Document:

Exhibit 10.20

 

THIRD AMENDED AND RESTATED CREDIT AGREEMENT

 

 

AMONG:

 

LOUISIANA-PACIFIC CANADA LTD.

 

AND:

 

LOUISIANA-PACIFIC CORPORATION

 

AND:

 

ROYAL BANK OF CANADA

 

 

 

TABLE
OF CONTENTS

	
  1.

  	
  INTERPRETATION

  
	
  1.1

  	
   

  	
  Definitions

  
	
  1.2

  	
   

  	
  Applicable
  Law

  
	
  1.3

  	
   

  	
  Severability

  
	
  1.4

  	
   

  	
  Successors and Assigns

  
	
  1.5

  	
   

  	
  Included
  Words

  
	
  1.6

  	
   

  	
  Headings and
  Marginal References

  
	
  1.7

  	
   

  	
  Cross
  References

  
	
  1.8

  	
   

  	
  Use of Word “Including”

  
	
  1.9

  	
   

  	
  Expiration
  of Summary of Terms and Conditions

  
	
  1.10

  	
   

  	
  Currency

  
	
  1.11

  	
   

  	
  Payment
  Dates and Interest Calculation

  
	
  1.12

  	
   

  	
  Accounting Terms

  
	
  1.13

  	
   

  	
  Schedules

  
	
  2.

  	
  REPRESENTATIONS AND
  WARRANTIES

  
	
  2.1

  	
   

  	
  Representations and
  Warranties

  
	
  2.2

  	
   

  	
  Status of the Borrower

  
	
  2.3

  	
   

  	
  Status of Guarantor

  
	
  2.4

  	
   

  	
  Power and Authority

  
	
  2.5

  	
   

  	
  Due Authorization

  
	
  2.6

  	
   

  	
  No
  Contravention

  
	
  2.7

  	
   

  	
  No Breach

  
	
  2.8

  	
   

  	
  Leases and Licences

  
	
  2.9

  	
   

  	
  No Financial Default

  
	
  2.10

  	
   

  	
  Disclosure of
  Material Facts

  
	
  2.11

  	
   

  	
  Consents and Approvals

  
	
  2.12

  	
   

  	
  Title

  
	
  2.13

  	
   

  	
  LP
  Canada’s Financial Statements Furnished

  
	
  2.14

  	
   

  	
  Guarantor’s
  Financial Statements Furnished

  
	
  2.15

  	
   

  	
  No
  Change in LP Canada’s Financial Condition

  
	
  2.16

  	
   

  	
  Guarantor’s
  Financial Status

  
	
  2.17

  	
   

  	
  No
  Change in Guarantor’s Financial Condition

  
	
  2.18

  	
   

  	
  Solvency

  
	
  2.19

  	
   

  	
  Financial
  Statements Not Misleading

  
	
  2.20

  	
   

  	
  Taxes

  
	
  2.21

  	
   

  	
  Environmental Law
  Compliance

  
	
  2.22

  	
   

  	
  Insurance

  
	
  2.23

  	
   

  	
  ERISA Compliance by
  Guarantor

  
	
  2.24

  	
   

  	
  No Material Litigation

  
	
  2.25

  	
   

  	
  Government
  Acts

  
	
  2.26

  	
   

  	
  Margin Regulations

  

 

 

	
  2.27

  	
   

  	
  Compliance with Laws

  
	
  2.28

  	
   

  	
  Environmental Matters

  
	
  2.29

  	
   

  	
  Purpose of Extensions
  of Credit

  
	
  2.30

  	
   

  	
  Subsidiaries

  
	
  2.31

  	
   

  	
  Ownership

  
	
  2.32

  	
   

  	
  Indebtedness

  
	
  2.33

  	
   

  	
  Investments

  
	
  2.34

  	
   

  	
  No Burdensome
  Restrictions

  
	
  2.35

  	
   

  	
  Accuracy
  and Completeness of Information

  
	
  2.36

  	
   

  	
  Material Contracts

  
	
  3.

  	
  THE CREDIT FACILITY

  
	
  3.1

  	
   

  	
  Establishment
  of the Credit Facility

  
	
  3.2

  	
   

  	
  Currencies
  and Other Options Available Under the Credit Facility

  
	
  3.3

  	
   

  	
  Interest
  on Advances Under the Credit Facility

  
	
  3.4

  	
   

  	
  Issuance of
  Documentary Credits

  
	
  3.5

  	
   

  	
  Notice
  for Canadian Advances Under the Credit Facility

  
	
  3.6

  	
   

  	
  Obligation of Royal

  
	
  3.7

  	
   

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

  
	
  3.8

  	
   

  	
  Drawings and
  Reimbursements

  
	
  3.9

  	
   

  	
  Obligations Absolute

  
	
  3.10

  	
   

  	
  Role
  of Royal

  
	
  3.11

  	
   

  	
  Documentary Credit Fees

  
	
  3.12

  	
   

  	
  Conflict
  with Letter of Credit Application

  
	
  3.13

  	
   

  	
  Existing Letters of
  Credit

  
	
  3.14

  	
   

  	
  Collateral
  Coverage; Restricted Cash Collateral

  
	
  3.15

  	
   

  	
  Security

  
	
  3.16

  	
   

  	
  Swap
  Contracts, PDS Services and EFT Transfers

  
	
  3.17

  	
   

  	
  Interest Act of Canada

  
	
  3.18

  	
   

  	
  Default Interest

  
	
  3.19

  	
   

  	
  Indemnity for Out of Pocket
  Expenses

  
	
  3.20

  	
   

  	
  Effective
  Time for Section 3 Notices

  
	
  3.21

  	
   

  	
  Increased
  Costs

  
	
  3.22

  	
   

  	
  Borrower’s
  Option on Receipt of an Increased Costs Certificate

  
	
  3.23

  	
   

  	
  Increased Costs
  Limitation

  
	
  3.24

  	
   

  	
  Repayment of Credit
  Facility

  
	
  3.25

  	
   

  	
  Extension of Maturity
  Date

  
	
  3.26

  	
   

  	
  Currency of All Payments

  
	
  3.27

  	
   

  	
  Borrower’s
  Right to Cancel Available Amount of Credit Facility

  
	
  3.28

  	
   

  	
  Facility
  Fee

  
	
  3.29

  	
   

  	
  Arrangement
  Fee

  
	
  3.30

  	
   

  	
  Evidence of Indebtedness

  
	
  3.31

  	
   

  	
  Determination
  of Available Amount of the Credit Facility

  

 

ii

 

	
  4.

  	
  SECURITY FOR BORROWINGS

  
	
  4.1

  	
   

  	
  Security for Borrowings

  
	
  4.2

  	
   

  	
  Conflict
  Between the Agreement and Royal’s Security

  
	
  4.3

  	
   

  	
  Payment

  
	
  4.4

  	
   

  	
  Guarantees

  
	
  5.

  	
  CREDIT
  FACILITY CONDITIONS PRECEDENT

  
	
  5.1

  	
   

  	
  Conditions
  Precedent to Initial Borrowings

  
	
  5.2

  	
   

  	
  Conditions
  Precedent to Subsequent Borrowings

  
	
  6.

  	
  COVENANTS
  OF THE BORROWER AND THE GUARANTOR

  
	
  6.1

  	
   

  	
  Borrower’s Covenants

  
	
  6.2

  	
   

  	
  Guarantor’s Covenants

  
	
  6.3

  	
   

  	
  Environmental Law

  
	
  7.

  	
  EVENTS
  OF DEFAULT

  
	
  7.1

  	
   

  	
  Definition of Event
  of Default

  
	
  7.2

  	
   

  	
  Remedies

  
	
  7.3

  	
   

  	
  Remedies Cumulative

  
	
  7.4

  	
   

  	
  Waivers

  
	
  7.5

  	
   

  	
  Application
  of Payments Following Acceleration

  
	
  7.6

  	
   

  	
  Royal May Perform
  Covenants

  
	
  7.7

  	
   

  	
  Waiver
  of Certain Defaults under Prior Credit Agreement

  
	
  8.

  	
  GENERAL

  
	
  8.1

  	
   

  	
  Waiver

  
	
  8.2

  	
   

  	
  Effect
  of Amendment, Modification or Waiver

  
	
  8.3

  	
   

  	
  Time of the Essence

  
	
  8.4

  	
   

  	
  Further Assurances

  
	
  8.5

  	
   

  	
  Set Off

  
	
  8.6

  	
   

  	
  Judgement Currency

  
	
  8.7

  	
   

  	
  Account Debit
  Authorization

  
	
  8.8

  	
   

  	
  Expenses

  
	
  8.9

  	
   

  	
  Survival
  of Representations and Warranties

  
	
  8.10

  	
   

  	
  Notice

  
	
  8.11

  	
   

  	
  General Indemnity

  
	
  8.12

  	
   

  	
  Counterparts

  
	
  8.13

  	
   

  	
  Reasonable
  Consent or Approval of the Parties

  
	
  8.14

  	
   

  	
  Entire Agreement

  
	
  8.15

  	
   

  	
  No Deduction for Taxes

  
	
  8.16

  	
   

  	
  Participations and
  Assignments

  
	
  8.17

  	
   

  	
  Assignment After Default

  
	
  8.18

  	
   

  	
  Obligations
  of Borrower Re Facility Disposition

  
	
  8.19

  	
   

  	
  Confidentiality

  

 

 

iii

 

SCHEDULE A OFFICER’S
COMPLIANCE CERTIFICATE

SCHEDULE B UNFUNDED
PENSION LIABILITIES

SCHEDULE C BORROWING
BASE CERTIFICATE

SCHEDULE D EXISTING
LETTERS OF CREDIT

SCHEDULE E NOTICE OF
BORROWING

SCHEDULE F CASH
COLLATERAL RELEASE NOTICE

 

iv

 

THIRD AMENDED AND RESTATED
CREDIT AGREEMENT

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

 

 

AMONG:

 

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

 

AND:

 

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

 

AND:

 

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

WHEREAS:

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

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

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

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

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

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

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

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

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

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

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

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

1.                                      INTERPRETATION

1.1                               Definitions

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

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

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

“Advances” means Canadian Advances;

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

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

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

 

2

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

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

 

	
  Tier

  	
   

  	
  Rating

  	
   

  	
  Applicable Percentage For Documentary Credit Fee

  	
   

  	
  Applicable Percentage For Canadian Advance

  	
   

  	
  Facility Fee

  	
   

  
	
  I

  	
   

  	
  3 Baa1/BBB+

  	
   

  	
  0.450

  	
  %

  	
  0.000

  	
  %

  	
  0.100

  	
  %

  
	
  II

  	
   

  	
  Baa2/BBB

  	
   

  	
  0.500

  	
  %

  	
  0.000

  	
  %

  	
  0.125

  	
  %

  
	
  III

  	
   

  	
  Baa3/BBB-

  	
   

  	
  0.700

  	
  %

  	
  0.000

  	
  %

  	
  0.150

  	
  %

  
	
  IV

  	
   

  	
  Ba1/BB+

  	
   

  	
  1.050

  	
  %

  	
  0.050

  	
  %

  	
  0.200

  	
  %

  
	
  V

  	
   

  	
  Ba2/BB

  	
   

  	
  1.250

  	
  %

  	
  0.250

  	
  %

  	
  0.250

  	
  %

  
	
  VI

  	
   

  	
  < Ba3/BB-

  	
   

  	
  1.450

  	
  %

  	
  0.450

  	
  %

  	
  0.300

  	
  %

  

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

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

 

3

 

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

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

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

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

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

“Borrower Subsidiaries” means all Subsidiaries of the
Borrower;

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

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

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

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

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

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

 

4

 

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

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

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

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

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

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

“Cash Equivalents” means:

(a)                                  Canadian Funds;

(b)                                 U.S. Funds;

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

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

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

 

5

 

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

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

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

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

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

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

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

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

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

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

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

 

6

 

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

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

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

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

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

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

 

7

 

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

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

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

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

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

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

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

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

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

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

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

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

 

8

 

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

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

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

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

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

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

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

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

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

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

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

 

9

 

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

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

“ERISA Event” means:

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

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

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

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

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

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

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

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

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

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

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

 

10

 

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

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

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

 

11

 

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

 

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

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

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

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

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

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

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

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

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

 

12

 

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

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

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

 

13

 

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

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

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

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

(b)                                 boiler, furnace and machinery insurance,

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

(d)                                 business interruption insurance,

(e)                                  public liability insurance, and

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

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

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

 

14

 

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

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

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

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

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

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

“Lien” means any mortgage, pledge,
hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or
other), charge or other security interest or any preference, priority or other
security agreement or preferential arrangement of any kind or nature whatsoever
(including, without limitation, any conditional sale or other title retention
agreement and any Capital Lease having substantially the same economic effect
as any of the foregoing);

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

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

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

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

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

 

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

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

 

15

 

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

“Maturity Date” means the later of:

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

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

in both cases
subject to the provisions of Section 3.25;

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

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

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

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

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

 

16

 

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

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

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

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

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

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

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

 

17

 

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

 

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

 

“Permitted Investments”
means:

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

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

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

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

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

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

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

(h)                                 Permitted Acquisitions;

(i)                                     Permitted Cash Collateral;

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

 

18

 

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

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

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

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

 

“Permitted Liens”
means:

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

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

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

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

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

 

19

 

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

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

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

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

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

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

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

 

20

 

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

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

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

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

(a)                                  Royal’s Prime Rate; and

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

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

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

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

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

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

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

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

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

 

21

 

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

 

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

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

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

“Restricted Cash Collateral Account” means:

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

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

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

 

22

 

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

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

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

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

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

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

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

 

23

 

“Senior Note Indentures” means,
collectively:

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

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

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

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

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

“Spot Buying Rate” means:

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

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

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

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

 

24

 

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

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

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

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

“Swap Contract” means:

(a)                                  any and all rate swap transactions, basis
swaps, credit derivative transactions, forward rate transactions, commodity
swaps, commodity options, forward commodity contracts, equity or equity index
swaps or options, bond or bond price or bond index swaps or options or forward
bond or forward bond price or forward bond index transactions, interest rate
options, forward foreign exchange transactions, cap transactions, floor
transactions, collar transactions, currency swap transactions, cross-currency
rate swap transactions, currency options, spot contracts, or any other similar
transactions or any combination of any of the foregoing (including any options
to enter into any of the foregoing), whether or not any such transaction is
governed by or subject to any master agreement; and

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

 

25

 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

26

 

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

1.2                               Applicable Law

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

1.3                               Severability

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

1.4                               Successors and Assigns

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

1.5                               Included Words

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

1.6                               Headings and Marginal References

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

1.7                               Cross References

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

1.8                               Use of Word “Including”

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

 

27

 

1.9                               Currency

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

1.10                        Payment Dates and Interest Calculation

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

1.11                        Accounting Terms

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

1.12                        Schedules

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

Schedule A           Officer’s
Compliance Certificate

Schedule B            Unfunded
Pension Liabilities

Schedule C            Borrowing
Base Certificate

Schedule D            Existing
Letters of Credit

Schedule E            Notice of
Borrowing

Schedule F            Cash
Collateral Release Notice

2.                                      REPRESENTATIONS
AND WARRANTIES

2.1                               Representations and Warranties

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

 

28

 

2.2                               Status of the Borrower

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

2.3                               Status of Guarantor

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

2.4                               Power and Authority

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

2.5                               Due Authorization

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

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

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

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

2.6                               No Contravention

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

 

29

 

2.7                               No Breach

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

2.8                               Leases and Licences

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

2.9                               No Financial Default

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

2.10                        Disclosure of Material Facts

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

2.11                        Consents and Approvals

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

 

30

 

2.12                        Title

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

2.13                        LP Canada’s Financial Statements Furnished

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

2.14                        Guarantor’s Financial Statements Furnished

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

2.15                        No Change in LP Canada’s Financial
Condition

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

2.16                        Guarantor’s Financial Status

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

 

31

 

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

2.17                        No Change in Guarantor’s Financial
Condition

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

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

(b)                                 there has been no change in
the business, assets, liabilities, condition (financial or otherwise) or
prospects of the Guarantor and its Subsidiaries taken as a whole which could
have a Material Adverse Effect (other than as disclosed in the Guarantor’s Form
10-K for the fiscal year ending December 31, 2003, as supplemented by the
Guarantor’s Form 10-Q for the fiscal quarter ending March 31, 2004 and Form
10-Q for the fiscal quarter ending June 30, 2004).

2.18                        Solvency

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

2.19                        Financial Statements Not Misleading

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

2.20                        Taxes

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

 

32

 

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

2.21                        Environmental Law Compliance

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

2.22                        Insurance

Each of the Borrower and the Guarantor:

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

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

2.23                        ERISA Compliance by Guarantor

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

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

 

33

 

(c)

(1)                                  except as specifically
disclosed in Annexure I to Schedule B no ERISA Event has occurred within the 12
year period prior to January 1, 2003 or was or is reasonably expected to occur
thereafter;

(2)                                  as of January 1, 2003, except
as specifically disclosed in Schedule B, no Pension Plan had any Unfunded
Pension Liability;

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

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

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

(d)                                 neither a Reportable Event nor
an “accumulated funding deficiency” (within the meaning of Section 412 of
the Code or Section 302 of ERISA) has occurred during the five-year
period prior to the date on which this representation is made or deemed made
with respect to any Plan, and each Plan has complied in all material respects
with the applicable provisions of ERISA and the Code. No termination of a
Single Employer Plan has occurred resulting in any liability that has remained
underfunded, and no Lien in favor of the PBGC or a Plan has arisen, during such
five-year period. The present value of all accrued benefits under each
Single Employer Plan (based on those assumptions used to fund such Plans) did
not, as of the last annual valuation date prior to the date on which this
representation is made or deemed made, exceed the value of the assets of such
Plan allocable to such accrued benefits. Neither the Guarantor nor any Commonly
Controlled Entity is currently subject to any liability for a complete or
partial withdrawal from a Multiemployer Plan.

2.24                        No Material Litigation

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

 

34

 

2.25                        Government Acts

Neither the Guarantor nor any Credit Party
is:

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

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

2.26                        Margin Regulations

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

2.27                        Compliance with Laws

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

2.28                        Environmental Matters

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

 

35

 

2.29                        Purpose of Extensions of Credit

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

2.30                        Subsidiaries

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

2.31                        Ownership

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

2.32                        Indebtedness

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

2.33                        Investments

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

2.34                        No Burdensome Restrictions

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

 

36

 

2.35                        Accuracy and Completeness of Information

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

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

2.36                        Material Contracts

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

3.                                      THE CREDIT
FACILITY

3.1                               Establishment of the Credit Facility

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

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

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

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

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

 

37

 

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

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

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

3.2                               Currencies and Other Options Available
Under the Credit Facility

Subject to the
provisions of the Agreement:

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

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

3.3                               Interest on Advances Under the Credit
Facility

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

3.4                               Issuance of Documentary Credits

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

 

38

 

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

3.5                               Notice for Canadian Advances Under the
Credit Facility

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

3.6                               Obligation of Royal

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

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

(b)                                 subject to Section 3.7(b), the
expiry date of such requested Documentary Credit would occur more than twelve
months after the date of issuance or last renewal, unless Royal has approved
such expiry date;

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

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

 

39

 

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

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

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

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

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

(2)                                  the amount thereof;

(3)                                  the expiry date thereof;

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

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

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

(7)                                  such other matters as Royal
may require,

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

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

 

40

 

(A)                              the Documentary Credit to be
amended;

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

(C)                                the nature of the proposed
amendment; and

(D)                               such other matters as Royal
may require.

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

(1)                                  Royal has determined that it
would have no obligation at such time to issue such Documentary Credit in its
renewed form under the terms of the Agreement (by reason of the provisions of
Sections 3.4, 3.6 or otherwise),

(2)                                  one or more of the applicable
conditions specified in Section 3.7 is not then satisfied. Notwithstanding
anything to the contrary contained herein, Royal shall have no obligation to
permit the renewal of any Auto-Renewal Documentary Credit at any time to the extent
such non-renewal is permitted by the terms of such Auto-Renewal Documentary
Credit.

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

3.8                               Drawings and Reimbursements

(a)                                  Upon receipt from the
beneficiary of any Documentary Credit of any notice of a drawing under such
Documentary Credit, Royal shall notify the Borrower thereof. Not later than
12:00 noon Toronto time on the date of any payment by Royal under a
Documentary Credit (each such date, an “Honour Date”), the Borrower shall
reimburse Royal , in an amount equal to the amount of such drawing. At the
Borrower’s option during the Cash Collateral Period, it may in, lieu of
remitting the amount necessary to 

 

41

 

reimburse such drawing, send written
instruction to Royal not later than 12:00 noon Toronto time, directing
Royal to debit the Restricted Cash Collateral Account in the amount necessary
to reimburse such drawing. Such instruction shall be accompanied by a Borrowing
Base Certificate showing that after giving effect to such reimbursement (and
any permanent reduction in the amount of the Documentary Credit effected by
such drawing), there will be no shortfall in the Collateral Value of the
Borrowing Base.

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

3.9                               Obligations Absolute

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

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

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

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

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

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

 

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

 

42

 

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

3.10                        Role
of Royal

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

3.11                        Documentary Credit Fees

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

3.12                        Conflict with Letter of Credit Application

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

 

43

 

3.13                        Existing Letters of Credit

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

3.14                        Collateral Coverage; Restricted Cash
Collateral

(a)                                  The Borrower shall have the
option once during the term of the Agreement to elect to cash collateralize its
obligations and liabilities hereunder in respect of the credit facility
provided for in Section 3.1(a) by depositing Cash Equivalents in the Restricted
Cash Collateral Account and notifying Royal in writing of such election. Thereafter,
on or prior to the tenth (10th) Business Day of each month, the Borrower shall
deliver to Royal a Borrowing Base Certificate as of the last Business Day of
the immediately preceding month (each such date a “Re-Margin Date”). On and
from the date that the Borrower elects as aforesaid to cash collateralize until
the Collateral Release Date, as defined below in Section 3.14(c), (the “Cash
Collateral Period”) if total Borrowings under the credit facility provided for
in Section 3.1(a) exceed the lesser of $10,000,000 and the Collateral Value of
the Borrowing Base, the Borrower shall deposit or direct Royal in writing to
deposit into the Restricted Cash Collateral Account an amount equal to such
excess on or prior to such tenth (10th) Business Day. If, as of any Re-Margin
Date, the Collateral Value of the Borrowing Base exceeds the then outstanding
Borrowings under the credit facility provided for in Section 3.1(a), Royal
provided no Event of Default exists as of such Re-Margin Date, shall, upon
written request by the Borrower made in the related Borrowing Base Certificate,
remit the amount of such excess (the “Excess Amount”) from the Restricted Cash Collateral
Account to the Borrower promptly if the Excess Amount consists of Canadian
Funds or U.S. Funds and promptly on maturity of each Cash Equivalent if the
Excess Amount consists of certificates of deposit or term deposits. The Excess
Amount will be free and clear of the Lien granted in the Restricted Cash
Collateral Agreement as of such Re-Margin Date. The Borrower shall comply with
all of its obligations under this Section 3.14 so long as Royal shall have any
commitment under the Agreement, any Obligation hereunder for the payment of
money that has accrued and is payable shall remain unpaid or unsatisfied, or
any Documentary Credit shall remain outstanding.

(b)                                 The Borrower shall maintain
the Restricted Cash Collateral Account at all times during the Cash Collateral
Period.

(c)                                  The
Borrower may, at any time following any Re-Margin Date but only once during the term of the
Agreement, elect to release the Restricted
Cash Collateral and terminate the requirements of Section 3.14(a)  hereof; provided, that (i) as of the effective
date of such election (the “Collateral Release Date”), the Guarantor shall be
able to demonstrate to the reasonable satisfaction of Royal that for the twelve
month period immediately preceding the Collateral Release Date (A) the Consolidated
Leverage Ratio for such period was less than or equal to 2.50 to 1.00 and (B)
the Consolidated Interest Coverage Ratio for such period was 

 

44

 

greater than or equal
to 4.25 to 1.00, (ii) no Default or Event of Default shall have occurred and be
continuing prior to, as of or immediately after the Collateral Release Date
(for the avoidance of doubt, the determination of the existence of a Default or
an Event of Default immediately after the Collateral Release Date shall take
into account the effectiveness of the covenants set forth in Section 6 of the
Agreement which are effective only during the No Collateral Period as well as
those covenants set forth in Section 6 of the Agreement which are effective at
all times during the term of the Agreement) and (iii) the Borrower shall have
delivered a Cash Collateral Release Notice to Royal demonstrating compliance
with the foregoing conditions and setting forth the date of the proposed
Collateral Release Date at least 60 days prior to such proposed Collateral
Release Date.

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

3.15                        Security

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

3.16                        Swap Contracts, PDS Services and EFT
Transfers

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

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

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

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

 

45

 

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

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

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

3.17                        Interest Act of Canada

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

3.18                        Default Interest

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

3.19                        Indemnity for Out-of-Pocket Expenses

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

3.20                        Effective Time for Section 3 Notices

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

 

46

 

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

3.21                        Increased Costs

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

(a)                                  subjects Royal to any tax,
changes the basis of taxation of payments due to Royal or increases any
existing tax, on payments of principal, interest, or other amounts payable by
the Borrower to Royal under the Agreement (except for taxes on the overall net
income of Royal imposed by the jurisdiction in which it is incorporated or
resident or from which it is acting for the purposes of the Agreement, and
except for taxes on Royal’s capital or other similar taxes); or

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

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

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

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

 

47

 

3.23                        Increased Costs Limitation

Royal agrees that:

(a)                                  the increased costs payable by
the Borrower pursuant to Section 3.21 shall not include:

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

(2)                                  any tax, penalty or other
charges payable by Royal due to its failure to pay or delay in paying any
amount required to be paid by it referred to in Section 3.21(a);

(b)                                 it will not charge the
Borrower for any increased costs payable by it referred to in Section 3.21 if
it is not at the same time passing similar costs on to substantially all of its
customers to whom Royal is, by agreement, entitled to pass on such costs; and

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

3.24                        Repayment of Credit Facility

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

3.25                        Extension of Maturity Date

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

 

48

 

3.26                        Currency of All Payments

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

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

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

3.28                        Facility
Fee

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

3.29                        Arrangement Fee

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

3.30                        Evidence of Indebtedness

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

3.31                        Determination of Available Amount of the
Credit Facility

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

 

49

 

4.                                      SECURITY
FOR BORROWINGS

4.1                               Security for Borrowings

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

(a)                                  the Restricted Cash Collateral
Agreements;

(b)                                 the Amended Subordination
Agreement; and

(c)                                  the Guarantee.

4.2                               Conflict Between the Agreement and Royal’s
Security

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

4.3                               Payment

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

4.4                               Guarantees

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

5.                                      CREDIT
FACILITY CONDITIONS PRECEDENT

5.1                               Conditions Precedent to Initial Borrowings

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

 

50

 

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

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

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

(3)                                  a certified copy of the
Charter for the Borrower;

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

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

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

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

(B)                                there is no material
litigation pending or threatened against the Borrower other than as disclosed
in the December 31, 2003 annual report;

(C)                                there has been no material
adverse change in the financial conditions and operations of the Guarantor or
any of its Subsidiaries since the date of the Guarantor’s most recent financial
statements referred to in Section 2.16 of the Agreement;

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

(A)                              the Borrower and each of the
Borrower Subsidiaries has been duly incorporated, amalgamated or continued
under the laws of the Province of British
Columbia and is, according
to the records 

 

51

 

of the office of the Registrar of Companies
for the Province of British Columbia, an existing company in good standing with
respect to the filing of its annual reports;

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

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

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

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

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

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

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

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

(8)                                  an opinion of Messrs. Bull,
Housser & Tupper, counsel for Royal (in form and content satisfactory to
Royal but subject to the usual assumptions and qualifications) to the effect that
the Agreement and Royal’s Security have been executed by all parties thereto
and delivered to Royal and that 

 

52

 

such items of Royal’s Security which
require registration or filing have been registered or filed in all places and
offices in British Columbia and elsewhere (as may be determined by counsel for
Royal) where such registration or filing is necessary;

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

(1)                                  the duly executed Guarantee
and Subordination Agreement;

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

(3)                                  a certified copy of the
Charter for the Guarantor;

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

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

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

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

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

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

(D)                               each of the Agreement, the
Guarantee and the Subordination Agreement has been duly authorized, executed
and delivered by the Guarantor and constitutes legal, valid and binding
obligations 

 

53

 

of the Guarantor, enforceable against the
Guarantor in accordance with its respective terms, save as enforceability may
be limited by:

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

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

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

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

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

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

(c)                                  the Borrower shall have paid
all fees and expenses then due to Royal including the arrangement fee due under
Section 3.29 and any reasonable legal fees invoiced prior to the Closing Date.

(d)                                 all documents and legal
matters in connection with the transactions contemplated by the Guarantor
Credit Agreement shall have been completed prior to the Closing Date.

5.2                               Conditions Precedent to Subsequent
Borrowings

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

(a)                                  the
representations and warranties contained in Section 2 hereof shall be true on
and as of the date of each advance, renewal or conversion;

(b)                                 Royal
is satisfied that there has been no material adverse change in the financial
condition or operation of the Borrower or the Guarantor; and

 

54

 

(c)                                  no Default or Event of Default
shall have occurred and be continuing on such date or after giving effect to
such advance, renewal or conversion.

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

6.                                      COVENANTS
OF THE BORROWER AND THE GUARANTOR

6.1                               Borrower’s Covenants

The Borrower covenants and agrees with
Royal as follows:

Positive Covenants of the Borrower

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

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

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

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

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

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

 

55

 

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

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

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

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

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

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

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

(k)                                  that it will permit
representatives and independent contractors of Royal to visit and inspect any
of its or its Subsidiaries’ properties, to examine their respective corporate,
financial and operating records, and make copies thereof or abstracts
therefrom, and to discuss their corporate affairs, finances and accounts with
directors, officers, and independent chartered accountants, all at the expense
of the Borrower and at such reasonable times during normal business hours and
as often as may be reasonably desired, upon reasonable advance notice to the 

 

56

 

Borrower except that, when an Event of
Default exists, Royal may do any of the foregoing at the expense of the
Borrower at any time during normal business hours and without advance notice;

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

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

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

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

Negative Covenants of the Borrower

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

(q)                                 that, it will not and it will
cause each of its Subsidiaries not to make any Disposition of any of its
property or assets except for:

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

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

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

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

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

 

57

 

Reporting Covenants of the Borrower

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

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

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

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

(x)                                   that it will deliver to Royal
the Borrowing Base Certificate as required by Section 3.7 and Section 3.14;

6.2                               Guarantor’s Covenants

The Guarantor
covenants with Royal as follows:

Positive Covenants of the Guarantor

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

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

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

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

(e)                                  that it will, furnish to
Royal:

 

58

 

(1)                                  as soon as available, but in
any event within ninety (90) days after the end of each fiscal year of the Guarantor, a copy of the consolidated
balance sheet of the Guarantor and its consolidated Subsidiaries as at the end
of such fiscal year and the related consolidated statements
of income, cash flows and stockholders’ equity of the Guarantor and its
consolidated Subsidiaries for such year which shall be audited by a firm of
independent certified public accountants of nationally recognized standing
reasonably acceptable to Royal, setting forth in each case in comparative form
the figures for the previous year, reported on without a “going concern” or
like qualification, assumption or exception, or qualification indicating that
the scope of the audit was inadequate to permit such independent certified
public accountants to certify such financial statements without such
qualification;

(2)                                  as soon as available and in
any event within forty-five (45) days after the
end of each of the first three fiscal quarters of the Guarantor, a copy of the
consolidated balance sheet of the Guarantor and its consolidated Subsidiaries
as at the end of such period and related consolidated statements of income and
cash flows for the Guarantor and its consolidated Subsidiaries for such
quarterly period and for the portion of the fiscal year ending with such
period, in each case setting forth in comparative form consolidated figures for
the corresponding period or periods of the preceding fiscal year (subject to
normal recurring year-end audit adjustments);

(3)                                  as soon as available, but in
any event prior to the end of each fiscal year, a copy of the detailed annual
operating budget or plan including cash flow projections of the Guarantor and
its Subsidiaries for the next four fiscal quarter period prepared on a
quarterly basis, in form and detail reasonably acceptable to Royal, together
with a summary of the material assumptions made in the preparation of such
annual budget or plan; provided, that such budget or plan shall not be
required for a fiscal year if (i) as of the end of such fiscal year the
Guarantor has an Investment Grade Debt Rating or (ii) the end of such fiscal
year falls within the Cash Collateral Period;

all such
financial statements to be complete and correct in all material respects
(subject, in the case of interim statements, to normal recurring year-end
adjustments) and to be prepared in reasonable detail and, in the case of the annual
and quarterly financial statements provided in accordance with
subsections (1) and (2) above, in accordance with GAAP applied
consistently throughout the periods reflected therein and further accompanied
by a description of, and an estimation of the effect on the financial
statements on account of, a material change, if any, in the application of
accounting principles as provided in Section 1.11;

 

59

 

(f)                                    that it will furnish to Royal
concurrently with the delivery of the financial statements referred to in
Section 6.2(e)(1) above, a certificate of the independent certified public
accountants reporting on such financial statements stating that in making the
examination necessary therefor no knowledge was obtained of any Default or
Event of Default, except as specified in such certificate;

(g)                                 that, concurrently with the
delivery of the financial statements referred to in Sections 6.2(e)(1) and (2)
above, it will furnish to Royal a certificate of a Responsible Officer stating
that, to the best of such Responsible Officer’s knowledge, each of the Credit
Parties during such period observed or performed in all material respects all
of its covenants and other agreements, and satisfied in all material respects every
condition, contained in the Guarantor Credit Agreement to be observed,
performed or satisfied by it, and that such Responsible Officer has obtained no
knowledge of any Default or Event of Default (each as defined in the Guarantor
Credit Agreement) except as specified in such certificate and such certificate
shall include the calculations in reasonable detail required to indicate
compliance with Sections 6.2(nn) and (oo) as of the last day of such period;

(h)                                 that, (i) within thirty (30)
days after the same are sent, it will furnish to Royal notice of and copies of
all reports (other than those otherwise provided pursuant to
Section 6.2(e) and those which are of a promotional nature) and other
financial information which the Guarantor
sends to its stockholders, and within thirty (30) days after the same are
filed, notice of and copies of all financial statements and non-confidential
reports which the Guarantor may file
with the Securities and Exchange Commission or any successor or analogous
Governmental Body; provided, however, that to the extent that (A) notification
of such reports, information or statements is provided on the Guarantor’s authorized website and (B)
copies of such reports, information or statements are publicly available, the
requirements of this subsection (h) shall be satisfied;

(i)                                     that, promptly upon receipt
thereof, it will furnish to Royal a copy of any other report or “management
letter” submitted by independent accountants to the Guarantor  or any of its
Subsidiaries in connection with any annual, interim or special audit of
the books of such Person;

(j)                                     that, not less than ten (10)
days prior to the consummation of any Permitted Acquisition for which
consideration given by the Guarantor
is $100,000,000 or greater, it will furnish to Royal:

(1)                                  a reasonably detailed
description of the material terms of such Permitted Acquisition (including,
without limitation, the purchase price and method and structure of payment) and
of each Target;

(2)                                  to the extent available,
audited financial statements of the Target for its two (2) most recent fiscal
years prepared by independent certified public 

 

60

 

accountants
acceptable to Royal and unaudited fiscal year-to-date statements for the two
(2) most recent interim periods; and

(3)                                  to the extent available,
consolidated projected balance sheets, income statements, and cash flow
statements of the Guarantor and its
consolidated Subsidiaries (giving effect to such Permitted Acquisition and the
consolidation with the Guarantor of
each relevant Target) for the three (3)-year period following the consummation
of such Permitted Acquisition, in reasonable detail, together with any
appropriate statement of assumptions and pro forma adjustments reasonably
acceptable to the Required Lenders;

(k)                                  that, promptly, but in no
event later than three Business Days after a Responsible Officer of the
Guarantor knows of any change in the Debt Rating, it will furnish to Royal
notice of the new Debt Rating;

(l)                                     that it will furnish to Royal,
promptly, such other documents and information about the business, operations,
revenues, financial condition, property or business prospects of the Guarantor
or any of its Subsidiaries as Royal, may from time to time reasonably request;

(m)                               that it will furnish to Royal,
promptly prior to the commencement of any No Collateral Period (as defined in
the Guarantor Credit Agreement), notice of such No Collateral Period under the
terms of the Guarantor Credit Agreement;

(n)                                 that it, will perform all of
its obligations under each contract to which it is a party, if a failure to so
perform may have a Material Adverse Effect, except to the extent such
obligation is being contested in good faith or a bona fide dispute exists with
respect thereto so long as such Credit Party has established adequate reserves
on the books of such Credit Party to account therefor in accordance with GAAP;

(o)                                 that it, will pay and perform
all of its obligations under the Guarantor Credit Documents and pay and perform
(i) all taxes, assessments and other
governmental charges that may be levied or assessed upon it or its property,
which if not paid or performed would have a Material Adverse Effect and (ii) all other indebtedness, obligations and
liabilities in accordance with customary trade practices, which if not paid
would have a Material Adverse Effect; provided that it may contest any tax,
assessment or other governmental charge in good faith so long as adequate
reserves are maintained with respect thereto in accordance with GAAP;

(p)                                 that it, will continue to
engage in business of the same general type as conducted by it on September 1,
2004 and preserve and maintain its corporate existence and all rights,
franchises, licenses and privileges necessary to the conduct of its business,
and qualify and remain qualified as a foreign corporation (or partnership,
limited liability company or other such similar entity, as the case may be) and
authorized to do business in each jurisdiction in which the failure to so 

 

61

 

qualify would
have a Material Adverse Effect and shall maintain all licenses, permits and
registrations necessary for the conduct of its operations, except to the extent
that the failure to do so could not reasonably expected to result in a Material
Adverse Effect;

(q)                                 that it, will keep all
material property useful and necessary in its business in good working order
and condition (ordinary wear and tear and obsolescence excepted);

(r)                                    that it, will maintain with
financially sound and reputable insurance companies insurance on all its
material property in at least such amounts and against at least such risks as
are usually insured against in the same general area by companies engaged in
the same or a similar business; and furnish to Royal, upon reasonable written
request, full information as to the insurance carried; provided, however, that
the Guarantor and its Subsidiaries may maintain self insurance plans to the
extent companies of similar size and in similar businesses do so;

(s)                                  that it, will keep proper
books and records of accounts in which full, true and correct entries in
conformity with GAAP and all Requirements of Law shall be made of all dealings
and transactions in relation to its businesses and activities; and, provided
that Royal uses reasonable efforts to minimize disruption to the business of
the Guarantor and its Subsidiaries, permit representatives of Royal, from time
to time, to visit and inspect its Properties and to inspect, audit and make
extracts from its books, records and files, including without limitation
management letters prepared by independent accountants and to discuss with its
principal officers, and its independent accountants, its business, assets,
liabilities, financial condition, results of operations and business prospects;

(t)                                    that it, will give notice in
writing to Royal of:

(1)                                  promptly, but in any event
within five (5) Business Days after a Responsible Officer of the Guarantor
knows thereof, the occurrence of any Default or Event of Default;

(2)                                  promptly and in any event
within five (5) Business Days
after a Responsible Officer of the Guarantor knows thereof, the commencement of
any (i) Material Proceeding, (ii) loss of or damage to any assets of the
Guarantor or any Subsidiary that likely will result in a Material Adverse
Effect and (iii) litigation,
investigation or proceeding involving an environmental claim or potential
liability under Environmental Laws that if adversely determined could
reasonably be expected to have a Material Adverse Effect;

(3)                                  promptly and in any event
within five (5) Business Days
after a Responsible Officer of the Guarantor knows thereof, default by
Guarantor or any Subsidiary under any note, indenture, loan agreement, mortgage
or other similar agreement to which the Guarantor or any Subsidiary is a party
or by which the Guarantor or any Subsidiary is bound, which relates to borrowed
money, or of any other default under any other note, indenture, loan agreement,
mortgage 

 

62

 

or other
similar agreement to which the Guarantor or any Subsidiary is a party or by
which the Guarantor or any Subsidiary is bound if, in each case in this
subsection, such default could reasonably be expected to have a Material
Adverse Effect;

(4)                                  promptly and in any event
within thirty (30) days after a
Responsible Officer of the Guarantor knows thereof: (i) the occurrence or
expected occurrence of any Reportable Event with respect to any Plan, a failure
to make any required contribution to a Plan, the creation of any Lien in favor
of the PBGC (other than a Permitted Lien) or a Plan or any withdrawal from, or
the termination, Reorganization or Insolvency of, any Multiemployer Plan or
(ii) the institution of proceedings or the taking of any other action by
the PBGC or the Guarantor or any Commonly Controlled Entity or any
Multiemployer Plan with respect to the withdrawal from, or the terminating,
Reorganization or Insolvency of, any Plan; and

(5)                                  promptly and in any event
within five (5) Business Days
after a Responsible Officer of the Guarantor knows thereof, any other
development or event which could reasonably be expected to have a Material
Adverse Effect,

each notice
pursuant to this Section shall be accompanied by a statement of a Responsible
Officer setting forth details of the occurrence referred to therein and stating
what action the Guarantor proposes to take with respect thereto. In the case of
any notice of a Default or Event of Default, the Guarantor shall specify that
such notice is a Default or Event of Default notice on the face thereof;

(u)                                 that it, will defend,
indemnify and hold harmless Royal, and its respective employees, agents,
officers and directors, from and against any and all claims, demands,
penalties, fines, liabilities, settlements, damages, costs and expenses of
whatever kind or nature known or unknown, contingent or otherwise, arising out
of, or in any way relating to the violation of, noncompliance with or liability
under, any Environmental Law applicable to the operations of the Guarantor, any
of its Subsidiaries or the Properties (as defined in the Guarantor Credit
Agreement), or any orders, requirements or demands of Governmental Bodies
related thereto, including, without limitation, reasonable solicitor’s/attorney’s
and consultant’s fees, investigation and laboratory fees, response costs, court
costs and litigation expenses, except to the extent that any of the foregoing
arise out of the gross negligence or willful misconduct of the party seeking
indemnification therefor. The agreements in this paragraph shall survive
repayment of the Credit Party Obligations and termination of the Commitments
(as defined in the Guarantor Credit Agreement) under the Guarantor Agreement
and the Guarantor Credit Documents;

 

63

 

(v)                                 that, to the extent failure to
do so would have a Material Adverse Effect, it will, and will cause each of its
Subsidiaries to (a) observe and remain in compliance with all applicable
Requirements of Law, including all applicable Environmental Laws, except to the
extent such Requirement of Law is being contested in good faith or a bona fide
dispute exists with respect thereto so long as the Guarantor has established
adequate reserves on the books of the Guarantor to account therefor in
accordance with GAAP, and (b) maintain in full force and effect all permits,
authorizations, registrations and consents from any Governmental Body, in each
case applicable to the conduct of its business.

(w)                               where Domestic Subsidiaries of
the Guarantor (excluding Securitization Vehicles) that are not Credit Parties
under the Guarantor Credit Agreement (the “Non-Guarantor
Subsidiaries”) shall at any time constitute more than either

(1)                                  fifteen percent (15%), in the
aggregate, of Consolidated Total Assets, or

(2)                                  fifteen percent (15%), in the
aggregate, of Consolidated Net Income,

(collectively,
the “Threshold Requirement”), the Guarantor shall so notify Royal and shall
cause one or more Domestic Subsidiaries to become a “Guarantor” under the
Guarantor Credit Agreement by (a) executing a Joinder Agreement and (b)
delivering such other documentation as Royal may reasonably request in
connection with the foregoing, including, without limitation, certified
resolutions and other organizational and authorizing documents of such Person
and favorable opinions of counsel to such Person (which shall cover, among
other things, the legality, validity, binding effect and enforceability of the
documentation referred to above), all in form, content and scope reasonably
satisfactory to Royal such that immediately after the joinder of such Domestic
Subsidiaries as Guarantors under the Guarantor Credit Agreement, the remaining
Non-Guarantor Subsidiaries shall not, either individually or as a group,
exceed the Threshold Requirement.

Negative Covenants of the Guarantor

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

(y)                                 during any No Collateral
Period, the Guarantor will not, nor will it permit any Subsidiary to, contract,
create, incur, assume or permit to exist any Indebtedness, except:

(1)                                  Indebtedness arising or
existing under the Guarantor Credit Agreement and the Guarantor Credit
Documents or the Guarantee;

 

64

 

(2)                                  Indebtedness of the Guarantor
and its Subsidiaries existing as of September 1, 2004, as referenced in the
financial statements referenced in Section 6.2(e) (and set out more
specifically in Schedule 6.1(b) to the Guarantor Credit Agreement) hereto
and renewals, extensions and refinancings thereof incurred at any time during
the term of the Guarantor Credit Agreement, in a principal amount not in excess
of that outstanding as of the date of such renewal, refinancing or extension;

(3)                                  (i) Indebtedness of the
Guarantor and its Subsidiaries incurred after the September 1, 2004 consisting
of Capital Leases or Indebtedness incurred to provide all or a portion of the
purchase price or cost of construction of an asset and (ii) Off-Balance
Sheet Liabilities and/or indebtedness, liabilities and obligations incurred in
connection with a trade receivables securitization transaction involving the
Guarantor or any of its Subsidiaries and a Securitization Vehicle (regardless
of whether such indebtedness, liabilities and obligations constitute Off-Balance
Sheet Liabilities); provided, that in each case (A) such
Indebtedness when incurred shall not exceed the purchase price or cost of
construction of such asset and (B) no such Indebtedness shall be
refinanced for a principal amount in excess of the principal balance
outstanding thereon at the time of such refinancing;

(4)                                  Unsecured intercompany Indebtedness
among the Credit Parties and their respective Subsidiaries, provided that any
such Indebtedness shall be fully subordinated to the Credit Party Obligations
under the Guarantor Credit Agreement on terms reasonably satisfactory to the
Administrative Agent;

(5)                                  Indebtedness and obligations
owing under Swap Contracts entered into in order to manage existing or
anticipated interest rate, exchange rate or commodity risks and not for
speculative purposes;

(6)                                  Indebtedness and obligations
of the Credit Parties owing under trade letters of credit for the purchase of
goods or other merchandise (but not under standby, direct pay or other letters
of credit except for the Letters of Credit under the Guarantor Credit
Agreement) generally;

(7)                                  Guaranty Obligations in
respect of Indebtedness of a Credit Party to the extent such Indebtedness is
permitted to exist or be incurred pursuant to this Section 6.2(y);

(8)                                  Indebtedness that is
non-recourse to any of the Guarantor or its Subsidiaries or any of their
respective assets;

(9)                                  Indebtedness incurred under
take-or-pay arrangements entered into in the ordinary course of business; and

 

65

 

(10)                            other Indebtedness of the
Guarantor and its Subsidiaries in an aggregate amount not to exceed the
following (measured at the time of incurrence): (i) if the Guarantor has an
Investment Grade Debt Rating, 30% of Consolidated Net Worth at
any time outstanding and (ii) if the Guarantor does not have an Investment
Grade Debt Rating, 15% of Consolidated Net Worth at any time outstanding;

(z)                                   that it will not, nor will it
permit any Subsidiary to, contract, create, incur, assume or permit to exist
any Lien with respect to any of the Restricted Cash Collateral except for the
Liens in favor of the Collateral Agent (as defined in the Guarantor Credit
Agreement) to secure the Credit Party Obligations. During any No Collateral
Period, the Guarantor will not, nor will it permit any Subsidiary to, contract,
create, incur, assume or permit to exist any Lien with respect to any of its
property or assets of any kind (whether real or personal, tangible or
intangible), whether now owned or hereafter acquired, except for Permitted
Liens;

(aa)                            that it will not, nor will it
permit any Subsidiary to, alter the character of its business in any material
respect from that conducted as of September 1, 2004;

(bb)                          that it will not, nor will it
permit any Subsidiary to,

(1)                                  dissolve, liquidate or wind up
its affairs, sell, transfer, lease or otherwise dispose of its property or
assets or agree to do so at a future time except the following, without
duplication, shall be expressly permitted:

(A)                              Specified
Sales;

(B)                                the sale, transfer, lease or
other disposition of property or assets (A) to an unrelated party not in the ordinary
course of business (other than Specified Sales), where and to the extent that
they are the result of a Recovery Event or (B) the sale, lease, transfer or
other disposition of real property, machinery, parts and equipment no longer
used or useful in the conduct of the business of the Guarantor or any of its
Subsidiaries, as appropriate, in its reasonable discretion;

(C)                                the sale, lease or transfer of
property or assets from a Credit Party to another Credit Party;

(D)                               the sale of trade receivables
sold or otherwise conveyed to or by a Securitization Vehicle; and

(E)                                 the sale, lease or transfer of
property or assets not to exceed 10% of
Consolidated Total Assets in the aggregate in any fiscal year; or

(2)                                  (i) purchase, lease or otherwise acquire (in a single transaction or
a series of related transactions) the property or assets of any Person (other 

 

66

 

than purchases
or other acquisitions of inventory, leases, materials, property and equipment
in the ordinary course of business, except as otherwise limited or prohibited
herein) or (ii) enter into any
transaction of merger or consolidation, except for (A) Investments or
acquisitions (including Permitted Acquisitions) permitted pursuant to
Section 6.2(cc), (B) the merger or consolidation of a Credit Party with
and into another Credit Party, provided that if the Guarantor is a party
thereto, the Guarantor will be the surviving corporation and (C) the merger or
consolidation of a Subsidiary with and into another Subsidiary or the
Guarantor; provided that if a Credit Party is a party thereto, the Credit Party
will be the surviving corporation;

(cc)                            that it will not, nor will it
permit any Subsidiary to, make any Investment except for Permitted Investments;

(dd)                          that it will not, nor will it
permit any Subsidiary to, enter into any transaction or series of transactions,
whether or not in the ordinary course of business, with any officer, director,
shareholder or Affiliate of such Person other than on terms and conditions
substantially as favourable as would be obtainable in a comparable arm’s-length
transaction with a Person other than an officer, director, shareholder or
Affiliate; provided, that this Section 6.2(dd) shall not apply to compensation
and employee stock plans of the Credit Parties;

(ee)                            that it will not, nor will it
permit any Subsidiary to, create, form or acquire any Subsidiaries, except for
Securitization Vehicles and other Domestic Subsidiaries which are joined as
Additional Credit Parties (as defined in the Guarantor Credit Agreement) to the
extent required by Section 6.2(w) hereof. The Guarantor will not sell,
transfer, pledge or otherwise dispose of any Capital Stock or other equity
interests in any of its Subsidiaries (other than Securitization Vehicles), nor
will it permit any of its Subsidiaries (other than Securitization Vehicles) to
issue, sell, transfer, pledge or otherwise dispose of any of their Capital
Stock or other equity interests, except in a transaction permitted by
Section 6.2(bb);

(ff)                                that it will not, nor will it
permit any of its Subsidiaries to (a)
change its fiscal year, (b) amend, modify
or change its articles of incorporation (or corporate charter or other similar
organizational or formation document) or bylaws (or other similar document) in
any material respect or in any respect adverse to the interests of the Lenders
without the prior written consent of the Required Lenders or (c) during
any No Collateral Period, amend,
modify, cancel, terminate or fail to renew or extend or permit the amendment,
modification, cancellation or termination of any Material Contract without the prior written consent of the
Required Lenders, except in the event that such amendments, modifications,
cancellations or terminations could not reasonably be expected to have a
Material Adverse Effect;

(gg)                          that it will not, nor will it
permit any Subsidiary to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any encumbrance or restriction on the
ability of any such Person to (a) pay
dividends or make any 

 

67

 

other
distributions to any Credit Party on its Capital Stock or with respect to any
other interest or participation in, or measured by, its profits, (b) pay any Indebtedness or other
obligation owed to any Credit Party,
(c) make loans or advances to any Credit Party, (d) sell, lease or transfer any of
its Properties (as defined in the Guarantor Credit Agreement) or assets to any
Credit Party, or (e) act as a
Guarantor and pledge its assets pursuant to the Guarantor Credit Documents or
any renewals, refinancings, exchanges, refundings or extension thereof, except
(in respect of any of the matters referred to in clauses (a)-(d)
above) for such encumbrances or restrictions existing under or by reason of
(i) the Guarantor Credit Agreement and the other Guarantor Credit
Documents, (ii) applicable law, (iii) any document or instrument governing Indebtedness
incurred pursuant to Section 6.2(y)(3), provided that any such restriction
contained therein relates only to the asset or assets constructed or acquired
in connection therewith or (iv) any
Permitted Lien or any document or instrument governing any Permitted Lien,
provided that any such restriction contained therein relates only to the asset
or assets subject to such Permitted Lien;

(hh)                          during any No Collateral
Period, the Guarantor will not, nor will it permit any Subsidiary to, directly
or indirectly, declare, order, make or set apart any sum for or pay any
Restricted Payment; provided, that to the extent that (a) no Default or Event
of Default shall have occurred and be continuing or would result therefrom and
(b) the Guarantor shall be in compliance with the financial covenants set forth
in Section 6.2(nn) and (oo) on a pro forma basis after giving effect thereto,
the Guarantor shall be permitted: (i) to make dividends payable solely in
the common stock or equivalent equity interests of such Person, (ii) to
make dividends or other distributions payable to the Guarantor or any wholly
owned Subsidiary of the Guarantor that is a Guarantor (directly or indirectly
through Subsidiaries), and (iii) to make other Restricted Payments as may be
approved by the Guarantor’s board of directors;

(ii)                                  that it will not, nor will it
permit any Subsidiary to, enter into, assume or become subject to any agreement
prohibiting or otherwise restricting the creation or assumption of any Lien
upon its Properties (as defined in the Guarantor Credit Agreement) or assets,
whether now owned or hereafter acquired, or requiring the grant of any security
for such obligation if security is given for some other obligation, except (a) pursuant to the Guarantor Credit
Agreement and the other Guarantor Credit Documents, (b) pursuant to any document or instrument governing
Indebtedness incurred pursuant to Section 6.2(y)(3), provided that any
such restriction contained therein relates only to the asset or assets
constructed or acquired in connection therewith and (c) in connection with any Permitted Lien or any document
or instrument governing any Permitted Lien, provided that any such restriction
contained therein relates only to the asset or assets subject to such Permitted
Lien;

 

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Reporting Covenants of the Guarantor

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

(kk)                            that it will,
contemporaneously with delivery to the Administrative Agent pursuant to the
Guarantor Credit Agreement, deliver Sufficient Copies of the Compliance
Certificate to Royal;

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

(mm)                      [Intentionally Deleted];

Financial Covenants of the
Guarantor

(nn)                          that at all times during the
Cash Collateral Period, Consolidated Net Worth shall not at any time be less
than the sum of (A) $1,150,000,000 plus (B) on a cumulative basis as of the end
of each fiscal year of the Guarantor, commencing with the fiscal year ending
December 31, 2005, an amount equal to 25% of Consolidated Net Income for the
fiscal year then ended, after giving effect
to the payment of dividends for such period; provided, that Consolidated
Net Worth shall not at any time be less than $1,150,000,000;

(oo)                          that at all times during the
No Collateral Period, the Guarantor shall comply with the following additional
financial covenants:

(1)                                  the Consolidated Leverage
Ratio, as of the last day of each fiscal quarter of the Guarantor, shall be less than or equal to 3.00 to 1.00.

(2)                                  the Consolidated Interest
Coverage Ratio, as of the last day of each fiscal quarter of the Guarantor,
shall be greater than or equal to 4.00 to 1.00.

 

69

 

6.3                               Environmental Law

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

7.                                      EVENTS OF
DEFAULT

7.1                               Definition of Event of Default

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

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

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

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

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

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

(f)                                    if any representation,
warranty or statement made by the Borrower, the Borrower Subsidiaries in the
Borrower Subsidiaries’ Guarantees or the Guarantor herein or in the Guarantee
or in any certificate pursuant to the Agreement or the Guarantee shall, in
Royal’s opinion, prove to have been materially incorrect on 

 

70

 

the date as of
which it was made in any respect materially adverse to Royal and Royal shall
have so notified the Borrower;

(g)                                 if:

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

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

(h)                                 if the Agreement or any of
Royal’s Security shall at any time cease to be in full force and effect (other
than by expiration or termination in accordance with its terms for reasons
other than the default of the Borrower) or if a Court of 

 

71

 

competent
jurisdiction shall declare the Agreement to be null and void or if the Borrower
shall contest the validity or enforceability thereof or if the Borrower shall
deny that it has any further liability or obligation hereunder or if any of
Royal’s Security for any reason ceases, other than in accordance with its
terms, to constitute valid and subsisting security upon any material part of
the property and assets of the Borrower or its Subsidiaries as described
therein;

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

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

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

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

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

(n)                                 if there is a default by the
Guarantor under the Guarantor Credit Agreement (after giving effect to any cure
or grace period provided therein);

(o)                                 (i) the Guarantor shall fail
to pay any principal on any Loan when due in accordance with the terms of the
Guarantor Credit Agreement; or (ii) the Guarantor shall fail to reimburse the
applicable Issuing Lender (as defined in the Guarantor Credit Agreement) for
any LOC Obligations (as defined in the Guarantor Credit Agreement) when due in
accordance with the terms of the Guarantor Credit Agreement; or (iii) the
Guarantor shall fail to pay any interest on 

 

72

 

any Loan or
any fee or other amount payable under the Guarantor Credit Agreement when due
in accordance with the terms of the Guarantor Credit Agreement and such failure
shall continue unremedied for five (5) days; or (iv)
or any Guarantor shall fail to pay on the Guaranty (as defined in the Guarantor
Credit Agreement) in respect of any of the foregoing or in respect of any other
Guaranty Obligations under the Guarantor Credit Agreement (after giving effect
to the grace period in clause (iii));

(p)                                 any representation or warranty
made or deemed made in the Guarantor Credit Agreement or in any of the other
Guarantor Credit Documents or which is contained in any certificate, document
or financial or other statement furnished at any time under or in connection
with the Guarantor Credit Agreement shall prove to have been incorrect, false
or misleading in any material respect on or as of the date made or deemed made;

(q)                                 (i) the Guarantor shall
fail to perform, comply with or observe any term, covenant or agreement
applicable to it contained in Section 6.2 hereof; or (ii) any Credit Party
shall fail to comply with any other covenant, contained in the Guarantor Credit
Agreement or the other Guarantor Credit Documents or any other agreement,
document or instrument among any Credit Party, the Administrative Agent and the
Lenders or executed by any Credit Party in favour of the Administrative Agent,
the Collateral Agent or the Lenders (other than as described in Sections 7.1(o)
or 7.1(q)(i) above), and in the event such breach or failure to comply in (i)
and (ii) is capable of cure, is not cured within thirty (30) days of its
occurrence;

(r)                                    the Guarantor or any of its
Subsidiaries shall (i) default in any payment of principal of or interest
on any Indebtedness (other than the Credit Party Obligations) in a principal
amount outstanding of at least U.S. $20,000,000 in the aggregate for the
Guarantor and any of its Subsidiaries beyond the period of grace, if any,
provided in the instrument or agreement under which such Indebtedness was
created; (ii) default in the observance or performance of any other
agreement or condition relating to any Indebtedness in a principal amount
outstanding of at least U.S. $20,000,000 in the aggregate for the Guarantor and
its Subsidiaries or contained in any instrument or agreement evidencing,
securing or relating thereto after giving effect to any cure or grace period
provided therein, or any other event shall occur or condition exist, the effect
of which default or other event or condition is to cause, or to permit the
holder or holders of such Indebtedness or beneficiary or beneficiaries of such
Indebtedness (or a trustee or agent on behalf of such holder or holders or
beneficiary or beneficiaries) to cause, with the giving of notice if required,
such Indebtedness to become due prior to its stated maturity; or (iii) breach or default under any Swap Contract
between any Credit Party and any Swap Contract Provider after giving effect to
any cure or grace period provided therein;

(s)                                  one or more judgments or
decrees (other than judgments adequately reserved for or which are covered by
insurance for which the insurer has acknowledged 

 

73

 

coverage)
shall be entered against the Guarantor or any of its Subsidiaries involving in
the aggregate a liability (to the extent not paid when due or covered by
insurance) of U.S. $20,000,000 or more and
all such judgments or decrees shall not have been paid and satisfied, vacated,
discharged, stayed or bonded pending appeal within thirty (30) days from the entry thereof or any
injunction, temporary restraining order or similar decree shall be issued
against a Credit Party or any of its Subsidiaries that could reasonably be
expected to result in a Material Adverse Effect;

(t)                                    (i) any Person shall
engage in any “prohibited transaction” (as defined in Section 406 of ERISA
or Section 4975 of the Code) involving any Plan, (ii) any
“accumulated funding deficiency” (as defined in Section 302 of ERISA),
whether or not waived, shall exist with respect to any Plan or any Lien in
favor of the PBGC or a Plan (other than a Permitted Lien) shall arise on the
assets of the Guarantor or any Commonly Controlled Entity, (iii) a Reportable Event shall occur with respect to, or
proceedings shall commence to have a trustee appointed, or a trustee shall be
appointed, to administer or to terminate, any Single Employer Plan, which
Reportable Event or commencement of proceedings or appointment of a trustee is,
in the reasonable opinion of the Required Lenders, likely to result in the
termination of such Plan for purposes of Title IV of ERISA, (iv) any Single Employer Plan shall
terminate for purposes of Title IV of ERISA, (v) the
Borrower, any of its Subsidiaries or any Commonly Controlled Entity shall, or
in the reasonable opinion of the Required Lenders is likely to, incur any
liability in connection with a withdrawal from, or the Insolvency or
Reorganization of, any Multiemployer Plan or (vi) any other similar event or condition shall occur or
exist with respect to a Plan; and in each case in clauses (i) through (vi)
above, such event or condition, together with all other such events or
conditions, if any, could have a Material Adverse Effect;

(u)                                 there shall occur a Change of
Control;

(v)                                 at any time after the
execution and delivery thereof, the Guaranty (as defined in the Guarantor
Credit Agreement) for any reason, other than the satisfaction in full of all
Credit Party Obligations, shall cease to be in full force and effect (other
than in accordance with its terms) or shall be declared to be null and void, or
any Credit Party shall contest the validity or enforceability of the Guaranty
(as defined in the Guarantor Credit Agreement) or any Guarantor Credit Document
in writing or deny in writing that it has any further liability, including with
respect to future advances by the Lenders, under any Guarantor Credit Document
to which it is a party; or

(w)                               any other Guarantor Credit
Document shall fail to be in full force and effect or to give the
Administrative Agent, the Collateral Agent and/or the Lenders the rights,
powers and privileges purported to be created thereby (except as such documents
may be terminated or no longer in force and effect in accordance with the terms
thereof, other than those indemnities and provisions which by their terms shall
survive).

 

74

 

7.2                               Remedies

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

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

(b)                                 declare Borrowings under the
Credit Facility, interest, Facility Fee, Documentary Credit, Fees, costs
including Swap Termination Values and any other moneys owing to Royal by the
Borrower under the Agreement, including amounts owing or liabilities in respect
of Documentary Credits, EFT Transfers and PDS Services which have not yet
matured, to be immediately due and payable on the date which is fifteen
Business Days after Royal delivers such notice to the Borrower, or that earlier
date on or after delivery of such notice when Royal determines in its
reasonable discretion that the business or operations of the Borrower may be
materially prejudiced, endangered or adversely affected (“Acceleration Date”)
and such moneys and liabilities shall forthwith become due and payable on the
Acceleration Date without presentment, demand, protest or other notice of any
kind to the Borrower, all of which are hereby expressly waived;

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

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

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

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

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

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

 

75

 

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

7.3                               Remedies Cumulative

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

7.4                               Waivers

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

7.5                               Application of Payments Following
Acceleration

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

7.6                               Royal May Perform Covenants

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

7.7                               Waiver of Certain
Defaults under Prior Credit Agreement

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

76

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

8.                                      GENERAL

8.1                               Waiver

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

8.2                               Effect of Amendment, Modification or Waiver

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

8.3                               Time of the Essence

Time shall be of
the essence hereof.

8.4                               Further Assurances

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

8.5                               Set-Off

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

 

77

 

8.6                               Judgement Currency

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

8.7                               Account Debit Authorization

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

8.8                               Expenses

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

8.9                               Survival of Representations and Warranties

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

8.10                        Notice

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

 

78

 

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

(a)                                  if delivered personally, when
received;

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

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

8.11                        General Indemnity

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

8.12                        Counterparts

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

8.13                        Reasonable Consent or Approval of the
Parties

The parties hereto acknowledge
and confirm that:

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

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

8.14                        Entire Agreement

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

 

79

 

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

8.15                        No Deduction for Taxes

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

8.16                        Participations and Assignments

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

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

 

80

 

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

8.17                        Assignment After Default

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

8.18                        Obligations of Borrower Re Facility
Disposition

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

8.19                        Confidentiality

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

 

81

 

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

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

 

	
  LOUISIANA-PACIFIC CANADA LTD. 

  	
  )

  	
  Address for Notice

  
	
   

  	
   

  	
  )

  	
  c/o Louisiana-Pacific Corporation

  
	
   

  	
   

  	
  )

  	
  414 Union Street, Suite 2000

  
	
   

  	
   

  	
  )

  	
  Nashville, TN

  
	
  Per:

  	
   

  	
  )

  	
  U.S.A. 37219

  
	
   

  	
  Authorized
  Signatory

  	
  )

  	
   

  
	
   

  	
   

  	
  )

  	
  Phone:  (877)
  744-5600

  
	
   

  	
   

  	
  )

  	
  Fax:       (615)
  986-5666

  
	
   

  	
   

  	
  )

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

  
	
  Per:

  	
   

  	
  )

  	
   

  
	
   

  	
  Authorized
  Signatory

  	
  )

  	
  With a copy to

  
	
   

  	
   

  	
  )

  	
  Louisiana-Pacific Canada Ltd.

  
	
   

  	
   

  	
  )

  	
  2100 - 1075 West Georgia Street

  
	
   

  	
   

  	
  )

  	
  Vancouver, British Columbia

  
	
   

  	
   

  	
  )

  	
  V6E 3G2

  
	
   

  	
   

  	
  )

  	
   

  
	
   

  	
   

  	
  )

  	
  Phone:  (604) 631-3131

  
	
   

  	
   

  	
  )

  	
  Fax:       (604)
  631-3232

  

 

82

 

	
  LOUISIANA-PACIFIC CORPORATION

  	
  )

  	
  Address for Notice

  
	
   

  	
   

  	
  )

  	
  414 Union Street, Suite 2000

  
	
   

  	
   

  	
  )

  	
  Nashville, TN

  
	
   

  	
   

  	
  )

  	
  U.S.A. 37219

  
	
  Per:

  	
   

  	
  )

  	
   

  
	
   

  	
  Authorized
  Signatory

  	
  )

  	
  Phone:  (877)
  744-5600

  
	
   

  	
   

  	
  )

  	
  Fax:       (615)
  986-5666

  
	
   

  	
   

  	
  )

  	
   

  
	
   

  	
   

  	
  )

  	
   

  
	
  Per:

  	
   

  	
  )

  	
   

  
	
   

  	
  Authorized
  Signatory

  	
  )

  	
   

  
	
   

  	
   

  	
  )

  	
   

  
	
   

  	
   

  	
  )

  	
   

  

 

83

 

	
  ROYAL BANK OF CANADA

  	
  )

  	
  RBC
  Capital Markets

  
	
   

  	
   

  	
  )

  	
  Suite
  2100, Park Place

  
	
   

  	
   

  	
  )

  	
  666
  Burrard Street

  
	
   

  	
   

  	
  )

  	
  Vancouver,
  British Columbia

  
	
  By:

  	
   

  	
  )

  	
  V6C
  3B1

  
	
   

  	
  Gerry Derbyshire

  	
  )

  	
  Attention:
  Corporate Credit

  
	
   

  	
  Attorney-in-Fact

  	
  )

  	
  Phone:  (604) 257-7100

  
	
   

  	
   

  	
  )

  	
  Fax:       (604) 665-6465

  
	
   

  	
   

  	
  )

  	
   

  
	
   

  	
   

  	
  )

  	
   

  

 

84

 

SCHEDULE A

OFFICER’S COMPLIANCE CERTIFICATE

6.2(i)

 

 

 

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

 

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

 

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

 

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

 

and I further certify without personal liability that:

 

4.             [SPECIFY ANY DEFAULT];

 

5.             I
am authorized to give this certificate;

 

 

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

 

 

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

 

 

	
   

  
	
  Title:

  
	
  Louisiana-Pacific
  Corporation and

  
	
  Title:

  
	
  Louisiana-Pacific Canada
  Ltd.

  

 

 

2

 

SCHEDULE B

UNFUNDED PENSION LIABILITIES

 

 

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

 

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

 

 

ANNEXURE I TO SCHEDULE B

 

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

 

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

 

 

 

SCHEDULE C

BORROWING BASE CERTIFICATE

 

 

TO:         Royal Bank of Canada (“Royal”)

 

 

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

 

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

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

 

	
  1.

  	
  amount of
  Restricted Cash Collateral (as of the

  	
   

  
	
   

  	
  [Business
  Day prior to the date of the Borrowing

  	
   

  
	
   

  	
  Base
  Certificate] [date hereof] [the Remargin

  	
   

  
	
   

  	
  Date]),
  excluding interest accrued on Cash

  	
   

  
	
   

  	
  Equivalents
  deposited in the Restricted Cash

  	
   

  
	
   

  	
  Collateral
  Account is                                 :

  	
  $

  
	
   

  	
   

  	
   

  
	
  2.

  	
  the
  Collateral Value of Borrowing Base

  	
   

  
	
   

  	
  (91% of
  Restated Cash Collateral) is

  	
  $

  
	
   

  	
   

  	
   

  
	
  3.

  	
  the
  aggregate of all outstanding Canadian

  	
   

  
	
   

  	
  Advances
  plus the aggregate face amount

  	
   

  
	
   

  	
  of
  outstanding Documentary Credits

  	
   

  
	
   

  	
  (less any
  permanent reductions thereof) is:

  	
  $

  
	
   

  	
   

  	
   

  
	
  4.

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

  	
   

  
	
   

  	
  and (y)
  Collateral Value of the Borrowing Base

  	
   

  
	
   

  	
  minus (z) the aggregate of all
  outstanding

  	
   

  
	
   

  	
  Canadian
  Advances plus the aggregate face

  	
   

  
	
   

  	
  amount of
  outstanding Documentary Credits

  	
   

  
	
   

  	
  (less any
  permanent reductions thereof)) is:

  	
  $

  

 

The Borrower
hereby certifies:

 

 

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

 

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

 

 

 

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

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

 

 

LOUISIANA-PACIFIC
CANADA LTD.

 

	
  By:

  	
   

  
	
   

  
	
  Name:

  	
   

  
	
   

  
	
  Title:

  	
   

  
	
   

  
	
  Date:

  	
   

  
				

 

2

 

SCHEDULE D

EXISTING LETTERS OF CREDIT

	
  l/c no.

  	
   

  	
  Beneficiary

  	
   

  	
  Amount

  	
   

  	
  Expiry

  
	
  94889

  	
   

  	
  H.M. the Queen for the Province of Manitoba

  	
   

  	
  C$100,000

  	
   

  	
  04/14/04 (auto-renewal)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  110818

  	
   

  	
  Minister of Finance, Prince George

  	
   

  	
  C$28,950

  	
   

  	
  07/17/04 (a.r.)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  110821

  	
   

  	
  Minister of Finance, Prince George

  	
   

  	
  C$1,677,600

  	
   

  	
  07/17/04 (a.r.)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  110824

  	
   

  	
  Minister of Finance, Prince George

  	
   

  	
  C$722,400

  	
   

  	
  07/17/04 (a.r.)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  112521

  	
   

  	
  Minister of Finance, Nelson, B.C.

  	
   

  	
  C$53,469.90

  	
   

  	
  10/19/03 (a.r.)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  112523

  	
   

  	
  Minister of Finance, Nelson, B.C.

  	
   

  	
  C$21,032.55

  	
   

  	
  10/19/03 (a.r.)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  118703

  	
   

  	
  Minister of Finance, Province of Ontario

  	
   

  	
  C$254,037.08

  	
   

  	
  12/27/03 (a.r.)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  118913

  	
   

  	
  Minister of Finance, Province of Ontario

  	
   

  	
  C$183,282.78

  	
   

  	
  01/31/04 (a.r.)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  119988

  	
   

  	
  Minister of Finance, Kamloops Forest Region

  	
   

  	
  C$1,107.00

  	
   

  	
  02/06/04 (a.r.)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  223635

  	
   

  	
  Minister of Finance, Province of Manitoba

  	
   

  	
  C$250,000

  	
   

  	
  07/15/04 (a.r.)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  910820

  	
   

  	
  Minister of Finance, Prince George

  	
   

  	
  C$52,200

  	
   

  	
  07/17/04 (a.r.)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  910823

  	
   

  	
  Minister of Finance, Prince George

  	
   

  	
  C$17,895

  	
   

  	
  07/17/04 (a.r.)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  912524

  	
   

  	
  Minister of Finance, Nelson, B.C.

  	
   

  	
  C$8,390.90

  	
   

  	
  10/19/03 (a.r.)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

 

SCHEDULE E

NOTICE OF BORROWING

Date:

 

To: Royal Bank of Canada

 

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

 

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

 

                                                                                                (1)           Total Amount of Canadian Advances             $

 

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

 

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

 

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

 

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

 

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

 

 

[Signature on
Following Page]

 

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

 

 

	
  Very truly yours,

  
	
   

  
	
  LOUISIANA-PACIFIC CANADA
  LTD.

  
	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
  Name:

  	
   

  
	
  Title:

  	
   

  	
   

  

 

 

2

 

SCHEDULE
F

CASH COLLATERAL RELEASE NOTICE

 

Date:

 

To: Royal Bank of Canada

 

Ladies and Gentlemen:

 

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

 

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

 

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

 

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

 

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

 

 

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

 

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

 

 

	
  Very truly yours,

  
	
   

  
	
  LOUISIANA-PACIFIC CANADA
  LTD.

  
	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
  Name:

  	
   

  
	
  Title:

  	
   

  	
   

  

 

 

2

 

EXHIBIT 1

 

[CALCULATIONS TO BE PROVIDED BY BORROWER]

 

 

 

THIRD AMENDED AND RESTATED

CREDIT AGREEMENT

 

 

 

 

AMONG:

 

LOUISIANA-PACIFIC CANADA LTD.

 

AND

 

LOUISIANA-PACIFIC CORPORATION

 

AND

 

ROYAL BANK OF CANADA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BULL, HOUSSER & TUPPER

BARRISTERS & SOLICITORS

#3000 - 1055 WEST GEORGIA

VANCOUVER, B.C. V6E 3R3

(604) 687-6575

Attention: David Bain

File # 8929978Exhibit 4.2

 

PRINCIPAL AMOUNT

$100,000,000

REGISTERED NO.: R-1

 

CUSIP NO.: 756109 AG 9

ISIN NO.: US756109AG90

 

REALTY INCOME CORPORATION

5 7/8% SENIOR DEBENTURES
DUE 2035

 

THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING
SET FORTH IN THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE
NAME OF A DEPOSITARY OR A NOMINEE OF A DEPOSITARY. THIS SECURITY IS
EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE
DEPOSITARY OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE
INDENTURE, AND, UNLESS AND UNTIL IT IS EXCHANGED FOR SECURITIES IN DEFINITIVE
FORM AS AFORESAID, MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY
TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE
DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ITS
NOMINEE TO A SUCCESSOR DEPOSITARY OR ITS NOMINEE.

UNLESS THIS SECURITY IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (“DTC”), 55 WATER STREET, NEW
YORK, NEW YORK TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE OR PAYMENT, AND ANY SUCH SECURITY ISSUED IS REGISTERED IN THE NAME OF
CEDE & CO., OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE
OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR
OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL, SINCE
THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

Realty Income
Corporation, a Maryland corporation (the “Company,” which term shall include
any successor under the Indenture hereinafter referred to), for value received,
hereby promises to pay to Cede & Co., or registered assigns, the principal
sum of One Hundred Million Dollars on March 15, 2035, and to pay interest
thereon from March 11, 2005, or from the most recent date to which interest has
been paid or duly provided for, semi-annually in arrears on March 15 and September
15 of each year (the “Interest Payment Dates”), commencing September 15, 2005,
at the rate of 5 7/8% per annum, until the entire principal amount hereof is
paid or made available for payment. The interest so payable, and punctually
paid or duly provided for, on any Interest Payment Date will, as provided in
the Indenture, be paid to the Person in whose name this Debenture (or one or
more Predecessor Securities) is registered in the Security Register applicable
to the Debentures at the close of business on March 1 or September 1 (the “Regular
Record Dates”), as the case may be, immediately preceding the applicable
Interest Payment Date regardless of whether the Regular Record Date is a
Business Day. Any such interest not so punctually paid or duly provided for
shall forthwith cease to be payable to the Holder on such Regular Record Date,
and may either be paid to the Person in whose name this Debenture (or one or
more Predecessor Securities) is registered at the close of business on a
Special Record Date for the payment of such Defaulted Interest to be fixed by
the Trustee, notice whereof shall be given to Holders of Debentures of this
series not less than 10 days prior to such Special Record Date, or may be paid
at any time in any other lawful manner not inconsistent with the requirements
of any securities exchange on which the Debentures may be listed, and upon such
notice as may be required by such exchange, all as more fully

 

 

provided in the Indenture. Interest will be
computed on the basis of a 360-day year of twelve 30-day months. If any principal
of or premium, if any, or interest on any of the Debentures is not paid when
due, then such overdue principal and, to the extent permitted by law, such
overdue premium or interest, as the case may be, shall bear interest, until
paid or until such payment is duly provided for, at the rate of 5 7/8% per
annum.

Payments of principal, premium, if any,
and interest in respect of this Debenture will be made by the Company in
Dollars. If this Debenture is a Global Security, all payments of principal, premium,
if any, and interest in respect of this Debenture will be made by wire transfer
of immediately available funds to an account maintained by the payee located in
the United States. If this Debenture is not a Global Security (a “Certificated Debenture”),
payments of interest on this Debenture may, at the Company’s option, be made by
mailing a check to the address of the Person entitled thereto as such address
appears in the Security Register for the Debentures or by wire transfer to an
account maintained by the payee located inside the United States, all on the
terms set forth in the Indenture; provided, however, that a Holder of $5
million or more in aggregate principal amount of Certificated Debentures will
be entitled to receive payments of interest due on any Interest Payment Date by
wire transfer of immediately available funds to an account maintained by such
Holder in the United States so long as such Holder has given appropriate wire
transfer instructions to the Trustee or a Paying Agent for the Debentures at
least 15 calendar days prior to the applicable Interest Payment Date. Any such
wire transfer instruction will remain in effect until revoked by such Holder or
until such Person ceases to be a Holder of $5 million or more in aggregate
principal amount of Certificated Debentures.

Payments of principal of and premium, if any, and
interest on Certificated Debentures that are due and payable on the Final
Maturity Date, any Redemption Date or any other date on which principal of such
Debentures is due and payable will be made by wire transfer of immediately
available funds to accounts maintained by the Holders thereof in the United
States, so long as such Holders have given appropriate wire transfer
instructions to the Trustee or a Paying Agent for the Debentures, against
surrender of such Debentures to the Trustee or a Paying Agent for the Debentures;
provided that installments of interest on Certificated Debentures that are due
and payable on any Interest Payment Date falling on or prior to such Final Maturity
Date, Redemption Date or other date on which principal of such Debentures is
payable will be paid in the manner described in the preceding paragraph to the
Persons who were the Holders of such Debentures (or one or more Predecessor
Securities) registered as such at the close of business on the relevant Regular
Record Dates according to their terms and the provisions of the Indenture.

This Debenture is
one of a duly authorized issue of Securities of the Company (herein called the “Debentures”),
issued as a series of Securities under an indenture dated as of October 28,
1998 (herein called, together with all indentures supplemental thereto, the “Indenture”),
between the Company and The Bank of New York, as trustee (the “Trustee,” which
term includes any successor trustee under the Indenture with respect to the Debentures),
to which Indenture and all indentures supplemental thereto reference is hereby
made for a statement of the respective rights, limitations of rights, duties
and immunities thereunder of the Company, the Trustee and the Holders of the Debentures
and of the terms upon which the Debentures are, and are to be, authenticated
and delivered. This Debenture is one of the duly authorized series designated
as the “5 7/8% Senior Debentures due 2035,” limited (subject to exceptions
provided in the Indenture and subject to the right of the Company to reopen
such series for the issuance of additional Securities of such series on the
terms and subject to the conditions specified in the Indenture) in aggregate
principal amount to $100,000,000. All terms used in this Debenture which are
defined in the Indenture and not defined herein shall have the meanings
assigned to them in the Indenture.

 

 

The Debentures may be redeemed at any time at the
option of the Company, in whole at any time or from time to time in part, at a
Redemption Price equal to the greater of:

(a) 100% of the principal amount of the Debentures to
be redeemed, and

(b) the sum of the
present values of the remaining scheduled payments of principal of and interest
on the Debentures to be redeemed (exclusive of interest accrued to the
applicable Redemption Date) discounted to such Redemption Date on a semiannual
basis, assuming a 360-day year consisting of twelve 30-day months, at the
Treasury Rate plus 25 basis points,

plus, in the case of both clauses (a) and (b)
above, accrued and unpaid interest on the principal amount of the Debentures
being redeemed to such Redemption Date. Notwithstanding the foregoing,
installments of interest on Debentures whose Stated Maturity is on or prior to
the relevant Redemption Date will be payable to the Holders of such Debentures
(or one or more Predecessor Securities) registered as such at the close of
business on the relevant Regular Record Dates according to their terms and the
provisions of the Indenture.

Notice of any redemption by the Company will be mailed
at least 30 days but not more than 60 days before the applicable Redemption
Date to each Holder of Debentures to be redeemed.

The Indenture contains provisions for defeasance at
any time of (a) the entire indebtedness of the Company on the Debentures and
(b) certain restrictive covenants and the related defaults and Events of
Default applicable to the Company, in each case, upon compliance by the Company
with certain conditions set forth in the Indenture, which provisions apply to
this Debenture.

In addition to the covenants of the Company contained
in the Indenture, the Company makes the following covenants with respect to,
and for the benefit of the Holders of, the Debentures:

Limitation on Incurrence of Total Debt. The Company will not, and will not permit any
Subsidiary to, incur any Debt, other than Intercompany Debt, if, immediately
after giving effect to the incurrence of such additional Debt and the
application of the proceeds therefrom on a pro forma basis, the aggregate
principal amount of all outstanding Debt of the Company and its Subsidiaries on
a consolidated basis determined in accordance with GAAP is greater than 60% of
the sum of (i) the Company’s Total Assets as of the end of the latest fiscal
quarter covered in the Company’s Annual Report on Form 10-K or Quarterly Report
on Form 10-Q, as the case may be, most recently filed with the Commission (or,
if such filing is not required under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), with the Trustee) prior to the incurrence of such
additional Debt and (ii) the increase, if any, in Total Assets from the end of
such quarter including, without limitation, any increase in Total Assets caused
by the application of the proceeds of such additional Debt (such increase
together with the Company’s Total Assets is referred to as the “Adjusted Total
Assets”).

Limitation on Incurrence of Secured Debt. The Company will not, and will not
permit any Subsidiary to, incur any Secured Debt, other than Intercompany Debt,
if, immediately after giving effect to the incurrence of such additional
Secured Debt and the application of the proceeds therefrom on a pro forma
basis, the aggregate principal amount of all outstanding Secured Debt of the
Company and its Subsidiaries on a consolidated basis determined in accordance
with GAAP is greater than 40% of the Company’s Adjusted Total Assets.

Debt Service Coverage. The Company will not, and will not permit any
Subsidiary to, incur any Debt, other than Intercompany Debt, if the ratio of
Consolidated Income Available for Debt Service to the Annual Debt Service
Charge for the period consisting of the four consecutive fiscal

 

 

quarters most recently ended prior to the date on
which such additional Debt is to be incurred is less than 1.5 to 1.0, on a pro
forma basis after giving effect to the incurrence of such Debt and the
application of the proceeds therefrom, and calculated on the assumption that (i)
such Debt and any other Debt incurred by the Company or any of its Subsidiaries
since the first day of such four-quarter period and the application of the
proceeds therefrom (including to refinance other Debt since the first day of
such four-quarter period) had occurred on the first day of such period, (ii)
the repayment or retirement of any other Debt of the Company or any of its
Subsidiaries since the first day of such four-quarter period had occurred on
the first day of such period (except that, in making such computation, the
amount of Debt under any revolving credit facility, line of credit or similar
facility shall be computed based upon the average daily balance of such Debt
during such period), and (iii) in the case of any acquisition or disposition by
the Company or any Subsidiary of any asset or group of assets since the first
day of such four-quarter period, including, without limitation, by merger,
stock purchase or sale, or asset purchase or sale, such acquisition or
disposition had occurred on the first day of such period with the appropriate
adjustments with respect to such acquisition or disposition being included in
such pro forma calculation. If the Debt giving rise to the need to make the
foregoing calculation or any other Debt incurred after the first day of the
relevant four-quarter period bears interest at a floating rate then, for
purposes of calculating the Annual Debt Service Charge, the interest rate on
such Debt shall be computed on a pro forma basis as if the average interest rate
which would have been in effect during the entire such four-quarter period had
been the applicable rate for the entire such period.

Maintenance of Total Unencumbered Assets. The Company will maintain at all times Total
Unencumbered Assets of not less than 150% of the aggregate outstanding
principal amount of the Unsecured Debt of the Company and its Subsidiaries,
computed on a consolidated basis in accordance with GAAP.

Certain Definitions. As used herein, the following terms will have the
meanings set forth below:

“Annual Debt Service Charge” as of any date means the amount which is
expensed in any 12-month period for interest on Debt of the Company and its
Subsidiaries.

“Business Day” means any day, other than a Saturday or a Sunday, that is not a day on which banking institutions in
The City of New York are authorized or required by law, regulation or executive
order to close.

“Comparable Treasury Issue” means, with
respect to any Redemption Date for the Debentures, the United States Treasury
security selected by the Independent Investment Banker as having a maturity
comparable to the remaining term of the Debentures to be redeemed that would be
utilized, at the time of selection and in accordance with customary financial
practice, in pricing new issues of corporate debt securities of comparable
maturity to the remaining term of the Debentures to be redeemed.

“Comparable Treasury Price” means, with
respect to any Redemption Date for the Debentures:

(a)           the average of four Reference
Treasury Dealer Quotations for such Redemption Date, after excluding the
highest and lowest such Reference Treasury Dealer Quotations, or

(b)           if the Trustee obtains fewer than
four but more than one such Reference Treasury Dealer Quotations for such
Redemption Date, the average of all such quotations, or

 

 

(c)         if the Trustee
obtains only one such Reference Treasury Dealer Quotation for such Redemption
Date, that Reference Treasury Dealer Quotation.

“Consolidated Income Available for Debt Service” for any period means Consolidated Net
Income plus, without duplication, amounts which have been deducted in
determining Consolidated Net Income during such period for
(i) Consolidated Interest Expense, (ii) provisions for taxes of the
Company and its Subsidiaries based on income, (iii) amortization (other
than amortization of debt discount) and depreciation, (iv) provisions for
losses from sales or joint ventures, (v) provisions for impairment losses,
(vi) increases in deferred taxes and other non-cash charges, (vii) charges
resulting from a change in accounting principles, and (viii) charges for
early extinguishment of debt, and less, without duplication, amounts which have
been added in determining Consolidated Net Income during such period for (a)
provisions for gains from sales or joint ventures, and (b) decreases in
deferred taxes and other non-cash items.

“Consolidated Interest Expense” for any period, and without duplication,
means all interest (including the interest component of rentals on capitalized
leases, letter of credit fees, commitment fees and other like financial
charges) and all amortization of debt discount on all Debt (including, without
limitation, payment-in-kind, zero coupon and other like securities) but
excluding legal fees, title insurance charges, other out-of-pocket fees and
expenses incurred in connection with the issuance of Debt and the amortization
of any such debt issuance costs that are capitalized, all determined for the
Company and its Subsidiaries on a consolidated basis in accordance with GAAP.

“Consolidated Net Income” for any period means the amount of
consolidated net income (or loss) of the Company and its Subsidiaries for such
period determined on a consolidated basis in accordance with GAAP.

“Debt” means any indebtedness of the Company or any Subsidiary,
whether or not contingent, in respect of (i) money borrowed or evidenced by
bonds, notes, debentures or similar instruments, (ii) indebtedness secured by
any mortgage, pledge, lien, charge, encumbrance, trust deed, deed of trust,
deed to secure debt, security agreement or any security interest existing on
property owned by the Company or any Subsidiary, (iii) letters of credit or
amounts representing the balance deferred and unpaid of the purchase price of
any property except any such balance that constitutes an accrued expense or
trade payable or (iv) any lease of property by the Company or any Subsidiary as
lessee that is reflected on the Company’s consolidated balance sheet as a
capitalized lease in accordance with GAAP, in the case of items of indebtedness
under (i) through (iii) above to the extent that any such items (other than
letters of credit) would appear as liabilities on the Company’s consolidated
balance sheet in accordance with GAAP, and also includes, to the extent not
otherwise included, any obligation of the Company or any Subsidiary to be
liable for, or to pay, as obligor, guarantor or otherwise (other than for
purposes of collection in the ordinary course of business), indebtedness of
another Person (other than the Company or any Subsidiary) of the type referred
to in (i), (ii), (iii) or (iv) above (it being understood that Debt shall be
deemed to be incurred by the Company or any Subsidiary whenever the Company or
such Subsidiary shall create, assume, guarantee or otherwise become liable in
respect thereof).

“Executive Group” means, collectively, those individuals holding the
offices of Chairman, Vice-Chairman, Chief Executive Officer, President, Chief
Operating Officer or any Vice President of the Company.

“Final Maturity Date” means March 15, 2035.

 

 

“Independent Investment Banker” means, with
respect to any Redemption Date for the Debentures, Banc of America Securities
LLC and its successors or Citigroup Global Markets Inc. and its successors
(whichever shall be appointed by the Trustee after consultation with the
Company) or, if both such firms or the respective successors, if any, to such
firms, as the case may be, are unwilling or unable to select the Comparable
Treasury Issue, an independent investment banking institution of national
standing appointed by the Trustee after consultation with the Company.

“Intercompany Debt” means indebtedness owed by the Company or any
Subsidiary solely to the Company or any Subsidiary.

 “Reference
Treasury Dealer” means with respect to any Redemption Date for the Debentures,
Banc of America Securities LLC and Citigroup Global Markets Inc. and their
respective successors (provided, however, that if any such firm or any such
successor, as the case may be, ceases to be a primary U.S. Government securities
dealer in The City of New York (a “Primary Treasury Dealer”), the Trustee,
after consultation with the Company, shall substitute therefor another Primary
Treasury Dealer) and two other Primary Treasury Dealers selected by the Trustee
after consultation with the Company.

“Reference Treasury Dealer Quotations”
means, with respect to each Reference Treasury Dealer and any Redemption Date
for the Debentures, the average, as determined by the Trustee, of the bid and
asked prices for the Comparable Treasury Issue (expressed in each case as a
percentage of its principal amount) quoted in writing to the Trustee by such
Reference Treasury Dealer at 5:00 p.m., New York City time, on the third
Business Day preceding such Redemption Date.

“Secured Debt” means Debt secured by any mortgage, lien, charge,
encumbrance, trust deed, deed of trust, deed to secure debt, security
agreement, pledge, conditional sale or other title retention agreement,
capitalized lease, or other security interest or agreement granting or conveying
security title to or a security interest in real property or other tangible
assets.

“Subsidiary” means (i) any corporation, partnership,
joint venture, limited liability company or other entity the majority of the
shares, if any, of the non-voting capital stock or other equivalent ownership
interests of which (except directors’ qualifying shares) are at the time
directly or indirectly owned by the Company, and the majority of the shares of
the voting capital stock or other equivalent ownership interests of which
(except for directors’ qualifying shares) are at the time directly or
indirectly owned by the Company, any other Subsidiary or Subsidiaries, and/or
one or more individuals of the Executive Group (or, in the event of death or
disability of any of such individuals, his/her respective legal
representative(s), or such individuals’ successors in office as an officer of
the Company), and (ii) any other entity the accounts of which are
consolidated with the accounts of the Company. This definition shall apply only
for purposes of the covenants set forth above under the captions “Limitation on
Incurrence of Total Debt,” “Limitation on Incurrence of Secured Debt,” “Debt
Service Coverage,” and “Maintenance of Total Unencumbered Assets,” the other
definitions set forth herein under this caption “Certain Definitions,” and,
insofar as Section 801 of the Indenture is applicable to the Debentures, the
term “Subsidiary,” as used in Section 801(2) of the Indenture, shall have the
meaning set forth in this definition (instead of the meaning set forth in
Section 101 of the Indenture).

 

 

“Treasury
Rate” means, with
respect to any Redemption Date for the Debentures:

                                                (a)           the
yield, under the heading that represents the average for the immediately
preceding week, appearing in the most recently published statistical release
designated “H.15(519)” or any successor publication which is published weekly
by the Board of Governors of the Federal Reserve System and which establishes
yields on actively traded United States Treasury securities adjusted to
constant maturity under the caption “Treasury Constant Maturities,” for the
maturity corresponding to the Comparable Treasury Issue (if no maturity is
within three months before or after the Final Maturity Date of the Debentures,
yields for the two published maturities most closely corresponding to the
Comparable Treasury Issue shall be determined and the Treasury Rate shall be
interpolated or extrapolated from such yields on a straight-line basis,
rounding to the nearest month), or

 

                                                (b)           if
such release (or any successor release) is not published during the week
preceding the calculation date or does not contain such yields, the rate per
annum equal to the semiannual equivalent yield to maturity of the Comparable
Treasury Issue, calculated using a price for the Comparable Treasury Issue
(expressed as a percentage of its principal amount) equal to the Comparable
Treasury Price for such Redemption Date.

 

The Treasury Rate shall be calculated on the third
Business Day preceding the applicable Redemption Date.

“Total Assets” as of any date means the sum of (i) Undepreciated
Real Estate Assets and (ii) all other assets of the Company and its
Subsidiaries determined on a consolidated basis in accordance with GAAP (but
excluding accounts receivable and intangibles).

“Total Unencumbered Assets” as of any date means Total Assets minus
the value of any properties of the Company and its Subsidiaries that are
encumbered by any mortgage, charge, pledge, lien, security interest, trust
deed, deed of trust, deed to secure debt, security agreement, or other
encumbrance of any kind (other than those relating to Intercompany Debt),
including the value of any stock of any Subsidiary that is so encumbered
determined on a consolidated basis in accordance with GAAP. For purposes of
this definition, the value of each property shall be equal to the purchase
price or cost of each such property and the value of any stock subject to any
encumbrance shall be determined by reference to the value of the properties
owned by the issuer of such stock as aforesaid.

“Undepreciated Real Estate Assets” as of any date means the amount of real
estate assets of the Company and its Subsidiaries on such date, before
depreciation and amortization, determined on a consolidated basis in accordance
with GAAP.

“Unsecured Debt” means Debt of the Company or any Subsidiary that is
not Secured Debt.

If an Event of Default with respect to the Debentures
shall occur and be continuing, the principal of the Debentures may be declared
due and payable in the manner and with the effect provided in the Indenture.

As provided in and
subject to the provisions of the Indenture, the Holder of this Debenture shall
not have the right to institute any proceeding with respect to the Indenture or
for the appointment of a receiver or trustee or for any other remedy
thereunder, unless such Holder shall have previously given the Trustee written
notice of a continuing Event of Default with respect to the

 

 

Debentures, the Holders of not less than 25% in principal
amount of the Debentures at the time Outstanding shall have made written
request to the Trustee to institute proceedings in respect of such Event of
Default as Trustee and offered the Trustee reasonable indemnity and the Trustee
shall not have received from the Holders of a majority in principal amount of
the Debentures at the time Outstanding a direction inconsistent with such
request, and shall have failed to institute any such proceeding, for 60 days
after receipt of such notice, request and offer of indemnity. The foregoing
shall not apply to any suit instituted by the Holder of this Debenture for the
enforcement of any payment of principal of, or premium, if any, or interest on,
this Debenture on or after the respective due dates therefor.

The Indenture permits, with certain exceptions as
therein provided, the amendment thereof and the modification of the rights and
obligations of the Company and the rights of the Holders of the Debentures
under the Indenture at any time by the Company and the Trustee with the consent
of the Holders of not less than a majority in aggregate principal amount of the
Outstanding Debentures. The Indenture also contains provisions permitting the
Holders of not less than a majority in principal amount of the Debentures at
the time Outstanding, on behalf of the Holders of all Debentures, to waive
compliance by the Company with certain provisions of the Indenture. Furthermore,
provisions in the Indenture permit the Holders of not less than a majority of
the aggregate principal amount of the Outstanding Debentures to waive, in
certain circumstances, on behalf of all Holders of the Debentures, certain past
defaults under the Indenture and their consequences. Any such consent or waiver
by the Holder of this Debenture shall be conclusive and binding upon such
Holder and upon all future Holders of this Debenture and of any Debenture
issued upon the registration of transfer hereof or in exchange herefor or in
lieu hereof, whether or not notation of such consent or waiver is made upon
this Debenture.

No reference herein to the Indenture and no provision
of this Debenture or of the Indenture shall alter or impair the obligation of
the Company, which is absolute and unconditional, to pay the principal of, and
premium, if any, and interest on, this Debenture at the times, places and rate,
and in the coin or currency, herein prescribed.

As provided in the Indenture and subject to certain
limitations therein set forth, the transfer of this Debenture is registrable in
the Security Register, upon surrender of this Debenture for registration of
transfer at the office or agency of the Company in any Place of Payment for the
Debentures, duly endorsed by, or accompanied by a written instrument of
transfer in form satisfactory to the Company and the Security Registrar for the
Debentures duly executed by, the Holder hereof or his or her attorney duly
authorized in writing, and thereupon one or more new Debentures of authorized
denominations and for the same aggregate principal amount will be issued to the
designated transferee or transferees.

As provided in the Indenture and subject to certain
limitations therein set forth, Debentures of this series are exchangeable for a
like aggregate principal amount of Debentures of this series of different
authorized denominations, as requested by the Holder surrendering the same.

The Debentures of this series are issuable only in
registered form without interest coupons in denominations of $1,000 and any
integral multiple thereof. No service charge shall be made for any such
registration of transfer or exchange, but the Company may require payment of a
sum sufficient to cover any tax or other governmental charge payable in
connection therewith.

Prior to due
presentment of this Debenture for registration of transfer, the Company, the
Trustee and any agent of the Company or the Trustee may treat the Person in
whose name this Debenture is registered as the owner hereof for all purposes,
whether or not this Debenture be overdue, and neither the Company, the Trustee
nor any such agent shall be affected by notice to the contrary.

 

 

No recourse shall be had for the payment of the
principal of, or premium, if any, or the interest on this Debenture, or for any
claim based hereon, or otherwise in respect hereof, or based on or in respect
of the Indenture or any indenture supplemental thereto, against any past,
present or future stockholder, employee, officer or director, as such, of the
Company or of any successor, either directly or through the Company or any
successor, whether by virtue of any constitution, statute or rule of law or by
the enforcement of any assessment or penalty or otherwise, all such liability
being, by the acceptance hereof and as part of the consideration for the issue
hereof, expressly waived and released.

THE INDENTURE AND THE DEBENTURES, INCLUDING THIS DEBENTURE,
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEW YORK.

Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Debentures as a convenience to the Holders
of the Debentures. No representation is made as to the correctness or accuracy
of such CUSIP numbers as printed on the Debentures, and reliance may be placed
only on the other identification numbers printed hereon.

Unless the certificate of authentication hereon has
been executed by the Trustee by manual signature of one of its authorized
signatories, this Debenture shall not be entitled to any benefit under the
Indenture or be valid or obligatory for any purpose.

The headings
included in this Debenture are for convenience only and shall not affect the
construction hereof.

 

 

IN WITNESS WHEREOF, the Company has caused this
instrument to be duly executed under its corporate seal.

 

	
   

  	
   

  	
  REALTY INCOME CORPORATION

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
  Thomas A. Lewis

  
	
   

  	
   

  	
   

  	
  Vice Chairman of the Board and

  
	
   

  	
   

  	
   

  	
  Chief Executive Officer

  
	
   

  	
   

  	
   

  	
   

  
	
  Attest:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Michael R. Pfeiffer

  	
   

  	
   

  	
   

  
	
   

  	
  Executive Vice President, General Counsel

  	
   

  	
   

  	
   

  
	
   

  	
  and Secretary

  	
   

  	
   

  	
   

  

 

 

TRUSTEE’S CERTIFICATE OF AUTHENTICATION:

 

This is one of the Securities of the series designated
therein referred to in the within-mentioned Indenture.

	
  THE BANK OF NEW YORK, as Trustee

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
  Authorized
  Signatory

  	
   

  
	
   

  	
   

  
	
  Dated: March 11, 2005

  	
   

  
				

 

 

ASSIGNMENT FORM

 

FOR VALUE RECEIVED, the
undersigned hereby

sells, assigns and transfers to

 

 

PLEASE INSERT SOCIAL

SECURITY OR OTHER IDENTIFYING

NUMBER OF ASSIGNEE

	
   

   

  
	
   

  
	
   

  

 

(Please Print or
Typewrite Name and Address

including Zip Code of Assignee)

 

	
  the within Debenture of REALTY INCOME CORPORATION,
  and

  
	
  hereby does irrevocably constitute and appoint 

  	
   

  

 

Attorney to transfer said Debenture on the books of the within-named
Company with full power of substitution in the premises.

 

Dated:

 

NOTICE: The signature to this assignment must correspond with the name
as it appears on the first page of the within Debenture in every particular,
without alteration or enlargement or any change whatever.

 

	
  Signature Guaranty

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (Signature must be guaranteed by

  
	
   

  	
   

  	
  a participant in a signature

  
	
   

  	
   

  	
  guarantee medallion program)

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00079-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00079-of-00352.parquet"}]]