenting fairly in all material respects the financial condition and
results of operations of the US Borrower and its consolidated Subsidiaries on a
consolidated basis in accordance with GAAP consistently applied, subject to
normal year-end audit adjustments and the absence of footnotes, (ii) certifying
as to whether a Default has occurred and, if a Default has occurred, specifying
the details thereof and any action taken or proposed to be taken with respect
thereto, (iii) setting forth reasonably detailed calculations
demonstrating compliance with Section 6.12 and (iv) stating whether
any change in GAAP or in the application thereof has occurred since the date of
the audited financial statements referred to in Section 3.04 and, if any
such change has occurred, specifying the effect of such change on the financial
statements accompanying such certificate;

(e)           concurrently
with any delivery of financial statements under clause (a) above, a
certificate of the accounting firm that reported on such financial statements
stating whether they obtained knowledge during the course of their examination
of such financial statements of any Default (which certificate may be limited
to the extent required by accounting rules or guidelines and internal
policies of such accounting firm);

(f)            as
soon as available, but in any event not more than 30 days following the
beginning of each fiscal year of the US Borrower, a copy of the plan and
forecast (including a projected consolidated and consolidating balance sheet,
income statement and cash flow statement) of the US Borrower for the upcoming
fiscal year (the “Projections”) in form reasonably satisfactory to the
Administrative Agents, provided that such Projections to be delivered
for the first fiscal year following the Effective Date shall present such plan
and forecast on a quarterly basis for the first fiscal year following the
Effective Date;

(g)           as
soon as available but in any event within 20 days of the end of each calendar
month (or, at any time when Average Monthly Availability is less than an amount
equal to 15% of the Commitments at such time, within 3 days of the end of each
calendar week) and at such other times as may be necessary to re-determine
availability of Advances hereunder or as may be requested by the Administrative
Agents, as of the period then ended, a Borrowing Base Certificate and
supporting information in connection therewith (including separate calculations
of the Borrowing Base for each of the US Borrower and the Canadian Borrower),
together with any additional reports with respect to the Borrowing Base as the
Administrative Agents may reasonably request;

 72

 

(h)           as soon as available
but in any event within 20 days of the end of each calendar month (or, at any
time when Average Monthly Availability is less than an amount equal to 15% of
the Commitments at such time, within 3 days of the end of each calendar week)
and at such other times as may be requested by the Administrative Agents, as of
the period then ended, all delivered electronically in a text formatted file (not
in an Adobe *.pdf file):

(i)            a detailed aging of the Loan Parties’
Accounts (1) including all invoices aged by invoice date and due date
(with an explanation of the terms offered) and (2) reconciled to the
Borrowing Base Certificate delivered as of such date prepared in a manner
reasonably acceptable to the Administrative Agents, together with a summary
specifying the name, address, and balance due for each Account Debtor;

(ii)           a schedule detailing the Loan Parties’
Inventory, in form reasonably satisfactory to the Administrative Agents, (1) by
location (showing Inventory in transit, any Inventory located with a third
party under any consignment, bailee arrangement, or warehouse agreement), by
class (raw material, work-in-process and finished goods), by product type, and
by volume on hand, which Inventory shall be valued at the lower of cost (determined
on a first-in, first-out basis) or market and adjusted for Reserves as the
Administrative Agents have previously indicated to the Borrowers are deemed by
the Administrative Agents to be appropriate and (2) reconciled to the
Borrowing Base Certificate delivered as of such date; and

(iii)          a worksheet of calculations prepared
by the US Borrower to determine Eligible Accounts and Eligible Inventory, such
worksheets detailing the Accounts and Inventory excluded from Eligible Accounts
and Eligible Inventory and the reason for such exclusion;

(i)            as soon as
available but in any event within 20 days of the end of each calendar month
(or, at any time when Average Monthly Availability is less than an amount equal
to 15% of the Commitments at such time, within 3 days of the end of each
calendar week) and at such other times as may be requested by the
Administrative Agents, as of the period then ended, a schedule and aging of the
Loan Parties’ accounts payable, delivered electronically in a text formatted file (not in an
Adobe *.pdf file);

(j)            promptly upon the
US Administrative Agent’s or the Canadian Administrative Agent’s reasonable
request:

(i)            copies of invoices in connection
with the invoices issued by the Loan Parties in connection with any Accounts,
credit memos, shipping and delivery documents, and other information related
thereto;

(ii)           copies of purchase orders, invoices,
and shipping and delivery documents in connection with any Inventory or
Equipment purchased by any Loan Party; and

(iii)          a schedule detailing the balance of
all intercompany accounts of the Loan Parties;

(k)           at any time as may
be reasonably requested by the Administrative Agents, as of the period then
ended, the US Borrower’s and Canadian Borrower’s sales journal, cash receipts
journal (identifying trade and non-trade cash receipts) and debit memo/credit
memo journal;

 73
 

 

(l)            as soon as possible
and in any event within 20 days of filing thereof, copies of all tax returns
filed by any Loan Party with the US Internal Revenue Service or Canadian tax
authorities;

(m)          concurrently with the
completion of the field examination conducted pursuant to Section 5.11, an
updated customer list for the Borrowers and their Subsidiaries, which shall
list shall state the customer’s name, mailing address and phone number and
shall be certified as true and correct by a Financial Officer of the US
Borrower

(n)           within 20 days of
the end of each fiscal year of the US Borrower, a certificate of good standing
or the equivalent thereof for each Loan Party from the appropriate governmental
officer in its jurisdiction of incorporation, formation, or organization;

(o)           promptly after the
same become publicly available, copies of all periodic and other reports, proxy
statements and other materials filed by the Borrowers or any of their
Subsidiaries with the Securities and Exchange Commission, or any Governmental
Authority succeeding to any or all of the functions of said Commission, or with
any national securities exchange, or distributed by the US Borrower to its
shareholders generally, as the case may be; and

(p)           promptly following
any request therefor, such other information regarding the operations, business
affairs and financial condition of the Borrowers or any of their Subsidiaries,
or compliance with the terms of this Agreement, as either Administrative Agent
or any Lender may reasonably request.

SECTION 5.02       Notices of Material Events. The
Borrowers will furnish to each Administrative Agent and each Lender prompt
written notice of the following:

(a)           the occurrence of any
Default;

(b)           receipt of any
notice of any governmental investigation or any litigation or proceeding
commenced or threatened against any Loan Party that (i) seeks damages in
excess of US$2,500,000, (ii) seeks injunctive relief, (iii) is
asserted or instituted against any Plan, its fiduciaries or its assets, (iv) alleges
criminal misconduct by any Loan Party, (v) alleges the violation of any
law regarding, or seeks remedies in connection with, any Environmental Laws, (vi) contests
any tax, fee, assessment, or other governmental charge in excess of
US$2,500,000, or (vii) involves any product recall;

(c)           any Lien (other than
Liens permitted under Section 6.02) against any of the Collateral;

(d)           any loss, damage, or
destruction to the Collateral in the amount of US$2,500,000 or more, whether or
not covered by insurance;

(e)           any and all default
notices received under or with respect to any leased location or public
warehouse where material Collateral or any Collateral then included in the
Borrowing Base is located (which shall be delivered within five Business Days
after receipt thereof);

(f)            all material
amendments to the Acquisition Documentation, together with a copy of each such
amendment;

(g)           the fact that a Loan
Party has entered into a Swap Agreement or an amendment to a Swap Agreement,
together with copies of all agreements evidencing such Swap Agreement or
amendments thereto (which shall be delivered within two Business Days);

 74
 

 

(h)           the occurrence of
any ERISA Event that, alone or together with any other ERISA Events that have
occurred, could reasonably be expected to result in liability of the US
Borrower and its Subsidiaries in an aggregate amount exceeding US$2,500,000;

(i)            the occurrence of
any event or receipt of any notice in respect of clauses (iii) through (vi) of
Section 5.15(c); and

(j)            any other
development that results in, or could reasonably be expected to result in, a
Material Adverse Effect.

Each notice delivered under
this Section shall be accompanied by a statement of a Financial Officer or
other executive officer of the US Borrower setting forth the details of the
event or development requiring such notice and any action taken or proposed to
be taken with respect thereto.

SECTION 5.03       Existence; Conduct of Business. Each
Loan Party will, and will cause each Subsidiary to, do or cause to be done all
things necessary to preserve, renew and keep in full force and effect its legal
existence and the rights, qualifications, licenses, permits, franchises,
governmental authorizations, intellectual property rights, licenses and permits
material to the conduct of its business, and maintain all requisite authority
to conduct its business in each jurisdiction in which its business is
conducted; provided that the foregoing shall not prohibit any merger, consolidation,
liquidation or dissolution permitted under Section 6.03.

SECTION 5.04       Payment of Obligations. Each Loan
Party will, and will cause each 
Subsidiary to, pay or discharge all Material Indebtedness and all other
material liabilities and obligations, including Taxes, before the same shall
become delinquent or in default, except where (a) the validity or amount
thereof is being contested in good faith by appropriate proceedings, (b) such
Loan Party or such Subsidiary has set aside on its books adequate reserves with
respect thereto in accordance with GAAP and (c) the failure to make
payment pending such contest could not reasonably be expected to result in a
Material Adverse Effect.

SECTION 5.05       Maintenance of Properties. Each
Loan Party will, and will cause each Subsidiary to, keep and maintain all
property material to the conduct of its business in good working order and
condition, ordinary wear and tear excepted.

SECTION 5.06       Books and Records; Inspection Rights.
Each Loan Party will, and will cause each Subsidiary to, (i) keep proper
books of record and account in which full, true and correct entries are made of
all dealings and transactions in relation to its business and activities and (ii) permit
any representatives designated by either Administrative Agent (including
employees of either Administrative Agent, any Lender or any consultants,
accountants, lawyers and appraisers retained by either Administrative Agent),
upon reasonable prior notice, to visit and inspect its properties, to examine and
make extracts from its books and records, including environmental assessment
reports and Phase I or Phase II studies, and to discuss its affairs, finances
and condition with its officers and independent accountants, all at such
reasonable times and as often as reasonably requested. The Loan Parties
acknowledge that the Administrative Agents, after exercising their rights of
inspection, may prepare and distribute to the Lenders certain Reports
pertaining to the Loan Parties’ assets for internal use by the Administrative
Agents and the Lenders.

SECTION 5.07       Compliance with Laws. Each Loan
Party will, and will cause each Subsidiary to, comply with all Requirements of
Law applicable to it or its property, except where the failure to do so,
individually or in the aggregate, could not reasonably be expected to result in
a Material Adverse Effect.

 75
 

 

SECTION 5.08       Use of Proceeds. The proceeds of
the Loans and the Acceptances will be used only to finance a portion of the
Transactions and for general corporate purposes, including acquisitions
permitted under this Agreement. No part of the proceeds of any Loan or any
Acceptance and no Letter of Credit will be used, whether directly or
indirectly, for any purpose that entails a violation of any of the Regulations
of the Board, including Regulations T, U and X.

SECTION 5.09       Insurance. Each Loan Party will,
and will cause each Subsidiary to, maintain with financially sound and
reputable carriers having a financial strength rating of at least A+ by A.M.
Best Company (a) insurance in such amounts (with no greater risk
retention) and against such risks (including loss or damage by fire and loss in
transit; theft, burglary, pilferage, larceny, embezzlement, and other criminal
activities; business interruption; and general liability) and such other
hazards, as is customarily maintained by companies of established repute
engaged in the same or similar businesses operating in the same or similar
locations and (b) all insurance required pursuant to the Collateral
Documents. The Borrowers will furnish to the Lenders, upon the reasonable
request of either Administrative Agent, information in reasonable detail as to
the insurance so maintained.

SECTION 5.10       Casualty and Condemnation. The
Borrowers (a) will furnish to the Administrative Agents and the Lenders
prompt written notice of any casualty or other insured damage to any material
portion of the Collateral or the commencement of any action or proceeding for
the taking of any material portion of the Collateral or interest therein under power
of eminent domain or by condemnation or similar proceeding and (b) will
ensure that the Net Proceeds of any such event (whether in the form of
insurance proceeds, condemnation awards or otherwise) are collected and applied
in accordance with Section 2.12(c).

SECTION 5.11       Appraisals and Field Examinations.
At any time that either Administrative Agent reasonably requests, the Borrowers
and their respective Subsidiaries will provide such Administrative Agent with (i) appraisals
or updates thereof of their Inventory and/or (ii) field examinations, in
each case from an appraiser selected and engaged by such Administrative Agent,
and prepared on a basis reasonably satisfactory to such Administrative Agent,
such appraisals and updates and field examinations to include, without
limitation, information required by applicable law and regulations; provided,
that (A) not more than one field examination and one inventory appraisal
per year will be conducted; provided, further that there shall be
no limitation on the number or frequency of field examinations or inventory
appraisals if a Default shall have occurred and be continuing or if Average
Monthly Availability is less than an amount equal to 15% of the Commitments at
such time and (B) each such field examination and inventory appraisal
shall be at the sole expense of the Loan Parties.

SECTION 5.12       Securities Account Control Agreements;
Deposit Account Control Agreements; Depository Banks. (a)  Within 60
days after the Effective Date, the Borrowers shall provide to the US
Administrative Agent or the Canadian Administrative Agent, as applicable, a
Deposit Account Control Agreement or Securities Account Control Agreement, duly
executed on behalf of each financial institution holding a deposit account or
securities account of a Loan Party as set forth in the US Security Agreement or
the Canadian Security Agreement, as applicable. Thereafter, the Borrowers shall
provide to the applicable Administrative Agent, upon such Administrative Agent’s
request, a Deposit Account Control Agreement or Securities Account Control
Agreement duly executed on behalf of each financial institution holding a
deposit account or securities account of a Loan Party as set forth in the US
Security Agreement or the Canadian Security Agreement, as applicable. At any
time when Average Monthly Availability is less than an amount equal to 15% of
the Commitments at such time, any proceeds received by a Loan Party with respect to any Collateral and any
other funds, instruments or other
property otherwise received a Loan Party shall be deposited into a deposit
account or a securities account subject to a Deposit Account Control Agreement or
a Securities Account Control Agreement, as applicable, which will be swept on a daily basis into a blocked account with the
applicable Administrative Agent, and 

 76
 

 

such funds shall be applied toward the prepayment of
the Loans hereunder; provided that (i) to the extent any
such funds constitute Note Priority Collateral, such funds shall be segregated
from all other accounts of the relevant Loan Party in accordance with the
Senior Secured Notes Indenture until such time as such funds (x) have been
reinvested in assets constituting Note Priority Collateral or (y) are no
longer required to be so segregated, in each case pursuant to the terms of the
Senior Secured Notes Indenture; and provided, further, that any
such funds which are no longer required to be segregated in accordance with
clause (y) above shall, subject to the Intercreditor Agreement, be applied toward the prepayment of the Loans
hereunder. The Borrowers and each of their respective Subsidiaries will
maintain the US Administrative Agent or the Canadian Administrative Agent, as
appropriate, as its principal depository bank, including for the maintenance of
operating, administrative, cash management, collection activity, and other
deposit accounts for the conduct of its business.

(b)           Upon the US
Administrative Agent’s receipt of, and satisfaction with, a certificate of a
Financial Officer certifying that Availability shall have exceeded an amount
equal to 15% of the Commitments at such time for a period of at least 30
consecutive days (and setting forth in reasonable detail the relevant
calculations in support thereof), any such funds or amounts received by a Loan
Party and so deposited shall not be required to be applied toward the
prepayment of the Loans as set forth in clause (a) above until such time
as Average Monthly Availability is again less than an amount equal to 15% of
the Commitments at such time, in which case clause (a) above shall take
effect.

SECTION 5.13       Additional Collateral; Further
Assurances. (a)  Subject to applicable law, each of the Borrowers and
each of their respective Subsidiaries that is a Loan Party shall cause each of
its wholly-owned United States Subsidiaries and Canadian Subsidiaries formed or
acquired after the date of this Agreement in accordance with the terms of this
Agreement to become a Loan Party by executing the Joinder Agreement set forth
as Exhibit E hereto (the “Joinder Agreement”). Upon execution and
delivery thereof, each such Person (i) shall automatically become a Loan
Guarantor hereunder and thereupon shall have all of the rights, benefits,
duties, and obligations in such capacity under the Loan Documents and (ii) in
accordance with the terms of the Intercreditor Agreement, will grant Liens (on
a first lien or second lien basis, as applicable) to the US Administrative
Agent and/or the Canadian Administrative Agent, as applicable, for the benefit
of the Administrative Agents and the Lenders, in any property of such Loan
Party which constitutes Collateral, including any parcel of real property
having a fair market value in excess of US$2,500,000 (or which is subject to a
Lien securing the Senior Secured Notes) and located in the US or Canada owned
by any Loan Party; provided that, no Canadian Subsidiary will be
required to become a Loan Party hereunder if (x) such action could
reasonably be expected to cause the undistributed earnings of such Canadian
Subsidiary as determined for US federal income tax purposes to be treated as a
deemed dividend to such Canadian Subsidiary’s US parent and (y) it is not
required to become a guarantor of the Senior Secured Notes pursuant to the
terms of the Senior Secured Notes Indenture.

(b)           The Borrowers and
each of their respective Subsidiaries that is a Loan Party will cause (i) 100%
of the issued and outstanding Equity Interests of each of its United States
Subsidiaries and Canadian Subsidiaries which are Loan Parties and (ii) 65%
(or such greater percentage that, due to a change in applicable law after the
date hereof, (1) could not reasonably be expected to cause the
undistributed earnings of such Foreign Subsidiary as determined for US federal
income tax purposes to be treated as a deemed dividend to such Foreign
Subsidiary’s US parent and (2) could not reasonably be expected to cause
any material adverse tax consequences, in which case such Foreign Subsidiary
shall also become a Loan Guarantor pursuant to clause (a) above) of the
issued and outstanding Equity Interests in each other Foreign Subsidiary (other
than the Equity Interests of any Canadian Subsidiary pledged pursuant to clause
(i) above) directly owned by the Borrowers or any of their domestic
Subsidiaries to be subject at all times to a first priority or second
priority  perfected Lien in favor of the
US Administrative Agent or the Canadian Administrative Agent, as applicable,
pursuant to the terms and conditions of the 

 77
 

 

Intercreditor
Agreement, the other Loan Documents or other security documents as the relevant
Administrative Agent shall reasonably request. Notwithstanding anything herein
to the contrary, in the event that any Equity Interests of any Subsidiary are
pledged to secure the Senior Secured Notes on a first priority basis, such
Equity Interests shall be required to be pledged to secure the Secured
Obligations on a second priority basis.

(c)           Without limiting the
foregoing, each Loan Party will, and will cause each wholly-owned Subsidiary
(other than any Inactive Subsidiary) to, execute and deliver, or cause to be
executed and delivered, to the relevant Administrative Agent such documents,
agreements and instruments, and will take or cause to be taken such further
actions (including the filing and recording of financing statements, fixture
filings, mortgages, deeds of trust and other documents and such other actions
or deliveries of the type required by Section 4.01, as applicable), which
may be required by law or which such Administrative Agent may, from time to
time, reasonably request to carry out the terms and conditions of this
Agreement and the other Loan Documents and to ensure perfection and priority of
the Liens created or intended to be created by the Collateral Documents, all at
the expense of the Loan Parties.

(d)           If any material
assets (including any real property or improvements thereto or any interest
therein having a fair market value in excess of US$2,500,000 or which is
subject to a Lien securing the Senior Secured Notes) are acquired by either
Borrower or any Subsidiary that is a Loan Party after the Effective Date (other
than assets constituting Collateral under the Security Agreements that become
subject to the Lien in favor of the applicable Administrative Agent upon
acquisition thereof), the relevant Borrower will notify the Administrative
Agents and the Lenders thereof, and, if requested by either Administrative
Agent or the Required Lenders, the relevant Borrower will cause such assets to
be subjected to a Lien securing the Secured Obligations (on a first priority or
second priority basis, consistent with the Intercreditor Agreement) and will
take, and cause the Subsidiary Loan Parties to take, such actions as shall be
necessary or reasonably requested by the relevant Administrative Agent to grant
and perfect such Liens, including actions described in paragraph (c) of
this Section, all at the expense of the Loan Parties.

(e)           On and after any
date on which an Event of Default shall have occurred and be continuing, if
requested by either Administrative Agent or the Required Lenders, the relevant
Borrower will provide, and cause the relevant Subsidiary Loan Party to provide,
the New York Mortgage, together with such other related documents and legal
opinions as such Administrative Agent may reasonably request, within 30 days of
such request.

SECTION 5.14       Environmental Laws. Holdings, the
Borrowers and their respective Subsidiaries shall:

(a)           Comply in all
material respects with, and ensure compliance by all tenants and subtenants, if
any, with, all applicable Environmental Laws and obtain and comply in all
material respects with any and all licenses, approvals, notifications,
registrations or permits required by applicable Environmental Laws;

(b)           Conduct and complete
all investigations, studies, sampling and testing, and all remedial, removal
and other actions required under Environmental Laws and promptly comply in all
material respects with all lawful orders and directives of all Governmental
Authorities regarding Environmental Laws except to the extent that the same are
being contested in good faith by appropriate proceedings; and

 78
 

 

(c)           Generate, use,
treat, store, release, dispose of, and otherwise manage Materials of
Environmental Concern in a manner that would not reasonably be expected to
result in a material liability to Holdings, either Borrower or any of their
Subsidiaries or to materially affect any real property owned or leased by any
of them; and take reasonable efforts to prevent any other Person from
generating, using, treating, storing, releasing, disposing of, or otherwise
managing Materials of Environmental Concern in a manner that could reasonably
be expected to result in a material liability to, or materially affect any real
property owned or operated by, Holdings, the Borrower or any of their Subsidiaries.

SECTION 5.15       Canadian
Pension Plans. (a)  For each existing, or hereafter adopted, Canadian
Pension Plan and Canadian Benefit Plan, the Loan Parties shall operate and
administer in all respects, such plans in compliance with applicable laws and
the terms of such plans and shall maintain all necessary governmental approvals
which are material in respect of the operation of the Canadian Pension Plans or
Canadian Benefit Plans and in a timely fashion comply with and perform in all
material respects all of their obligations under and in respect of such
Canadian Pension Plans or Canadian Benefit Plans, including under any funding
agreements and all applicable laws (including any fiduciary, funding,
investment and administration obligations).

(b)           All employer and
employee payments, contributions and premiums required to be remitted, paid to
or in respect of each Canadian Pension Plan or Canadian Benefit Plan shall be
remitted or paid by the Loan Parties in a timely fashion in accordance with the
terms thereof, any funding agreements and all applicable laws.

(c)           The Loan Parties
shall deliver to the Canadian Administrative Agent (i) copies of each
annual return and other return, report or valuation with respect to each
Canadian Pension Plan as filed with any applicable Governmental Authority; (ii) promptly
after receipt thereof, a copy of any material direction, order, notice, ruling
or opinion that Loan Parties may receive from any applicable Governmental
Authority with respect to any Canadian Pension Plan; (iii) notification
within 30 days of any increases having a cost to the Loan Parties in excess of
25% of the Loan Parties’ contributions for the most recently completed fiscal
year in the benefits of any existing Canadian Pension Plan or Canadian Benefit
Plan, or the commencement of contributions to any such plan to which Loan
Parties were not previously contributing; (iv) any default or violation
under any Canadian Pension Plan or Canadian Benefit Plan or applicable law or
any suit, action, claim or proceeding commenced or threatened in respect of any
Canadian Pension Plan or Canadian Benefit Plan or the assets of either that
might result in any liability, payment or tax, fine or penalty; (v) any
change in the funding or contribution requirements for any Canadian Pension
Plan or Canadian Benefit Plan, which could reasonably be expected, whether
taken individually or in the aggregate, to have a Material Adverse Effect; (vi) any
notice or proposal to terminate or wind up, in whole or in part, any Canadian
Pension Plan that could result in any liability, payment, fine or penalty or
which could reasonably be expected to have a Material Adverse Effect.

SECTION 5.16       Post-Closing
Covenants. (a)  Within 60 days after the Effective Date or such longer
period as the Administrative Agents shall agree, the Administrative Agents
shall have received:

(i)            a Collateral Access Agreement with
respect to each leased property on which Inventory is located, provided
that in the event that such Collateral Access Agreements are not received on or
prior to such date, the Administrative Agents shall establish any appropriate
reserves therefor in their Permitted Discretion; and

(ii)           with respect to each Mortgage
delivered pursuant to Section 4.01(o), (i) evidence that a
counterpart of the Mortgage has been recorded in the place necessary to create
a valid and enforceable second priority Lien in favor of such Administrative
Agent 

 79
 

 

 for the
benefit of itself and the Lenders, which Lien shall be second in priority to
the Lien securing the Senior Secured Notes, (ii) an ALTA or other
mortgagee’s title policy which does not contain a general survey exception, (iii) an
opinion of counsel in the state or province in which such parcel of real
property is located in form and substance and from counsel reasonably
satisfactory to such Administrative Agent and (iv) such other information,
documentation, and certifications as may be reasonably required by such
Administrative Agent.

(b)           Within 30 days after
the Effective Date, the Administrative Agents shall have received the executed
estoppel letters of Astenjohnson, Inc., Dell Financial Services Canada
Ltd. and Xerox Canada Ltd.

(c)           Within five Business
Days after the Effective Date, the Administrative Agents shall have received:

(i)            the executed legal opinion of local
counsel to the Loan Parties in Virginia, in form and substance reasonably
satisfactory to the Administrative Agents;

(ii)           a
Borrowing Base Certificate which calculates the Borrowing Base as of the last day of the month immediately
preceding the Effective Date; and

(iii)          a true and complete customer list.

ARTICLE VI.

Negative Covenants

Until the Commitments have
expired or terminated and the principal of and interest on each Loan and all
fees, expenses and other amounts payable under any Loan Document have been paid
in full and all Letters of Credit have expired or terminated and all LC
Disbursements shall have been reimbursed, the Loan Parties covenant and agree,
jointly and severally, with the Lenders that:

SECTION 6.01       Indebtedness. No Loan Party will,
nor will it permit any Subsidiary to, create, incur or suffer to exist any
Indebtedness, except:

(a)           the Secured
Obligations;

(b)           Indebtedness
existing on the date hereof and set forth in Schedule 6.01 and extensions,
renewals and replacements of any such Indebtedness in accordance with clause (f) hereof;

(c)           Indebtedness of
either Borrower to any Subsidiary and of any Subsidiary to either Borrower or
any other Subsidiary, provided that (i) Indebtedness of any
Subsidiary that is not a Loan Party to either Borrower or any Subsidiary that
is a Loan Party shall be subject to Section 6.04 and (ii) Indebtedness
of either Borrower to any Subsidiary and Indebtedness of any Subsidiary that is
a  Loan Party to any Subsidiary that is
not a Loan Party shall be subordinated to the Secured Obligations on terms
reasonably satisfactory to the relevant Administrative Agent;

(d)           Guarantees by either
Borrower of Indebtedness of any Subsidiary and by any Subsidiary of
Indebtedness of either Borrower or any other Subsidiary, provided that (i) the
Indebtedness so Guaranteed is permitted by this Section 6.01, (ii) Guarantees
by either Borrower or any Subsidiary that 

 80
 

 

is a Loan
Party of Indebtedness of any Subsidiary that is not a Loan Party shall be
subject to Section 6.04 and (iii) Guarantees permitted under this
clause (d) shall be subordinated to the Secured Obligations of the
applicable Subsidiary on the same terms as the Indebtedness so Guaranteed is
subordinated to the Secured Obligations on terms reasonably satisfactory to the
US Administrative Agent;

(e)           Indebtedness of
either Borrower or any Subsidiary incurred to finance the acquisition,
construction or improvement of any fixed or capital assets (whether or not
constituting purchase money Indebtedness), including Capital Lease Obligations
and any Indebtedness assumed in connection with the acquisition of any such
assets or secured by a Lien on any such assets prior to the acquisition
thereof, and extensions, renewals and replacements of any such Indebtedness in
accordance with clause (f) hereof; provided that (i) such
Indebtedness is incurred prior to or within 90 days after such acquisition or
the completion of such construction or improvement and (ii) the aggregate
principal amount of Indebtedness permitted by this clause (e) shall not
exceed US$3,000,000 at any time outstanding;

(f)            Indebtedness which
represents an extension, refinancing, or renewal of any of the Indebtedness
described in clauses (b) and (e) hereof; provided that,
(i) the principal amount or interest rate of such Indebtedness is not
increased, except by an amount equal to unpaid accrued interest and premium
thereon plus other reasonable amounts paid, and fees and expenses reasonably
incurred, in connection with any such extension, refinancing or renewal, (ii) any
Liens securing such Indebtedness are not extended to any additional property of
any Loan Party other than products and proceeds thereof, (iii) no Loan
Party that is not originally obligated with respect to repayment of such
Indebtedness is required to become obligated with respect thereto, (iv) such
extension, refinancing or renewal does not result in a shortening of the
average weighted life to maturity of the Indebtedness so extended, refinanced
or renewed, (v) the terms of any such extension, refinancing, or renewal
are not materially less favorable when taken as a whole to the obligor
thereunder than the original terms of such Indebtedness and (iv) if the
Indebtedness that is refinanced, renewed, or extended was subordinated in right
of payment to the Secured Obligations, then the terms and conditions of the
refinancing, renewal, or extension Indebtedness must include subordination
terms and conditions that are not materially less favorable when taken as a
whole to the Administrative Agents and the Lenders as those that were
applicable to the refinanced, renewed, or extended Indebtedness;

(g)           Indebtedness owed to
any person providing workers’ compensation, health, disability or other
employee benefits or property, casualty or liability insurance, pursuant to
reimbursement or indemnification obligations to such person, in each case
incurred in the ordinary course of business;

(h)           Indebtedness of
either Borrower or any Subsidiary in respect of performance bonds, bid bonds,
appeal bonds, surety bonds and similar obligations, in each case provided in
the ordinary course of business;

(i)            Indebtedness of any
Person that becomes a Subsidiary after the date hereof; provided that (i) such
Indebtedness exists at the time such Person becomes a Subsidiary and is not
created in contemplation of or in connection with such Person becoming a
Subsidiary and (ii) the aggregate principal amount of Indebtedness
permitted by this clause (i) shall not exceed US$5,000,000 at any time
outstanding;

(j)            (i) (x) Indebtedness
of the US Borrower in respect of the Senior Secured Notes in an aggregate
principal amount not to exceed US$162,000,000 plus the amount of any additional
notes issued pursuant to the Senior Secured Notes Indenture (not to exceed
US$5,000,000 in aggregate principal amount) and (y) Indebtedness (in the
form of Guarantees) of any other Loan Party in respect of the Senior Secured
Notes and (ii) Permitted Refinancing Indebtedness in respect thereof;

 81
 

 

(k)           Indebtedness under
Pulp Hedging Contracts and Energy Hedging Contracts or under other similar
hedging agreements to purchase raw materials not entered into for speculative
purposes; and

(l)            other unsecured
Indebtedness in an aggregate principal amount not exceeding US$2,500,000 at any
time outstanding.

SECTION 6.02       Liens. No Loan Party will, nor
will it permit any Subsidiary to, create, incur, assume or permit to exist any
Lien on any property or asset now owned or hereafter acquired by it, or assign
or sell any income or revenues (including accounts receivable) or rights in
respect of any thereof, except:

(a)           Liens created
pursuant to any Loan Document;

(b)           Permitted
Encumbrances;

(c)           any Lien on any
property or asset of either Borrower or any Subsidiary existing on the date
hereof and set forth in Schedule 6.02; provided that (i) such
Lien shall not apply to any other property or asset of such Borrower or such
Subsidiary other than products or proceeds thereof and (ii) such Lien
shall secure only those obligations which it secures on the date hereof and
extensions, renewals and replacements thereof that do not increase the
outstanding principal amount thereof;

(d)           Liens on fixed or
capital assets acquired, constructed or improved by either Borrower or any
Subsidiary; provided that (i) such security interests secure
Indebtedness permitted by clause (e) of Section 6.01, (ii) such
security interests and the Indebtedness secured thereby are incurred prior to
or within 90 days after such acquisition or the completion of such
construction or improvement, (iii) the Indebtedness secured thereby does
not exceed 100% of the cost of acquiring, constructing or improving such fixed
or capital assets and (iv) such security interests shall not apply to any
other property or assets of such Borrower or such Subsidiary other than
products or proceeds thereof;

(e)           any Lien existing on
any property or asset (other than Accounts and Inventory) prior to the
acquisition thereof by either Borrower or any Subsidiary or existing on any
property or asset (other than Accounts and Inventory) of any Person that
becomes a Loan Party after the date hereof prior to the time such Person
becomes a Loan Party; provided that (i) such Lien is not created in
contemplation of or in connection with such acquisi­tion or such Person
becoming a Loan Party, as the case may be, (ii) such Lien shall not apply
to any other property or assets of the Loan Party other than products or
proceeds thereof and (iii) such Lien shall secure only those obligations
which it secures on the date of such acquisition or the date such Person
becomes a Loan Party, as the case may be and extensions, renewals and
replacements thereof that do not increase the outstanding principal amount
thereof;

(f)            Liens of a
collecting bank arising in the ordinary course of business under Section 4-208
of the Uniform Commercial Code in effect in the relevant jurisdiction covering
only the items being collected upon;

(g)           Liens arising out of
sale and leaseback transactions permitted by Section 6.06;

(h)           Liens granted by a
Subsidiary that is not a Loan Party in favor of either Borrower or another Loan
Party in respect of Indebtedness owed by such Subsidiary;

(i)            Liens
in respect of non-exclusive licenses of intellectual property of any Loan Party
or its Subsidiaries in the ordinary course of business;

 82

 

(j)            Precautionary
financing statements in connection with operating leases with respect to a
lessor’s rights in and to personal property leased to Borrower or any
Subsidiary in the ordinary course of business; and

(k)           Liens securing the
Senior Secured Notes in accordance with the provisions of the Intercreditor Agreement.

Notwithstanding the
foregoing, none of the Liens permitted pursuant to this Section 6.02 may
at any time attach to any Loan Party’s (1) Accounts, other than those
permitted under clauses (a) and (f) of the definition of Permitted
Encumbrance and clause (a) above and (2) Inventory, other than those
permitted under clauses (a), (b) and (f) of the definition of
Permitted Encumbrance and clause (a) above.

SECTION 6.03       Fundamental Changes. (a)  No
Loan Party will, nor will it permit any Subsidiary to, merge into or
consolidate or amalgamate with any other Person, or permit any other Person to
merge into or consolidate or amalgamate with it, or liquidate or dissolve,
except that, if at the time thereof and immediately after giving effect thereto
no Event of Default shall have occurred and be continuing (i) any
Subsidiary of the US Borrower may merge into the US Borrower in a transaction
in which the US Borrower is the surviving corporation, (ii) any Person may
merge into any Subsidiary in a transaction in which the surviving entity is a
Subsidiary and, if any party to such merger is a Subsidiary that is a Loan
Party, is or becomes a Subsidiary that is a Loan Party concurrently with such
merger and (iii) any  Subsidiary
that is not a Loan Party may liquidate or dissolve if the US Borrower
determines in good faith that such liquidation or dissolution is in the best
interests of the US Borrower and is not materially disadvantageous to the US
Lenders; provided that (i) any such merger involving a Person that
is not a wholly owned Subsidiary immediately prior to such merger shall not be
permitted unless also permitted by Section 6.04 and (ii) for the
avoidance of doubt, Permitted Acquisitions shall be permitted hereunder.

(b)           No Loan Party will,
nor will it permit any of its Subsidiaries to, engage to any material extent in
any business other than businesses of the type conducted by the Borrowers and
their respective Subsidiaries on the date of execution of this Agreement and
businesses reasonably related thereto or within the same industry in which
their business is currently conducted.

(c)           Holdings will not
engage in any business or activity other than (i) the ownership of all the
outstanding shares of capital stock of the US Borrower, (ii) maintaining
its corporate existence, (iii) participating in tax, accounting and other
administrative activities as the parent of the consolidated group of companies,
including the Loan Parties, (iv) the execution and delivery of the Loan
Documents to which it is a party, the Acquisition Agreement and the performance
of its obligations thereunder, (v) making payments or entering into
agreements or other arrangements with respect to the Restricted Payments
permitted to be made to Holdings pursuant to Section 6.08, (vi) the
sale and issuance of Equity Interests and Indebtedness, (vii) activities
related to the Senior Secured Notes and (viii) activities incidental to
the businesses or activities described in clauses (i) through (vii) of
this clause (c).

(d)           No Inactive
Subsidiary shall engage in any business or activity other than (i) paying
taxes, (ii) preparing reports to Governmental Authorities and to its
shareholder and (iii) holding directors and shareholders meetings, preparing
corporate records and other corporate activities required to maintain its
separate corporate structure.

SECTION 6.04       Investments, Loans, Advances,
Guarantees and Acquisitions. No Loan Party will, nor will it permit any
Subsidiary to, purchase, hold or acquire (including pursuant to any merger with
any Person that was not a Loan Party and a wholly owned Subsidiary prior to
such merger) any capital stock, evidences of indebtedness or other securities
(including any option, warrant or other 

 83
 

 

right
to acquire any of the foregoing) of, make or permit to exist any loans or
advances to, Guarantee any obligations of, or make or permit to exist any
investment or any other interest in, any other Person, or purchase or otherwise
acquire (in one transaction or a series of transactions) any assets of any
other Person constituting a business unit (whether through purchase of assets,
merger or otherwise), except:

(a)           Permitted
Investments, subject to control agreements to the extent required by the US
Security Agreement or Canadian Security Agreement, as applicable;

(b)           investments in
existence on the date of this Agreement and described in Schedule 6.04;

(c)           investments by
Holdings in the US Borrower and by the Borrowers and the Subsidiaries in Equity
Interests in their respective Subsidiaries, provided that (A) any
such Equity Interests held by a Loan Party shall be pledged pursuant to the
relevant Security Agreement (subject to the limitations applicable to common
stock of a Foreign Subsidiary referred to in Section 5.12) and (B) the
aggregate amount of investments by Loan Parties in Subsidiaries that are not
Loan Parties (together with outstanding intercompany loans permitted under
clause (B) to the proviso to Section 6.04(d)) and outstanding
Guarantees permitted under the proviso to Section 6.04(e)) shall not
exceed US$2,500,000 at any time outstanding (in each case determined without
regard to any write-downs or write-offs);

(d)           loans or advances
made by either Borrower to any Subsidiary and made by any Subsidiary to either
Borrower or any other Subsidiary, provided that (A) any such loans
and advances made by a Loan Party shall be evidenced by a promissory note
pledged pursuant to the relevant Security Agreement and (B) the amount of
such loans and advances made by Loan Parties to Subsidiaries that are not Loan
Parties (together with outstanding investments permitted under clause (B) to
the proviso to Section 6.04(c) and outstanding Guarantees permitted
under the proviso to Section 6.04(e)) shall not exceed US$2,500,000 at any
time outstanding (in each case determined without regard to any write-downs or
write-offs);

(e)           Guarantees
constituting Indebtedness permitted by Section 6.01, provided
that the aggregate principal amount of Indebtedness of Subsidiaries that are
not Loan Parties that is Guaranteed by any Loan Party shall (together with
outstanding investments permitted under clause (B) to the proviso to Section 6.04(c) and
outstanding intercompany loans permitted under clause (B) to the
proviso to Section 6.04(d)) shall not exceed US$2,500,000 at any time
outstanding (in each case determined without regard to any write-downs or
write-offs);

(f)            loans or advances
made by a Loan Party to its employees on an arms-length basis in the ordinary
course of business consistent with past practices for travel and entertainment
expenses, relocation costs and similar purposes up to a maximum of US$500,000
in the aggregate at any one time outstanding;

(g)           subject to Section 5.8
of the US Security Agreement and Section 8 of the Canadian Security
Agreement, notes payable, or stock or other securities issued by Account
Debtors to a Loan Party pursuant to negotiated agreements with respect to
settlement of such Account Debtor’s Accounts so long as no Default or Event of
Default has occurred or is continuing or would result therefrom;

(h)           investments in the
form of Swap Agreements permitted by Section 6.07;

 84
 

 

(i)            investments of any
Person existing at the time such Person becomes a Subsidiary of either Borrower
or consolidates or merges with either Borrower or any of the Subsidiaries
(including in connection with a Permitted Acquisition) so long as such
investments were not made in contemplation of such Person becoming a Subsidiary
or of such merger;

(j)            investments or
acquisitions resulting from the receipt of assets which are disposed of
pursuant to a disposition permitted by Section 6.05;

(k)           Permitted
Acquisitions;

(l)            investments
constituting deposits described in clauses (c) and (d) of the
definition of the term “Permitted Encumbrances”;

(m)          the purchase of pulp
or similar raw materials, or electricity, natural gas or other energy sources,
and investments pursuant to Pulp Hedging Contracts and Energy Hedging Contracts
not entered into for speculative purposes; and

(n)           other investments in
an aggregate amount not to exceed US$5,000,000 during the term of this
Agreement.

SECTION 6.05       Asset Sales. No Loan Party will,
nor will it permit any Subsidiary to, sell, transfer, lease or otherwise
dispose of any asset, including any Equity Interest owned by it, nor will
either Borrower permit any Subsidiary to issue any additional Equity Interest
in such Subsidiary (other than to either Borrower or another Subsidiary in
compliance with Section 6.04), except:

(a)           sales, transfers and
dispositions of (i) inventory in the ordinary course of business and (ii) used,
obsolete, worn out or surplus equipment or property in the ordinary course of
business;

(b)           sales, transfers and
dispositions to either Borrower or any Subsidiary, provided that any
such sales, transfers or dispositions involving a Subsidiary that is not a Loan
Party shall be made in compliance with Section 6.09;

(c)           sales, transfers and
dispositions of accounts receivable in connection with the compromise,
settlement or collection thereof;

(d)           sales, transfers and
dispositions of investments permitted by clauses (i) and (k) of Section 6.04;

(e)           sale and leaseback
transactions permitted by Section 6.06;

(f)            dispositions
resulting from any casualty or other insured damage to, or any taking under
power of eminent domain or by condemnation or similar proceeding of, any
property or asset of the US Borrower or any Subsidiary;

(g)           licenses of
intellectual property of any Loan Party in the ordinary course of business;

(h)           leases or subleases
of real property in connection with the construction of a power-generating
facility on such real property in order to supply power to the US Borrower
and/or its Subsidiaries; and

 85
 

 

(i)            sales, transfers
and other dispositions of assets (other than Equity Interests in a Subsidiary
unless all Equity Interests in such Subsidiary are sold) that are not permitted
by any other paragraph of this Section, provided that the aggregate fair
market value of all assets sold, transferred or otherwise disposed of in
reliance upon this paragraph (i) shall not exceed US$5,000,000 during any
fiscal year of the US Borrower;

provided that all
sales, transfers, leases and other dispositions permitted hereby (other than
those permitted by paragraphs (b) and (f) above) shall be made
for fair value.

SECTION 6.06       Sale and Leaseback Transactions. No
Loan Party will, nor will it permit any Subsidiary to, enter into any
arrangement, directly or indirectly, whereby it shall sell or transfer any
property, real or personal, used or useful in its business, whether now owned
or hereafter acquired, and thereafter rent or lease such property or other
property that it intends to use for substantially the same purpose or purposes
as the property sold or transferred, except for any such sale of any fixed or
capital assets by either Borrower or any Subsidiary that is made for cash
consideration in an amount not less than the fair value of such fixed or
capital asset and is consummated within 90 days after such Borrower or
such Subsidiary acquires or completes the construction of such fixed or capital
asset.

SECTION 6.07       Swap Agreements. No Loan Party
will, nor will it permit any Subsidiary to, enter into any Swap Agreement,
except (a) Swap Agreements entered into to hedge or mitigate risks to
which either Borrower or any Subsidiary has actual exposure (other than those
in respect of Equity Interests of the Borrowers or any of their respective
Subsidiaries), and (b) Swap Agreements entered into in order to
effectively cap, collar or exchange interest rates (from fixed to floating
rates, from one floating rate to another floating rate, from floating to fixed
rates or otherwise) with respect to any interest-bearing liability or
investment of either Borrower or any Subsidiary.

SECTION 6.08       Restricted Payments; Certain Payments
of Indebtedness. (a)  No Loan Party will, nor will it permit any
Subsidiary to, declare or make, or agree to pay or make, directly or
indirectly, any Restricted Payment, or incur any obligation (contingent or
otherwise) to do so, except (i) the Borrowers and each Subsidiary may
declare and pay dividends with respect to its common stock payable solely in
additional shares of its common stock, and, with respect to any preferred
stock, payable solely in additional shares of such preferred stock or in shares
of its common stock, (ii) Subsidiaries may declare and pay dividends
ratably with respect to their Equity Interests, (iii) the US Borrower may
make Restricted Payments to Holdings, and Holdings may make
Restricted Payments to Parent, in order to permit Holdings or Parent to pay
for, or discharge any promissory note in respect of, the repurchase, retirement
or other acquisition or retirement for value of any equity interests of Parent,
Holdings or the US Borrower held by any future, present or former employee,
director or consultant pursuant to any management equity plan or stock option
plan or any other management or employee benefit plan or agreement, not exceeding
US$5,000,000 during any fiscal year (with unused amounts in any calendar year
being permitted to be carried over to the next succeeding calendar year); (iv) the
US Borrower may pay management fees pursuant to the Sponsor Management
Agreement so long as such fees are permitted to be paid under Section 6.09;
(v) the US Borrower may make Restricted Payments to Holdings in an
aggregate amount not to exceed US$20,000,000 in order to permit Holdings to
make contingent payments to former stockholders of Holdings as additional
consideration for the Acquisition pursuant to the Acquisition Agreement and to
permit Holdings to make other payments in respect of adjustments to the merger
consideration specified in the Acquisition Agreement; (vi) the US Borrower
and its Subsidiaries may make Restricted Payments to Holdings, and Holdings may
make Restricted Payments to Parent, in order to permit Holdings and Parent to
pay (A) the tax liability for each relevant jurisdiction in respect of
consolidated, combined, unitary or affiliated returns for the relevant
jurisdiction of Holdings and Parent attributable to Parent, Holdings, the US
Borrower or its Subsidiaries, determined as if the US Borrower and its
Subsidiaries filed separately, (B) operating expenses incurred in the
ordinary course of business 

 86
 

 

and
other corporate overhead costs and expenses (including without imitation
administrative, legal, accounting and similar expenses provided by third
parties and insurance premiums for directors and officers liability insurance)
and (C) franchise taxes and other fees, taxes and expenses required to
maintain its corporate existence; (vii) each Subsidiary of the US Borrower
may pay fees and expenses to the US Borrower for certain management services
(including without limitation marketing, human resources and payroll and other
financial services) provided by the US Borrower to such Subsidiary in
accordance with the terms of the applicable Cellu Tissue Management Agreement; (viii) each
Subsidiary of the US Borrower may pay fees and expenses to the US Borrower for
certain group purchasing services provided by the US Borrower in accordance
with the terms of the applicable Cellu Tissue Purchasing Agreement; (ix) the
US Borrower may make Restricted Payments to Holdings in any fiscal year, and
Holdings may make Restricted Payments to Parent, in order to redeem or repurchase
the capital stock of Parent, Holdings or Borrower with 50% of Excess Cash Flow
in an amount not to exceed, in the aggregate, 50% of Excess Cash Flow for the
immediately proceeding year so long as at the time of such redemption or
repurchase, there are no Loans outstanding under this Agreement; and (x) commencing
with the fiscal year ending February 28, 2007, and each fiscal year
thereafter, the US Borrower may make Restricted Payments to Holdings, and
Holdings may make restricted Payments to Parent, up to an amount equal to 50%
of Net Income (as defined below) for the period (treated as one accounting
period) from the original issuance date of the Senior Secured Notes to the most
recent fiscal quarter ending prior to the date of such Restricted Payment for
which financial statements have been delivered to the US Administrative Agent
pursuant to Section 5.01(a) or Section 5.01(b), provided
that immediately prior to and after giving effect to such Restricted Payment, (A) no
Loans shall be outstanding, (B) Availability shall be at least US$10,000,000
after giving effect to such payment and (C) no Default or Event of Default
shall have occurred and be continuing and the US Administrative Agent shall
have received a certificate from a Financial Officer certifying compliance with
the foregoing. For purposes of clause (x) above, “Net Income” means, for
any period, Net Income plus (or minus) (I) any gain (or loss) realized
upon the sale or other disposition of any property permitted under this
Agreement that is not sold or otherwise disposed of in the ordinary course of
business and any gain (or loss) realized up on the sale or other disposition of
any equity securities of any Person permitted under this Agreement, (II) any
extraordinary gain (or extraordinary loss) and (III) the cumulative effect
of a change in accounting principles.

(b)           No Loan Party will,
nor will it permit any Subsidiary to, make or agree to pay or make, directly or
indirectly, any payment or other distribution (whether in cash, securities or
other property) of or in respect of principal of or interest on any
Indebtedness, or any payment or other distribution (whether in cash, securities
or other property), including any sinking fund or similar deposit, on account
of the purchase, redemption, retirement, acquisition, cancellation or
termination of any Indebtedness, except:

(i)            payment of Indebtedness created or
permitted under the Loan Documents, other than Subordinated Indebtedness, provided
that (x) Availability
shall be at least US$10,000,000 after giving effect to such payment and (y) pro
forma Availability for each of the 90 days following such payment shall be at least US$10,000,000 after giving
effect to such payment;

(ii)           payment of regularly scheduled
interest and principal payments as and when due in respect of any Indebtedness
(including the Senior Secured Notes), other than payments in respect of any
Subordinated Indebtedness prohibited by the subordination provisions thereof;

(iii)          refinancings of Indebtedness to the
extent permitted by Section 6.01 or financed with the Net Proceeds of any
issuance of common stock by Holdings;

 87
 

 

(iv)          subject to the Intercreditor
Agreement, payment of secured Indebtedness that becomes due as a result of the
voluntary sale or transfer of the property or assets securing such
Indebtedness; and

(v)           payment of the consent fee payable in
connection with the Consent Solicitation.

SECTION 6.09       Transactions with Affiliates. No
Loan Party will, nor will it permit any Subsidiary to, sell, lease or otherwise
transfer any property or assets to, or purchase, lease or otherwise acquire any
property or assets from, or otherwise engage in any other transactions with,
any of its Affiliates, except (a) transactions that are at prices and on
terms and conditions not less favorable to such Loan Party than could be
obtained on an arm’s-length basis from unrelated third parties, (b) transactions
between or among either Borrower and any Subsidiary not involving any other
Affiliate, (c) any investment permitted by Sections 6.04(c) or 6.04(d),
(d) any Indebtedness permitted under Section 6.01(c), (e) any
Restricted Payment permitted by Section 6.08, (f) loans or advances
to employees permitted under Section 6.04, (g) the payment of
reasonable fees to directors of either Borrower or any Subsidiary who are not
employees of either Borrower or any Subsidiary, and compensation and employee
benefit arrangements paid to, and indemnities provided for the benefit of,
directors, officers or employees of the US Borrower or its Subsidiaries in the ordinary
course of business, (h) any issuances of securities or other payments,
awards or grants in cash, securities or otherwise pursuant to, or the funding
of, employment agreements, stock options and stock ownership plans approved by
the US Borrower’s board of directors, (i) so long as no Event of Default
has occurred and is continuing, the payment of management, consulting and
advisory fees to the Sponsor pursuant to the Sponsor Management Agreement in an
amount not to exceed US$450,000 in any fiscal year, provided that during
the continuance of any such Event of Default, such fees shall continue to
accrue and shall be permitted to be paid at such time as such Event of Default
has been cured and (j) any contribution to the capital of Holdings by the
Sponsor or any purchase of Equity Interests of Holdings by the Sponsor.

SECTION 6.10       Restrictive Agreements. No Loan
Party will, nor will it permit any Subsidiary to, directly or indirectly, enter
into, incur or permit to exist any agreement or other arrangement that
prohibits, restricts or imposes any condition upon (a) the ability of such
Loan Party or any of its Subsidiaries to create, incur or permit to exist any
Lien upon any of its property or assets or (b) the ability of any
Subsidiary to pay dividends or other distributions with respect to any shares
of its capital stock or to make or repay loans or advances to the US Borrower
or any other Subsidiary or to Guarantee Indebtedness of the US Borrower or any
other Subsidiary; provided that (i) the foregoing shall not apply
to restrictions and conditions imposed by law or by any Loan Document, (ii) the
foregoing shall not apply to restrictions and conditions existing on the date
hereof identified on Schedule 6.10 including the Senior Secured Notes Indenture
(but shall apply to any extension or renewal of, or any amendment or
modification expanding the scope of, any such restriction or condition) and any
Permitted Refinancing Indebtedness (so long as the applicable restriction in
the documentation for the Permitted Refinancing Indebtedness is not materially
more restrictive, when taken as a whole, than the applicable restrictions in
the Senior Secured Notes), (iii) the foregoing shall not apply to
customary restrictions and conditions contained in agreements relating to the
sale of a Subsidiary pending such sale, provided such restrictions and
conditions apply only to the Subsidiary that is to be sold and such sale is
permitted hereunder, (iv) clause (a) of the foregoing shall not apply
to restrictions or conditions imposed by any agreement relating to secured
Indebtedness permitted by this Agreement if such restrictions or conditions
apply only to the property or assets securing such Indebtedness and (v) clause
(a) of the foregoing shall not apply to customary provisions in leases and
other contracts restricting the assignment thereof.

SECTION 6.11       Amendment of Material Documents. No
Loan Party will, nor will it permit any Subsidiary to, amend, modify or waive
any of its rights under (a)  any agreement relating to 

 88
 

 

any
Subordinated Indebtedness, (b) its certificate of incorporation, by-laws,
operating, management or partnership agreement or other organizational
documents, (c) the Senior Secured Notes Indenture or any document executed
in connection therewith and (d) the Acquisition Documentation; provided,
that  with respect to clause (b), (c) or
(d) above, such prohibition shall only apply to the extent that any such
amendment, modification or waiver would be materially adverse to the interests
of the Lenders.

SECTION 6.12       Fixed Charge Coverage Ratio. The
Borrower will not permit, at any time when Average Monthly Availability is less
than an amount equal to 15% of the Commitments at such time, the Fixed Charge
Coverage Ratio at the end of any fiscal month to be less than 1.0:1.0.

SECTION 6.13       Changes in Fiscal Periods. The US
Borrower shall not permit the fiscal year of the US Borrower to end on a day
other than February 28 or change the US Borrower’s method of determining
fiscal quarters.

ARTICLE VII.

Events of Default

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

(a)           either Borrower
shall fail to pay any principal of any Loan, Acceptance Obligation or any
reimbursement obligation in respect of any LC Disbursement when and as the same
shall become due and payable, whether at the due date thereof or at a date
fixed for prepayment thereof or otherwise;

(b)           either Borrower
shall fail to pay any interest on any Loan, Acceptance Obligation or any fee or
any other amount (other than an amount referred to in clause (a) of this
Article) payable under this Agreement, when and as the same shall become due
and payable, and such failure shall continue unremedied for a period of three
Business Days;

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

(d)           any Loan Party shall
fail to observe or perform any covenant, condition or agreement contained in Section 5.02(a),
5.03 (with respect to a Loan Party’s existence) or 5.08 or in Article VI;

(e)           any Loan Party shall
fail to observe or perform any covenant, condition or agreement contained in
this Agreement (other than those which constitute a default under another Section of
this Article), and such failure shall continue unremedied for a period of (i) ten days
after the earlier of knowledge by a Financial Officer of such breach or notice
thereof from the US Administrative Agent (which notice will be given at the
request of any Lender) if such breach relates to terms or provisions of Section 5.01,
5.02 (other than Section 5.02(a)), 5.03 through 5.07, 5.09, 5.10 or 5.12
of this Agreement or (ii) 20 days after the earlier of such breach or
notice thereof from the US Administrative Agent (which notice will be given at
the request of any Lender) if such breach relates to terms or provisions of any
other Section of this Agreement;

 89
 

 

(f)            any Loan Party or
any Subsidiary (other than an Inactive Subsidiary) shall fail to make any
payment (whether of principal or interest and regardless of amount) in respect
of any Material Indebtedness, when and as the same shall become due and payable;

(g)           any event or
condition occurs that results in any Material Indebtedness becoming due prior
to its scheduled maturity or that enables or permits (with or without the
giving of notice, the lapse of time or both) the holder or holders of any
Material Indebtedness or any trustee or agent on its or their behalf to cause
any Material Indebtedness to become due, or to require the prepayment,
repurchase, redemption or defeasance thereof, prior to its scheduled maturity; provided
that this clause (g) shall not apply to secured Indebtedness that
becomes due as a result of the voluntary sale or transfer of the property or
assets securing such Indebtedness;

(h)           an involuntary
proceeding shall be commenced or an involuntary petition shall be filed seeking
(i) liquidation, reorganization, winding up or other relief in respect of
a Loan Party or any Subsidiary of any Loan Party (other than an Inactive
Subsidiary) or its debts, or of a substantial part of its assets, under any
Federal, state, provincial or foreign bankruptcy, insolvency, receivership,
winding up or similar law now or hereafter in effect or (ii) the
appointment of a receiver, manager, receiver-manager, trustee, custodian,
sequestrator, conservator or similar official for any Loan Party or any
Subsidiary of any Loan Party (other than an Inactive Subsidiary) or for a
substantial part of its assets, and, in any such case, such proceeding or
petition shall continue undismissed for 60 days or an order or decree
approving or ordering any of the foregoing shall be entered;

(i)            any Loan Party or
any Subsidiary of any Loan Party (other than an Inactive Subsidiary) shall (i) voluntarily
commence any proceeding or file any petition seeking liquidation,
reorganization or other relief under any Federal, state, provincial or foreign
bankruptcy, insolvency, receivership or similar law now or hereafter in effect,
(ii) consent to the institution of, or fail to contest in a timely and
appropriate manner, any proceeding or petition described in clause (h) of
this Article, (iii) apply for or consent to the appointment of a receiver,
manager, receiver-manager, trustee, custodian, sequestrator, conservator or
similar official for such Loan Party or Subsidiary of any Loan Party (other
than an Inactive Subsidiary) or for a substantial part of its assets, (iv) file
an answer admitting the material allegations of a petition filed against it in
any such proceeding, (v) make a general assignment for the benefit of
creditors or (vi) take any action for the purpose of effecting any of the
foregoing;

(j)            any Loan Party or
any Subsidiary of any Loan Party (other than an Inactive Subsidiary) shall
become unable, admit in writing its inability or fail generally to pay its
debts as they become due;

(k)           one or more
judgments for the payment of money in an aggregate amount in excess of
US$2,500,000 shall be rendered against any Loan Party, any Subsidiary of any
Loan Party (other than an Inactive Subsidiary) or any combination thereof and
the same shall remain undischarged for a period of 30 consecutive days
during which execution shall not be effectively stayed, or any action shall be
legally taken by a judgment creditor to attach or levy upon any assets of any
Loan Party or any Subsidiary of any Loan Party (other than an Inactive
Subsidiary) to enforce any such judgment or any Loan Party or any Subsidiary of
any Loan Party (other than an Inactive Subsidiary) shall fail within 30 days to
discharge one or more non-monetary judgments or orders which, individually or
in the aggregate, could reasonably be expected to have a Material Adverse
Effect, which judgments or orders, in any such case, are not stayed on appeal
or otherwise being appropriately contested in good faith by proper proceedings
diligently pursued;

(l)            an ERISA Event
shall have occurred that, in the opinion of the Required Lenders, when taken
together with all other ERISA Events that have occurred, could reasonably be
expected to 

 90
 

 

result in
liability of Borrowers and their respective Subsidiaries that could,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect;

(m)          the occurrence of any
event or events set out in clauses (iii) through (vi) of Section 5.15(c) that
alone or together in the opinion of the Administrative Agents could reasonably
be expected to result in a Material Adverse Effect;

(n)           a Change in Control
shall occur;

(o)           the occurrence of
any “default”, as defined in any Loan Document (other than this Agreement) or
the breach of any of the terms or provisions of any Loan Document (other than
this Agreement), which default or breach continues beyond any period of grace
therein provided;

(p)           the Loan Guaranty
shall fail to remain in full force or effect or any action shall be taken to
discontinue or to assert the invalidity or unenforceability of the Loan
Guaranty, or any Loan Guarantor shall fail to comply with any of the terms or
provisions of the Loan Guaranty to which it is a party, or any Loan Guarantor
shall deny that it has any further liability under the Loan Guaranty to which
it is a party, or shall give notice to such effect;

(q)           any Collateral
Document shall for any reason fail to create a valid and perfected first or
second priority security interest (in accordance with the Intercreditor
Agreement)  in any Collateral purported
to be covered thereby, except as permitted by the terms of any Collateral
Document, or any Collateral Document shall fail to remain in full force or
effect or any action shall be taken to discontinue or to assert the invalidity
or unenforceability of any Collateral Document, or any Loan Party shall fail to
comply with any of the terms or provisions of any Collateral Document; or

(r)            any material
provision of any Loan Document for any reason ceases to be valid, binding and
enforceable in accordance with its terms (or any Loan Party shall challenge the
enforceability of any Loan Document or shall assert in writing, or engage in
any action or inaction based on any such assertion, that any provision of any
of the Loan Documents has ceased to be or otherwise is not valid, binding and
enforceable in accordance with its terms);

then, and in every such
event (other than an event with respect to either Borrower described in clause (h) or
(i) of this Article), and at any time thereafter during the continuance of
such event, the Administrative Agents may, and at the request of the Required
Lenders shall, by notice to the Borrowers, take either or both of the following
actions, at the same or different times:  (i) terminate the
Commitments, and thereupon the Commitments shall terminate immediately, and (ii) declare
the Loans and Acceptances then outstanding to be due and payable in whole (or
in part, in which case any principal not so declared to be due and payable may
thereafter be declared to be due and payable), and thereupon the principal of
the Loans and Acceptances so declared to be due and payable, together with
accrued interest thereon and all fees and other obligations of the Borrowers
accrued hereunder, shall become due and payable immediately, without
presentment, demand, protest or other notice of any kind, all of which are
hereby waived by each Borrower; and in case of any event with respect to either
Borrower described in clause (h) or (i) of this Article, the
Commitments shall automatically terminate and the principal of the Loans and
Acceptances then outstanding, together with accrued interest thereon and all
fees and other obligations of each Borrower accrued hereunder, shall
automatically become due and payable, without presentment, demand, protest or
other notice of any kind, all of which are hereby waived by each Borrower. Upon
the occurrence and the continuance of an Event of Default, the Administrative
Agents may, and at the request of the Required Lenders shall, exercise any
rights and remedies provided to such Administrative Agents under the Loan
Documents or at law or equity, including all remedies provided under the UCC
and the PPSA.

 91
 

 

ARTICLE VIII.

The Administrative
Agents

Each of the Lenders and the
Issuing Bank hereby irrevocably appoints the US Administrative Agent as its
agent and authorizes the US Administrative Agent to take such actions on its
behalf, including execution of the other Loan Documents, and to exercise such
powers as are delegated to the US Administrative Agent by the terms of the Loan
Documents, together with such actions and powers as are reasonably incidental
thereto. Each of the Lenders hereby irrevocably appoints the Canadian
Administrative Agent as its agent and authorizes the Canadian Administrative
Agent to take such actions on its behalf, including execution of the other Loan
Documents, and to exercise such powers as are delegated to the Canadian
Administrative Agent by the terms of the Loan Documents, together with such
actions and powers as are reasonably incidental thereto.

The bank serving as the US
Administrative Agent hereunder shall have the same rights and powers in its
capacity as a US Lender as any other US Lender and may exercise the same as
though it were not the US Administrative Agent, and such bank and its
Affiliates may accept deposits from, lend money to and generally engage in any
kind of business with the Loan Parties or any Subsidiary of a Loan Party or
other Affiliate thereof as if it were not the US Administrative Agent hereunder.
The bank serving as the Canadian Administrative Agent hereunder shall have the
same rights and powers in its capacity as a Canadian Lender as any other
Canadian Lender and may exercise the same as though it were not the Canadian
Administrative Agent, and such bank and its Affiliates may accept deposits
from, lend money to and generally engage in any kind of business with the Loan
Parties or any Subsidiary of a Loan Party or other Affiliate thereof as if it
were not the Canadian Administrative Agent hereunder.

Neither the US
Administrative Agent nor the Canadian Administrative Agent shall have any
duties or obligations except those expressly set forth in the Loan Documents. Without
limiting the generality of the foregoing, (a) neither Administrative Agent
shall  be subject to any fiduciary or
other implied duties, regardless of whether a Default has occurred and is
continuing, (b) neither Administrative Agent shall have any duty to take
any discretionary action or exercise any discretionary powers, except
discretionary rights and powers expressly contemplated by the Loan Documents
that such US Administrative Agent is required to exercise in writing as
directed by the Required Lenders, the Required US Lenders or the Required
Canadian Lenders (or such other number or percentage of the Lenders as shall be
necessary under the circumstances as provided in Section 9.02), as
applicable, and (c) except as expressly set forth in the Loan Documents,
neither Administrative Agent shall have any duty to disclose, and shall not be
liable for the failure to disclose, any information relating to any Loan Party
or any of its Subsidiaries that is communicated to or obtained by the bank
serving as US Administrative Agent, Canadian Administrative Agent or any of its
Affiliates in any capacity. Neither Administrative Agent shall be liable for
any action taken or not taken by it with the consent or at the request of the
Required Lenders, the Required US Lenders or the Required Canadian Lenders (or
such other number or percentage of the Lenders as shall be necessary under the
circumstances as provided in Section 9.02), as applicable, or in the
absence of its own gross negligence or willful misconduct. Neither
Administrative Agent shall be deemed to have knowledge of any Default unless
and until written notice thereof is given to such Administrative Agent by
either Borrower or a Lender, and neither Administrative Agent shall be
responsible for or have any duty to ascertain or inquire into (i) any
statement, warranty or representation made in or in connection with any Loan
Document, (ii) the contents of any certificate, report or other document
delivered hereunder or in connection with any Loan Document, (iii) the
performance or observance of any of the covenants, agreements or other terms or
conditions set forth in any Loan Document, (iv) the validity,
enforceability, effectiveness or genuineness of any Loan Document or any other
agreement, instrument or document, (v) the creation, perfection or
priority of Liens on the Collateral or the existence of the Collateral, or (vi) the
satisfaction of any condition set forth in Article IV or 

 92
 

 

elsewhere in any Loan
Document, other than to confirm receipt of items expressly required to be
delivered to such Administrative Agent.

Each Administrative Agent
shall be entitled to rely upon, and shall not incur any liability for relying
upon, any notice, request, certificate, consent, statement, instrument,
document or other writing believed by it to be genuine and to have been signed
or sent by the proper Person. Each Administrative Agent also may rely upon any
statement made to it orally or by telephone and believed by it to be made by
the proper Person, and shall not incur any liability for relying thereon. Each
Administrative Agent may consult with legal counsel (who may be counsel for
either Borrower), independent accountants and other experts selected by it, and
shall not be liable for any action taken or not taken by it in accordance with
the advice of any such counsel, accountants or experts.

Each Administrative Agent
may perform any and all its duties and exercise its rights and powers by or
through any one or more sub-agents appointed by such Administrative Agent. Each
Administrative Agent and any such sub-agent may perform any and all its duties
and exercise its rights and powers through their respective Related Parties. The
exculpatory provisions of the preceding paragraphs shall apply to any such
sub-agent and to the Related Parties of either Administrative Agent and any
such sub-agent, and shall apply to their respective activities in connection
with the syndication of the credit facilities provided for herein as well as
activities as such Administrative Agent.

Subject to the appointment
and acceptance of a successor US Administrative Agent or Canadian
Administrative Agent, as the case may be, as provided in this paragraph, each
Administrative Agent may resign at any time by notifying the Lenders, the
Issuing Bank and the Borrowers. Upon any such resignation, the Required US
Lenders or the Required Canadian Lenders, as applicable, shall have the right,
in consultation with the Borrowers, to appoint a successor. If no successor
shall have been so appointed by the Required US Lenders or Required Canadian
Lenders, as applicable, and shall have accepted such appointment within
30 days after the retiring US Administrative Agent or Canadian
Administrative Agent, as the case may be, gives notice of its resignation, then
such retiring Administrative Agent may, on behalf of the Lenders and the
Issuing Bank, appoint a successor US Administrative Agent or Canadian
Administrative Agent, as the case may be, which shall be a commercial bank or
an Affiliate of any such commercial bank. Upon the acceptance of its
appointment as US Administrative Agent or Canadian Administrative Agent, as the
case may be, hereunder by a successor, such successor shall succeed to and
become vested with all the rights, powers, privileges and duties of such
retiring Administrative Agent, and such retiring Administrative Agent shall be
discharged from its duties and obligations hereunder. The fees payable by the
Borrowers to a successor US Administrative Agent or Canadian Administrative
Agent, as the case may be, shall be the same as those payable to its
predecessor unless otherwise agreed between either Borrower and such successor.
After the US Administrative Agent’s or the Canadian Administrative Agent’s, as
the case may be, resignation hereunder, the provisions of this Article and
Section 9.03 shall continue in effect for the benefit of such retiring
Administrative Agent, its sub-agents and their respective Related Parties
in respect of any actions taken or omitted to be taken by any of them while it
was acting as US Administrative Agent or Canadian Administrative Agent, as the
case may be.

Each Lender acknowledges
that it has, independently and without reliance upon either Administrative
Agent or any other Lender and based on such documents and information as it has
deemed appropriate, made its own credit analysis and decision to enter into
this Agreement. Each Lender also acknowledges that it will, independently and
without reliance upon either Administrative Agent or any other Lender and based
on such documents and information as it shall from time to time deem
appropriate, continue to make its own decisions in taking or not taking action
under or based upon this Agreement, any other Loan Document or related
agreement or any document furnished hereunder or thereunder.

 93

 

 

Each Lender hereby agrees
that (a) it has requested a copy of each Report prepared by or on behalf
of each Administrative Agent; (b) each Administrative Agent (i) makes
no representation or warranty, express or implied, as to the completeness or
accuracy of any Report or any of the information contained therein or any
inaccuracy or omission contained in or relating to a Report and (ii) shall
not be liable for any information contained in any Report; (c) the Reports
are not comprehensive audits or examinations, and that any Person performing
any field examination will inspect only specific information regarding the Loan
Parties and will rely significantly upon the Loan Parties’ books and records,
as well as on representations of the Loan Parties’ personnel and that each
Administrative Agent undertakes no obligation to update, correct or supplement
the Reports; (d) it will keep all Reports confidential and strictly for
its internal use, not share the Report with any Loan Party or any other Person
except as otherwise permitted pursuant to this Agreement (provided, that
each Administrative Agent shall be permitted to share any such Report with the
Borrowers in its reasonable discretion); and (e) without limiting the
generality of any other indemnification provision contained in this
Agreement, it will pay and protect, and indemnify, defend, and hold each
Administrative Agent and any such other Person preparing a Report harmless from
and against, the claims, actions, proceedings, damages, costs, expenses, and
other amounts (including reasonable attorney fees) incurred by as the direct or
indirect result of any third parties who might obtain all or part of any Report
through the indemnifying Lender.

ARTICLE IX.

Miscellaneous

SECTION 9.01     Notices. (a)  Except in the case
of notices and other communications expressly permitted to be given by
telephone (and subject to (b) below), all notices and other communications
provided for herein shall be in writing and shall be delivered by hand or
overnight courier service, mailed by certified or registered mail or sent by
facsimile, as follows:

(i)            if to any Loan Party, to the US
Borrower at:

3440 Francis
Road

Alpharetta, Georgia 30004

Attention: Chief Financial Officer

Telecopy: (678) 393-2657

(ii)           if to the US Administrative Agent,
the Issuing Bank or the Swingline Lender, to

JPMorgan Chase
Bank, N.A.

120 S. LaSalle St., 8th Floor

Chicago, IL 60603

Attention:  Michael Culbertson

Telecopy:  (312) 661-9604

with a copy to:

JPMorgan Chase
Bank, N.A.

One Chase Square, Tower 25

Rochester, NY 14643

Attention:  John Hariaczyi

Telecopy: (585) 258-7440

 94
 

 

 

(iii)          if to the Canadian Administrative
Agent, to JPMorgan Chase Bank, N.A., Toronto Branch at:

200 Bay
Street, Suite 1800

Toronto, Ontario M5J 2J2

Attention:  Funding Office

Telecopy:  (416) 981-9174

(iv)          if to any other Lender, to it at its
address or facsimile number set forth in its Administrative Questionnaire.

All such notices and other
communications (i) sent by hand or overnight courier service, or mailed by
certified or registered mail, shall be deemed to have been given when received
or (ii) sent by facsimile shall be deemed to have been given when sent, provided
that if not given during normal business hours for the recipient, shall be
deemed to have been given at the opening of business on the next Business Day
for the recipient.

(b)           Notices and other
communications to the Lenders hereunder may be delivered or furnished by
electronic communications (including e-mail and internet or intranet websites)
pursuant to procedures approved by the relevant Administrative Agent; provided
that the foregoing shall not apply to notices pursuant to Article II
unless otherwise agreed by the relevant Administrative Agent and the applicable
Lender. Each Administrative Agent or the US Borrower (on behalf of the Loan
Parties) may, in its discretion, agree to accept notices and other
communications to it hereunder by electronic communications pursuant to
procedures approved by it; provided that approval of such procedures may
be limited to particular notices or communications. All such notices and other
communications (i) sent to an e-mail address shall be deemed received upon
the sender’s receipt of an acknowledgement from the intended recipient (such as
by the “return receipt requested” function, as available, return e-mail or
other written acknowledgement), provided that if not given during the normal
business hours of the recipient, such notice or communication shall be deemed
to have been given at the opening of business on the next Business Day for the
recipient, and (ii) posted to an Internet or intranet website shall be
deemed received upon the deemed receipt by the intended recipient at its e-mail
address as described in the foregoing clause (b)(i) of notification that
such notice or communication is available and identifying the website address
therefor.

(c)           Any party hereto may
change its address or facsimile number for notices and other communications
hereunder by notice to the other parties hereto.

SECTION 9.02        Waivers; Amendments. (a)  No
failure or delay by either Administrative Agent, the Issuing Bank or any Lender
in exercising any right or power hereunder or under any other Loan Document
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such right or power, or any abandonment or discontinuance of steps to
enforce such a right or power, preclude any other or further exercise thereof
or the exercise of any other right or power. The rights and remedies of the
Administrative Agents, the Issuing Bank and the Lenders hereunder and under any
other Loan Document are cumulative and are not exclusive of any rights or
remedies that they would otherwise have. No waiver of any provision of any Loan
Document or consent to any departure by any Loan Party therefrom shall in any
event be effective unless the same shall be permitted by paragraph (b) of
this Section, and then such waiver or consent shall be effective only in the
specific instance and for the purpose for which given. Without limiting the
generality of the foregoing, the making of a Loan or issuance of a Letter of
Credit shall not be construed as a waiver of any Default, regardless of whether
either Administrative Agent, any Lender or the Issuing Bank may have had notice
or knowledge of such Default at the time.

 95
 

 

 

(b)           Neither this
Agreement nor any other Loan Document nor any provision hereof or thereof may
be waived, amended or modified except (i) in the case of this Agreement,
pursuant to an agreement or agreements in writing entered into by the Borrowers
and the Required Lenders or, (ii) in the case of any other Loan Document,
pursuant to an agreement or agreements in writing entered into by the relevant
Administrative Agent(s) and the Loan Party or Loan Parties that are
parties thereto, with the consent of the Required Lenders; provided that
no such agreement shall (A) increase the US Commitment or Canadian
Commitment of any Lender without the written consent of such Lender (provided,
that the US Administrative Agent may make Protective Advances and Overadvances as
set forth in Section 2.05), (B) reduce or forgive the principal
amount of any Loan, Acceptance Obligation or LC Disbursement or reduce the rate
of interest thereon, or reduce or forgive any interest or fees payable
hereunder, without the written consent of each Lender directly affected
thereby, (C) postpone any scheduled date of payment of the principal
amount of any Loan, Acceptance Obligation or LC Disbursement, or any date for
the payment of any interest, fees or other Obligations payable hereunder, or
reduce the amount of, waive or excuse any such payment, or postpone the
scheduled date of expiration of any Commitment, without the written consent of
each Lender directly affected thereby, (D) change Section 2.19(b) or
(d) in a manner that would alter the manner in which payments are shared,
without the written consent of each Lender, (E) increase the advance rates
set forth in the definition of Borrowing Base or add new categories of eligible
assets, without the written consent of the Super-Majority Lenders, (F) change
any of the provisions of this Section or the definition of “Required
Lenders”, “Required US Lenders” or “Required Canadian Lenders” or any other
provision of any Loan Document specifying the number or percentage of Lenders
(or Lenders of any Class) required to waive, amend or modify any rights
thereunder or make any determination or grant any consent thereunder, without
the written consent of each Lender, US Lender or Canadian Lender, as
applicable, (G) release any Loan Guarantor from its obligation under its
Loan Guaranty (except as otherwise permitted herein or in the other Loan
Documents), without the written consent of each Lender, (H) permit any
Loan Party to assign its rights under the Loan Documents, without the written
consent of each Lender, or (I) except as provided in clauses (d) and (e) of
this Section or in any Collateral Document, release all or substantially
all of the Collateral, without the written consent of each Lender; provided
further that no such agreement shall amend, modify or otherwise affect the
rights or duties of the US Administrative Agent, the Canadian Administrative
Agent, the Issuing Bank or the Swingline Lender hereunder without the prior
written consent of the US Administrative Agent, the Canadian Administrative
Agent, the Issuing Bank or the Swingline Lender, as the case may be. The US
Administrative Agent and the Canadian Administrative Agent may also amend the
US Commitment Schedule and the Canadian Commitment Schedule, as applicable, to
reflect assignments entered into pursuant to Section 9.04.

(c)           The Lenders hereby
irrevocably authorize each Administrative Agent, at its option and in its sole
discretion, to release any Liens granted to such Administrative Agent by the
Loan Parties on any Collateral (i) upon the termination of the all
Commitments, payment and satisfaction in full in cash of all Secured
Obligations (other than Unliquidated Obligations), and the cash
collateralization of all Unliquidated Obligations in a manner reasonably
satisfactory to each affected Lender, (ii) constituting property being
sold or disposed of if the Loan Party disposing of such property certifies to
the Administrative Agents that the sale or disposition is made in compliance
with the terms of this Agreement (and each Administrative Agent may rely
conclusively on any such certificate, without further inquiry), (iii) constituting
property leased to a Loan Party under a lease which has expired or been
terminated in a transaction permitted under this Agreement or (iv) as
required to effect any sale or other disposition of such Collateral in
connection with any exercise of remedies of the Administrative Agents and the
Lenders pursuant to Article VII. Except as provided in the preceding
sentence, neither Administrative Agent will release any Liens on Collateral
without the prior written authorization of the Required Lenders; provided that, the Administrative Agents may in their discretion,
release their Liens on Collateral valued in the aggregate not in excess of
US$2,500,000 during any calendar year without the prior written authorization
of the Required Lenders. Any such release shall not in any manner discharge,
affect, or impair the

 96
 

 

 

Obligations or
any Liens (other than those expressly being released) upon (or obligations of
the Loan Parties in respect of) all interests retained by the Loan Parties,
including the proceeds of any sale, all of which shall continue to constitute
part of the Collateral.

(d)           If,
in connection with any proposed amendment, waiver or consent  requiring the consent of “each Lender” or “each Lender affected
thereby,” the consent of the Required Lenders is obtained, but the
consent of other necessary Lenders is not obtained (any such Lender whose
consent is necessary but not obtained being referred to herein as a “Non-Consenting
Lender”), then the Borrowers may elect to replace a Non-Consenting Lender
as a US Lender or Canadian Lender, as applicable, party to this Agreement, provided that, concurrently with such replacement, (i) another bank
or other entity which is reasonably satisfactory to the Borrowers and the
Administrative Agents shall agree, as of such date, to purchase for cash the
Loans and other Obligations due to the Non-Consenting Lender pursuant to an
Assignment and Assumption and to become a US Lender or Canadian Lender, as
applicable, for all purposes under this Agreement and to assume all obligations
of the Non-Consenting Lender to be terminated as of such date and to comply
with the requirements of clause (b) of Section 9.04, and (ii) the
relevant Borrower shall pay to such Non-Consenting Lender in same day funds on
the day of such replacement (1) all interest, fees and other amounts then
accrued but unpaid to such Non-Consenting Lender by such Borrower hereunder to
and including the date of termination, including without limitation payments
due to such Non-Consenting Lender under Sections 2.16 and 2.18, and (2) an
amount, if any, equal to the payment which would have been due to such Lender
on the day of such replacement under Section 2.17 had the Loans of such
Non-Consenting Lender been prepaid on such date rather than sold to the
replacement Lender.

SECTION 9.03        Expenses; Indemnity; Damage Waiver.
(a)  Each Borrower shall pay (i) all reasonable out-of-pocket
expenses incurred by each Administrative Agent and its Affiliates, including
the reasonable fees, charges and disbursements of counsel for the
Administrative Agents, in connection with the syndication and distribution
(including, without limitation, via the internet or through a service such as
Intralinks) of the credit facilities provided for herein, the preparation and
administration of the Loan Documents or any amendments, modifications or
waivers of the provisions of the Loan Documents (whether or not the
transactions contemplated hereby or thereby shall be consummated), (ii) all
reasonable out-of-pocket expenses incurred by the Issuing Bank in connection
with the issuance, amendment, renewal or extension of any Letter of Credit or
any demand for payment thereunder and (iii) all out-of-pocket expenses
incurred by either Administrative Agent, the Issuing Bank or any Lender,
including the fees, charges and disbursements of any counsel for either
Administrative Agent, the Issuing Bank or any Lender, in connection with the
enforcement, collection or protection of its rights in connection with the Loan
Documents, including its rights under this Section, or in connection with the
Loans made or Letters of Credit issued hereunder, including all such
out-of-pocket expenses incurred during 
any workout, restructuring or negotiations in respect of such Loans or
Letters of Credit. Expenses being reimbursed by the Borrowers under this Section include,
without limiting the generality of the foregoing, costs and expenses incurred
in connection with:

(i)            appraisals;

(ii)           field examinations, inventory
appraisals and the preparation of Reports based on the fees charged by a third
party retained by either Administrative Agent or the internally allocated fees
for each Person employed by such Administrative Agent with respect to each
field examination and inventory appraisal;

(iii)          lien and title searches and title
insurance;

 97
 

 

 

(iv)          taxes, fees and other charges for
recording the Mortgages, filing financing statements and continuations, and
other actions to perfect, protect, and continue the Administrative Agents’
Liens;

(v)           sums paid or incurred to take any
action required of any Loan Party under the Loan Documents that such Loan Party
fails to pay or take; and

(vi)          forwarding loan proceeds, collecting
checks and other items of payment, and establishing and maintaining the
accounts and lock boxes, and costs and expenses of preserving and protecting
the Collateral.

All of the foregoing costs
and expenses may be charged to the Borrowers as Revolving Loans or to another deposit
account, all as described in Section 2.19(c).

(b)           The Borrowers shall
indemnify each Administrative Agent, the Issuing Bank and each Lender, and each
Related Party of any of the foregoing Persons (each such Person being called an
“Indemnitee”) against, and hold each Indemnitee harmless from, any and
all losses, claims, damages, penalties, liabilities and related expenses,
including the reasonable fees, charges and disbursements of any counsel for any
Indemnitee, incurred by or asserted against any Indemnitee arising out of, in
connection with, or as a result of (i) the execution or delivery of the
Loan Documents or any agreement or instrument contemplated thereby, the
performance by the parties hereto of their respective obligations thereunder or
the consummation of the Transactions or any other transactions contemplated
hereby, (ii) any Loan, Acceptance or Letter of Credit or the use of the
proceeds therefrom (including any refusal by the Issuing Bank to honor a demand
for payment under a Letter of Credit if the documents presented in connection
with such demand do not strictly comply with the terms of such Letter of
Credit), (iii) any actual or alleged presence or release of Hazardous
Materials on or from any property owned or operated by the Borrowers or any of
their respective Subsidiaries, or any Environmental Liability related in any
way to the Borrowers or any of their respective Subsidiaries, or (iv) any
actual or prospective claim, litigation, investigation or proceeding relating
to any of the foregoing, whether based on contract, tort or any other theory
and regardless of whether any Indemnitee is a party thereto; provided
that such indemnity shall not, as to any Indemnitee, be available to the extent
that such losses, claims, damages, penalties, liabilities or related expenses
have resulted from the gross negligence or willful misconduct of such
Indemnitee.

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

(d)           To the extent
permitted by applicable law, no Loan Party shall assert, and each hereby
waives, any claim against any Indemnitee, on any theory of liability, for
special, indirect, consequential or punitive damages (as opposed to direct or
actual damages) arising out of, in connection with, or as a result of, this
Agreement or any agreement or instrument contemplated hereby, the Transactions,
any Loan or Letter of Credit or the use of the proceeds thereof.

 98
 

 

 

(e)           All amounts due
under this Section shall be payable promptly after written demand
therefor.

SECTION 9.04        Successors and Assigns. (a) 
The provisions of this Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and assigns permitted
hereby (including any Affiliate of the Issuing Bank that issues any Letter of
Credit), except that (i) neither Borrower may assign or otherwise transfer
any of its rights or obligations hereunder without the prior written consent of
each Lender (and any attempted assignment or transfer by either Borrower
without such consent shall be null and void) and (ii) no Lender may assign
or otherwise transfer its rights or obligations hereunder except in accordance
with this Section. Nothing in this Agreement, expressed or implied, shall be
construed to confer upon any Person (other than the parties hereto, their
respective successors and assigns permitted hereby (including any Affiliate of
the Issuing Bank that issues any Letter of Credit), Participants (to the extent
provided in paragraph (c) of this Section) and, to the extent expressly
contemplated hereby, the Related Parties of each of the Administrative Agents,
the Issuing Bank and the Lenders) any legal or equitable right, remedy or claim
under or by reason of this Agreement.

(b)           (i)  Subject to
the conditions set forth in paragraph (b)(ii) below, any Lender may assign
to one or more assignees all or a portion of its rights and obligations under
this Agreement (including all or a portion of its US Commitment or US Exposure
and/or its Canadian Commitment or Canadian Exposure at the time owing to it)
with the prior written consent (such consent not to be unreasonably withheld)
of:

(A)                              the
relevant Borrower, provided that no consent of either Borrower shall be
required for an assignment to a Lender, an Affiliate of a Lender, an Approved
Fund or, if an Event of Default has occurred and is continuing, any other
assignee;

(B)                                the
US Administrative Agent; and

(C)                                the
Issuing Bank (with respect to any assignment of US Commitments).

(ii)           Assignments shall be subject to the
following additional conditions:

(A)                              except
in the case of an assignment to a Lender or an Affiliate of a Lender or an
assignment of the entire remaining amount of the assigning Lender’s US
Commitment, US Exposure, Canadian Commitment or Canadian Exposure, the amount
of the US Commitment, US Exposure, Canadian Commitment or Canadian Exposure of
the assigning Lender subject to each such assignment (determined as of the date
the Assignment and Assumption with respect to such assignment is delivered to
the Administrative Agents) shall not be less than, in the case of US
Commitments or US Exposure, US$5,000,000, or, in the case of Canadian Commitments
or Canadian Exposure, US$1,000,000, unless each of the relevant Borrower and
the US Administrative Agent otherwise consent, provided that no such
consent of either Borrower shall be required if an Event of Default has
occurred and is continuing, and provided, further, that any
assignment prior to the termination of the Commitments must include an

 99
 

 

 

assignment of the US Commitments and/or
Canadian Commitments of such assigning Lender and a ratable assignment of the
respective US Exposure and/or the Canadian Exposure of such assigning Lender;

(B)                                each
partial assignment shall be made as an assignment of a proportionate part of
all the assigning Lender’s rights and obligations under this Agreement;

(C)                                the
parties to each assignment shall execute and deliver to the US Administrative
Agent an Assignment and Assumption, together with a processing and recordation
fee of US$3,500; and

(D)                               the
assignee, if it shall not be a Lender, shall deliver to the US Administrative
Agent an Administrative Questionnaire.

For
the purposes of this Section 9.04(b), the term “Approved Fund” has
the following meaning:

“Approved
Fund” means any Person (other than a natural person) that is engaged in
making, purchasing, holding or investing in bank loans and similar extensions of
credit in the ordinary course of its business and that is administered or
managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an
entity or an Affiliate of an entity that administers or manages a Lender.

(iii)          Subject to acceptance and recording
thereof pursuant to paragraph (b)(iv) of this Section, from and after
the effective date specified in each Assignment and Assumption the assignee
thereunder shall be a party hereto and, to the extent of the interest assigned
by such Assignment and Assumption, have the rights and obligations of a Lender
under this Agreement, and the assigning Lender thereunder shall, to the extent
of the interest assigned by such Assignment and Assumption, be released from
its obligations under this Agreement (and, in the case of an Assignment and
Assumption covering all of the assigning Lender’s rights and obligations under
this Agreement, such Lender shall cease to be a party hereto but shall continue
to be entitled to the benefits of Sections 2.16, 2.17 or 2.18 and 9.03). Any
assignment or transfer by a Lender of rights or obligations under this
Agreement that does not comply with this Section 9.04 shall be treated for
purposes of this Agreement as a sale by such Lender of a participation in such
rights and obligations in accordance with paragraph (c) of this Section.

(iv)          The US Administrative Agent, acting
for this purpose as an agent of the Borrowers, shall maintain at one of its
offices a copy of each Assignment and Assumption delivered to it and a register
for the recordation of the names and addresses of the Lenders, and the US
Commitment and/or Canadian Commitment of, and principal amount of the Loans,
Acceptance Obligation and LC Disbursements owing to, each Lender pursuant to
the terms hereof from time to time (the “Register”). The entries in the
Register shall be conclusive, and the Borrowers, the Administrative Agents, the
Issuing Bank and the Lenders may treat each Person whose name is recorded in
the Register pursuant to the terms hereof as a Lender hereunder for all
purposes of this Agreement, notwithstanding notice to the contrary. The
Register shall be available for inspection by the Borrowers, the Issuing Bank
and any Lender, at any reasonable time and from time to time upon reasonable
prior notice.

 100
 

 

 

(v)           Upon its receipt of a duly completed
Assignment and Assumption executed by an assigning Lender and an assignee, the
assignee’s completed Administrative Questionnaire (unless the assignee shall
already be a Lender hereunder), the processing and recordation fee referred to
in paragraph (b) of this Section and any written consent to such
assignment required by paragraph (b) of this Section, the US
Administrative Agent shall accept such Assignment and Assumption and record the
information contained therein in the Register; provided that if either
the assigning Lender or the assignee shall have failed to make any payment
required to be made by it pursuant to Section 2.06, 2.07(d) or
2.07(e), 2.08(b), 2.19(d) or 9.03(c), the US Administrative Agent shall
have no obligation to accept such Assignment and Assumption and record the
information therein in the Register unless and until such payment shall have
been made in full, together with all accrued interest thereon. No assignment
shall be effective for purposes of this Agreement unless it has been recorded
in the Register as provided in this paragraph.

(c)           (i)  Any Lender
may, without the consent of the Borrowers, the Administrative Agents, the
Issuing Bank or the Swingline Lender, sell participations to one or more banks
or other entities (a “Participant”) in all or a portion of such Lender’s
rights and obligations under this Agreement (including all or a portion of its
US Commitment or Canadian Commitment and the Loans or Acceptance Obligations
owing to it); provided that (A) such Lender’s obligations under
this Agreement shall remain unchanged, (B) such Lender shall remain solely
responsible to the other parties hereto for the performance of such obligations
and (C) the Borrowers, the Administrative Agents, the Issuing Bank and the
other Lenders shall continue to deal solely and directly with such Lender in
connection with such Lender’s rights and obligations under this Agreement. Any
agreement or instrument pursuant to which a Lender sells such a participation
shall provide that such Lender shall retain the sole right to enforce this
Agreement and to approve any amendment, modification or waiver of any provision
of this Agreement; provided that such agreement or instrument may
provide that such Lender will not, without the consent of the Participant,
agree to any amendment, modification or waiver described in the first proviso
to Section 9.02(b) that affects such Participant. Subject to
paragraph (c)(ii) of this Section, each Borrower agrees that each
Participant shall be entitled to the benefits of Sections 2.16, 2.17 and 2.18
to the same extent as if it were a Lender and had acquired its interest by
assignment pursuant to paragraph (b) of this Section. To the extent
permitted by law, each Participant also shall be entitled to the benefits of Section 9.08
as though it were a Lender, provided such Participant agrees to be subject to Section 2.19(c) as
though it were a Lender.

(ii)           A Participant shall not be entitled
to receive any greater payment under Section 2.16 or 2.18 than the
applicable Lender would have been entitled to receive with respect to the
participation sold to such Participant, unless the sale of the participation to
such Participant is made with the US Borrower’s prior written consent. A
Participant that would be a Foreign Lender if it were a US Lender shall not be
entitled to the benefits of Section 2.18 unless the US Borrower is
notified of the participation sold to such Participant and such Participant
agrees, for the benefit of the US Borrower, to comply with Section 2.18(e) as
though it were a US Lender. A Participant that would be a Foreign Lender if it
were a Canadian Lender shall not be entitled to the benefits of Section 2.18
unless the Canadian Borrower is notified of the participation sold to such Participant
and such Participant agrees, for the benefit of the Canadian Borrower, to
comply with Section 2.18(e) as though it were a Canadian Lender.

(d)           Any Lender may at
any time pledge or assign a security interest in all or any portion of its
rights under this Agreement to secure obligations of such Lender, including
without limitation any pledge or assignment to secure obligations to a Federal
Reserve Bank, and this Section

 101
 

 

 

shall not
apply to any such pledge or assignment of a security interest; provided
that no such pledge or assignment of a security interest shall release a Lender
from any of its obligations hereunder or substitute any such pledgee or
assignee for such Lender as a party hereto.

Notwithstanding anything
to the contrary in this Agreement, any assignees or Participants shall be
entitled to the benefit of the cost protection provisions contained in Section 2.18
to the same extent as if they were Lenders, provided that either Borrower or
any of the Loan Guarantors shall not be required to reimburse the Participants
and assignees pursuant to Section 2.18 in an amount in excess of the
amount that would have been payable thereunder to such assigning or originating
Lender had such Lender not assigned, sold, transferred or negotiated all or a portion
of its Commitments and other rights and obligations hereunder or sold
participating interests in all or a portion of any Commitments and other
interests to such assignee or Participant; except if the relevant Borrower gave
its prior written consent to such assignment or sale of participation or an
Event of Default has occurred and is continuing.

SECTION 9.05     Survival.
All covenants, agreements, representations and warranties made by the Loan
Parties in the Loan Documents and in the certificates or other instruments  delivered in connection with or pursuant to
this Agreement or any other Loan Document shall be considered to have been
relied upon by the other parties hereto and shall survive the execution and
delivery of the Loan Documents and the making of any Loans and issuance of any
Letters of Credit, regardless of any investigation made by any such other party
or on its behalf and notwithstanding that either Administrative Agent, the
Issuing Bank or any Lender may have had notice or knowledge of any Default or
incorrect representation or warranty at the time any credit is extended
hereunder, and shall continue in full force and effect as long as the principal
of or any accrued interest on any Loan or any fee or any other amount payable
under this Agreement is outstanding and unpaid or any Letter of Credit is
outstanding and so long as the Commitments have not expired or terminated. The
provisions of Sections 2.16, 2.17 or 2.18 and 9.03 and Article VIII shall
survive and remain in full force and effect regardless of the consummation of
the transactions contemplated hereby, the repayment of the Loans, the
expiration or termination of the Letters of Credit and the Commitments or the
termination of this Agreement or any provision hereof.

SECTION 9.06     Counterparts; Integration; Effectiveness.
This Agreement may be executed in counterparts (and by different parties hereto
on different counterparts), each of which shall constitute an original, but all
of which when taken together shall constitute a single contract. This
Agreement, the other Loan Documents and any separate letter agreements with
respect to fees payable to the Administrative Agents constitute the entire
contract among the parties relating to the subject matter hereof and supersede
any and all previous agreements and understandings, oral or written, relating
to the subject matter hereof. Except as provided in Section 4.01, this
Agreement shall become effective when it shall have been executed by the
Administrative Agents and when the Administrative Agents shall have received
counterparts hereof which, when taken together, bear the signatures of each of
the other parties hereto, and thereafter shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns. Delivery
of an executed counterpart of a signature page of this Agreement by
facsimile shall be effective as delivery of a manually executed counterpart of
this Agreement.

SECTION 9.07     Severability. Any provision of any
Loan Document held to be invalid, illegal or unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective to the extent of such
invalidity, illegality or unenforceability without affecting the validity,
legality and enforceability of the remaining provisions thereof; and the
invalidity of a particular provision in a particular jurisdiction shall not
invalidate such provision in any other jurisdiction.

SECTION 9.08     Right of Setoff. If an Event of
Default shall have occurred and be continuing, each Lender and each of its
Affiliates is hereby authorized at any time and from time to time,

 102
 

 

 

to
the fullest extent permitted by law, to set off and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held and
other obligations at any time owing by such Lender or Affiliate to or for the
credit or the account of either Borrower or Loan Guarantor against any of and
all the Secured Obligations held by such Lender, irrespective of whether or not
such Lender shall have made any demand under the Loan Documents and although
such obligations may be unmatured. The applicable Lender shall notify the
Borrowers and the Administrative Agents of such set-off or application,
provided that any failure to give or any delay in giving such notice shall not
affect the validity of any such set-off or application under this Section. The
rights of each Lender under this Section are in addition to other rights
and remedies (including other rights of setoff) which such Lender may have.

SECTION 9.09        Governing Law; Jurisdiction; Consent
to Service of Process. (a)  The Loan Documents (other than those
containing a contrary express choice of law provision) shall be governed by and
construed in accordance with the laws of the State of New York, but giving
effect to federal laws applicable to national banks.

(b)           Each Loan Party
hereby irrevocably and unconditionally submits, for itself and its property, to
the nonexclusive jurisdiction of any U.S. Federal or New York State court
sitting in New York, New York in any action or proceeding arising out of or
relating to any Loan Documents, or for recognition or enforcement of any
judgment, and each of the parties hereto hereby irrevocably and unconditionally
agrees that all claims in respect of any such action or proceeding may be heard
and determined in such New York State or, to the extent permitted by law, in
such Federal court. Each of the parties hereto agrees that a final judgment in
any such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law. Nothing
in this Agreement or any other Loan Document shall affect any right that either
Administrative Agent, the Issuing Bank or any Lender may otherwise have to
bring any action or proceeding relating to this Agreement or any other Loan
Document against any Loan Party or its properties in the courts of any
jurisdiction.

(c)           Each Loan Party
hereby irrevocably and unconditionally waives, to the fullest extent it may
legally and effectively do so, any objection which it may now or hereafter have
to the laying of venue of any suit, action or proceeding arising out of or
relating to this Agreement or any other Loan Document in any court referred to
in paragraph (b) of this Section. Each of the parties hereto hereby
irrevocably waives, to the fullest extent permitted by law, the defense of an
inconvenient forum to the maintenance of such action or proceeding in any such
court.

(d)           Each party to this
Agreement irrevocably consents to service of process in the manner provided for
notices in Section 9.01. Nothing in this Agreement or any other Loan
Document will affect the right of any party to this Agreement to serve process
in any other manner permitted by law.

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

 

 103

 

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

SECTION 9.12       Confidentiality. Each of the
Administrative Agents, the Issuing Bank and the Lenders 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 Requirement of Law or
by any subpoena or similar legal process, (d) to any other party to this
Agreement, (e) in connection with the exercise of any remedies hereunder
or any suit, action or proceeding relating to this Agreement or any other Loan
Document or the enforcement of rights hereunder or thereunder, (f) subject
to an agreement containing provisions substantially the same as those of this
Section, to (i) any assignee of or Participant in, or any prospective
assignee of or Participant in, any of its rights or obligations under this
Agreement or (ii) any actual or prospective counterparty (or its advisors)
to any swap or derivative transaction relating to the Loan Parties and their
obligations, (g) with the consent of either Borrower or (h) to the
extent such Information (i) becomes publicly available other than as a
result of a breach of this Section or (ii) becomes available to either
Administrative Agent, the Issuing Bank or any Lender on a nonconfidential basis
from a source other than either Borrower. For the purposes of this Section, “Information”
means all information received from the Borrowers relating to the Borrowers or
their business, other than any such information that is available to either
Administrative Agent, the Issuing Bank or any Lender on a nonconfidential basis
prior to disclosure by such Borrower. Any Person required to maintain the
confidentiality of Information as provided in this Section shall be
considered to have complied with its obligation to do so if such Person has
exercised the same degree of care to maintain the confidentiality of such
Information as such Person would accord to its own confidential information.

SECTION 9.13       Several Obligations; Nonreliance;
Violation of Law. The respective obligations of the Lenders hereunder are
several and not joint and the failure of any Lender to make any Loan or perform
any of its obligations hereunder shall not relieve any other Lender from any of
its obligations hereunder. Each Lender hereby represents that it is not relying
on or looking to any margin stock for the repayment of the Borrowings provided
for herein. Anything contained in this Agreement to the contrary
notwithstanding, neither the Issuing Bank nor any Lender shall be obligated to
extend credit to either Borrower in violation of any Requirement of Law. The
obligations of each Borrower are joint and several, and each Borrower shall be
obligated in respect of the aggregate principal amount of all Loans and other
Secured Obligations, regardless of which Borrower may have received the
proceeds of any Loans or the benefit of any Letters of Credit.

SECTION 9.14       USA PATRIOT Act. Each Lender that
is subject to the requirements of the USA Patriot Act (Title III of Pub. L. 107-56
(signed into law October 26, 2001)) (the “Act”) hereby notifies
each Borrower that pursuant to the requirements of the Act, it is required to
obtain, verify and record information that identifies such Borrower, which
information includes the name and address of such Borrower and other
information that will allow such Lender to identify such Borrower in accordance
with the Act.

SECTION 9.15       Disclosure. Each Loan Party and
each Lender hereby acknowledges and agrees that each Administrative Agent
and/or its Affiliates from time to time may hold investments in, make other
loans to or have other relationships with any of the Loan Parties and their
respective Affiliates.

 104
 

SECTION 9.16       Appointment
for Perfection. Each Lender hereby appoints each other Lender as its
agent for the purpose of perfecting Liens, for the benefit of the
Administrative Agents and the Lenders, in assets which, in accordance with the
PPSA, Article 9 of the UCC or any other applicable law can be perfected
only by possession. Should any Lender (other than either Administrative Agent)
obtain possession of any such Collateral, such Lender shall notify the relevant
Administrative Agent thereof, and, promptly upon such Administrative Agent’s
request therefor shall deliver such Collateral to such Administrative Agent or
otherwise deal with such Collateral in accordance with such Administrative
Agent’s instructions.

SECTION 9.17       True-Up. In the event that any Loan shall be outstanding and (i) the principal
of or interest on such Loan shall not be paid within three Business Days after
the date on which it is due and the Required US Lenders or the Required
Canadian Lenders shall deliver to the Administrative Agents and the Borrowers a
request that the provisions of this paragraph take effect with respect to all
Loans (after which time all additional borrowings of Loans, if any, must be
ratable as between the Borrowers) or (ii) the Commitments shall be
terminated or the Loans accelerated pursuant to Article VII, then (unless
such request is revoked by the Required US Lenders or Required Canadian
Lenders, as applicable) (w) each Lender shall acquire at face value (or
sell at face value, as the case may be) a participation in the obligations of
each Borrower in respect of the principal of and interest on each outstanding
Loan of such Borrower such that each Lender shall have a participation in the
Loans of each Borrower, together with Loans owed by such Borrower and held by
such Lender not subject to any participation pursuant to this paragraph, equal
to its Applicable Percentage of such obligations (it being further understood
and agreed that, upon such purchase, the risk participations of the Lenders in
all outstanding Letters of Credit and Swingline Loans shall be automatically
adjusted such that each Lender’s risk participation (expressed as a percentage)
in each Letter of Credit issued at the request of, or Swingline Loan made to, a
Borrower shall equal its Applicable Percentage), (x) the Lenders shall
enter into such documentation as the US Administrative Agent may reasonably
require for the purpose of evidencing such participations and other interests, (y) each
applicable Lender shall pay the purchase price for its purchase of participations
pursuant to this paragraph by wire transfer of immediately available funds in
US Dollars to the US Administrative Agent in accordance with instructions
provided by the US Administrative Agent, and the US Administrative Agent shall
promptly wire the amounts so received to the relevant Lenders) and (z) all
payments in respect of the principal or interest of in respect of the Aggregate
Credit Exposure or fees from and after the purchase of such participations
shall be shared by the Lenders in accordance with this paragraph and such
participations will generally be subject to the same provisions as are
applicable to the participations in Letters of Credit set forth in Section 2.07
giving effect to changes necessary to reflect the nature of the arrangements set
forth herein. The obligations of the Lenders to acquire and pay for
participations in Loans (as well as the adjustments provided for herein)
pursuant to this paragraph shall be absolute and unconditional under any and
all circumstances.

SECTION 9.18       Intercreditor Agreement. By executing
this Agreement as a Lender, or by becoming a Lender hereunder pursuant to an
Assignment and Assumption, each Lender hereby agrees to the terms of the
Intercreditor Agreement, acknowledges that certain of its rights hereunder
shall be subject thereto, and consents to the execution thereof by the
Administrative Agents on behalf of such Lender.

SECTION 9.19       Conversion of Currencies.
(a)  If, for the purpose of obtaining judgment in any court, it is necessary
to convert a sum owing hereunder in one currency into another currency, each
party hereto agrees, to the fullest extent that it may effectively do so, that
the rate of exchange used shall be that at which, in accordance with normal
banking procedures in the relevant jurisdiction, the first currency could be
purchased with such other currency on the Business Day immediately preceding
the day on which final judgment is given.

 105
 

(b)           The
obligations of either Borrower in respect of any sum due to any party hereto or
any holder of the obligations owing hereunder (the “Applicable Creditor”)
shall, notwithstanding any judgment in a currency (the “Judgment Currency”)
other than the currency in which such sum is stated to be due hereunder (the “Agreement
Currency”), be discharged only to the extent that, on the Business Day
following receipt by the Applicable Creditor of any sum adjudged to be so due
in the Judgment Currency, the Applicable Creditor may, in accordance with
normal banking procedures in the relevant jurisdiction, purchase the Agreement
Currency with the Judgment Currency; if the amount of the Agreement Currency so
purchased is less than the sum originally due to the Applicable Creditor in the
Agreement Currency, each Borrower agrees, as a separate obligation and notwithstanding
any such judgment, to indemnify the Applicable Creditor against such loss. The
obligations of the Borrowers contained in this Section 9.19 shall survive
the termination of this Agreement and the payment of all other amounts owing
hereunder.

SECTION 9.20       Quebec. For greater
certainty, and without limiting the powers of the Administrative Agents or any
other Person acting as an agent, attorney-in-fact or mandatary for the
Administrative Agents under this Agreement or under any of the other Loan
Documents, each Lender, hereby (a) irrevocably constitutes, to the extent
necessary, the Canadian Administrative Agent as the holder of an irrevocable
power of attorney (fondé de pouvoir
within the meaning of Article 2692 of the Civil Code of Québec) for the purposes of holding any Liens,
including hypothecs, granted or to be granted by either Borrower or any other
Loan Party on movable or immovable property pursuant to the laws of the
Province of Quebec to secure obligations of either Borrower or any other Loan Party
under any bond issued by either Borrower or any other Loan Party; and (b) appoints
and agrees that the Canadian Administrative Agent, acting as agent for the
relevant Lenders, may act as the bondholder and mandatary with respect to any
bond that may be issued and pledged from time to time for the benefit of the
Lenders.

The said constitution of the
fondé de pouvoir (within the meaning of Article 2692 of the Civil Code of Quebec) as the holder
of such irrevocable power of attorney and of the Canadian Administrative Agent
as bondholder and mandatary with respect to any bond that may be issued and
pledged from time to time for the benefit of the Lenders shall be deemed to
have been ratified and confirmed by any Assignee by the execution of an
Assignment and Assumption.

Notwithstanding the
provisions of Section 32 of An
Act Respecting the Special Powers of Legal Persons (Quebec), or any
other law, the Canadian
Administrative Agent may purchase, acquire and be the holder of any bond issued
by either Borrower or any other Loan Party. Each Borrower and each Guarantor
hereby acknowledges that any such bond shall constitute a title of
indebtedness, as such term is used in Article 2692 of the Civil Code of Quebec.

The Canadian Administrative
Agent herein appointed as fondé de
pouvoir shall have the same rights, powers and immunities as the
Administrative Agents as stipulated in this Article IX, which shall apply mutatis mutandis. Without limitation, the provisions of this Article IX
shall apply mutatis mutandis to the resignation and appointment
of a successor to the Canadian Administrative Agent acting as fondé de pouvoir.

ARTICLE X.

Loan Guaranty

SECTION 10.01     Guaranty. Each Loan Guarantor hereby
agrees that it is jointly and severally liable for, and, as primary obligor and
not merely as surety, absolutely and unconditionally guarantees to the Lenders
the prompt payment when due, whether at stated maturity, upon acceleration or
otherwise, and at all times thereafter, of the Secured Obligations and all
costs and expenses including,

 106
 

without
limitation, all court costs and attorneys’ and paralegals’ fees (including
allocated costs of in-house counsel and paralegals) and expenses paid or
incurred by the Administrative Agents, the Issuing Bank and the Lenders in
endeavoring to collect all or any part of the Secured Obligations from, or in
prosecuting any action against, either Borrower, any Loan Guarantor or any
other guarantor of all or any part of the Secured Obligations (such costs and
expenses, together with the Secured Obligations, collectively the “Guaranteed
Obligations”). Each Loan Guarantor further agrees that the Guaranteed
Obligations may be extended or renewed in whole or in part without notice to or
further assent from it, and that it remains bound upon its guarantee
notwithstanding any such extension or renewal. All terms of this Loan Guaranty apply to and
may be enforced by or on behalf of any domestic or foreign branch or Affiliate
of any Lender that extended any portion of the Guaranteed Obligations.

SECTION 10.02     Guaranty of Payment. This Loan
Guaranty is a guaranty of payment and not of collection. Each Loan Guarantor
waives, to the extent permitted by applicable law, any right to require either
Administrative Agent, the Issuing Bank or any Lender to sue either Borrower,
any Loan Guarantor, any other guarantor, or any other person obligated for all
or any part of the Guaranteed Obligations (each, an “Obligated Party”),
or otherwise to enforce its payment against any collateral securing all or any
part of the Guaranteed Obligations.

SECTION 10.03     No Discharge or Diminishment of Loan
Guaranty. (a)  Except as otherwise provided for herein, the
obligations of each Loan Guarantor hereunder are unconditional and absolute
and, to the extent permitted by applicable law, not subject to any reduction,
limitation, impairment or termination for any reason (other than the
indefeasible payment in full in cash of the Guaranteed Obligations), including:
(i) any claim of waiver, release, extension, renewal, settlement, surrender,
alteration, or compromise of any of the Guaranteed Obligations, by operation of
law or otherwise; (ii) any change in the corporate existence, structure or
ownership of either Borrower or any other guarantor of or other person liable
for any of the Guaranteed Obligations; (iii) any insolvency, bankruptcy,
reorganization or other similar proceeding affecting any Obligated Party, or
their assets or any resulting release or discharge of any obligation of any
Obligated Party; or (iv) the existence of any claim, setoff or other
rights which any Loan Guarantor may have at any time against any Obligated
Party, either Administrative Agent, the Issuing Bank, any Lender, or any other
person, whether in connection herewith or in any unrelated transactions.

(b)           The obligations of
each Loan Guarantor hereunder are not, to the extent permitted by applicable
law, subject to any defense or setoff, counterclaim, recoupment, or termination
whatsoever by reason of the invalidity, illegality, or unenforceability of any
of the Guaranteed Obligations or otherwise, or any provision of applicable law
or regulation purporting to prohibit payment by any Obligated Party, of the
Guaranteed Obligations or any part thereof.

(c)           Further, the
obligations of any Loan Guarantor hereunder are not, to the extent permitted by
applicable law, discharged or impaired or otherwise affected by: (i) the
failure of either Administrative Agent, the Issuing Bank or any Lender to
assert any claim or demand or to enforce any remedy with respect to all or any
part of the Guaranteed Obligations; (ii) any waiver or modification of or
supplement to any provision of any agreement relating to the Guaranteed
Obligations; (iii) any release, non-perfection, or invalidity of any
indirect or direct security for the obligations of either Borrower for all or
any part of the Guaranteed Obligations or any obligations of any other
guarantor of or other person liable for any of the Guaranteed Obligations; (iv) any
action or failure to act by either Administrative Agent, the Issuing Bank or
any Lender with respect to any collateral securing any part of the Guaranteed
Obligations; or (v) any default, failure or delay, willful or otherwise,
in the payment or performance of any of the Guaranteed Obligations, or any
other circumstance, act, omission or delay that might in any manner or to any
extent vary the risk of such Loan Guarantor or that would otherwise operate as
a

 107
 

discharge of
any Loan Guarantor as a matter of law or equity (other than the indefeasible
payment in full in cash of the Guaranteed Obligations).

SECTION 10.04     Defenses Waived. To the fullest
extent permitted by applicable law, each Loan Guarantor hereby waives any
defense based on or arising out of any defense of either Borrower or any Loan
Guarantor or the unenforceability of all or any part of the Guaranteed
Obligations from any cause, or the cessation from any cause of the liability of
either Borrower or any Loan Guarantor, other than the indefeasible payment in
full in cash of the Guaranteed Obligations. Without limiting the generality of
the foregoing, each Loan Guarantor
irrevocably waives acceptance hereof, presentment, demand, protest and, to the
fullest extent permitted by law, any notice not provided for herein, as well as
any requirement that at any time any action be taken by any person against any
Obligated Party, or any other person. Each
Administrative Agent may, at its election, foreclose on any Collateral held by
it by one or more judicial or nonjudicial sales, accept an assignment of any
such Collateral in lieu of foreclosure or otherwise act or fail to act with
respect to any collateral securing all or a part of the Guaranteed Obligations,
compromise or adjust any part of the Guaranteed Obligations, make any other
accommodation with any Obligated Party or exercise any other right or remedy
available to it against any Obligated Party, without affecting or impairing in
any way the liability of such Loan Guarantor under this Loan Guaranty except to
the extent the Guaranteed Obligations have been fully and indefeasibly paid in
cash. To the fullest extent permitted by applicable law, each Loan Guarantor
waives any defense arising out of any such election even though that election
may operate, pursuant to applicable law, to impair or extinguish any right of
reimbursement or subrogation or other right or remedy of any Loan Guarantor
against any Obligated Party or any security.

SECTION 10.05     Rights of Subrogation. No Loan
Guarantor will assert any right, claim or cause of action, including, without
limitation, a claim of subrogation, contribution or indemnification that it has
against any Obligated Party, or any collateral, until the Loan Parties and the
Loan Guarantors have fully performed all their obligations to the
Administrative Agents, the Issuing Bank and the Lenders.

SECTION 10.06     Reinstatement; Stay of Acceleration.
If at any time any payment of any portion of the Guaranteed Obligations is
rescinded or must otherwise be restored or returned upon the insolvency,
bankruptcy, or reorganization of either Borrower or otherwise, each Loan
Guarantor’s obligations under this Loan Guaranty with respect to that payment
shall be reinstated at such time as though the payment had not been made and
whether or not the Administrative Agents, the Issuing Bank and the Lenders are
in possession of this Loan Guaranty. If
acceleration of the time for payment of any of the Guaranteed Obligations is
stayed upon the insolvency, bankruptcy or reorganization of either Borrower,
all such amounts otherwise subject to acceleration under the terms of any
agreement relating to the Guaranteed Obligations shall nonetheless be payable
by the Loan Guarantors forthwith on demand by the Lender.

SECTION 10.07     Information. Each Loan Guarantor
assumes all responsibility for being and keeping itself informed of the
Borrowers’ financial condition and assets, and of all other circumstances
bearing upon the risk of nonpayment of the Guaranteed Obligations and the
nature, scope and extent of the risks that each Loan Guarantor assumes and
incurs under this Loan Guaranty, and agrees that neither the Administrative
Agents, the Issuing Bank nor any Lender shall have any duty to advise any Loan
Guarantor of information known to it regarding those circumstances or risks.

SECTION 10.08     Termination. The Lenders may
continue to make loans or extend credit to the Borrowers based on this Loan
Guaranty until five days after it receives written notice of termination from
any Loan Guarantor. Notwithstanding receipt of any such notice, each Loan
Guarantor will continue to be liable to the Lenders for any Guaranteed
Obligations created, assumed or committed to

 108
 

prior
to the fifth day after receipt of the notice, and all subsequent renewals,
extensions, modifications and amendments with respect to, or substitutions for,
all or any part of that Guaranteed Obligations.

SECTION 10.09     Taxes. All payments of the
Guaranteed Obligations will be made by each Loan Guarantor free and clear of
and without deduction for any Indemnified Taxes or Other Taxes; provided that
if any Loan Guarantor shall be required to deduct any Indemnified Taxes or
Other Taxes from such payments, then (i) the sum payable shall be
increased as necessary so that after making all required deductions (including
deductions applicable to additional sums payable under this Section) the US
Administrative Agent, the Canadian Administrative Agent, Lender or Issuing Bank
(as the case may be) receives an amount equal to the sum it would have received
had no such deductions been made, (ii) such Loan Guarantor shall make such
deductions and (iii) such Loan Guarantor shall pay the full amount
deducted to the relevant Governmental Authority in accordance with applicable
law.

SECTION 10.10     Maximum Liability. The provisions of
this Loan Guaranty are severable, and in any action or proceeding involving any
state corporate law, or any state, federal or foreign bankruptcy, insolvency,
reorganization or other law affecting the rights of creditors generally, if the
obligations of any Loan Guarantor under this Loan Guaranty would otherwise be
held or determined to be avoidable, invalid or unenforceable on account of the
amount of such Loan Guarantor’s liability under this Loan Guaranty, then,
notwithstanding any other provision of this Loan Guaranty to the contrary, the
amount of such liability shall, without any further action by the Loan
Guarantors or the Lenders, be automatically limited and reduced to the highest
amount that is valid and enforceable as determined in such action or proceeding
(such highest amount determined hereunder being the relevant Loan Guarantor’s “Maximum
Liability”. This Section with respect to the Maximum Liability of each
Loan Guarantor is intended solely to preserve the rights of the Lenders to the
maximum extent not subject to avoidance under applicable law, and no Loan
Guarantor nor any other person or entity shall have any right or claim under
this Section with respect to such Maximum Liability, except to the extent
necessary so that the obligations of any Loan Guarantor hereunder shall not be
rendered voidable under applicable law. Each
Loan Guarantor agrees that the Guaranteed Obligations may at any time and from
time to time exceed the Maximum Liability of each Loan Guarantor without
impairing this Loan Guaranty or affecting the rights and remedies of the
Lenders hereunder, provided that,
nothing in this sentence shall be construed to increase any Loan Guarantor’s
obligations hereunder beyond its Maximum Liability.

SECTION 10.11     Contribution. In the event any Loan
Guarantor (a “Paying Guarantor”) shall make any payment or payments
under this Loan Guaranty or shall suffer any loss as a result of any
realization upon any collateral granted by it to secure its obligations under
this Loan Guaranty, each other Loan Guarantor (each a “Non-Paying Guarantor”)
shall contribute to such Paying Guarantor an amount equal to such Non-Paying
Guarantor’s “Applicable Percentage” of such payment or payments made, or losses
suffered, by such Paying Guarantor. For purposes of this Article X, each
Non-Paying Guarantor’s “Applicable Percentage” with respect to any such
payment or loss by a Paying Guarantor shall be determined as of the date on
which such payment or loss was made by reference to the ratio of (i) such
Non-Paying Guarantor’s Maximum Liability as of such date (without giving effect
to any right to receive, or obligation to make, any contribution hereunder) or,
if such Non-Paying Guarantor’s Maximum Liability has not been determined, the
aggregate amount of all monies received by such Non-Paying Guarantor from the
Borrowers after the date hereof (whether by loan, capital infusion or by other
means) to (ii) the aggregate Maximum Liability of all Loan Guarantors
hereunder (including such Paying Guarantor) as of such date (without giving
effect to any right to receive, or obligation to make, any contribution
hereunder), or to the extent that a Maximum Liability has not been determined
for any Loan Guarantor, the aggregate amount of all monies received by such
Loan Guarantors from the Borrowers after the date hereof (whether by loan,
capital infusion or by other means). Nothing in this provision shall affect any
Loan Guarantor’s several liability for the entire amount of the Guaranteed
Obligations (up to such Loan Guarantor’s Maximum Liability). Each of the Loan
Guarantors covenants and agrees that its

 109
 

right
to receive any contribution under this Loan Guaranty from a Non-Paying
Guarantor shall be subordinate and junior in right of payment to the payment in
full in cash of the Guaranteed Obligations. This provision is for the benefit
of both the Administrative Agents, the Issuing Bank, the Lenders and the Loan
Guarantors and may be enforced by any one, or more, or all of them in
accordance with the terms hereof.

SECTION 10.12     Liability Cumulative. The liability of each
Loan Party as a Loan Guarantor under this Article X is in addition to and
shall be cumulative with all liabilities of each Loan Party to the
Administrative Agents, the Issuing Bank and the Lenders under this Agreement
and the other Loan Documents to which such Loan Party is a party or in respect
of any obligations or liabilities of the other Loan Parties, without any
limitation as to amount, unless the instrument or agreement evidencing or
creating such other liability specifically provides to the contrary.

 110
 

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

	
   

  	
  CELLU PAPER HOLDINGS, INC.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Dianne M. Scheu

  
	
   

  	
   

  	
  Name:

  	
  Dianne M. Scheu

  
	
   

  	
   

  	
  Title:

  	
  Chief Financial Officer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  CELLU TISSUE HOLDINGS, INC.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Dianne M. Scheu

  
	
   

  	
   

  	
  Name:

  	
  Dianne M. Scheu

  
	
   

  	
   

  	
  Title:

  	
  Chief Financial Officer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  INTERLAKE ACQUISITION CORPORATION LIMITED

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Dianne M. Scheu

  
	
   

  	
   

  	
  Name:

  	
  Dianne M. Scheu

  
	
   

  	
   

  	
  Title:

  	
  Chief Financial Officer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  CELLU TISSUE LLC

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Dianne M. Scheu

  
	
   

  	
   

  	
  Name:

  	
  Dianne M. Scheu

  
	
   

  	
   

  	
  Title:

  	
  Chief Financial Officer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  CELLU TISSUE CORPORATION—NATURAL DAM

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Dianne M. Scheu

  
	
   

  	
   

  	
  Name:

  	
  Dianne M. Scheu

  
	
   

  	
   

  	
  Title:

  	
  Chief Financial Officer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  CELLU TISSUE CORPORATION—NEENAH

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Dianne M. Scheu

  
	
   

  	
   

  	
  Name:

  	
  Dianne M. Scheu

  
	
   

  	
   

  	
  Title:

  	
  Chief Financial Officer

  

 

 111
 

 

	
  

  	
   

  	
   

  	
   

  
	
   

  	
  COASTAL PAPER COMPANY

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Dianne M. Scheu

  
	
   

  	
   

  	
  Name:

  	
  Dianne M. Scheu

  
	
   

  	
   

  	
  Title:

  	
  Chief Financial Officer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  VAN TIMBER COMPANY

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Dianne M. Scheu

  
	
   

  	
   

  	
  Name:

  	
  Dianne M. Scheu

  
	
   

  	
   

  	
  Title:

  	
  Chief Financial Officer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  VAN PAPER COMPANY

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Dianne M. Scheu

  
	
   

  	
   

  	
  Name:

  	
  Dianne M. Scheu

  
	
   

  	
   

  	
  Title:

  	
  Chief Financial Officer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  MENOMINEE ACQUISITION CORPORATION

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Dianne M. Scheu

  
	
   

  	
   

  	
  Name:

  	
  Dianne M. Scheu

  
	
   

  	
   

  	
  Title:

  	
  Chief Financial Officer

  

 

 112
 

 

	
  

  	
  JPMORGAN CHASE BANK, N.A., individually, as US
  Administrative Agent, Issuing Bank, Swingline Lender and a Lender

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ John M.Hariaczyi

  
	
   

  	
   

  	
  Name:

  	
  John M. Hariaczyi

  
	
   

  	
   

  	
  Title:

  	
  Vice President

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  JPMORGAN CHASE BANK, N.A., TORONTO BRANCH,
  individually and as Canadian Administrative Agent and a Lender

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ M. N. Lam

  
	
   

  	
   

  	
  Name:

  	
  M. N. Lam

  

 

 113
 

US COMMITMENT SCHEDULE

 

	
  US Lender

  	
   

  	
  US Commitment

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  JPMorgan Chase
  Bank, N.A.

  	
   

  	
  US$32,000,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Total

  	
   

  	
  US$32,000,000

  	
   

  

 

 114
 

CANADIAN COMMITMENT SCHEDULE

 

	
  Canadian Lender

  	
   

  	
  US Commitment

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  JPMorgan Chase
  Bank, N.A., Toronto Branch.

  	
   

  	
  US$3,000,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Total

  	
   

  	
  US$3,000,000

  	
   

  

 

 115Exhibit 10.4

FIRST SUPPLEMENTAL INDENTURE

This Supplemental Indenture, dated
as of June 2, 2006 (this “Supplemental Indenture”), is entered into
by and among Cellu Tissue Holdings, Inc. (together with its successors and
assigns, the “Company”), the Subsidiary Guarantors under (and as defined
in) the Indenture referred to below and The Bank of New York Trust Company,
N.A., as successor to The Bank of New York, as Trustee under the Indenture
referred to below (the “Trustee”).

WITNESSETH:

WHEREAS, the Company, the
Subsidiary Guarantors and the Trustee have heretofore executed and delivered an
Indenture, dated as of March 12, 2004 (as amended, supplemented, waived or
otherwise modified, the “Indenture”), pursuant to which an aggregate
principal amount of $162.0 million of 93⁄4% Senior Secured Notes due 2010 of the
Company (the “Securities”) were issued and are outstanding;

WHEREAS, Section 9.2 of the
Indenture provides that the Company, the Subsidiary Guarantors and the Trustee
may amend or supplement the Indenture, subject to certain exceptions, with the
written consent of the Holders (as defined in the Indenture) of at least a
majority in principal amount of the Securities then outstanding;

WHEREAS, the Company distributed a
consent solicitation statement dated May 9, 2006 (the “Statement”),
and a supplement thereto dated May 24, 2006 (the “Supplement”), in
order to, among other things, solicit consents from the Holders to the proposed
amendments to the Indenture described in the Statement, as modified by the
Supplement (the “Amendments”);

WHEREAS, Holders of at least a
majority in principal amount of the Securities outstanding have given and, as
of the date hereof, have not withdrawn, their consent to the Amendments; and

WHEREAS, this Supplemental
Indenture has been duly authorized by all necessary corporate action on the
part of the Company and the Subsidiary Guarantors;

NOW, THEREFORE, in consideration of
the foregoing and for other good and valuable consideration, the receipt of
which is hereby acknowledged, the Company, the Subsidiary Guarantors and the
Trustee mutually covenant and agree as follows:

ARTICLE I

DEFINITIONS

SECTION 1.1.
Defined Terms. As used in this Supplemental Indenture, terms defined in
the Indenture or in the preamble or recitals hereto are used herein as therein
defined. The words “herein,” “hereof” and “hereby” and other words of similar
import used in this Supplemental Indenture refer to this Supplemental Indenture
as a whole and not to any particular section hereof.

 

ARTICLE II

AMENDMENTS

 

SECTION 2.1. Amendments
to Section 1.1. The definition of “Change of Control” in Section 1.1
of the Indenture is hereby amended by deleting clause (1) thereof and
replacing it in its entirety with the following:

“(1)         prior to
the first public offering of Common Stock of the Company or Holdings, the
Permitted Holders, or Weston Presidio V, L.P. or any Affiliate of Weston
Presidio V, L.P., cease to be the “beneficial owner” (as defined in Rules 13d-3
and 13d-5 under the Exchange Act), directly or indirectly, of a majority
in the aggregate of the total voting power of the Voting Stock of the Company
or Holdings, whether as a result of the issuance of securities of the Company
or Holdings, any merger, consolidation, liquidation or dissolution of the
Company or Holdings, any direct or indirect transfer of securities by any
Permitted Holder, or Weston Presidio V, L.P. or any Affiliate of Weston
Presidio V, L.P., or otherwise (for purposes of this clause (1) and clause
(2) below, the Permitted Holders, or Weston Presidio V, L.P. or any
Affiliate of Weston Presidio V, L.P., shall be deemed to beneficially own any
Voting Stock of an entity (the “specified entity”) held by any other entity
(the “parent entity”) so long as the Permitted Holders, or Weston Presidio V,
L.P. or any Affiliate of Weston Presidio V, L.P., as the case may be,
beneficially own (as so defined), directly or indirectly, in the aggregate a
majority of the voting power of the Voting Stock of the parent entity); or”

SECTION 2.2.
Amendments to Section 3.3.

(a)           Section 3.3(b) of the Indenture is hereby
amended by deleting the word “and” at the end of clause (14), replacing the
period at the end of clause (15) with “; and” and adding the following new
clause (16):

“(16)       so long as no Default or Event of Default
shall have occurred and be continuing, cash dividends (the “Contingent Payment
Distributions”) to Holdings in order to permit Holdings to make contingent
payments to former stockholders of Holdings as additional consideration for the
merger of Cellu Acquisition Corporation with and into Holdings pursuant to the
terms of the Merger Agreement, dated as of May 8, 2006, among Cellu Parent
Corporation, Cellu Acquisition Corporation and Holdings and to permit Holdings
to make other payments in respect of adjustments to the merger consideration
specified in such Merger Agreement; provided that
the aggregate amount of Contingent Payment Distributions shall not exceed, at
any time of determination, the lesser of (a) $20.0 million and (b) 1.5
multiplied by the excess, if any, of (I) the Highest Annual EBITDA (as
defined in such Merger Agreement as in effect on the date hereof) of the
Company during any fiscal year ending on or after February 28, 2007 over (II) $40.0
million; and provided further that any
Contingent Payment Distributions made will be excluded in subsequent
calculations of the amount of Restricted Payments.”

 2
 

 

 

(b)           Section 3.3(b) of the Indenture is hereby
amended by deleting the first full paragraph following the numbered paragraphs
thereof and replacing it in its entirety with the following:

“Notwithstanding
the foregoing, except as permitted by clauses (1), (7), (8), (9), (10), (11) or
(16) of the previous paragraph, until the second anniversary of the Issue Date,
the Company will not, and will not permit any of its Restricted Subsidiaries,
directly or indirectly, to (a) declare or pay any dividend or make any
distribution on or in respect of its Capital Stock to any holder of Capital
Stock or (b) purchase, redeem, retire or otherwise acquire for value any
Capital Stock of the Company or any direct or indirect parent of the Company
held by any holder of Capital Stock. Following the second anniversary of the
Issue Date, the Company may, and may permit its Restricted Subsidiaries to,
make such declarations, distributions, payments, purchases, redemptions,
retirements or acquisitions, provided that the Consolidated Coverage Ratio for
the Company and its Restricted Subsidiaries is at least 2.50 to 1.00.”

SECTION 2.3.
Amendment to Section 3.8. Section 3.8 of the Indenture is
hereby amended by deleting clause (8) of the second paragraph thereof and
replacing it in its entirety with the following:

“(8)         so long as no Default or Event of
Default shall have occurred and be continuing, up to $450,000 of consulting and
management fees payable annually to Weston Presidio Service Company LLC or any
of its Affiliates.”

ARTICLE III

MISCELLANEOUS

SECTION 3.1. Effectiveness of
Supplemental Indenture. Upon the execution and delivery of this
Supplemental Indenture by the Company, each of the Subsidiary Guarantors and
the Trustee, the Indenture shall be supplemented in accordance herewith, and
this Supplemental Indenture shall form a part of the Indenture for all
purposes, and every Holder of Notes heretofore or hereafter authenticated and
delivered under the Indenture shall be bound hereby; provided, that the
amendments to the Indenture set forth in Article II of this Supplemental
Indenture shall not become operative, and shall not have the effect of amending
or otherwise modifying the terms of the Indenture in any way, unless and until
the Merger (as defined in the Statement, as modified by the Supplement) is
consummated and the other conditions to the solicitation of holders to the
Amendment set forth in the Statement, as modified by the Supplement, are
satisfied or waived.

SECTION 3.2. Trust Indenture Act
Controls. If and to the extent that any provision of this Supplemental
Indenture limits, qualifies or conflicts with another provision that is
required to be included in this Supplemental Indenture by the TIA, the
provision required by the TIA shall control. Each Subsidiary Guarantor, in
addition to performing its obligations under its Subsidiary Guaranty, shall
perform such other obligations as may be imposed upon it with respect to this
Supplemental Indenture under the TIA.

 3
 

 

SECTION 3.3. Successors. All agreements of the
Company and each Subsidiary Guarantor in this Supplemental Indenture and the
Securities shall bind their respective successors. All agreements of the Trustee
in this Supplemental Indenture shall bind its successors.

SECTION 3.4. Parties. Nothing
expressed or mentioned herein is intended or shall be construed to give any
Person, firm or corporation, other than the Holders from time to time and the
Trustee, any legal or equitable right, remedy or claim under or in respect of
this Supplemental Indenture or the Indenture or any provision herein or therein
contained.

SECTION 3.5. Governing Law. This
Supplemental Indenture shall be governed by, and construed in accordance with,
the laws of the State of New York.

SECTION 3.6.
Severability Clause. In case any provision in this Supplemental
Indenture shall be invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby and such provision shall be ineffective only to the extent
of such invalidity, illegality or unenforceability.

SECTION 3.7. Ratification of Indenture; Supplemental Indentures
Part of Indenture. Except as expressly amended hereby, the Indenture
is in all respects ratified and confirmed, and all the terms, conditions and
provisions thereof shall remain in full force and effect without offset,
defense on counterclaim. This Supplemental Indenture shall form a part of the
Indenture for all purposes, and every Holder of Securities heretofore or
hereafter authenticated and delivered shall be bound hereby. The Trustee makes
no representation or warranty as to the validity or sufficiency of this
Supplemental Indenture or with respect to the recitals contained herein, all of
which recitals are made solely by the other parties hereto.

SECTION 3.8. Counterparts. The parties hereto may sign one
or more copies of this Supplemental Indenture in counterparts, all of which
together shall constitute one and the same agreement.

SECTION 3.9. Headings. The headings of the Articles and the
Sections in this Supplemental Indenture are for convenience of reference only
and shall not be deemed to alter or affect the meaning or interpretation of any
provisions hereof.

SECTION 3.10. Trustee. The Trustee makes no
representations as to the validity or sufficiency of this supplemental
Indenture. The recitals and statements herein are deemed to be those of the
Company and the Subsidiary Guarantors and not of the Trustee.

Signatures
follow.

 4
 

 

IN WITNESS WHEREOF, the parties
hereto have caused this Supplemental Indenture to be duly executed as of the
date first above written.

	
   

  	
  THE BANK OF NEW YORK TRUST

  
	
   

  	
  COMPANY, N.A.,
  as Trustee

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Peter M.
  Murphy

  
	
   

  	
   

  	
  Name:

  	
  Peter M. Murphy

  
	
   

  	
   

  	
  Title:

  	
  Vice President

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  CELLU TISSUE
  HOLDINGS, INC.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  By:/s/ Russell
  C. Taylor

  
	
   

  	
   

  	
  Name:

  	
  Russell C.
  Taylor

  
	
   

  	
   

  	
  Title:

  	
  President and Chief Executive Officer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  CELLU TISSUE CORPORATION
  — NATURAL DAM

  
	
   

  	
  CELLU TISSUE
  CORPORATION — NEENAH

  
	
   

  	
  CELLU TISSUE LLC

  
	
   

  	
  INTERLAKE
  ACQUISITION CORPORATION LIMITED

  
	
   

  	
  MENOMINEE
  ACQUISITION CORPORATION

  
	
   

  	
  VAN PAPER
  COMPANY

  
	
   

  	
  VAN TIMBER
  COMPANY

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  By: /s/ Russell
  C. Taylor

  
	
   

  	
   

  	
  Name:

  	
   Russell C. Taylor

  
	
   

  	
   

  	
  Title:

  	
  President and Chief Executive Officer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  COASTAL PAPER
  COMPANY

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  Van Paper
  Company, its managing partner

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Russell C.
  Taylor

  
	
   

  	
   

  	
  Name:

  	
  Russell C.
  Taylor

  
	
   

  	
   

  	
  Title:

  	
  President and Chief Executive Officer

  

 

 5

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00105-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00105-of-00352.parquet"}]]