<PAGE>
As filed with the Securities and Exchange Commission on August 27, 1999
Registration Nos. 333-78569, 333-78569-01, 333-78569-02, 333-78569-03, 333-
78569-04
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- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
PANOLAM INDUSTRIES INTERNATIONAL, INC.
(Exact name of Registrant as specified in its charter)
---------------
<TABLE>
<S> <C> <C>
Delaware 6719 52-2064053
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
GUARANTORS OF SENIOR SUBORDINATED NOTES REGISTERED HEREBY:
PANOLAM GROUP, INC.
Delaware 6719 94-3244860
PII SECOND, INC.
Delaware 6719 52-2064042
PANOLAM INDUSTRIES, INC.
Delaware 2493 92-3244858
PIONEER PLASTICS CORPORATION
Delaware 2493 36-4029837
(Exact name of Registrant as specified in its charter)
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
20 Progress Drive
Shelton, Connecticut 06484
Telephone: (203) 925-1556
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
---------------
Robert J. Muller, Jr.
President and Chief Executive Officer
Panolam Industries International, Inc.
20 Progress Drive
Shelton, Connecticut 06484
Telephone: (203) 925-1556
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
Nora L. Gibson
Michael S. Dorf
Brobeck, Phleger & Harrison LLP
One Market, Spear Street Tower
San Francisco, CA 94105
Telephone: (415) 442-0900
---------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
---------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
SUBJECT TO COMPLETION, DATED , 1999
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PROSPECTUS
Panolam Industries International, Inc.
Offer To Exchange All Outstanding 11 1/2% Series A Senior Subordinated Notes
Due 2009 For Its 11 1/2% Series B Senior Subordinated Notes Due 2009,
Which Have Been Registered Under The Securities Act Of 1933
This exchange offer will expire at 5:00 p.m., New York City time,
on 1999, unless we extend the deadline.
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Terms of the Exchange Notes:
. The terms of the exchange notes are . No public market currently exists
substantially identical to those of for the exchange notes. We do not
the old notes, except for transfer expect that an active public market
restrictions under the Securities in the exchange notes will develop.
Act of 1933 and registration rights We do not intend to list the
relating to the old notes. exchange notes on any securities
exchange or over the counter
. The exchange notes will bear market.
interest at a fixed annual rate of
11 1/2%. We will pay interest on Terms of the Exchange Offer:
the exchange notes every six months
on February 15 and August 15, . We will exchange all old notes that
beginning February 15, 2000. are validly tendered and not
withdrawn prior to the expiration
. All of our existing and future of the exchange offer.
domestic subsidiaries, PII Second,
Inc., our direct parent company, . We will not receive any proceeds
and Panolam Group, Inc., the direct from the exchange offer.
parent company of PII Second, will
guarantee the exchange notes. . We will issue the exchange notes
promptly after the expiration of
. The exchange notes will mature on the exchange offer.
February 15, 2009.
. You may withdraw tenders of old
. The exchange notes are our senior notes at any time prior to the
subordinated unsecured general expiration of the exchange offer.
obligations, ranking junior to our
senior debt and the senior debt of . We believe that the Internal
the guarantors, including any Revenue Service will not treat the
borrowings and guarantees under our exchange of old notes as a taxable
senior secured credit facilities. event for federal income tax
purposes, but you should see
. We may redeem the exchange notes at "Material Federal Income Tax
any time on or after February 15, Consequences of the Exchange Offer"
2004. See page for redemption on page for more information.
prices. Before February 15, 2002,
we may redeem up to 35% of the
notes at 111.50% with the proceeds
of public equity offerings.
We are mailing this prospectus and the letter of transmittal on , 1999.
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See the "Risk Factors" section on page 13 for information that you should
consider before you decide to participate in this exchange offer.
- --------------------------------------------------------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the exchange notes or determined that
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
The date of this prospectus is , 1999
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<PAGE>
Summary
On the cover page and in this prospectus, unless the context otherwise
requires:
. "Issuer" refers to Panolam Industries International, Inc., the issuer
of the exchange notes, and
. "Panolam," "company," "our," "we," "ours," "ourselves" and "us" refers
collectively to Panolam Group, Inc., which is an indirect parent of the
Issuer, and its direct and indirect subsidiaries, including the Issuer.
They include Pioneer Plastics Corporation if the context is on or after
the closing of our acquisition of Pioneer on February 18, 1999.
The following summary contains basic information about this exchange offer.
We encourage you to read this entire prospectus and the documents we have
referred you to for a more complete understanding of this exchange offer.
The Exchange Offer
Old notes................... On February 18, 1999, we completed the offering
of $135.0 million aggregate principal amount of
our 11 1/2% senior notes due 2009 to the initial
purchasers, who were Donaldson, Lufkin & Jenrette
Securities Corporation and Credit Suisse First
Boston Corporation. The initial purchasers sold
the old notes to "qualified institutional buyers"
as defined in Rule 144A under the Securities Act
of 1933. This prospectus is a part of a
registration statement which we have filed to
comply with a registration rights agreement
between us and the initial purchasers.
Exchange offer.............. We are offering to exchange the old notes for
exchange notes in the aggregate principal amount
of up to $135.0 million. We will only exchange
old notes that are properly tendered and accepted
for exchange. We will issue the exchange notes
promptly after the expiration of this exchange
offer. If you were not prohibited from
participating in this exchange offer and you did
not tender your old notes prior to the completion
of the exchange offer, you will have no further
exchange rights under the registration rights
agreement and your non-tendered old notes will
continue to be subject to transfer restrictions
under the Securities Act of 1933.
Expiration date; withdrawal
of tenders................. This exchange offer will expire on 5:00 p.m., New
York City time, on , 1999, unless we extend
the deadline. You may withdraw your tender of old
notes in accordance with this exchange offer at
any time prior to the expiration date.
Conditions to the exchange The exchange offer is subject to certain
offer................. customary conditions. The conditions are limited
and relate in general to proceedings or laws that
might impair our ability to proceed with the
exchange offer. As of the date of this
prospectus, none of these events had occurred,
and we believe their occurrence to be unlikely.
If any such conditions do exist prior to the
expiration date, we may take the following
actions:
. refuse to accept any old notes and return all
previously tendered old notes,
. extend the duration of the exchange offer, or
. waive such conditions.
<PAGE>
Procedures for tendering
old notes.................. If you wish to participate in the exchange offer,
you must complete, sign and date the letter of
transmittal and send it, together with your old
notes to be exchanged and any other required
documentation to State Street Bank and Trust
Company, as exchange agent, at the address set
forth in the letter of transmittal. Brokers,
dealers, commercial banks, trust companies and
other nominees may tender old notes which they
hold as nominee by book-entry transfer. Questions
regarding the tender of the old notes or the
exchange offer, generally, must be directed to
the exchange agent.
Special procedures for
beneficial owners.......... If you are the beneficial owner of old notes
which are registered in the name of a broker,
dealer, commercial bank, trust company or other
nominee and you wish to tender the old notes in
the exchange offer, you should contact such
registered holder promptly and instruct such
registered holder to tender the old notes on your
behalf. If you wish to tender on your own behalf,
you must, prior to completing and executing the
letter of transmittal and delivering the old
notes, either make appropriate arrangements to
register ownership of the old notes in your own
name or obtain a properly completed bond power
from the registered holder. The transfer of
registered ownership may take considerable time
and it may not be possible to complete prior to
the expiration date.
Guaranteed delivery
procedures................. If you wish to tender your old notes and your old
notes are not immediately available or you cannot
deliver your old notes, the letter of transmittal
or any other documents required by the letter of
transmittal to the exchange agent, or you cannot
complete the procedure for book-entry transfer,
then prior to the expiration date you must tender
your old notes according to the guaranteed
delivery procedures set forth in "The Exchange
Offer--Guaranteed delivery procedures."
Acceptance of old notes and
delivery of exchange
notes...................... We will accept for exchange any and all old notes
which are properly tendered in the exchange offer
prior to 5:00 p.m., New York City time, on the
expiration date. The exchange notes issued
pursuant to the exchange offer will be delivered
promptly following the expiration date. If we do
not accept any old notes for exchange for any
reason, we will return them to you without
expense as promptly as possible after the
expiration or termination of this exchange offer.
Use of proceeds............. We will not receive any cash proceeds from the
exchange of old notes pursuant to this exchange
offer.
Exchange agent.............. State Street Bank and Trust Company is serving as
the exchange agent in connection with this
exchange offer.
2
<PAGE>
Consequences of not
exchanging old notes....... You may not offer, sell or otherwise transfer the
old notes except:
. in compliance with the registration
requirements of the Securities Act of 1933 and
any other applicable securities laws, or
. pursuant to an exemption from these
registration requirements, or
. in a transaction not subject to these
securities laws.
Old notes that you do not exchange for exchange
notes in the exchange offer will continue to bear
a legend reflecting these restrictions on
transfer. In addition, you will not be entitled
to any rights to have your old notes registered
under the Securities Act of 1933 after
consummation of the exchange offer. We do not
intend to register any old notes which remain
outstanding after completion of the exchange
offer.
To the extent that old notes are tendered and
accepted in the exchange offer, any trading
market for old notes which remain outstanding
after the exchange offer could be adversely
affected.
The exchange notes and any old notes which remain
outstanding after consummation of the exchange
offer will vote together as a single class for
purposes of determining whether holders of the
requisite percentage in outstanding principal
amount thereof have taken certain actions or
exercised certain rights under the indenture
governing the notes.
For more details, see the section "The Exchange Offer."
The Exchange Notes
The terms of the exchange notes are identical in all material respects to the
terms of the old notes, except that the old notes differ with respect to
transfer restrictions under the Securities Act of 1933 and registration rights.
Issuer...................... Panolam Industries International, Inc.
Total amount of notes
offered.................... $135.0 million in principal amount of 11 1/2%
Senior Subordinated Notes due 2009.
Maturity.................... February 15, 2009.
Interest.................... The new notes will bear interest at a fixed
annual rate of 11 1/2%, to be paid in cash every
six months on February 15 and August 15 of each
year, beginning on February 15, 2000.
Optional redemption......... We will not have the right to redeem any exchange
notes prior to February 15, 2004 except out of
the proceeds of certain public offerings of our
equity securities as described below. We may
redeem some or all of the exchange notes at any
time on or after February 15, 2004 at the
redemption prices listed in the section
3
<PAGE>
"Description of Exchange Notes" under the heading
"Optional Redemption." Before February 15, 2002,
we may redeem up to 35% of the notes with the
proceeds of certain public offerings of our
equity securities at the price listed in the
section "Description of Exchange Notes" under the
heading "Optional Redemption."
Ranking of the exchange
notes...................... The exchange notes will be senior subordinated,
unsecured general obligations of the Issuer,
ranking subordinate in right of payment to all
senior debt of the Issuer, including our new
credit facilities. The exchange notes will rank
equally in right of payment to all existing and
future senior subordinated indebtedness of the
Issuer. The exchange notes will rank senior in
right of payment to all existing and future
subordinated indebtedness of the Issuer, of which
there is none currently outstanding.
As of June 30, 1999, we had approximately
$237.9 million of consolidated indebtedness
outstanding. Approximately $100.9 million of this
indebtedness was senior or effectively senior to
the notes and the guarantees. The indenture under
which the exchange notes will be issued permits
the us to incur additional indebtedness,
including senior debt, subject to certain
limitations.
Subsidiary guarantees....... The Issuer's obligations under the exchange notes
will be fully and unconditionally guaranteed by
all of the Issuer's existing and future domestic
subsidiaries. The subsidiary guarantees will be
senior subordinated, unsecured general
obligations of the subsidiary guarantors,
subordinate in right of payment to all existing
and future senior debt of the subsidiary
guarantors, including guarantees by the
subsidiary guarantors under our new credit
facilities. The subsidiary guarantees will rank
equally in right of payment to all existing and
future senior subordinated indebtedness of the
subsidiary guarantors and will rank senior in
right of payment to all existing and future
subordinated indebtedness of the subsidiary
guarantors, of which there is none currently
outstanding.
Parent guarantees........... The Issuer's obligations under the exchange notes
will also be fully and unconditionally guaranteed
by Panolam Group, Inc., and PII Second, Inc.
Panolam Group is a holding company that conducts
no business other than holding the capital stock
of PII Second. PII Second is a holding company
that conducts no other business than holding the
capital stock of the Issuer. The exchange notes
will not be guaranteed by Panolam Industries
Holdings, Inc., which owns the capital stock of
Panolam Group.
The parent guarantees will be senior
subordinated, unsecured general obligations of
the parent guarantors, subordinate in right of
payment to all existing and future senior debt of
the parent guarantors, including guarantees by
the parent guarantors under our new credit
facilities. The parent guarantees will rank
equally in
right of payment to all existing and future
senior subordinated indebtedness of the parent
guarantors and will rank senior in right
4
<PAGE>
of payment to all existing and future
subordinated indebtedness of the parent
guarantors, which consists of approximately $2.0
million of subordinated indebtedness owed to
Genstar Capital under an engagement agreement.
Sinking Fund................ None.
Mandatory offer to
repurchase................. If we sell certain assets or experience specific
kinds of changes of control, we must offer to
repurchase the exchange notes at the prices
listed in the section "Description of Exchange
Notes."
Basic covenants of the
indenture.................. We will issue the exchange notes under an
indenture with State Street Bank and Trust
Company, as trustee. The indenture will, among
other things, place certain limitations on our
ability, and the ability of some of our
subsidiaries, to:
. borrow money or make certain restricted
payments,
. change the nature of our business,
. pay dividends on our stock, repurchase our
stock and repay certain subordinated
obligations,
. enter into sale and leaseback
transactions,
. make investments,
. enter into transactions with our
affiliates,
. use our assets as security in other
transactions,
. create liens on our assets, and
. sell certain assets or merge with or into
other companies.
For more details, see the section "Description of Exchange Notes."
Our Business
We are a market leader in designing, manufacturing and distributing
artificial decorative overlay panels in the U.S. and Canada. Our products are
used to surface a wide variety of items, including cabinets, furniture, store
fixtures, countertops and floors. Our product lines are generally broken down
into two categories. Decorative thermally fused melamine panels ("TFMs") make
up the majority of our products. High pressure laminates ("HPLs") account for
most of our remaining products. We also produce resins used in HPL and TFM
production.
TFMs are utilized as durable and economical substitutes for natural surfacing
materials such as wood, stone and ceramic. These products are used in a wide
variety of residential and commerical indoor surfacing applications, including
kitchen and bath cabinets, furniture, store fixtures and displays and other
specialty applications. We believe we are the leading producer of TFMs in the
U.S. and Canada, with sales of approximately 275 million square feet of double
sided TFM panels in 1998. We estimate we have approximately a 24% share of the
combined U.S. and Canadian TFM market, based on square feet of decorative
overlay paper used in the production of TFMs. We believe that we have achieved
our leading TFM market share by offering a broad line of innovative products,
manufacturing quality products and supporting our products with the largest
dedicated in-house sales force and customer service team in the U.S. and
Canadian TFM industry.
5
<PAGE>
On February 18, 1999, we acquired all the outstanding equity securities of
Pioneer Plastics Corporation from Rugby USA, Inc. Pioneer primarily designs,
manufactures and distributes HPLs used in residential and commercial indoor
surfacing applications, including countertops and cabinetry, furniture,
fixtures, and bowling lane flooring products. We acquired Pioneer in order to:
. expand our product lines into HPLs,
. offer "one stop shopping" to our customers,
. increase our sales to OEMs,
. strengthen our distribution network,
. vertically integrate our production processes, and
. realize anticipated operational efficiencies.
Pioneer's HPL products provide greater surface wear and impact resistance
than TFMs provide. Pioneer has recently introduced Pionite Solid Surface into
its Pionite product line. Pionite Solid Surface is a high-end acrylic based
surfacing product made to our specifications by E.I. duPont deNemours & Company
that substitutes for more expensive natural products such as stone, marble or
granite. Through Pioneer, we also selectively produce and market a variety of
specialty industrial resins for industrial uses, such as:
. powder paint,
. adhesives and melamine resins for TFM and HPL production,
. custom treated and chemically prepared decorative overlay papers for the
TFM industry, and
. a variety of other industrial laminate products such as aircraft cargo
liners and bowling lane flooring.
Our TFM and HPL product lines allow us to be one of two vertically integrated
manufacturers of these products in the U.S. and Canada. We believe we have the
broadest line of decorative overlay products offered in the U.S. and Canada.
Our broad range of product offerings provides us with the opportunity to
increase sales by offering customers "one stop shopping" and cross-selling our
products to customers seeking a complete solution for their decorative overlay
and solid surfacing needs. Further, we believe we are the second largest
producer and distributor of TFMs and HPLs in the U.S. and Canada, with combined
TFM and HPL sales of approximately 450 million square feet of double sided TFMs
and single sided HPLs in 1998, after giving pro forma effect to the Pioneer
acquisition.
Our address is 20 Progress Drive, Shelton, Connecticut 06484 and our
telephone number is (203) 925-1556.
The Transactions
On February 18, 1999, we acquired all of the outstanding equity securities of
Pioneer from Rugby USA, Inc., a subsidiary of Rugby Group plc. The total
consideration paid for Pioneer was $157.1 million, including $10.0 million
attributable to a noncompetition agreement between Panolam and Rugby Group and
after giving effect to a $2.0 million post-closing reduction in the purchase
price. In addition, our stock purchase agreement with Rugby USA will require us
to make post-closing payments to Rugby USA of up to an aggregate maximum of
$15.0 million contingent upon our having achieved specified EBITDA (as defined
in the stock purchase agreement with Rugby USA) targets in 1999, 2000, 2001,
2002 and 2003. The EBITDA target in 1999 is $60.0 million, which target will
increase each year thereafter through 2003. We also entered into a number of
ancillary agreements providing for distribution arrangements with Rugby
Building Products, Inc., a subsidiary of Rugby Group, and noncompetition
agreements with Rugby Group. We have also entered into noncompetition
agreements with four of Pioneer's former key employees.
6
<PAGE>
Concurrently with the Pioneer acquisition, we completed a series of
transactions that refinanced all of our indebtedness under our former credit
facilities with General Electric Capital Corporation. We will use the funds
remaining from the refinancing for working capital requirements, permitted
acquisitions, capital expenditures and general corporate purposes. The
refinancing consisted of:
. the offering of the old notes,
. the repayment of approximately $72.8 million of outstanding indebtedness
under our General Electric credit facilities,
. the entry by us into new credit facilities with an aggregate of $35.0
million of revolving credit facilities and $105.0 million of term loan
facilities, and
. a $5.0 million aggregate equity investment in our indirect parent
company, Panolam Holdings, by its stockholders, the proceeds of which
were contributed to the capital of the Issuer.
We used the gross proceeds from the offering of the old notes, the initial
borrowings of $105.0 million under the new credit facilities and the $5.0
million share purchase to:
. pay $159.1 million at closing in connection with the Pioneer
acquisition,
. repay all of the outstanding indebtedness under our General Electric
credit facilities, and
. pay the fees and expenses related to the acquisition and the
refinancing.
The acquisition of Pioneer and the refinancing are referred to here as the
"Transactions."
The following chart sets forth our corporate structure:
[Corporate Structure Chart]
Panolam Holdings is our parent company. It was formed in May 1996 by Genstar
Capital Partners II, L.P., an affiliate of Genstar Capital, LLC, to acquire the
Domtar Decorative Panels division of Domtar Inc. The acquisition consisted of a
purchase of U.S. assets and stock (now Panolam Industries, Inc., one of our
U.S.
7
<PAGE>
operating subsidiaries) and Canadian assets (now Panolam Industries Ltd., our
Canadian operating subsidiary). Panolam Holdings is a holding company which is
not engaged in any business other than holding the capital stock of Panolam
Group, Inc. As of August 10, 1999, Genstar Capital Partners II and its
affiliates collectively owned approximately 95.3% of Panolam Holdings' common
stock, with the remaining equity owned by Robert J. Muller, Jr., our president
and chief executive officer.
Genstar Capital and its affiliate, Genstar Investment Corporation, are
private-equity investment firms based in San Francisco, California that
structure leveraged buyouts primarily in North America. Since its founding,
Genstar Capital and Genstar Investments have consummated a number of
acquisitions, including, in addition to Panolam, NEN Life Science Products,
Inc., a leading manufacturer and distributor of labeling and detection systems
for life science research, Skyway Freight Systems, Inc., a leading provider of
expedited freight, third-party logistics and supply chain management services,
Andros Incorporated, a leading manufacturer of infrared gas sensors used in
medical and environmental applications, Prestolite Electric Holding, Inc., a
leading manufacturer of truck, bus and automotive starter motors and
alternators, Wolverine Tube, Inc. (NYSE:WLV), a leading North American
manufacturer of specialty copper tubing, Gentek Building Products, Inc., a
leading manufacturer of vinyl, aluminum and steel siding, and Seaspan
International Ltd., Canada's largest tug and barge company.
Risk Factors
Holders of old notes should carefully consider all of the information set
forth in this prospectus.
See "Risk Factors" beginning on page 13 for a discussion of factors that you
should consider in connection with your investment in the exchange notes.
8
<PAGE>
Summary Historical and Pro Forma Financial Data
The following tables present summary pro forma financial information for
Panolam and summary historical financial information for Panolam and Pioneer.
The information in the tables is qualified by reference to, and should be read
in conjunction with, the sections "Unaudited Pro Forma Combined Financial
Data," "Selected Historical Consolidated Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements of Panolam, Pioneer and Domtar Decorative Panels and
the related notes, included elsewhere in this prospectus. EBITDA for any period
is calculated as the sum of net income plus the following to the extent
deducted in calculating such net income:
. interest expense,
. income tax expense,
. depreciation expense, and
. amortization expense, in each case for the applicable period.
We consider EBITDA to be a widely accepted financial indicator of a company's
ability to service debt, fund capital expenditures and expand its business.
However, EBITDA is not calculated in the same way by all companies and is
neither a measurement required by, nor represents cash flow from operations as
defined by, generally accepted accounting principles. EBITDA should not be
considered by an investor as an alternative to net income, as an indicator of
operating performance or as an alternative to cash flow as a measure of
liquidity. The calculation of EBITDA for purposes of the financial information
presented below is calculated differently than for purposes of the covenants
under our indenture and our new credit facilities and for any post-closing
contingent payments to Rugby under the stock purchase agreement.
9
<PAGE>
Panolam--Pro Forma
The following summary unaudited pro forma financial information for Panolam
has been derived from the unaudited pro forma combined financial data included
elsewhere in this prospectus and gives effect to:
. the offering of our old notes,
. the initial borrowings under our new credit facilities,
. the acquisition of Pioneer,
. the refinancing of our existing indebtedness, and
. the other matters described under "Unaudited Pro Forma Combined
Financial Data."
The pro forma statement of operations data and other data give effect to these
transactions as if they had occurred on January 1, 1998. The unaudited pro
forma financial information does not purport to represent what our results of
operations would have been if these transactions had actually been completed as
of the indicated date and is not intended to project our results of operations
for any future period.
<TABLE>
<CAPTION>
For the
For the six months
year ended ended
December 31, June 30,
1998 1999
------------ ----------
(in thousands)
<S> <C> <C>
Statement of Operations Data:
Net sales............................................ $ 331,765 $ 175,812
Cost of goods sold................................... (253,697) (129,032)
--------- ---------
Gross profit......................................... 78,068 46,780
Operating expenses................................... (41,334) (21,932)
--------- ---------
Income from operations............................... 36,734 24,848
--------- ---------
Net income........................................... $ 6,591 $ 7,389
========= =========
Other Data:
Depreciation and amortization........................ $ 15,681 $ 8,571
Capital expenditures................................. 15,843 4,784
</TABLE>
10
<PAGE>
Panolam--Historical
The following table sets forth certain summary historical consolidated
financial information of Panolam. The statement of operations data and other
data for the period from May 16, 1996 to December 31, 1996 and for the years
ended December 31, 1997 and 1998 have been derived from Panolam's audited
financial statements included in this prospectus. The statement of operations
data and other data for the period from January 1, 1996 to June 11, 1996 have
been derived from the audited combined divisional financial statements of
Domtar Decorative Panels, Panolam's predecessor, included in this prospectus.
Panolam was incorporated on May 16, 1996 to acquire Domtar Decorative Panels
from Domtar Inc. but did not commence operations, except for incurring costs in
connection with the closing of the acquisition, until the acquisition closed on
June 11, 1996. The statement of operations data and other data for the six
months ended June 30, 1998 and 1999 and the balance sheet data as of June 30,
1999 have been derived from Panolam's unaudited financial statements that have
been prepared on the same basis as Panolam's audited financial statements
except as set forth in the notes to Panolam's unaudited financial statements
included in this prospectus and, in our opinion, include all adjustments,
consisting only of normal recurring adjustments, which we consider necessary
for a fair presentation of Panolam's financial position and results of
operations for these interim periods. The results of operations for the six
month period ended June 30, 1999 are not necessarily indicative of the results
that may be expected for the entire year ending December 31, 1999 or for any
other interim period.
<TABLE>
<CAPTION>
Predecessor Panolam
------------ -------------------------------------------------------
For the six month
Period from Period from For the year ended period ended June
January 1 to May 16 to December 31, 30,
June 11, December 31, -------------------- --------------------
1996 1996 1997 1998 1998 1999
------------ ------------ --------- --------- -------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net sales............. $ 59,508 $ 74,453 $ 142,209 $ 146,747 $ 73,636 $ 149,899
Cost of goods sold.... (51,970) (61,057) (121,699) (122,572) (62,111) (110,386)
-------- -------- --------- --------- -------- ----------
Gross profit.......... 7,538 13,396 20,510 24,175 11,525 39,513
Operating expenses.... (3,498) (5,766) (9,723) (8,316) (5,148) (16,895)
Unusual charges....... -- -- -- (1,829) (785) --
-------- -------- --------- --------- -------- ----------
Income from
operations........... 4,040 7,630 10,787 14,030 5,592 22,618
-------- -------- --------- --------- -------- ----------
Net income (loss)..... $ 3,951 $ 2,060 $ (1,393) $ 3,398 $ 830 $ 7,449
======== ======== ========= ========= ======== ==========
Other Data:
Net cash provided by
(used in) operating
activities........... $ 6,600 $ 3,974 $ 10,320 $ 16,469 $ 4,474 $ 14,863
Net cash used in
investing activities. (941) (99,589) (9,997) (4,821) (653) (160,043)
Net cash provided by
(used in) financing
activities........... (5,177) 95,617 662 (7,179) (3,762) 154,740
EBITDA................ 6,446 10,042 15,373 20,270 8,609 29,498
Depreciation and
amortization......... 2,406 2,412 4,586 6,240 3,017 6,880
Capital expenditures.. 944 4,075 9,997 4,232 653 3,538
</TABLE>
<TABLE>
<CAPTION>
As of
June 30, 1999
--------------
<S> <C>
Balance Sheet Data: (in thousands)
Cash........................................................... $ 14,451
Working capital................................................ 58,402
Total assets................................................... 318,425
Long-term debt................................................. 236,315
Stockholders' equity........................................... 38,992
</TABLE>
11
<PAGE>
Pioneer--Historical
The following table sets forth certain summary historical financial
information of Pioneer. The statement of operations data and other data for the
years ended December 27, 1996, December 26, 1997, and December 25, 1998, and
the balance sheet data as of December 31, 1998, have been derived from the
audited financial statements of Pioneer, included in this prospectus.
<TABLE>
<CAPTION>
For the year ended
--------------------------------------
December 27, December 26, December 25,
1996 1997 1998
------------ ------------ ------------
(in thousands)
<S> <C> <C> <C>
Statement of Operations Data:
Net sales............................. $ 165,819 $ 179,331 $ 185,018
Cost of goods sold.................... (116,265) (125,458) (130,375)
--------- --------- ---------
Gross profit.......................... 49,554 53,873 54,643
Operating expenses.................... (33,453) (30,715) (31,098)
--------- --------- ---------
Income from operations................ 16,101 23,158 23,545
--------- --------- ---------
Net income............................ $ 7,433 $ 12,173 $ 12,386
========= ========= =========
Other Data:
Net cash provided by operating
activities........................... $ 25,871 $ 11,845 $ 13,815
Net cash used in investing activities. (987) (9,552) (11,567)
Net cash used in financing activities. (24,884) (2,293) (2,248)
EBITDA................................ 20,330 27,884 28,879
Depreciation and amortization......... 4,306 4,632 5,355
Capital expenditures.................. 2,584 9,558 11,594
</TABLE>
<TABLE>
<CAPTION>
As of
December 25, 1998
-----------------
(in thousands)
<S> <C>
Balance Sheet Data:
Cash........................................................ $ --
Working capital............................................. 32,035
Total assets................................................ 95,875
Long-term debt, including amounts payable to parent......... 28,177
Stockholders' equity........................................ 51,758
</TABLE>
12
<PAGE>
Risk Factors
You should carefully consider the following risk factors relating to us and
the transactions described in this prospectus prior to making an investment in
the exchange notes.
Risks related to the exchange offer
If you fail to tender your old notes in the exchange offer you will continue to
hold restricted securities.
Upon consummation of the exchange offer, we will have no further obligation
to register your old notes. Thereafter, if you do not tender your old notes in
the exchange offer you will continue to hold restricted securities which may
not be offered, sold or otherwise transferred, pledged or hypothecated except
pursuant to Rule 144 and Rule 144A under the Securities Act of 1933 or pursuant
to any other exemption from registration under the Securities Act of 1933
relating to the disposition of securities, provided that an opinion of counsel
is furnished to us that such an exemption is available. These restrictions
would limit the trading market and price for the old notes.
There is no public market for the exchange notes and an active market may not
develop.
The exchange notes are being offered to the holders of the old notes. Prior
to this exchange offer, there has been no existing trading market for any of
the old notes and we expect that a trading market will not develop for the
exchange notes. We do not intend to apply for listing of the exchange notes on
any securities exchange or on the Nasdaq National Market. The exchange notes
may trade at a discount from their initial offering price, depending upon
prevailing interest rates, the market for similar securities, our performance
and other factors. In connection with the issuance of the old notes, we were
advised by the initial purchasers that they intended to make a market in the
exchange notes. However, the initial purchasers are not obligated to do so and
any such market-making activities may be discontinued at any time without
notice. Therefore, we cannot assure you that an active market for the exchange
notes will develop.
Risks related to our business
We may have difficulty integrating Pioneer and our failure to successfully
integrate Pioneer could adversely affect our operations.
Our integration of Pioneer into our business is inherently risky. The
efficiencies, cost reductions and other benefits expected from the acquisition
require successful combination of Pioneer's business with our other operations.
Successful combination is not guaranteed. For instance, the following risks
could limit integration benefits:
. we may not be able to realize fully the anticipated synergies and cost
savings, including savings related to raw material purchase price
reductions, production process automation, vertical integration and
distribution synergies,
. we may not be able to successfully pursue some or all of the anticipated
revenue opportunities, including increasing sales to OEMs and
distributors,
. our distributors or customers may react negatively to the acquisition,
particularly our distributors or customers that compete with us,
. we may fail to sufficiently increase Pioneer's operation efficiencies,
and
. the Rugby companies may not perform their obligations under our
distribution agreements with Rugby Building Products.
Moreover, our recourse against the Rugby companies under the Pioneer
acquisition documents is extremely limited, and unanticipated events or
liabilities related to Pioneer's business could have an adverse effect on our
business. The Rugby companies would be a limited source of compensation for us
under these circumstances.
13
<PAGE>
Finally, our efforts to integrate Pioneer could negatively impact our
business as a whole. For example, our business could suffer because:
. we will be more complex and diverse than before the acquisition,
. integration could divert management's attention from other business,
. our key employees may seek employment elsewhere due to integration
problems, and
. unanticipated problems or legal liabilities may result from the
acquisition.
See "The Transactions--The Pioneer Acquisition."
The decorative overlay industry is subject to many risks which are beyond our
control and which could cause our business to suffer.
The decorative overlay industry is affected by cyclical fluctuations in both
the general economy and those particular to our industry. Generally, prolonged
economic downturns and a slowing of construction activity could adversely
affect our business.
These fluctuations result from:
. consumer behavior, preferences, confidence and level of discretionary
spending,
. housing construction and remodeling activity,
. demographics,
. interest rates,
. seasonal purchasing from OEMs and distributors,
. credit availability and
. increases in shipping costs.
Moreover, our products have been previously marketed primarily to companies
that manufacture cabinetry, store fixtures and furniture for use by the
construction industry. The construction industry is subject to significant
fluctuations in activity caused by general economic conditions. Reductions in
construction activity could materially reduce the demand for TFMs and HPLs and
adversely affect our business.
Our estimates of market share and industry size are limited by a lack of
reliable statistical information.
The market data for our products and industry is limited and is based on
information and estimates which may not be complete or accurate. We define the
decorative overlay industry to include three principal product areas:
. TFMs (including thermally fused polyester panels, which George Carter &
Affiliates, a private consulting firm, estimated accounted for less than
1% of the TFM market in 1997),
. HPLs and
. other adhesive based overlays, consisting of vinyls, foils and low basis
weight papers.
The HPL market data disclosed here is derived exclusively from materials
provided to us by the National Electrical Manufacturers Association and Carter
Affiliates. The TFM and other adhesive based overlay market data is derived
exclusively from materials prepared by the Laminating Materials Association,
Inc. and Carter Affiliates. Wall paneling and flooring data are excluded from
all market information disclosed here. The HPL market data refers only to the
U.S., while the data for TFMs and other adhesive based overlays refers to the
U.S. and Canada. The information provided to us by National Electrical
Manufacturers Association does not include Canadian HPL data and we do not
believe that such data is available.
14
<PAGE>
The U.S. and Canadian TFM market is comprised of large producers--accounting
for a majority of the TFMs sold in the U.S. and Canada--and a number of smaller
regional manufacturers--accounting for the remainder of the market. See
"Business--Our products face substantial competition." TFM manufacturers do not
generally report their TFM production or sales, and the TFM market data
presented here is estimated based on the limited information available to us
and to Laminating Association and Carter Affiliates. Laminating Association and
Carter Affiliates base their TFM market information on square feet of
decorative overlay paper produced. Carter Affiliates and Laminating Association
estimate that approximately 27% of decorative overlay paper produced is used in
the production of TFMs. However, because TFM panels may be laminated on either
one or two sides and the TFM industry does not report such breakdown,
Laminating Association and Carter Affiliates are unable to translate decorative
overlay paper production into TFM panel production on a square footage basis.
Substantially all of the TFM panels that we produce are double-sided.
Accordingly, our share of the actual TFM market--based on square feet of TFM
panels produced--may be less than our share of the estimated TFM market
presented herein--which is based on square feet of decorative overlay paper
produced--if a significant amount of the decorative overlay paper produced is
used by our competitors to manufacture single-sided TFMs. In addition, the
dollar size of the decorative overlay industry is based on wholesale prices.
These prices are not independently tracked and are estimated based on market
information available to Carter Affiliates. As a result, our estimates of the
dollar size of the decorative overlay industry may be inaccurate.
Our failure to comply with environmental laws could result in material
liability.
Our manufacturing operations involve the use, handling, storage, treatment
and disposal of materials and waste products that may be toxic or hazardous.
Consequently, we are subject to numerous federal, state, provincial and local
environmental and occupational health and safety laws and regulations. Our
operations, therefore, make us susceptible to potential material liability. Our
operations are subject to environmental laws and regulations governing waste
disposal, air and water emissions, the handling of hazardous substances,
workplace exposure and other matters. Stringent environmental laws and
regulations govern the handling and disposal of chemicals and substances, such
as solvents and lubricants, commonly used in certain of our manufacturing
operations. In addition, certain of our facilities operate, or have operated,
above ground and underground storage tanks for fuels and chemical storage which
are subject to a variety of environmental laws and regulations. Failure to
comply with environmental laws and regulations may result in a material
liability to us in the form of administrative, civil or criminal enforcement by
government agencies or other parties. Environmental laws and regulations also
may require us to make material capital expenditures to maintain compliance.
See "Business--Government Regulation and Environmental Matters."
The adoption of new laws and regulations, changes in existing laws and
regulations or their interpretation, stricter enforcement of existing laws and
regulations or governmental or private claims for damage to persons, property
or the environment resulting from our current or former operations, may give
rise to additional compliance costs or liabilities that could have a material
adverse effect on our business.
In addition, releases to the environment of hazardous or toxic wastes or
substances, whether at facilities currently or formerly owned or operated by us
or off-site locations in the United States where we have arranged for disposal
of such substances, also may subject us to liability for cleaning up
contamination which results from any releases. In some cases, liability may be
imposed without regard to fault or the lawfulness of the original activity that
resulted in the contamination.
We are aware that soil or groundwater contamination may be present on certain
of our properties. For example, operations of our facility in Auburn, Maine by
a prior owner resulted in past releases of hazardous substances to soil and
groundwater. The contamination of soil and groundwater at the Auburn facility
has been investigated by us and the prior owner of the facility pursuant to
administrative orders issued by the Maine Department of Environmental
Protection. Under the terms of a settlement agreement, the prior owner of the
facility is primarily responsible for performing any remediation which may be
required by the Maine Department of Environmental Protection or other
governmental agencies. With respect to one area under
15
<PAGE>
investigation, the Auburn, Maine facility, the prior owner's obligation to
remediate is capped at $10.0 million. While we believe that the prior owner has
sufficient financial resources to perform the remedial obligations, there is a
risk that we may be required to perform remedial work at the Auburn facility or
contribute financially to the cost of such remediation if the prior owner fails
to perform its remedial responsibility. This is because the federal
Comprehensive Environmental Response, Compensation, and Liability Act,
42 USC (S) 9601, et seq., and the Maine Uncontrolled Hazardous Substance Sites
Law, 38 M.R.S.A. (S) 1361, et seq., provide that responsible parties, including
current owners and operators, may be jointly and severally liable for releases
of hazardous substances regardless of when the contamination occurred. Although
CERCLA and the Maine hazardous substance statute allow private parties to enter
into private agreements to allocate responsibility for cleanup of hazardous
substances, the government retains the authority to impose liability on the
current owner or operator of a facility. Under the terms of the settlement
agreement, there is also a risk that we may be required to contribute
financially to the cost of remediation if Pioneer's past operation of the
Auburn facility is shown to have contributed to the existing contamination at
the site. While eventual remedial work at the facility may cost in the range of
several million dollars, we believe that these costs will be borne by the prior
owner. The presence of contamination at the Auburn facility may also make it
more difficult for us to develop or sell portions of the property. However, we
are entitled to an indemnity from the prior owner for loss in value of the
Auburn, Maine property caused by past releases of hazardous substances related
to certain previous operations of the facility. Past releases have been
identified on certain other of Pioneer's current or former properties. However,
we believe that it will not incur material liability for these releases.
We also may incur liability under CERCLA for its off-site waste disposal.
Based on our past experience with such matters and certain indemnities obtained
in connection with its acquisitions, we believe that such liability will not
have a material adverse effect on our business.
We may not be able to produce sufficient quantities of our products if we are
unable to buy necessary raw materials at reasonable prices because of market
conditions which could adversely affect our profitability.
TFM and HPL decorative overlays are produced from a few basic raw materials.
The unavailability of such raw materials or a substantial increase in their
prices would have an adverse affect on our business. TFM production uses wood
substrate, papers and melamine resins, each of which constitute approximately
one-third of the required raw materials. Papers constitute nearly 75% of the
total raw materials used in HPL production. Resins, including melamine and
phenolic resin, constitute the remaining HPL raw materials. The price and
availability of these raw materials are subject to market conditions affecting
supply and demand. A substantial increase in raw material prices or a
substantial decrease in raw material supply or quality could have a material
adverse effect on our business. For instance, we may be unable to pass price
increases through to our customers.
Our high-end acrylic based product, Pionite Solid Surface, is made to our
specifications by DuPont. However, DuPont may terminate production of this
product on 180 days prior notice to us. In the event DuPont terminates
production, we may not be able to replace Pionite Solid Surface with a similar
product. This could have a material adverse effect on our business, including
our strategy of offering "one stop shopping" for all customer needs.
Our products face substantial competition.
Our business, the decorative overlay industry, is highly competitive.
Competition is based on price, breadth of product line, design leadership,
product quality, customer service and distribution coverage. We believe that no
single competitor competes with us in all of our product lines. However, we
face significant competition in individual product lines.
The U.S. and Canadian TFM market is highly concentrated. We estimate that the
number of TFM manufacturers in the U.S. and Canada has consolidated over the
past two decades to approximately 40 in 1997. We estimate that the largest
producers account for a majority of the TFMs sold in the U.S. and Canada (on a
square footage basis). The rest of the market is comprised of a number of
smaller regional manufacturers.
16
<PAGE>
The U.S. and Canadian HPL market has also consolidated over the past two
decades to four manufacturers in 1997. Many of our competitors have
significantly larger and substantially greater financial and other resources
than we do. There is no guarantee that our products will continue to compete
successfully with competitive products. We may not be able to improve or
maintain profit margins in the future. In addition, we might not be able to
increase sales and market share. See "Business--Competition." Finally,
European manufacturers are competitors, although to date European competition
has not been material.
Our business may be adversely affected by our acquisition strategy if we are
unable to successfully make and integrate acquisitions and manage changing
operations.
Our business strategy includes growth through acquisitions that expand our
markets and complement our product portfolio. From time to time we investigate
opportunities for acquisitions. Factors that could adversely effect the
success of these acquisitions include:
. difficulty in identifying suitable acquisition candidates,
. inability to obtain financing,
. increasing and unacceptable prices for attractive acquisition candidates
as consolidation becomes more prevalent in our industry, and
. inability of future acquisitions to achieve sales and profitability.
See "--We are highly leveraged, which may affect our ability to make debt
payments," "--Our discretion over certain business matters is limited by
covenants in the Indenture and our new credit facilities" and "Business--What
are the key elements of our business strategy?"
In addition, there may be problems associated with our expanding operations
in connection with the acquisition of new businesses. The following factors
could influence our ability to expand and operate future acquisitions
profitably or effectively:
. need for additional personnel, assets and cash expenditures,
. changing demands on operating, financial and management information
systems,
. delays, disruptions and unanticipated expenses in connection with
acquisitions,
. ability to develop the skills of our managers and supervisors, and
. ability to retain, train and effectively manage our employees.
Our failure to meet these challenges could adversely affect our business.
Our international sales may be adversely affected by factors beyond our
control.
A significant portion of our products are manufactured in Canada. Canadian
sales represented approximately 22.4% and 9.9%, respectively, of our
historical and pro forma consolidated net sales for the year ended December
31, 1998 and 13.4% and 11.4%, respectively, of our historical and pro forma
consolidated net sales for the six months ended June 30, 1999. Our Canadian
sales are expected to continue to be an important part of our earnings in the
future. Accordingly, poor results from Canadian operations could adversely
affect our financial condition and results of operations.
Success in the Canadian market depends on numerous factors, many of which
are beyond our control. These factors are inherent in doing business outside
the U.S., and include currency fluctuations, slower payment cycles, unexpected
changes in regulatory requirements, potentially adverse tax consequences and
compliance with foreign laws and standards.
In addition, Pioneer's financial results are subject to the risks associated
with international sales. Approximately 3% of Pioneer's net sales for 1998 and
approximately 1.2% of our net sales for the first six
17
<PAGE>
months of 1999, substantially all of which represent sales by Pioneer, were
derived from sales to customers outside of the U.S. and Canada, and certain of
Pioneer's U.S. and Canadian customers may resell Pioneer's products to end
users in international markets. Pioneer's sales in 1998--particularly in the
fourth quarter of 1998--were adversely effected by a decline in Pioneer sales
of bowling lane flooring products to its largest U.S. purchaser. We believe the
decline is primarily due to a decrease in sales of these products by our
customers to end users in Asian markets. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations." Future declines
could occur in sales involving ultimate consumption outside the U.S. These
declines could have a material adverse affect on our business, financial
condition and results of operations.
We are dependent upon our president and other key employees.
Our performance depends partially upon the continued service of our president
and chief executive officer, Robert J. Muller, Jr. The loss of Mr. Muller's
services could have an adverse effect on our business operations and financial
condition. We do not presently maintain a "key man" life insurance policy on
Mr. Muller. See "Management--Employment Agreements" for a description of the
employment agreement that we entered into with Mr. Muller.
Beginning in January 1998, we reorganized our management. The persons then
serving as our executive officers either resigned or were terminated. See
"Certain Transactions--Severance." We replaced these officers with a new
management team. Our future success depends on our continuing ability to hire
and keep highly qualified technical and managerial personnel. Competition for
qualified personnel is intense, and attracting and retaining such personnel
could be difficult.
Our discretion over certain business matters is limited by covenants in the
Indenture and our new credit facilities.
The indenture and the new credit facilities contain numerous financial and
operating covenants that limit the discretion of our management with respect to
certain business matters. The most restrictive covenants are contained in the
new credit facilities and include a minimum interest coverage ratio, a maximum
leverage ratio and a minimum fixed charge coverage ratio. Additionally, the new
credit facilities will prevent us from repurchasing any of the notes under any
covenant of the indenture until the repayment of all amounts due and owing
under the new credit facilities. The indenture and the new credit facilities
also will contain covenants that restrict payment of cash dividends and
restrict the amount that we can repurchase of our subordinated indebtedness and
equity. These covenants will place significant restrictions on our ability to:
. incur additional indebtedness,
. create liens or other encumbrances,
. make certain payments and investments,
. change our central business,
. sell or otherwise dispose of assets and
. merge or consolidate with other entities.
Our ability to comply with such covenants may be affected by events beyond
our control, including prevailing economic, financial and industry conditions.
The breach of any of the covenants or restrictions could result in a default
under the indenture or the new credit facilities. Such a default would permit
the senior lenders, or the holders of the notes, or both, to declare all
amounts borrowed to be due and payable with accrued and unpaid interest.
Additionally, the commitments of the senior lenders to make further extensions
of credit under the new credit facilities could be terminated. If we are unable
to repay our indebtedness to its senior lenders, such lenders could seize the
collateral securing the indebtedness. See "Description of Credit Facilities and
Other Indebtedness--New Credit Facilities" and "Description of Exchange Notes."
18
<PAGE>
Genstar Capital has the shareholder voting power to control our business.
As of August 10, 1999, Genstar Capital Partners II, and an affiliate,
collectively beneficially owned approximately 95.3% of the Common Stock.
Panolam Holdings indirectly owns all of the outstanding common stock of the
Issuer. Consequently, Genstar Capital, as manager of Genstar Capital Partners
II, and its affiliates, have the ability to control the business and affairs of
the Issuer by virtue of its ability to elect a majority of Panolam Holdings'
and the Issuer's respective boards of directors and by virtue of its voting
power regarding stockholder approval. The interests of Genstar Capital as the
majority equity holder of Panolam Holdings may differ from the interests of the
holders of the notes. See "Principal Stockholders" and "Certain Transactions."
Our failure and the failure of our key suppliers and customers to be Year 2000
compliant would adversely impact our business.
The "Year 2000 Issue" is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of our computer
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a system failure
or miscalculations that could disrupt normal business activities.
We are currently reviewing our readiness for handling the Year 2000 Issue. We
rely on our own and supplied technology. We have developed plans to minimize
the potential problems by December 31, 1999. We are completing the second phase
of a three phase process to modify all of our systems related to purchasing,
order entry, accounts receivable and sales history. The final phase, which
began in the first quarter of 1999, includes manufacturing and inventory
control systems that are date sensitive. We plan to contact all of our key
external business partners to determine their plans for Year 2000 compliance.
We believe our current staff will be able to address the Year 2000 Issue
without having an adverse effect on other projects. We estimate that our total
costs related to our Year 2000 Issues will be approximately $10.7 million. As
of June 30, 1999, we have incurred approximately $8.8 million of Year 2000
costs. We believe such costs do not adversely affect on our business, though it
is possible that there could be increased costs and delays associated with the
Year 2000 Issue. If we cannot handle these problems, our business could be
adversely affected.
If our major customers or vendors fail to appropriately address the Year 2000
Issue in a timely manner, it could have an adverse effect on our business.
Further, we do not have a contingency plan for continued operations in the case
of business interruption caused by the Year 2000 issue, though a plan is
needed. We anticipate that a plan will be in place by July 1999, although it
may not be successful.
Risks related to the exchange notes
We are highly leveraged, which may affect our ability to make debt payments.
In connection with the old offering and our new credit facilities, we
incurred significant indebtedness. We now have substantially greater
indebtedness than prior to the transactions. Additionally, we are highly
leveraged, and have substantial repayment obligations which we may not be able
to fulfill in the event that we have poor future operating performance. Subject
to the restrictions contained in the new credit facilities and the indenture,
we may incur additional indebtedness from time to time to finance acquisitions,
capital expenditures or for other purposes. As of June 30, 1999, we had
approximately $237.9 million of consolidated indebtedness outstanding, of which
approximately $100.9 million was senior or effectively senior to the notes and
the guarantees. Our Canadian operating subsidiary's ability to borrow under the
revolving portions of the new credit facilities will be restricted by a
borrowing base consisting of a percentage of eligible inventory and accounts
receivable. In June 1999 we reduced the total amount available under the
Canadian revolving facility from $15.0 million to $8.0 million. As of June 30,
1999, we were able to borrow the full amount of $20.0 million under the U.S.
revolving facility and our Canadian operating subsidiary was able to borrow
$7.5 million of the $8.0 million available under the Canadian revolving
facility. See "Description of Credit Facilities and Other Indebtedness--New
Credit Facilities."
19
<PAGE>
We have pledged all existing and future acquired assets and capital stock of
our Canadian operating subsidiary and a Guarantee of all existing and future
acquired assets and capital stock of our U.S. operating subsidiary as
collateral for Panolam Canada's term loan and revolving credit facility. We
have also pledged all existing and future acquired assets and capital stock of
our U.S. operating subsidiary and a guarantee of all of our capital stock as
collateral for the term loan and revolving credit facility and capital
expenditure loss of our U.S. operating subsidiary.
Our ability to make scheduled debt payments will depend on future operating
performance and cash flow, which are subject to economic factors beyond our
control, such as prevailing interest rates. Our level of leverage could have
important consequences to holders of the exchange notes, including:
. a substantial portion of our cash flow from operations must be dedicated
to the payment of interest on the exchange and old notes and interest on
our other existing indebtedness, reducing our funds available for other
purposes,
. our ability to obtain additional financing for working capital, capital
expenditures, acquisitions or general corporate purposes may be
impaired,
. the agreements governing our long-term indebtedness, including the new
credit facilities and the indenture, contain certain restrictive
financial and operating covenants,
. we are vulnerable to increases in interest rates because the
indebtedness under the new credit facilities is at variable rates of
interest,
. some of the indebtedness outstanding under the new credit facilities is
secured by substantially all of our assets and will become due prior to
the time the principal payment on the notes will become due,
. we are substantially more leveraged than certain of our competitors,
which might place us at a competitive disadvantage,
. we may be hindered in our ability to adjust rapidly to changing market
conditions,
. our substantial degree of leverage may negatively affect suppliers'
willingness to give us favorable payment terms and
. our substantial degree of leverage could make us more vulnerable in the
event of a downturn in general economic conditions or in our business.
See "Description of Credit Facilities and Other Indebtedness."
Our future cash flow is not guaranteed to meet our obligations and
commitments. These obligations and commitments include interest payments on the
notes principal and interest payments under the new credit facilities. See
"Description of Credit Facilities and Other Indebtedness--New Credit
Facilities." If we cannot generate sufficient cash flow from operations to
service our indebtedness and to meet other obligations and commitments, we
might be required to refinance our debt or to dispose of assets to obtain funds
for such purpose. There is no assurance that refinancings or asset dispositions
could be effected on a timely basis or on satisfactory terms, if at all, or
would be permitted by the terms of the new credit facilities or the indenture.
In the event that we are unable to refinance the new credit facilities or raise
funds through asset sales, sales of equity or otherwise, our ability to pay
principal and interest on the exchange notes would be adversely affected.
The Issuer and the parent guarantors are holding companies, and the obligations
of our operating companies are secured by liens on all of their property and
assets.
The Issuer and the parent guarantors are holding companies whose only
material assets are the stock of their respective subsidiaries. The Issuer's
cash flow and, consequently, its ability to service debt (including the notes),
is dependent upon the earnings of its subsidiaries and the payment of funds by
those subsidiaries to the Issuer in the form of loans, dividends or otherwise.
Subsidiary funding may be inadequate to fund the note payments.
20
<PAGE>
The exchange notes are guaranteed on an unsecured senior subordinated basis
by all the guarantors. Should the Issuer fail to satisfy any payment
obligations under the exchanges notes, the holders of exchanges notes would
have a direct claim against the guarantors. The guarantors are also obligors
with respect to other substantial indebtedness, including borrowings and
guarantees on a senior basis under the new credit facilities. Moreover, the
capital stock of the subsidiary guarantors is pledged to secure amounts
borrowed or guaranteed under the new credit facilities. The obligations of the
subsidiary guarantors under the new credit facilities will be secured by liens
on substantially all of the properties and assets of the subsidiary guarantors.
See "Description of Credit Facilities and Other Indebtedness--New Credit
Facilities--Guarantees; Security." Accordingly, there may be insufficient
assets remaining after payments of senior and/or secured claims to pay amounts
due on the notes.
Our subsidiaries that are not subsidiary guarantors, including Panolam
Canada, are separate and distinct legal entities and have no obligation to pay
any amounts due under the notes. The indenture will permit the Issuer and its
subsidiaries, including non-guarantor subsidiaries, to incur additional
indebtedness, subject to certain restrictions. See "Description of Exchange
Notes--Certain Covenants." If the Issuer participates in any distribution of
the assets of any of a non-guarantor subsidiaries upon its liquidation,
reorganization or insolvency, the Issuer will be subject to the claims of
creditors of the non-guarantor subsidiary--including trade creditors, the
lenders under the new credit facilities and preferred stockholders--except to
the extent that the Issuer has a creditor claim against the non-guarantor
subsidiary.
The payment of dividends and the making of loan advances to the Issuer by its
subsidiaries are subject to restrictive covenants including those under the new
credit facilities. Payment of dividends will be restricted upon an event of
default under the new credit facilities. See "Description of Exchange Notes."
The exchange notes and guarantees will be junior to some of our other
obligations.
The exchange notes will be senior subordinated, unsecured general obligations
of the Issuer, ranking subordinate in right of payment to all existing and
future senior debt of the Issuer, including the new credit facilities. The
exchange notes will rank equally in right of payment to all existing and future
senior subordinated indebtedness of the Issuer and will rank senior in right of
payment to all existing and future subordinated indebtedness of the Issuer, of
which there is none currently outstanding.
The Issuer's obligations under the exchange notes will be fully and
unconditionally guaranteed on a senior subordinated basis by the guarantors
pursuant to the guarantees. The guarantees will be senior subordinated,
unsecured general obligations of the guarantors and, as such, will be
subordinate in right of payment to all senior debt of the guarantors, including
guarantees by the guarantors under the new credit facilities. In the event of
our insolvency, liquidation or other reorganization, the assets of the Issuer
and the guarantors will be available to pay obligations on the exchange notes
and the guarantees only after all senior debt of the Issuer and the guarantors
has been paid in full. The senior debt includes the obligations of the
guarantors under the new credit facilities that will be secured by liens on
substantially all of their properties and assets. Accordingly, there may be
insufficient assets remaining after payment of prior claims to pay amounts due
on the exchange notes. Generally, no payments may be made with respect to the
exchange notes if a default exists with respect to any senior debt of the
Issuer. See "Description of Credit Facilities and Other Indebtedness--New
Credit Facilities--Guarantees; Security" and "Description of Exchange Notes--
Subordination."
We may be unable to repurchase the exchange notes upon a change of ownership.
The indenture provides that, upon the occurrence of a change of control, we
will be required to make an offer to purchase all of the notes at a price in
cash equal to 101% of the aggregate principal amount plus any accrued and
unpaid interest and liquidated damages. Certain events involving a change of
control could result in acceleration of our other indebtedness, including the
new credit facilities, or other indebtedness that we may incur in the future.
In the event of a change of control, we may have insufficient funds to purchase
all notes tendered.
21
<PAGE>
The new credit facilities prohibit us from repurchasing any notes unless and
until such time as the indebtedness under the new credit facilities is paid in
full. See "--Our discretion over certain business matters is limited by
covenants in the Indenture." Our failure to purchase notes would result in a
default under the indenture and the new credit facilities which would permit
the trustee under the indenture, the holders of at least 25% in principal
amount of the outstanding notes or the lenders under the new credit facilities
to declare the principal and accrued but unpaid interest due and payable on
both the notes and the new credit facilities.
Likewise, the inability to repay the indebtedness under the new credit
facilities, if such repayment is accelerated, would also constitute an event
of default under the indenture, which could cause an acceleration of the
indebtedness under the indenture. In the event of a change of control, there
can be no assurance that we would have the ability to refinance the new credit
facilities or sufficient assets to satisfy all of our obligations under the
new credit facilities and the notes. The provisions relating to a change of
control included in the indenture may increase the difficulty of a potential
acquiror to obtain control of us. See "Description of Exchange Notes--Certain
Covenants--Repurchase of Notes at the Option of the Holder upon a Change of
Control."
Fraudulent transfer laws could change our obligations under the exchange
notes.
The Issuer's obligations under the exchange notes may be subject to review
under state or federal fraudulent transfer laws in the event of our bankruptcy
or other financial difficulty. Under those laws, a court could cancel our
obligations under the exchange notes, or direct that the exchange notes
holders repay us or direct that the payments under the exchange notes be held
for the benefit of our creditors. This would likely happen in a lawsuit by an
unpaid creditor or representative of our creditors, such as a trustee in
bankruptcy or the Issuer as debtor in possession, if when the exchange notes
were issued, we (a) received less than fair consideration or reasonably
equivalent value therefor, and we (b) either:
. were or became insolvent,
. were engaged in a business or transaction for which our remaining
unencumbered assets constituted unreasonably small capital or
. intended to incur or believed, or reasonably should have believed, that
we would incur debts beyond our ability to pay as those debts matured.
Regardless of the factors identified in clauses (a)-(b) above, the court could
cancel the notes and direct repayment if it found that we issued the exchange
notes with actual intent to hinder, delay or defraud our creditors.
Separately, a court might determine that we did not receive fair
consideration or reasonably equivalent value to the extent the old offering
proceeds were used to retire our former General Electric credit facilities.
In addition, a guarantor's obligations under its guarantee may be subject to
review under the same laws in the event of the guarantor's bankruptcy or other
financial difficulty. If a court were to find that when a guarantor issued its
guarantee or, in some jurisdictions, when it became obligated to make payments
thereunder, the factors in clauses (a)-(b) above applied to the guarantor, or
that the guarantor issued its guarantee with actual intent to hinder, delay or
defraud its creditors, the court could cancel the guarantee and direct the
repayment of amounts paid. A court will likely hold that a subsidiary
guarantor did not receive fair consideration or reasonably equivalent value
for its guarantee. The indenture will limit each guarantor's liability under
its guarantee to the maximum amount that the guarantor could pay without the
guarantee being deemed a fraudulent transfer. See "Description of Exchange
Notes." If this limitation is effective, the limited amount guaranteed might
be sufficient to pay amounts owed under the notes in full.
The measure of insolvency varies depending on the law of the jurisdiction
being applied. Generally, however, an entity is considered insolvent if the
sum of its debts--including contingent or unliquidated debts--is greater than:
. all of its property at a fair valuation or
. if the present fair value of its assets is less than the amount that
will be required to pay its probable liability on its existing debts as
due.
22
<PAGE>
The Transactions
The Pioneer Acquisition
On February 18, 1999, the Issuer acquired all of the outstanding equity
securities of Pioneer from Rugby USA. The total consideration paid was $157.1
million, including $10.0 million attributable to a noncompetition agreement
between Panolam and Rugby Group and after giving effect to a $2.0 million post-
closing reduction in the purchase price. In addition, we will be required to
make post-closing payments to Rugby USA of up to an aggregate maximum of $15.0
million contingent upon our having achieved specified EBITDA (as defined in the
stock purchase agreement with Rugby USA) targets in 1999, 2000, 2001, 2002 and
2003. The EBITDA target in 1999 is $60.0 million, which target will increase
each year thereafter through 2003. Our ability to achieve these EBITDA targets
is subject to a number of significant risks and uncertainties, and we cannot
assure you that such targets will be met in 1999 or in any future year.
However, in the event that we are required to make any such post-closing
contingent payments, such payments are expected to be made from the additional
earnings. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
In connection with the acquisition, we entered into a number of ancillary
agreements providing for distribution arrangements with Rugby Building Products
and noncompetition agreements with Rugby Group. Under distribution agreements
entered into between Rugby Building Products' network of 21 distributors--
which accounted for approximately 30% of Pioneer's HPL sales in 1997--and
Pioneer, Rugby Building Products for 5 years--subject to renewal--will act as
exclusive distributor in several U.S. territories of certain Pionite HPL
products manufactured by Pioneer. In addition, Rugby Building Products agreed
during the five year period to purchase on a calendar year basis at least the
same amount of certain products from Pioneer, measured by square feet, as it
purchased in 1997, subject to a permitted diminution in sales of such products
for industry-wide slow-downs and closings of any Rugby Building Products
distributor. However any reduction can be no greater than a 7.5% decrease in
the aggregate from amounts purchased in 1997, thus maintaining on a calendar
year basis Rugby Building Products' market share within its territory at a
level equal to or greater than the U.S. distributor's market share average as
established by Pioneer. Pioneer has also been granted a right of first refusal
on the sale by Rugby Building Products of certain of its distributorship
business units. Pioneer has also entered into noncompetition agreements with
several of Pioneer's key employees.
Certain agreements ancillary to the acquisition provide that, with
exceptions, Rugby Group will neither:
. engage in any business for a period of five years anywhere in the world
that manufactures, produces, distributes or supplies products or
services of the kind manufactured, produced or supplied by Pioneer as of
the consummation of the Acquisition, or own any such business,
. call upon, solicit, advise or otherwise do, or attempt to do, business
for a period of two years with any customers of Pioneer with whom
Pioneer had any dealings during the period of time that Pioneer was an
affiliate of Rugby nor
. solicit officers, employees or representatives of Pioneer.
Four former executive officers of Pioneer, whom Panolam terminated after the
acquisition, have similarly agreed for three years not to compete with Pioneer,
and not to solicit key Pioneer employees.
The Pioneer stock purchase agreement contains customary representations,
warranties and covenants. With some exceptions, the representations and
warranties of Rugby USA expire two years after the date of the closing.
Environmental representations and warranties by Rugby USA will survive until
the tenth anniversary of the closing. Rugby USA and we have agreed to indemnify
each other for losses arising out of any breach of the representations,
warranties and covenants made by the other party in the stock purchase
agreement. In addition, Rugby USA has agreed to indemnify us for environmental
claims relating to the off-site disposal of hazardous material by Pioneer prior
to the closing. The maximum amount that we may recover for losses arising out
of breaches of representations, warranties and covenants is $20.0 million in
the aggregate, plus $20.0 million in the aggregate for losses relating to the
separately indemnified environmental matters described above. We may also
recover for such environmental losses any unutilized portion of the $20.0
million limit for breaches of general representations, warranties and covenants
within two years of consummating the
23
<PAGE>
acquisition. Rugby USA also has guaranteed to us certain obligations of third
parties with regard to payments for environmental claims.
The Refinancing
We effected the refinancing concurrently with the offering of the old notes
and the acquisition of Pioneer. The refinancing resulted in the refinancing of
all of our indebtedness under our existing credit facilities with General
Electric and made available to us additional cash under our new credit
facilities for working capital requirements, permitted acquisitions, capital
expenditures and general corporate purposes. The refinancing consisted of:
. the offering of the old notes,
. the repayment of approximately $72.8 million of outstanding indebtedness
under our former General Electric credit facilities,
. the entry by us into the new credit facilities providing for $105.0
million in term loans and up to $35.0 million in revolving credit loans
and
. the $5.0 million share purchase by Panolam Holdings' stockholders, the
proceeds of which were contributed to the capital of the Issuer.
The new credit facilities consist of the U.S. facilities and the Canadian
facilities. The U.S. facilities provide the Issuer with up to $20.0 million in
revolving credit loans and $55.0 million in term loans. The Canadian facilities
provide our Canadian operating subsidiary with up to $15.0 million in revolving
credit loans and $50.0 million in term loans. The Issuer's and our Canadian
operating subsidiary's ability to borrow under the revolving facilities is
restricted by a borrowing base consisting of a percentage of eligible inventory
and accounts receivable. In June 1999 we reduced the total amount available
under the Canadian revolving facility to $8.0 million. See "Description of
Credit Facilities and Other Indebtedness--New Credit Facilities."
The obligations of the Issuer under the U.S. facilities are guaranteed by
Panolam Holdings and each of its direct and indirect domestic subsidiaries,
other than the Issuer and an inactive subsidiary of one of our U.S. operating
subsidiaries. In addition, Holdings and each of its direct and indirect
domestic subsidiaries, including the Issuer but excluding an inactive
subsidiary of one of our U.S. operating subsidiaries, guarantee obligations
under the Canadian facilities. Our Canadian operating subsidiary will not
guarantee the Issuer's obligations under the U.S. facilities. The obligations
of the Issuer under the U.S. facilities are secured by a first priority lien--
except as described below with respect to the stock of our Canadian operating
subsidiary and certain intercompany indebtedness--on substantially all of the
Issuer's property and assets--tangible and intangible--including the stock and
intercompany debt of the Issuer's domestic subsidiaries. The obligations of our
Canadian operating subsidiary under the Canadian facilities are secured by a
first priority lien on substantially all of its property and assets, both
tangible and intangible, and by a junior lien on substantially all of the
property and assets of the Issuer and its domestic subsidiaries except that the
liens securing the Canadian facilities in respect of the stock of our Canadian
operating subsidiary and certain intercompany indebtedness may be senior to the
liens on such assets securing the U.S. facilities. All borrowings and
guarantees under the new credit facilities are senior to the indebtedness
evidenced by the notes and the guarantees. See "Description of Credit
Facilities and Other Indebtedness--New Credit Facilities." No liens are
attached under the new credit facilities to the stock, property, assets and
intercompany debt of the inactive subsidiary of one of our U.S. operating
subsidiaries.
In connection with the acquisition, the stockholders of Panolam Holdings made
an aggregate equity investment of $5.0 million into Panolam Holdings through a
share purchase. The share purchase took the form of a pro rata purchase of
common stock by the stockholders of Panolam Holdings. The proceeds of the share
purchase were contributed to the capital of the Issuer. See "Certain
Transactions--Share Purchase."
24
<PAGE>
The gross proceeds from the old offering, together with the initial
borrowings of $105.0 million under the new credit facilities and the $5.0
million share purchase, were used to:
. pay $159.1 million at closing in connection with the Pioneer
acquisition,
. repay $72.8 million in outstanding indebtedness under our former General
Electric credit facilities and
. pay $13.1 million in fees and expenses related to the acquisition and
the refinancing.
See "Use of Proceeds."
25
<PAGE>
Use of Proceeds
We will not receive any cash proceeds from the issuance of the exchange notes
offered hereby. The old notes surrendered in exchange for the exchange notes
will be retired and canceled and cannot be reissued. Accordingly, the issuance
of the exchange notes will not result in any increase in our indebtedness. The
section "The Transactions" describes how we used the $135.0 million of proceeds
from the sale of the old notes.
Capitalization
The following table sets forth our historical capitalization as of June 30,
1999 and should be read in conjunction with the consolidated financial
statements and the related notes appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
As of
June 30,
1999
-------------
(in millions)
<S> <C>
Cash.............................................................. $ 14.5
======
Total debt (including current portion):
New credit facilities (a):
U.S. facilities................................................. $ 52.3
Canadian facilities............................................. 48.3
11 1/2% Senior Subordinated Notes due 2009....................... 135.0
Other debt....................................................... 2.3
------
Total debt...................................................... 237.9
Total stockholders' equity........................................ 39.0
------
Total capitalization............................................ $276.9
======
</TABLE>
- ---------------------
(a) As of June 30, 1999, total revolving credit availability under our new
revolving credit facilities was $28.0 million, subject to borrowing base
restrictions. See "Description of Credit Facilities and Other
Indebtedness--New Credit Facilities."
26
<PAGE>
The Exchange Offer
Purpose and effect
We sold the old notes to Donaldson, Lufkin & Jenrette Securities Corporation
and Credit Suisse First Boston Corporation, the initial purchasers in the
offering of the old notes, on February 18, 1999 pursuant to a purchase
agreement. The initial purchasers subsequently resold the old notes in reliance
on Rule 144A and other exemptions under the Securities Act of 1933. We also
entered into a registration rights agreement with the initial purchasers,
pursuant to which we agreed with respect to the old notes to:
. cause to be filed, on or prior to May 4, 1999, a registration statement
with the SEC under the Securities Act of 1933 concerning the exchange
offer,
. use our reasonable best efforts to cause this registration statement to
be declared effective by the SEC on or prior to July 18, 1999 and
. cause the exchange offer to remain open for a period of not less than
30 days. This exchange offer is intended to satisfy our exchange offer
obligations under the registration rights agreement.
Terms of the exchange offer
We hereby offer, upon the terms and subject to the conditions set forth in
this prospectus and in the accompanying letter of transmittal, to exchange
$1,000 in principal amount of the exchange notes for each $1,000 in principal
amount of the outstanding old notes. We will accept for exchange any and all
old notes that are validly tendered on or prior to 5:00 p.m., New York City
time, on , 1999, which is the date that the exchange offer will
expire. You may withdraw a tender of the old notes at any time prior to 5:00
p.m., New York City time, on the expiration date. The exchange offer is not
conditioned upon any minimum principal amount of old notes being tendered for
exchange. However, the exchange offer is subject to the conditions, terms and
provisions of the registration rights agreement. The form and terms of the
exchange notes will be identical in all material respects to the form and terms
of the old notes, except that:
. the exchange notes have been registered under the Securities Act of 1933
and, therefore, will not bear legends restricting their transfer,
. holders of exchange notes will not be entitled to liquidated damages
under the registration rights agreement subject to certain limited
exceptions, and
. holders of exchange notes will not be, and upon consummation of the
exchange offer, holders of old notes will no longer be, entitled to
certain rights under the registration rights agreement intended for
holders of unregistered securities. See "--Conditions of the exchange
offer."
You may tender old notes only in multiples of $1,000. Subject to the
foregoing, you may tender less than the aggregate principal amount represented
by your old notes, provided that you appropriately indicate this fact on the
letter of transmittal accompanying your tendered old notes or so indicate
pursuant to the procedures for book-entry transfer. As of the date of this
prospectus, $135.0 million in aggregate principal amount of the old notes is
outstanding, the maximum amount authorized by the indenture for all notes.
Solely for reasons of administration, we have fixed the close of business on
, 1999, as the record date for purposes of determining the persons to
whom this prospectus and the letter of transmittal will be mailed initially.
Only a holder of the old notes, or such holder's legal representative or
attorney-in-fact, may participate in the exchange offer. There will be no fixed
record date for determining holders of the old notes entitled to participate in
the exchange offer. We believe that, as of the date of this prospectus, no such
holder is an "affiliate" of Panolam as such term is defined in Rule 405 under
the Securities Act of 1933. We shall be deemed to have accepted validly
tendered old notes when, as and if we have given oral or written notice thereof
to the exchange agent. The exchange agent will act as agent for the tendering
holders of old notes and for the purposes of receiving the exchange notes from
us. If any tendered old notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted old notes will be returned
without expense to the tendering holder of those notes as promptly as
practicable after the expiration date.
27
<PAGE>
Expiration date; extensions; amendments
The expiration date shall be , 1999 at 5:00 p.m., New York City
time, unless we, in our sole discretion, extend the exchange offer, in which
case the expiration date shall be the latest date and time to which the
exchange offer is extended which will in no event exceed 90 days from the
commencement of the exchange offer. In order to extend the exchange offer, we
will notify the exchange agent of any extension by oral or written notice and
will make a public announcement of such extension, each prior to 9:00 a.m.,
New York City time, on the next business day after the previously scheduled
expiration date. Any notice and public announcement shall set forth the new
expiration date of the exchange offer. We reserve the right, in our sole
discretion:
. to delay accepting any old notes,
. to extend the exchange offer,
. if any of the conditions set forth below under "--Conditions of the
exchange offer" shall not have been satisfied, to terminate the exchange
offer by giving oral or written notice of such delay, extension or
termination to the exchange agent and
. to amend the terms of the exchange offer in any manner.
If we amend the exchange offer in a manner that we determine to constitute a
material change, we will, in accordance with applicable law, file a post-
effective amendment to the registration statement with the SEC and resolicit
the registered holders of the old notes. If we file a post-effective amendment,
we will notify the exchange agent of an extension of the exchange offer by oral
or written notice, and will make a public announcement of such extension, each
prior to 9:00 a.m., New York City time, on the next business day after the
effectiveness of such post-effective amendment. Any notice and public
announcement shall set forth the new expiration date, which shall be no less
than five days after the then applicable expiration date.
Conditions of the exchange offer
The exchange offer is not conditioned upon any minimum principal amount of
old notes being tendered for exchange. However, the exchange offer is subject
to the condition that it does not violate any applicable law or interpretation
of the staff of the SEC. Further, as a condition to its participation in the
exchange offer, each holder of old notes, including, without limitation, any
holder who is a broker-dealer, will be required to furnish a written
representation to us, which may be contained in the letter of transmittal
accompanying this prospectus to the effect that:
. it is not an affiliate of Panolam,
. it is not engaged in, or does not intend to engage in, and has no
arrangement or understanding with any person to participate in, a
distribution of the exchange notes to be issued in the exchange offer
and
. it is acquiring the exchange notes in its ordinary course of business.
Each holder using the exchange offer to participate in a distribution of the
exchange notes will be required to acknowledge and agree that, if the resales
are of exchange notes obtained by such holder in exchange for old notes
acquired directly from us or one of our affiliates, it:
. could not, under SEC policy as in effect on the date of the registration
rights agreement, rely on the position of the SEC enunciated in Morgan
Stanley and Co., Incorporated (available June 5, 1991) and Exxon Capital
Holdings Corporation (available May 13, 1988), as interpreted in the
SEC's letter to Shearman & Sterling (available July 2, 1993) and K-III
Communications Corporation (available May 14, 1993), or similar no-
action or interpretive letters and
. must comply with the registration and prospectus delivery requirements
of the Securities Exchange Act of 1934 in connection with a secondary
resale transaction and that such a secondary sale
28
<PAGE>
transaction must be covered by an effective registration statement
containing the selling security holder information required by Item 507
or 508, as applicable, of Regulation S-K under the Securities Act of
1933, unless an exemption from registration is otherwise available.
In addition, each holder of old notes will be required to furnish a written
representation to us, which may be contained in the letter of transmittal
accompanying this prospectus to the effect that they are either:
. a "qualified institutional buyer" within the meaning of Rule 144A under
the Securities Act of 1933,
. an institutional "accredited investor" within the meaning of
subparagraph(a)(1), (2), (3) or (7) of Rule 501 under the Securities Act
of 1933 or
. a non-U.S. person within the meaning of Regulation S under the
Securities Act of 1933.
Termination of certain rights
The registration rights agreement provides that, subject to certain
exceptions, in the event of a registration default holders of old notes are
entitled to receive liquidated damages. A registration default will be deemed
to have occurred if:
. any registration statement required by the registration rights agreement
is not filed with the SEC on or prior to the applicable filing deadline,
. any registration statement has not been declared effective by the SEC on
or prior to the applicable effectiveness deadline,
. the exchange offer has not been consummated within 30 days after the
exchange offer registration statement is first declared effective by the
SEC or
. any registration statement required by the registration rights agreement
is filed and declared effective but shall thereafter cease to be
effective or fail to be usable for its intended purpose without being
succeeded immediately by a post-effective amendment to such registration
statement that cures such failure and that is itself declared effective
immediately.
Liquidated damages shall be calculated as an amount equal to $.05 per week
per $1,000 in principal amount of old notes held by a holder for each week or
portion thereof that the registration default continues for the first 90-day
period immediately following the occurrence of such registration default. For
the $135.0 million principal amount of notes outstanding, this equals an
aggregate of $964.29 of liquidated damages per day. The amount of liquidated
damages shall increase by an additional $.05 per week per $1,000 in principal
amount of old notes with respect to each subsequent 90-day period until all
registration defaults have been cured, up to a maximum amount of liquidated
damages of $.50 per week per $1,000 in principal amount of old notes. The
exchange offer shall be deemed consummated when we deliver to the registrar
under the indenture the exchange notes in the same aggregate principal amount
as the aggregate principal amount of old notes that are validly tendered by
holders thereof pursuant to the exchange offer. See "Description of Exchange
Notes--Registration Rights."
Accrued interest on the old notes
The exchange notes will bear interest at a rate equal to 11 1/2% per annum
from and including their date of issuance. Holders whose old notes are accepted
for exchange will have the right to receive interest accrued thereon from the
date of their original issuance or the last interest payment date, as
applicable, to, but not including, the date of issuance of the exchange notes,
such interest to be payable with the first interest payment on the exchange
notes. Interest on the old notes accepted for exchange, which interest accrued
at the rate of 11 1/2% per annum, will cease to accrue on the day prior to the
issuance of the exchange notes. See "Description of Exchange Notes--General."
29
<PAGE>
Procedures for tendering old notes
The tender of a your old notes as set forth below and our acceptance thereof
will constitute a binding agreement between you and us upon the terms and
subject to the conditions set forth in this prospectus and in the accompanying
letter of transmittal. Except as set forth below, if you wish to tender your
old notes for exchange pursuant to the exchange offer, you must transmit your
old notes, together with a properly completed and duly executed letter of
transmittal, including all other documents required by such letter of
transmittal, to the exchange agent at the address set forth below under "The
exchange agent; assistance" prior to 5:00 p.m., New York City time, on the
expiration date. The method of delivery of old notes, letters of transmittal
and all other required documents is at your own election and risk. If such
delivery is by mail, we recommend that you use registered mail, properly
insured, with return receipt requested. Instead of delivery by mail, we
recommend that you use an overnight or hand delivery service. In all cases, you
should allow sufficient time to assure timely delivery. Each signature on a
letter of transmittal or a notice of withdrawal must be guaranteed unless the
old notes surrendered for exchange are tendered by a registered holder of the
old notes who has not completed either the box entitled "Special Exchange
Instructions" or the box entitled "Special Delivery Instructions" in the letter
of transmittal or by an eligible institution. An "eligible institution" is a
firm which is a member of a registered national securities exchange or the
Nasdaq Stock Market, a commercial bank or trust company having an office or
correspondent in the United States or otherwise be an "eligible guarantor
institution" within the meaning of Rule 17Ad-15 under the Securities Exchange
Act of 1934. In the event that a signature on a letter of transmittal or a
notice of withdrawal is required to be guaranteed, such guarantee must be by an
eligible institution. If the letter of transmittal is signed by a person other
than the registered holder of the old notes, the old notes surrendered for
exchange must either be endorsed by the registered holder, with the signature
thereon guaranteed by an eligible institution or be accompanied by a bond
power, in satisfactory form as we may determine in our sole discretion, duly
executed by the registered holder, with the signature thereon guaranteed by an
eligible institution. We will determine all questions as to the validity, form,
eligibility, including time of receipt, acceptance and withdrawal of old notes
tendered for exchange in our sole discretion, which determination shall be
final and binding. We reserve the absolute right to reject any and all old
notes not properly tendered and to reject any old notes our acceptance of which
might, in our judgment or the judgment of our counsel, be unlawful. We also
reserve the absolute right to waive any defects or irregularities or conditions
of the exchange offer as to particular old notes either before or after the
expiration date, including the right to waive the ineligibility of any holder
who seeks to tender old notes in the exchange offer. Our interpretation of the
terms and conditions of the exchange offer, including the letter of transmittal
and its instructions, shall be final and binding on all parties.
Unless waived, any defects or irregularities in connection with tenders of
old notes for exchange must be cured within such period of time as we shall
determine. We will use reasonable efforts to give notification of defects or
irregularities with respect to tenders of old notes for exchange notes but
shall not incur any liability for failure to give such notification. Tenders of
the old notes will not be deemed to have been made until such irregularities
have been cured or waived. If any letter of transmittal, endorsement, bond
power, power of attorney or any other document required by the letter of
transmittal is signed by a trustee, executor, corporation or other person
acting in a fiduciary or representative capacity, such person should so
indicate when signing, and, unless waived by us, proper evidence satisfactory
to us, in our sole discretion, of such person's authority to so act must be
submitted. Any beneficial owner of the old notes whose old notes are registered
in the name of a broker, dealer, commercial bank, trust company or other
nominee and who wishes to tender old notes in the exchange offer should contact
such registered holder promptly and instruct such registered holder to tender
on such beneficial owner's behalf. If such beneficial owner wishes to tender
directly, such beneficial owner must, prior to completing and executing the
letter of transmittal and tendering old notes, make appropriate arrangements to
register ownership of the old notes in such beneficial owner's name. Beneficial
owners should be aware that the transfer of registered ownership may take
considerable time.
30
<PAGE>
By tendering, each registered holder will represent to us that, among other
things:
. the exchange notes to be acquired in connection with the exchange offer
by the holder and each beneficial owner of the old notes are being
acquired by the holder and each beneficial owner in the ordinary course
of business of the holder and each beneficial owner,
. the holder and each beneficial owner are not participating, do not
intend to participate, and have no arrangement or understanding with any
person to participate, in the distribution of the exchange notes,
. the holder and each beneficial owner acknowledge and agree that any
person participating in the exchange offer for the purpose of
distributing the exchange notes must comply with the registration and
prospectus delivery requirements of the Securities Act of 1933 in
connection with a secondary resale transaction of the exchange notes
acquired by such person and cannot rely on the position of the staff of
the SEC set forth in no-action letters that are discussed herein under
"--Resales of exchange notes,"
. that if the holder is a broker-dealer that acquired old notes as a
result of market making or other trading activities, it will deliver a
prospectus in connection with any resale of exchange notes acquired in
the exchange offer,
. the holder and each beneficial owner understand that a secondary resale
transaction described in clause (3) above should be covered by an
effective registration statement containing the selling security holder
information required by Item 507 of Regulation S-K under the Securities
Act of 1933 and
. neither the holder nor any beneficial owner is an "affiliate," as
defined under Rule 405 of the Securities Act of 1933, of Panolam except
as otherwise disclosed to us in writing. In connection with a book-entry
transfer, each participant will confirm that it makes the
representations and warranties contained in the letter of transmittal.
Guaranteed delivery procedures
Holders who wish to tender their old notes and whose old notes are not
immediately available or who cannot deliver their old notes or any other
documents required by the letter of transmittal to the exchange agent prior to
the expiration date, or complete the procedure for book-entry transfer on a
timely basis, may tender their old notes according to the guaranteed delivery
procedures set forth in the letter of transmittal. Pursuant to these
procedures:
. tender must be made by or through an eligible institution and a notice
of guaranteed delivery must be signed by such holder,
. on or prior to the expiration date, the exchange agent must have
received from the holder and the eligible institution a properly
completed and duly executed notice of guaranteed delivery setting forth
the name and address of the holder, the certificate number or numbers of
the tendered old notes, and the principal amount of tendered old notes,
stating that the tender is being made thereby and guaranteeing that,
within three business days after the date of delivery of the notice of
guaranteed delivery, the tendered old notes, a duly executed letter of
transmittal and any other required documents will be deposited by the
eligible institution with the exchange agent and
. such properly completed and executed documents required by the letter of
transmittal and the tendered old notes in proper form for transfer, or
confirmation of a book-entry transfer of the old notes into the exchange
agent's account at DTC, must be received by the exchange agent within
three business days after the expiration date.
Any holder who wishes to tender old notes pursuant to the guaranteed delivery
procedures described above must ensure that the exchange agent receives the
notice of guaranteed delivery and letter of transmittal relating to such old
notes prior to 5:00 p.m., New York City time, on the expiration date.
31
<PAGE>
Book-entry delivery
The exchange agent will establish an account with respect to the old notes at
DTC which will serve as the book-entry transfer facility for purposes of the
exchange offer promptly after the date of this prospectus. Any financial
institution that is a participant in the book-entry transfer facility's system
may make book-entry delivery of the old notes by causing such facility to
transfer old notes into the exchange agent's account in accordance with such
facility's procedure for such transfer. Even though delivery of old notes may
be effected through book-entry transfer into the exchange agent's account at
the book-entry transfer facility, a properly completed and duly executed letter
of transmittal, or a manually signed facsimile thereof, with any required
signature guarantees, or an agent's message (as defined below) in connection
with a book-entry transfer, and other documents required by the letter of
transmittal, must, in any case, be transmitted to and received by the exchange
agent at one of its addresses set forth below under "The exchange agent;
assistance" before the expiration date, or the guaranteed delivery procedure
set forth above must be followed. Delivery of the letter of transmittal and any
other required documents to the book-entry transfer facility does not
constitute delivery to the exchange agent. The term "agent's message" means a
message transmitted by the book-entry transfer facility to, and received by,
the exchange agent and forming a part of a book-entry confirmation, which
states that such book-entry transfer facility has received an express
acknowledgment from the participant in such book-entry transfer facility
tendering the old notes that such participant has received and agrees to be
bound by the terms of the letter of transmittal and that we may enforce such
agreement against such participant.
DTC's Automated Tender Offer Program is the only method of processing
exchange offers through DTC. To accept the exchange offer through ATOP,
participants in DTC must send electronic instructions to DTC through DTC's
communication system instead of sending a signed, hard copy letter of
transmittal. DTC is obligated to communicate those electronic instructions to
the exchange agent. To tender old notes through ATOP, the electronic
instructions sent to DTC and transmitted by DTC to the exchange agent must
contain the participant's acknowledgment of its receipt of and agreement to be
bound by the letter of transmittal for such old notes.
Acceptance of old notes for exchange; delivery of exchange notes
Upon satisfaction or waiver of all the conditions to the exchange offer, we
will accept any and all old notes that are properly tendered in the exchange
offer prior to 5:00 p.m., New York City time, on the expiration date. The
exchange notes issued pursuant to the exchange offer will be delivered as soon
as practicable after acceptance of the old notes. For purposes of the exchange
offer, we shall be deemed to have accepted validly tendered old notes, if we
have given oral or written notice thereof to the exchange agent. In all cases,
issuances of exchange notes for old notes that are accepted for exchange
pursuant to the exchange offer will be made only after timely receipt by the
exchange agent of such old notes, a properly completed and duly executed letter
of transmittal and all other required documents, or of confirmation of a book-
entry transfer of such old notes into the exchange agent's account at DTC;
provided, however, that we reserve the absolute right to waive any defects or
irregularities in the tender or conditions of the exchange offer. If any
tendered old notes are not accepted for any reason, such unaccepted old notes
will be returned without expense to the tendering holder as promptly as
practicable after the expiration or termination of the exchange offer.
Withdrawal rights
Tenders of the old notes may be withdrawn by delivery of a written notice to
the exchange agent, at its address set forth on the back cover page of this
prospectus, at any time prior to 5:00 p.m., New York City time, on the
expiration date. Any such notice of withdrawal must:
. specify the name of the person having deposited the old notes to be
withdrawn,
. identify the old notes to be withdrawn, including the certificate number
or numbers and principal amount of such old notes, as applicable,
32
<PAGE>
. be signed by the holder in the same manner as the original signature on
the letter of transmittal by which such old notes were tendered,
including any required signature guarantees, or be accompanied by a bond
power in the name of the person withdrawing the tender, in satisfactory
form as we may determine in our sole discretion, duly executed by the
registered holder, with the signature thereon guaranteed by an eligible
institution together with the other documents required upon transfer by
the indenture, and
. specify the name in which such old notes are to be re-registered, if
different from the depositor, pursuant to such documents of transfer.
We will resolve any questions as to the validity, form and eligibility,
including time of receipt, of such notices, in our sole discretion. The old
notes so withdrawn will be deemed not to have been validly tendered for
exchange for purposes of the exchange offer. Any old notes which have been
tendered for exchange but which are withdrawn will be returned to the holder
thereof without cost to such holder as soon as practicable after withdrawal.
Properly withdrawn old notes may be retendered by following one of the
procedures described under "Procedures for tendering old notes" at any time on
or prior to the expiration date.
The exchange agent; assistance
State Street Bank and Trust Company is the exchange agent. You should direct
all tendered old notes, executed letters of transmittal and other related
documents to the exchange agent. You should address questions and requests for
assistance and requests for additional copies of the prospectus, the letter of
transmittal and other related documents to the exchange agent as follows:
<TABLE>
<S> <C> <C>
By registered or certified
mail: By hand/overnight courier: By regular mail:
State Street Bank and State Street Bank and State Street Bank and
Trust Company Trust Company Trust Company
5th Floor, Corporate Trust 5th Floor, Corporate Trust
Window Window P.O. Box 778
2 Avenue de Lafayette 2 Avenue de Lafayette Boston, MA 02101-0778
Boston, MA 02111-1724 Boston, MA 02111-1724 Attention:
Attention: Kellie Mullen Attention: Kellie Mullen Corporate Trust Dept.
By facsimile:
(617) 662-1452
To confirm by telephone or
for information call:
(617) 662-1523
</TABLE>
Solicitation of tenders; fees and expenses
No person has been authorized to give any information or to make any
representation in connection with the exchange offer other than those contained
in this prospectus. If given or made, such information or representations
should not be relied upon as having been authorized by us. Neither the delivery
of this prospectus nor any exchange made hereunder shall, under any
circumstances, create any implication that there has been no change in our
affairs since the respective dates as of which information is given herein. The
exchange offer is not being made to, nor will offers be accepted from or on
behalf of, holders of notes in any jurisdiction in which the making of the
exchange offer or the acceptance thereof would not be in compliance with the
laws of such jurisdiction. However, we may, at our discretion, take such action
as we may deem necessary to make the exchange offer legal in any such
jurisdiction and extend the exchange offer to holders of notes in such
jurisdiction. We will bear all expenses incident to our consummation of the
exchange offer and compliance with the registration rights agreement,
including, without limitation:
. all registration and filing fees, including, without limitation, fees
and expenses of compliance with state securities laws,
33
<PAGE>
. printing expenses, including, without limitation, expenses of printing
certificates for the exchange notes in a form eligible for deposit with
DTC and of printing prospectuses,
. messenger, telephone and delivery expenses,
. fees and disbursements of our counsel,
. fees and disbursements of independent certified public accountants,
. rating agency fees,
. our internal expenses, including, without limitation, all salaries and
expenses of our officers and employees performing legal or accounting
duties, and
. fees and expenses incurred in connection with the listing, if any, of
the exchange notes on a securities exchange.
We have not retained any dealer-manager in connection with the exchange offer
and will not make any payments to brokers, dealers or others soliciting
acceptance of the exchange offer. We, however, will pay the exchange agent
reasonable and customary fees for its services and will reimburse it for its
reasonable out-of-pocket expenses in connection therewith.
Accounting treatment
We will record the exchange notes at the same carrying value as the old
notes, as reflected in our accounting records on the date of the exchange.
Accordingly, we will not recognize any gain or loss for accounting purposes.
The expenses of the exchange offer will be amortized over the term of the
exchange notes.
Resales of exchange notes
Based on interpretations by the staff of the SEC set forth in no-action
letters issued to third parties, we believe that the exchange notes issued
pursuant to the exchange offer in exchange for old notes may be offered for
resale, resold and otherwise transferred to a holder by such holder without
compliance with the registration and prospectus delivery provisions of the
Securities Act of 1933, provided that the holder is acquiring the exchange
notes in the ordinary course of business and is not participating, and has no
arrangement or understanding with any person to participate in the distribution
of the exchange notes. However, the foregoing does not apply to a transferring
holder who is either:
. a broker-dealer who purchased old notes directly from us for resale
pursuant to Rule 144A under the Securities Act of 1933 or any other
available exemption under the Securities Act of 1933 or
. a person that is an affiliate of Panolam within the meaning of Rule 405
under the Securities Act of 1933.
We have not requested or obtained an interpretive letter from the SEC staff
with respect to this exchange offer, and we and the holders are not entitled to
rely on interpretive advice provided by the SEC staff to other persons, which
advice was based on the facts and conditions represented in such letters.
However, the exchange offer is being conducted in a manner intended to be
consistent with the facts and conditions represented in such letters. If any
holder acquires exchange notes in the exchange offer for the purpose of
distributing or participating in a distribution of the exchange notes, such
holder cannot rely on the position of the staff of the SEC enunciated in Morgan
Stanley & Co., Incorporated (available June 5, 1991) and Exxon Capital Holdings
Corporation (available May 13, 1988), as interpreted in the SEC's letters to
Shearman and Sterling (available July 2, 1993) and K-III Communications
Corporation (available May 14, 1993), or similar no-action or interpretive
letters and must comply with the registration and prospectus delivery
requirements of the Securities Act of 1933 in connection with a secondary
resale transaction, unless an exemption from registration is otherwise
available. Each broker-dealer that receives exchange notes for its own account
in exchange for old
34
<PAGE>
notes, where such old notes were acquired by such broker-dealer as a result of
market making or other trading activities, must acknowledge that it will
deliver a prospectus in connection with any resale of such exchange notes. We
have agreed that for a period of 180 days after the effective date of this
prospectus, we will make this prospectus, as amended and supplemented,
available to any broker-dealer who receives exchange notes in the exchange
offer for use in connection with any such resale. See "Plan of Distribution."
Consequences of failure to exchange
If you do not exchange your old notes for exchange notes pursuant to the
exchange offer you will continue to be subject to the restrictions on transfer
of such old notes as set forth in the legend thereon as a consequence of the
offer or sale of the old notes pursuant to an exemption from, or in a
transaction not subject to, the registration requirements of the Securities Act
of 1933 and applicable state securities laws. In general, the old notes may not
be offered or sold, unless registered under the Securities Act of 1933, except
pursuant to an exception from, or in a transaction not subject to, the
Securities Act of 1933 and applicable state securities laws. We do not
currently anticipate that we will register the old notes under the Securities
Act of 1933. See "Risk Factors--If you fail to tender your old notes in the
exchange offer you will continue to hold restricted securities."
Voluntary participation
Participation in the exchange offer is voluntary, and you should carefully
consider whether to participate. You are urged to consult your financial and
tax advisers in making your own decision on what action to take. See "Material
Federal Income Tax Consequences of the Exchange Offer." As a result of the
making of this exchange offer and upon acceptance for exchange of all validly
tendered old notes pursuant to its terms, we will have fulfilled a covenant
contained in the registration rights agreement. If you do not tender your old
notes in the exchange offer you will continue to hold you old notes and will be
entitled to all the rights, and limitations applicable thereto, under the
indenture, except for any such rights under the registration rights agreement
that by their terms terminate or cease to have further effectiveness as a
result of the making of this exchange offer. See "Description of Exchange
Notes." All untendered old notes will continue to be subject to the
restrictions on transfer set forth in the indenture. To the extent that old
notes are tendered and accepted in the exchange offer, the trading market for
untendered old notes could be adversely affected. We may in the future seek to
acquire untendered old notes in open market or privately negotiated
transactions, through subsequent exchange offers or otherwise. We have no
present plan to acquire any old notes which are not tendered in the exchange
offer.
35
<PAGE>
Unaudited Pro Forma Combined Financial Data
The following unaudited pro forma combined financial data present the
combined statements of operations data of Panolam for the year ended December
31, 1998 and for the six months ended June 30, 1999 as if the Transactions had
occurred on January 1, 1998. See "The Transactions." The unaudited pro forma
combined financial data are based on the historical consolidated financial
statements of Panolam and the financial statements of Pioneer, and on the
assumptions and adjustments described in the notes to such unaudited pro forma
combined financial data, including adjustments relating to the allocation of
the consideration paid for Pioneer to the assets and liabilities of Pioneer.
The adjusted purchase price of $157.1 million was allocated to represent the
fair market value of assets totalling $99.9 million (including $10.0 million
allocated to non-competition agreements and being amortized over 5 years),
liabilities of $14.2 million, and the remaining $71.4 million was recorded as
goodwill and is being amortized over 30 years. While this allocation is not yet
finalized, we do not believe that any subsequent adjustments to this allocation
will be material.
In connection with the Pioneer acquisition, we identified estimated annual
cost savings on a pro forma basis of approximately $4.0 million related to the
elimination of redundant and excess staffing at Pioneer, which cost savings are
reflected in the unaudited pro forma financial data as adjustments to cost of
sales and selling, general and administrative expenses.
We also believe that Panolam will be able to realize additional cost savings
and distribution synergies as a result of the Pioneer acquisition which have
not been included in the unaudited pro forma combined financial data, including
committed raw material purchase price reductions obtained in connection with
the Pioneer acquisition that would have resulted in approximately $2.5 million
of additional cost savings in 1998 on a pro forma basis, and an additional $4.0
million in estimated savings that we believe would be realized upon the
completion of a program to automate certain production processes at Pioneer's
manufacturing facilities. Pioneer completed a portion of this automation
program prior to the closing of the acquisition, which resulted in cost savings
of $1.2 million in 1998 compared to 1997. We completed this automation program
in the second quarter of 1999. Panolam has realized $1.9 million in cost
savings from this automation program in the first half of 1999, compared to the
first half of 1998. However, we cannot assure you that any additional
distribution synergies or cost savings will in fact be realized.
Our actual results may differ materially from the pro forma financial data
presented herein. In addition, there can be no assurance that unforeseen
difficulties will not occur in connection with the integration of Pioneer
following the Pioneer acquisition or with the implementation of the cost saving
programs discussed above, including the automation program discussed under
"Business--What are the key elements of our business strategy" and "--We intend
to maximize our operating efficiencies." Any difficulties could delay or
prevent us from realizing the anticipated benefits of the Pioneer acquisition
or from cost saving programs. See "Risk Factors--We may have difficulty
integrating Pioneer and our failure to successfully integrate Pioneer could
adversely affect our operations."
In connection with the refinancing, we recorded an extraordinary charge in
the first quarter of 1999 of approximately $2.8 million ($1.8 million net of
tax benefits) for the write off of unamortized financing expenses and to pay
prepayment penalties. We have also incurred costs of approximately $1.8 million
in 1998 for severance payments for redundant individuals and for headquarters
consolidation into our main office in Shelton, Connecticut.
The unaudited pro forma combined financial data do not purport to represent
what our results of operations would have been if the Transactions had actually
been completed as of the dates indicated and are not intended to project our
results of operations for any future period.
The unaudited pro forma combined financial data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the respective historical financial statements of Panolam
and Pioneer and the related notes included elsewhere in this prospectus.
36
<PAGE>
Unaudited Pro Forma Consolidated Statement of Operations
For the year ended December 31, 1998
(in thousands)
<TABLE>
<CAPTION>
Historical
-------------------- Transaction Pro forma
Panolam Pioneer adjustments combined
--------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales...................... $ 146,747 $ 185,018 $ -- $ 331,765
Cost of sales.................. (122,572) (130,375) (750)(1) (253,697)
--------- --------- -------- ---------
Gross profit................... 24,175 54,643 (750) 78,068
Operating expenses:
Selling, general and
administrative............... (7,231) (30,237) 3,995 (2) (33,473)
Depreciation and amortization. (1,085) (861) (2,381)(3)
295 (4)
(2,000)(5) (6,032)
Unusual charges............... (1,829) -- -- (1,829)
--------- --------- -------- ---------
Income from operations......... 14,030 23,545 (841) 36,734
Interest expense............... (7,557) (2,587) 10,144 (6)
(24,367)(7) (24,367)
Amortization of debt issuance
costs......................... (732) -- 732 (8)
(1,577)(9) (1,577)
Other income (expense)......... -- (21) -- (21)
--------- --------- -------- ---------
Income from continuing
operations before income
taxes......................... 5,741 20,937 (15,909) 10,769
Provision for income taxes..... (2,343) (8,551) 6,716 (10) (4,178)
--------- --------- -------- ---------
Income from continuing
operations.................... $ 3,398 $ 12,386 $ (9,193) $ 6,591
========= ========= ======== =========
Other Data:
Depreciation and amortization. $ 6,240 $ 5,355 $ 4,086 $ 15,681
Capital expenditures.......... 4,249 11,594 -- 15,843
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma
consolidated financial statements.
37
<PAGE>
Unaudited Pro Forma Consolidated Statement of Operations
For the six months ended June 30, 1999
(in thousands)
<TABLE>
<CAPTION>
Historical
------------------- Transaction Pro forma
Panolam Pioneer adjustments combined
--------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales....................... $ 149,899 $ 25,913 $ -- $ 175,812
Cost of sales................... (110,386) (18,646) -- (129,032)
--------- -------- ------- ---------
Gross profit.................... 39,513 7,267 -- 46,780
Operating expenses:
Selling, general and
administrative................ (14,567) (5,018) 864 (2) (18,721)
Depreciation and amortization.. (2,328) (202) (397)(3)
49 (4)
(333)(5) (3,211)
--------- -------- ------- ---------
Income from operations.......... 22,618 2,047 183 24,848
Other income.................... 2,536 -- -- 2,536
Interest expense................ (9,731) -- 918 (6)
(3,371)(7) (12,184)
Amortization of debt issuance
costs.......................... (732) -- 121 (8)
(178)(9) (789)
--------- -------- ------- ---------
Income from continuing
operations before income taxes. 14,691 2,047 (2,327) 14,411
Provision for income taxes...... (5,448) (757) 977 (10) (5,228)
--------- -------- ------- ---------
Income before income taxes and
extraordinary item............. $ 9,243 $ 1,290 $(1,350) $ 9,183
Extraordinary item.............. (1,794) -- -- (1,794)
--------- -------- ------- ---------
Net income (loss)............... $ 7,449 $ 1,290 $(1,350) $ 7,389
========= ======== ======= =========
Other Data:
Depreciation and amortization.. $ (6,880) $ (1,010) $ (681) $ (8,571)
Capital expenditures........... 3,538 1,246 -- 4,784
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma
consolidated financial statements.
38
<PAGE>
Notes to Unaudited Pro Forma Consolidated Statement of Operations
The unaudited pro forma statements of operations for the year ended December
31, 1998 and for the six months ended June 30, 1999 have been prepared as if
the Transactions had occurred on January 1, 1998. The pro forma adjustments for
the six months ended June 30, 1999 reflect the period from January 1, 1999 to
February 18, 1999. The following adjustments were recorded:
(1) Represents recognition of $750 for increased inventory costs related
to acquisition accounting.
(2) Represents reductions in costs and expenses resulting from the
elimination of overstaffing and redundant staffing at Pioneer ($3,995
for the year ended December 31, 1998 and $864 for the six months ended
June 30, 1999). Liabilities related to employee terminations in
connection with the Pioneer acquisition have been accrued pursuant to
EITF 95-3 "Recognition of Liabilities in Connection with a Business
Combination." Panolam does not believe that the elimination of
redundant staffing will have any effect on combined revenues.
(3) Represents the amortization of goodwill associated with the Pioneer
acquisition over 30 years ($2,381 for the year ended December 31, 1998
and $397 for the six months ended June 30, 1999).
(4) Represents the elimination of amortization of historical goodwill at
Pioneer ($295 for the year ended December 31, 1998 and $49 for the six
months ended June 30, 1999).
(5) Represents amortization of the non-competition agreement with Rugby
over 5 years ($2,000 for the year ended December 31, 1998 and $333 for
the six months ended June 30, 1999).
(6) Represents the elimination of interest associated with debt that was
retired in connection with the refinancing as follows:
<TABLE>
<CAPTION>
For the
For the year six months
ended ended
December 31, June 30,
1998 1999
------------ ----------
<S> <C> <C>
Panolam--term loan indebtedness under our former
General Electric credit facilities............. $ 7,557 $918
Pioneer--debt owed to parent.................... 2,587 --
------- ----
$10,144 $918
======= ====
</TABLE>
(7) Represents interest expense based on pro forma debt as follows:
<TABLE>
<CAPTION>
For the
For the year six months
ended ended
December 31, June 30,
1998 1999
------------ ----------
<S> <C> <C>
New Term A Facility (interest 7.85%).............. $ 1,962 $ 981
New Term B Facility (interest 8.60%).............. 6,880 3,440
Notes (interest 11.50%)........................... 15,525 7,763
------- -------
$24,367 $12,184
======= =======
</TABLE>
The effect of a 1% increase in interest rates would result in an
increase in interest expense of $998 for the year ended December 31,
1998 and $499 for the six months ended June 30, 1999.
(8) Represents the elimination of historical debt issuance costs
associated with our former General Electric credit facilities.
(9) Represents the amortization of acquisition costs ($20 for the year
ended December 31, 1998 and $10 for the six months ended June 30,
1999) over a period of thirty years and debt issuance costs associated
with the refinancing ($1,557 for the year ended December 31, 1998 and
$779 for the six months ended June 30, 1999) over a period of seven
years to the extent such deferred costs and fees relate to our new
credit facilities and over ten years to the extent such deferred costs
and fees relate to the notes.
(10) Represents the tax effect of the adjustments at an effective tax rate
of approximately 42%.
39
<PAGE>
Selected Historical Financial Data
Panolam
The following table sets forth selected historical consolidated financial
data of Panolam as of and for the periods indicated. The statement of
operations data and other data for the period from May 16, 1996 to December 31,
1996 and for the years ended December 31, 1997 and 1998, and the balance sheet
data as of December 31, 1997 and 1998, have been derived from Panolam's audited
financial statements included elsewhere in this prospectus. The balance sheet
data as of December 31, 1996 have been derived from the audited financial
statements of Panolam not included in this prospectus. The statement of
operations data and other data for the period from January 1, 1996 to June 11,
1996 have been derived from the audited combined divisional financial
statements of Domtar Decorative Panels, Panolam's predecessor, included
elsewhere in this prospectus. Panolam was incorporated on May 16, 1996 to
acquire Domtar Decorative Panels from Domtar Inc. but did not commence
operations, except for incurring costs in connection with the closing of the
acquisition, until the acquisition closed on June 11, 1996. The statement of
operations data and other data for the years ended December 31, 1994 and 1995
and the balance sheet data as of December 31, 1994 and 1995 have been derived
from the audited combined divisional financial statements of Domtar Decorative
Panels not included in this prospectus. The financial data as of June 30, 1999
and for the six month periods ended June 30, 1998 and 1999 have been derived
from Panolam's unaudited consolidated financial statements that have been
prepared on the same basis as Panolam's audited financial statements except as
set forth in the notes to Panolam's unaudited financial statements included in
this prospectus and, in our opinion, include all adjustments, consisting only
of normal recurring adjustments, which we consider necessary for a fair
presentation of Panolam's financial position and results of operations for
these interim periods. The results of operations for the six month period ended
June 30, 1999, are not necessarily indicative of the results that may be
expected for the entire year ending December 31, 1999 or for any other interim
period. The information in the table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements of Panolam, including the
related notes, included in this prospectus.
<TABLE>
<CAPTION>
Predecessor Panolam
--------------------------------- ----------------------------------------------------------
For the year ended Period from Period from For the year ended For the six month
December 31, January 1 May 16 to December 31, period ended June 30,
-------------------- to June 11, December 31, -------------------- -----------------------
1994 1995 1996 1996 1997 1998 1998 1999
--------- --------- ----------- ------------ --------- --------- -------- -------------
(in thousands, except ratios)
Statement of
Operations Data:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales....... $ 102,460 $ 108,483 $ 59,508 $ 74,453 $ 142,209 $ 146,747 $ 73,636 $ 149,899
Cost of sales... (86,010) (91,610) (51,970) (61,057) (121,699) (122,572) (62,111) (110,386)
--------- --------- -------- -------- --------- --------- -------- ----------
Gross profit.... 16,450 16,873 7,538 13,396 20,510 24,175 11,525 39,513
Operating
expenses....... (7,067) (6,198) (3,498) (5,766) (9,723) (8,316) (5,148) (16,895)
Unusual charges. -- -- -- -- -- (1,829) (785) --
--------- --------- -------- -------- --------- --------- -------- ----------
Operating
income......... 9,383 10,675 4,040 7,630 10,787 14,030 5,592 22,618
--------- --------- -------- -------- --------- --------- -------- ----------
Net income
(loss)......... $ 9,383 $ 10,545 $ 3,951 $ 2,060 $ (1,393) $ 3,398 $ 830 $ 7,449
========= ========= ======== ======== ========= ========= ======== ==========
Other Data:
Net cash
provided by
operating
activities..... $ 10,779 $ 12,304 $ 6,600 $ 3,974 $ 10,320 $ 16,469 $ 4,474 $ 14,863
Net cash used in
investing
activities..... (2,173) (10,975) (941) (99,589) (9,997) (4,821) (653) (160,043)
Net cash
provided by
(used in)
financing
activities..... (8,606) (1,329) (5,177) 95,617 662 (7,179) 3,762 154,740
EBITDA (1)...... 13,483 15,192 6,446 10,042 15,373 20,270 8,609 29,498
Depreciation and
amortization... 4,100 4,517 2,406 2,412 4,586 6,240 3,017 6,880
Capital
expenditures... 2,243 6,542 944 4,075 9,997 4,232 653 3,538
Ratio of
earnings to
fixed charges
(2)............ 90.4x 49.5x 54.2x 1.7x 1.3x 1.7x 2.3x 3.1x
<CAPTION>
As of
June 30, 1999
-------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet
Data (at end of
period):
Cash............ $ 427 $ -- $ 2 $ 987 $ 5,456 $ 14,451
Working capital. 12,646 16,987 19,244 11,162 14,511 58,402
Total assets.... 79,845 99,769 117,653 123,284 119,592 318,425
Long term debt.. -- -- 69,248 73,157 70,217 236,315
Stockholders'
equity......... 72,706 91,027 28,133 26,740 31,138 38,992
</TABLE>
- --------------------
(1) EBITDA for any period is calculated as the sum of net income plus the
following to the extent deducted in calculating such net income:
. interest expense,
. income tax expense,
. depreciation expense, and
. amortization expense, in each case for the applicable period.
40
<PAGE>
We consider EBITDA to be a widely accepted financial indicator of a
company's ability to service debt, fund capital expenditures and expand its
business; however, EBITDA is not calculated in the same way by all companies
and is neither a measurement required by, nor represents cash flow from
operations as defined by, generally accepted accounting principles. EBITDA
should not be considered by an investor as an alternative to net income, as
an indicator of operating performance or as an alternative to cash flow as a
measure of liquidity. The calculation of EBITDA for purposes of the
financial information presented herein is calculated differently than for
purposes of the covenants under our indenture and our new credit facilities
and for any post-closing contingent payments to Rugby under the stock
purchase agreement. See "The Transactions--The Pioneer Acquisition,"
"Description of Exchange Notes" and "Description of Credit Facilities and
Other Indebtedness--New Credit Facilities."
(2) For purposes of computing the ratio of earnings to fixed charges, earnings
include income (loss) before income taxes plus fixed charges. Fixed charges
consist of interest expense, 33% of rental expense (deemed by management to
be representative of the interest factor of rental payments) and
amortization of debt issuance costs.
41
<PAGE>
Pioneer
The following table sets forth selected historical financial data of Pioneer
as of and for the periods indicated. The statement of operations data and
other data for the years ended December 27, 1996, December 26, 1997 and
December 25, 1998, and the balance sheet data as of December 26, 1997 and
December 25, 1998, have been derived from the audited financial statements of
Pioneer included elsewhere in this prospectus. The statement of operations and
other data for the period from July 21, 1995 to December 28, 1995 and the
balance sheet data as of December 28, 1995 and December 27, 1996 have been
derived from the audited financial statements of Pioneer not included in this
prospectus. The financial information for the period from February 25, 1995 to
July 20, 1995 has been prepared from the unaudited financial records of the
predecessor of Pioneer and in the opinion of management reflects all
adjustments, consisting only of normal recurring items, necessary for a fair
presentation of the results of operations for such period. The statement of
operations data and other data for each of the years ended February 25, 1994
and February 24, 1995 and the balance sheet data as of February 25, 1994 and
February 24, 1995, have been derived from the audited financial statements of
the predecessor of Pioneer not included in this prospectus. The information in
the table should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Financial
Statements of Pioneer, including the related notes, included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
Predecessor Pioneer
------------------------------------- ---------------------------------------------------
For the year ended Period from Period from For the year ended
------------------------- February 25 July 21 to --------------------------------------
February 25, February 24, to July 20, December 28, December 27, December 26, December 25,
1994 1995 1995 (1) 1995 1996 1997 1998
------------ ------------ ----------- ------------ ------------ ------------ ------------
(unaudited)
(in thousands, except ratios)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net sales.............. $ 148,937 $ 179,540 $ 74,593 $ 86,795 $ 165,819 $ 179,331 $ 185,018
Cost of goods sold..... (108,383) (128,928) (53,713) (61,986) (116,265) (125,458) (130,375)
--------- --------- -------- -------- --------- --------- ---------
Gross profit........... 40,554 50,612 20,880 24,809 49,554 53,873 54,643
Selling, general and
administrative........ (35,043) (40,176) (17,425) (21,719) (33,453) (30,715) (31,098)
--------- --------- -------- -------- --------- --------- ---------
Operating income....... 5,511 10,436 3,455 3,090 16,101 23,158 23,545
--------- --------- -------- -------- --------- --------- ---------
Net income (loss)...... $ 1,271 $ 8,319 $ 3,415 $ 492 $ 7,433 $ 12,173 $ 12,386
========= ========= ======== ======== ========= ========= =========
Other Data:
Net cash provided by
(used in) operating
activities............ $ 1,239 $ 9,934 $ 1,165 $ (1,179) $ 25,871 $ 11,845 $ 13,815
Net cash used in
investing activities.. (2,095) (4,564) (3,067) (895) (987) (9,552) (11,567)
Net cash provided by
(used in) financing
activities............ 145 (4,884) 787 2,074 (24,884) (2,293) (2,248)
EBITDA (2)............. 9,109 16,938 7,842 4,908 20,330 27,884 28,879
Depreciation and
amortization.......... 3,557 3,661 3,220 1,818 4,306 4,632 5,355
Capital expenditures... 2,115 4,595 3,167 895 2,584 9,558 11,594
Ratio of earnings to
fixed charges (3)..... 1.3x 2.5x 2.6x 1.4x 4.5x 8.1x 8.4x
Balance Sheet Data (at
end of period):
Cash and cash
equivalents........... $ (602) $ (116) $ -- $ -- $ -- $ --
Working capital........ 21,117 24,275 35,172 21,094 27,430 32,035
Total assets........... 63,065 70,459 94,984 76,291 88,155 95,875
Long term debt
(including amounts
payable to parent).... 51,412 46,533 56,223 32,718 30,425 28,177
Stockholders' equity
(deficit)............. (6,467) 1,847 21,145 27,199 39,372 51,758
</TABLE>
- -------------------
(1) Through the end of fiscal year 1995, Pioneer's fiscal year-end was the 52
or 53 week period which ended on the last Friday of February. In
connection with the acquisition of Pioneer by Rugby USA on July 21, 1995,
Pioneer's fiscal year end was changed to the 52 or 53 week period ending
on the last Friday of December. The financial data presented for the
period from February 25, 1995 to July 20, 1995 has been derived from
unaudited internally generated monthly financial statements of the
predecessor of Pioneer.
(2) EBITDA for any period is calculated as the sum of net income plus the
following to the extent deducted in calculating such net income:
. interest expense,
. income tax expense,
. depreciation expense, and
. amortization expense, in each case for the applicable period.
We consider EBITDA to be a widely accepted financial indicator of a
company's ability to service debt, fund capital expenditures and expand its
business; however, EBITDA is not calculated in the same way by all companies
and is neither a measurement required by, nor represents
42
<PAGE>
cash flow from operations as defined by, generally accepted accounting
principles. EBITDA should not be considered by an investor as an alternative
to net income, as an indicator of operating performance or as an alternative
to cash flow as a measure of liquidity. The calculation of EBITDA for
purposes of the financial information presented herein is calculated
differently than for purposes of the covenants under our indenture and our
new credit facilities and for any post-closing contingent payments to Rugby
under the stock purchase agreement. See "The Transactions--The Acquisition,"
"Description of Exchange Notes" and "Description of Credit Facilities and
Other Indebtedness--New Credit Facilities."
(3) For purposes of computing the ratio of earnings to fixed charges, earnings
include income (loss) before income taxes plus fixed charges. Fixed charges
consist of interest expense, 33% of rental expense (deemed by management to
be representative of the interest factor of rental payments) and
amortization of debt issuance costs.
43
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with the
more detailed information in the Financial Statements of Panolam and Pioneer,
including the related footnotes, included elsewhere in this prospectus.
Overview
We are a market leader in designing, manufacturing and distributing
artificial decorative overlay panels in the U.S. and Canada. Through our three
strategically located manufacturing facilities we distribute a full line of
premium and commodity grade TFMs that are utilized as durable and economical
substitutes for natural surfacing materials such as wood, stone and ceramic.
Our TFM products are used in a wide variety of residential and commercial
indoor surfacing applications, including kitchen and bath cabinets, furniture,
store fixtures and displays and other specialty applications. We market and
distribute TFM products through an extensive and geographically diverse network
of over 180 mostly exclusive distributors servicing most major markets and
geographic regions of the U.S. and Canada. We also sell directly to many
regional OEMs.
In January 1998 we hired Robert J. Muller, Jr. as our president and chief
executive officer and implemented a new management structure and other
management and manufacturing process changes. These changes included a best
practices discipline in all three of our then existing facilities, a common
sales program and a uniform approach to all of our products and markets. Prior
to the reorganization, we were organized under three distinct and semi-
autonomous business units, each headed by a vice president and general manager,
and each with distinct staffs. During the year ended December 31, 1998, we
organized under functional lines and began to consolidate sales and marketing,
manufacturing, engineering and distribution functions into a single
organization. We also implemented a series of process improvement programs at
our existing manufacturing facilities. These improvements increased
particleboard production at our Huntsville, Ontario facility by approximately
6.3% on a square footage basis in 1998 as compared with the corresponding
period of 1997. They also increased TFM production yields at all of our
manufacturing facilities. Our gross profit increased by $3.7 million, or 17.9%,
in 1998 compared with 1997, which includes $1.8 million resulting from these
process improvement programs. See "Business--What are the key elements of our
business strategy" and "--We intend to maximize our operating efficiencies."
On February 18, 1999, we acquired Pioneer from Rugby USA. See "The
Transactions--The Pioneer Acquisition." Pioneer primarily designs, manufactures
and distributes HPLs used in residential and commercial indoor surfacing
applications, including countertops and cabinetry, furniture, fixtures and
bowling lane flooring products. These products provide greater surface wear and
impact resistance than TFMs provide. Pioneer's line of HPL products, marketed
under the Pionite brand name, is sold through an extensive distribution network
of over 130 mostly exclusive distributors and directly to regional OEMs.
Pioneer also selectively produces and markets a variety of specialty resins for
industrial uses, such as powder paint, adhesives and melamine resins for TFM
and HPL production, custom treated and chemically prepared decorative overlay
papers for the TFM industry and a variety of other industrial laminate products
such as aircraft cargo liners and bowling lane flooring.
In connection with our 1999 refinancing, we recorded a pre-tax extraordinary
charge of approximately $1.8 million (net of tax benefits of $1.0 million) for
the write off of unamortized financing expenses and to pay prepayment
penalties. These charges were incurred in the first quarter of 1999. We also
incurred costs of approximately $1.8 million in 1998 for severance payments for
redundant individuals and for headquarters consolidation into our main office
in Shelton, Connecticut. In connection with the 1997 refinancing of our
previous financing arrangements, we recorded financing fees of $4.8 million and
deferred charges of $0.4 million, totalling $3.4 million net of tax benefits of
$1.8 million, as extraordinary items during 1997.
In connection with the Pioneer acquisition, we identified estimated annual
cost savings on a pro forma basis of approximately $4.0 million related to the
elimination of redundant and excess staffing at Pioneer. We
44
<PAGE>
also believe that Panolam will be able to realize additional cost savings and
distribution synergies as a result of the Pioneer acquisition, including
committed raw material purchase price reductions obtained in connection with
the Pioneer acquisition that would have resulted in approximately $2.5 million
of cost savings in 1998 on a pro forma basis and an additional $4.0 million in
estimated savings that we believe would be realized upon the completion of a
program to automate certain production processes at Pioneer's manufacturing
facilities. Pioneer completed a portion of this automation program prior to the
closing of the acquisition, which resulted in cost savings of $1.2 million in
1998 compared to 1997. This savings is reflected as a reduction in cost of
goods sold. We completed this automation program in the second quarter of 1999.
Panolam has realized $1.9 million in cost savings from this automation program
in the first half of 1999 compared to the first half of 1998. We also believe
that we will be able to realize additional distribution synergies and cost
savings as a result of the Pioneer acquisition. However, we cannot assure you
that any additional distribution synergies or cost savings will in fact be
realized. See "Risk Factors--We may have difficulty integrating Pioneer and our
failure to successfully integrate Pioneer could adversely affect our business"
and "Unaudited Combined Pro Forma Financial Data."
In late 1995 Domtar Industries acquired The Melamine Group, which operated
commodity grade laminating presses in Eugene, Oregon and Ruston, Louisiana. In
the first six months of 1997, as part of a program to reduce costs by
eliminating redundant facilities and to increase production capacity at the
Huntsville, Ontario facility, we consolidated certain of our manufacturing
operations by moving the laminating press line from our Eugene, Oregon facility
to our TFM manufacturing facility in Albany, Oregon, and by moving the
laminating press line from the Ruston, Louisiana facility to our integrated TFM
manufacturing facility in Huntsville, Ontario. Although we increased our
inventory levels in anticipation of such laminating lines being removed from
operation during such consolidation, unforeseen delays in our former
management's implementation of such consolidation resulted in a shortage of
TFMs available for sale. In addition, unforeseen difficulties associated with
the integration of the laminating line at the Huntsville, Ontario facility
adversely affected the volume and grade of TFMs produced there. Reduced sales
from the Huntsville, Ontario facility both in terms of unit pricing and
quantities sold were experienced. We believe that the major factors
contributing to such difficulties have been resolved and in 1998 we began to
realize the benefits of the production capacity increases. There can be no
assurance that unforeseen difficulties will not occur in connection with the
integration of Pioneer. Any such difficulties could delay or prevent us from
realizing the anticipated benefits of the Pioneer acquisition or from the
associated cost saving programs. See "Risk Factors--We may have difficulty
integrating Pioneer and our failure to successfully integrate Pioneer could
adversely affect our business."
45
<PAGE>
Results of Operations--Panolam
The following table sets forth, for the periods indicated, the results of
operations in millions of dollars and as a percentage of total revenues of
Panolam and Domtar Decorative Panels, Panolam's predecessor, on a stand-alone
basis. Panolam was incorporated on May 16, 1996 to acquire Domtar Decorative
Panels from Domtar Inc., but did not commence operations, except for incurring
costs in connection with the closing of the acquisition, until the acquisition
closed on June 11, 1996. The table does not include a discussion of Pioneer and
does not give pro forma effect to the Pioneer acquisition. The table sets forth
information for Domtar Decorative Panels for the period from January 1 to
June 11, 1996, and for Panolam for the period from May 16 to December 31, 1996,
to arrive at a total for the 12 months ended December 31, 1996. We have arrived
at the total for the 12 months ended December 31, 1996 by combining the two
periods, without adjustments, the two periods. We have provided this
information for the purpose of constructing a period for comparison with
Panolam's year ended December 31, 1997 . We make no representations as to the
usefulness of the information for this purpose. The following should be read in
conjunction with the financial statements of Panolam and Domtar Decorative
Panels and the related notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
Predecessor Panolam Combined Panolam
----------- ----------- ------------ -----------------------------------------------------
Period from Period from For the year ended For the six months ended
Jan. 1 to May 16 to Year ended Dec. 31, June,
June 11, Dec. 31, Dec. 31, -------------------------- -------------------------
1996 1996 1996 1997 1998 1998 1999
----------- ----------- ------------ ------------ ------------ ----------- ------------
$ % $ % $ % $ % $ % $ % $ %
----- ----- ----- ----- ------ ----- ------ ----- ------ ----- ----- ----- ------ -----
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales........... $59.5 100.0% $74.5 100.0% $134.0 100.0% $142.2 100.0% $146.7 100.0% $73.6 100.0% $149.9 100.0%
Gross profit........ 7.5 12.7 13.4 18.0 20.9 15.6 20.5 14.4 24.2 16.5 11.5 15.7 39.5 26.4
Operating expenses.. 3.5 5.9 5.8 7.8 9.2 6.9 9.7 6.8 10.2 6.9 5.9 8.1 16.9 11.3
Operating income.... 4.0 6.8 7.6 10.2 11.7 8.7 10.8 7.6 14.0 9.6 5.6 7.6 22.6 15.1
Net interest
expense............ -- 0.0 4.5 6.0 4.5 3.3 8.1 5.7 8.3 5.6 4.3 5.8 10.5 7.0
Income taxes........ 0.1 0.2 1.1 1.5 1.2 0.9 0.8 0.5 2.3 1.6 0.5 0.7 5.4 3.6
</TABLE>
Six months ended June, 1999 compared to the six months ended June 30, 1998
Net Sales. Net sales were $149.9 million for the six months ended June 30,
1999, an increase of $76.3 million, or 103.6%, from $73.6 million for the
corresponding period of 1998. $70.9 million of the increase is due to the
acquisition of Pioneer on February 18, 1999. The remaining increase is
primarily attributable to an increase in TFM shipments in the first half of
1999 as compared to the corresponding period of 1998.
Gross Profit. Gross profit was $39.5 million for the six months ended June
30, 1999, an increase of $28.0 million, or 242.8%, from $11.5 million for the
corresponding period of 1998. As a percentage of net sales, gross profit was
26.4% and 15.7%, respectively, for such periods. The Pioneer acquisition
contributed $22.3 million of the increase. The remaining increase of $5.7
million relates to a $0.8 million decrease in indirect overhead costs, a $3.4
million increase in favorable production variances primarily related to lower
raw material costs associated with the purchase of resins and paper, and a $1.5
million increase resulting from increased operating efficiencies.
Operating Expenses. Operating expenses were $16.9 million for the six months
ended June 30, 1999, an increase of $11.0 million, or 184.8%, from $5.9 million
for the corresponding period of 1998. As a percentage of net sales, operating
expenses were 11.3% and 8.1%, respectively, for such periods. The Pioneer
acquisition contributed $10.7 million of the increase. The remaining increase
of $0.4 million is primarily attributable to goodwill amortization of
$1.4 million resulting from the Pioneer acquisition, which amount was partially
offset by overall cost reductions.
46
<PAGE>
Operating Income. Operating income was $22.6 million for the six months ended
June 30, 1999, an increase of $17.0 million, or 304.5%, from $5.6 million for
the corresponding period of 1998. As a percentage of net sales, operating
income was 15.1% and 7.6%, respectively, for such periods. The Pioneer
acquisition contributed $11.5 million of the increase. This remaining increase
of $5.5 million was due to increased gross profit resulting from reduced raw
material cost and a decrease in overhead spending offset in part by goodwill
amortization.
Net Interest Expense. Net interest expense was $10.5 million for the six
months ended June 30, 1999, an increase of $6.2 million, or 144.9%, from $4.3
million for the corresponding period of 1998. As a percentage of net sales, net
interest expense was 7.0% and 5.8%, respectively, for such periods. Net
interest expense increased due to the issuance of our 11.5% senior subordinated
notes on February 15, 1999.
Income Taxes. Income taxes were $5.4 million in the six months ended June 30,
1999, an increase of $4.9 million, or 1011.8%, from $0.5 million for the
corresponding period of 1998. The Pioneer acquisition accounted for $4.3
million of the increase. Panolam's effective tax rate was 37% for both periods.
Year ended December 31, 1998 compared to year ended December 31, 1997
Net Sales. Net sales were $146.7 million for 1998, an increase of $4.5
million, or 3.2%, from $142.2 million in 1997. We believe the increase in net
sales can be primarily attributed to an increase in TFM shipments in 1998 as
compared with 1997.
Gross Profit. Gross profit was $24.2 million for 1998, an increase of $3.7
million, or 17.9%, from $20.5 million in 1997. As a percentage of net sales,
gross profit was 16.5% and 14.4%, respectively, for such periods. $1.8 million
of the increase in gross profit was attributable to a series of process
improvements implemented at our manufacturing facilities in 1998. These
improvements increased particleboard production at our Huntsville, Ontario
manufacturing facility by approximately 6.3% on a square footage basis in 1998
as compared with 1997, and increased TFM production yields at all of our
manufacturing facilities. The increase in particleboard production allowed us
to reduce the amount of particleboard purchased from third parties for use at
our Huntsville, Ontario facility, while increased TFM production yields reduced
production cycle times at all of our manufacturing facilities. As a result, our
cost of goods sold was reduced. The increased TFM production yields also
reduced the amount of lower margin generating factory grade products produced
and sold in 1998, which contributed to the higher gross profit as a percentage
of net sales in 1998 versus 1997. See "Business--What are the key elements of
our business strategy" and "--We intend to maximize our operating
efficiencies." The remaining increase in gross profit resulted primarily from
increased operating efficiencies.
Operating Expenses. Operating expenses were $10.2 million for 1998, an
increase of $0.5 million, or 5.2%, from $9.7 million in 1997. As a percentage
of net sales, operating expenses were 6.9% and 6.8%, respectively, for such
years. These expenses rose due to the recording of $1.8 million of unusual one-
time charges incurred in connection with the relocation of the corporate
offices from Quebec, Canada, to Shelton, CT in 1998, and $0.6 million for the
writeoff in 1998 of an insurance receivable recorded in 1997, offset in part by
decreases in other operating expenses.
Operating Income. Operating income was $14.0 million for 1998, an increase of
$3.2 million, or 29.6%, from $10.8 million in 1997. Operating income as a
percentage of net sales was 9.6% and 7.6%, respectively, for such years. This
increase was due to increased gross profit resulting from manufacturing process
improvements, which was offset in part by increased operating expenses.
Approximately $2.4 million of the operating expenses recorded in 1998 was non-
recurring.
Net Interest Expense. Net interest expense was $8.3 million for 1998, an
increase of $0.2 million, or 2.6%, from $8.1 million in 1997. As a percentage
of net sales, net interest expense was 5.6% and 5.7%, respectively, for such
years. Net interest expense increased because of higher interest costs
associated with our former General Electric credit facilities as compared to
the credit facility which was in place prior to our entering into our former
General Electric credit facilities in November 1997.
47
<PAGE>
Income Taxes. Income taxes were $2.3 million for 1998, an increase of $1.5
million, or 187.5%, from $0.8 million for 1997. Panolam's effective tax rate
was 41% in 1998 as compared to 28% in 1997. The increase in income taxes in
1998 was due to higher taxable earnings resulting from higher operating income
as discussed above.
Year ended December 31, 1997 compared to year ended December 31, 1996
Net Sales. Net sales were $142.2 million for 1997, an increase of $8.2
million, or 6.2%, from $134.0 million in 1996. We believe the increase in net
sales was primarily due to a number of marketing and sales initiatives,
including price reductions, in the second half of 1997 resulting in higher
sales volume. This offset the negative impact on TFM sales caused by our
facility consolidations in the first six months of 1997, which resulted in a
shortage of TFMs available for sale.
Gross Profit. Gross profit was $20.5 million for 1997, a decrease of $0.4
million, or 2.0%, from $20.9 million in 1996. As a percentage of net sales,
gross profit was 14.4% and 15.6%, respectively, for such periods. We believe
the decrease in gross profit was due primarily to the carry-over impact of
manufacturing inefficiencies related to our facility consolidations in the
first six months of 1997.
Operating Expenses. Operating expenses were $9.7 million for 1997, an
increase of $0.5 million, or 5.4%, from $9.2 million in 1996. As a percentage
of net sales, operating expenses were 6.8% and 6.9%, respectively, for such
periods. Operating expenses in 1997 included $1.1 million of one time charges
incurred in connection with the reorganization of Panolam related to headcount
reductions. This was offset primarily by decreased operating expenses
associated with our facility consolidations in the first six months of 1997.
Operating Income. Operating income was $10.8 million for 1997, a decrease of
$0.9 million, or 7.6%, from $11.7 million in 1996. Operating income as a
percentage of net sales was 7.6% and 8.7%, respectively, for such periods. This
decrease was due to decreased gross profit in 1997, offset by increased
operating expenses in 1997, each of which changed for the reasons discussed
above.
Net Interest Expense. Net interest expense was $8.1 million for 1997, an
increase of $3.6 million, or 80.0%, from $4.5 million in 1996. As a percentage
of net sales, net interest expense was 5.7% and 3.3%, respectively, for such
periods. Net interest expense increased because our predecessor, Domtar
Decorative Panels, had no outstanding indebtedness and accordingly, no interest
expense, for the period from January 1 to June 11, 1996 (the date on which
Domtar Decorative Panels was acquired).
Income Taxes. Income taxes were $0.8 million for 1997, a decrease of $0.4
million, or 33.3%, from $1.2 million for 1996. As a percentage of net sales,
income taxes were 0.5% and 0.9%, respectively, for such periods. Panolam's
effective tax rate was 28% in 1997 as compared to 17% (including Domtar
Decorative Panels) for the prior year. The decrease in income taxes in 1997
reflects the lower taxable earnings during 1997 and accelerated tax
depreciation. The decrease in income taxes as a percentage of net sales was due
to the nondeductibility in 1996 of the write-off of deferred charges related to
the repayment of certain mezzanine financing incurred in connection with
Genstar Capital's acquisition of Domtar Decorative Panels in June 1996.
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Results of Operations--Pioneer
The following table sets forth, for the periods indicated, the results of
operations in millions of dollars and as a percentage of total revenues of
Pioneer on a stand-alone basis. The table does not include a discussion of
Panolam and does not give pro forma effect to the Pioneer acquisition. The
following should be read in conjunction with the financial statements of
Pioneer and the related notes, included elsewhere in this prospectus.
<TABLE>
<CAPTION>
For the year ended
---------------------------------------
Dec. 27, Dec. 26, Dec. 25,
1996 1997 1998
------------ ------------ -----------
$ % $ % $ %
------ ----- ------ ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Net sales.............................. $165.8 100.0% $179.3 100.0% 185.0 100.0%
Gross profit........................... 49.6 29.9 53.9 30.0 54.6 29.5
Operating expenses..................... 33.5 20.2 30.7 17.1 31.1 16.8
Operating income....................... 16.1 9.7 23.2 12.9 23.5 12.7
Net interest expense................... 3.4 2.1 2.7 1.5 2.6 1.4
Income taxes........................... 5.2 3.1 8.4 4.7 8.6 4.6
</TABLE>
Year ended December 25, 1998 compared to year ended December 26, 1997
Net Sales. Net sales were $185.0 million for 1998, an increase of $5.7
million, or 3.2%, from $179.3 million in 1997. The increase in net sales was
positively affected by a $2.6 million increase in HPL sales and a $1.8 million
increase in Resopreg treated paper sales. In addition, Pioneer introduced
Pionite Solid Surface in October 1997, which had sales for 1998 of $1.9
million. The increase in net sales was offset in part by lower net sales in the
fourth quarter of 1998 as compared with the corresponding period of 1997
resulting primarily from decreases in sales of Pioneer's bowling lane flooring
products and from reductions in inventory levels maintained by Rugby Building
Products' distributors. This decline in sales of bowling lane flooring products
was primarily due to a decrease in sales of such products by Pioneer's largest
U.S. purchaser of such products to end users in certain Asian markets. See
"Risk Factors--Our international sales may be adversely affected by factors
beyond our control."
Gross Profit. Gross profit was $54.6 million for 1998, an increase of $0.7
million, or 1.4%, from $53.9 million in 1997. As a percentage of net sales,
gross profit was 29.5% and 30.0%, respectively, for such years. We believe
gross profit increased primarily due to increased sales volume and realization
of cost savings of $1.2 million from the completion of a portion of a program
to automate certain production processes at Pioneer's manufacturing facilities.
This increase in gross profit was partially offset by an increased scrap rate
and an unfavorable sales mix towards lower margin products, which caused gross
profit to decrease as a percentage of net sales despite the realization of $1.2
million in cost savings.
Operating Expenses. Operating expenses were $31.1 million for 1998, an
increase of $0.4 million, or 1.3%, from $30.7 million in 1997. As a percentage
of net sales, operating expenses were 16.8% and 17.1%, respectively, for such
years. Operating expenses decreased as a percentage of net sales due to tighter
control over selling and administrative expenses, which were offset in part by
costs associated with the addition of a distribution center in Atlanta, Georgia
and with higher freight expenses in the second and third quarters of 1998
resulting from expedited shipping schedules which were required to meet
delivery commitments following production delays earlier in the year.
Operating Income. Operating income was $23.5 million for 1998, an increase of
$0.3 million, or 1.3%, from $23.2 million for 1997. As a percentage of net
sales, operating income was 12.7% and 12.9%, respectively, for such years.
Operating income increased because of increased sales volume and by the
relative decrease in operating expenses as a percentage of net sales, in each
case as discussed above.
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Net Interest Expense. Net interest expense was $2.6 million for 1998 a
decrease of $0.1 million, or 3.7% from $2.7 million for 1997. As a percentage
of net sales, net interest expense was 1.4% and 1.5%, respectively, for such
periods.
Income Taxes. Income taxes were $8.6 million for 1998, an increase of $0.2
million, or 2.4%, from $8.4 million for 1997. As a percentage of net sales,
income taxes were 4.6% and 4.7%, respectively, for such years. Pioneer's
effective tax rate was 41% for both 1998 and 1997.
Year ended December 26, 1997 compared to year ended December 27, 1996
Prior to 1996, Pioneer sold its products through a combination of third-party
and Pioneer-owned distribution centers. In late 1995 Pioneer transferred the
majority of the Pioneer-owned distribution centers to Rugby Building Products,
and on July 1, 1996, Pioneer transferred the remaining seven Pioneer-owned
distribution centers to Rugby Building Products. The effect of the transfer of
the Pioneer-owned distribution centers was to (i) reduce Pioneer's net sales
with respect to products sold through these distribution centers by the
difference between the wholesale price paid by the distribution centers and the
retail price paid by the distribution centers' customers, (ii) eliminate
Pioneer's net sales attributable to certain products manufactured by third
parties and purchased for resale through these distribution centers and (iii)
reduce the costs associated with operating such distribution centers. Restating
Pioneer's 1996 financial results as if the transfer of such distribution
centers had occurred on January 1, 1996 would have reduced Pioneer's 1996 net
sales by $10.1 million, to $155.7 million, and would have further affected
Pioneer's 1996 financial results as discussed below.
Net Sales. Net sales were $179.3 million for 1997, an increase of $13.5
million, or 8.1%, from $165.8 million in 1996. The increase in net sales was
positively affected by a $13.2 million increase in HPL sales, a $1.2 million
increase in Pionite Solid Surface sales, since its introduction in October
1997, and other product sales increases totalling $9.2 million. Increased sales
were offset by the elimination of approximately $8.3 million in sales
attributable to certain products manufactured by third parties and purchased
for resale through Ruby Building Products distribution centers and an
approximate $1.8 million decrease resulting from lower HPL prices, each in
connection with the distribution center transfer as described above. If 1996
financial results were restated as described above to give effect to the
distribution center transfer as of January 1, 1996, the increase in 1997 net
sales would have been $23.6 million, or 15.2%, from $155.7 million in 1996.
Gross Profit. Gross profit was $53.9 million for 1997, an increase of $4.3
million, or 8.7%, from $49.6 million in 1996. As a percentage of net sales,
gross profit was 30.0% and 29.9%, respectively, for such periods. We believe
gross profit increased primarily due to increased sales, which allowed Pioneer
to operate at a higher level of capacity. If 1996 financial results were
restated as described above to give effect to the distribution center transfer
as of January 1, 1996, the increase in 1997 gross profit would have been
$8.7 million, or 19.2%, from $45.2 million, or 29.0% of restated net sales in
1996.
Operating Expenses. Operating expenses were $30.7 million for 1997, a
decrease of $2.8 million, or 8.4%, from $33.5 million in 1996. As a percentage
of net sales, operating expenses were 17.1% and 20.2%, respectively, for such
periods. These expenses decreased due to the transfer of the Pioneer-owned
distribution centers in 1996, as described above, and decreased as a percentage
of net sales due to efficiencies created by increased sales volume. If 1996
financial results were restated as described above to give effect to the
distribution center transfer as of January 1, 1996, 1997 operating expenses
would have increased by $2.9 million, or 10.4%, from $27.8 million in 1996.
Operating Income. Operating income was $23.2 million for 1997, an increase of
$7.1 million, or 43.8%, from $16.1 million for 1996. As a percentage of net
sales, operating income was 12.9% and 9.7%, respectively, for such periods.
Operating income increased because of increased volumes and because of the
transfer of the Pioneer-owned distribution centers as described above. If 1996
financial results were restated as described above, as offset by the
distribution center transfer, 1997 operating income would have increased by
$5.7 million, or 32.6%, from $17.5 million in 1996.
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Net Interest Expense. Net interest expense was $2.7 million in 1997, a
decrease of $0.7 million, or 21.2%, from $3.4 million for 1996. As a percentage
of net sales, net interest expense was 1.5% and 2.1%, respectively, for such
periods. Interest expense decreased because of reduced borrowings.
Income Taxes. Income taxes were $8.4 million for 1997, an increase of $3.2
million, or 61.6%, from $5.2 million for 1996. As a percentage of net sales,
income taxes were 4.7% and 3.1%, respectively, for such periods. Pioneer's
effective tax rate was 41% for each of the periods. The increase in income
taxes in 1997 reflects higher taxable earnings during 1997.
Liquidity and Capital Resources
Panolam's principal source of cash during the first quarter of 1999 was from
operations and a reduction in working capital. Panolam's principal sources of
cash during the fourth quarter of the 1997 and 1998 fiscal year were from
operations and borrowings under our former General Electric credit facilities,
which were entered into in November 1997. Panolam's principal sources of cash
during the period from June 11, 1996, the date of acquisition of Domtar
Decorative Panels from Domtar, Inc., to December 31, 1996 and the first three
quarters of 1997 were from operations and the credit facility which was in
place prior to our entering into the our former General Electric credit
facilities. For the period from May 16, 1996 to December 31, 1996, cash used in
Panolam's operating activities was $4.0 million. Cash generated from Panolam's
operating activities was $14.9 million in the first half of 1999. Cash
generated from Panolam's operating activities was $10.3 million in 1997 and
$16.5 million in 1998, which cash was used primarily to fund capital
expenditures or to repay debt. Pioneer's principal sources of cash during the
1996, 1997 and 1998 fiscal years were from operations. Cash generated from
Pioneer's operating activities was $25.9 million in 1996, $11.8 million in 1997
and $13.8 million in 1998, which cash was used primarily to fund capital
expenditures or to repay debt.
Panolam's capital expenditures were $4.1 million for the period from May 16,
1996 to December 31, 1996, $10.0 million in 1997 and $4.3 million in 1998.
Capital spending for these periods was primarily for our facility
consolidations in the first six months of 1997, process improvements on the
particleboard production line at our Huntsville, Ontario facility in 1998, and
computer system upgrades related to the year 2000 issue. Panolam's capital
expenditure was $3.5 million for the first half of 1999, primarily for the
Pioneer automation program and computer system upgrades related to the Year
2000 issue. Pioneer's capital expenditures amounted to $2.6 million in 1996,
$9.6 million in 1997, and $11.6 million in 1998. Capital spending for these
periods was primarily for the implementation of a program to automate certain
production processes, computer system upgrades related to the year 2000 issue,
an air quality improvement project for Pioneer's Auburn, Maine facility, and
capital improvements at Pioneer's facilities, including amounts spent in
connection with a program to automate certain labor-intensive production
processes. See "Risk Factors--Our failure and the failure of our key suppliers
and customers to be Year 2000 compliant would adversely impact our business"
and "Business--What are the key elements of our business strategy" and "--We
intend to maximize our operating efficiencies."
We have received a notice of audit from the Internal Revenue Service in
respect of our taxable year ended December 31, 1996. While we cannot assure you
that the audit will be resolved in a manner favorable to us or that the audit
will not be expanded to other taxable years, we believe that, as of the date
hereof, the audit will not have a material adverse effect on us.
Our capital expenditures are expected to be $6.1 million for the second half
of 1999. Planned capital expenditures consist primarily of expenditures for the
computer system upgrades related to the year 2000 issue and automation capacity
expansion. Environmental laws and regulations also may require us to make
additional capital expenditures to maintain compliance. See "Risk Factors--Our
failure to comply with environmental laws could result in material liability"
and "Business--Government regulations and environmental matters."
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In connection with the elimination of excess staffing at Pioneer following
the closing of the Pioneer acquisition, we have accrued additional liabilities
of approximately $3.2 million. See "Unaudited Pro Forma Combined Financial
Data."
In connection with the Pioneer acquisition, we will be required to make post-
closing payments to Rugby USA of up to a maximum of $15.0 million contingent
upon our having achieved specified EBITDA (as defined in the stock purchase
agreement with Rugby USA) targets in 1999, 2000, 2001, 2002 and 2003. The
EBITDA target in 1999 is $60.0 million, which target will increase each year
thereafter through 2003. Our ability to achieve these EBITDA targets is subject
to a number of significant risks and uncertainties, and we cannot assure you
that such targets will be met in 1999 or in any future year. Any such post-
closing contingent payments are not expected to affect our liquidity or capital
resources because such payments are expected to be paid from the additional
earnings. See "The Transactions--The Pioneer Acquisition."
Our short-term liquidity needs, including a portion of the one-time costs
associated with the Pioneer acquisition, are expected to be provided by: (i)
our existing cash balances; (ii) our operating cash flows; and (iii) borrowings
under our new credit facilities, all of which we expect will be adequate to
meet our anticipated short-term requirements for working capital, interest
payments, planned capital expenditures and principal payments on our
indebtedness. We expect to fund our long-term liquidity needs from our
operating cash flows, the issuance of debt and/or equity securities and bank
borrowings. Concurrently with the offering of the old notes, we entered into
our new credit facilities, providing for up to $20.0 million of revolving
credit to the Issuer and up to $15.0 million of revolving credit to Panolam
Canada, subject to the terms and conditions contained therein. See "Description
of Credit Facilities and Other Indebtedness--New Credit Facilities." The
Issuer's and Panolam Canada's ability to borrow under the new revolving credit
facilities is restricted by a borrowing base consisting of a percentage of
eligible inventory and accounts receivable. In June 1999 we reduced the total
amount available under the Canadian revolving credit facility to $8.0 million
from $15.0 million. As of June 30, 1999, the Issuer was able to borrow the full
amount of $20.0 million under its new U.S. revolving credit facility and our
Canadian operating subsidiary was able to borrow $7.5 million of the
$8.0 million under its new Canadian revolving credit facility, both subject to
the terms and conditions of the new revolving credit facilities. See
"Description of Credit Facilities and Other Indebtedness--New Credit
Facilities." Our estimates as to our working capital needs and other
anticipated expenditures may be materially affected if the foregoing sources
are not available or do not otherwise provide sufficient funds to meet our
obligations.
Inflation
Inflation has not had a significant effect on our results of operations in
recent years. Our selling, general and administrative expenses, such as
salaries, employee benefits, and facilities costs are subject to normal
inflationary pressures.
Seasonality
Our operations are not generally subject to seasonal fluctuations. However,
we usually curtail our manufacturing operations for one to two weeks during the
month of July. Our working capital needs generally increase as we increase our
inventory in anticipation of such curtailment and replenish our inventory
following such curtailment. In addition, Pioneer has historically experienced
higher sales in the second and third fiscal quarters of each year when compared
with the first and fourth quarters, primarily as a result of seasonal
fluctuations in the demand for Pioneer's HPL products.
Year 2000 Compliance
Currently, many automated systems, embedded microprocessors in computer
systems and other equipment and software products are coded to accept only two
digit entries in the date code field. This could result in the possible failure
of those programs and devices to properly recognize date sensitive information
when the year changes to 2000. To avoid such failure, these date code fields
will need to accept four digit entries or otherwise be modified to distinguish
21st century dates from 20th century dates. As a result, many companies'
information systems and software need to be upgraded or replaced in order to
function correctly after December 31, 1999.
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We have completed our Year 2000 assessments of our information technology and
embedded systems, and are continuing with our efforts to prepare such systems
and applications for the Year 2000 as part of a larger, general program to
enhance all of our computer systems. Our program objective is to ensure
uninterrupted transition into Year 2000. The scope of our Year 2000 program
includes: (1) non-IT systems or embedded technology such as micro-controllers
contained in various safety systems, facilities, and utilities, (2) information
technology such as software and hardware, and (3) readiness of key third
parties, including suppliers and customers.
We initially reviewed and tested our systems in 1997 and decided to move
forward with a Year 2000 compliant enterprise resource planning software. In
January 1998, the General Ledger and Accounts Payable modules were installed.
In June of 1999, the Order Entry, Accounts Receivable and Sales modules went
live. These modules are expected to be fully functional by September 1, 1999.
It was estimated that there would not be sufficient time to install, configure
and implement the Inventory and Production modules by December 31, 1999. As an
alternative, the current software is being made compliant for these functions.
Pioneer Plastics Corporation reviewed and tested its systems in 1997. In
January of 1998, Pioneer decided to move forward with a Year 2000 compliant
enterprise resource planning software. The software is being implemented in a
modular basis by location and unit. The two main product lines are 100%
complete. The smaller product lines have the accounting function installed but
not production.
Our remediation efforts are more than 85% complete as of June, 1999 and all
actions are expected to be completed and all systems are expected to be updated
by October 30, 1999. Pioneer is 60% complete with its Year 2000 objectives and
has a target date for complete implementation of October 31, 1999. We expect
that the material aspects of systems upgrades and remediation efforts at all of
our facilities will be completed and accordingly will be Year 2000 compliant
prior to December 31, 1999. In addition, we have reviewed our product base and
believe that our products, which primarily constitute of artificial decorative
overlay panels and laminates, will not be affected by the Year 2000 issues
because they do not include or incorporate any automated systems,
microprocessors, software or hardware.
We currently estimate that we expect to incur aggregate internal and third-
party costs of approximately $10.7 million related to our Year 2000 compliance
program. As of June 30, 1999 we have incurred costs relating to Year 2000
compliance issues of approximately $8.8 million.
We rely on third party vendors and service providers for certain products and
services, including certain data processing capabilities. We have communicated
with our principal vendors and service providers to assess the Year 2000
readiness for their products and services. Responses indicate that our
significant providers currently have compliant versions available or are well
into the renovation and testing phases with completion scheduled prior to
December 31, 1999. However, we have not received any significant warranties and
we can give no guarantee that the systems of the vendors and service providers
on which we rely will be timely Year 2000 compliant.
Our contingency planning for Year 2000 issues relates primarily to securing
backup vendors (which have been identified for most purchased products) and the
possibility of stockpiling raw materials. Contingency planning will continue
throughout 1999 and our plans will be modified based upon the progress of our
remediation efforts, system updates and installations and based upon our
communications with selected suppliers.
We believe that the most reasonably likely worst case scenario is that a
small number of vendors, including some single source suppliers, and/or
customers will have lingering Year 2000 compliance problems or may not become
Year 2000 compliant in time.
While our management believes that the estimated cost of becoming Year 2000
compliant will not be significant to our results of operations, financial
position or cash flows, failure to complete all the work in a
53
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timely manner could result in a material adverse effect on our results of
operations, financial position or cash flows. While we expect all planned work
to be completed, there can be no guarantee that all of our systems will be in
compliance by the Year 2000, that the systems of suppliers and other companies
and government agencies on which we rely will be converted in a timely manner,
or that our contingency planning will be able to fully address all potential
interruptions. Therefore, date-related issues could cause delays in our ability
to produce or ship our products, process transactions or otherwise conduct our
business.
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Business
General
We are a market leader in designing, manufacturing and distributing
artificial decorative overlay panels in the U.S. and Canada. Our products are
used to surface a wide variety of items, including cabinets, furniture, store
fixtures, countertops and floors. Our product lines are generally broken down
into two categories. Decorative thermally fused melamine panels ("TFMs") make
up the majority of our products. High pressure laminates ("HPLs") account for
most of our remaining products. We also produce resins used in HPL and TFM
production.
TFMs are utilized as durable and economical substitutes for natural surfacing
materials such as wood, stone and ceramic. These products are used in a wide
variety of residential and commercial indoor surfacing applications, including
kitchen and bath cabinets, furniture, store fixtures and displays and other
specialty applications. We believe we are the leading producer of TFMs in the
U.S. and Canada, with sales of approximately 275 million square feet of double
sided TFM panels in 1998. We estimate we have approximately a 24% share of the
combined U.S. and Canadian TFM market, based on square feet of decorative
overlay paper used in the production of TFMs. We believe that we have achieved
our leading TFM market share by offering a broad line of innovative products,
manufacturing quality products and supporting our products with what we believe
is the largest dedicated in-house sales force and customer service team in the
U.S. and Canadian TFM industry. Marketed under the widely-recognized Panolam
brand name, our TFM product line ranges from premium to commodity grade, and
consists of a custom palette of over 300 colors, patterns and wood grains in a
variety of panel thicknesses and texture finishes. We market and distribute our
TFM products through an extensive and geographically diverse network of over
180 mostly exclusive distributors servicing most major market segments and
geographic regions of the U.S. and Canada. In addition, many regional OEMs buy
proprietary designs and versions of our products directly from us.
In February 1999, we acquired our Pioneer subsidiary. Pioneer primarily
designs, manufactures and distributes HPLs used in residential and commercial
indoor surfacing applications, including countertops and cabinetry, furniture,
fixtures, and bowling lane flooring products. These products provide greater
surface wear and impact resistance than TFMs provide. Pioneer's line of HPL
products, marketed under the Pionite brand name, consists of a custom palette
of approximately 240 colors, patterns and wood grains in a variety of laminate
thicknesses and texture finishes. Pioneer has recently introduced Pionite Solid
Surface, a high-end acrylic based surfacing product, into its Pionite product
line. Pionite Solid Surface is made to our specifications by DuPont and
substitutes for more expensive natural products such as stone, marble or
granite. Pionite is sold directly by us to regional OEMs through an extensive
distribution network of approximately 130 mostly exclusive distributors.
Through Pioneer, we also selectively produce and market a variety of specialty
resins for industrial uses, such as:
. powder paint,
. adhesives and melamine resins for TFM and HPL production,
. custom treated and chemically prepared decorative overlay papers for the
TFM industry and
. a variety of other industrial laminate products such as aircraft cargo
liners and bowling lane flooring.
We acquired Pioneer in order to:
.expand our product lines into HPLs,
.offer "one stop shopping" to our customers,
.increase our sales to OEMs,
.strengthen our distribution network,
.vertically integrate our production processes and
.realize anticipated operational efficiencies.
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See "--What makes us competitive," "--What are the key elements of our business
strategy" and "The Transactions--The Pioneer Acquisition." On a combined basis,
after giving effect to the acquisition of Pioneer, our pro forma net sales for
the year ended December 31, 1998 would have been approximately $331.8 million.
As a result of our acquisition of Pioneer, we are now one of two vertically
integrated manufacturers of TFMs and HPLs in the U.S. and Canada. We believe
that we have the broadest line of decorative overlay products offered in the
U.S. and Canada. Our broad range of product offerings provides us with the
opportunity to increase sales by offering customers "one stop shopping" and
cross-selling our products to customers seeking a complete solution for their
decorative overlay and solid surfacing needs. In other words, customers will be
able to choose an integrated pattern and mix of TFMs, HPLs and solid surfacing
to suit their needs. In addition, the acquisition created significant
opportunities to leverage and strengthen our distribution capabilities through
what we believe to be one of the largest in-house sales forces in the
decorative overlay industry. We believe that we are the second largest producer
and distributor of TFMs and HPLs in the U.S. and Canada, with combined TFM and
HPL sales of approximately 450 million square feet of double sided TFMs and
single sided HPLs in 1998, after giving pro forma effect to the Pioneer
acquisition.
In connection with the Pioneer acquisition, we identified estimated annual
cost savings on a pro forma basis of approximately $4.0 million related to the
elimination of excess and redundant staffing at Pioneer. We also believe that
Panolam will be able to realize additional cost savings and distribution
synergies as a result of the Pioneer acquisition, including committed raw
material purchase price reductions obtained in connection with the Pioneer
acquisition that would have resulted in approximately $2.5 million of cost
savings in 1998 on a pro forma basis and an additional $4.0 million in
estimated savings that we believe would be realized upon the completion of a
program to automate certain production processes at Pioneer's manufacturing
facilities. Pioneer completed a portion of this automation program prior to the
closing of the acquisition, which resulted in cost savings of $1.2 million in
1998 compared to 1997. We completed this automation program in the second
quarter of 1999. Panolam has realized $1.9 million in cost savings from this
automation program in the first half of 1999 compared to the first half of
1998. We also believe that we will be able to realize additional distribution
synergies and cost savings as a result of the Pioneer acquisition. However, we
cannot assure you that any additional distribution synergies or cost savings
will in fact be realized. See "Risk Factors--We may have difficulty integrating
Pioneer and our failure to successfully integrate Pioneer could adversely
affect our business," "Unaudited Combined Pro Forma Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
What makes us competitive?
We believe that our leading market position can be attributed to the
following factors:
We offer a broad range of products. We believe we have the broadest product
line in the U.S. and Canadian decorative overlay industry. We carry TFMs, HPLs
and solid surface products in a broad range of colors, patterns and wood grains
in varying panel thicknesses and texture finishes. Our customers can purchase a
wide variety of matching and complementary decorative overlay and solid surface
products with the price/performance characteristics that meet their specific
needs. We also sell an extensive range of other products, including industrial
laminates such as aircraft cargo liners and bowling lane flooring, specialty
resins and decorative overlay papers for use in TFM and HPL production. Our
products are sold for residential and commercial end uses, including new
construction, remodeling and renovation, and furniture manufacturing. We
believe that the diversified residential and commercial applications for our
products will help stabilize our revenues and reduce our exposure to an
economic downturn in any one end-user application.
We have a strong distribution and sales network. Our network of over 310
mostly exclusive distributors constitutes what we believe to be the largest TFM
distribution channel in the U.S. and Canada. We cover most major market
segments and geographic regions. We also sell our products directly to regional
OEMs. We believe that our distribution network is one of the largest decorative
overlay distribution networks in the U.S. and Canada. We expect our expanded
range of product lines to allow us to further strengthen our distribution
network in the TFM and HPL markets. We have a large direct sales force
consisting of sales representatives
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and dedicated in-house customer service employees supporting distributor and
regional OEM sales efforts, as well as sales and specification representatives
targeting direct sales to national OEMs.
We actively promote the Panolam and Pioneer brand names. We actively promote
the Panolam and Pioneer brand names through advertising and promotional
programs and we believe that Panolam is the most widely recognized brand name
in the U.S. and Canadian TFM market. We believe that we have differentiated the
Panolam brand name from its competitors by offering a wide range of innovative
colors, patterns and wood grains in a variety of panel thicknesses and texture
finishes. The Pionite brand name is widely associated with high quality HPL
products. We intend to leverage the strengths of the Panolam and Pionite brand
names by introducing new high quality TFM, HPL and industrial laminate products
under each brand name and by supporting these products with sales, customer
service and distribution resources.
Our TFM manufacturing facilities are geographically diverse. Our TFM
manufacturing facilities are located near raw material supply sources and are
positioned to service our geographic markets: southeastern and south central
Canada and northeastern and north central U.S. (Huntsville, Ontario),
southeastern U.S. (Norcross, Georgia) and western U.S. and Canada (Albany,
Oregon). Because TFMs are sold after the decorative overlay paper has been
thermally fused to the heavy wood substrate, shipping is a principal component
of the cost of TFM panels. As a result, our geographic diversity is
advantageous in terms of shipping and producing our TFM line cost effectively.
Pioneer added an additional TFM production facility in Morristown, Tennessee,
increasing the geographic diversity of our TFM manufacturing facilities. This
additional plant is expected to provide another cost advantage. Furthermore, we
believe that our presence in most of the major geographic markets of the U.S.
and Canada reduces our exposure to an economic downturn in any one geographic
region.
Our manufacturing facilities are vertically integrated. Our Huntsville,
Ontario facility is one of the largest integrated TFM and particleboard
manufacturing facilities in the U.S. and Canada. It produces approximately 53%
of our total annual particleboard requirements. We purchase our remaining
particleboard from a large number of third parties. We also manufacture
specialty resins and decorative overlay papers for use in our TFM and HPL
production. We expect this vertical integration will lower our raw material
costs and allow us to manufacture certain key materials that are specifically
designed to meet our specifications.
What are the key elements of our business strategy?
Our business strategy is to increase revenues, profitability and market share
by offering a full line of high quality and low cost TFM and HPL products. We
deliver these products through an extensive U.S. and Canadian sales and
distribution network committed to providing the highest levels of customer
service. Key elements of our business strategy include:
We intend to increase our sales by offering our customers "one stop
shopping." Our primary business strategy is to increase sales to distributors
and to OEM customers by offering "one stop shopping" for all of a customer's
TFM, HPL and solid surface product needs. We have created a fully integrated
line of HPL and TFM products by expanding our Pionite product line to include a
full line of TFM products in patterns and textures that match Pioneer's HPL
product line. In addition, we have produced HPL products in patterns and
textures that match many of the most popular patterns and textures in the
Panolam TFM product line for sale to certain Panolam customers. We believe that
our ability to provide customers with a full line of integrated TFM, HPL and
solid surface products will permit customers to optimize the price/performance
tradeoffs among our various products. We expect this to give us a unique
competitive advantage in each market by enabling us to cross-sell product
lines. For example, we will be able to provide a customer with Pionite Solid
Surface countertops, custom patterned HPLs for cabinet doors, matching premium
TFMs for other cabinet exterior surfaces and commodity grade white TFMs for
cabinet interior surfaces. We expect this "one stop shopping" strategy to
provide us with a significant marketing opportunity, enable specification
representatives to offer an expanded range of products that may be custom
designed to the requirements of national OEMs--a market in which we intend to
increase our presence.
57
<PAGE>
We intend to increase our sales to OEM customers. We estimate that in 1998
approximately 47% of decorative overlay industry sales were through regional
distributors while 53% were made directly to OEMs. However, direct sales to
OEMs represented only approximately 47% of Panolam's 1998 sales and
approximately 36% of Pioneer's 1998 Pionite sales. Increasing OEM sales to
bring our mix of distributor and OEM sales into line with the decorative
overlay industry's average represents a significant growth opportunity. This is
particularly the case in the commercial and residential furniture applications,
where OEMs have historically purchased significantly more decorative overlay
products than distributors. Orders from OEM customers--compared with
distributor orders--are generally more predictable in terms of type and
quantity of products ordered and timing of delivery requirements. Increasing
our OEM sales, we will be able to reduce our overall exposure to fluctuations
in sales, realize certain manufacturing efficiencies and lower our inventory
costs. We believe that by offering an integrated line of matching and
complementary TFM, HPL and solid surface products, we will be better situated
to increase sales to OEM customers. We expect our integrated product lines to
provide furniture designers, architects, cabinet manufacturers, chain store and
hotel designers, manufactured home builders and other OEMs with a wide variety
of decorative overlay and solid surface products custom designed to meet their
specifications. We have dedicated additional sales resources to target direct
sales to national OEMs, such as chain store and hotel designers and furniture
manufacturers.
We intend to increase our decorative overlay market share. Within the U.S.
and Canadian decorative overlay market, TFMs have experienced the fastest
growth, growing by an estimated compound annual growth rate of approximately
9.3% from 1992 to 1998 based on square feet of decorative overlay paper used in
the production of TFMs. We were the leading producer of TFM panels in 1998,
with an estimated share of the combined U.S. and Canadian TFM market of
approximately 24% based on square feet of decorative overlay paper used in the
production of TFMs. The growth in TFM sales can be attributed to its superior
price/performance characteristics over adhesive based overlays which, although
marginally cheaper, are significantly poorer in terms of quality, finish, wear
and durability. Between 1992 and 1998, sales of other adhesive based overlays
in the U.S. and Canada increased by an estimated compound annual growth rate of
approximately 6.1% on a square footage basis. We believe that the general
growth in the U.S. and Canadian decorative overlay market and the increased
substitutability of TFMs for other adhesive based overlays provide us with
significant growth opportunities. While the U.S. HPL market has not grown as
rapidly as the U.S. and Canadian TFM market, it grew by an estimated compound
annual rate of approximately 2.1% from 1992 to 1998 on a square footage basis.
Pioneer's estimated market share in HPLs has steadily increased over the past
five years from approximately 7.5% in 1992 to approximately 10.1% in 1998. We
believe that we have an opportunity to continue to increase our share of the
U.S. HPL market through implementation of our business strategy. See "Risk
Factors--Our estimates of market share and industry size are limited by a lack
of reliable statistical information."
We intend to maximize our operating efficiencies. We have recently upgraded
and expanded existing production capabilities. In 1998 we implemented a series
of process improvement programs at our existing manufacturing facilities. These
improvements increased particleboard production at our Huntsville, Ontario
facility and increased TFM production yields at all of our manufacturing
facilities, which resulted in an increase in gross profit of approximately $1.8
million in 1998 as compared with 1997. We believe that we are currently one of
the lowest cost TFM producers in the U.S. and Canada. We have also implemented
a capital improvement program to automate certain production processes at
Pioneer's manufacturing facilities. Pioneer completed a portion of this
automation program prior to the closing of the acquisition, which resulted in
cost savings of $1.2 million in 1998 compared to 1997. We completed this
automation program in the second quarter of 1999. Panolam has realized $1.9
million in cost savings from this automation program in the first half of 1999
compared to the first half of 1998. See "Unaudited Combined Pro Forma Financial
Data" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations." We believe that through a combined series of cost
savings measures and process improvements, Pioneer should become more
competitive and capable of producing sufficient volumes at lower cost without
any significant additional investment of capital. However, we cannot assure you
that any additional cost savings will in fact be realized. See "Risk Factors--
We may have difficulty integrating Pioneer and our failure to successfully
integrate
58
<PAGE>
Pioneer could adversely affect our business," "Unaudited Combined Pro Forma
Financial Data" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
We intend to develop new applications for our products. We intend to continue
to offer new products that complement our existing product portfolio. We expect
this to enhance our strong brand name recognition and leverage our sales,
customer service and distribution resources. We plan to design new products,
such as high gloss and abrasion resistant surfaces, and to develop new
applications for our existing products. For example, we plan to develop new
uses for Pioneer's Conolite--a thin light-weight laminate currently used for
aircraft cargo liners--for application throughout the commercial shipping
industry. We also intend to adapt Pioneer's HPL bowling lane flooring for
broader application in the growing floor covering market.
We intend to acquire complimentary businesses. We intend to continue to
selectively search for and make strategic acquisitions of North American
businesses. Our goal is to acquire companies that make products complementing
our existing product portfolio or that enable us to vertically integrate our
manufacturing operations. We also intend to enter into strategic
collaborations, including joint ventures, with similarly complementary
businesses. Our broad product line, extensive distribution network and strong
brand name recognition should enable us to capitalize on other consolidation
opportunities in the decorative overlay industry.
Industry overview
We estimate that sales of decorative overlay products in the U.S. and Canada
were approximately $2.8 billion in 1998. A decorative overlay is a low cost
product that can substitute for more expensive natural surfacing products such
as solid wood, wood inlay and veneer, stone or ceramic tile. These overlay
products consist of an artificial surface layer in a decorative color or
pattern that is bonded or fused to a substrate. Decorative overlay products
include TFMs, HPLs and other artificial adhesive based overlays such as vinyls,
foils and low basis weight papers. In 1998, approximately 10.8 billion square
feet of decorative overlays were produced in the U.S. and Canada, consisting of
approximately 2.9 square feet of TFMs, based on square feet of decorative
overlay paper used in the production of TFMs, 1.4 billion square feet of HPLs,
excluding Canadian production, as to which no statistics are available, and 6.5
billion square feet of other adhesive based overlays, based on square feet of
decorative overlay paper used in the production of such other adhesive based
laminates. See "Risk Factors--Our estimates of market share and industry size
are limited by a lack of reliable statistical information."
TFMs consist of a decorative paper overlay that is impregnated with melamine
resin and thermally fused to an engineered wood substrate such as particleboard
or medium density fiberboard under pressure and heat. TFMs are also known as
low pressure laminated panels or LPLs. These have significantly better
price/performance characteristics than adhesive based overlays which, although
marginally cheaper, are significantly poorer in terms of quality, finish, wear
and durability. TFMs are significantly less expensive than HPLs while offering
comparable appearance characteristics. HPLs consist of several layers of
melamine and phenolic impregnated decorative paper that are cured under
pressure and heat and fused together to form a laminate that is then bonded by
the user to a substrate. HPLs provide significantly greater surface wear and
impact resistance than TFMs, but cost approximately twice as much to produce
and install. However, because HPL overlays are bonded rather than fused to the
substrate, HPLs are more likely to chip or delaminate than TFMs. Other adhesive
based overlays consist of a single layer of vinyl, foil or low basis weight
paper that is bonded to a substrate. Although adhesive based overlays are
cheaper than TFMs and HPLs, they offer significantly lower performance.
59
<PAGE>
Decorative overlays are used in a wide variety of residential and commercial
indoor surfacing applications where cost, durability, design, construction
versatility and ease of maintenance are factors. These applications include
kitchen and bath cabinets and countertops, furniture, store fixtures and other
specialty products. The following table sets forth frequently used applications
for TFMs and HPLs:
<TABLE>
----------------------------------------------------------
<CAPTION>
TFM Applications HPL Applications
----------------------------------------------------------------------------------
<S> <C> <C>
Kitchen & Bath Cabinets Countertops
Cabinets
----------------------------------------------------------------------------------
Residential Furniture Ready-to-assemble furniture Tabletops
Entertainment centers Bedroom suites
Closet shelving/organizers Entertainment centers
Bookcases Home office furniture
Wardrobes Night stands
Bedframes/headboards Coffee tables
End tables
----------------------------------------------------------------------------------
Commercial Furniture Office/computer furniture Laboratory tops
Hotel/motel furniture Game tables
Dormitory furniture Buffet countertops
Restaurant furniture Bartops
Lockers Salad bars
Work surfaces Cabinets
Library shelving and study Workstations
carrels
----------------------------------------------------------------------------------
Store Fixtures Store fixtures and displays Store fixtures and dis-
plays
Restaurant serving stations Flame-retardant fixtures
Bookcases Dressing room partitions
Shelving
----------------------------------------------------------------------------------
Specialty Products Speaker cabinets Bowling lane floors
Gaming cabinets Mobile home interiors
Jukeboxes Doors
Picture frames Window sills
Trade show exhibits Moldings
Cabinets and stands
</TABLE>
---------------------------------------------------------------------------
The combined U.S. and Canadian decorative overlay industry grew by an
estimated compound annual growth rate of approximately 6.2% from 1992 to 1998
on a square footage basis. We believe this growth was primarily due to improved
technology and production techniques which have increased the use of decorative
overlays over the past decade. As the costs for wood and other natural surface
products continue to rise relative to the costs for decorative overlays, the
demand for decorative overlays should continue to remain strong. Within the
U.S. and Canadian decorative overlay market, TFMs have experienced the fastest
growth, growing by an estimated compound annual growth rate of approximately
9.3% from 1992 to 1998, based on square feet of decorative overlay paper used
in the production of TFMs. We believe that this growth is primarily because
TFMs have significantly better price/performance characteristics than adhesive
based overlays and are being used in an increasing number of applications.
Between 1992 and 1998, the U.S. HPL market grew by an estimated compound annual
growth rate of approximately 2.1% on a square footage basis. Sales of other
adhesive based overlays increased by an estimated compound annual growth rate
of approximately 6.1% on a square footage basis in the same five years. See
"Risk Factors--Our estimates of market share and industry size are limited by a
lack of reliable statistical information."
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<PAGE>
Products
We primarily design, manufacture, market and distribute TFM and HPL
decorative overlay products. Our other product offerings--consisting of solid
surfaces, specialty resins, decorative overlay papers and industrial
laminates--complement our core decorative overlay product lines. The following
table presents the percentage of net sales represented by each of our products
for the periods presented on a pro forma basis:
<TABLE>
<CAPTION>
Year ended
December 31, 1998
-----------------
<S> <C>
TFM.................................................... 44.2%
HPL.................................................... 33.6%
Other products (a)..................................... 22.2%
Total.................................................. 100.0%
</TABLE>
- ---------------------
(a) Other products consist of Pionite Solid Surface, specialty resins and
decorative overlay papers sold to third parties, and industrial laminates.
TFMs. Our TFM product line, marketed under the Panolam brand name, competes
at both the premium and commodity ends of the TFM market. The premium line
generates higher margins than our commodity grade TFM products and is one of
the broadest offered in the U.S. and Canada. This line consists of a custom
palette of over 250 premium colors, patterns and wood grains that are offered
in a variety of panel thicknesses, texture finishes and substrate types. The
commodity line consists primarily of panels sold in approximately 50 shades of
whites, almonds and grays in thicknesses of 5/8" and 3/4". For the year 1998,
approximately 60% of Panolam's TFM sales were premium grade products, 39% were
commodity grade, and 1% were factory grade. Commercial applications for our TFM
products include cabinetry, computer desks and other office furniture, store
fixtures and displays, work surfaces and other indoor surfacing uses.
Residential applications for TFM products include cabinetry for kitchens and
bathrooms and surfacing for home furniture, particularly "ready-to-assemble"
furniture.
HPLs. Marketed under the Pionite brand name, our HPL product line is used in
residential and commercial indoor surfacing applications that require greater
surface wear and impact resistance than TFMs. These surfacings include kitchen
countertops and furniture. Pionite HPLs are available in a custom palette of
over 240 colors, patterns and wood grains, and are offered in a variety of
laminate thicknesses and texture finishes. We offer Pionite HPL in three
grades, which are determined by the thickness of the laminate. Pionite standard
grade is our thickest and most durable HPL product and is used in applications
requiring the highest impact resistance, such as countertops. Pionite standard
grade generates higher margins than thinner Pionite products. Pionite post-
forming grade is thinner than standard grade and is generally used in
applications calling for rounded edges or contoured surfaces. Pionite vertical
grade is our thinnest HPL product and is used on vertical surfaces such as
cabinet side panels and other applications that do not require the high impact
resistance needed in other applications. We also offer numerous specialty HPL
product lines that are designed to meet specific physical performance or
unusual design requirements such as chemical resistance and low electrical
resistance work surfaces, bowling lane flooring and aesthetic features such as
seamless and pearlescent laminates. Our specialty HPL product lines command
higher profit margins than general purpose HPLs. Pionite HPL sales for 1998
broke down as follows:
.35% for standard grade;
.17% for post-forming grade;
.33% for vertical grade;
.9% for specialty HRLs; and
. 6% consisting of unfinished backing sheets. Pionite HPLs accounted for
approximately 60% of our sales for 1998.
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<PAGE>
Pionite Solid Surface. Pioneer recently introduced Pionite Solid Surface--now
made to our specifications by DuPont--into our Pionite product line. Pionite
Solid Surface is a high-end surfacing product made of acrylic resin with
mineral fillers and offers a lustrous appearance and a smooth feel that is
similar to stone but is much more workable and can be easily shaped. Pionite
Solid Surface is considerably more expensive than HPLs and is used as a
substitute for natural products such as stone, marble and granite for many
common residential applications such as countertops and bathroom fixtures.
Commercial usage includes foodservice and hospitality countertops. Pionite
Solid Surface broadens our Pionite product line and enables us to compete more
effectively with other laminate companies which promote solid surface products
alongside their HPL products and furthers our strategy of offering "one stop
shopping" for all of a customer's decorative surfacing needs. Introduced in
October 1997, Pionite Solid Surface accounted for approximately 1% of Pioneer's
sales for 1998. This market represents a growth opportunity for us.
Specialty resins. We manufacturer specialty resins for HPL and decorative
overlay paper divisions and for sale to external customers for a number of
industrial uses such as powder paint, adhesives and melamine resins for TFM and
HPL production. External sales represent approximately 56% of our specialty
resin production. Specialty resins accounted for approximately 13% of Pioneer's
sales for 1998. We use Pioneer specialty resins in the production of TFMs and
HPLs, which is expected to lower our raw material costs and allow the
manufacture of resins that are specifically designed to meet our
specifications.
Decorative overlay papers. Pioneer supplies custom saturated decorative
overlay papers under the brand name Resopreg to TFM producers and also treats
papers provided by its customers. Pioneer also manufactures Resopreg saturated
decorative overlay papers for internal use. We intend to use Resopreg
decorative overlay papers in TFM and HPL production. Decorative papers
accounted for approximately 13% of Pioneer's sales for 1998.
Industrial laminates. Pioneer manufactures a variety of industrial laminate
product lines, as well as continuous and flexible laminates and TFMs. Pioneer's
principal industrial laminate product is Conolite, a thin light weight laminate
currently used for aircraft cargo liners. Conolite is designed to incorporate a
combination of impact resistance, light weight, flame resistance, edge bearing
strength and consistent surface characteristics. Continuous laminates are used
for picture frames. Pioneer also produces flexible laminates, which are a do-
it-yourself decorative overlay product sold primarily through large home
centers. In addition, Pioneer manufactures a line of TFM products using
Resopreg papers in a range of colors and patterns that are designed to match
the Pionite HPL product line. Industrial and other specialty laminates
accounted for approximately 12.0% of Pioneer's sales for 1998.
Sales, marketing and distribution
We intend to preserve the Panolam and Pioneer brand identities and to
actively promote and market each brand under its own dedicated sales force.
This is part of our strategy of offering "one stop shopping" for all of a
customer's TFM, HPL and solid surface product needs. Pionite sales force, which
is expected to consist of 15 sales representatives supported by 21 dedicated
customer service representatives, will market and sell a fully integrated line
of HPL, TFM and Pionite Solid Surface products. In addition, Panolam sales
force, which consists of a network of 15 sales representatives supported by ten
dedicated customer service representatives, will market and sell our Panolam
product line along with certain HPL products in patterns and textures that
match many of the most popular patterns and textures in the Panolam TFM product
line. We believe that our ability to provide customers with full lines of
integrated decorative surfacing products under our brand names will permit
customers to optimize the price/performance tradeoffs among our various
products. We expect this to provide us with a unique competitive advantage in
each market to cross-sell our product lines. We dedicate an additional 17 sales
and specification representatives to target direct sales of Panolam and Pionite
products to national OEMs such as furniture designers, architects, cabinet
manufacturers, chain store and hotel designers and manufactured home builders.
This additional sales service also custom designs our products to meet OEM
specifications. In addition, we intend to dedicate sales personnel to our
specialty resin, decorative overlay papers and industrial laminate product
lines.
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<PAGE>
Our large and geographically diverse distribution network of over 180 TFM
distributors are our exclusive distributors enabling our products to be sold
cost effectively to the principal markets in the U.S. and Canada. We believe we
have the largest distribution channel of any TFM producer in the U.S. and
Canada. It has been our strategy to market product through exclusive
distributors and in return provide for limited protected territories. All of
our exclusive distributors maintain an inventory of our products, and our
"Platinum" level distributors carry a full line of our most popular patterns
and textures. Prior to establishing a relationship with a distributor, we
review the distributor's competitive position, customer base, sales
organization and marketing ability. Our distributors are generally among the
top two in terms of sales in their respective markets and views its
distribution network as a strategic advantage. In 1998, we also sold Panolam
products to over 80 mostly regional OEM customers, including Kitchen Craft of
Canada Ltd., Sauder Manufacturing Co., La Casse, Global, Globe and DSI Group,
Inc.
We sell Pionite through a network of approximately 130 mostly exclusive
distributors, which accounted for approximately 65% of Pioneer's 1998 Pionite
sales, and directly to OEMs such as furniture manufacturers, which accounted
for the remaining approximately 35% of Pioneer's 1998 Pionite sales. Pioneer
entered into five year exclusive distribution agreements with Rugby Building
Products' network of 21 distributors--which accounted for approximately 30% of
Pioneer's HPL sales in 1998--whereby Rugby Building Products agreed to purchase
specified amounts of HPLs each year based on 1997 volume levels. Rugby Building
Products has also agreed to use its best efforts to distribute Panolam's TFM
products--which accounted for approximately $4 million of Rugby Building
Products' $12 million in TFM sales in 1998--through this distribution network.
See "The Transactions--The Pioneer Acquisition." In 1998, Pioneer also sold
Pionite products to 72 OEM customers, including Brunswick Corporation, Herman
Miller, Inc., Steelcase Inc. and VT Industries Inc. Other than Rugby Building
Products, there is no significant overlap between Panolam's and Pioneer's
distributors, and we believe that the combined distribution network will be one
of the largest decorative overlay distribution networks in the U.S. and Canada.
We believe that our expanded range of product lines following the acquisition
will allow us to further strengthen our distribution network in each market.
No single customer individually accounted for more than 10% of our 1998 pro
forma consolidated revenues, except that sales through Rugby Building Products'
network of 21 distributors accounted for approximately 10.5% of the revenues.
Competition
The decorative overlay industry is highly competitive. Competition is based
on price, breadth of product line, design leadership, product quality, customer
service and distribution coverage. The key quality requirements are visual and
color consistency and designs that are responsive to fashion trends.
Competition in the market for commodity grade products is almost exclusively
price based. Our products also compete on price/performance characteristics
with other surfacing products, including low cost artificial adhesive based
overlays such as vinyls, foils and low basis weight papers and high cost
natural surfaces such as wood, stone and ceramic tile. We also face potential
competition from European manufacturers, although to date European competition
has not been material.
We estimate that the number of TFM manufacturers in the U.S. and Canada has
consolidated over the past two decades to approximately 40 companies in 1998.
The U.S. and Canadian TFM market is highly concentrated, and management
estimates that the largest producers account for a majority of the TFMs sold in
the U.S. and Canada on a square footage basis. The remainder of the market is
comprised of a number of smaller regional manufacturers. Because shipping is a
principal component of the cost of TFM panels and capital costs are relatively
low, regional manufacturers are able to compete in the TFM market. The largest
manufacturers are integrated producers of decorative overlay papers and
engineered wood substrate. We believe that several factors contribute to our
leading TFM market share, including the integrated nature of our manufacturing
process and facilities, the high quality and delivery ratings accorded our
products by customers, the broad line of innovative products offered by us, and
the strength of our sales, customer service and distribution resources.
63
<PAGE>
The U.S. and Canadian HPL market has also consolidated over the past two
decades to four manufacturers in 1998: Wilsonart International, Inc., a
subsidiary of Premark International, Inc., Formica Corporation, International
Paper Company, marketed under the brand name Nevamar, and Pioneer. We believe
that Wilsonart International, Inc. is the largest supplier of HPLs in the U.S.
market followed by Formica Corporation. Higher capital costs restrict the
ability of smaller regional manufacturers to effectively compete in the HPL
market. International Paper Company is the only HPL manufacturer which also
competes with us in the TFM market. Although Pioneer is currently the smallest
of the four U.S. and Canadian HPL producers, we believe that Pioneer may have
an opportunity to increase its market share in the HPL market through
implementation of its business strategy.
Manufacturing and raw materials
Our manufacturing process results in timely delivery of high quality products
to customers on a cost effective basis. The manufacturing process incorporates
several distinct steps which require coordination in order to ensure
flexibility and short lead times, match product standards and achieve high
throughput.
TFMs are produced by thermally fusing a melamine impregnated decorative paper
overlay to an engineered wood substrate such as particleboard or, if rounded or
shaped edges are required, medium density fiberboard Our TFM panels are
generally laminated on both sides of the substrate. HPLs, which are more costly
to produce than TFMs, are produced by impregnating papers with melamine and
phenolic resins, which are then placed between stainless steel plates in a
multi-opening press and cured under pressure and heat. The number of paper
laminations per sheet of laminate varies with the specific type of HPL product
being produced, but all have melamine resin on the surface to create a hard,
durable surface. Surface textures can range from very high gloss, smooth
surfaces to deeply textured surfaces and surfaces with other special design and
performance features. The HPL product is sold as a laminate which is then
bonded by the user to a substrate.
TFM and HPL decorative overlays are produced from a few basic raw materials.
Wood substrate, papers and melamine resins each constitute approximately one-
third of the raw materials used in TFM production. Papers constitute nearly 75%
of the total raw materials used in HPL production and resins, including
melamine and phenolic resin, constitute the remaining raw materials. Our
nonintegrated TFM facilities purchase particleboard and medium density
fiberboard substrate from outside vendors. Our fully integrated TFM facility
manufactures approximately 53% of our annual requirements of particleboard
substrate, and purchases additional particleboard and medium density fiberboard
from outside vendors when required. The saturated papers used by us in the
manufacture of TFMs and HPLs are available worldwide from several major sources
and many smaller producers and are also treated in-house. Melamine, phenol and
formaldehyde, the primary raw materials for resins, are globally available
commodity chemicals. We currently purchase these raw materials from various
suppliers at market prices. We developed strategic alliances with major
suppliers of paper and melamine crystal, which has allowed us to reduce costs
and reduce exposure to a supply interruption. We manufacture Pioneer specialty
resins and decorative overlay papers for use in TFM and HPL production. This
vertical integration is expected to lower our raw material costs and allow us
to manufacture certain key materials that are specifically designed to meet our
specifications. We believe we are the only TFM and HPL manufacturer in the U.S.
and Canada with its own melamine resin production facility. We do not rely on
any single supplier for any raw material needs and have experienced no raw
material supply problems in the last 10 years.
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<PAGE>
Properties
Our corporate headquarters are located at 20 Progress Drive, Shelton,
Connecticut. We lease the headquarters. The following table sets forth relevant
information regarding our facilities.
<TABLE>
<CAPTION>
Approx.
Location Use Square Feet Owned/Leased
- -------- --- ----------- ------------
<S> <C> <C> <C>
Shelton, CT............. Headquarters 12,000 Leased (through Sept. 2008)
Huntsville, ONT......... TFM manufacturing (integrated) 400,000 Owned
Norcross, GA............ TFM manufacturing 106,000 Leased (through Nov. 1999)
Albany, OR.............. TFM manufacturing 170,000 Owned
Lewiston, ME (Pioneer).. Warehousing 10,000 Leased (month-to-month)
South Paris, ME
(Pioneer).............. Warehousing 10,000 Leased (month-to-month)
Auburn, ME (Pioneer).... HPL, specialty resin and 570,000 Owned
decorative overlay
paper manufacturing
Morristown, TN
(Pioneer).............. TFM and industrial 185,000 Owned
laminate manufacturing
Elkhart, IN (Pioneer)... Distribution 50,000 Leased (through Jan. 2004)
Pomona, CA (Pioneer).... Distribution 25,000 Leased (month-to-month)
Covington, GA (Pioneer). Distribution 61,500 Leased (through March 2008)
</TABLE>
We produce TFMs at three of our manufacturing facilities, one of which is
integrated and produces particleboard. Our aggregate annual production capacity
is approximately 160 million square feet of particleboard and 360 million
square feet of double sided TFM panels. We currently operate one HPL, specialty
resin and decorative overlay paper manufacturing facility and one nonintegrated
TFM and industrial laminate manufacturing facility. Total aggregate production
capacity breaks down to approximately 220 million square feet of TFMs, 348
million square feet of decorative overlay papers, 25 million square feet of
HPLs, and 20 million pounds of specialty resins.
We believe that the Huntsville, Ontario facility, which is ISO 9000
certified, is one of the largest integrated TFM and particleboard manufacturing
facilities in the U.S. and Canada and has sufficient capacity to meet
anticipated near term customer demand without requiring significant additional
capital expenditures. Each of our TFM manufacturing facilities is located near
raw material supply sources and is well positioned to service its respective
geographic market: southeastern and south central Canada and northeastern and
north central U.S. (Huntsville, Ontario), southeastern U.S. (Norcross, Georgia)
and western U.S. and Canada (Albany, Oregon). Our geographic diversity gives us
an advantageous position in terms of shipping TFM products cost effectively to
most of the principal markets in the U.S. and Canada (other than the central
U.S.). Geographic diversity also allows us to meet customers' delivery
requirements. The acquisition of Pioneer added an additional TFM production
facility in Morristown, Tennessee, increasing the geographic diversity of our
TFM manufacturing facilities, which is expected to provide an additional cost
advantage. Pioneer spent additional amounts on capital improvements at its
facilities prior to the closing of the acquisition, including amounts spent in
connection with a program to automate certain labor-intensive production
processes. We believe that, through a combined series of cost savings measures
and process improvements, Pioneer should become more competitive and capable of
producing sufficient volumes at lower cost without any significant additional
investment of capital. See "--What are the key elements of our business
strategy?--We intend to maximize our operating efficiencies," "Risk Factors--We
may have difficulty integrating Pioneer and our failure to successfully
integrate Pioneer could adversely affect our operations," "--The estimates and
assumptions underlying our Pro Forma Financial Information are subject to
significant uncertainties," "Unaudited Combined Pro Forma Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
65
<PAGE>
Patents, trademarks and licenses
We rely on patent, trade name, trademark and copyright protection, as well as
on unpatented proprietary know-how and other trade secrets, for certain of our
products, components, processes and applications. We consider our proprietary
information, including the widely recognized Panolam and Pionite brand names,
to be important. This information is especially important in maintaining a
competitive position in our markets. Therefore, we take actions to protect our
intellectual property rights. However, we cannot assure that our patents will
not be challenged, invalidated, circumvented or rendered unenforceable or that
our other intellectual property will remain adequately protected. Our
operations are not dependent upon any particular patents, trademarks or
copyrights. The loss of the trade names Panolam or Pioneer could adversely
affect us.
Government regulations and environmental matters
Potentially toxic or hazardous materials and waste products may be used in
our manufacturing operations for the production of decorative overlay products.
Consequently, we are subject to numerous environmental and occupational health
and safety laws and regulations. In particular, we are subject to stringent
environmental laws and regulations governing waste disposal, air and water
emissions, the handling of hazardous substances, workplace exposure, and the
operation of above ground and underground storage tanks for fuels and chemical
storage. We may face material liability through enforcement by government
agencies or other parties if we fail to comply with environmental laws and
regulations. We may also be required to make large capital expenditures to
maintain compliance.
We believe that we are in material compliance with current environmental laws
and regulations and that our reserves are sufficient to cover any known
environmental claims related to our properties. However, additional compliance
costs or liabilities could arise due to the adoption of new laws and
regulations, changes in existing laws and regulations, or governmental or
private damage claims resulting from our current or former operations. These
events could have a material adverse effect on our business.
In addition, releases to the environment of hazardous or toxic wastes or
substances may subject us to liability for cleaning up contamination. This
liability may attach to facilities that we currently or formerly owned or
operated or at off-site locations in the United States where we have has
arranged for disposal of such substances. In some cases, such liability may be
imposed even if we were not at fault or if the original activity that resulted
in the contamination was lawful.
Prior to any acquisition, we evaluate properties owned or leased by potential
acquisition candidates to assess environmental conditions. As a result, we are
aware that soil or ground-water contamination may be present on certain of
Pioneer's properties, such the facility in Auburn, Maine. This contamination
was caused by a prior owner. The contamination of soil and groundwater at the
Auburn facility has been investigated by Pioneer and the prior owner of the
facility pursuant to administrative orders issued by the Maine Department of
Environmental Protection. Under the terms of a settlement agreement, the prior
owner of the facility is primarily responsible for fulfilling the requirements
of the Maine Department of Environmental Protection or other governmental
agencies. With respect to one area under investigation, the prior owner's
obligation to remediate is capped at $10.0 million.
While we believe that the prior owner has sufficient financial resources to
perform the remedial obligations, there is a risk that Pioneer may incur costs
or may have to perform remedial work if the prior owner fails to meet its
obligations. This is because CERCLA and the Maine hazardous substance statute
provide that responsible parties, including current owners and operators, may
both be completely liable for releases of hazardous substances regardless of
when the contamination occurred. Although CERCLA and the Maine hazardous
substance statute allow private parties to enter into private agreements to
allocate responsibility for cleanup of hazardous substances, the government may
still impose liability on the current owner or operator of a facility.
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<PAGE>
Under the terms of the settlement agreement, there is also a risk that Pioneer
may be required to contribute financially to the cost of remediation if
Pioneer's operation of the Auburn facility contributed to the existing
contamination at the site. We believe that the costs of eventual remedial work,
which could total several million dollars, will be borne by the prior owner.
The presence of contamination at the Auburn facility may also make it more
difficult for Pioneer to develop or sell portions of the property. However,
Pioneer is entitled to an indemnity from the prior owner for loss in value of
the Auburn, Maine property caused by past releases of hazardous substances. In
addition, we have identified past releases on certain other of Pioneer's
properties. However, we believe, though we cannot guarantee, that we will not
incur material liability for such releases. See "Risk Factors--Our failure to
comply with environmental laws could result in material liability."
Employees
As of July 31, 1999, we employed 1,426 persons comprising of 1,091 hourly
employees and 335 salaried employees. None of our employees is party to
collective bargaining agreements, and we have good employee relations. We
believe the high level of expertise of our manufacturing and sales force
maintains our competitive advantage. We have incentive compensation programs
for vital employees based on sales growth and profitability.
Legal Proceedings
Various litigation matters involving us may arise in the ordinary course of
our business. We cannot estimate our legal and financial liability at the
present time. However, we believe that we are not involved in matters that are
material to our business.
67
<PAGE>
Management
Executive Officers and Directors
The following table sets forth relevant information as of July 31, 1999, with
respect to our directors and executive officers:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
Robert J. Muller, Jr........ 52 President, Chief Executive Officer and
Director
Sara M. Foster.............. 42 Director of Finance and Secretary
Stephen Feuring............. 48 Director of Marketing and Customer
Service
Richard Ricci............... 57 Director of Sales
Martin Skojec............... 52 Director of Manufacturing
Bernard Lishinsky........... 57 Director of Human Resources
Jean-Pierre L. Conte........ 35 Chairman of the Board of Directors (a)
Richard D. Paterson......... 56 Director (a)
Richard F. Hoskins.......... 35 Director (a)
</TABLE>
- ---------------------
(a) Member of Audit Committee and Compensation Committee
Robert J. Muller has been our President, Chief Executive Officer and a member
of our board of directors since January 1998. Prior to joining us, Mr. Muller
was Executive Vice President of Crane Co., a Delaware corporation, for 13
years, with responsibility for various of Crane Co.'s industrial and supply
businesses. Mr. Muller received a B.Ch.E. from Manhattan College, a M.S. from
the University of Massachusetts and a M.B.A. from the University of Delaware.
Sara M. Foster has been our Director of Finance and Secretary since December
1998. From August 1988 until joining us, Ms. Foster served in various
accounting positions, most recently as Senior Director of Corporate Accounting
International, with United States Surgical Corporation, a Delaware corporation.
Prior to joining United States Surgical Corporation, Ms. Foster was an auditor
with Coopers & Lybrand for approximately four years. Ms. Foster received a B.S.
from Indiana University and a B.S. from Sacred Heart University, and is a
certified public accountant.
Stephen Feuring has been our Director of Marketing and Customer Service since
May 1998. Prior to joining us, Mr. Feuring served as Director of Marketing and
Customer Service for Crane National Vendors, a Delaware corporation, from
February 1995 to May 1998 and in various marketing positions with Cadbury
Beverages, a U.K. corporation, from 1987 to January 1994. Mr. Feuring received
a B.S. from the University of Tennessee.
Richard Ricci has been our Director of Sales since May 1998. For 25 years
prior to joining us, Mr. Ricci held various sales positions with Crane Co., a
Delaware corporation, most recently serving as Vice President of Sales.
Martin Skojec has been our Director of Manufacturing since December 1, 1998.
From May 1994 until joining us, Mr. Skojec served as Technical Customer Service
Manager for CDM Laminates, Inc., a Quebec corporation. Mr. Skojec received a
B.S. in Business Administration from Rochester Institute of Technology.
Bernard Lishinsky has been our director of Human Resources since March 1999.
From March 1985 until joining us, Mr. Lishinsky served as Corporate Director of
Human Resources for Handy & Harman, a Delaware corporation. Mr. Lishinsky
received a B.A. in Political Science from Brooklyn College.
Jean-Pierre L. Conte has been a member of our board of directors since 1996
and Chairman of our board of directors since 1998. Mr. Conte joined Genstar
Capital in 1995 and has been a managing director of Genstar Capital since 1997.
Prior to joining Genstar Capital, from 1989 to 1995 Mr. Conte was a principal
at The NTC
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<PAGE>
Group, Inc., a private equity investment firm. In addition, he is currently a
director of TB Woods Corporation (NYSE:TBW) and a number of privately held
corporations, including NEN Life Science Products Inc., Skyway Freight Systems,
Inc., and Andros Incorporated.
Richard D. Paterson has been a member of our board of directors since 1996.
Mr. Paterson has been a managing director of Genstar Capital since its
formation and Executive Vice President and a director of Genstar Investments,
an affiliate of Genstar Capital, since 1987, and was a director of a fund
affiliated with Genstar Investments from 1988 through August 1995. In addition,
he is currently Chairman of the board of directors of Prestolite Electric
Holding, Inc., a reporting company under the Securities Exchange Act of 1934,
and a director of a number of privately held corporations, including NEN Life
Science Products, Inc., Skyway Freight Systems, Inc., Andros Incorporated, and
Gentek Building Products, Inc.
Richard F. Hoskins has been a member of our board of directors and a managing
director of Genstar Capital since April 1998. Prior to joining Genstar Capital
from January 1993 to April 1996, Mr. Hoskins was a partner with Schroeder
Ventures in Germany, where he was responsible for a number of investments in
industrial and technology companies, and an independent consultant from April
1996 to April 1998. In addition, he is currently Chairman of the Board of
Directors of Skyway Freight Systems, Inc., and a director of a number of
privately held corporations, including NEN Life Science Products, Inc. and
Andros Incorporated.
Our directors are elected annually to serve until our next annual
stockholders meeting or until their successors have been elected and qualified.
Our executive officers are appointed by, and serve at the discretion of, our
board of directors. None of our directors or executive officers is related by
blood, marriage or adoption to any other director or executive officer.
Compensation of Directors
The directors of Panolam Holdings do not receive any compensation for their
services as directors.
Employment Agreements
We have entered into agreements with each of Messrs. Muller, Feuring, Ricci,
Skojec and Lishinsky and Ms. Foster. The agreements with Messrs. Feuring,
Ricci, Skojec and Lishinsky and Ms. Foster provide in each case that if the
executive's employment is terminated at any time within one year following the
occurrence of a change of control for any reason other than cause or good
reason the terminated individual shall receive a payment equal to twelve months
salary plus a specified bonus. In the event of a change of control, any
unvested stock options will vest automatically.
The agreement with Mr. Muller provides that he shall be entitled to receive
severance pay equal to twelve months base compensation in the event of
termination for reasons other than for cause. In addition, Mr. Muller shall be
entitled to an additional twelve months of base compensation in the event his
employment is terminated within six months after a change in control. Mr.
Muller, upon commencement of employment, received a grant of stock options
under our 1996 Option Plan, which vest ratably over five years. In the event of
a change of control, any unvested stock options will vest automatically.
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<PAGE>
Executive Compensation
The following table sets forth information concerning the annual and long-
term compensation for services in all capacities for 1998 of those persons who
served as:
.our chief executive officer at December 31, 1998, and
.our former chief executive officer.
None of our executive officers, other than our chief executive officer, who was
serving as such as of December 31, 1998, had total annual salary and bonus in
excess of $100,000 in 1998.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-term
Compensation
Annual Compensation Awards
------------------------ ------------
Other
Annual Securities All Other
Compen- Underlying Compen-
Name and Principal Position Salary Bonus sation(1) Options(#) sation(2)
--------------------------- -------- ----- --------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Current Executive Officers:
Robert J. Muller.............. $265,360 $ -- $ -- 5,556 $ --
President and Chief Executive
Officer
Former Executive Officers:
Claude Arcand(3).............. 6,784 -- 13,446 -- 537,553
Former President and Chief
Executive Officer
</TABLE>
- ---------------------
(1) Includes excludable moving expenses, vacation, car allowance and relocation
costs.
(2) Includes severance paid in connection with termination.
(3) Mr. Arcand was terminated on January 12, 1998.
Option/SAR Grants in Last Fiscal Year
Option Grants and Exercises
The following table provides information concerning grants of options to
purchase Panolam Holdings' common stock made during 1998 to our executive
officers. The only executive officer to be granted any options in 1998 was Mr.
Muller. In the column marked "Potential Realizable Value At Assumed Annual
Rates of Stock Price Appreciation For Option Term," potential gains are net of
exercise price, but before taxes associated with exercise. These amounts
represent certain assumed rates of appreciation only, based on the SEC rules.
Actual gains, if any, on stock option exercises are dependent on the future
performance of the common stock, overall market conditions and the option-
holders' continued employment through the vesting period. The amounts reflected
in this table may not necessarily be achieved.
<TABLE>
<CAPTION>
Individual Grants
--------------------------
Potential
Realizable Value
at Assumed Annual
Rates of Stock
Number of Percent of Price
Securities Total Options Appreciation for
Underlying Granted to Exercise of Option Terms
Options Employees Base Price -----------------
Name Granted (#) in Fiscal Year ($/sh) Expiration Date 5% ($) 10% ($)
---- ----------- -------------- ----------- ---------------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Robert J. Muller, Jr. .. 5,556 100% 203.06 January 12, 2008 709,520 1,798,062
</TABLE>
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<PAGE>
Aggregated Option Exercises in Last Fiscal Year and
Fiscal Year-End Option Values
The following table summarizes the number and value of all unexercised
options held by Mr. Muller as of December 31, 1998. The value of Mr. Muller's
unexercised options is based upon the fair market value of the underlying
common stock as of December 31, 1998, as determined by our board of directors,
minus the exercise price. Fair market value was determined in good faith by our
board of directors and was based upon our historical and projected financial
performance. Based upon the estimated fair market value of the underlying
common stock at December 31, 1998 of $203.06, no options were "in-the-money."
No options were exercised by Mr. Muller during 1998. No other executive officer
held any options as of December 31, 1998.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money Options
Options at FY-End (#) at FY-End ($)
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Robert J. Muller, Jr........ -- 5,556 -- --
</TABLE>
Compensation Committee Interlocks and Insider Participation
The current members of our compensation committee are Messrs. Conte, Paterson
and Hoskins. No member of our board of directors or of its compensation
committee serves as an executive officer of any entity that has one or more of
our executive officers serving as members of its board of directors or
compensation committee. No such interlocking relationship has existed in the
past. See "Certain Transactions" for a description of transactions between us
and entities affiliated with members of our compensation committee.
1996 Option Plan
In 1996, Panolam Holdings adopted the Panolam Industries Holdings, Inc. 1996
Equity Incentive Plan, intended to enhance the ability of Panolam Holdings to
attract, retain and motivate officers and key employees of Panolam Holdings and
its subsidiaries by providing such persons with an opportunity to obtain an
ownership interest in Panolam Holdings and by rewarding them for their
contributions. The 1996 Option Plan is administered by the compensation
committee of the Board of Directors of Panolam Holdings. As of July 31, 1999,
an aggregate of 11,111 shares have been reserved for issuance under the 1996
Option Plan, of which options to purchase 8,061 shares of common stock were
outstanding, of which 3,283 were vested.
The compensation committee has authority to, from time to time, make grants
of stock options to any employee of Panolam Holdings or one of its subsidiaries
to purchase shares of common stock. The compensation committee is required to
grant an aggregate of not fewer than 11,111 options to purchase shares of
common stock under the 1996 Option Plan prior to June 6, 1999. At its
discretion the compensation committee may grant options that are intended to
qualify as an incentive stock option under Section 422 of the Internal Revenue
Code of 1986, as amended, and the rules and regulations promulgated thereunder,
or that are non-qualified stock options, which are not intended to be so
qualified. The purchase price of each share of common stock subject to the
options is determined by the compensation committee at the time of the grant,
provided that the option price for an incentive stock option shall be no less
than 100%, and for a non-qualified stock option no less than 85%, of the fair
market price of a share of common stock on the date of the grant. All options
granted are subject to the terms of the option agreement entered into by the
recipient of the options.
Options vest and become exercisable as determined by the compensation
committee and as set forth in the applicable option agreement, but not over a
period greater than five years and not less than 20% per year. Options are not
exercisable unless either the common stock subject to the options has been
registered under the Securities Act of 1933 and qualified under applicable
state "blue sky" laws or the exercising recipient has furnished an investment
representation satisfactory to Panolam Holdings that such registration and
qualification
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<PAGE>
is not required. Options are effective for such term as determined by the
compensation committee and set forth in the applicable option agreement, but
not for fewer than ten years from the grant date. Shares of common stock issued
upon exercise of an option to purchase common stock granted under the 1996
Option Plan are subject to the restrictions and entitled to the benefits of our
Stockholders' Agreement. See "Certain Transactions--Stockholders' Agreement."
If the recipient's full time employment with us terminates by reason of
retirement, death or disability, then all vested options are exercisable for
one year following the date of such termination. Upon termination of a
recipient for cause or through voluntary resignation for any reason other than
disability or retirement, all options immediately terminate and cease to be
exercisable as of such date. Upon termination for any other reason, vested
options are exercisable by such recipient for 90 days following the date of
such termination.
In the event of a change of control of Panolam Holdings or the sale, merger,
consolidation, reorganization or liquidation of the division or subsidiary for
which the recipient performs services, then the compensation committee may, but
is not required to, make adjustments and take such actions as the compensation
committee determines to be necessary or advisable to provide such recipient
with a benefit equivalent to what such recipient would have been entitled to
had such event not occurred. The options are subject to anti-dilution
provisions in the event of a change in the capital structure of Panolam
Holdings. Options are not transferable by the recipient other than by will or
the laws of descent and distribution, and are exercisable during the
recipient's lifetime only by the recipient.
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<PAGE>
Security Ownership of Certain Beneficial
Owners and Management
The table below sets forth certain information regarding beneficial ownership
of the common stock of Panolam Holdings as of August 10, 1999, by:
. each person or entity known by us to own beneficially 5% or more of the
common stock of Panolam Holdings,
.each executive officer named in the Summary Compensation Table,
.each of our directors, and
.all of our executive officers and directors as a group.
As of August 10, 1999, there were 129,187.2 shares of common stock
outstanding. Panolam Holdings owns, directly or indirectly, 100% of the common
stock of the Issuer and the Guarantors. Beneficial ownership is determined in
accordance with the rules of the SEC and generally includes voting or
investment power with respect to securities. Shares of common stock subject to
options or warrants currently exercisable or convertible, or exercisable or
convertible within 60 days of August 10, 1999, are deemed outstanding for
computing the percentage of the person holding such option or warrant but are
not deemed outstanding for computing the percentage of any other person. Except
as indicated in the footnotes to this table and pursuant to applicable
community property laws, the persons named in the table have sole voting and
investment power with respect to all shares of common stock beneficially owned.
<TABLE>
<CAPTION>
Shares
Beneficially Owned
---------------------
Number Percent
----------- ---------
<S> <C> <C>
Genstar Capital Partners II, L.P. ........................ 122,008.6 94.4%
950 Tower Lane, Suite 1170
Foster City, California 94404
Robert J. Muller, Jr. (1)................................. 7,194.5 5.5
Jean-Pierre L. Conte (2).................................. 2,426.0 1.9
Richard D. Paterson (2)................................... 2,426.0 1.9
Richard F. Hoskins (2).................................... 2,426.0 1.9
All executive officers and directors as a group (9
persons) (3)............................................. 9,620.5 7.4
</TABLE>
- ---------------------
(1) Includes 1,111 shares issuable upon exercise of options exercisable within
60 days of August 10, 1999. Does not include 4,445 shares issuable upon
exercise of options which vest more than 60 days after August 10, 1999.
(2) Consists of 1,330.9 shares of common stock owned by Genstar Capital by
virtue of Genstar Capital's ownership in Genstar Capital Partners II, as to
which Messrs. Conte, Paterson and Hoskins disclaim beneficial ownership,
and 1,095.1 shares of common stock owned by StarGen II LLC, which is an
affiliate of Genstar Capital, and of which each of Messrs. Conte, Paterson
and Hoskins are members.
(3) Includes 1,111 shares issuable upon exercise of options exercisable within
60 days of August 10, 1999. Does not include 5,545 shares issuable upon
exercise of options which vest more than 60 days after August 10, 1999.
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<PAGE>
Certain Relationships and Related Transactions
Stock Purchase by Robert J. Muller, Jr.
In connection with becoming our president and chief executive officer,
Mr. Muller entered into a Management Stock Subscription Agreement pursuant to
which he purchased 4,924 shares of common stock from Panolam Holdings for
$203.06 per share, for an aggregate purchase price of approximately $1.0
million.
Stockholders' Agreement
Each of Panolam Holdings, Domtar Industries, Inc., Genstar Capital Partners
II, Mr. Muller and each option holder under our 1996 Option Plan are party to a
Stockholders' Agreement, dated as of June, 1996. The Stockholders' Agreement
covers common stock of Panolam Holdings and other securities convertible into
or exchangeable for shares of common stock of Panolam Holdings held by the
parties thereto. The Stockholders' Agreement provides for, among other things:
. transfer restrictions,
. tag-along rights pursuant to which certain stockholders have the right
to participate in certain sales by Genstar Capital Partners II,
. drag-along rights pursuant to which Genstar Capital Partners II can
compel the sale by the other stockholders in certain transactions,
. call and put options with respect to common stock of Holdings and
convertible securities held by management stockholders who we have
terminated as our employees,
. registration rights relating to the common stock of Panolam Holdings,
. call and put options granted to Panolam Holdings and Domtar Industries
with respect to the common stock of Panolam Holdings held by Domtar
Industries upon the occurrence of certain events and
. the right of Domtar Industries to purchase a pro rata share of
additional common stock of Panolam Holdings or convertible securities
issued to Genstar Capital Partners II in certain circumstances.
Domtar Industries elect not to purchase its pro rata share of the additional
shares of common stock of Panolam Holdings that was issued to Genstar Capital
Partners II in the share purchase. See "--Share Purchase." Each person or
entity to whom Panolam Holdings issues common stock or convertible securities,
including under the 1996 Option Plan, is required to become a party to the
Stockholders' Agreement.
Genstar Transactions
One of our U.S. operating subsidiaries and our Canadian operating subsidiary
have entered into a Management Advisory and Consulting Services Agreement with
Genstar Capital, terminating on June 6, 2006. Pursuant to such agreement,
Genstar Capital has agreed to provide the operating subsidiaries with ongoing
management consulting and advisory services related to the business and affairs
of the operating subsidiaries. The operating subsidiaries have agreed to pay
Genstar Capital a fee of $600,000 per year, increasing 3% on June 7 of each
year, as compensation for services rendered by Genstar Capital under the
management agreement, and to pay all reasonable out-of-pocket costs and
expenses incurred in connection therewith. For the years ended December 31,
1996, 1997 and 1998, the operating subsidiaries have paid or will pay Genstar
Capital fees of approximately $328,000, $618,000 and $629,000, respectively,
under the management agreement, plus out-of-pocket expenses. The management
agreement was amended and restated as of January 24, 1999 to extend the
termination date thereof to January 24, 2009 and to provide that following the
third anniversary date of the Transactions, the total annual management fee
then payable to Genstar Capital thereunder will increase to approximately $1.4
million, which amount will increase by 3% per year on each June 7 thereafter.
However, this increase is subject to certain limitations described in the
indenture. See "Description of Exchange Notes--Certain Definitions--Management
Services Agreement."
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<PAGE>
Pursuant to a letter agreement dated January 24, 1999 that we entered into
with Genstar Capital, we paid Genstar Capital a fee of $2.0 million upon the
closing of the Transactions, plus its reasonable out-of-pocket expenses, in
connection with its negotiation of the Transactions and for providing us with
certain financial advisory and management consulting services for obtaining the
financing for the Transactions, including the offering of the old notes, the
new credit facilities and the share purchase, and for services performed in
connection with our acquisition of Pioneer. Pursuant to the letter agreement,
Genstar Capital will also be paid an additional deferred fee of $2,025,000 in
connection with the services provided thereunder, payable in twelve quarterly
installments of $168,750, or the pro rata amount thereof, commencing on March
31, 1999. The deferred fee constitutes subordinated indebtedness under the
indenture. See "Description of Exchange Notes."
Share Purchase
In connection with our acquisition of Pioneer, the stockholders of Panolam
Holdings made an aggregate equity investment of $5.0 million in Panolam
Holdings through the share purchase. The share purchase took the form of a
pro rata purchase of common stock of Panolam Holdings by its stockholders. The
proceeds of the share purchase were contributed to the capital of the Issuer.
See "The Transactions--The Refinancing" and "Principal Stockholders."
Stock Option Agreement
The Issuer, Genstar Capital Partners II, and Domtar Industries are parties to
a Stock Option Agreement, dated June 7, 1996, as amended. Pursuant to such
agreement, the Issuer granted to the other stockholders party to such agreement
the option to purchase all of the shares of capital stock of our Canadian
operating subsidiary on a pro rata basis at any time upon the request of a
majority of the stockholders of Panolam Holdings. However, so long as Genstar
Capital Partners II owns at least 20% of the outstanding capital stock of
Panolam Holdings, Genstar Capital Partners II must be one of the stockholders
requesting exercise of this option. Further, if certain indebtedness of our
Canadian operating subsidiary remains outstanding, or if certain conditions are
met with respect to the Issuer pledging its capital stock, this option shall
not be exercisable. The option exercise price equals $1,000.00 divided by the
total number of outstanding shares of our Canadian operating subsidiary and
expires on June 6, 2006. The exercise of this option is not permitted under the
terms of the notes. See "Discussion of Exchange Notes--Certain Covenants--
Limitations on Sales of Assets and Subsidiary Stock." Genstar Capital Partners
II has informed us that it does not intend to request exercise of this option
if it becomes available.
Severance
Beginning in January 1998, we undertook a reorganization of our management
and manufacturing processes. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations." As part of this reorganization,
substantially all of the persons then serving as our executive officers were
either terminated or resigned and were replaced with a new management team. In
connection with such terminations and resignations, we paid severance payments
to four former officers aggregating approximately $0.9 million, including
amounts paid in exchange for all shares of common stock of Panolam Holdings and
certain other rights, including approximately $0.4 million paid to Claude P.
Arcand, our former President and Chief Executive Officer. In addition, Mr.
Arcand has entered into a two-year Consultancy Agreement with us to provide
advice, assistance and such other services as we may request from time to time.
The minimum amount payable during the tenure of the Consultancy Agreement is
Canadian $60,000.
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<PAGE>
Description of Credit Facilities and Other Indebtedness
New Credit Facilities
Concurrently with the issuance of the old notes, (1) the Issuer entered into
a Credit Agreement (the "Credit Agreement") with DLJ Capital Funding, as
Syndication Agent, Donaldson, Lufkin & Jenrette Securities Corporation, as Lead
Arranger, Credit Suisse First Boston, New York branch, as Administrative Agent,
and Royal Bank of Canada, as Documentation Agent, and certain other lenders
party to the Credit Agreement (such agents and lenders are collectively
referred to as the "Lenders") and (2) our Canadian operating subsidiary entered
into a Credit Agreement (the "Canadian Credit Agreement") with Donaldson,
Lufkin & Jenrette Securities Corporation, as Lead Arranger, Credit Suisse First
Boston Canada, as Canadian Administrative Agent, and Royal Bank of Canada, as
Documentation Agent, and certain other lenders party to the Canadian Credit
Agreement (such agents and lenders are collectively referred to as the
"Canadian Lenders"). The following is a summary description of the principal
terms of the new credit facilities. Copies of the Credit Agreement and the
Canadian Credit Agreement have been filed as exhibits to the registration
statement of which this prospectus forms a part. The description set forth
below does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, the Credit Agreement and the Canadian Credit
Agreement setting forth the principal terms and conditions of the new credit
facilities.
Structure
The new credit facilities provide for up to $133.0 million in senior secured
financing, including separate U.S. and Canadian facilities, and consist of:
(1) an aggregate principal amount of $28.0 million of revolving credit
facilities (the "Revolving Facilities") after giving effect to a $7.0
million reduction in the size of the Canadian Revolving Facility in June
1999 and
(2) an aggregate principal amount of $105.0 million of term loan
facilities (the "Term Facilities") in two tranches:
(A) a $25.0 million five-year term A loan facility (the "Term A
Facility") and
(B) an $80.0 million seven-year term B loan facility (the "Term B
Facility").
Loans and letters of credit under the Revolving Facilities are available at any
time during a five-year term subject to the fulfillment of customary conditions
precedent, including the absence of a default under the new credit facilities.
The Revolving Facilities and the Term A Facility will terminate on December 31,
2003, at which time all outstanding indebtedness thereunder will become due.
The Term B Facility will terminate on December 31, 2005, at which time all
outstanding indebtedness will become due.
Up to $20.0 million of the Revolving Facilities (the "U.S. Revolving
Facility") is available to the Issuer in U.S. Dollars and up to $8.0 million of
the Revolving Facilities (the "Canadian Revolving Facility") is available to
our Canadian operating subsidiary in either U.S. Dollars or Canadian Dollars.
The Term Facilities are available, subject to certain conditions, to the Issuer
and our Canadian operating subsidiary (together, the "Borrowers") in U.S.
Dollars only. The following table sets forth the allocation of the new credit
facilities that was available to the Issuer (the "U.S. Facilities") and to our
Canadian operating subsidiary (the "Canadian Facilities") (expressed in terms
of its equivalent in U.S. Dollars):
<TABLE>
<CAPTION>
Canadian Facilities
U.S. Facilities Available to our Canadian
Available to the Issuer operating subsidiary
----------------------- -------------------------
<S> <C> <C>
Revolving Facilities..... $20.0 million $ 8.0 million
Term A Facility.......... $15.0 million $10.0 million
Term B Facility.......... $40.0 million $40.0 million
</TABLE>
On the closing date, the Issuer and our Canadian operating subsidiary
(together the "Borrowers") drew the full $105.0 million under the Term
Facilities which was used, together with the net proceeds from the offering
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of the old notes and the share purchase by Panolam Holdings' stockholders, to
consummate our acquisition of Pioneer and the refinancing of our existing
General Electric credit facilities, to pay the fees and expenses related to
these transactions, and for general corporate purposes. The Revolving
Facilities are available, subject to certain conditions (including, without
limitation, adequate availability under each Borrower's borrowing base,
determined from a formula based on 85% of such Borrower's eligible accounts
receivable and 60% of such Borrower's eligible inventory), to fund the working
capital requirements, permitted acquisitions, capital expenditures and general
corporate purposes of the Borrowers and their respective subsidiaries.
Amortization
The Borrowers are required to repay loans outstanding under the Term
Facilities as follows.
Term A Loans. Loans under the Term A Facility (the "Term A Loans") have a
final maturity date of December 31, 2003. Quarterly amortization is required,
resulting in annual amounts, expressed as a percentage of the original
aggregate principal amount of the Term A Loans, as follows:
<TABLE>
<CAPTION>
Term A Loans
-------------------------
Annual Annual
amortization amortization
Year percentage amount
---- ------------ ------------
<S> <C> <C>
1................. 0.0% $ 0
2................. 15.0% 3,750,000
3................. 22.5% 5,625,000
4................. 27.5% 6,875,000
5................. 35.0% 8,750,000
------ -----------
Total........... 100.0% $25,000,000
====== ===========
</TABLE>
Term B Loans. Loans under the Term B Facility (the "Term B Loans") have a
final maturity date of December 31, 2005. Quarterly amortization is required,
resulting in aggregate annual amounts equal to 1.0% of the original aggregate
principal amount of the Term B Loans during each of the first six years
following the closing date and equal to 94.0% of the original aggregate
principal amount of the Term B Loans in the seventh year.
Guarantees; Security
The obligations of the Issuer under the U.S. Facilities are guaranteed by
Panolam Holdings and each of its direct and indirect domestic subsidiaries,
other than the Issuer and an inactive subsidiary of one of our U.S. operating
subsidiaries (the "U.S. Facilities Guarantee"). The U.S. Facilities Guarantee
are senior to the guarantees with respect to the notes. In addition, Panolam
Holdings and each of its direct and indirect domestic subsidiaries, including
the Issuer but excluding an inactive subsidiary of one of our U.S. operating
subsidiaries, guarantee our Canadian operating subsidiary's obligations under
the Canadian Facilities (the "Canadian Facilities Guarantee"); however, our
Canadian operating subsidiary does not guarantee the Issuer's obligations under
the U.S. Facilities. The Canadian Facilities Guarantee are subordinated in
right of payment to the guarantors' obligations in respect of the U.S.
Facilities but are senior to the guarantees with respect to the notes.
The obligations of the Issuer under the U.S. Facilities are secured by a
first priority lien (except as described below with respect to the stock of our
Canadian operating subsidiary and certain intercompany indebtedness) on
substantially all of the Issuer's property and assets, tangible and intangible,
including the stock and intercompany debt of the Issuer's domestic
subsidiaries. The obligations of our Canadian operating subsidiary under the
Canadian Facilities are secured by a first priority lien on substantially all
of our Canadian operating subsidiary's property and assets, tangible and
intangible, and by a junior lien on substantially all of the property and
assets of the Issuer and its domestic subsidiaries (except that the liens
securing the Canadian Facilities in respect of the stock of our Canadian
operating subsidiary and certain intercompany indebtedness
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may be senior to the liens on such assets securing the U.S. Facilities). The
obligations of the Issuer under the U.S. Facilities and under the Canadian
Facilities Guarantee are also secured by liens on the stock of our Canadian
operating subsidiary. The lien in respect of the U.S. Facilities is limited to
65% of such stock. These liens will be subject to intercreditor arrangements
(including subordination provisions) among the U.S. Lenders and the Canadian
Lenders. Except as described above with respect to the stock of Panolam Canada
and certain intercompany indebtedness, the obligations of Panolam Holdings and
its direct and indirect domestic subsidiaries under the U.S. Facilities
Guarantee are secured by a first priority lien on all of the capital stock of
their respective existing and future direct and indirect domestic subsidiaries
and, with certain limited exceptions, by a first priority lien on substantially
all of their respective property and assets, tangible and intangible. The
obligations of Panolam Holdings and its domestic subsidiaries under the
Canadian Facilities Guarantee are secured by a junior lien on substantially all
of the property and assets of such persons except, that the stock of our
Canadian operating subsidiary and certain intercompany indebtedness may be
pledged on a first priority basis, as described above. No liens attach under
the new credit facilities to the stock, property, assets and intercompany debt
of the inactive subsidiary of one of our U.S. operating subsidiaries.
Interest Rates
U.S. Facilities. Borrowings by the Issuer under the U.S. Facilities bear
interest, at the Issuer's option, at the Administrative Agent's (1) alternative
base rate ("ABR") or (2) reserve-adjusted London Interbank Offered Rate
("LIBOR"), in each case plus applicable margins, which (in the case of the U.S.
Revolving Facility and the U.S. Term A Facility only) vary based on the
consolidated leverage ratio of the Issuer and its subsidiaries (the "Leverage
Ratio"). Initially, the applicable margins for the U.S. Revolving Facility and
U.S. Term A Facility are ABR plus 175 basis points or LIBOR plus 275 basis
points. The margins for the U.S. Term B Facility is to be ABR plus 250 basis
points or LIBOR plus 350 basis points.
Canadian Facilities. Borrowings by our Canadian operating subsidiary under
the Canadian Facilities bear interest, at our Canadian operating subsidiary's
option, as follows:
(1) In the case of U.S. Dollar denominated loans under the Revolving
Facility and the Term Facilities, such loans bear interest at the Canadian
Administrative Agent's (A) Canadian base rate ("CBR") or (B) LIBOR, in each
case plus applicable margins, which, in the case of the Canadian Revolving
Facility and the Canadian Term A Facility only, vary based on the Leverage
Ratio.
(2) In the case of Canadian Dollar denominated loans under the Revolving
Facility, such loans (A) bear interest at the Canadian Administrative
Agent's Canadian prime rate (the "CPR") or (B) may be made by way of the
Canadian Lenders' acceptance and purchase of bankers' acceptances ("BAs")
or acceptance notes, in each case at a discount rate, in the case of the
foregoing clause (A), plus applicable margins, and, in the case of the
foregoing clause (B), plus a stamping fee calculated at a rate per annum
equal to the BA acceptance rate (the "BA Acceptance Rate"), each of which
vary based on the Leverage Ratio. Canadian Dollar denominated borrowings
will be available only under the Canadian Revolving Facility.
Initially, the applicable margins for the Canadian Revolving Facility and
Canadian Term A Facility are CBR plus 175 basis points, LIBOR plus 275 basis
points and CPR plus 175 basis points, respectively, and the BA Acceptance Rate
is to be 275 basis points. The margins for the Canadian Term B Facility are CBR
plus 250 basis points or LIBOR plus 350 basis points.
Prepayments
Borrowings and commitments under the new credit facilities are subject to
mandatory prepayment and reduction under certain circumstances, with customary
exceptions, from the proceeds of permitted asset sales, the sale or issuance of
permitted debt securities, the sale or issuance of equity securities by Panolam
Holdings or any of its subsidiaries, from insurance and condemnation proceeds,
from a percentage of excess cash flow and under certain other circumstances.
Mandatory prepayments of loans under the Canadian Term Facilities is
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limited under certain circumstances. Voluntary prepayment of any of the loans
under the new credit facilities is permitted in whole or in part with prior
notice and without premium or penalty, other than funding losses, subject to
limitations as to minimum amounts.
Fees
Each Borrower is required to pay the Lenders under its respective Revolving
Facility an ongoing commitment fee based on the daily average unused portion of
the Revolving Facilities available to such Borrower, which fee will accrue from
the closing date under the new credit facilities. Each Borrower is also
obligated to pay ongoing letter of credit fees on the daily average undrawn
amount of all outstanding letters of credit issued for the account of such
Borrower and issuance fees on the aggregate stated amount of outstanding
letters of credit issued for the account of such Borrower. In addition, the
Company paid certain one-time underwriting and other fees to the Lenders upon
the closing.
Representations and Warranties
The Credit Agreement and the Canadian Credit Agreement contain
representations and warranties customarily found in loan agreements for similar
financings.
Covenants
The Credit Agreement and the Canadian Credit Agreement contain a number of
covenants that, among other things, restrict the ability of Panolam Holdings
and its subsidiaries, including the Borrowers, to dispose of assets, incur
additional indebtedness, prepay other indebtedness, including the old notes and
exchange notes, or amend certain debt instruments, including the indenture, pay
dividends, create liens on assets, enter into contingent obligations, enter
into synthetic lease transactions, make investments, loans or advances, make
acquisitions, engage in mergers, amalgamations or consolidations, change the
business conducted by Panolam Holdings and its subsidiaries, make capital
expenditures or engage in certain transactions with affiliates and otherwise
restrict certain corporate activities. In addition, the Credit Agreement and
the Canadian Credit Agreement contain financial covenants that require the
Issuer and its subsidiaries to maintain, on a consolidated basis, specified
financial ratios and tests, including minimum interest coverage and fixed
charge coverage ratios, minimum EBITDA (as defined in the new credit
facilities) tests, maximum leverage ratios, and specified capital expenditure
tests.
Events of Default
The Credit Agreement and the Canadian Credit Agreement contain customary
events of default, including nonpayment of principal, interest or fees,
material inaccuracy of representations and warranties, violation of covenants,
cross-defaults to certain other indebtedness of Panolam Holdings and its
subsidiaries, cross-defaults between loans under the U.S. Facilities and
Canadian Facilities, certain events of bankruptcy and insolvency, certain ERISA
matters, material judgments, material impairment of any loan document or
security and a change of control of Panolam Holdings or its subsidiaries,
including the Borrowers, in certain circumstances as set forth in the Credit
Agreement and in the Canadian Credit Agreement.
Other Indebtedness
On June 30, 1999, we had outstanding, approximately $0.2 million in capital
lease obligations. These capital lease obligations are secured by the assets of
various facilities and leased equipment.
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Description of Exchange Notes
The Exchange Notes will be issued pursuant to an indenture (the "Indenture")
dated as of February 18, 1999, by and among Panolam Industries International,
Inc., the subsidiary guarantors, the parent guarantors (together, the
"Guarantors") and State Street Bank and Trust Company, as trustee (the
"Trustee"). The Old Notes were also issued under the Indenture. The Old Notes
and the Exchange Notes will be treated as a single class of securities under
the Indenture. As used herein, the term "Notes" means the Exchange Notes and
the Old Notes, treated as a single class.
The following is a summary of the material provisions of the Indenture and
the Notes. A copy of the Indenture, including the form of the Notes, has been
filed as an exhibit to the registration statement of which this prospectus
forms a part. The following summary does not purport to be complete and is
subject to, and is qualified in its entirety by reference to, all the
provisions of the Indenture, including the definitions of certain terms therein
and those terms made a part thereof by the Trust Indenture Act of 1939, as
amended. The following summary does not restate the Indenture in its entirety.
We urge you to read the Indenture because it, and not this description, defines
your rights as a holder of the Notes.
You can find the definitions of certain capitalized terms in this section
under the subheading "--Certain Definitions." For purposes of this section,
references to "the Issuer" or "we," "us" or "our" include only Panolam
Industries International, Inc. (and our successors in accordance with the terms
of the Indenture) and not our Subsidiaries or parent companies.
Except as otherwise indicated below, the following summary applies to both
the Old Notes and the Exchange Notes offered hereby. The terms of the Exchange
Notes will be identical in all respects to those of the Old Notes, except for
the freely tradable character of the Exchange Notes (provided the Holder
thereof is not our affiliate) and the absence of certain registration rights
granted to holders of the Old Notes. See "The Exchange Offer." The Exchange
Notes will be issued solely in exchange for an equal principal amount of Old
Notes pursuant to the Exchange Offer made hereby.
Brief Description of the Notes and the Guarantees
The Notes
The Notes are:
.our unsecured general obligations;
.ranked junior in right of payment to all of our existing and future Senior
Debt;
.ranked equal in right of payment with all of our existing and future
senior subordinated Indebtedness;
.ranked senior in right of payment to all of our existing and future
Subordinated Indebtedness; and
.unconditionally guaranteed by the Guarantors.
For each Old Note accepted for exchange, the holder of such Old Note will
receive an Exchange Note having a principal amount equal to that of the
surrendered Old Note. The Exchange Notes will be issued in fully registered
form only, without coupons, in denominations of $1,000 and integral multiples
thereof. The Notes are limited in aggregate principal amount to $135.0 million.
The term "Subsidiaries" as used in this Description of Exchange Notes does
not include Unrestricted Subsidiaries. We have designated one of our indirect,
inactive subsidiaries, Melamine Decorative Laminate, Inc., as an Unrestricted
Subsidiary. Such Unrestricted Subsidiary does not have any material assets or
liabilities and conducts no operations. Under certain circumstances, we will be
able to designate current or future Subsidiaries as Unrestricted Subsidiaries.
Unrestricted Subsidiaries will not be subject to the restrictive covenants set
forth in the Indenture.
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The Guarantees
The Notes are jointly and severally irrevocably and unconditionally
guaranteed (the "Guarantees") on a senior subordinated basis by each of our
present and future Subsidiaries other than Foreign Subsidiaries and by our
Parent Guarantors (the "Guarantors"). The obligations of each Guarantor under
its Guarantee, however, will be limited in a manner intended to avoid it being
deemed a fraudulent conveyance under applicable law. See "Certain Bankruptcy
Limitations" below and "Risk Factors--Fraudulent transfer laws could change our
obligations under the Exchange Notes." The term "Subsidiaries" as used in this
Description of Notes, however, does not include Unrestricted Subsidiaries.
Principal, Maturity and Interest
The Notes will mature on February 15, 2009. Each Exchange Note will bear
interest at the rate per annum stated on the cover page hereof from the date of
issuance thereof ( , 1999 unless the Exchange Offer is extended) or
from the most recent date to which interest on the Old Notes has been paid or
provided for (an "Interest Payment Date"), payable semi-annually in arrears on
February 15 and August 15, of each year commencing February 15, 2000 to the
Person in whose name such Exchange Note is registered at the close of business
on the February 1 or August 1 immediately preceding such Interest Payment Date.
Accordingly, registered holders of Exchange Notes on the relevant record date
for the first interest payment date following the consummation of the Exchange
Offer will receive interest from the most recent interest payment date to which
interest has been paid on the Old Notes. Old Notes accepted for exchange will
cease to accrue interest from and after the date of the consummation of the
Exchange Offer. Holders whose Old Notes are accepted for exchange will not
receive any payment in respect of interest on such Old Notes for any period
subsequent to the last interest payment date, if any, of the Old Notes to occur
prior to the issue date of the Exchange Notes and will be deemed to have waived
the right to receive any payment in respect of interest on the Old Notes
accrued from and after such interest payment date, if any. Interest will be
calculated on the basis of a 360-day year consisting of twelve 30-day months.
Methods of Receiving Payments on the Notes
Principal of, premium, if any, and interest (and Liquidated Damages, if any),
on the Notes will be payable, and the Notes may be presented for registration
of transfer or exchange, at our office or agency maintained for such purpose,
which office or agency shall be maintained in the Borough of Manhattan, The
City of New York. Except as set forth below, at our option, payment of interest
may be made by check mailed to the holders of the Notes (the "Holders") at the
addresses set forth upon our registry books. No service charge will be made for
any registration of transfer or exchange of Notes, but we may require payment
of a sum sufficient to cover any tax or other governmental charge payable in
connection therewith. Until otherwise designated by us, our office or agency
will be the corporate trust office of the Trustee presently located at the
office of the Trustee in the Borough of Manhattan, The City of New York.
Subordination
The Notes and the Guarantees are our and the Guarantors' general, unsecured
obligations, respectively, subordinated in right of payment to all of our
Senior Debt and Senior Debt of the Guarantors, as applicable. This effectively
means that holders of Senior Debt must be paid in full before any amounts are
paid to the Holders of the Notes in the event we become bankrupt or are
liquidated and that holders of Senior Debt can block payments to the Holders of
the Notes in the event of a default by us or the Guarantors on such Senior
Debt, all as more fully described below.
As of June 30, 1999, we had outstanding on a consolidated basis an aggregate
of approximately $237.9 million of consolidated Indebtedness, approximately
$100.9 million of Senior Debt, no other pari passu Indebtedness that is secured
and effectively senior to the Notes and the Guarantees and approximately
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$2.0 million of Indebtedness that is subordinate in right of payment to the
Notes and the Guarantees (which consists solely of Indebtedness owed to
Genstar pursuant to the Engagement Agreement).
The rights of Holders will be subordinated by operation of law to all
existing and future Indebtedness and preferred stock of our Foreign
Subsidiaries, which are not Guarantors, which as of June 30, 1999 had
$47.9 million of Indebtedness (excluding guarantees of our Indebtedness and
Indebtedness of the Guarantors) and liquidation preference of preferred stock
outstanding. The Indenture will permit us and our subsidiary to incur
additional Senior Debt in the future, subject to certain conditions. See
"Certain Covenants--Limitation on Incurrence of Additional Indebtedness."
The Indenture provides that we and the Guarantors may not make payment (by
set-off or otherwise) on account of any Obligation in respect of the Notes
(including any repurchases of Notes) or on account of the redemption
provisions of the Notes, for cash or property (other than Junior Securities):
(1) upon the maturity of any of our Senior Debt or Senior Debt of such
Guarantor by lapse of time, acceleration (unless waived) or otherwise,
unless and until all principal of, premium, if any, and the interest on,
and all other amounts owing in respect of, such senior debt are first paid
in full in cash or Cash Equivalents (or such payment is duly provided for)
or otherwise to the extent holders accept satisfaction of amounts due by
settlement in other than cash or Cash Equivalents, or
(2) in the event of default in the payment of any principal of, premium,
if any, or interest on, or any other amount owing in respect of, our Senior
Debt or Senior Debt of such Guarantor when it becomes due and payable,
whether at maturity or at a date fixed for prepayment or by declaration or
otherwise (a "Payment Default"), unless and until such Payment Default has
been cured or waived or otherwise has ceased to exist.
Upon (1) the happening of an event of default other than a Payment Default
that permits the holders of Senior Debt or their representative to declare
such Senior Debt to be due and payable and (2) written notice of such event of
default given to us and the Trustee by the representative under the Credit
Agreement or the Canadian Credit Agreement or the holders of an aggregate of
at least $5.0 million principal amount outstanding of any other Senior Debt or
their representative (a "Payment Notice"), then, unless and until such event
of default has been cured or waived or otherwise has ceased to exist, no
payment (by set-off or otherwise) may be made by or on behalf of us or any
Guarantor which is an obligor under such Senior Debt on account of any
Obligation in respect of the Notes (including any repurchases of any of the
Notes), or on account of the redemption provisions of the Notes, in any such
case, other than payments made with Junior Securities. Notwithstanding the
foregoing, unless the Senior Debt in respect of which such event of default
exists has been declared due and payable in its entirety within 179 days after
the Payment Notice is delivered as set forth above (the "Payment Blockage
Period") (and such declaration has not been rescinded or waived), at the end
of the Payment Blockage Period, we and the Guarantors shall be required to pay
all sums not paid to the Holders of the Notes during the Payment Blockage
Period due to the foregoing prohibitions and to resume all other payments as
and when due on the Notes.
Any number of Payment Notices may be given; provided that:
(1) not more than one Payment Notice shall be given within a period of any
360 consecutive days, and
(2) no default that existed upon the date of such Payment Notice or the
commencement of such Payment Blockage Period (whether or not such event of
default is on the same issue of Senior Debt) shall be made the basis for
the commencement of any other Payment Blockage Period (it being
acknowledged that any subsequent action, or any subsequent breach of any
financial covenant for a period commencing after the expiration of such
Payment Blockage Period that, in either case, would give rise to a new
event of default, even though it is an event that would also have been a
separate breach pursuant to any provision under which a prior event of
default previously existed, shall constitute a new event of default for
this purpose) unless such default shall have been cured or waived for a
period of at least 90 days.
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Upon any distribution of our assets or any Guarantor's assets upon any
dissolution, winding up, total or partial liquidation or reorganization of us
or a Guarantor, whether voluntary or involuntary, in bankruptcy, insolvency,
receivership or a similar proceeding or upon assignment for the benefit of
creditors or any marshalling of assets or liabilities:
(1) the holders of all our or such Guarantor's Senior Debt, as applicable,
will first be entitled to receive payment in full in cash or Cash
Equivalents (or have such payment duly provided for) or otherwise to the
extent holders accept satisfaction of amounts due by settlement in other
than cash or Cash Equivalents before the Holders are entitled to receive
any payment on account of any Obligation in respect of the Notes or
Liquidated Damages, if any, pursuant to the Registration Rights Agreement
(other than Junior Securities), and
(2) any payment or distribution of our or such Guarantor's assets of any
kind or character from any source, whether in cash, property or securities
(other than Junior Securities) to which the Holders or the Trustee on
behalf of the Holders would be entitled (by set-off or otherwise), except
for the subordination provisions contained in the Indenture, will be paid
by the liquidating trustee or agent or other Person making such a payment
or distribution directly to the holders of such Senior Debt or their
representative to the extent necessary to make payment in full (or have
such payment duly provided for) on all such Senior Debt remaining unpaid,
after giving effect to any concurrent payment or distribution to the
holders of such Senior Debt.
In the event that, notwithstanding the foregoing, any payment or distribution
of our or any Guarantor's assets (other than Junior Securities) shall be
received by the Trustee or the Holders at a time when such payment or
distribution is prohibited by the foregoing provisions, such payment or
distribution shall be held in trust for the benefit of the holders of such
Senior Debt, and shall be paid or delivered by the Trustee or such Holders, as
the case may be, to the holders of such Senior Debt remaining unpaid or
unprovided for or to their representative or representatives, or to the trustee
or trustees under any indenture pursuant to which any instruments evidencing
any of such Senior Debt may have been issued, ratably according to the
aggregate principal amounts remaining unpaid on account of such Senior Debt
held or represented by each, for application to the payment of all such Senior
Debt remaining unpaid, to the extent necessary to pay or to provide for the
payment of all such Senior Debt in full in cash or Cash Equivalents or
otherwise to the extent holders accept satisfaction of amounts due by
settlement in other than cash or Cash Equivalents after giving effect to any
concurrent payment or distribution to the holders of such Senior Debt.
No provision contained in the Indenture or the Notes will affect our
obligations or the obligations of the Guarantors, which are absolute and
unconditional, to pay, when due, principal of, premium, if any, and interest
(or if applicable, Liquidated Damages) on the Notes. The subordination
provisions of the Indenture and the Notes will not prevent the occurrence of
any Default or Event of Default under the Indenture or limit the rights of the
Trustee or any Holder to pursue any other rights or remedies with respect to
the Notes.
As a result of these subordination provisions, in the event of the
liquidation, bankruptcy, reorganization, insolvency, receivership or similar
proceeding or an assignment for the benefit of our creditors or the creditors
of the Guarantors or a marshalling of our assets or liabilities or the assets
or liabilities of the Guarantors, Holders of the Notes may receive ratably less
than other creditors.
We conduct our operations through our subsidiaries. Accordingly, our ability
to meet cash obligations is dependent upon the ability of our subsidiaries to
make cash distributions to us. Furthermore, our right to receive the assets of
any subsidiary which is not a Guarantor upon such subsidiary's liquidation or
reorganization (and the consequent right of the Holders of the Notes to
participate in the distribution of the proceeds of those assets) effectively
will be subordinated by operation of law to the claims of such subsidiary's
creditors (including trade creditors) and holders of its preferred stock,
except to the extent that we are ourself recognized as a creditor or preferred
stockholder of such subsidiary, in which case our claims would still be
subordinate to any indebtedness or preferred stock of such subsidiary senior in
right of payment to that held by us.
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Certain Bankruptcy Limitations
We and the Parent Guarantors are holding companies, conducting substantially
all of our and their business through our Subsidiaries, not all of which have
guaranteed or will guarantee our Obligations with respect to the Notes. See
"Risk Factors--The Issuer and the parent guarantors are holding companies, and
the obligations of our operating companies are secured by liens on all of their
property and assets."
Holders of the Exchange Notes will be direct creditors of each Guarantor by
virtue of its Guarantee. Nonetheless, in the event of the bankruptcy or
financial difficulty of a Guarantor, such Guarantor's obligations under its
Guarantee may be subject to review and avoidance under state and federal
fraudulent transfer laws. Among other things, a court may avoid these
obligations if it concludes that when the Guarantor entered into its Guarantee
(or in some jurisdictions, when payments became due thereunder), the Guarantor
received less than reasonably equivalent value or fair consideration and was or
was rendered insolvent, undercapitalized or unable to pay its debts as they
became due. A court would likely conclude that a Guarantor did not receive
reasonably equivalent value or fair consideration to the extent that the
aggregate amount of its liability on its Guarantee exceeds the economic
benefits it receives in the Offering. The obligations of each Guarantor under
its Guarantee are limited in a manner intended to avoid fraudulent transfer
risk under applicable law, although no assurance can be given that a court
would give the Holders the benefit of such provision. See "Risk Factors--
Fraudulent transfer laws could change our obligations under the exchange
notes."
If the obligations of a Guarantor under its Guarantee were avoided, Holders
of Notes would have to look to the assets of any remaining Guarantors for
payment. There can be no assurance in that event that such assets would suffice
to pay the outstanding obligations owed with respect to the Notes.
We conduct substantially all of our foreign operations through Foreign
Subsidiaries. Accordingly, our ability to meet our cash obligations may in part
depend upon the ability of such Foreign Subsidiaries and any future Foreign
Subsidiaries to make cash distributions to us and the Subsidiary Guarantors.
Furthermore, any right we and the Subsidiary Guarantors have to receive the
assets of any such Foreign Subsidiary upon such Foreign Subsidiary's
liquidation or reorganization (and the consequent right of the Holders of the
Notes to participate in the distribution of the proceeds of those assets)
effectively will be subordinated by operation of law to the claims of such
Foreign Subsidiary's creditors (including trade creditors) and holders of its
preferred stock, except to the extent that we or the Subsidiary Guarantors are
recognized as creditors or preferred stockholders of such Foreign Subsidiary,
in which case our claims or the claims of the Subsidiary Guarantors would still
be subordinate to any indebtedness or preferred stock of such Foreign
Subsidiaries. On a pro forma basis, for the 1998 fiscal year, after giving
effect to the acquisition of Pioneer, the Foreign Subsidiaries would have
accounted for approximately $75.3 million, or 22.7%, of our total pro forma
consolidated net sales, and would have accounted for approximately $82.4
million, or 27.0%, of our total pro forma consolidated total assets.
Optional Redemption
We will not have the right to redeem any Notes prior to February 15, 2004
(other than out of the Net Cash Proceeds of a Public Equity Offering, as
described in the next following paragraph). The Notes will be redeemable for
cash at our option, in whole or in part, at any time on or after February 15,
2004, upon not less than 30 days nor more than 60 days prior notice to each
Holder of Notes, at the following redemption prices (expressed as percentages
of the principal amount) if redeemed during the 12-month period commencing
February 15 of the years indicated below, in each case (subject to the right of
Holders of record on a Record Date to receive the corresponding interest due
(and the corresponding Liquidated Damages, if any) on the corresponding
Interest Payment Date that is on or prior to such Redemption Date) together
with accrued and unpaid interest and Liquidated Damages, if any, thereon to the
Redemption Date:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2004............................................................ 105.750%
2005............................................................ 103.833%
2006............................................................ 101.917%
2007 and thereafter............................................. 100.000%
</TABLE>
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At any time or from time to time until February 15, 2002, up to 35% of the
aggregate principal amount of the Notes originally issued pursuant to the
Indenture may be redeemed at our option within 90 days of a Public Equity
Offering, on not less than 30 days, but not more than 60 days, notice to each
Holder of the Notes to be redeemed, with cash from the Net Cash Proceeds of
such Public Equity Offering, at a redemption price equal to 111.50% of the
principal amount thereof (subject to the right of Holders of record on a Record
Date to receive the corresponding interest, (and the corresponding Liquidated
Damages, if any) due on the Interest Payment Date that is on or prior to such
Redemption Date) together with accrued and unpaid interest and Liquidated
Damages, if any, thereon to the Redemption Date; provided that immediately
following such redemption not less than 65% of the aggregate principal amount
of the Notes originally issued pursuant to the Indenture remain outstanding.
The Notes will not have the benefit of any sinking fund and we will not be
required to make any mandatory redemption payments with respect to the Notes.
Selection and Notice
In the case of a partial redemption, the Trustee shall select the Notes or
portions thereof for redemption on a pro rata basis, by lot or in such other
manner it deems appropriate and fair. The Notes may be redeemed in part in
multiples of $1,000 only. If any Note is redeemed in part only, the notice of
redemption relating to such Note shall state the portion of the principal
amount thereof to be redeemed. A new Note in principal amount equal to the
unredeemed portion thereof will be issued in the name of the Holder thereof
upon cancellation of the original Note.
Mandatory Redemption
Notice of any redemption will be sent, by first class mail, at least 30 days
and not more than 60 days prior to the date fixed for redemption to the Holder
of each Note to be redeemed to such Holder's last address as then shown upon
the registry books of the Registrar. Any notice which relates to a Note to be
redeemed in part only must state the portion of the principal amount equal to
the unredeemed portion thereof and must state that on and after the date of
redemption, upon surrender of such Note, a new Note or Notes in a principal
amount equal to the unredeemed portion thereof will be issued. On and after the
date of redemption, interest will cease to accrue on the Notes or portions
thereof called for redemption, unless we default in the payment thereof.
Certain Covenants
Repurchase of Notes at the Option of the Holder Upon a Change of Control
The Indenture provides that in the event that a Change of Control has
occurred, each Holder of Notes will have the right, at such Holder's option,
pursuant to an offer (subject only to conditions required by applicable law, if
any) by us (the "Change of Control Offer"), to require us to repurchase all or
any part of such Holder's Notes (provided that the principal amount of such
Notes must be $1,000 or an integral multiple thereof) on a date (the "Change of
Control Purchase Date") that is no later than 35 Business Days after the
occurrence of such Change of Control, at a cash price equal to 101% of the
principal amount thereof (the "Change of Control Purchase Price"), together
with accrued and unpaid interest and Liquidated Damages, if any, to the Change
of Control Purchase Date.
The Change of Control Offer shall be made within 10 Business Days following a
Change of Control and shall remain open for 20 Business Days following its
commencement (the "Change of Control Offer Period"). Upon expiration of the
Change of Control Offer Period, we shall promptly purchase all Notes properly
tendered in response to the Change of Control Offer.
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As used herein, a "Change of Control" means:
(1) prior to consummation of an Initial Public Equity Offering, the
Excluded Person shall cease beneficially to own, directly or indirectly, at
least 51% of the voting power of our Voting Equity Interests, or
(2) following the consummation of an Initial Public Equity Offering,
(A) any merger or consolidation of us with or into any Person or any
sale, transfer or other conveyance, whether direct or indirect, of all
or substantially all of our assets, on a consolidated basis, in one
transaction or a series of related transactions occurs, if, immediately
after giving effect to such transaction(s), (x) any "person" or "group"
(as such terms are used for purposes of Sections 13(d) and 14(d) of the
Exchange Act, whether or not applicable) (other than the Excluded
Person and Robert J. Muller, Jr.) is or becomes the "beneficial owner,"
directly or indirectly, of more than 35% of the total voting power in
the aggregate normally entitled to vote in the election of directors,
managers, or trustees, as applicable, of the transferee(s) or surviving
entity or entities and (y) the Excluded Person and Robert J.
Muller, Jr. "beneficially own," directly or indirectly, in the
aggregate a lesser percentage of such voting power than such other
person or group,
(B) any Schedule 13D, Form 13F or Schedule 13G under the Exchange
Act, or any amendment to such Schedule or Form, is received by us which
indicates that, or we otherwise become aware that, (x) any "person" or
"group" (as such terms are used for purposes of Sections 13(d) and
14(d) of the Exchange Act, whether or not applicable) (other than the
Excluded Person and Robert J. Muller, Jr.) is or becomes the
"beneficial owner," directly or indirectly, of more than 35% of the
total voting power in the aggregate of all classes of our Capital Stock
then outstanding normally entitled to vote in elections of directors,
managers, or trustees, as applicable, of the transferee(s) or surviving
entity or entities and (y) the Excluded Person and Robert J. Muller,
Jr. "beneficially own," directly or indirectly, in the aggregate a
lesser percentage of such voting power than such other person or group;
provided, however, that a Person shall not be deemed the "beneficial
owner" of shares tendered pursuant to a tender or exchange offer made
by such Person or any Affiliate of such Person until the tendered
shares are accepted for purchase or exchange,
(C) during any period of 12 consecutive months after the Issue Date,
individuals who at the beginning of any such 12-month period
constituted our Board of Directors of the Issuer (together with any new
directors whose election by our Board of Directors or whose nomination
for election by our shareholders was approved by a vote of a majority
of the directors then still in office who were either directors at the
beginning of such period or whose election or nomination for election
was previously so approved, including new directors designated in or
provided for in an agreement regarding the merger, consolidation or
sale, transfer or other conveyance, of all or substantially all of our
assets or the assets of any Parent Guarantor or Holdings, if such
agreement was approved by a vote of such majority of directors) cease
for any reason to constitute a majority of our Board of Directors then
in office, or
(D) we adopt a plan of liquidation.
Notwithstanding the foregoing, we will not be required to make a Change of
Control Offer upon a Change of Control if a third party makes the Change of
Control Offer in the manner, at the times and otherwise in compliance with the
requirements set forth in the Indenture applicable to a Change of Control Offer
made by us, including any requirements to repay in full all Indebtedness under
the Credit Agreement and the Canadian Credit Agreement, any of our Senior Debt
or Senior Debt of any Subsidiary Guarantor or obtain the consents of such
lenders to such Change of Control Offer as set forth in the following
paragraph, and purchases all Notes validly tendered and not withdrawn under
such Change of Control Offer.
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The Indenture provides that, prior to the commencement of a Change of Control
Offer, but in any event within 30 days following any Change of Control, we
shall;
(1) (a) repay in full and terminate all commitments under Indebtedness
under the Credit Agreement and the Canadian Credit Agreement or (b) offer
to repay in full and terminate all commitments under all Indebtedness under
the Credit Agreement and the Canadian Credit Agreement and repay in full
the Indebtedness owed to each such lender which has accepted such offer, or
(2) obtain the requisite consents under the Credit Agreement and the
Canadian Credit Agreement to permit the repurchase of the Notes as provided
herein.
Our failure to comply with the preceding sentence shall constitute an Event
of Default described in clause (3) and not in clause (2) under "Events of
Default" below.
On or before the Change of Control Purchase Date, shall, to the extent
lawful;
(1) accept for payment Notes or portions thereof properly tendered and
not validly withdrawn pursuant to the Change of Control Offer,
(2) deposit with the Paying Agent an amount in cash sufficient to pay the
Change of Control Purchase Price (together with accrued and unpaid interest
and Liquidated Damages, if any), of all Notes so tendered, and
(3) deliver or cause to be delivered to the Trustee the Notes so accepted
together with an Officers' Certificate listing the Notes or portions
thereof being purchased by us.
The Paying Agent promptly will pay the Holders of Notes so accepted an amount
equal to the Change of Control Purchase Price (together with accrued and unpaid
interest and Liquidated Damages, if any), and the Trustee promptly will
authenticate and deliver to such Holders a new Note equal in principal amount
to any unpurchased portion of the Note surrendered. Any Notes not so accepted
will be delivered promptly by us to the Holder thereof. We publicly will
announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Purchase Date.
The Change of Control purchase feature of the Notes may make more difficult
or discourage a takeover of us, and, thus, the removal of our incumbent
management.
The phrase "all or substantially all" of our assets will likely be
interpreted under applicable state law and will be dependent upon particular
facts and circumstances. As a result, there may be a degree of uncertainty in
ascertaining whether a sale or transfer of "all or substantially all" of our
assets of has occurred. In addition, no assurances can be given that we will be
able to acquire Notes tendered upon the occurrence of a Change of Control.
Any Change of Control Offer shall be made in compliance with all applicable
laws, rules and regulations, including, if applicable, Regulation 14E under the
Exchange Act and the rules thereunder and all other applicable Federal and
state securities laws. To the extent that the provisions of any securities laws
or regulations conflict with the provisions of this paragraph, compliance by us
or by any of the Guarantors with such laws and regulations shall not in and of
itself cause a breach of the obligations under such covenant.
If the Change of Control Purchase Date hereunder is on or after an interest
payment Record Date and on or before the associated Interest Payment Date, any
accrued and unpaid interest (and Liquidated Damages, if any) due on such
Interest Payment Date will be paid to the Person in whose name a Note is
registered at the close of business on such Record Date, and such interest (and
Liquidated Damages, if applicable) will not be payable to Holders who tender
the Notes pursuant to the Change of Control Offer.
The Change of Control purchase feature of the Notes is a result of
negotiations between us and the Initial Purchasers. Our Board of Directors has
no present intention to engage in a transaction involving a Change of
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Control, although it is possible that we would decide to do so in the future.
Subject to the limitations discussed below, we could, in the future, enter into
certain transactions, including acquisitions, refinancings or other
recapitalizations, that would not constitute a Change of Control under the
Indenture, but that could increase the amount of Indebtedness outstanding at
such time or otherwise significantly affect our capital structure or credit
rating. Restrictions on our ability to incur additional Indebtedness are
contained in the covenants described under "Limitation on Incurrence of
Additional Indebtedness." Such restrictions can only be waived with the consent
of the Holders of a majority in principal amount of the Notes then outstanding.
Except for the limitations contained in such covenants, however, the Indenture
does not contain any covenants or provisions that may afford Holders of the
Notes protection in the event of a highly leveraged transaction.
The Credit Agreement and the Canadian Credit Agreement will generally
prohibit us from purchasing any Notes and will also provide that the occurrence
of certain change of control events would constitute a default thereunder. In
the event a Change of Control occurs at a time when we are prohibited from
purchasing Notes, we could seek the consent of our lenders to the purchase of
Notes or could attempt to refinance the borrowings that contain such
prohibition. If we do not obtain such a consent or repay such borrowings, we
will remain prohibited from purchasing Notes. In addition, our failure to
purchase tendered Notes would constitute an Event of Default under the
Indenture which would, in turn, constitute a default under the Credit Agreement
and the Canadian Credit Agreement.
Our future Indebtedness may contain prohibitions against the occurrence of
certain events which would constitute a Change of Control or provisions
requiring that such Indebtedness be repurchased upon a change of control (as
defined in the instrument governing such Indebtedness). Moreover, the exercise
by the Holders of their right to require us to repurchase the Notes could cause
a default under such Indebtedness, even if the Change of Control itself does
not cause such a default, due to the financial effect of such repurchase on us.
Finally, our ability to pay cash to the Holders following the occurrence of a
Change of Control may be limited by our then existing financial resources.
There can be no assurance that sufficient funds will be available when
necessary to make any required repurchases. The provisions under the Indenture
relative to our obligation to make an offer to repurchase the Notes as a result
of a Change of Control may be waived or modified with the written consent of
the Holders of at least two thirds in aggregate principal amount of the Notes.
Limitation on Incurrence of Additional Indebtedness
The Indenture provides that, except as set forth in this covenant, we and the
Subsidiary Guarantors will not, and will not permit any of our and their
Subsidiaries to, directly or indirectly, issue, assume, guaranty, incur, become
directly or indirectly liable with respect to (including as a result of an
Acquisition), or otherwise become responsible for, contingently or otherwise
(individually and collectively, to "incur" or, as appropriate, an
"incurrence"), any Indebtedness (including Acquired Indebtedness), other than
Permitted Indebtedness.
Notwithstanding the foregoing, if:
(1) no Default or Event of Default shall have occurred and be continuing
at the time of, or would occur after giving effect on a pro forma basis to,
such incurrence of Indebtedness (including Acquired Indebtedness), and
(2) on the date of such incurrence (the "Incurrence Date"), our
Consolidated Coverage Ratio for the Reference Period immediately preceding
the Incurrence Date, after giving effect on a pro forma basis to such
incurrence of such Indebtedness and, to the extent set forth in the
definition of Consolidated Coverage Ratio, the use of proceeds thereof,
would be at least 2.0 to 1.0 (the "Debt Incurrence Ratio"),
then we and the Subsidiary Guarantors may incur such Indebtedness (including
Acquired Indebtedness).
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In addition, the foregoing limitations of the first paragraph of this
covenant will not apply to:
(a) the incurrence by us or any Subsidiary Guarantor or Foreign
Subsidiary of Purchase Money Indebtedness; provided that:
(1) the aggregate amount of such Indebtedness incurred and
outstanding at any time pursuant to this paragraph (a) (plus any
Refinancing Indebtedness incurred to retire, defease, refinance,
replace or refund such Indebtedness) shall not exceed $10 million (or
the equivalent thereof, at the time of incurrence, in the applicable
foreign currencies), and
(2) in each case, such Indebtedness shall not constitute more than
100% of the cost (determined in accordance with GAAP in good faith by
our Board of Directors) to us or such Subsidiary Guarantor or Foreign
Subsidiary, as applicable, of the property so acquired, constructed or
improved;
(b) (1) the incurrence by us or any Subsidiary Guarantor of Indebtedness
(including Acquired Indebtedness) in an aggregate amount incurred and
outstanding at any time pursuant to this clause (b)(1) (plus any
Refinancing Indebtedness incurred to retire, defease, refinance, replace or
refund such Indebtedness) of up to $45 million (or the equivalent thereof,
at the time of incurrence, in the applicable foreign currencies) less the
aggregate amount of Indebtedness incurred pursuant to clause (b)(2) of this
covenant, and (2) the incurrence by any Canadian Subsidiary of Indebtedness
(including Acquired Indebtedness) in an aggregate amount incurred and
outstanding at any time pursuant to this clause (b)(2) (plus any
Refinancing Indebtedness incurred to retire, defease, refinance, replace or
refund such Indebtedness) of up to $20 million (or the equivalent thereof,
at the time of incurrence, in the applicable foreign currencies) less the
aggregate amount of Indebtedness in excess of $25 million incurred pursuant
to clause b(1) of this covenant; provided, that the aggregate amount of
Indebtedness incurred pursuant to clauses b(1) and b(2) of this covenant
shall in no event exceed $45 million (or the equivalent thereof, at the
time of incurrence, in the applicable foreign currencies);
(c) the incurrence by us or any Subsidiary Guarantor of Indebtedness
pursuant to the Term Facilities of the Credit Agreement and the Canadian
Credit Agreement in an aggregate amount incurred and outstanding at any
time pursuant to this paragraph (c) (plus any Refinancing Indebtedness
incurred to retire, defease, refinance, replace or refund such
Indebtedness) of up to $105 million (or the equivalent thereof, at the time
of incurrence, in the applicable foreign currencies) less the aggregate
amount of Indebtedness incurred pursuant to paragraph (d) of this covenant,
minus the amount of any such Indebtedness:
(1) retired with the Net Cash Proceeds from any Asset Sale applied to
permanently reduce the outstanding amounts or the commitments with
respect to such Indebtedness pursuant to clause (1)(b)(B) of the first
paragraph of the covenant "Limitation on Sale of Assets and Subsidiary
Stock," or
(2) assumed by a transferee in an Asset Sale;
provided, that the aggregate amount of Indebtedness incurred pursuant to
this paragraph (c) and paragraph (d) of this covenant shall in no event
exceed $105 million (or the equivalent thereof, at the time of incurrence,
in the applicable foreign currencies); and
(d) the incurrence by any Canadian Subsidiary, and the guarantee thereof
by us or any other Subsidiary, of Indebtedness pursuant to the Term
Facilities of the Canadian Credit Agreement in an aggregate amount incurred
and outstanding at any time pursuant to this paragraph (d) (plus any
Refinancing Indebtedness incurred to retire, defease, refinance, replace or
refund such Indebtedness) of up to $50 million (or the equivalent thereof,
at the time of incurrence, in the applicable foreign currencies) less the
aggregate amount of Indebtedness in excess of $55 million incurred pursuant
to paragraph (c) of this covenant, minus the amount of any such
Indebtedness:
(1) retired with the Net Cash Proceeds from any Asset Sale applied to
permanently reduce the outstanding amounts or the commitments with
respect to such Indebtedness pursuant to
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clause (1)(b)(B) of the first paragraph of the covenant "Limitation on
Sale of Assets and Subsidiary Stock," or
(2) assumed by a transferee in an Asset Sale;
provided, that the aggregate amount of Indebtedness incurred pursuant to
paragraph (c) of this covenant and this paragraph (d) shall in no event exceed
$105 million (or the equivalent thereof, at the time of incurrence, in the
applicable foreign currencies).
Indebtedness of any Person which is outstanding at the time such Person
becomes our Subsidiary (including upon designation of any subsidiary or other
Person as a Subsidiary) or is merged with or into or consolidated with us or
our Subsidiary shall be deemed to have been incurred at the time such Person
becomes our Subsidiary or is merged with or into or consolidated with us or our
Subsidiary, as applicable.
Notwithstanding any other provision of this covenant, and to avoid
duplication only, a guarantee of our Indebtedness or Indebtedness of a
Subsidiary Guarantor or a Canadian Subsidiary, incurred in accordance with the
terms of the Indenture issued at the time such Indebtedness was incurred or at
the time the guarantor thereof became our Subsidiary, will not constitute a
separate incurrence, or amount outstanding, of Indebtedness. Upon each
incurrence, we may designate the provision of this covenant pursuant to which
such Indebtedness is being incurred and such Indebtedness shall not be deemed
to have been incurred or outstanding under any other provision of this
covenant, except as stated otherwise in the foregoing provisions.
Limitation on Restricted Payments
The Indenture provides that we and the Subsidiary Guarantors will not, and
will not permit any of our or their Subsidiaries to, directly or indirectly,
make any Restricted Payment if, after giving effect to such Restricted Payment
on a pro forma basis:
(1) a Default or an Event of Default shall have occurred and be
continuing,
(2) we are not permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Debt Incurrence Ratio in the covenant
"Limitation on Incurrence of Additional Indebtedness," or
(3) the aggregate amount of all Restricted Payments made by us and our
Subsidiaries, including after giving effect to such proposed Restricted
Payment, from and after the Issue Date, would exceed, without duplication
of any credits in this paragraph, the following paragraph or the definition
of Permitted Indebtedness, the sum of:
(a) 50% of our aggregate Consolidated Net Income for the period
(taken as one accounting period), commencing on the first day of the
first full fiscal quarter commencing after the Issue Date, to and
including the last day of our most recently ended fiscal quarter for
which internal financial statements are available at the time of such
calculation (or, in the event Consolidated Net Income for such period
is a deficit, then minus 100% of such deficit), plus
(b) the aggregate Net Cash Proceeds received by us from a Capital
Contribution or from the sale of our Qualified Capital Stock (other
than (i) to our Subsidiary or (ii) to the extent applied in connection
with a Qualified Exchange), after the Issue Date, plus
(c) other than amounts credited pursuant to clause (t) of the next
following paragraph or permitted pursuant to the definition of
Permitted Investments, the net amount of any Restricted Investments
(not to exceed the original amount of such Investment) made after the
Issue Date (other than pursuant to clause (t) of the next following
paragraph or permitted pursuant to the definition of Permitted
Investments) that are returned to us or the Subsidiary that made such
prior Restricted Investment, without restriction, in cash or Cash
Equivalents on or prior to the date of any such calculation and our
direct and indirect proportionate interest in the fair market value of
an Unrestricted Subsidiary which is redesignated to be a Subsidiary, at
the time of such redesignation.
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The foregoing clause (3) of the immediately preceding paragraph, however,
will not prohibit:
(r) Restricted Payments in addition to those set forth in the
immediately preceding paragraph after the Issue Date not in excess of
$15,189,000 in the aggregate which may be used only to repay or settle
amounts owing to Domtar, Inc. or its Affiliates with respect to the
Domtar Note (including dividends to any parent guarantor or Holdings
for such purpose); in addition the foregoing clauses (2) and (3) of the
immediately preceding paragraph, however, will not prohibit:
(s) the Transactions (including dividends to any parent guarantor or
Holdings for the purpose of payments pursuant to the Transactions),
(t) Restricted Investments; provided that after giving pro forma
effect to such Restricted Investment, the aggregate amount of all such
Restricted Investments made on or after the Issue Date that are
outstanding (after giving effect to any such Restricted Investments
that are returned to us or the Subsidiary that made such prior
Restricted Investment, without restriction, in cash on or prior to the
date of any such calculation, but not to exceed the original amount of
such Restricted Investment) at any time does not exceed $5.0 million
(each such Restricted Investment being measured at the time made or
returned, as applicable), and
(u) repurchases of Capital Stock of Holdings from employees of
Holdings, any parent guarantor, the Issuer or our Subsidiaries upon the
death, disability or termination of employment in an aggregate amount
to all such employees not to exceed the sum of:
(A) $1.0 million per year or $2.5 million in the aggregate on and
after the Issue Date (including dividends to any parent guarantor or
Holdings for the purpose of such payment), plus
(B) the aggregate amount of proceeds of Qualified Capital Stock
issued to our employees or to employees of Holdings, such parent
guarantor or such Subsidiary in the same year and Net Cash Proceeds
from life insurance payments in the same year,
and the provisions of the immediately preceding paragraph will not
prohibit:
(v) any dividend, distribution or other payments by any of our
Subsidiaries on its Equity Interests that is paid pro rata to all
holders of such Equity Interests,
(w) a Qualified Exchange,
(x) the payment of any dividend on Qualified Capital Stock within 60
days after the date of its declaration if such dividend could have been
made on the date of such declaration in compliance with the foregoing
provisions,
(y) to the extent deemed a Restricted Payment, payment of amounts to
Genstar Capital in accordance with the terms of the Management Services
Agreement and the Engagement Agreement, both in accordance with the
terms thereof on the Issue Date (including dividends to any parent
guarantor or Holdings for the purpose of such payment), and
(z) Permitted Payments to Holdings.
The full amount of any Restricted Payment made pursuant to the foregoing
clauses (t), (u), (v) and (x) (but not pursuant to clauses (r), (s), (w), (y)
or (z)) of the immediately preceding sentence, however, will be deducted in
the calculation of the aggregate amount of Restricted Payments available to be
made referred to in clause (3) of the immediately preceding paragraph.
For purposes of this covenant, the amount of any Restricted Payment made or
returned, if other than in cash, shall be the fair market value thereof, as
determined in the good faith reasonable judgment of our Board of Directors.
Additionally, concurrently with each Restricted Payment, we shall deliver an
Officers' Certificate to the Trustee describing in reasonable detail the
nature of such Restricted Payment, stating the amount of such Restricted
Payment, stating in reasonable detail the provisions of the Indenture pursuant
to which such Restricted Payment was made and certifying that such Restricted
Payment was made in compliance with the terms of the Indenture.
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Limitation on Dividends and Other Payment Restrictions Affecting Subsidiaries
The Indenture provides that we and the Subsidiary Guarantors will not, and
will not permit any of our or their Subsidiaries to, directly or indirectly,
create, assume or suffer to exist any consensual restriction on the ability of
any of our Subsidiaries to pay dividends or make other distributions to or on
behalf of, or to pay any obligation to or on behalf of, or otherwise to
transfer assets or property to or on behalf of, or make or pay loans or
advances to or on our behalf or to or on behalf of any of our Subsidiaries,
except:
(a) restrictions imposed by the Notes or the Indenture or by our other
indebtedness (which may also be guaranteed by the Subsidiary Guarantors)
ranking senior or pari passu with the Notes or the Guarantee(s), as
applicable; provided that such restrictions are no more restrictive taken
as a whole than those imposed by the Indenture and the Notes,
(b) restrictions imposed by applicable law,
(c) existing restrictions under Existing Indebtedness,
(d) restrictions under any Acquired Indebtedness not incurred in
violation of the Indenture or any agreement relating to any property,
asset, or business acquired by us any of our Subsidiaries, which
restrictions in each case existed at the time of Acquisition, were not put
in place in connection with or in anticipation of such Acquisition and are
not applicable to any Person, other than the Person acquired, or to any
property, asset or business, other than the property, assets and business
so acquired,
(e) any such restriction or requirement imposed by Indebtedness incurred
under the Credit Agreement or the Canadian Credit Agreement or any
guarantee thereof in accordance with the covenant "Limitation on Incurrence
of Additional Indebtedness"; provided that such restriction or requirement
is no more restrictive taken as a whole than that imposed by the Credit
Agreement or the Canadian Credit Agreement or any such guarantee as of the
Issue Date,
(f) restrictions with respect solely to one of our Subsidiaries imposed
pursuant to a binding agreement which has been entered into for the sale or
disposition of all or substantially all of the Equity Interests or assets
of such Subsidiary; provided that such restrictions apply solely to the
Equity Interests or assets of such Subsidiary which are being sold,
(g) restrictions on transfer contained in Purchase Money Indebtedness
incurred pursuant to paragraph (a) of the covenant "Limitation on
Incurrence of Additional Indebtedness"; provided that such restrictions
relate only to the transfer of the property acquired with the proceeds of
such Purchase Money Indebtedness, and
(h) in connection with and pursuant to permitted Refinancings,
replacements of restrictions imposed pursuant to clauses (a), (c), (d), (e)
or (g) of this paragraph that are not more restrictive taken as a whole
than those being replaced and do not apply to any other Person or assets
than those that would have been covered by the restrictions in the
Indebtedness so refinanced.
Notwithstanding the foregoing, (a) customary provisions restricting subletting
or assignment of any lease entered into in the ordinary course of business,
consistent with industry practice shall not in and of themselves be considered
a restriction on the ability of the applicable Subsidiary to transfer such
agreement or assets, as the case may be and (b) any asset subject to a Lien
which is not prohibited to exist with respect to such asset pursuant to the
terms of the Indenture may be subject to restrictions on the transfer or
disposition thereof pursuant to such Lien.
Limitations on Layering Indebtedness
The Indenture provides that we and the Guarantors will not, and will not
permit any of our Subsidiaries to, directly or indirectly, incur, or suffer to
exist any Indebtedness that is subordinate in right of payment to any of our
other Indebtedness or any other Indebtedness of a Guarantor unless, by its
terms, such Indebtedness is subordinate in right of payment to, or ranks pari
passu with, the Notes or the Guarantees, as applicable;
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provided that this limitation will not apply to Acquired Indebtedness (other
than Acquired Indebtedness incurred in connection with or in contemplation of a
merger of us, any Guarantor or any of our or their Subsidiaries, or in
connection with another transaction pursuant to which a Person becomes our
Subsidiary or a Subsidiary of any Guarantor); provided, further, that this
limitation will not apply to guarantees by us or any Guarantor of Indebtedness
incurred pursuant to the Canadian Credit Agreement.
Limitation on Liens Securing Indebtedness
We and the Guarantors will not, and will not permit any of our Subsidiaries
to, create, incur, assume or suffer to exist any Lien of any kind, other than
Permitted Liens, upon any of our or their respective assets now owned or
acquired on or after the date of the Indenture or upon any income or profits
therefrom securing any of our Indebtedness or any Indebtedness of any
Guarantor, unless we and the applicable Guarantor provide, and cause our and
their Subsidiaries (that are our Subsidiaries) to provide, concurrently
therewith, that the Notes and the applicable Guarantees are equally and ratably
so secured; provided that if such Indebtedness is subordinated indebtedness,
the Lien securing such subordinated indebtedness shall be subordinate and
junior to the Lien securing the Notes with the same relative priority as such
subordinated indebtedness shall have with respect to the Notes.
Limitation on Sale of Assets and Subsidiary Stock
The Indenture provides that we and the Subsidiary Guarantors will not, and
will not permit any of our or their Subsidiaries to, in one or a series of
related transactions, convey, sell, transfer, assign or otherwise dispose of,
directly or indirectly, any of our or their property, business or assets,
including by merger or consolidation (in the case of a Subsidiary Guarantor or
one of our Subsidiaries), and including any sale or other transfer or issuance
of any Equity Interests of any of our Subsidiaries (other than directors'
qualifying shares or shares required by applicable law to be held by a Person
other than us or a Subsidiary), whether by us or a Subsidiary or through the
issuance, sale or transfer of Equity Interests by one of our Subsidiaries, and
including any sale and leaseback transaction (any of the foregoing, an "Asset
Sale"), unless:
(l) (a) the Net Cash Proceeds therefrom (the "Asset Sale Offer Amount")
are applied:
(A) within 180 days after the date of such Asset Sale to the
optional redemption of the Notes in accordance with the terms of the
Indenture and our other Indebtedness ranking on a parity with the
Notes and with similar provisions requiring us to redeem such
Indebtedness with the proceeds for asset sales, pro rata in
proportion to the respective principal amounts (or accreted values
in the case of Indebtedness issued with an original issue discount)
of the Notes and such other Indebtedness then outstanding, or
(B) within 210 days after the date of such Asset Sale to the
repurchase of the Notes and such other Indebtedness on a parity with
the Notes and with similar provisions requiring us to make an offer
to purchase such Indebtedness with the proceeds for asset sales
pursuant to a cash offer (subject only to conditions required by
applicable law, if any) (pro rata in proportion to the respective
principal amounts (or accreted values in the case of Indebtedness
issued with an original issue discount) of the Notes and such other
Indebtedness then outstanding) (the "Asset Sale Offer") at a
purchase price of 100% of principal amount (or accreted value in the
case of Indebtedness issued with an original issue discount) (the
"Asset Sale Offer Price") together with accrued and unpaid interest
and Liquidated Damages, if any, to the date of payment, made within
180 days of such Asset Sale, or
(b) within 180 days following such Asset Sale, the Asset Sale Offer
Amount is:
(A) invested (or committed, pursuant to a binding commitment
subject only to reasonable, customary closing conditions, to be
invested, and in fact is so invested, within an additional 90 days)
in assets and property (except in connection with the acquisition of
a Wholly Owned Subsidiary in a Related Business, other than Notes,
bonds, obligation and securities) which in
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the good faith reasonable judgment of our Board of Directors will
immediately constitute or be a part of a Related Business of us or
such Subsidiary (if it continues to be a Subsidiary) immediately
following such transaction or in Restricted Investments permitted by
the covenant "Limitation on Restricted Payments;" provided that
proceeds from Asset Sales effected by a Subsidiary Guarantor or a
Canadian Subsidiary may not be reinvested in a Foreign Subsidiary
which is not a Canadian Subsidiary, or
(B) used to retire Purchase Money Indebtedness or Senior Debt and
to permanently reduce (in the case of Senior Debt that is not
Purchase Money Indebtedness) the amount of such Indebtedness
outstanding on the Issue Date or permitted pursuant to paragraph (b)
(but only to the extent that such paragraph (b) relates to revolving
credit borrowings under the Credit Agreement and the Canadian Credit
Agreement), (c) or (d), as applicable, of the covenant "Limitation
on Incurrence of Additional Indebtedness" (including that in the
case of a revolver or similar arrangement that makes credit
available, such commitment is so permanently reduced by such
amount); provided that any proceeds from Asset Sales effected by a
Subsidiary Guarantor or a Canadian Subsidiary may not be used to
retire Indebtedness of or make an Investment in any Foreign
Subsidiary which is not a Canadian Subsidiary, except to the extent
allowable pursuant to clause (h) of the definition of Permitted
Investment,
(2) at least 75% of the total consideration for such Asset Sale or series
of related Asset Sales consists of cash or Cash Equivalents,
(3) no Default or Event of Default shall have occurred and be continuing
at the time of, or would occur after giving effect, on a pro forma basis,
to, such Asset Sale, and
(4) our Board of Directors determines in good faith that we or such
Subsidiary, as applicable, receives the fair market value for such Asset
Sale.
The Indenture provides that an acquisition of Notes pursuant to an Asset Sale
Offer may be deferred until the accumulated Net Cash Proceeds from Asset Sales
not applied to the uses and in the time periods set forth in 1(a)(A) or 1(b)
above (the "Excess Proceeds") exceeds $10.0 million and that each Asset Sale
Offer shall remain open for 20 Business Days following its commencement (the
"Asset Sale Offer Period"). Pending application of the Net Cash Proceeds
pursuant to this covenant, such Net Cash Proceeds shall be invested in
Permitted Investments (other than pursuant to clause (a), (e) or (h) of the
definition thereof) or used to reduce outstanding loans under any working
capital facility. Upon expiration of the Asset Sale Offer Period, we shall
apply the Asset Sale Offer Amount plus an amount equal to accrued and unpaid
interest and Liquidated Damages, if any, to the purchase of all Indebtedness
properly tendered (on a pro rata basis if the Asset Sale Offer Amount is
insufficient to purchase all Indebtedness so tendered) at the Asset Sale Offer
Price (together with accrued interest and Liquidated Damages, if any). To the
extent that the aggregate amount of Notes and such other pari passu
Indebtedness tendered pursuant to an Asset Sale Offer is less than the Asset
Sale Offer Amount, we may use any remaining Net Cash Proceeds for general
corporate purposes as otherwise permitted by the Indenture and following each
Asset Sale Offer the Excess Proceeds amount shall be reset to zero. For
purposes of (2) above, total consideration received means the total
consideration received for such Asset Sales minus the amount of:
(a) Purchase Money Indebtedness secured solely by the assets sold and
assumed by a transferee and Senior Debt assumed by the transferee, provided
in each case that we, the Guarantors and our and their Subsidiaries are
released from all obligations in connection therewith, and
(b) property that within 30 days of such Asset Sale is converted into
cash or Cash Equivalents; provided that such cash and Cash Equivalents
shall be treated as Net Cash Proceeds attributable to the original Asset
Sale for which such property was received.
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Notwithstanding, and without complying with, the provisions of this covenant:
(1) we and our Subsidiaries may, in the ordinary course of business, (a)
convey, sell, transfer, assign or otherwise dispose of inventory and other
assets acquired and held for resale in the ordinary course of business and
(b) liquidate Cash Equivalents;
(2) we and our Subsidiaries may convey, sell, transfer, assign or
otherwise dispose of assets pursuant to and in accordance with the covenant
"Limitation on Merger, Sale or Consolidation";
(3) we and our Subsidiaries may sell or dispose of damaged, worn out or
other obsolete personal property in the ordinary course of business so long
as such property is no longer necessary for the proper conduct of our
business, or the business of such Subsidiary, as applicable;
(4) we and the Subsidiary Guarantors may convey, sell, transfer, assign
or otherwise dispose of assets to us, any of our Subsidiary Guarantors or
any Canadian Subsidiary;
(5) we and our Subsidiaries, in the ordinary course of business, may
convey, sell transfer, assign, or otherwise dispose of assets (or related
assets in related transactions) with a fair market value of less than
$500,000;
(6) we and each of our Subsidiaries may surrender or waive contract
rights or settle, release or surrender contract, tort or other claims of
any kind or grant Liens (and permit foreclosure thereon) not prohibited by
the Indenture; and
(7) Foreign Subsidiaries may convey, sell, transfer, assign or otherwise
dispose of assets to us, any of the Subsidiary Guarantors, or any other
Foreign Subsidiary.
All Net Cash Proceeds from an Event of Loss relating to a Material Facility
(other than the proceeds of any business interruption insurance) shall be
reinvested, used for prepayment of senior debt, or used to repurchase Notes and
pari passu Indebtedness on a pro rata basis, all within the period and as
otherwise provided above in clauses 1(a) or 1(b) of the first paragraph of this
covenant.
Any Asset Sale Offer shall be made in compliance with all applicable laws,
rules, and regulations, including, if applicable, Regulation 14E of the
Exchange Act and the rules and regulations thereunder and all other applicable
Federal and state securities laws. To the extent that the provisions of any
securities laws or regulations conflict with the provisions of this paragraph,
compliance by us or any of our Subsidiaries with such laws and regulations
shall not in and of itself cause a breach of the obligations under such
covenant.
If the payment date in connection with an Asset Sale Offer hereunder is on or
after an interest payment Record Date and on or before the associated Interest
Payment Date, any accrued and unpaid interest (and Liquidated Damages, if any,
due on such Interest Payment Date) will be paid to the Person in whose name a
Note is registered at the close of business on such Record Date, and such
interest (or Liquidated Damages, if applicable) will not be payable to Holders
who tender Notes pursuant to such Asset Sale Offer.
Limitation on Transactions with Affiliates
The Indenture provides that neither we nor any of our Subsidiaries will be
permitted on or after the Issue Date to enter into or suffer to exist any
contract, agreement, arrangement or transaction with any Affiliate (an
"Affiliate Transaction"), or any series of related Affiliate Transactions,
(other than Exempted Affiliate Transactions):
(1) unless it is determined that the terms of such Affiliate Transaction
are fair and reasonable to us, and no less favorable to us, than could have
been obtained in an arm's length transaction with a non-Affiliate, and
(2) if involving consideration to either party in excess of $1.0 million,
unless such Affiliate Transaction(s) is evidenced by an Officers'
Certificate addressed and delivered to the Trustee certifying
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that such Affiliate Transaction (or Transactions) has been approved by a
majority of the members of our Board of Directors that are disinterested in
such transaction, if any, and
(3) if involving consideration to either party in excess of $5.0 million,
unless in addition we, prior to the consummation thereof, obtain a written
favorable opinion as to the fairness of such transaction to us from a
financial point of view from an independent investment banking firm of
national reputation or, if pertaining to a matter for which such investment
banking firms do not customarily render such opinions, an appraisal or
valuation firm of national reputation.
Limitation on Merger, Sale or Consolidation
The Indenture provides that we will not consolidate with or merge with or
into another Person or, directly or indirectly, sell, lease, convey or transfer
all or substantially all of our assets (computed on a consolidated basis),
whether in a single transaction or a series of related transactions, to another
Person or group of affiliated Persons, unless:
(1) either (a) we are the continuing entity is the continuing entity or
(b) the resulting, surviving or transferee entity is a corporation
organized under the laws of the United States, any state thereof or the
District of Columbia and expressly assumes by supplemental indenture all of
our obligations in connection with the Notes and the Indenture;
(2) no Default or Event of Default shall exist or shall occur immediately
after giving effect on a pro forma basis to such transaction; and
(3) immediately after giving effect to such transaction on a pro forma
basis, the consolidated resulting, surviving or transferee entity would
immediately thereafter be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Debt Incurrence Ratio set forth in the
covenant "Limitation on Incurrence of Additional Indebtedness."
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise) of all or substantially all of the properties and assets of one or
more Subsidiaries, our interest in which constitutes all or substantially all
of our properties and assets, shall be deemed to be the transfer of all or
substantially all of our properties and assets.
Upon any consolidation or merger or any transfer of all or substantially all
of our assets in accordance with the foregoing, the successor corporation
formed by such consolidation or into which we are merged or to which such
transfer is made shall (except in the case of a lease) succeed to and be
substituted for us, and may exercise our every right and power, under the
Indenture with the same effect as if such successor corporation had been named
as us therein, and (except in the case of a lease) we shall be released from
the obligations under the Notes and the Indenture except with respect to any
obligations that arise from, or are related to, such transaction.
Limitation on Lines of Business
The Indenture provides that neither we nor any of our Subsidiaries shall
directly or indirectly engage to any substantial extent in any line or lines of
business activity other than that which, in the reasonable good faith judgment
of our Board of Directors, is a Related Business.
Subsidiary Guarantors
The Indenture provides that all of our present and future Subsidiaries other
than Foreign Subsidiaries shall jointly and severally guaranty irrevocably and
unconditionally all principal, premium, if any, and interest on the Notes on a
senior subordinated basis.
Notwithstanding anything herein or in the Indenture to the contrary, if any
of our Subsidiaries (including Foreign Subsidiaries) that is not a Subsidiary
Guarantor guarantees any of our other Indebtedness or any
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Indebtedness of any Subsidiary Guarantor (other than any guarantee by a Foreign
Subsidiary of Indebtedness of any of our other Foreign Subsidiaries), or we or
one of our Subsidiaries, individually or collectively, pledges more than 65% of
the Equity Interests of any such Subsidiary to a United States lender, then
such subsidiary must become a Subsidiary Guarantor.
Release of Guarantors
The Indenture provides that no Guarantor shall consolidate or merge with or
into (whether or not such Guarantor is the surviving Person) another Person
unless, subject to the provisions of the following paragraph and certain other
provisions of the Indenture:
(1) the Person formed by or surviving any such consolidation or merger
(if other than such Guarantor) assumes all the obligations of such
Guarantor pursuant to a supplemental indenture in form reasonably
satisfactory to the Trustee, pursuant to which such Person shall
unconditionally guarantee, on a senior subordinated basis, all of such
Guarantor's obligations under such Guarantor's Guarantee on the terms set
forth in the Indenture; and
(2) immediately before and immediately after giving effect to such
transaction on a pro forma basis, no Default or Event of Default shall have
occurred or be continuing.
The provisions of this paragraph shall not apply to the merger of any
Guarantors with and into each other or with or into us.
Upon the sale or disposition (whether by merger, stock purchase, asset sale
or otherwise) of a Subsidiary Guarantor or all of its assets to an entity which
is not a Subsidiary Guarantor, or the designation of a Subsidiary to become an
Unrestricted Subsidiary, which transaction is otherwise in compliance with the
Indenture (including, without limitation, the provisions of the covenant
"Limitation on Sale of Assets and Subsidiary Stock"), such Subsidiary Guarantor
will be deemed released from its obligations under its Guarantee of the Notes;
provided that any such termination shall occur only to the extent that all
obligations of such Subsidiary Guarantor under all of its guarantees of any of
our Indebtedness or any Indebtedness of any of our other Subsidiaries shall
also terminate upon such release, sale or transfer.
Limitation on Status as Investment Company
The Indenture will prohibit us and our Subsidiaries from being required to
register as an "investment company" (as that term is defined in the Investment
Company Act of 1940, as amended (the "Investment Company Act")), or from
otherwise becoming subject to registration or regulation under the Investment
Company Act.
Reports
The Indenture provides that whether or not we or any of our direct or
indirect parent companies is subject to the reporting requirements of Section
13 or 15(d) of the Exchange Act, we shall deliver to the Trustee and to each
Holder and to prospective purchasers of Notes identified to us by an Initial
Purchaser, within 15 days after we are or would have been (if we were subject
to such reporting obligations) required to file such with the Commission,
annual and quarterly financial statements substantially equivalent to financial
statements that would have been included in reports filed with the Commission,
if we were subject to the requirements of Section 13 or 15(d) of the Exchange
Act, including, with respect to annual information only, a report thereon by
our certified independent public accountants as such would be required in such
reports to the Commission, and, in each case, together with a management's
discussion and analysis of financial condition and results of operations which
would be so required and, unless the Commission will not accept such reports,
file with the Commission the annual, quarterly and other reports which it is or
would have been required to file with the Commission. In lieu of filing and
providing reports as set forth above, we may, so long as any of our direct or
indirect parent companies owns 100% of our Capital Stock and if permitted by
the Commission, include in the
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reports filed and provided by such direct or indirect parent company such
financial information and narrative disclosure regarding us and the Subsidiary
Guarantors as required by the Commission in lieu of filing such reports by us.
Events of Default and Remedies
The Indenture defines an Event of Default as:
(1) the failure by us to pay any installment of interest (or Liquidated
Damages, if any) on the Notes as and when the same becomes due and payable
and the continuance of any such failure for 30 days,
(2) the failure by us or any of our Subsidiaries to pay all or any part
of the principal, or premium, if any, on the Notes when and as the same
becomes due and payable at maturity, redemption, by acceleration or
otherwise, including, without limitation, payment of the Change of Control
Purchase Price or the Asset Sale Offer Price, or otherwise on Notes validly
tendered and not properly withdrawn pursuant to a Change of Control Offer
or Asset Sale Offer, as applicable (as set forth under the captions "--
Repurchase of Notes at the Option of the Holder Upon a Change of Control"
and "--Limitation on Sale of Assets and Subsidiary Stock"),
(3) failure by us or any of our Subsidiaries for 30 days after notice
from the Trustee or Holders of at least 25% in principal amount of the
Notes then outstanding to comply with the provisions described under the
captions "--Limitation on Restricted Payments" or "--Limitation on
Incurrence of Additional Indebtedness,"
(4) failure by us or any of our Subsidiaries for 60 days after notice
from the Trustee or the Holders of at least 25% in principal amount of the
Notes then outstanding to comply with any of their respective other
agreements in the Indenture or the Notes,
(5) certain events of bankruptcy, insolvency or reorganization in respect
of us or any of our Significant Subsidiaries,
(6) a default in Indebtedness of us or any of our Subsidiaries with an
aggregate principal amount in excess of $5.0 million (a) resulting from the
failure to pay principal at maturity or (b) as a result of which the
maturity of such Indebtedness has been accelerated prior to its stated
maturity,
(7) final unsatisfied judgments not covered by insurance aggregating in
excess of $5.0 million, at any one time rendered against us or any of our
Subsidiaries and not stayed, bonded or discharged within 60 days, and
(8) except as permitted by the Indenture, any of the Guarantees shall be
held in a judicial proceeding to be unenforceable or invalid or shall cease
for any reason to be in full force and effect or the respective Guarantor,
or any Person acting on behalf of such Guarantor, shall deny or disaffirm
its obligations under its Guarantee.
The Indenture provides that if a Default occurs and is continuing, the Trustee
must, within 90 days after the occurrence of such default, give to the Holders
notice of such default.
If an Event of Default occurs and is continuing (other than an Event of
Default specified in clause (5), above, relating to us) then in every such
case, unless the principal of all of the Notes shall have already become due
and payable, either the Trustee or the Holders of at least 25% in aggregate
principal amount of the Notes then outstanding, by notice in writing to us (and
to the Trustee if given by Holders) (an "Acceleration Notice"), may declare all
principal, determined as set forth below, and accrued interest (and Liquidated
Damages, if any) thereon to be due and payable immediately; provided that if
any Senior Debt is outstanding pursuant to the Credit Agreement, or the
Canadian Credit Agreement, upon a declaration of such acceleration, such
principal and interest shall be due and payable upon the earlier of (x) the
fifth Business Day after the sending to us and the representative under the
Credit Agreement and the Canadian Credit Agreement of such written notice,
unless such Event of Default is cured or waived prior to such date and (y) the
date of
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acceleration of any senior debt under the Credit Agreement or the Canadian
Credit Agreement, as applicable. In the event a declaration of acceleration
resulting solely from an Event of Default described in clause (6) above has
occurred and is continuing, such declaration of acceleration shall be
automatically annulled if such default is cured or waived or the holders of the
Indebtedness which is the subject of such default have rescinded their
declaration of acceleration in respect of such Indebtedness within 5 days
thereof and the Trustee has received written notice of such cure, waiver or
rescission and no other Event of Default described in clause (6) above has
occurred that has not been cured or waived within 5 days of the declaration of
such acceleration in respect of such Indebtedness. If an Event of Default
specified in clause (5) above relating to us occurs, all principal and accrued
interest (and Liquidated Damages, if any) thereon will be immediately due and
payable on all outstanding Notes without any declaration or other act on the
part of Trustee or the Holders. The Holders of a majority in aggregate
principal amount of Notes generally are authorized to rescind such acceleration
if all existing Events of Default have been cured or waived, other than the
non-payment of the principal of, premium, if any, and interest on the Notes
which have become due solely by such acceleration and except on default with
respect to any provision requiring a supermajority approval to amend, which
default may only be waived by such a supermajority.
Prior to the declaration of acceleration of the maturity of the Notes, the
Holders of a majority in aggregate principal amount of the Notes at the time
outstanding may waive on behalf of all the Holders any default, except a
default with respect to any provision requiring a supermajority approval to
amend, which default may only be waived by such a supermajority, and except a
default in the payment of principal of or interest on any Note not yet cured or
a default with respect to any covenant or provision which cannot be modified or
amended without the consent of the Holder of each outstanding Note affected.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, the Trustee will be under no obligation to exercise any of its rights
or powers under the Indenture at the request, order or direction of any of the
Holders, unless such Holders have offered to the Trustee reasonable security or
indemnity. Subject to all provisions of the Indenture and applicable law, the
Holders of a majority in aggregate principal amount of the Notes at the time
outstanding will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred on the Trustee.
Legal Defeasance and Covenant Defeasance
The Indenture provides that we may, at our option, elect to have our
obligations and the obligations of the Guarantors discharged with respect to
the outstanding Notes ("Legal Defeasance"). Such Legal Defeasance means that we
shall be deemed to have paid and discharged the entire Indebtedness represented
by the Notes, and the Indenture shall cease to be of further effect as to all
outstanding Notes and Guarantees, except as to:
(1) rights of Holders to receive payments in respect of the principal of,
premium, if any, and interest (and Liquidated Damages, if any) on such
Notes when such payments are due from the trust funds;
(2) our obligations with respect to such Notes concerning issuing
temporary Notes, registration of Notes, mutilated, destroyed, lost or
stolen Notes, and the maintenance of an office or agency for payment and
money for security payments held in trust;
(3) the rights, powers, trust, duties, and immunities of the Trustee, and
our obligations in connection therewith; and
(4) the Legal Defeasance provisions of the Indenture.
In addition, we may, at our option and at any time, elect to have our
obligations and the obligations of the Guarantors released with respect to
certain covenants that are described in the Indenture ("Covenant Defeasance")
and thereafter any omission to comply with such obligations shall not
constitute a Default or Event of Default with respect to the Notes. In the
event Covenant Defeasance occurs, certain events (not including non-payment,
bankruptcy, receivership, rehabilitation and insolvency events) described under
"Events of Default" will no longer constitute an Event of Default with respect
to the Notes.
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In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) we must irrevocably deposit with the Trustee, in trust, for the
benefit of the Holders of the Notes, U.S. legal tender, U.S. Government
Obligations or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent
public accountants, to pay the principal of, premium, if any, Liquidated
Damages, if any, and interest on such Notes on the stated date for payment
thereof or on the redemption date of such principal or installment of
principal of, premium, if any, or interest on such Notes, and the Holders
of Notes must have a valid, perfected, exclusive security interest in such
trust;
(2) in the case of Legal Defeasance, we shall have delivered to the
Trustee an opinion of counsel in the United States reasonably acceptable to
the Trustee confirming that:
(A) we have received from, or there has been published by the
Internal Revenue Service, a ruling, or
(B) since the date of the Indenture, there has been a change in the
applicable federal income tax law,
in either case to the effect that, and based thereon such opinion of
counsel shall confirm that, the Holders of such Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such
Legal Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the
case if such Legal Defeasance had not occurred;
(3) in the case of Covenant Defeasance, we shall have delivered to the
Trustee an opinion of counsel in the United States reasonably acceptable to
such Trustee confirming that the Holders of such Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such
Covenant Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the
case if such Covenant Defeasance had not occurred;
(4) no Default or Event of Default shall have occurred and be continuing
on the date of such deposit or insofar as Events of Default from bankruptcy
or insolvency events are concerned, at any time in the period ending on the
91st day after the date of deposit;
(5) such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under the Indenture or any
other material agreement or instrument to which we or any of our
Subsidiaries is a party or by which we or any of our Subsidiaries is bound;
(6) we shall have delivered to the Trustee an Officers' Certificate
stating that the deposit was not made by us with the intent of preferring
the Holders of such Notes over any of our other creditors or with the
intent of defeating, hindering, delaying or defrauding any of our other
creditors or others; and
(7) we shall have delivered to the Trustee an Officers' Certificate and
an opinion of counsel, each stating that the conditions precedent provided
for in, in the case of the Officers' Certificate, (1) through (6) and, in
the case of the opinion of counsel, clauses (1) (with respect to the
validity and perfection of the security interest), (2), (3) and (5) of this
paragraph have been complied with.
If the funds deposited with the Trustee to effect Covenant Defeasance are
insufficient to pay the principal of, premium, if any, and interest on the
Notes when due, then our obligations and the obligations of the Guarantors
under the Indenture will be revived and no such defeasance will be deemed to
have occurred.
Amendments and Supplements
The Indenture contains provisions permitting us, the Guarantors and the
Trustee to enter into a supplemental indenture for certain limited purposes
without the consent of the Holders. With the consent of the Holders of not less
than a majority in aggregate principal amount of the Notes at the time
outstanding, we, the Guarantors and the Trustee are permitted to amend or
supplement the Indenture or any supplemental indenture
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or modify the rights of the Holders; provided that no such modification may,
without the consent of Holders of at least 66 2/3% in aggregate principal
amount of Notes at the time outstanding, modify the provisions (including the
defined terms used therein) of the covenant "Repurchase of Notes at the Option
of the Holder upon a Change of Control" in a manner adverse to the Holders and
provided that no such modification may, without the consent of each Holder
affected thereby:
(1) change the final Stated Maturity on any Note, or reduce the principal
amount thereof or the rate (or extend the time for payment) of interest
thereon or any premium payable upon the redemption at our option, thereof,
or change the city of payment where, or the coin or currency in which any
Note or any premium or the interest thereon is payable, or impair the right
to institute suit for the enforcement of any such payment on or after the
Stated Maturity thereof (or, in the case of redemption at our option, on or
after the Redemption Date), or, after the applicable Change of Control or
Asset Sale occurs, reduce the corresponding Change of Control Purchase
Price or the Asset Sale Offer Price or alter the provisions (including the
defined terms used therein) regarding our right to redeem the Notes as a
right or at our option in a manner adverse to the Holders, or
(2) reduce the percentage in principal amount of the outstanding Notes,
the consent of whose Holders is required for any such amendment,
supplemental indenture or waiver provided for in the Indenture, or
(3) modify any of the waiver provisions, except to increase any required
percentage or to provide that certain other provisions of the Indenture
cannot be modified or waived without the consent of the Holder of each
outstanding Note affected thereby.
No Personal Liability of Partners, Stockholders, Officers, Directors
The Indenture provides that no direct or indirect stockholder, employee,
officer or director, as such, past, present or future of us, the Guarantors,
Holdings, or any successor entity shall have any personal liability in respect
of our obligations or the obligations of the Guarantors under the Indenture or
the Notes solely by reason of his or its status as such stockholder, employee,
officer or director, except that this provision shall in no way limit the
obligation of any Guarantor pursuant to any Guarantee of the Notes.
Governing Law
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.
Certain Definitions
"Acquired Indebtedness" means Indebtedness or Disqualified Capital Stock of
any Person existing at the time such Person becomes our Subsidiary, including
by designation, or is merged or consolidated into or with us or one of our
Subsidiaries.
"Acquisition" means the purchase or other acquisition of any Person or all or
substantially all the assets of any Person by any other Person, whether by
purchase, merger, consolidation, or other transfer, and whether or not for
consideration.
"Affiliate" means any Person directly or indirectly controlling or controlled
by or under direct or indirect common control with us. For purposes of this
definition, the term "control" means the power to direct the management and
policies of a Person, directly or through one or more intermediaries, whether
through the ownership of voting securities, by contract, or otherwise; provided
that with respect to ownership interest in us and our Subsidiaries, a
Beneficial Owner of 10% or more of the total voting power normally entitled to
vote in the election of directors, managers or trustees, as applicable, shall
for such purposes be deemed to constitute control.
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"Average Life" means, as of the date of determination, with respect to any
security or instrument, the quotient obtained by dividing (1) the sum of the
products (a) of the number of years from the date of determination to the date
or dates of each successive scheduled principal (or redemption) payment of such
security or instrument and (b) the amount of each such respective principal (or
redemption) payment by (2) the sum of all such principal (or redemption)
payments.
"Beneficial Owner" or "beneficial owner" for purposes of the definition of
Change of Control and Affiliate has the meaning attributed to it in Rules 13d-3
and 13d-5 under the Exchange Act (as in effect on the Issue Date), whether or
not applicable.
"Board of Directors" means, with respect to any Person, the board of
directors of such Person or any committee of the Board of Directors of such
Person authorized, with respect to any particular matter, to exercise the power
of the Board of Directors of such Person.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in New York, New York are
authorized or obligated by law or executive order to close.
"Canadian Credit Agreement" means the credit agreement dated as of February
18, 1999 by and among Panolam Canada, certain financial institutions and DLJ
Capital Funding, as Syndication Agent, Donaldson, Lufkin & Jenrette Securities
Corporation, as Lead Arranger, and Credit Suisse First Boston Canada, as
Canadian Administrative Agent, and Royal Bank of Canada, as Documentation
Agent, providing for one or more term loan facilities and a revolving credit
facility, including any related notes, letters of credit, guarantees,
collateral documents, instruments and agreements executed in connection
therewith, as such credit agreement and/or related documents may be amended,
restated, supplemented, renewed, replaced or otherwise modified from time to
time whether or not with the same agent, trustee, representative lenders or
holders, and, subject to the proviso to the next succeeding sentence,
irrespective of any changes in the terms and conditions thereof. Without
limiting the generality of the foregoing, the term "Canadian Credit Agreement"
shall include agreements in respect of Interest Swap and Hedging Obligations
with lenders party to the Canadian Credit Agreement and shall also include any
amendment, amendment and restatement, renewal, extension, restructuring,
supplement or modification to any Canadian Credit Agreement and all refundings,
refinancings and replacements of any Canadian Credit Agreement, including any
agreement:
(1) extending the maturity of any Indebtedness incurred thereunder or
contemplated thereby,
(2) adding or deleting borrowers or guarantors thereunder, so long as
such remaining borrowers or guarantors include one or more of Panolam
Canada and its Subsidiaries and their respective successors and assigns,
(3) increasing the amount of Indebtedness incurred thereunder or
available to be borrowed thereunder; provided that on the date such
Indebtedness is incurred it would not be prohibited by the covenant
"Limitation on Incurrence of Additional Indebtedness," or
(4) otherwise altering the terms and conditions thereof in a manner not
prohibited by the terms of the Indenture.
"Canadian Subsidiary" means a Wholly Owned Subsidiary that is domiciled and
doing business principally in Canada.
"Capital Contribution" means any contribution to our equity of from one of
our direct or indirect parent companies for which no consideration is given
other than the issuance of Qualified Capital Stock.
"Capitalized Lease Obligation" means, as to any Person, the obligations of
such Person under a lease that are required to be classified and accounted for
as capital lease obligations under GAAP and, for purposes of
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this definition, the amount of such obligations at any date shall be the
capitalized amount of such obligations at such date, determined in accordance
with GAAP.
"Capital Stock" means, with respect to any corporation, any and all shares,
interests, rights to purchase (other than convertible or exchangeable
Indebtedness that is not itself otherwise capital stock), warrants, options,
participations or other equivalents of or interests (however designated) in
stock issued by that corporation.
"Cash Equivalent" means:
(1) securities issued or directly and fully guaranteed or insured by the
United States of America or any agency or instrumentality thereof (provided
that the full faith and credit of the United States of America is pledged
in support thereof), or
(2) time deposits and certificates of deposit and commercial paper issued
by the parent corporation of any domestic commercial bank of recognized
standing having capital and surplus in excess of $500 million, or
(3) commercial paper issued by others rated at least A-2 or the
equivalent thereof by Standard & Poor's Corporation or at least P-2 or the
equivalent thereof by Moody's Investors Service, Inc., and in the case of
each of (1), (2), and (3) maturing within one year after the date of
acquisition, or
(4) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in subparagraphs (1) and (2)
above entered into with any financial institution meeting the
qualifications specified in subparagraph (2) above, or
(5) investments in money market funds which invest substantially all
their assets in securities of the types described in subparagraphs (1)
through (4) above.
"Consolidation" means, with respect to us, the consolidation of the accounts
of our Subsidiaries with our accounts, all in accordance with GAAP; provided
that "consolidation" will not include consolidation of the accounts of any
Unrestricted Subsidiary with our accounts of the Issuer. The term
"consolidated" has a correlative meaning to the foregoing.
"Consolidated Coverage Ratio" of any Person on any date of determination (the
"Transaction Date") means the ratio, on a pro forma basis, of (a) the aggregate
amount of Consolidated EBITDA of such Person attributable to continuing
operations and businesses (exclusive of amounts attributable to operations and
businesses recorded as permanently discontinued or disposed of) for the
Reference Period to (b) the aggregate Consolidated Fixed Charges of such Person
(exclusive of amounts attributable to operations and businesses recorded as
permanently discontinued or disposed of, but only to the extent that the
obligations giving rise to such Consolidated Fixed Charges would no longer be
obligations contributing to such Person's Consolidated Fixed Charges subsequent
to the Transaction Date) during the Reference Period; provided that for
purposes of such calculation:
(1) Acquisitions which occurred during the Reference Period or subsequent
to the Reference Period and on or prior to the Transaction Date shall be
assumed to have occurred on the first day of the Reference Period without
regard to the effect of subsection (c) of the definition of "Consolidated
Net Income,"
(2) transactions giving rise to the need to calculate the Consolidated
Coverage Ratio shall be assumed to have occurred on the first day of the
Reference Period without regard to the effect of subsection (c) of the
definition of "Consolidated Net Income,"
(3) the incurrence of any Indebtedness during the Reference Period or
subsequent to the Reference Period and on or prior to the Transaction Date
(and the application of the proceeds therefrom to the extent used to
refinance or retire other Indebtedness) shall be assumed to have occurred
on the first day of the Reference Period, and
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(4) the Consolidated Fixed Charges of such Person attributable to
interest on any Indebtedness (or dividends on any Disqualified Capital
Stock) bearing a floating interest (or dividend) rate shall be computed on
a pro forma basis as if the average rate in effect from the beginning of
the Reference Period to the Transaction Date had been the applicable rate
for the entire period, unless such Person or any of its Subsidiaries is a
party to an Interest Swap and Hedging Obligation (which shall remain in
effect for the 12-month period immediately following the Transaction Date)
that has the effect of fixing the interest rate on the date of computation,
in which case such rate (whether higher or lower) shall be used.
"Consolidated EBITDA" means, with respect to any Person, for any period, the
Consolidated Net Income of such Person for such period adjusted to add thereto
(to the extent deducted from net revenues in determining Consolidated Net
Income), without duplication, the sum of:
(1) Consolidated income tax expense,
(2) Consolidated depreciation and amortization expense,
(3) Consolidated Fixed Charges, and
(4) all other non-recurring non-cash charges of such Person and its
Consolidated Subsidiaries, less the amount of all cash payments made by
such Person or any of its Subsidiaries during such period to the extent
such payments relate to non-recurring non-cash charges that were added back
in determining Consolidated EBITDA for such period or any prior period;
provided that Consolidated income tax expense and depreciation and
amortization of a Subsidiary that is a less than a Wholly-Owned Subsidiary
shall only be added to the extent of our equity interest in such
Subsidiary.
"Consolidated Fixed Charges" of any Person means, for any period, the
aggregate amount (without duplication and determined in each case in accordance
with GAAP) of:
(a) interest expensed or capitalized, paid, accrued, or scheduled to be
paid or accrued (including, in accordance with the following sentence,
interest attributable to Capitalized Lease Obligations) of such Person and
its Consolidated Subsidiaries during such period, including:
(1) original issue discount and non-cash interest payments or
accruals on any Indebtedness,
(2) the interest portion of all deferred payment obligations, and
(3) all commissions, discounts and other fees and charges owed with
respect to bankers' acceptances and letters of credit financings and
currency and Interest Swap and Hedging Obligations, in each case to the
extent attributable to such period, and
(b) the amount of dividends accrued or payable (or guaranteed) by such
Person or any of its Consolidated Subsidiaries in respect of Preferred
Stock (other than by Subsidiaries of such Person to such Person or such
Person's Wholly-Owned Subsidiaries).
For purposes of this definition, (x) interest on a Capitalized Lease
Obligation shall be deemed to accrue at an interest rate reasonably determined
in good faith by us to be the rate of interest implicit in such Capitalized
Lease Obligation in accordance with GAAP and (y) interest expense attributable
to any Indebtedness represented by the guaranty by such Person or a Subsidiary
of such Person of an obligation of another Person shall be deemed to be the
interest expense attributable to the Indebtedness guaranteed.
"Consolidated Net Income" means, with respect to any Person for any period,
the net income (or loss) of such Person and its Consolidated Subsidiaries
(determined on a Consolidated basis in accordance with GAAP) for such period,
adjusted to exclude (only to the extent included in computing such net income
(or loss) and without duplication):
(a) all gains and losses which are either extraordinary (as determined in
accordance with GAAP) or are either unusual or nonrecurring (including any
gain or loss from the sale or other disposition of assets outside the
ordinary course of business or from the issuance or sale of any capital
stock),
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(b) the net income, if positive, of any Person, other than a Consolidated
Subsidiary, in which such Person or any of its Consolidated Subsidiaries
has an interest, except to the extent of the amount of any dividends or
distributions actually paid in cash to such Person or a Consolidated
Subsidiary of such Person during such period, but in any case not in excess
of such Person's pro rata share of such Person's net income for such
period,
(c) the net income or loss of any Person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition,
and
(d) the net income, if positive, of any of such Person's Consolidated
Subsidiaries to the extent that the declaration or payment of dividends or
similar distributions is not at the time permitted by operation of the
terms of its charter or bylaws or any other agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation
applicable to such Consolidated Subsidiary.
"Consolidated Subsidiary" means, for any Person, each Subsidiary of such
Person (whether now existing or hereafter created or acquired) the financial
statements of which are Consolidated for financial statement reporting purposes
with the financial statements of such Person in accordance with GAAP.
"Credit Agreement" means the credit agreement dated as of February 18, 1999
by and among us, certain of its Subsidiaries, certain financial institutions
and DLJ Capital Funding, as Syndication Agent, Donaldson, Lufkin & Jenrette
Securities Corporation, as Lead Arranger, and Credit Suisse First Boston,
New York branch, as Administrative Agent, and Royal Bank of Canada, as
Documentation Agent, providing for one or more term loan facilities and a
revolving credit facility, including any related notes, letters of credit,
guarantees, collateral documents, instruments and agreements executed in
connection therewith, as such credit agreement and/or related documents may be
amended, restated, supplemented, renewed, replaced or otherwise modified from
time to time whether or not with the same agent, trustee, representative
lenders or holders, and, subject to the proviso to the next succeeding
sentence, irrespective of any changes in the terms and conditions thereof.
Without limiting the generality of the foregoing, the term "Credit Agreement"
shall include agreements in respect of Interest Swap and Hedging Obligations
with lenders party to the Credit Agreement and shall also include any
amendment, amendment and restatement, renewal, extension, restructuring,
supplement or modification to any Credit Agreement and all refundings,
refinancings and replacements of any Credit Agreement, including any agreement:
(1) extending the maturity of any Indebtedness incurred thereunder or
contemplated thereby,
(2) adding or deleting borrowers or guarantors thereunder, so long as
such borrowers or guarantors include one or more of us and our Subsidiaries
and our and their respective successors and assigns,
(3) increasing the amount of Indebtedness incurred thereunder or
available to be borrowed thereunder; provided that on the date such
Indebtedness is incurred it would not be prohibited by the covenant
"Limitation on Incurrence of Additional Indebtedness," or
(4) otherwise altering the terms and conditions thereof in a manner not
prohibited by the terms of the Indenture.
"Disqualified Capital Stock" means:
(a) except as set forth in (b), with respect to any Person, Equity
Interests of such Person that, by its terms or by the terms of any security
into which it is convertible, exercisable or exchangeable, is, or upon the
happening of an event (other than customary change of control provisions)
or the passage of time or both would be, required to be redeemed or
repurchased (including at the option of the holder thereof) by such Person
or any of its Subsidiaries, in whole or in part, other than solely for our
Qualified Capital Stock, on or prior to 91 days following the Stated
Maturity of the Notes, and
(b) with respect to any Subsidiary of such Person (including with respect
to any of our Subsidiaries), any Equity Interests other than any common
equity with no preference as to liquidation or dividend payments, or
redemption or repayment provisions.
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"Earn Out Payment" means a payment of additional consideration to Rugby USA,
Inc., a Georgia corporation, pursuant to section 2(e)(v) of the Stock Purchase
Agreement, in accordance with the terms thereof on the Issue Date.
"Engagement Agreement" means that certain Engagement Agreement dated as of
January 24, 1999 between Genstar Capital, LLC, and us, providing for the
payment of transaction fees of $2,000,000 payable on the Issue Date and an
aggregate of $2,025,000 payable in twelve quarterly installments of $168,750
(or the pro rata amount thereof), commencing on March 31, 1999, in accordance
with the terms thereof on the Issue Date and without giving effect to any
future amendment or supplement thereto.
"Equity Interest" of any Person means any shares, interests, participations
or other equivalents (however designated) in such Person's equity, and shall in
any event include any Capital Stock issued by, or partnership, participation or
membership interests in, such Person.
"Event of Loss" means, with respect to any property or asset, any:
(1) loss, destruction or damage of such property or asset, or
(2) any condemnation, seizure or taking, by exercise of the power of
eminent domain or otherwise, of such property or asset, or confiscation or
requisition of the use of such property or asset.
"Excluded Person" means Genstar Capital and all Related Persons of such
Person.
"Exempted Affiliate Transaction" means:
(a) customary employee compensation arrangements approved by a majority
of independent (as to such transactions) members of our Board of Directors,
(b) dividends permitted under the terms of the covenant discussed above
under "Limitation on Restricted Payments" above and payable, in form and
amount, on a pro rata basis to all holders of our common stock,
(c) transactions solely between us and any of our Consolidated
Subsidiaries or solely among our Consolidated Subsidiaries,
(d) Permitted Investments,
(e) any issuance of securities, or other payments, awards or grants in
cash, securities or otherwise pursuant to, or the funding of, employment
arrangements, stock options and stock ownership plans approved by a
majority of members of our Board of Directors and, if any, a majority of
the independent members of such Board consistent with industry practice,
(f) the grant of stock options or similar rights to our employees and
directors and employees and directors of our Subsidiaries pursuant to plans
approved by a majority of members of our Board of Directors and, if any, a
majority of the independent members of such Board,
(g) loans or advances to employees in the ordinary course of business in
accordance with our past practices and the past practices of our
Subsidiaries, but in any event not to exceed $1.5 million in the aggregate
outstanding at any one time,
(h) the payment of reasonable fees and indemnities to our directors and
directors of our Subsidiaries who are not our employees or employees of our
Subsidiaries,
(i) the issuance or sale of any of our Capital Stock (other than
Disqualified Capital Stock) if approved by a majority of the members of our
Board of Directors and, if any, a majority of the independent members of
such Board, and
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(j) transactions pursuant to the Management Services Agreement and the
Engagement Agreement, both in accordance with the terms thereof on the
Issue Date and without giving effect to any future amendment or supplement
thereto.
"Existing Indebtedness" means our Indebtedness and the Indebtedness of our
Subsidiaries (other than Indebtedness under the Credit Agreement and the
Canadian Credit Agreement) in existence on the Issue Date, until such amounts
are repaid.
"Foreign Subsidiary" means any of our Subsidiaries which (1) is not organized
under the laws of the United States, any state thereof or the District of
Columbia and (2) conducts substantially all of its business operations outside
the United States of America.
"GAAP" means United States generally accepted accounting principles set forth
in the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession in the United States applied on a consistent basis and as
in effect from time to time.
"Genstar Capital" means Genstar Capital Corporation and its Affiliates and
stockholders.
"Holdings" means Panolam Industries Holdings, Inc., a Delaware corporation,
so long as Panolam Industries Holdings, Inc. is our direct or indirect parent
company.
"Indebtedness" of any Person means, without duplication:
(a) all liabilities and obligations, contingent or otherwise, of any such
Person, to the extent such liabilities and obligations would appear as a
liability upon the Consolidated balance sheet of such Person in accordance
with GAAP:
(1) in respect of borrowed money (whether or not the recourse of the
lender is to the whole of the assets of such Person or only to a
portion thereof),
(2) evidenced by bonds, notes, debentures or similar instruments,
(3) representing the balance deferred and unpaid of the purchase
price of any property or services, except (other than accounts payable
or other obligations to trade creditors which have remained unpaid for
greater than 60 days past their original due date) those incurred in
the ordinary course of its business that would constitute ordinarily a
trade payable to trade creditors;
(b) all liabilities and obligations, contingent or otherwise, of such
Person:
(1) evidenced by bankers' acceptances or similar instruments issued
or accepted by banks,
(2) relating to any Capitalized Lease Obligation, or
(3) evidenced by a letter of credit or a reimbursement obligation of
such Person with respect to any letter of credit;
(c) all net obligations of such Person under Interest Swap and Hedging
Obligations;
(d) all liabilities and obligations of others of the kind described in
the preceding subparagraph (a), (b) or (c) that such Person has guaranteed
or that is otherwise its legal liability or which are secured by any assets
or property of such Person;
(e) any and all deferrals, renewals, extensions, refinancing and
refundings (whether direct or indirect) of, or amendments, modifications or
supplements to, any liability of the kind described in any of the preceding
subparagraphs (a), (b), (c) or (d), or this subparagraph (e), whether or
not between or among the same parties; and
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(f) all Disqualified Capital Stock of such Person (measured at the
greater of its voluntary or involuntary maximum fixed repurchase price plus
accrued and unpaid dividends).
For purposes hereof, the "maximum fixed repurchase price" of any Disqualified
Capital Stock which does not have a fixed repurchase price shall be calculated
in accordance with the terms of such Disqualified Capital Stock as if such
Disqualified Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to the Indenture, and if such price
is based upon, or measured by, the Fair Market Value of such Disqualified
Capital Stock, such Fair Market Value to be determined in good faith by our
Board of Directors (or our managing general partner) of such Disqualified
Capital Stock. The amount of any Indebtedness issued with original issue
discount outstanding as of any date shall be the accreted value thereof, but
the accretion of original issue discount in accordance with the original terms
of Indebtedness issued with an original issue discount will not be deemed to be
an incurrence.
"Initial Public Equity Offering" means an initial Public Equity Offering
following which our common stock or the common stock of the parent guarantors
or Holdings, as the case may be, is listed on a national securities exchange or
quoted on the national market system of the Nasdaq stock market.
"Interest Swap and Hedging Obligation" means any obligation of any Person
pursuant to any interest rate swap agreement, interest rate cap agreement,
interest rate collar agreement, interest rate exchange agreement, currency
exchange agreement or any other agreement or arrangement designed to protect
against fluctuations in interest rates or currency values, including, without
limitation, any arrangement whereby, directly or indirectly, such Person is
entitled to receive from time to time periodic payments calculated by applying
either a fixed or floating rate of interest on a stated notional amount in
exchange for periodic payments made by such Person calculated by applying a
fixed or floating rate of interest on the same notional amount.
"Investment" by any Person in any other Person means, without duplication:
(a) the acquisition (whether by purchase, merger, consolidation or
otherwise) by such Person (whether for cash, property, services, securities
or otherwise) of capital stock, bonds, notes, debentures, partnership or
other ownership interests or other securities, including any options or
warrants, of such other Person or any agreement to make any such
acquisition;
(b) the making by such Person of any deposit with, or advance, loan or
other extension of credit to, such other Person (including the purchase of
property from another Person subject to an understanding or agreement,
contingent or otherwise, to resell such property to such other Person) or
any commitment to make any such advance, loan or extension (but excluding
accounts receivable, endorsements for collection or deposits arising in the
ordinary course of business);
(c) other than guarantees of our Indebtedness or Indebtedness of any
Subsidiary Guarantor to the extent permitted by the covenant "Limitation on
Incurrence of Additional Indebtedness," the entering into by such Person of
any guarantee of, or other credit support or contingent obligation with
respect to, Indebtedness or other liability of such other Person;
(d) the making of any capital contribution by such Person to such other
Person; and
(e) the designation by our Board of Directors of any Person to be an
Unrestricted Subsidiary.
We shall be deemed to make an Investment in an amount equal to the fair
market value of the net assets of any subsidiary (or, if neither we nor any of
our Subsidiaries has theretofore made an Investment in such subsidiary, in an
amount equal to the Investments being made), at the time that such subsidiary
is designated an Unrestricted Subsidiary, and any property transferred to an
Unrestricted Subsidiary from us or one of our Subsidiaries shall be deemed an
Investment valued at its fair market value at the time of such transfer. If we
or any of our Subsidiaries sells or otherwise disposes of any Equity Interests
of any direct or indirect Subsidiary such that, after giving effect to any such
sale or disposition, such Person is no longer one of our Subsidiaries or such
Subsidiary, we shall be deemed to have made an Investment on the date of any
such sale or disposition
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equal to the fair market value of the Equity Interests of such Person not sold
or disposed of in an amount determined as provided in the final paragraph of
the covenant described above under the caption "--Certain Covenants--Limitation
on Restricted Payments."
"Issue Date" means the date of first issuance of the Old Notes under the
Indenture.
"Junior Security" means any Qualified Capital Stock and any of our
Indebtedness or Indebtedness of a Subsidiary Guarantor, as applicable, that is
subordinated in right of payment to senior debt at least to the same extent as
the Notes or the Guarantees, as applicable, and has no scheduled installment of
principal due, by redemption, sinking fund payment or otherwise, on or prior to
the Stated Maturity of the Notes; provided, that in case of subordination in
respect of senior debt under the new credit facilities, "Junior Security" shall
mean any Qualified Capital Stock and any of our Indebtedness or Indebtedness of
a Subsidiary Guarantor, as applicable, that is issued to a Holder on account of
the Notes pursuant to an order or decree of a court of competent jurisdiction
in a reorganization proceeding under any applicable bankruptcy or
reorganization law, which Qualified Capital Stock or Indebtedness:
(1) has a maturity, mandatory redemption obligation or put right, if any,
longer than, or occurring after the final maturity date of, all senior debt
outstanding under the new credit facilities on the date of issuance of such
Qualified Capital Stock or Indebtedness (and to any securities issued in
exchange for any such senior debt),
(2) is unsecured,
(3) has an Average Life longer than the security for which such Qualified
Capital Stock or Indebtedness is being exchanged,
(4) does not provide for terms, conditions or covenants more onerous than
those provided in the Notes, and
(5) by its terms or by law is subordinated to senior debt outstanding
under the new credit facilities on the date of issuance of such Qualified
Capital Stock or Indebtedness (and to any securities in exchange for any
such senior debt) at least to the same extent as the Notes.
"Lien" means any mortgage, charge, pledge, lien (statutory or otherwise),
privilege, security interest, hypothecation or other encumbrance upon or with
respect to any property of any kind, real or personal, movable or immovable,
now owned or hereafter acquired.
"Management Services Agreement" means that certain Amended and Restated
Management Advisory and Consulting Agreement dated as of January 24, 1999,
between Panolam Industries International, Inc., Panolam Industries, Ltd. and
Genstar Capital, LLC, in accordance with the terms thereof on the Issue Date
and without giving effect to any future amendment or supplement thereto;
provided that the consulting fee payable thereunder may not increase to
$1,391,000 pursuant to the terms thereof before the last to occur of:
(1) the cancellation of, and the payment of all amounts owing under, the
Domtar Note,
(2) the termination of, and the payment of all amounts owing under, the
Engagement Agreement, and
(3) the third anniversary date of the Issue Date.
"Material Facility" means the manufacturing facilities owned by us, the
Subsidiary Guarantors or the Canadian Subsidiary located in Huntsville, Ontario
and Auburn, Maine or any replacement facility thereof.
"Net Cash Proceeds" means the aggregate amount of cash or Cash Equivalents
received by us in the case of a sale, or Capital Contribution in respect, of
Qualified Capital Stock and by us and our Subsidiaries in respect of an Asset
Sale plus, in the case of an issuance of Qualified Capital Stock upon any
exercise, exchange or conversion of securities (including options, warrants,
rights and convertible or exchangeable debt) of us that were issued for cash on
or after the Issue Date, the amount of cash originally received by us upon the
issuance
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of such securities (including options, warrants, rights and convertible or
exchangeable debt) less, in each case, the sum of all payments, fees,
commissions and (in the case of Asset Sales, reasonable and customary) expenses
(including, without limitation, the fees and expenses of legal counsel and
investment banking fees and expenses) incurred in connection with such Asset
Sale or sale of Qualified Capital Stock, and, in the case of an Asset Sale
only, less the amount (estimated reasonably and in good faith by us) of income,
franchise, sales and other applicable taxes required to be paid by us or any of
its respective Subsidiaries in connection with such Asset Sale in the taxable
year that such sale is consummated or in the immediately succeeding taxable
year, the computation of which shall take into account the reduction in tax
liability resulting from any available operating losses and net operating loss
carryovers, tax credits and tax credit carryforwards, and similar tax
attributes.
"Non-Recourse Indebtedness" means Indebtedness:
(a) as to which neither we nor any of our Subsidiaries nor any Guarantor:
(1) provides credit support of any kind (including any undertaking,
agreement or instrument that would constitute Indebtedness),
(2) is directly or indirectly liable (as a guarantor or otherwise),
or
(3) constitutes the lender, and:
(b) no default with respect to which (including any rights that the
holders thereof may have to take enforcement action against an Unrestricted
Subsidiary) would permit (upon notice, lapse of time or both) any holder of
any other Indebtedness of us or any of our Subsidiaries to declare a
default on such other Indebtedness or cause the payment thereof to be
accelerated or payable prior to its stated maturity.
"Obligation" means any principal, premium or interest payment, or monetary
penalty, or damages, due by us or any Guarantor under the terms of the Notes or
the Guarantees or the Indenture, including any Liquidated Damages due pursuant
to the terms of the Registration Rights Agreement.
"Permitted Indebtedness" means that:
(a) we may incur Indebtedness evidenced by the Old Notes and the Notes
and represented by the Indenture and the Subsidiary Guarantors may incur
the Subsidiary Guarantees up to the amounts being issued on the original
Issue Date;
(b) we and the Subsidiary Guarantors, as applicable, may incur
Refinancing Indebtedness with respect to any Existing Indebtedness, any
Indebtedness or Disqualified Capital Stock, as applicable, described in
clause (a) of this definition incurred under the Debt Incurrence Ratio test
of the covenant "Limitation on Incurrence of Additional Indebtedness" or
pursuant to this clause (b);
(c) we and our Subsidiaries may incur Indebtedness solely in respect of
bankers acceptances, letters of credit, surety and appeal bonds, and
performance bonds (to the extent that such incurrence does not result in
the incurrence of any obligation to repay any obligation relating to
borrowed money of others), all in the ordinary course of business in
accordance with customary industry practices, in amounts and for the
purpose of purchasing or acquiring, or securing the purchase or acquisition
of, goods and services as is customary in our industry; provided that the
aggregate principal amount outstanding of such Indebtedness (including any
Refinancing Indebtedness and any other Indebtedness issued to retire,
refinance, refund, defease or replace such Indebtedness) shall at no time
exceed $2.5 million;
(d) we may incur Indebtedness to any Subsidiary Guarantor or Canadian
Subsidiary and any Subsidiary Guarantor or Canadian Subsidiary may incur
Indebtedness to any other Subsidiary Guarantor or Canadian Subsidiary or to
us; provided that in the case of our Indebtedness (except for loans to us
from any Canadian Subsidiary made with borrowings under the Canadian Credit
Agreement), such obligations shall be unsecured and subordinated in all
respects to our obligations pursuant to the Notes and any event
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that causes any such obligee to no longer be a Subsidiary Guarantor or
Canadian Subsidiary, as applicable, shall be deemed to be a new incurrence
subject to the Indenture at such time;
(e) any Foreign Subsidiary may incur Indebtedness owed to any other
Foreign Subsidiary; provided that any event that causes any such obligee to
no longer be a Subsidiary shall be deemed a new incurrence of Indebtedness
subject to the Indenture at such time;
(f) the incurrence by us or any of our subsidiaries of Interest Swap and
Hedging Obligations that are incurred for the purpose of fixing or hedging
(a) interest rate risk with respect to any floating rate Indebtedness that
is permitted by the Indenture to be incurred or (b) currency risk (to the
extent incurred in the ordinary course of business as is customary practice
in our industry and not for purposes of speculation), but only to the
extent that such incurrence does not result in a net increase in the
notional amount of our Indebtedness outstanding on a consolidated basis;
and
(g) Indebtedness arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument inadvertently drawn
against insufficient funds in the ordinary course of business.
"Permitted Investment" means Investments in:
(a) any of the Notes;
(b) Cash Equivalents;
(c) intercompany notes to the extent permitted under subparagraphs (d) or
(e) of the definition of "Permitted Indebtedness";
(d) Investments by us or any Subsidiary Guarantor in a Person in a
Related Business if as a result of such Investment such Person immediately
becomes a Wholly Owned Subsidiary Guarantor or such Person is immediately
merged with or into us or a Wholly Owned Subsidiary Guarantor;
(e) loans and advances to employees and officers of us and our
Subsidiaries in the ordinary course of business for a bona fide business
purpose not in excess of $1.5 million at any one time outstanding;
(f) Interest Swap and Hedging Obligations entered into in the ordinary
course of us or our Subsidiaries' business and otherwise in compliance with
the Indenture;
(g) Investments in securities of trade creditors or customers received
pursuant to any plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of such trade creditors or customers;
(h) Investments by us or any Subsidiary Guarantor in a Canadian
Subsidiary or a Subsidiary of a Canadian Subsidiary;
(i) any Investment in us or in a Wholly Owned Subsidiary Guarantor; and
(j) Investments made by us or our Subsidiaries as a result of
consideration received in connection with an Asset Sale made in compliance
with the "Limitation on Sale of Assets and Subsidiary Stock" covenant.
"Permitted Lien" means:
(a) Liens existing on the Issue Date;
(b) Liens imposed by governmental authorities for taxes, assessments or
other charges not yet subject to penalty or which are being contested in
good faith and by appropriate proceedings, if adequate reserves with
respect thereto are maintained on our books in accordance with GAAP;
(c) statutory liens of carriers, warehousemen, mechanics, material men,
landlords, repairmen or other like Liens arising by operation of law in the
ordinary course of business; provided that:
(1) the underlying obligations are not overdue for a period of more
than 30 days, or
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(2) such Liens are being contested in good faith and by appropriate
proceedings and adequate reserves with respect thereto are maintained
on our books in accordance with GAAP;
(d) Liens securing the performance of bids, trade contracts (other than
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;
(e) easements, rights-of-way, zoning, similar restrictions and other
similar encumbrances or title defects which, singly or in the aggregate, do
not in any case materially detract from the value of the property subject
thereto (as such property is used by us or any of our Subsidiaries) or
interfere with the ordinary conduct of our business or the business of any
of our Subsidiaries;
(f) Liens arising by operation of law in connection with judgments, only
to the extent, for an amount and for a period not resulting in an Event of
Default with respect thereto;
(g) pledges or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other
types of social security legislation;
(h) Liens securing the Notes;
(i) Liens securing Indebtedness of a Person existing at the time such
Person becomes a Subsidiary or is merged with or into us or a Subsidiary or
Liens securing Indebtedness incurred in connection with an Acquisition;
provided that such Liens were in existence prior to the date of such
acquisition, merger or consolidation, were not incurred in anticipation
thereof, and do not extend to any other assets;
(j) Liens arising from Purchase Money Indebtedness permitted to be
incurred pursuant to clause (a) of the covenant "Limitation on Incurrence
of Additional Indebtedness"; provided that such Liens relate solely to the
property which is subject to such Purchase Money Indebtedness;
(k) leases or subleases granted to other Persons in the ordinary course
of business not materially interfering with the conduct of our business or
the business of any of our Subsidiaries or materially detracting from the
value of the relative assets of us or any Subsidiary;
(l) Liens arising from precautionary Uniform Commercial Code financing
statement filings regarding operating leases entered into by us or any of
our Subsidiaries in the ordinary course of business;
(m) Liens securing Refinancing Indebtedness incurred to refinance any
Indebtedness that was previously so secured in a manner no more adverse to
the Holders of the Notes than the terms of the Liens securing such
refinanced Indebtedness, and; provided that the Indebtedness secured is not
increased and the lien is not extended to any additional assets or property
that would not have been security for the Indebtedness refinanced; and
(n) Liens securing Indebtedness incurred under the Credit Agreement, the
Canadian Credit Agreement or any of the guarantees pursuant to either of
them, all in accordance with the terms of the Indenture.
"Permitted Payments to Holdings" means without duplication as to amount:
(a) payments to Holdings (or to any parent guarantor for immediate
payment to Holdings) in an amount sufficient to permit Holdings to pay
reasonable and necessary operating expenses and other general corporate
expenses to the extent such expenses relate or are fairly allocable to us
and our Subsidiaries including any reasonable professional fees and
expenses, but not in excess of $50,000 in the aggregate during any
consecutive 12-month period, and
(b) payments to Holdings (or to any parent guarantor for immediate
payment to Holdings) to enable Holdings to pay foreign, federal, state or
local tax liabilities ("Tax Payments"), not to exceed the amount of any tax
liabilities that would be otherwise payable by us and our United States
Subsidiaries to the appropriate taxing authorities if they filed separate
tax returns, to the extent that Holdings has an
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obligation to pay such tax liabilities relating to the operations, assets
or capital of us or our United States Subsidiaries; provided that:
(1) notwithstanding the foregoing, in the case of determining the
amount of a Tax Payment that is permitted to be paid by us and any of
our United States Subsidiaries in respect of their Federal income tax
liability, such payment shall be determined assuming that we are the
parent company of an affiliated group (the "Issuer Affiliated Group")
filing a consolidated Federal income tax return and that Holdings and
each such United States Subsidiary is a member of the Issuer Affiliated
Group, and
(2) any Tax Payments shall, within 90 days of Holdings' receipt of
such payment, either be (a) used by Holdings to pay such tax
liabilities or (b) refunded to the payor.
"Person" means an individual, partnership, corporation, limited liability
company, unincorporated organization, trust or joint venture, or a governmental
agency or political subdivision thereof.
"Pro Forma" or "pro forma" shall have the meaning set forth in Regulation S-X
of the Securities Act of 1933, as amended, unless otherwise specifically stated
herein.
"Public Equity Offering" means an underwritten public offering pursuant to a
registration statement filed with the Commission in accordance with the
Securities Act of 1933, as amended, of (1) our Qualified Capital Stock or (2)
Qualified Capital Stock of any parent guarantor or Holdings, to the extent that
the cash proceeds therefrom are used as a Capital Contribution to us.
"Purchase Money Indebtedness" of any Person means any Indebtedness of such
Person to any seller or other Person incurred solely to finance the acquisition
(including in the case of a Capitalized Lease Obligation, the lease),
construction, installation, or improvement of any after acquired real or
personal tangible property which, in the reasonable good faith judgment of our
Board of Directors, is directly related to a Related Business of us and which
is incurred within 180 days of such acquisition, installation, construction or
improvement and is secured only by the assets so financed and is without
recourse to us or any Guarantor other than the Person which owns the related
assets.
"Qualified Capital Stock" means any of our Capital Stock, and for purposes of
the definition of "Public Equity Offering" only, any parent guarantor or
Holdings, that is not Disqualified Capital Stock.
"Qualified Exchange" means:
(1) any legal defeasance, redemption, retirement, repurchase or other
acquisition of Capital Stock or Indebtedness of us issued on or after the
Issue Date with the Net Cash Proceeds received by us from the substantially
concurrent sale of Qualified Capital Stock or, to the extent used to retire
Indebtedness of us issued on or after the Issue Date, subordinated
indebtedness of us, or
(2) any exchange of Qualified Capital Stock for any of our Capital Stock
or Indebtedness issued on or after the Issue Date, or
(3) any exchange of subordinated indebtedness for our subordinated
indebtedness issued after the Issue Date.
"Reference Period" with regard to any Person means the four full fiscal
quarters (or such lesser period during which such Person has been in existence)
ended immediately preceding any date upon which any determination is to be made
pursuant to the terms of the Notes or the Indenture.
"Refinancing Indebtedness" means Indebtedness or Disqualified Capital Stock:
(a) issued in exchange for, or the proceeds from the issuance and sale of
which are used substantially concurrently to repay, redeem, defease,
refund, refinance, discharge or otherwise retire for value, in whole or in
part, or
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(b) constituting an amendment, modification or supplement to, or a
deferral or renewal of ((a) and (b) above are, collectively, a
"Refinancing"), any Indebtedness or Disqualified Capital Stock in a
principal amount or, in the case of Disqualified Capital Stock, liquidation
preference, not to exceed (after deduction of reasonable and customary fees
and expenses incurred in connection with the Refinancing plus the amount of
any premium paid in connection with such Refinancing in accordance with the
terms of the documents governing the Indebtedness refinanced without giving
effect to any modification thereof made in connection with or in
contemplation of such refinancing) the lesser of
(1) the principal amount or, in the case of Disqualified Capital
Stock, liquidation preference, of the Indebtedness or Disqualified
Capital Stock so Refinanced and
(2) if such Indebtedness being Refinanced was issued with an original
issue discount, the accreted value thereof (as determined in accordance
with GAAP) at the time of such Refinancing;
provided that:
(A) such Refinancing Indebtedness shall only be used to Refinance
outstanding Indebtedness or Disqualified Capital Stock of such Person
issuing such Refinancing Indebtedness,
(B) such Refinancing Indebtedness shall (x) not have an Average Life
shorter than the Indebtedness or Disqualified Capital Stock to be so
refinanced at the time of such Refinancing and (y) in all respects, be no
less subordinated or junior, if applicable, to the rights of Holders of the
Notes than was the Indebtedness or Disqualified Capital Stock to be
refinanced,
(C) such Refinancing Indebtedness shall have a final stated maturity or
redemption date, as applicable, no earlier than the final stated maturity
or redemption date, as applicable, of the Indebtedness or Disqualified
Capital Stock to be so refinanced, and
(D) such Refinancing Indebtedness shall be secured (if secured) in a
manner no more adverse to the Holders of the Notes than the terms of the
Liens (if any) securing such refinanced Indebtedness, including, without
limitation, the amount of Indebtedness secured shall not be increased.
"Related Business" means the business conducted (or proposed to be conducted)
by us and our Subsidiaries as of the Issue Date and any and all businesses that
in the good faith judgment of our Board of Directors are materially related
businesses.
"Related Person" means any Person who controls, is controlled by or is under
common control with an Excluded Person; provided that for purposes of this
definition "control" means the beneficial ownership of more than 50% of the
total voting power of a Person normally entitled to vote in the election of
directors, managers or trustees, as applicable of a Person.
"Restricted Investment" means, in one or a series of related transactions,
any Investment, other than Permitted Investments.
"Restricted Payment" means, with respect to any Person:
(a) the declaration or payment of any dividend or other distribution in
respect of Equity Interests of such Person or any parent or Subsidiary of
such Person,
(b) any payment on account of the purchase, redemption or other
acquisition or retirement for value of Equity Interests of such Person or
any Subsidiary or parent of such Person,
(c) other than with the proceeds from the substantially concurrent sale
of, or in exchange for, Refinancing Indebtedness any purchase, redemption,
or other acquisition or retirement for value of, any payment in respect of
any amendment of the terms of or any defeasance of, any subordinated
indebtedness, directly or indirectly, by such Person or a parent or
Subsidiary of such Person prior to the scheduled maturity, any scheduled
repayment of principal, or scheduled sinking fund payment, as the case may
be, of such Indebtedness, and
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(d) any Restricted Investment by such Person;
provided that the term "Restricted Payment" does not include (1) any
dividend, distribution or other payment on or with respect to Equity
Interests of an issuer to the extent payable solely in shares of Qualified
Capital Stock of such issuer; (2) any dividend, distribution or other
payment to us, or to any of our Subsidiary Guarantors, by us or any of our
Subsidiaries; or (3) Earn-Out Payments made pursuant to the Stock Purchase
Agreement.
"Senior Debt" of us or any Guarantor means:
(1) all Indebtedness (including any monetary obligation in respect of the
Credit Agreement or the Canadian Credit Agreement, and interest, whether or
not allowable, accruing on Indebtedness incurred pursuant to the Credit
Agreement or the Canadian Credit Agreement after the filing of a petition
initiating any proceeding under any bankruptcy, insolvency or similar law)
outstanding under the Credit Agreement and the Canadian Credit Agreement,
including any guarantees thereof and all Interest Swap and Hedging
Obligations with respect thereto,
(2) any other Indebtedness permitted to be incurred by us or such
Guarantor under the terms of the Indenture, unless the instrument under
which such Indebtedness is incurred expressly provides that it is on a
parity with or subordinated in right of payment to the Notes, and
(3) all Obligations with respect to the foregoing.
Notwithstanding anything to the contrary in the foregoing, Senior Debt will not
include:
(w) any liability for federal, state, local or other taxes owed or owing
by the Company,
(x) any Indebtedness of us or any Guarantor to any of our or their
Subsidiaries or other Affiliates,
(y) any trade payables, or
(z) any Indebtedness that is incurred in violation of the Indenture.
"Significant Subsidiary" shall have the meaning provided under Regulation S-X
of the Securities Act, as in effect from time to time.
"Stated Maturity," when used with respect to any Note, means February 15,
2009.
"Stock Purchase Agreement" means that certain Stock Purchase Agreement, dated
as of July 17, 1998, as amended as of September 11, 1998, October 16, 1998 and
November 30, 1998, by and between Rugby USA, Inc., a Georgia corporation, and
us, as in effect on the Issue Date.
"Subordinated Indebtedness" means Indebtedness of us or a Guarantor that is
subordinated in right of payment by its terms or the terms of any document or
instrument or instrument relating thereto to the Notes or the Guarantees, as
applicable, in any respect or when used in the definition of Restricted Payment
has a final stated maturity on (except for the Exchange Notes) or after the
Stated Maturity, and shall include all Indebtedness under the Engagement
Agreement.
"Subsidiary," with respect to any Person, means:
(1) any corporation a majority of whose Equity Interests with voting
power, under ordinary circumstances, to elect directors is at the time,
directly or indirectly, owned by such Person, by such Person and one or
more Subsidiaries of such Person or by one or more Subsidiaries of such
Person,
(2) any other Person (other than a corporation) in which such Person, one
or more Subsidiaries of such Person, or such Person and one or more
Subsidiaries of such Person, directly or indirectly, at the date of
determination thereof has at least majority ownership interest, and
(3) any partnership in which such Person or a Subsidiary of such Person
is, at the time, a general partner and in which such Person, directly or
indirectly, at the date of determination thereof has at least a
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majority ownership interest. Notwithstanding the foregoing, an Unrestricted
Subsidiary shall not be a Subsidiary of us or of any of our Subsidiaries.
Unless the context requires otherwise, Subsidiary means each of our direct
and indirect Subsidiaries.
"Unrestricted Subsidiary" means any of our subsidiaries that does not own any
of our Capital Stock, or own or hold any Lien on any of our property or of any
of our other Subsidiaries and that, at the time of determination, shall be an
Unrestricted Subsidiary (as designated by our Board of Directors); provided
that at the time of designation such Subsidiary:
(a) has no Indebtedness other than Non-Recourse Indebtedness;
(b) is not party to any agreement, contract, arrangement or understanding
with us or any of our Subsidiaries unless the terms of any such agreement,
contract, arrangement or understanding are no less favorable to us or such
Subsidiary than those that might be obtained at the time from Persons who
are not our Affiliates;
(c) is a Person with respect to which neither we nor any of our
Subsidiaries has any direct or indirect obligation (x) to subscribe for
additional Equity Interests or (y) to maintain or preserve such Person's
financial condition or to cause such Person to achieve any specified levels
of operating results; and
(d) has not guaranteed or otherwise directly or indirectly provided
credit support for any Indebtedness of us or any of our Subsidiaries.
Our Board of Directors may designate any Unrestricted Subsidiary to be a
Subsidiary; provided that (1) no Default or Event of Default is existing or
will occur as a consequence thereof and (2) immediately after giving effect to
such designation, on a pro forma basis, we could incur at least $1.00 of
Indebtedness pursuant to the Debt Incurrence Ratio of the covenant "Limitation
on Incurrence of Additional Indebtedness." Each such designation shall be
evidenced by filing with the Trustee a certified copy of the resolution giving
effect to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing conditions. We designated one of our
indirect, inactive subsidiaries, Melamine Decorative Laminate, Inc., an
Unrestricted Subsidiary. This Unrestricted Subsidiary had no material assets or
liabilities and does not conduct any operations.
"U.S. Government Obligations" means direct non-callable obligations of, or
noncallable obligations guaranteed by, the United States of America for the
payment of which obligation or guarantee the full faith and credit of the
United States of America is pledged.
"Voting Equity Interests" means Equity Interests which at the time are
entitled to vote in the election of, as applicable, directors, members or
partners generally.
"Wholly Owned Subsidiary" means a Subsidiary all the Equity Interests of
which are owned by us or one or more of our Wholly-Owned Subsidiaries.
Transfer and Exchange
A Holder may transfer or exchange Notes in accordance with the Indenture.
Upon any transfer or exchange, the Registrar and the Trustee may require a
Holder, among other things, to furnish appropriate endorsements and transfer
documents and we may require a Holder to pay any taxes required by law or
permitted by the Indenture, including any transfer tax or other similar
governmental charge payable in connection therewith. We are not required to
transfer or exchange any Note selected for redemption or to transfer or
exchange any Note for a period of 15 days prior to a selection of Notes to be
redeemed. The Notes will be issued in registered form and the registered holder
of a Note will be treated as the owner of such Note for all purposes.
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Book-Entry; Delivery and Form
The Exchange Notes will be issued in definitive, fully registered form
without interest coupons. The Exchange Notes will be represented by one or more
permanent global Notes (the "Global Exchange Note") and will be deposited with
the Trustee as custodian for The Depositary Trust Company ("DTC") and
registered in the name of a nominee of DTC. Except as set forth below, the
Global Exchange Note may be transferred, in whole and not in part, only to DTC
or nominee of DTC. Investors may hold their beneficial interests in the Global
Exchange Note directly through DTC if they are participants in such system, or
indirectly through organizations which are participants in such system.
Notes that are issued as described below under "Certificated Notes" will be
issued in definitive form. Upon the transfer of a Note in definitive form, such
Note will, unless the Global Exchange Note has previously been exchanged for
Notes in definitive form, be exchanged for an interest in the Global Exchange
Note representing the principal amount of Notes being transferred.
Upon the issuance of the Global Exchange Note, DTC will credit, on its
internal system, the respective principal amount of the individual beneficial
interests represented by such Global Exchange Note to the accounts of persons
who have accounts with such depositary. Ownership of beneficial interests in a
Global Exchange Note will be limited to persons who have accounts with DTC
("participants") or persons who hold interests through participants. Ownership
of beneficial interests in the Global Exchange Note will be shown on, and the
transfer of that ownership will be effected only through, records maintained by
DTC or its nominee (with respect to interests of participants) and the records
of participants (with respect to interests of persons other than participants).
The laws of some jurisdictions may require that certain purchasers of
securities takes physical delivery of such securities in definitive form. Such
limits and laws may impair the ability to transfer or pledge beneficial
interests in the Global Exchange Note.
So long as DTC, or its nominee, is the registered owner or holder of a Global
Exchange Note, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the Exchange Notes represented by such Global Exchange
Note for all purposes under the Indenture and the Notes. Except as set forth
below, owners of beneficial interests in the Global Exchange Note will not be
entitled to have the Exchange Notes represented by the Global Exchange Note
registered in their names, will not receive or be entitled to receive physical
delivery of certificated Exchange Notes in definitive form and will not be
considered to be the owners or holders of any Exchange Notes under the Global
Exchange Note.
Payments of the principal of, and interest on, the Global Exchange Note will
be made to DTC or its nominee, as the case may be, as the registered owner
thereof. Neither we, the Trustee nor any Paying Agent will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Global
Exchange Note or for maintaining, supervising or reviewing any records relating
to such beneficiary ownership interests.
We expect that DTC or its nominee, upon receipt of any payment of principal
or interest in respect of a Global Exchange Note will credit participants'
accounts with payments in amounts proportionate to their respective beneficial
interests in the principal amount of such Global Exchange Note as shown on the
records of DTC or its nominee. We also expect that payments by participants to
owners of beneficial interests in such Global Exchange Note held through such
participants will be governed by standing instructions and customary practices,
as is now the case with securities held for the accounts of customers
registered in the names of nominees for such customers. Such payments will be
the responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way in
accordance with DTC rules and will be settled in same-day funds.
DTC has advised us that it will take any action permitted to be taken by a
holder of Exchange Notes (including the presentation of Exchange Notes for
exchange as described below) only at the direction of one or more participants
to whose account the DTC interests in the Global Exchange Note is credited and
only in
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respect of such portion of the aggregate principal amount of Exchange Notes as
to which such participant or participants has or have given such direction.
DTC has advised us as follows: DTC is a limited purpose trust company
organized under the laws of the State of New York, a "banking organization"
within the meaning of New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the Uniform Commercial
Code and a "Clearing Agency" registered pursuant to the provisions of Section
17A of the Securities Exchange Act of 1934. DTC was created to hold securities
for its participants and facilitate the clearance and settlement of securities
transactions between participants through electronic book-entry changes in
accounts of its participants, thereby eliminating the need for physical
movement of certificates. Participants include securities brokers and dealers,
banks, trust companies and clearing corporations and certain other
organizations. Indirect access to the DTC system is available to others such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly
("indirect participants").
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Exchange Note among participants of DTC,
it is under no obligation to perform or continue to perform such procedures,
and such procedures may be discontinued at any time. Neither we nor the Trustee
will have any responsibility for the performance by DTC or its participants or
indirect participants of their respective obligations under the rules and
procedures governing their respective operations.
Certificated Notes
The Exchange Notes represented by the Global Exchange Note are exchangeable
for certificated Exchange Notes in definitive form of like tenor as such
Exchange Notes in denominations of U.S. $1,000 and integral multiples thereof
if:
(1) DTC notifies us that it is unwilling or unable to continue as
depository for the Global Exchange Note or if at any time DTC ceases to be
a clearing agency registered under the Exchange Act and a successor
depository is not appointed by the Issuer within 90 days,
(2) we in our discretion at any time determines not to have all of the
Exchange Notes represented by the Global Exchange Note, or
(3) an Event of Default has occurred and is continuing. Any Exchange Note
that is exchangeable pursuant to the preceding sentence is exchangeable for
certificated Exchange Notes issuable in authorized denominations and
registered in such names as DTC shall direct. Subject to the foregoing, the
Global Exchange Note is not exchangeable, except for a Global Exchange Note
of the same aggregate determination to be registered in the name of DTC or
its nominee.
Registration Rights
The holders of Exchange Notes will not be entitled to any registration rights
with respect to the Exchange Notes. Pursuant to the Registration Rights
Agreement, a copy of which has been filed as an exhibit to the registration
statement of which this prospectus forms a part, we and the Guarantors (the
"Obligors") are required to use our and their respective best efforts to have
the registration statement of which this prospectus forms a part (the "Exchange
Offer Registration Statement") declared effective within 150 days of the Issue
Date, and to use our and their respective best efforts to cause the Exchange
Offer Registration Statement to be effective continuously, to keep the Exchange
Offer open for a period of not less than 20 business days and cause the
Exchange Offer to be consummated no later than the 30th business day after it
is declared effective by the SEC. If:
(1) the Exchange Offer is not permitted by applicable law or SEC policy,
or
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(2) any holder of the Notes which are Transfer Restricted Securities (as
defined in the Registration Rights Agreement) notifies us prior to the 20th
business day following the consummation of the Exchange Offer that (a) it
is prohibited by law or SEC policy from participating in the Exchange
Offer, (b) it may not resell the Exchange Notes acquired by it in the
Exchange Offer to the public without delivering a prospectus, and the
prospectus contained in the Exchange Offer Registration Statement is not
appropriate or available for such resales by it, or (c) it is a broker-
dealer and holds the Notes acquired directly from us or any of our
affiliates,
the Obligors will file with the SEC a Shelf Registration Statement (as defined
in the Registration Rights Agreement) to register for public resale the
Transfer Restricted Securities held by any such holder who provides us with
certain information for inclusion in the Shelf Registration Statement. Holders
of Notes will also be required to suspend their use of the prospectus included
in the Shelf Registration Statement under certain circumstances upon receipt of
written notice to that effect from the Company.
The Registration Rights Agreement provides that:
(1) if the Obligors fail to file an Exchange Offer Registration Statement
with the SEC on or prior to the 75th day after the Issue Date,
(2) if the Exchange Offer Registration Statement is not declared
effective by the SEC on or prior to the 150th day after the Issue Date,
(3) if the Exchange Offer is not consummated on or before the 30th
business day after the Exchange Offer Registration Statement is declared
effective,
(4) if obligated to file the Shelf Registration Statement and the
Obligors fail to file the Shelf Registration Statement with the SEC on or
prior to the 30th business day after such filing obligation arises,
(5) if obligated to file a Shelf Registration Statement and the Shelf
Registration Statement is not declared effective on or prior to the 90th
day after the obligation to file a Shelf Registration Statement arises, or
(6) if the Exchange Offer Registration Statement or the Shelf
Registration Statement, as the case may be, is declared effective but
thereafter ceases to be effective or useable in connection with resales of
the Transfer Restricted Securities,
for such time of non-effectiveness or non-usability (each, a "Registration
Default"), the Obligors agree to pay to each holder of Transfer Restricted
Securities affected thereby Liquidated Damages in an amount equal to $0.05 per
week per $1,000 in principal amount of Transfer Restricted Securities held by
such holder for each week or portion thereof that the Registration Default
continues for the first 90 day period immediately following the occurrence of
such Registration Default. The amount of the Liquidated Damages shall increase
by an additional $0.05 per week per $1,000 in principal amount of Transfer
Restricted Securities at the beginning of and for each subsequent 90 day period
until all Registration Defaults have been cured, up to a maximum amount of
Liquidated Damages of $0.50 per week, per $1,000 in principal amount of
Transfer Restricted Securities.
Assuming consummation of the Exchange Offer made hereby, all of the Obligor's
registration obligations with respect to the Old Notes under the Registration
Rights Agreement will have been fulfilled.
The foregoing summary of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified
in its entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy of which has been filed as an exhibit to the registration
statement of which this prospectus forms a part.
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Material Federal Income Tax Consequences of the Exchange Offer
The following is a discussion of the material U.S. federal income tax
consequences of the acquisition, ownership and disposition of the exchange
notes. Unless otherwise stated, this discussion is limited to the tax
consequences to those holders who are original beneficial owners of the
exchange notes and who hold such exchange notes as capital assets. This
discussion does not address specific tax consequences that may be relevant to
particular persons including, for example, financial institutions, broker-
dealers, insurance companies, tax-exempt organizations, and persons in special
situations, such as those who hold exchange notes as part of a straddle, hedge,
short-sale, conversion transaction, or other integrated investment. This
discussion also does not address the tax consequences to a beneficial owner who
is not otherwise subject to U.S. federal income taxation on its worldwide
income but is subject to U.S. federal income tax on a net basis or income
realized with respect to an exchange note because such income is effectively
connected with the conduct of a U.S. trade or business. This discussion does
not address the tax consequences to persons that have a functional currency
other than the U.S. dollar. In addition, this discussion does not address U.S.
federal alternative minimum tax consequences or any aspect of state, local or
foreign taxation. This discussion is based upon the Internal Revenue Code of
1986, as amended, the Treasury regulations promulgated thereunder, and
administrative and judicial interpretations thereof, all as of the date hereof
and all of which are subject to change, possibly on a retroactive basis.
Because the U.S. federal income tax consequences to a holder of the
acquisition, ownership and disposition of the exchange notes may depend, in
part, upon such holder's particular circumstances, prospective purchasers of
the exchange notes should consult their tax advisors concerning the
U.S. federal income tax consequences to them of acquiring, owning and disposing
of the exchange notes. Such purchasers are also urged to consult their own tax
advisors regarding the application of state, local and foreign income and other
tax laws to their acquisition, ownership and disposition of the exchange notes.
U.S. federal income taxation of U.S. Holders
Exchange offer
The exchange of old notes for exchange notes pursuant to the exchange offer
will not be treated as a taxable "exchange" for U.S. federal income tax
purposes because the exchange notes will not be considered to differ materially
in kind or extent from the old notes. As a result, a holder should not
recognize taxable gain or loss upon the receipt of an exchange note. A holder's
holding period for an exchange note should include the holder's holding period
for the old note exchanged therefor and the holder's adjusted tax basis in an
exchange note should be the same as the holder's adjusted tax basis in such old
note.
Payments of interest
In general, interest on an exchange note will be taxable to a holder who or
which is:
. a citizen or resident of the United States;
. a corporation created or organized under the laws of the United States
or any State thereof (including the District of Columbia); or
. a person otherwise subject to U.S. federal income taxation on its
worldwide income.
This interest will be taxable as ordinary interest income from domestic sources
at the time it is (actually or constructively) received or accrued, depending
on the beneficial owner's method of accounting for U.S. federal income tax
purposes.
Bond premium on the exchange notes
If a beneficial owner of an exchange note, who is subject to U.S. federal
income taxation on its worldwide income, purchased an old note for an amount in
excess of the amount payable at the maturity date or a call
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date, if appropriate, of the old note, such U.S. holder may deduct such excess
as amortizable bond premium over the aggregate terms of the old notes and the
exchange notes taking into account earlier call dates, as appropriate, under a
yield-to-maturity formula. The deduction is available only if an election is
made by the U.S. holder or is in effect. This election is revocable only with
the consent of the Internal Revenue Service. The election applies to all
obligations owned or subsequently acquired by the U.S. holder. The U.S.
holder's adjusted tax basis in the old notes and the exchange notes will be
reduced to the extent of the deduction of amortizable bond premium. Except as
may otherwise be provided in future regulations, under the Internal Revenue
Code amortizable bond premium is treated as an offset to interest income on the
old notes and the exchange notes rather than as a separate deduction item.
Market discount on the exchange notes
The tax consequences of a disposition of the exchange notes may be affected
by the market discount provisions of the Internal Revenue Code. These rules
generally provide that if a U.S. holder acquired the old notes or the exchange
notes at a market discount which equals or exceeds 1/4 of 1% of the stated
redemption price of the exchange notes at maturity multiplied by the number of
remaining complete years to maturity and thereafter recognizes gain upon a
disposition (or makes a gift) of the exchange notes, the lesser of:
(1)such gain (or appreciation, in the case of a gift), or
(2) the portion of the market discount which accrued while the old notes or
exchange notes were held by such U.S. holder,
will be treated as ordinary income at the time of the disposition (or gift).
For these purposes, market discount with respect to an exchange note received
for an old note means the excess (if any) of the stated redemption price at
maturity over the basis of such old note immediately after their acquisition by
the U.S. holder. A U.S. holder of the exchange notes may elect to include any
market discount (whether accrued under the old notes or the exchange notes) in
income currently rather than upon disposition of the exchange notes. This
election once made applies to all market discount obligations acquired on or
after the first taxable year to which the election applies, and may not be
revoked without the consent of the IRS.
A U.S. holder of any exchange note who acquired an old note or an exchange
note at a market discount generally will be required to defer the deduction of
a portion of the interest on any indebtedness incurred or maintained to
purchase or carry such old note or exchange note until the market discount is
recognized upon a subsequent disposition of the exchange note. Such a deferral
is not required, however, if the U.S. holder elects to include accrued market
discount in income currently.
Disposition of exchange notes
Upon the sale, exchange, redemption, retirement at maturity or other
disposition of an exchange note, a U.S. holder generally will recognize taxable
gain or loss equal to the difference between: (x) the sum of cash plus the fair
market value of all other property received on such disposition (except to the
extent such cash or property is attributable to accrued but unpaid interest,
which will be taxable as ordinary interest income); and (y) such beneficial
owner's adjusted tax basis in the exchange note. Such gain or loss recognized
on the disposition of an exchange note generally will be capital gain or loss
(except to the extent of any accrued market discount). Capital gains of
individuals derived in respect of capital assets held for more than one year
are subject to U.S. federal income tax at a 20% maximum tax rate. The
deductibility of capital losses is subject to limitations.
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U.S. federal income taxation of non-U.S. holders
Under present U.S. federal income tax law and subject to the discussion of
backup withholding below:
(i) payments of principal and interest on the exchange notes by the
Issuer or any agent of the Issuer to any beneficial owner of an exchange
note that is not subject to U.S. federal income taxation on its worldwide
income will not be subject to U.S. federal withholding tax, provided that
in the case of interest (a) (1) such non-U.S. holder does not actually or
constructively own 10 percent or more of the total combined voting power of
all classes of stock of the Issuer entitled to vote within the meaning of
Section 871(h)(3) of the Internal Revenue Code and the Treasury regulations
thereunder, (2) such non-U.S. holder is not a controlled foreign
corporation that is related to the Issuer through stock ownership, (3) such
non-U.S. holder is not a bank described in Section 881(c)(3)(A) of the
Internal Revenue Code, and (4) either (A) such non-U.S. holder of the
exchange notes certifies to the Issuer or its agent on IRS Form W-8 (or a
suitable substitute form), under penalties of perjury, that it is not a
"U.S. person" (as defined in the Internal Revenue Code) and provides its
name and address, or (B) a securities clearing organization, bank or other
financial institution that holds customers' securities in the ordinary
course of its trade or business (a "financial institution") and holds the
exchange notes on behalf of the beneficial owner certifies to the Issuer or
its agent under penalties of perjury that such statement has been received
from the beneficial owner by it or by a financial institution between it
and the beneficial owner and furnishes the payor with a copy thereof, or
(b) such non-U.S. holder is entitled to the benefits of an income tax
treaty under which interest on the exchange notes is exempt from U.S.
federal withholding tax and provides a properly executed IRS Form 1001
claiming the exemption;
(ii) a non-U.S. holder will not be subject to U.S. federal tax on gain
realized on the sale, exchange or other disposition of an exchange note
unless (a) the non-U.S. holder is an individual who is present in the
United States for a period or periods aggregating 183 or more days in the
taxable year of the disposition and certain other conditions are met or (b)
the non-U.S. holder is subject to tax pursuant to the provisions of U.S.
tax law applicable to certain U.S. expatriates; and
(iii) the exchange of old notes for exchange notes pursuant to the
exchange offer will not be treated as a taxable "exchange" for U.S. federal
income tax purposes because the exchange notes will not be considered to
differ materially in kind or extent from the old notes.
A non-U.S. holder that does not qualify for the exemption from withholding
under paragraph (i) generally will be subject to withholding of U.S. federal
income tax at the rate of 30% in payments of interest in the notes. Non-U.S.
holders should consult any applicable income tax treaties, which may provide
for a lower rate of tax on interest, or other rules different from those
described above. A non-U.S. holder who qualifies for a reduced rate of tax
under a treaty may be subject to a reduced rate of withholding, if applicable
certification requirements are satisfied.
Under finalized Treasury regulations, generally effective for payments made
after December 31, 2000, the certification requirement referred to in (a)(4)(A)
of paragraph (i) above may also be satisfied with other documentary evidence
for interest paid after December 31, 2000 with respect to an offshore account
or through certain intermediaries. In addition, under the finalized Treasury
regulations, non-U.S. holders will generally be required to provide IRS Form W-
8 in lieu of IRS Form 1001 in order to be entitled to the benefits of an income
tax treaty as referred to in (b) of paragraph (i) above. However, alternative
documentation may be applicable in certain situations.
Information reporting and backup withholding
For each calendar year in which the exchange notes are outstanding, the
Issuer is required to provide the IRS with certain information, including the
beneficial owner's name, address and taxpayer identification number, the
aggregate amount of payments to that beneficial owner during the calendar year
and the amount of tax withheld, if any. This obligation, however, does not
apply with respect to certain payments to U.S. holders,
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including corporations, tax-exempt organizations, qualified pension and profit
sharing trusts and individual retirement accounts, provided that they establish
entitlement to an exemption.
In the event that a U.S. holder subject to the reporting requirements
described above fails to supply its correct taxpayer identification number in
the manner required by applicable law or underreports its tax liability, the
Issuer, its agents or paying agents or a broker may be required to "backup"
withhold a tax equal to 31% of each payment of interest and principal on the
exchange notes. This backup withholding is not an additional tax and may be
credited against the U.S. holder's U.S. federal income tax liability, provided
that the required information is furnished to the IRS.
Under current Treasury regulations, backup withholding and information
reporting will not apply to payments made by the Issuer or any agent thereof
(in its capacity as such) to a non-U.S. holder of an exchange note if such non-
U.S. holder has provided the required certification that it is not a U.S.
person as set forth in clause (a)(4)(A) in paragraph (i) under "--U.S. federal
income taxation of non-U.S. holders," or has otherwise established an
exemption, provided that neither the Issuer nor its agent has actual knowledge
that the holder is a U.S. person or that the conditions of any exemption are
not in fact satisfied.
Payment of the proceeds from the sale of an exchange note to or through a
foreign office of a broker will not be subject to information reporting or
backup withholding, except that if the broker is a U.S. person, a controlled
foreign corporation for U.S. federal income tax purposes, a foreign person 50
percent or more of whose gross income from all sources for the three-year
period ending with the close of its taxable year preceding the payment was
effectively connected with a U.S. trade or business, or with respect to
payments made after December 31, 2000, a foreign partnership that is owned 50
percent or more by U.S. persons or is engaged in a U.S. trade or business,
information reporting may apply to such payments. Payment of the proceeds from
a sale of an exchange note to or through the U.S. office of a broker will be
subject to information reporting and backup withholding unless the holder or
beneficial owner certified as to its taxpayer identification number or
otherwise establishes an exemption from information reporting and backup
withholding.
The finalized Treasury regulations, generally effective for payments made
after December 31, 2000, unify current Certification procedures and forms and
clarify reliance standards. The finalized Treasury regulations provide special
rules which permit the shifting of primary responsibility for withholding to
certain financial intermediaries acting on behalf of beneficial owners and
alter the rules applicable to certain partnerships by requiring each of the
partners, rather than the partnership, to certify, under penalties of perjury,
that it is not a U.S. person, and to provide its name and address.
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Plan of Distribution
Each broker-dealer that receives notes for its own account pursuant to the
exchange offer must acknowledge that it will deliver a prospectus meeting the
requirements of the Securities Act of 1933 in connection with any resale of
exchange notes received in respect of such notes pursuant to the exchange
offer. This prospectus, as we may amend or supplement from time to time, may be
used by a broker-dealer in connection with resales of exchange notes received
in exchange for old notes where such old notes were acquired as a result of
market-making activities or other trading activities. We have agreed to make
this prospectus, as we may amend or supplement it, available to any broker-
dealer for use in connection with any such resale. In addition, until
, 1999, all dealers effecting transactions in the exchange notes
may be required to deliver a prospectus.
We will not receive any proceeds from any sales of the exchange notes by
broker-dealers. Exchange notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the exchange notes or a combination of these
methods of resale, at market prices prevailing at the time of resale, at prices
related to these prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such exchange notes. Any broker-
dealer that resells the exchange notes that were received by it for its own
account pursuant to the exchange offer and any broker or dealer that
participates in a distribution of such exchange notes may be deemed to be an
"underwriter" within the meaning of the Securities Act of 1933 and any profit
on any such resale of exchange notes and any commissions or concessions
received by any such persons may be deemed to be underwriting compensation
under the Securities Act of 1933. The letter of transmittal in connection with
this exchange offer states that by acknowledging that it will deliver and by
delivering a prospectus meeting the requirements of the Securities Act of 1933,
a broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act of 1933.
With respect to resales of exchange notes, based on interpretations by the
SEC staff set forth in no-action letters issued to third parties, we believe
that a holder or other person who receives exchange notes, whether or not such
person is the holder (other than a person that is an "affiliate" of us within
the meaning of Rule 405 under the Securities Act of 1933) who receives exchange
notes in exchange for notes in the ordinary course of business and who is not
participating, does not intend to participate, and has no arrangement or
understanding with person to participate, in the distribution of the exchange
notes, will be allowed to resell the exchange notes to the public without
further registration under the Securities Act of 1933 and without delivering to
the purchasers of the exchange notes a prospectus that satisfies the
requirements of Section 10 of the Securities Act of 1933. However, if any
holder acquires exchange notes in the exchange offer for the purpose of
distributing or participating in a distribution of the exchange notes, such
holder cannot rely on the position of the staff enunciated in such no-action
letters or any similar interpretive letters, and must comply with the
registration and prospectus delivery requirements of the Securities Act of 1933
in connection with any resale transaction and such a secondary resale
transaction should be covered by an effective registration statement containing
the selling security holder information required by Item 507 or 508, as
applicable, of Regulation S-K under the Securities Act of 1933, unless an
exemption from registration is otherwise available. Further, each broker-dealer
that receives exchange notes for its own account in exchange for old notes,
where such old notes were acquired by such broker-dealer as a result of market-
making activities or other trading activities, must acknowledge that it will
deliver a prospectus in connection with any resale of such exchange notes.
For a period of 180 days after the expiration date, we will promptly send
additional copies of this prospectus and any amendment or supplement to this
prospectus to any broker-dealer that requests such documents in the letter of
transmittal. We have agreed to pay all expenses incident to the exchange offer
(including the expenses of one counsel for the holders of the notes) other than
commissions or concessions of any brokers or dealers and will indemnify the
holders of the notes (including any broker-dealer) against certain liabilities,
including liabilities under the Securities Act of 1933.
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Legal Matters
The validity of the exchange notes offered hereby will be passed upon for us
by Brobeck, Phleger & Harrison LLP, San Francisco, California.
Experts
The consolidated financial statements of Panolam as of December 31, 1998 and
1997, and for the years ended December 31, 1998 and 1997 and for the period
from May 16, 1996 (date of incorporation) to December 31, 1996 included in this
prospectus, have been so included in reliance on the report of
PricewaterhouseCoopers LLP, Independent Accountants, and Coopers & Lybrand,
Chartered Accountants given on the authority of said firms as experts in
auditing and accounting. Effective July 1 , 1998, Price Waterhouse and Coopers
& Lybrand merged to become PriceWaterhouseCoopers LLP.
The financial statements of Pioneer as of December 25, 1998 and December 26,
1997, and for the years ended December 25, 1998, December 26, 1997 and December
27, 1996 included in this prospectus, have been so included in reliance on the
report of PricewaterhouseCoopers LLP, Independent Accountants, given on the
authority of said firm as experts in auditing and accounting.
The combined divisional financial statements of Domtar Decorative Panels,
Panolam's predecessor, for the period from January 1 to June 11, 1996 included
in this prospectus, have been so included in reliance on the report of Price
Waterhouse, Chartered Accountants, given on the authority of said firm as
experts in accounting and auditing. Effective July 1, 1998, Price Waterhouse
and Coopers & Lybrand merged to become PricewaterhouseCoopers LLP.
Where You Can Find Additional Information
We have filed with the SEC a registration statement on Form S-4, including
exhibits, schedules and amendments filed with the registration statement, under
the Securities Act of 1933 covering the exchange notes to be issued in the
exchange offer. This prospectus, which is a part of the registration statement,
does not contain all of the information included in the registration statement
or the exhibits and schedules which are part of the registration statement.
Statements contained in this prospectus concerning the provisions of any
contract, agreement or other document of Panolam are necessarily summaries of
such documents, and each statement or reference to such document is qualified
in its entirety by reference to the copies of the actual contract, agreement or
other document attached as exhibits to the registration statement. You may
review a copy of the registration statement, including exhibits, at the SEC's
public reference room at Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 or Seven World Trade Center, 13th Floor, New York, New York 10048 or
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Please call the SEC at 1-800-SEC-0330 for further information on the operation
of the public reference rooms.
Following the effective date of the registration statement, we will be
subject to the information requirements of the Securities Exchange Act of 1934
and will be required to file annual, quarterly and current reports and other
information with the SEC. We have agreed that, whether or not we are subject to
the reporting requirements of the Securities Exchange Act of 1934, we will file
with the SEC (unless the SEC will not accept such a filing), and furnish to our
noteholders the annual reports and such information, documents and other
reports as are specified in the Securities Exchange Act of 1934. You may read
and copy any reports or other information on file at the SEC's public reference
rooms. You can also request copies of these documents, for a copying fee, by
writing to the SEC.
Our SEC filings and the registration statement can also be reviewed by
accessing the SEC's Internet site at http://www.sec.gov, which contains reports
and other information regarding registrants that file electronically with the
SEC.
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Index to Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
PANOLAM GROUP, INC. and Subsidiaries
Audited Financial Statements
Reports of Independent Accountants...................................... F-2
Consolidated Balance Sheets as of December 31, 1997 and 1998............ F-4
Consolidated Statements of Operations for the period from May 16 to
December 31, 1996, and the years ended December 31, 1997 and 1998...... F-5
Consolidated Statements of Stockholders' Equity for the period from May
16 to December 31, 1996, and the years ended December 31, 1997 and
1998................................................................... F-6
Consolidated Statements of Cash Flows for the period from May 16 to
December 31, 1996, and the years ended December 31, 1997 and 1998...... F-7
Notes to Consolidated Financial Statements.............................. F-8
Unaudited Financial Statements
Consolidated Balance Sheet at June 30, 1999............................. F-28
Consolidated Statements of Operations for the three months and six
months ended June 30, 1998 and 1999.................................... F-29
Consolidated Statements of Cash Flows for the six months ended June 30,
1998 and 1999.......................................................... F-30
Notes to Consolidated Financial Statements.............................. F-31
DOMTAR DECORATIVE PANELS (a Division of Domtar Inc.)
Auditors' Report........................................................ F-37
Combined Divisional Statement of Operations for the period from January
1 to June 11, 1996..................................................... F-38
Combined Divisional Statement of Owner's Equity for the period from
January 1 to June 11, 1996............................................. F-39
Combined Divisional Statement of Cash Flows for the period from January
1 to June 11, 1996..................................................... F-40
Notes to Combined Divisional Financial Statements....................... F-41
PIONEER PLASTICS CORPORATION
Report of Independent Accountants....................................... F-47
Balance Sheets as of December 26, 1997 and December 25, 1998............ F-48
Statements of Income and Retained Earnings for the years ended December
27, 1996, December 26, 1997 and December 25, 1998...................... F-49
Statements of Cash Flows for the years ended December 27, 1996, December
26, 1997 and December 25, 1998......................................... F-50
Notes to Financial Statements........................................... F-51
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Panolam Group, Inc.:
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations and of stockholders' equity and of cash
flows present fairly, in all material respects, the financial position of
Panolam Group, Inc. and Subsidiaries at December 31, 1998, and the results of
their operations and their cash flows for the year then ended in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audit. We
conducted our audit of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Stamford, Connecticut
March 12, 1999
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of Panolam Group, Inc.:
We have audited the consolidated balance sheet of Panolam Group, Inc. and
Subsidiaries as at December 31, 1997 and the consolidated statements of
operations, stockholders' equity and cash flows for the year ended December 31,
1997 and for the period from May 16, 1996 (date of incorporation) to
December 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in Canada. Those standards require that we plan and perform an audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Panolam Group,
Inc. and Subsidiaries as at December 31, 1997 and the results of their
operations and their cash flows for the year ended December 31, 1997 and for
the period from May 16, 1996 (date of incorporation) to December 31, 1996 in
accordance with accounting principles generally accepted in the United States
of America.
Coopers & Lybrand
Chartered Accountants
Toronto, Ontario
February 13, 1998
F-3
<PAGE>
PANOLAM GROUP, INC. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
<TABLE>
<CAPTION>
As of December
31,
-----------------
1997 1998
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash........................................................ $ 987 $ 5,456
Accounts receivable, net of allowance for doubtful accounts
of $564 in 1997 and $226 in 1998........................... 9,480 7,956
Inventories................................................. 15,992 14,788
Other current assets........................................ 3,680 942
-------- --------
Total current assets....................................... 30,139 29,142
Property, plant and equipment, net........................... 82,366 80,127
Deferred taxes............................................... 1,196 1,022
Other non-current assets..................................... 9,583 9,301
-------- --------
Total assets............................................... $123,284 $119,592
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt........................... $ 5,665 $ 2,050
Trade accounts payable...................................... 7,000 5,471
Accrued liabilities......................................... 6,236 7,035
Obligation under capital leases............................. 76 75
-------- --------
Total current liabilities.................................. 18,977 14,631
Long term debt............................................... 72,950 70,025
Pension liabilities and accrued post retirement benefit
costs....................................................... 2,487 738
Obligation under capital leases.............................. 207 192
Deferred income taxes........................................ 1,923 2,868
-------- --------
Total liabilities.......................................... 96,544 88,454
Commitments and contingencies
STOCKHOLDERS' EQUITY
Common stock--1,000 shares authorized, issued and outstanding
with a par value of $.01 per share.......................... -- --
Additional paid in capital................................... 26,073 27,073
Retained earnings............................................ 667 4,065
-------- --------
Total stockholders' equity................................. 26,740 31,138
-------- --------
Total liabilities and stockholders' equity................. $123,284 $119,592
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
PANOLAM GROUP, INC. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
For the
period from For the year ended
May 16 December 31,
to December 31, --------------------
1996 1997 1998
--------------- --------- ---------
<S> <C> <C> <C>
Net sales................................ $ 74,453 $ 142,209 $ 146,747
Cost of goods sold....................... (61,057) (121,699) (122,572)
-------- --------- ---------
Gross profit............................. 13,396 20,510 24,175
Operating expenses:
Selling, general and administrative
expenses............................... (5,766) (9,723) (8,316)
Unusual charges......................... -- -- (1,829)
-------- --------- ---------
Income from operations................... 7,630 10,787 14,030
Interest expense........................ (4,459) (8,079) (8,289)
-------- --------- ---------
Income before income taxes and
extraordinary item...................... 3,171 2,708 5,741
Provision for income taxes............... (1,111) (751) (2,343)
-------- --------- ---------
Income before extraordinary item......... 2,060 1,957 3,398
Extraordinary item (net of tax benefit of
$1,809)................................. -- (3,350) --
-------- --------- ---------
Net income (loss)........................ $ 2,060 $ (1,393) $ 3,398
======== ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
PANOLAM GROUP, INC. and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the period from May 16, 1996 to December 31, 1996, and the
years ended December 31, 1997 and 1998
(in thousands)
<TABLE>
<CAPTION>
Common Stock Additional Total
------------- Paid-in Retained Stockholders'
Shares Amount Capital Earnings Equity
------ ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Initial capitalization......... 1,000 $ -- $18,073 $ -- $18,073
Contribution from Parent....... -- -- 8,000 -- 8,000
Net income for the period from
May 16 to December 31, 1996... -- -- -- 2,060 2,060
----- ---- ------- ------- -------
Balance at December 31, 1996... 1,000 26,073 2,060 28,133
Net loss for the year ended
December 31, 1997............. -- -- -- (1,393) (1,393)
----- ---- ------- ------- -------
Balance at December 31, 1997... 1,000 26,073 667 26,740
Contribution from Parent....... -- -- 1,000 -- 1,000
Net income for the year ended
December 31, 1998............. -- -- -- 3,398 3,398
----- ---- ------- ------- -------
Balance at December 31, 1998... 1,000 $ -- $27,073 $ 4,065 $31,138
===== ==== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
PANOLAM GROUP, INC. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
For the For the year
period from ended December
May 16 31,
to December 31, -----------------
1996 1997 1998
--------------- -------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).......................... $ 2,060 $ (1,393) $ 3,398
Extraordinary items........................ -- 5,159 --
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation and amortization............ 2,412 4,586 6,240
Loss on disposition of property, plant
and equipment........................... -- 2,339 452
Deferred income taxes.................... 1,194 (841) 1,119
Amortization of deferred financing
costs................................... 685 1,081 732
Pension liabilities and accrued post
retirement costs........................ 112 533 (1,749)
Changes in operating assets and
liabilities:
Trade and other accounts receivable...... 594 (2,111) 3,297
Other current assets..................... (1,005) 554 965
Inventories.............................. (718) (315) 1,204
Trade accounts payable and accruals...... (2,188) 1,919 834
Other.................................... 828 (1,191) (23)
------- -------- -------
Net cash provided by operating activities... 3,974 10,320 16,469
------- -------- -------
Cash flows from investing activities
Acquisition costs, net of acquired cash.... (95,514) -- (589)
Acquisition of property, plant, and
equipment................................. (4,075) (9,997) (4,232)
------- -------- -------
Net cash used in investing activities....... (99,589) (9,997) (4,821)
------- -------- -------
Cash flows from financing activities
Contribution from Parent................... 8,000 -- 1,000
Issue of common stock...................... 18,073 -- --
Repayment of long-term debt................ -- (70,952) (2,925)
Proceeds from long-term debt............... 70,983 75,000 --
Payment of financing costs................. (6,495) (3,792) (58)
Obligations under capital leases........... 340 (57) (17)
Proceeds (payment) of revolving credit
facility, net............................. 3,922 (307) (3,615)
Bank overdraft............................. 794 770 (1,564)
------- -------- -------
Net cash provided by (used in) financing
activities................................. 95,617 662 (7,179)
------- -------- -------
Net increase in cash........................ 2 985 4,469
Cash--Beginning of period................... -- 2 987
------- -------- -------
Cash--End of period......................... $ 2 $ 987 $ 5,456
======= ======== =======
Supplemental disclosure of cash flow
information:
Cash payments for interest................. $ 3,814 $ 6,672 $ 7,458
Cash payments for income taxes............. $ -- $ 121 $ --
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-7
<PAGE>
PANOLAM GROUP, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
1. Organization and nature of operations
Panolam Group, Inc. ("PGI") was incorporated in the State of Delaware on May
16, 1996. PGI was formerly known as Panolam Industries International, Inc.
prior to December 22, 1998. PGI is a holding company which fully owns directly
or indirectly the following holding or operational companies:
. PII Second, Inc. ("PIIS")
. Panolam Industries International, Inc. (formerly known as PII Third,
Inc. prior to December 22, 1998) ("PIII")
. Panolam Industries Ltd. ("PIL")
. Panolam Industries, Inc. ("PII")
PGI is 100% owned by Panolam Industries Holdings, Inc. ("PIH"). PIH and PGI
were formed to acquire (through PIL and PII, the "Operating Companies"),
certain assets and to assume certain liabilities of the Domtar U.S. Decorative
Panels Business and the Domtar Canadian Decorative Panels Business of Domtar
Industries Inc. and Domtar Inc., respectively, (collectively referred to as
"Domtar") and to acquire the common shares of the Melamine Group Inc. of
Domtar Industries Inc. (collectively known as the "Business"). On February 15,
1996 PIL and PII entered into separate purchase agreements with Domtar and the
purchase was consummated on June 11, 1996 (the "Acquisitions"). Therefore, the
period of operation for the Business in 1996 was effectively 203 days,
starting on June 12, 1996.
The Operating Companies design, manufacture and distribute thermally-fused
melamine panels, throughout Canada and the United States. The Operating
Companies market their products through independent distributors and directly
to kitchen and bathroom cabinet, furniture, store fixtures and other
manufacturers. PIL operates a plant in Huntsville, Ontario and PII operates
plants in Norcross, Georgia, and Albany, Oregon, and operated a plant in
Eugene, Oregon, until March 1997.
2. Summary of significant accounting policies
The significant accounting policies used in the preparation of these
consolidated financial statements are as follows:
Principles of consolidation
The accompanying consolidated financial statements include the accounts of
PGI and its direct and indirect subsidiaries (the "Company") and are prepared
in accordance with generally accepted accounting principles. All material
intercompany balances and transactions have been eliminated.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from these estimates.
Foreign currency translation
The functional currency of PGI and its subsidiaries is the U.S. dollar.
Therefore, when applicable, monetary assets and liabilities are translated at
year end exchange rates and non-monetary items are translated at historic
rates and income and expense accounts are translated at the average rates in
effect during the year,
F-8
<PAGE>
PANOLAM GROUP, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands)
2. Summary of significant accounting policies--(Continued)
except for depreciation, amortization and cost of sales which are translated at
historic rates. Gains or losses from changes in exchange rates which are not
significant in any period presented are recognized in consolidated income in
the year during which they arise.
Revenue recognition
Sales are recorded upon shipments of products to customers. They are
presented net of freight charges and allowances, and include cash discounts.
Basis of presentation
Certain prior year amounts have been reclassified to conform to current year
presentation.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined by
the first in first out ("FIFO") method.
Property, plant and equipment
Property, plant and equipment is stated at cost. Significant additions, major
renewals and improvements are capitalized and depreciated while expenditures
for maintenance and repairs are charged to operations as incurred. Depreciation
is computed using the straight-line method based on the following ranges of
estimated useful lives:
<TABLE>
<S> <C>
Buildings and improvements.................................... 20 to 40 years
Machinery and equipment....................................... 5 to 20 years
Computer equipment............................................ 3 to 5 years
</TABLE>
Goodwill
Goodwill is amortized on a straight-line basis over a period not exceeding 40
years. The Company assesses at each balance sheet date whether the carrying
amount of the goodwill may not be recoverable. Impairment is determined to
exist if the projected undiscounted future cash flows are less than the
carrying value. If an impairment exists, the amount of such impairment is
calculated based on the estimated fair value of the asset.
Debt Acquisition Costs
Debt acquisition costs are amortized on a straight-line basis over the term
of the associated debt.
Income taxes
The Company uses the assets and liabilities approach for financial accounting
and reporting of income taxes. Under this method, deferred tax assets and
liabilities are recognized for the expected future tax consequences of events
that have been recognized in the financial statements or tax returns. Deferred
tax assets and liabilities are measured using tax rates expected to apply to
taxable income in the years in which those temporary differences are expected
to be recovered or settled. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in earnings in the period in which the
change occurs.
F-9
<PAGE>
PANOLAM GROUP, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands)
2. Summary of significant accounting policies--(Continued)
Fair value of financial instruments
Cash, accounts receivable net of allowance for doubtful accounts, other
receivables, bank indebtedness, accounts payable, accrued liabilities and long
term debt: the carrying amount approximates fair value.
Limitations: fair value estimates are made at a specific point in time, based
on relevant market information about the financial instrument. These estimates
are subjective in nature and involve uncertainties and significant matters of
judgement and therefore cannot be determined with precision. Changes in
circumstances could significantly affect the estimates.
Pension expenses
The cost of pension benefits earned by the employees covered by defined
benefit plans is actuarially determined using the projected benefit method
(prorated on service) and management's best estimate of expected plan
investment performance, salary escalation, terminations, and retirement ages of
plan members. The costs of pension benefits for defined contribution plans are
charged to operations as incurred.
3. Inventories
<TABLE>
<CAPTION>
As of December
31,
---------------
1997 1998
------- -------
<S> <C> <C>
Operating and maintenance supplies.......................... $ 4,035 $ 4,175
Raw materials............................................... 7,725 7,219
Work in process and finished goods.......................... 4,232 3,394
------- -------
$15,992 $14,788
======= =======
4. Other current assets
<CAPTION>
As of December
31,
---------------
1997 1998
------- -------
<S> <C> <C>
Other current assets consist of the following:
Other receivables......................................... $ 2,393 $ 620
Due from parent .......................................... 555 --
Prepaid expenses.......................................... 732 322
------- -------
$ 3,680 $ 942
======= =======
</TABLE>
F-10
<PAGE>
PANOLAM GROUP, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands)
5. Property, plant and equipment
The Company's investment in property, plant and equipment is summarized as
follows:
<TABLE>
<CAPTION>
As of December
31,
-----------------
1997 1998
------- --------
<S> <C> <C>
Land..................................................... $ 561 $ 561
Buildings and improvements............................... 18,538 18,821
Machinery and equipment.................................. 66,370 70,252
Computer equipment....................................... 626 2,266
Construction in progress................................. 2,903 818
------- --------
88,998 92,718
Accumulated depreciation................................. (6,632) (12,591)
------- --------
Property, plant and equipment, net....................... $82,366 $ 80,127
======= ========
Depreciation expense for the year ended December 31, 1998 amounted to $6,070,
($4,486 in 1997 and $2,335 in 1996).
6. Debt
Long term debt consists of the following:
<CAPTION>
As of December
31,
-----------------
1997 1998
------- --------
<S> <C> <C>
Term A loans, principal due November 1, 2004, bearing
interest at average rates of 8.77% and 8.89% at December
31, 1997 and 1998....................................... $45,000 $ 42,911
Term B loans, principal due November 1, 2006, bearing
interest at average rates of 8.79% and 8.86% at December
31, 1997 and 1998....................................... 20,000 19,664
Revolving credit facility, principal due November 1,
2002, bearing interest at 9.75% at December 31, 1997(1). 3,615 --
Subordinated debt, principal due May, 2006, bearing
interest at 12.5% and 12.0% at December 31, 1997 and
1998(2)................................................. 10,000 9,500
------- --------
78,615 72,075
Current portion of long-term debt........................ (5,665) (2,050)
------- --------
Total long term debt..................................... $72,950 $ 70,025
======= ========
</TABLE>
All existing and future acquired assets and capital stock of PIL and a
guarantee of all existing and future acquired assets and capital stock of PII
have been pledged as collateral for certain of PIL's term loans and revolving
credit facility.
All existing and future acquired assets and capital stock of PII and a
guarantee from PIII of its capital stock have been pledged as collateral for
certain of PII's term loan, revolving credit facility and capital expenditures
line. The outstanding stock of PIIS and all inter-company notes issued by PIIS
to PGI have been pledged as collateral for PGI's subordinated debt.
F-11
<PAGE>
PANOLAM GROUP, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands)
6. Debt--(Continued)
The agreements contain various covenants which, limit PGI, PII and PIL's
ability to incur debt, to pay dividends, change the capital structure, grant
guarantees, assume liens, dispose of assets or to restrict payments on long
term debt.
(1) The revolving credit facility provides that the Company may borrow up
to $20,000 based on eligible inventory and accounts receivables. The
Company is required to pay a fee on the unused principal amount at a
rate per annum of .5%.
(2) On April 15, 2001 a structuring fee of $2,000 will be charged to PGI.
The structuring fee can be reduced to the amounts set forth below if
either of (a) the realization by PGI of at least $5,000 in consolidated
earnings before income tax, depreciation and amortization in at least
one fiscal year ending at the date hereof of (b) the repayment of PGI
subordinated debt is met.
<TABLE>
<CAPTION>
Date condition is met Structuring fee
--------------------- ---------------
<S> <C>
From April 15, 2000 to April 14, 2001........................ $750
From April 15, 1999 to April 14, 2000........................ 500
Prior to April 15, 1999...................................... 250
</TABLE>
At December 31, 1998, future debt principal payments are as follows:
<TABLE>
<S> <C>
1999............................................................. $ 2,050
2000............................................................. 2,550
2001............................................................. 3,050
2002............................................................. 3,050
2003............................................................. 550
2004 and thereafter.............................................. 60,825
-------
$72,075
=======
</TABLE>
Financing fees and deferred charges amounting to $4,737 and $422,
respectively (totalling $3,350 net of tax benefits of $1,809), relating to the
previous financing arrangements were expensed and recorded as extraordinary
items during 1997.
Pursuant to certain of the financing agreements, the retained earnings of the
Company cannot be distributed by dividend payment at this time.
See Note 16--"Subsequent Events" for a discussion regarding the refinancing
of substantially all of the Company's debt in the first quarter of 1999.
F-12
<PAGE>
PANOLAM GROUP, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands)
7. Other non-current assets
Other non-current assets consist of the following:
<TABLE>
<CAPTION>
As of December 31,
-------------------
1997 1998
--------- ---------
<S> <C> <C>
Goodwill................................................ $ 6,069 $ 6,069
Financing costs......................................... 3,791 3,849
Other................................................... -- 589
-------- ---------
Total................................................... 9,860 10,507
Accumulated amortization................................ (277) (1,206)
-------- ---------
Other non-current assets................................ $ 9,583 $ 9,301
======== =========
</TABLE>
8. Employee benefit plans
Pension plans
Canadian Plan--Through October, 1998 the Company maintained a defined benefit
pension plan covering certain Canadian employees. As of October, 1998 this plan
was converted to a defined contribution plan. As a result of the termination of
the defined benefit pension plan a curtailment gain of $10 was recorded during
1998.
US Plan--The Company maintains a defined benefit pension plan covering
certain domestic employees. The benefits for this plan are based primarily on
years of service and the employees qualifying compensation during the final
years of service. During 1998, the Company announced plans to terminate the
plan effective February 28, 1999. As a result of the termination, the Company
expects to record a gain of $85 in 1999.
Other post-retirement benefits
Canadian Plan--The Company provides two non-pension post-retirement benefit
plans. One is a non-contributory life insurance plan, the other is a non-
contributory medical plan which provides medical benefits to employees with
more than 20 years of service. The plans covered all employees until 1998 when
it was amended to only cover medical benefits for those employees with over 20
years of service. As a result of the amendment, a curtailment gain of $130 was
recorded during 1998.
US Plan--Through October 1, 1998, the Company provided two non-pension post-
retirement benefit plans. One was a non-contributory life insurance plan, the
other is a non-contributory medical plan. The plans covered all employees until
1998 when it was terminated. As a result of this termination a gain of $1,901
was recorded during 1998.
F-13
<PAGE>
PANOLAM GROUP, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands)
8. Employee benefit plans--(Continued)
The following table sets forth the reconciliation of beginning and ending
balances of the benefit obligations and the plan assets for the above plans at
December 31:
<TABLE>
<CAPTION>
Other Post-
Retirement
Pension Plans Benefits
-------------- ----------------
1997 1998 1997 1998
------ ------ ------- -------
Changes in benefit obligation:
<S> <C> <C> <C> <C>
Benefit obligations at beginning of the
year..................................... $4,309 $4,606 $ 2,325 $ 2,600
Service cost............................. 359 399 259 48
Contributions............................ 186 192 -- --
Interest cost............................ 295 293 190 51
Actuarial (gain) loss.................... (513) 27 (171) 172
Benefits paid............................ (30) (489) (3) (3)
Curtailment gain......................... -- (10) -- (2,031)
------ ------ ------- -------
Benefit obligations at end of the year.... $4,606 $5,018 $ 2,600 $ 837
====== ====== ======= =======
<CAPTION>
Changes in plan assets:
<S> <C> <C> <C> <C>
Fair value of plan assets at beginning of
the year................................. $4,488 $5,617 $ -- $ --
Actual return on assets.................. 672 342 -- --
Contributions............................ 702 501 3 3
Foreign currency loss.................... (215) (334) -- --
Benefits paid............................ (30) (489) (3) (3)
------ ------ ------- -------
Fair value of plan assets at end of the
year..................................... $5,617 $5,637 $ -- $ --
====== ====== ======= =======
<CAPTION>
Funded Status as of December 31:
<S> <C> <C> <C> <C>
(Shortfall) excess of assets.............. $1,011 $ 619 $(2,600) $ (837)
Unrecognized net gain..................... (384) (36) (43) (78)
Unrecognized transition obligation........ (471) (406) -- --
------ ------ ------- -------
Prepaid (accrued) pension and post-
retirement benefit costs................. $ 156 $ 177 $(2,643) $ (915)
====== ====== ======= =======
<CAPTION>
Weighted average assumptions as of
December 31:
<S> <C> <C> <C> <C>
Discount rate............................. 7.00% 6.00% 7.00% 6.50%
Expected return on plan assets............ 7.00% 7.00% n/a n/a
Rate of compensation increase............. 4.00% 2.75% n/a n/a
</TABLE>
<TABLE>
<CAPTION>
Other
Post-Retirement
Pension Plans Benefits
------------------- -----------------
1996 1997 1998 1996 1997 1998
----- ----- ----- ---- ---- -------
Components of net periodic benefit
cost for the period ended December
31:
<S> <C> <C> <C> <C> <C> <C>
Service cost...................... $ 151 $ 367 $ 399 $104 $259 $ 48
Interest cost..................... 146 302 293 79 190 51
Expected return on plan assets.... (163) (331) (392) -- -- --
Amortization of prior service
cost............................. -- -- -- -- -- 7
Amortization of translation
obligation (assets).............. -- -- (33) -- -- --
Curtailment gain.................. -- -- (10) -- -- (2,031)
----- ----- ----- ---- ---- -------
Net periodic benefit cost......... $ 134 $ 338 $ 257 $183 $449 $(1,925)
===== ===== ===== ==== ==== =======
</TABLE>
F-14
<PAGE>
PANOLAM GROUP, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands)
8. Employee benefit plans--(Continued)
For measurement purposes, an 8% annual rate of increase in the per capita
cost of covered health care benefits was assumed for 1998. The rate is assumed
to remain at 8% for 10 years and then decrease to 5% per year thereafter.
Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plan. A one-percentage-point change in assumed
health care cost trend rates would have the following effects:
<TABLE>
<CAPTION>
1% 1%
Increase Decrease
-------- --------
<S> <C> <C>
Effect on total service and interest cost components...... $10 $ (8)
Effect on post-retirement benefit obligation.............. $95 $(76)
</TABLE>
The company also sponsors a defined contribution plan (401(k)). Participation
in this plan is available to substantially all employees. The Company
contributes cash amounts equal to 50% of employee contributions up to 6% of the
employees' pay. The amount expensed for the Company match provision of the plan
was $93, $100, and $48 in fiscal 1998, 1997 and for the period from May 16 to
December 31, 1996 respectively.
9. Accrued liabilities
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
As of
December 31,
-------------
1997 1998
------ ------
<S> <C> <C>
Bank overdraft................................................. $1,564 $ --
Accrued liabilities............................................ 3,781 5,939
Accrued interest............................................... 891 489
Payable to parent.............................................. -- 607
------ ------
Accrued liabilities............................................ $6,236 $7,035
====== ======
</TABLE>
10. Income taxes
The provision for income taxes is comprised of the following:
<TABLE>
<CAPTION>
1996 1997 1998
------ ----- ------
<S> <C> <C> <C>
Current:
Federal.............................................. $ (95) $ -- $ 755
State and local...................................... (12) -- 12
Foreign.............................................. 218 (217) 457
------ ----- ------
111 (217) 1,224
------ ----- ------
Deferred:
Federal.............................................. (30) 620 (555)
State and local...................................... (8) 95 (139)
Foreign.............................................. 1,038 253 1,813
------ ----- ------
1,000 968 1,119
------ ----- ------
Total provision for income taxes:..................... $1,111 $ 751 $2,343
====== ===== ======
</TABLE>
F-15
<PAGE>
PANOLAM GROUP, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands)
10. Income taxes--(Continued)
The components of the net deferred income tax liability are as follows:
<TABLE>
<CAPTION>
As of
December 31,
----------------
1997 1998
------- -------
<S> <C> <C>
Deferred tax assets:
Accounts receivable...................................... $ 97 $ 53
Inventories.............................................. 61 83
State and local.......................................... -- 110
Loss carryforwards....................................... 647 1,966
Pension liability........................................ (4) --
Other.................................................... 490 287
------- -------
1,291 2,499
------- -------
Deferred tax liabilities:
Property, plant and equipment............................ (1,506) (3,812)
Goodwill................................................. (353) (213)
Transaction costs........................................ (159) (222)
Other.................................................... -- (98)
------- -------
(2,018) (4,345)
------- -------
Net deferred tax liability................................ $ (727) $(1,846)
======= =======
</TABLE>
A reconciliation of the Company's effective tax rate to the U.S. statutory
federal rate is as follows:
<TABLE>
<CAPTION>
As of
December 31,
-----------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Statutory tax rate......................................... 34% 34 % 34 %
Increases (reductions) in tax rate resulting from:
State income taxes, net of federal benefits.............. -- 2 --
Foreign tax rate difference.............................. 1 1 1
Non deductible items....................................... -- (9) (6)
Difference in estimated income taxes on foreign income, net
of previously provided amounts............................ -- -- 13
Other...................................................... -- -- (1)
--- --- ---
35% 28 % 41 %
=== === ===
</TABLE>
F-16
<PAGE>
PANOLAM GROUP, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands)
11. Operations by geographic area
Financial information summarized by geographic area of operation is as
follows:
<TABLE>
<CAPTION>
Head
1996 U.S. Canada Office Total
---- ------- ------- ------- --------
<S> <C> <C> <C> <C>
Net sales--domestic........................ $37,712 $19,469 $ -- $ 57,181
--export............................... -- 17,272 -- 17,272
------- ------- ------- --------
Net sales--total........................... $37,712 $36,741 $ -- $ 74,453
------- ------- ------- --------
Income from operations..................... $ 1,091 $ 7,409 $ (870) $ 7,630
------- ------- ------- --------
Assets..................................... $30,921 $73,449 $13,283 $117,653
------- ------- ------- --------
<CAPTION>
Head
1997 U.S. Canada Office Total
---- ------- ------- ------- --------
<S> <C> <C> <C> <C>
Net sales--domestic........................ $71,501 $33,467 $ -- $104,968
--export............................... 863 36,378 -- 37,241
------- ------- ------- --------
Net sales--total........................... $72,364 $69,845 $ -- $142,209
------- ------- ------- --------
Income from operations..................... $ 3,201 $13,301 $(5,715) $ 10,787
------- ------- ------- --------
Assets..................................... $33,396 $75,046 $14,842 $123,284
------- ------- ------- --------
<CAPTION>
Head
1998 U.S. Canada Office Total
---- ------- ------- ------- --------
<S> <C> <C> <C> <C>
Net sales--domestic........................ $71,426 $32,937 $ -- $104,363
--export............................... -- 42,384 -- 42,384
------- ------- ------- --------
Net sales--total........................... $71,426 $75,321 $ -- $146,747
------- ------- ------- --------
Income from operations..................... $ 4,929 $15,381 $(6,280) $ 14,030
------- ------- ------- --------
Assets..................................... $29,429 $70,821 $19,342 $119,592
------- ------- ------- --------
</TABLE>
12. Related parties
Management fees of $629 ($618 in 1997 and $328 in 1996) and $63 ($131 in 1997
and $162 in 1996) in other expenses were paid to Genstar Capital Partners II,
L.P., a venture capital firm, which owns approximately 95% of the common stock
of PIH. At December 31, 1998 there was an amount payable of $187 ($155 in 1997)
to Genstar Capital Partners II, L.P.
F-17
<PAGE>
PANOLAM GROUP, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands)
13. Supplemental cash flow information
Supplemental schedule of investing activities:
<TABLE>
<CAPTION>
1996
--------
<S> <C>
Detail of net cash paid for assets and liabilities acquired through
the acquisition of business were as follows:
Cash.............................................................. $ 338
Accounts receivable............................................... 9,212
Inventories....................................................... 14,959
Assets held for resale............................................ 2,300
Property, plant and equipment..................................... 74,990
Goodwill.......................................................... 6,069
Other asset....................................................... 282
--------
Total assets acquired .............................................. 108,150
--------
Trade accounts payable and accruals............................... 12,821
Current income taxes.............................................. 110
Deferred income taxes............................................. 441
Pension and post-retirement benefit liabilities................... 2,213
--------
Total liabilities assumed....................................... 15,585
--------
Purchase price allocated to assets acquired....................... 92,565
Add: amount paid, but subsequently reimbursed..................... 3,287
--------
Total cash paid................................................. 95,852
Less: cash acquired................................................. (338)
--------
Net cash paid for assets acquired............................... $ 95,514
========
</TABLE>
14. Commitments and Contingencies
General
Various claims, lawsuits and complaints arising in the ordinary course of
business have been filed or are pending against the Company. Litigation is
subject to many uncertainties, the outcome of individual litigated matters is
not predictable with assurance, and it is possible that some of the foregoing
matters could be decided unfavorably to the Company. Management believes that
all such matters are without merit or are of such kind or involve such amounts,
as would not have a significant effect on the consolidated financial position
or the results of the operations of the Company if disposed of unfavorably.
The Company's operations and properties are subject to extensive and changing
federal, state and local laws, regulations and ordinances governing the
protection of the environment, as well as laws relating to worker health and
workplace safety. Management is not aware of any exposures, which would require
an accrual under Statement of Financial Accounting Standards No. 5.
F-18
<PAGE>
PANOLAM GROUP, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands)
14. Contingencies and commitments--(Continued)
Lease commitments
The Company has entered into operating and capital leases to lease property
and equipment.
Minimum future payments under capital leases, determined at December 31,
1998, are as follows:
<TABLE>
<CAPTION>
1999 2000 2001
---- ---- ----
<S> <C> <C> <C>
Interest....................................................... $20 $14 $ 4
Capital........................................................ 75 71 121
--- --- ----
Total payment.................................................. $95 $85 $125
=== === ====
</TABLE>
Minimum future rental payments under operating leases, determined at December
31, 1998, are as follows:
<TABLE>
<S> <C>
1999............................................ $ 566
2000............................................ $ 328
2001............................................ $ 452
2002............................................ $ 222
2003............................................ $ 225
Thereafter...................................... $1,094
</TABLE>
Rental expense amounted to $481 ($410 in 1997 and $316 in 1996).
15. Unusual charges
Unusual charges consist of one-time amounts incurred to relocate the
corporate offices from Quebec, Canada to Shelton, Connecticut. These charges
include, lease termination costs, write off of leasehold improvements,
relocation costs and employee severance. As of December 31, 1998, cash payments
were made for all costs with the exception of $577 which relates to amounts
expected to be paid for lease termination costs and remaining employee
severance payouts. All payments were completed by July 31, 1999.
16. Subsequent events
On November 30, 1998 the Company agreed to purchase all of the outstanding
shares of Pioneer Plastics Corporation ("Pioneer Plastics") from Rugby USA,
Inc. for a total consideration of approximately $159.1 million, subject to
certain adjustments. The transaction closed on February 18, 1999 and was
financed through the issuance of the new Senior Subordinated Notes referred to
below and borrowings under new U.S. and Canadian senior bank credit facilities.
Pioneer Plastics, which is headquartered in Auburn, Maine, primarily designs,
manufactures and distributes high pressure laminates.
In connection with the acquisition of Pioneer Plastics, the Company effected
a series of transactions that resulted in the refinancing of all of the
Company's existing indebtedness under its credit facilities through the
issuance of borrowings under the Company's new U.S. and Canadian senior bank
credit facilities. The refinancing includes revolving credit facilities
totaling $35 million and term loan facilities providing for loans in an
aggregate principal amount of $105 million.
On February 18, 1999, PIII issued and sold $135 million aggregate principal
amount of 11.50% Senior Subordinated Notes due 2009. The Senior Subordinated
Notes were issued in a private placement made in reliance upon an exemption
from registration under the Securities Act of 1933, as amended. The net
proceeds from the offering were used to fund the consideration for the
acquisition of Pioneer Plastics.
F-19
<PAGE>
PANOLAM GROUP, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands)
17. Summarized consolidating information
On February 18, 1999, PIII (the "Issuer") issued and sold $135.0 million
aggregate principal amount 11.50% Senior Subordinated Notes due 2009 (the "New
Senior Subordinated Notes"). The New Senior Subordinated Notes are jointly and
severally and fully and unconditionally guaranteed, on a senior subordinated
basis, by PGI and the following direct and indirect subsidiaries of PGI: PIIS,
PII and Pioneer Plastics (with PGI, the "Guarantors"). The Issuer and each of
the other Guarantors is a wholly-owned subsidiary of PGI, and collectively
constitute all of the direct and indirect subsidiaries of PGI other than its
indirect foreign subsidiary, PIL, and certain other immaterial indirect
subsidiaries of PGI.
PGI and PIIS (the "Parent Guarantors") and the Issuer conduct all of their
business through and derive virtually all of their respective income from PII,
Pioneer Plastics and PIL (the "Operating Subsidiaries"), which are direct
wholly-owned subsidiaries of the Issuer and indirect subsidiaries of the Parent
Guarantors. Therefore, the Issuer's and the Parent Guarantors' ability to make
required payments with respect to their indebtedness (including the New Senior
Subordinated Notes) and other obligations depends on the financial results and
condition of the Operating Subsidiaries and their ability to receive funds from
the Operating Subsidiaries. There are no restrictions on the ability of any of
the Operating Subsidiaries to transfer funds to PGI or the Issuer, except as
provided by appropriate law and, with respect to PIL, pursuant to its senior
bank credit facility.
Pursuant to Rule 3-10 of Regulation S-X, the following summarized condensed
consolidating financial information for the Company segregates the financial
information of the Issuer and the Parent Guarantors, the Operating Subsidiaries
which are Guarantors (the "Subsidiary Guarantors") and the non-guarantor
Operating Subsidiary. Separate financial statements of each of the Guarantors
are not presented because management has determined that they would not be
material to investors. Summarized condensed consolidating financial information
for the Issuer and the Parent Guarantors combine the operations of the Issuer
and the Parent Guarantors (PIII, PGI and PIIS). Summarized condensed
consolidating financial information for the Subsidiary Guarantors combine the
operations of the Subsidiary Guarantors (PII and Pioneer Plastics). PIL is the
only Operating Subsidiary which has not provided a guarantee of the obligations
of PIII under the New Senior Subordinated Notes. All subsidiaries of PGI are
reported on the equity basis. Debt and goodwill allocated to subsidiaries of
PGI is presented on an accounting "push down" basis.
This summarized condensed consolidating financial information has been
prepared from the books and records maintained by the Issuer, the Guarantors
and PIL. The summarized condensed consolidating financial information may not
necessarily be indicative of results of operations or financial position had
the Issuer, and the Guarantors of PIL operated as independent entities.
F-20
<PAGE>
PANOLAM GROUP, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands)
17. Summarized consolidating information--(Continued)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the year ended December 31, 1998
<TABLE>
<CAPTION>
Issuer and Non-
Parent Subsidiary Guarantor
Guarantors Guarantors Subsidiary Eliminations Consolidated
---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales............... $ -- $ 71,426 $ 75,321 $ -- $ 146,747
Cost of goods sold...... -- (64,788) (57,784) -- (122,572)
------ -------- -------- ------- ---------
Gross profit............ -- 6,638 17,537 -- 24,175
Operating expenses:
Selling, general and
administrative....... -- (4,045) (4,271) -- (8,316)
Unusual charges....... -- (504) (1,325) -- (1,829)
------ -------- -------- ------- ---------
Income from operations.. -- 2,089 11,941 -- 14,030
Interest expense...... -- (1,448) (6,841) -- (8,289)
------ -------- -------- ------- ---------
Income before income
taxes.................. -- 641 5,100 -- 5,741
Provision for income
taxes.................. -- (466) (1,877) -- (2,343)
Equity income from
affiliates............. 3,398 -- -- (3,398) --
------ -------- -------- ------- ---------
Net income.............. $3,398 $ 175 $ 3,223 $(3,398) $ 3,398
====== ======== ======== ======= =========
</TABLE>
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the year ended December 31, 1997
<TABLE>
<CAPTION>
Issuer and Non-
Parent Subsidiary Guarantor
Guarantors Guarantors Subsidiary Eliminations Consolidated
---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales............... $ -- $ 72,364 $ 69,845 $ -- $ 142,209
Cost of goods sold...... -- (67,012) (54,687) -- (121,699)
------- -------- -------- ------ ---------
Gross profit............ -- 5,352 15,158 -- 20,510
Operating expenses:
Selling, general and
administrative....... -- (4,429) (5,294) -- (9,723)
------- -------- -------- ------ ---------
Income from operations.. -- 923 9,864 -- 10,787
Interest expense...... -- (1,724) (6,355) -- (8,079)
------- -------- -------- ------ ---------
(Loss) income before
income taxes and
extraordinary item..... -- (801) 3,509 -- 2,708
Benefit (provision) for
income taxes........... -- 112 (863) -- (751)
Equity income from
affiliates............. (1,393) -- -- 1,393 --
------- -------- -------- ------ ---------
(Loss) income before
extraordinary item..... (1,393) (689) 2,646 1,393 1,957
Extraordinary item...... -- (1,260) (2,090) -- (3,350)
------- -------- -------- ------ ---------
Net (loss) income....... $(1,393) $ (1,949) $ 556 $1,393 $ (1,393)
======= ======== ======== ====== =========
</TABLE>
F-21
<PAGE>
PANOLAM GROUP, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands)
17. Summarized consolidating information--(Continued)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the period from May 16 to December 31, 1996
<TABLE>
<CAPTION>
Issuer and Non-
Parent Subsidiary Guarantor
Guarantors Guarantors Subsidiary Eliminations Consolidated
---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales............... $ -- $ 37,712 $ 36,741 $ -- $ 74,453
Cost of goods sold...... -- (34,531) (26,526) -- (61,057)
------ -------- -------- ------- --------
Gross profit............ -- 3,181 10,215 -- 13,396
Operating expenses:
Selling, general and
administrative....... -- (2,589) (3,177) -- (5,766)
------ -------- -------- ------- --------
Income from operations.. -- 592 7,038 -- 7,630
Interest expense...... -- (573) (3,886) -- (4,459)
------ -------- -------- ------- --------
Income before income
taxes.................. -- 19 3,152 -- 3,171
Benefit (provision) for
income taxes........... -- 145 (1,256) -- (1,111)
Equity income from
affiliates............. 2,060 -- -- (2,060) --
------ -------- -------- ------- --------
Net income.............. $2,060 $ 164 $ 1,896 $(2,060) $ 2,060
====== ======== ======== ======= ========
</TABLE>
F-22
<PAGE>
PANOLAM GROUP, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands)
17. Summarized consolidating information--(Continued)
CONDENSED CONSOLIDATING BALANCE SHEET
As of December 31, 1998
<TABLE>
<CAPTION>
Issuer Non-
and Parent Subsidiary Guarantor
Guarantors Guarantors Subsidiary Eliminations Consolidated
---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash................... $ -- $ (346) $ 5,802 $ -- $ 5,456
Accounts receivable,
net................... -- 3,900 4,056 -- 7,956
Inventories............ -- 7,753 7,035 -- 14,788
Other current assets... -- 419 523 -- 942
-------- -------- ------- -------- --------
Total current assets.. -- 11,726 17,416 -- 29,142
Property, plant &
equipment, net......... -- 18,917 61,210 -- 80,127
Deferred income taxes... -- 1,022 -- -- 1,022
Other non-current
assets................. 589 6,267 2,445 -- 9,301
Investment in
subsidiaries........... 30,138 -- -- (30,138) --
-------- -------- ------- -------- --------
Total assets.......... $ 30,727 $ 37,932 $81,071 $(30,138) $119,592
======== ======== ======= ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable
and accrued
liabilities........... $ -- $ 6,451 $ 6,055 $ -- $ 12,506
Current portion of long
term debt............. -- 1,500 625 -- 2,125
Intercompany payable
(receivable).......... (411) (11,042) 11,453 -- --
-------- -------- ------- -------- --------
Total current
liabilities.......... (411) (3,091) 18,133 -- 14,631
Long-term liabilities:
Long term debt......... -- 16,309 53,908 -- 70,217
Other long term
liabilities........... -- 252 3,354 -- 3,606
-------- -------- ------- -------- --------
Total liabilities..... (411) 13,470 75,395 -- 88,454
Stockholders' equity.... 31,138 24,462 5,676 (30,138) 31,138
-------- -------- ------- -------- --------
Total liabilities and
stockholders' equity. $ 30,727 $ 37,932 $81,071 $(30,138) $119,592
======== ======== ======= ======== ========
</TABLE>
F-23
<PAGE>
PANOLAM GROUP, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands)
17. Summarized consolidating information--(Continued)
CONDENSED CONSOLIDATING BALANCE SHEET
As of December 31, 1997
<TABLE>
<CAPTION>
Issuer Non-
and Parent Subsidiary Guarantor
Guarantors Guarantors Subsidiary Eliminations Consolidated
---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash................... $ -- $ 819 $ 168 $ -- $ 987
Accounts receivable,
net................... -- 4,956 4,524 -- 9,480
Inventories............ -- 7,654 8,338 -- 15,992
Other current assets... -- 1,010 2,670 -- 3,680
------- -------- ------- -------- --------
Total current assets.. -- 14,439 15,700 -- 30,139
Property, plant &
equipment, net......... -- 20,011 62,355 -- 82,366
Deferred income taxes... -- 1,196 -- -- 1,196
Other non-current
assets................. -- 6,559 3,024 -- 9,583
Investment in
subsidiaries........... 26,740 -- -- (26,740) --
------- -------- ------- -------- --------
Total assets.......... $26,740 $ 42,205 $81,079 $(26,740) $123,284
======= ======== ======= ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable
and accrued
liabilities........... $ -- $ 5,239 $ 7,997 $ -- $ 13,236
Current portion of long
term debt............. -- 2,345 3,396 -- 5,741
Intercompany payable
(receivable).......... -- (10,956) 10,956 -- --
------- -------- ------- -------- --------
Total current
liabilities.......... -- (3,372) 22,349 -- 18,977
------- -------- ------- -------- --------
Long-term liabilities:
Long term debt......... -- 18,500 54,657 -- 73,157
Other long term
liabilities........... -- 2,790 1,620 -- 4,410
------- -------- ------- -------- --------
Total liabilities..... -- 17,918 78,626 -- 96,544
Stockholders' equity.... 26,740 24,287 2,453 (26,740) 26,740
------- -------- ------- -------- --------
Total liabilities and
stockholders'
equity............... $26,740 $ 42,205 $81,079 $(26,740) $123,284
======= ======== ======= ======== ========
</TABLE>
F-24
<PAGE>
PANOLAM GROUP, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands)
17. Summarized consolidating information--(Continued)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the year ended December 31, 1998
<TABLE>
<CAPTION>
Issuer and Non-
Parent Subsidiary Guarantor
Guarantors Guarantors Subsidiary Eliminations Consolidated
---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net cash provided by
operating activities... $ -- $ 3,006 $13,463 $ -- $16,469
----- ------- ------- ----- -------
Cash flows from
investing activities:
Acquisition costs, net
of acquired cash...... (589) -- -- -- (589)
Acquisition of
property, plant and
equipment............. -- (691) (3,541) -- (4,232)
----- ------- ------- ----- -------
Net cash used in
investing activities... (589) (691) (3,541) -- (4,821)
----- ------- ------- ----- -------
Cash flows from
financing activities:
Contribution from
parent................ 1,000 -- -- -- 1,000
Repayment of long-term
debt.................. -- (2,000) (925) -- (2,925)
Decrease (increase) in
intercompany debt..... (411) (86) 497 -- --
Payment of financing
costs................. -- (14) (44) -- (58)
Obligation under
capital leases........ -- -- (17) -- (17)
Payment of revolving
credit facility, net.. -- (845) (2,770) -- (3,615)
Bank overdraft......... -- (535) (1,029) -- (1,564)
----- ------- ------- ----- -------
Net cash used in
financing activities... 589 (3,480) (4,288) -- (7,179)
----- ------- ------- ----- -------
Net (decrease) increase
in cash................ -- (1,165) 5,634 -- 4,469
Cash--Beginning of
period................. -- 819 168 -- 987
----- ------- ------- ----- -------
Cash--End of period..... $ -- $ (346) $ 5,802 $ -- $ 5,456
===== ======= ======= ===== =======
</TABLE>
F-25
<PAGE>
PANOLAM GROUP, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands)
17. Summarized consolidating information--(Continued)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the year ended December 31, 1997
<TABLE>
<CAPTION>
Issuer Non-
and Parent Subsidiary Guarantor
Guarantors Guarantors Subsidiary Eliminations Consolidated
---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net cash provided by
operating activities... $ -- $ 4,250 $ 6,070 $ -- $ 10,320
----- -------- -------- ----- --------
Cash flows from
investing activities:
Acquisition of
property, plant and
equipment............. -- (5,175) (4,822) -- (9,997)
----- -------- -------- ----- --------
Net cash used in
investing activities... -- (5,175) (4,822) -- (9,997)
----- -------- -------- ----- --------
Cash flows from
financing activities:
Repayment of long-term
debt.................. -- (10,000) (60,952) -- (70,952)
Proceeds from long-term
debt.................. -- 20,000 55,000 -- 75,000
(Decrease) increase in
intercompany debt..... -- (8,955) 8,955 -- --
Payment of financing
costs................. -- (680) (3,112) -- (3,792)
Obligation under
capital leases........ -- -- (57) -- (57)
Payment of revolving
credit facility, net.. -- (155) (152) -- (307)
Bank overdraft......... -- 1,533 (763) -- 770
----- -------- -------- ----- --------
Net cash provided by
(used in) financing
activities............. -- 1,743 (1,081) -- 662
----- -------- -------- ----- --------
Net increase in cash.... -- 818 167 -- 985
Cash--Beginning of
period................. -- 1 1 -- 2
----- -------- -------- ----- --------
Cash--End of period..... $ -- $ 819 $ 168 $ -- $ 987
===== ======== ======== ===== ========
</TABLE>
F-26
<PAGE>
PANOLAM GROUP, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands)
17. Summarized consolidating information--(Continued)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the period from May 16 to December 31, 1996
<TABLE>
<CAPTION>
Issuer Non-
and Parent Subsidiary Guarantor
Guarantors Guarantors Subsidiary Eliminations Consolidated
---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net cash provided by
operating activities... $ -- $ 2,071 $ 1,903 $ -- $ 3,974
----- -------- -------- ----- --------
Cash flows from
investing activities:
Acquisition costs, net
of acquired cash...... -- (33,618) (61,896) -- (95,514)
Acquisition of
property, plant and
equipment............. -- (647) (3,428) -- (4,075)
----- -------- -------- ----- --------
Net cash used in
investing activities.. -- (34,265) (65,324) -- (99,589)
----- -------- -------- ----- --------
Cash flows from
financing activities:
Contribution from
parent................ -- 8,000 -- -- 8,000
Issue of common stock.. -- 18,073 -- -- 18,073
Proceeds from long-term
debt.................. -- 10,000 60,983 -- 70,983
(Decrease) increase in
intercompany debt..... -- (2,001) 2,001 -- --
Payment of financing
costs................. -- (1,877) (4,618) -- (6,495)
Obligation under
capital leases........ -- -- 340 -- 340
Proceeds of revolving
credit facility, net.. -- 1,000 2,922 -- 3,922
Bank overdraft......... -- (1,000) 1,794 -- 794
----- -------- -------- ----- --------
Net cash provided by
financing activities... -- 32,195 63,422 -- 95,617
----- -------- -------- ----- --------
Net increase in cash.... -- 1 1 -- 2
Cash--Beginning of
period................. -- -- -- -- --
----- -------- -------- ----- --------
Cash--End of period..... $ -- $ 1 $ 1 $ -- $ 2
===== ======== ======== ===== ========
</TABLE>
F-27
<PAGE>
PANOLAM GROUP, INC. and Subsidiaries
CONSOLIDATED BALANCE SHEET
(in thousands, except share amounts)
(unaudited)
<TABLE>
<CAPTION>
As of
June 30,
1999
--------
<S> <C>
ASSETS
Current assets:
Cash................................................................ $ 14,451
Accounts receivable:
Trade, net of allowance for doubtful accounts of $624.............. 30,013
Affiliates......................................................... 10,921
Inventories......................................................... 38,271
Other current assets................................................ 1,357
--------
Total current assets.............................................. 95,013
Property, plant & equipment, net..................................... 121,630
Deferred taxes....................................................... 3,560
Goodwill............................................................. 73,063
Other non-current assets............................................. 25,159
--------
Total assets...................................................... $318,425
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt................................... $ 800
Trade accounts payable.............................................. 12,365
Accrued liabilities................................................. 22,695
Other debt and obligation under capital leases...................... 751
--------
Total current liabilities......................................... 36,611
Long term debt....................................................... 234,800
Pension liabilities and accrued post retirement benefit costs........ 783
Other debt and obligation under capital leases....................... 1,515
Deferred income taxes................................................ 5,724
--------
Total liabilities................................................. 279,433
Commitments and contingencies
STOCKHOLDERS' EQUITY
Common stock--1,000 shares authorized, issued and outstanding with a
par value of $.01 per share......................................... --
Additional paid in capital........................................... 32,073
Accumulated other comprehensive loss--cumulative translation
adjustment.......................................................... (4,595)
Retained earnings.................................................... 11,514
--------
Total stockholders' equity........................................ 38,992
--------
Total liabilities and stockholders' equity........................ $318,425
========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
F-28
<PAGE>
PANOLAM GROUP, INC. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
-------------------- -------------------
June 30, June 30, June 30, June 30,
1998 1999 1998 1999
--------- --------- -------- ---------
<S> <C> <C> <C> <C>
Net sales........................ $ 38,583 $ 92,065 $ 73,636 $ 149,899
Cost of goods sold............... (32,409) (66,145) (62,111) (110,386)
--------- --------- -------- ---------
Gross profit..................... 6,174 25,920 11,525 39,513
Operating expenses:
Selling, general and
administrative................ (2,693) (10,826) (5,148) (16,895)
Unusual charges................ (763) -- (785) --
--------- --------- -------- ---------
Income from operations........... 2,718 15,094 5,592 22,618
Other income................... -- 2,536 -- 2,536
Interest expense............... (2,093) (6,339) (4,272) (10,463)
--------- --------- -------- ---------
Income before income taxes and
extraordinary item.............. 625 11,291 1,320 14,691
Provision for income taxes....... (205) (4,183) (490) (5,448)
--------- --------- -------- ---------
Income before extraordinary item. 420 7,108 830 9,243
Extraordinary item (net of tax
benefit of $1,053).............. -- -- -- (1,794)
--------- --------- -------- ---------
Net income....................... $ 420 $ 7,108 $ 830 $ 7,449
========= ========= ======== =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
F-29
<PAGE>
PANOLAM GROUP, INC. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six months ended
------------------
June
30, June 30,
1998 1999
------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 830 $ 7,449
Extraordinary items....................................... -- 2,847
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization............................ 3,017 6,880
Deferred income taxes.................................... 483 2,964
Amortization of deferred financing costs................. 280 732
Pension liabilities and accrued post retirement costs.... 291 --
Changes in operating assets and liabilities:
Trade and other accounts receivable....................... (46) (16,677)
Other current assets...................................... 337 (348)
Inventories............................................... (126) 2,784
Trade accounts payable and accruals....................... (592) 8,227
------- ---------
Net cash provided by operating activities.................. 4,474 14,863
------- ---------
Cash flows from investing activities:
Acquisition costs, net of acquired cash................... -- (156,505)
Acquisition of property, plant and equipment.............. (653) (3,538)
------- ---------
Net cash used in investing activities...................... (653) (160,043)
------- ---------
Cash flows from financing activities:
Contribution from Parent.................................. -- 5,000
Repayment of long-term debt............................... (1,025) (76,475)
Proceeds from long-term debt.............................. -- 240,000
Payment of financing costs................................ -- (13,754)
Obligations under capital leases.......................... (17) (31)
Payment of revolving credit facility, net................. (2,222) --
Bank overdraft............................................ (498) --
------- ---------
Net cash provided by (used in) financing activities........ (3,762) 154,740
------- ---------
Effect of exchange rate on cash........................... -- (565)
------- ---------
Net increase in cash...................................... 59 8,995
Cash--Beginning of period................................. 987 5,456
------- ---------
Cash--End of period....................................... $ 1,046 $ 14,451
======= =========
Supplemental disclosure of cash flow information:
Cash payments for interest................................ $ 3,787 $ 3,683
Cash payments for income taxes............................ 116 1,662
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
F-30
<PAGE>
PANOLAM GROUP, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
(unaudited)
1. Basis of presentation
Organization and Nature of Operations
Panolam Group, Inc. ("PGI") was incorporated in the State of Delaware on May
16, 1996. PGI was formerly known as Panolam Industries International, Inc.
prior to December 22, 1998. PGI is a holding company which fully owns directly
or indirectly the following holding or operational companies:
. PII Second, Inc. ("PIIS")
. Panolam Industries International, Inc. (formerly known as PII Third,
Inc. prior to December 22, 1998) ("PIIT")
. Panolam Industries Ltd. ("PIL")
. Panolam Industries, Inc. ("PII")
PGI is 100% owned by Panolam Industries Holdings, Inc. ("PIH"). PIH and PGI
were formed to acquire (through PIL and PII, the "Operating Companies"),
certain assets and to assume certain liabilities of the Domtar U.S. Decorative
Panels Business and the Domtar Canadian Decorative Panels Business of Domtar
Industries Inc. and Domtar Inc., respectively, (collectively referred to as
"Domtar") and to acquire the common shares of the Melamine Group Inc. of Domtar
Industries Inc. (collectively known as the "Business"). On February 15, 1996
PIL and PII entered into separate purchase agreements with Domtar and the
purchase was consummated on June 11, 1996 (the "Acquisition").
Basis of Presentation
The interim consolidated financial statements have been prepared on a
consistent basis with PGI's audited financial statements for the year ended
December 31, 1998, except as described in Note 3. The interim consolidated
financial statements reflect all adjustments, which, in the opinion of
management, are necessary for the fair presentation of the consolidated
financial position and consolidated results of operations for the interim
periods presented. All such adjustments are of a normal recurring nature except
as described in Note 3. The interim consolidated financial statements have been
compiled without audit and are subject to year-end adjustments. Operating
results for the interim period are not necessarily indicative of the results
that may be expected for the full year or any other interim period. These
interim consolidated financial statements should be read in conjunction with
the audited consolidated financial statements included in this prospectus.
2. Acquisition of Pioneer Plastics Corporation and refinancing
On November 30, 1998, the Company agreed to purchase all of the outstanding
shares of Pioneer Plastics Corporation ("Pioneer Plastics") from Rugby USA,
Inc. for a total consideration of approximately $159.1 million subject to
certain adjustments. The transaction closed on February 18, 1999 and was
financed through the issuance of the New Senior Subordinated Notes referred to
below and borrowings under the Company's new U.S. and Canadian senior bank
credit facilities. Pioneer Plastics, which is headquartered in Auburn, Maine,
primarily designs, manufactures and distributes high pressure laminates.
As of August 10, 1999, the adjustments referred to above resulted in a $2.0
million reduction in the purchase price. The adjusted purchase price of $157.1
million was allocated to represent the fair market value of assets totalling
$99.9 million (including $10.0 million allocated to non-competition agreements
and being amortized over 5 years), liabilities of $14.2 million, and the
remaining $71.4 million was recorded as goodwill and is being amortized over 30
years. In addition, we will be required to make post-closing payments to Rugby
USA of up to an aggregate maximum of $15.0 million contingent upon our having
achieved specified EBITDA
F-31
<PAGE>
PANOLAM GROUP, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands)
(unaudited)
2. Acquisition of Pioneer Plastics Corporation and refinancing--(continued)
(as defined in the stock purchase agreement with Rugby USA) targets in 1999,
2000, 2001, 2002 and 2003. The EBITDA target in 1999 is $60.0 million, which
target will increase each year thereafter through 2003. Additional adjustments
to the purchase price may be required based on the resolution of the
negotiations pertaining to certain open issues relating to the calculation of
the Net Operating Assets as defined by the purchase agreement. The allocation
is in the final stages of completion and the Company does not believe any
additional adjustments will be material to the financial statements.
In connection with the elimination of excess staffing at Pioneer Plastics
following the closing of the acquisition, the Company has accrued an additional
liability of approximately $3.2 million related to severance costs which relate
to terminations that are expected to be completed by the third quarter of 1999,
which has been accounted for as an adjustment to goodwill in the balance sheet
as of June 30, 1999.
In connection with the acquisition of Pioneer Plastics, the Company effected
a series of transactions that resulted in the refinancing of all of the
Company's existing indebtedness under its credit facilities through the
issuance of borrowings under the Company's new U.S. and Canadian senior bank
credit facilities. The refinancing includes revolving credit facilities
totaling $35 million and term loan facilities providing for loans in an
aggregate principal amount of $105 million. In June 1999 the Company reduced
the total amount available under the Canadian revolving credit facility by $7.0
million. In connection with the refinancing of the Company's credit facilities,
the Company incurred an extraordinary loss of $1.8 million (net of tax
benefits) related to the writeoff of deferred financing fees from the Company's
previous financing. This extraordinary charge was recorded in the first quarter
of 1999.
On February 18, 1999, PIII issued and sold $135 million aggregate principal
amount of 11.50% Senior Subordinated Notes due 2009. The Senior Subordinated
Notes were issued in a private placement made in reliance upon an exemption
from registration under the Securities Act of 1933, as amended. The net
proceeds from the offering were used to fund the consideration for the
acquisition of Pioneer Plastics.
3. Functional currency
Effective March 1, 1999, the Company's management determined that the local
currency is the functional currency for its Canadian operations as defined
under the Financial Accounting Standards Board Statement No. 52, "Foreign
Currency Translation." This change was adopted because of the Company's
acquisition of Pioneer Plastics and the elimination of the need for Canadian
cash flows to meet U.S. debt requirements. Assets and liabilities denominated
in foreign functional currencies are translated at the exchange rate as of the
balance sheet date. Translation adjustments are recorded as a separate
component of shareholders' equity. Revenues, costs and expenses denominated in
foreign functional currencies are translated at the weighted average exchange
rate for the period. Prior to March 1999, the Company's Canadian operations
were measured by reflecting financial results of those operations as if they
had taken place within a U.S. dollar based economic environment. For those
years, nonmonetary assets and liabilities were remeasured from foreign
currencies to U.S. dollars at historical exchange rates. All other accounts
were translated at current exchange rates. Gains and losses resulting from
those remeasurements were included in income.
4. Comprehensive loss
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"),
which establishes new rules for the reporting and display
F-32
<PAGE>
PANOLAM GROUP, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands)
(unaudited)
4. Comprehensive loss--(continued)
of comprehensive income and its components. SFAS 130 requires unrealized gains
or losses on the Company's currency translation adjustments to be included in
other comprehensive income. No comprehensive income was recorded prior to the
functional currency conversion effective March 1, 1999 as noted in footnote 3
above. Comprehensive loss was $4.6 million for the six months ended June 30,
1999.
5. Other income
On May 28, 1999, PIH paid a total net amount of $8.4 million in full
satisfaction of all indebtedness owed to Domtar Industries Inc. under a
promissory note in the principal amount of $8.0 million plus interest, and PIL
agreed to release Domtar Industries, Inc. and its affiliates from any and all
claims, liabilities and obligations in respect of the action commenced by PIL
against Domtar Industries, Inc. in the Ontario court. In connection with the
settlement of all claims, liabilities and obligations with Domtar, PIL will
record other income of $2.5 million during the second quarter.
6. Summarized consolidating information
On February 18, 1999, PIII (the "Issuer") issued and sold $135.0 million
aggregate principal amount 11.50% Senior Subordinated Notes due 2009 (the "New
Senior Subordinated Notes"). The New Senior Subordinated Notes are jointly and
severally and fully and unconditionally guaranteed, on a senior subordinated
basis, by PGI and the following direct and indirect subsidiaries of PGI: PIIS,
PII and Pioneer Plastics (with PGI, the "Guarantors"). The Issuer and each of
the other Guarantors is a wholly-owned subsidiary of PGI, and collectively
constitute all of the direct and indirect subsidiaries of PGI other than its
indirect foreign subsidiary, PIL, and certain other immaterial indirect
subsidiaries of PGI.
PGI and PIIS (the "Parent Guarantors") and the Issuer conduct all of their
business through and derive virtually all of their respective income from PII,
Pioneer Plastics and PIL (the "Operating Subsidiaries"), which are direct
wholly-owned subsidiaries of the Issuer and indirect subsidiaries of the Parent
Guarantors. Therefore, the Issuer's and the Parent Guarantors' ability to make
required payments with respect to their indebtedness (including the New Senior
Subordinated Notes) and other obligations depends on the financial results and
condition of the Operating Subsidiaries and their ability to receive funds from
the Operating Subsidiaries. There are no restrictions on the ability of any of
the Operating Subsidiaries to transfer funds to PGI or the Issuer, except as
provided by appropriate law and, with respect to PIL, pursuant to its senior
bank credit facility.
Pursuant to Rule 3-10 of Regulation S-X, the following summarized condensed
consolidating financial information for the Company segregates the financial
information of the Issuer and the Parent Guarantors, the Operating Subsidiaries
which are Guarantors (the "Subsidiary Guarantors") and the non-guarantor
Operating Subsidiary. Separate financial statements of each of the Guarantors
are not presented because management has determined that they would not be
material to investors. Summarized condensed consolidating financial information
for the Issuer and the Parent Guarantors combine the operations of the Issuer
and the Parent Guarantors (PIII, PGI and PIIS). Summarized condensed
consolidating financial information for the Subsidiary Guarantors combine the
operations of the Subsidiary Guarantors (PII and Pioneer Plastics). PIL is the
only Operating Subsidiary which has not provided a guarantee of the obligations
of PIII under the New Senior Subordinated Notes. All subsidiaries of PGI are
reported on the equity basis. Debt and goodwill allocated to subsidiaries of
PGI is presented on an accounting "push down" basis.
F-33
<PAGE>
PANOLAM GROUP, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands)
(unaudited)
6. Summarized consolidating information--(continued)
This summarized condensed consolidating financial information has been
prepared from the books and records maintained by the Issuer, the Guarantors
and PIL. The summarized condensed consolidating financial information may not
necessarily be indicative of results of operations or financial position had
the Issuer, and the Guarantors of PIL operated as independent entities.
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the six month period ended June 30, 1999
<TABLE>
<CAPTION>
Issuer and Non-
Parent Subsidiary Guarantor
Guarantors Guarantors Subsidiary Eliminations Consolidated
---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales............... $ -- $ 107,988 $ 41,911 $ -- $ 149,899
Cost of goods sold...... -- (80,776) (29,610) -- (110,386)
------- --------- -------- --------- ---------
Gross profit............ -- 27,212 12,301 -- 39,513
Operating expenses:
Selling, general and
administrative....... (1,447) (14,360) (1,088) -- (16,895)
------- --------- -------- --------- ---------
Income from operations.. (1,447) 12,852 11,213 -- 22,618
Other income.......... -- -- 2,536 -- 2,536
Interest expense...... (8,080) (122) (2,261) -- (10,463)
------- --------- -------- --------- ---------
(Loss) income before
income taxes and
extraordinary item..... (9,527) 12,730 11,488 -- 14,691
Benefit (provision) for
income taxes........... 3,525 (4,722) (4,251) -- (5,448)
Equity income from
affiliates............. 13,451 -- -- (13,451) --
------- --------- -------- --------- ---------
(Loss) income before
extraordinary item..... 7,449 8,008 7,237 (13,451) 9,243
Extraordinary item...... -- (320) (1,474) -- (1,794)
------- --------- -------- --------- ---------
Net income.............. $ 7,449 $ 7,688 $ 5,763 $ (13,451) $ 7,449
======= ========= ======== ========= =========
</TABLE>
F-34
<PAGE>
PANOLAM GROUP, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands)
(unaudited)
6. Summarized consolidating information--(continued)
CONDENSED CONSOLIDATING BALANCE SHEET
As of June 30, 1999
<TABLE>
<CAPTION>
Issuer and Non-
Parent Subsidiary Guarantor
Guarantors Guarantors Subsidiary Eliminations Consolidated
---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash................... $ -- $ 10,052 $ 4,399 $ -- $ 14,451
Accounts receivable,
net................... -- 23,023 6,990 -- 30,013
Accounts receivable,
affiliate............. 10,921 -- -- -- 10,921
Inventories............ -- 31,516 6,755 -- 38,271
Other current assets... -- 994 363 -- 1,357
-------- -------- ------- -------- --------
Total current assets.. 10,921 65,585 18,507 -- 95,013
-------- -------- ------- -------- --------
Property, plant &
equipment, net......... -- 66,544 55,086 -- 121,630
Deferred income taxes... -- 3,560 -- -- 3,560
Other non-current
assets................. 92,488 5,709 25 -- 98,222
Investment in
subsidiaries........... 43,582 -- -- (43,582) --
-------- -------- ------- -------- --------
Total assets.......... $146,991 $141,398 $73,618 $(43,582) $318,425
======== ======== ======= ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long
term debt............. $ 400 $ -- $ 400 $ -- $ 800
Trade accounts payable
and accrued
liabilities........... 6,169 21,850 7,041 -- 35,060
Intercompany payable
(receivable).......... (88,960) 83,510 5,450 -- --
Other debt and
obligation under
capital leases........ 675 -- 76 -- 751
-------- -------- ------- -------- --------
Total current
liabilities.......... (81,716) 105,360 12,967 -- 36,611
Long-term liabilities:
Long term debt......... 187,300 -- 47,500 -- 234,800
Other long term
liabilities........... (2,175) 3,888 6,309 -- 8,022
-------- -------- ------- -------- --------
Total liabilities..... 103,409 109,248 66,776 -- 279,433
Stockholders' equity.... 43,582 32,150 6,842 (43,582) 38,992
-------- -------- ------- -------- --------
Total liabilities and
stockholders' equity. $146,991 $141,398 $73,618 $(43,582) $318,425
======== ======== ======= ======== ========
</TABLE>
F-35
<PAGE>
PANOLAM GROUP, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands)
(unaudited)
6. Summarized consolidating information--(continued)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the six month period ended June 30, 1999
<TABLE>
<CAPTION>
Issuer and Non-
Parent Subsidiary Guarantor
Guarantors Guarantors Subsidiary Eliminations Consolidated
---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net cash provided by
operating activities... $(12,236) $15,286 $ 11,813 $ -- $ 14,863
-------- ------- -------- ----- ---------
Cash flows from
investing activities:
Acquisition costs, net
of acquired cash...... (78,188) (78,317) -- -- (156,505)
Acquisition of
property, plant and
equipment............. -- (3,315) (223) -- (3,538)
-------- ------- -------- ----- ---------
Net cash used in
investing activities... (78,188) (81,632) (223) -- (160,043)
-------- ------- -------- ----- ---------
Cash flows from
financing activities:
Issue of common stock.. 5,000 -- -- -- 5,000
Repayment of long-term
debt.................. (2,300) (17,808) (56,367) -- (76,475)
Proceeds from long-term
debt.................. 190,000 -- 50,000 -- 240,000
(Decrease) increase in
intercompany debt..... (88,547) 94,552 (6,005) -- --
Payment of financing
costs................. (13,729) -- (25) -- (13,754)
Obligation under
capital leases........ -- -- (31) -- (31)
-------- ------- -------- ----- ---------
Net cash (used in)
financing activities... 90,424 76,744 (12,428) -- 154,740
-------- ------- -------- ----- ---------
Effect of exchange rate
on cash................ -- -- (565) -- (565)
-------- ------- -------- ----- ---------
Net (decrease) increase
in cash................ -- 10,398 (1,403) -- 8,995
Cash--Beginning of
period................. -- (346) 5,802 -- 5,456
-------- ------- -------- ----- ---------
Cash--End of period..... $ -- $10,052 $ 4,399 $ -- $ 14,451
======== ======= ======== ===== =========
</TABLE>
F-36
<PAGE>
AUDITORS' REPORT
To the Management of Domtar Inc.:
We have audited the combined divisional statements of operations, owner's
equity and cash flows of Domtar Decorative Panels, a division of Domtar Inc.,
for the period from January 1 to June 11, 1996. These combined divisional
financial statements have been prepared on the basis described in Note 1 to
these financial statements. These combined divisional financial statements are
the responsibility of Domtar Inc.'s management. Our responsibility is to
express an opinion on these combined divisional financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards
in the United States. Those standards require that we plan and perform an audit
to obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.
In our opinion, these combined divisional financial statements referred to
above present fairly, in all material respects, the results of its operations
and its cash flows for the period from January 1 to June 11, 1996 in accordance
with generally accepted accounting principles in the United States.
PRICE WATERHOUSE
Chartered Accountants
Montreal, Canada
April 3, 1997
F-37
<PAGE>
DOMTAR DECORATIVE PANELS
COMBINED DIVISIONAL STATEMENT OF OPERATIONS (Note 1)
(in thousands of U.S. Dollars)
<TABLE>
<CAPTION>
For the
period from
January 1
to June 11,
1996
-----------
<S> <C>
Gross sales......................................................... $63,326
Freight and other deductions........................................ 3,818
-------
Net sales........................................................... 59,508
Cost of sales....................................................... 51,970
-------
Gross profit........................................................ 7,538
Expenses:
Selling, general and administrative expenses....................... 3,137
Depreciation and amortization...................................... 361
-------
Operating expenses.................................................. 3,498
-------
Operating income.................................................... 4,040
Interest expense.................................................... --
-------
Earnings before income taxes........................................ 4,040
Provision for income taxes (Note 3)................................. 89
-------
Net income.......................................................... $ 3,951
=======
</TABLE>
The accompanying notes are an integral part of the combined divisional
financial statements.
F-38
<PAGE>
DOMTAR DECORATIVE PANELS
COMBINED DIVISIONAL STATEMENT OF OWNER'S EQUITY (Note 1)
(in thousands of U.S. Dollars)
<TABLE>
<CAPTION>
For the
period from
January 1
to June 11,
1996
-----------
<S> <C>
Owner's equity at beginning of period............................... $91,027
Net income.......................................................... 3,951
Withdrawal by owner................................................. (4,127)
Foreign currency translation adjustments............................ (7)
-------
Owner's equity at end of period..................................... $90,844
=======
</TABLE>
The accompanying notes are an integral part of the combined divisional
financial statements.
F-39
<PAGE>
DOMTAR DECORATIVE PANELS
COMBINED DIVISIONAL STATEMENT OF CASH FLOWS (Note 1)
(in thousands of U.S. Dollars)
<TABLE>
<CAPTION>
For the
period from
January 1
to June 11,
1996
-----------
<S> <C>
Operating activities:
Net income......................................................... $ 3,951
Non-cash items:
Depreciation and amortization..................................... 2,406
Deferred income taxes............................................. 12
Cash (used in) provided by working capital:
Trade and other accounts receivable............................... (3,394)
Inventories....................................................... (44)
Prepaid expenses.................................................. 491
Trade accounts payable and accrued liabilities.................... 3,178
-------
Net cash flow provided by operating activities..................... 6,600
-------
Investing activities:
Additions to property, plant and equipment......................... (944)
Disposals of property, plant and equipment......................... 3
-------
Cash used for investing activities................................. (941)
-------
Financing activities:
Withdrawal by owner................................................ (4,127)
Decrease in bank indebtedness...................................... (1,050)
-------
Cash used for financing activities................................. (5,177)
-------
Increase in cash position during the period......................... 482
Cash position at beginning of period................................ --
-------
Cash position at end of period...................................... $ 482
=======
Additional disclosures:
Interest paid...................................................... $ --
=======
</TABLE>
The accompanying notes are an integral part of the combined divisional
financial statements.
F-40
<PAGE>
DOMTAR DECORATIVE PANELS
NOTES TO COMBINED DIVISIONAL FINANCIAL STATEMENTS
(in thousands of U.S. Dollars, unless otherwise noted)
1. Basis of presentation and nature of operations
Domtar Decorative Panels ("DDP"), a division of Domtar Inc. ("Domtar"),
consists of the Canadian melamine decorative panels business of Domtar, the
U.S. melamine decorative panels business of Domtar Industries Inc. ("DII"), a
U.S. subsidiary of Domtar, and The Melamine Group Inc. ("MDL"), a company
wholly owned by DII.
DDP manufactures and distributes melamine decorative panels, particleboard
and treated papers principally in Canada and the United States. Most of its
customers are in the repair, renovation and furniture or related businesses. It
operates plants in Huntsville, Ontario, Norcross, Georgia, as well as in Albany
and Eugene, Oregon.
On June 11, 1996, Domtar and DII concluded various asset and share purchase
agreements with Panolam Industries, Inc. and Panolam Industries Ltd.
contemplating the sale of the net assets of the Canadian melamine decorative
panels business of Domtar, the net assets of the U.S. melamine decorative
panels business of DII, and all the issued and outstanding shares of MDL.
The accompanying combined divisional financial statements of DDP have been
prepared from the historical financial information recorded in the financial
records of Domtar, DII and MDL. They are intended to represent the operations
of the melamine decorative panels businesses of Domtar, DII and MDL as though
carried on by DDP on a combined basis. These financial statements reflect the
allocation of certain corporate overhead for services rendered by Domtar on
behalf of DDP. Costs specifically attributable to DDP are charged directly and
other corporate overhead expenses are allocated based on the number of
employees, net operating assets and net sales, or a combination thereof,
depending on the nature of the cost. Management believes the method of
allocation of corporate overhead expenses is reasonable. Interest expense and
income taxes of the melamine decorative panels businesses of Domtar and DII are
not reflected or recorded in these combined divisional financial statements
since they were not allocated separately to these businesses by Domtar or DII.
All significant intercompany balances and transactions have been eliminated in
the combination process.
The net assets of the melamine decorative panels businesses of Domtar, DII
and MDL have been reflected in the accompanying combined divisional financial
statements at their carrying values in the financial records of Domtar and its
respective subsidiaries.
These combined divisional financial statements may not necessarily be
indicative of the results that would have been attained if DDP had been
operated on a combined basis as a separate legal entity.
2. Summary of significant accounting policies
The combined divisional financial statements have been prepared in accordance
with accounting principles generally accepted in the United States. They
reflect the following significant accounting policies:
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
F-41
<PAGE>
DOMTAR DECORATIVE PANELS
NOTES TO COMBINED DIVISIONAL FINANCIAL STATEMENTS--(Continued)
(in thousands of U.S. dollars, unless otherwise noted)
2. Summary of significant accounting policies--(Continued)
Translation of foreign currencies
The functional currency of the melamine decorative panels business of Domtar
is the Canadian dollar. Consequently, assets and liabilities of this business
are translated at the year-end exchange rate and income and expenses are
translated at exchange rates prevailing during the year. Gains and losses
resulting from the translation are reported as a component in the "Foreign
currency translation adjustments" account in owner's equity.
For domestic entities, monetary assets and liabilities denominated in foreign
currencies are translated into U.S. dollars at year-end exchange rates. Income
and expenses are translated at exchange rates prevailing during the year.
Exchange gains or losses on translation are included in earnings.
Revenue recognition
Sales and related cost of sales are included in earnings when goods are
delivered to the customer in accordance with the delivery terms.
Inventories
Inventories of raw materials and operating and maintenance supplies are
valued at the lower of average cost and replacement cost. Finished goods are
valued at the lower of cost, being average cost, and net realizable value and
include the cost of raw materials, direct labour and manufacturing overhead
expenses.
Property, plant and equipment
Property, plant and equipment is stated at cost, which includes capitalized
interest on assets constructed by DDP for its own use. Major renewals and
improvements are capitalized and depreciated. Repairs and maintenance are
expensed as incurred. Costs and accumulated depreciation applicable to assets
retired or sold are eliminated from the accounts and any resulting gains or
losses are recognized at such time.
Depreciation is provided for on the straight-line basis using rates based on
the estimated useful lives of the assets which are generally as follows:
<TABLE>
<S> <C>
Buildings.................................................... Up to 40 years
Machinery and equipment...................................... Up to 20 years
</TABLE>
The carrying value of property, plant and equipment is evaluated whenever
significant events or changes occur that might indicate an impairment through
comparison of the carrying value to net recoverable amount.
Goodwill
Goodwill is amortized on the straight-line basis over periods not exceeding
25 years. DDP assesses at each balance sheet date whether there has been a
permanent impairment in the value of goodwill. This is accomplished mainly by
determining whether projected undiscounted future cash flows from operations
exceed the net book value of goodwill as of the assessment date.
F-42
<PAGE>
DOMTAR DECORATIVE PANELS
NOTES TO COMBINED DIVISIONAL FINANCIAL STATEMENTS--(Continued)
(in thousands of U.S. dollars, unless otherwise noted)
2. Summary of significant accounting policies--(Continued)
Income taxes
As explained in Note 1, the combined divisional financial statements do not
reflect any income taxes with respect to the melamine decorative panels
businesses of Domtar and DII since these were not separate taxable entities.
The tax provision related to MDL is determined on a separate return basis.
MDL recognizes deferred income taxes on differences between the financial and
tax bases of assets and liabilities using presently enacted tax rates and laws
and provides for a valuation allowance, if required.
3. Income taxes
The components of the provision for income taxes of MDL are as follows:
<TABLE>
<CAPTION>
Period from
January 1 to
June 11,
1996
------------
<S> <C>
Earnings before income taxes..................................... $199
Income taxes:
Current........................................................ 77
Deferred....................................................... 12
----
89
----
Net earnings (loss).............................................. $110
====
</TABLE>
The elements of deferred income taxes were as follows:
<TABLE>
<CAPTION>
Period from
January 1 to
June 11,
1996
------------
<S> <C>
Property, plant and equipment.................................... $ 26
Inventories...................................................... (88)
Net operating losses............................................. 78
Other............................................................ (4)
----
$ 12
====
</TABLE>
The effective income tax rate differs from the U.S. statutory income tax
rate. The principal factors causing these different income tax rates were as
follows:
<TABLE>
<CAPTION>
Period from
January 1 to
June 11,
1996
------------
<S> <C>
U.S. statutory income tax rate................................... 38.4%
Non-deductible goodwill amortization............................. 22.8
Prior years' tax adjustments..................................... (16.6)
Other............................................................ 0.1
-----
Effective income tax rate........................................ 44.7%
=====
</TABLE>
Cash payments for income taxes are nil.
F-43
<PAGE>
DOMTAR DECORATIVE PANELS
NOTES TO COMBINED DIVISIONAL FINANCIAL STATEMENTS--(Continued)
(in thousands of U.S. dollars, unless otherwise noted)
4. Pension and other postretirement benefit plans
Pension
Substantially all employees of DDP are covered by pension plans sponsored by
Domtar, DII or MDL. The assets of the pension plans are invested primarily in
listed common stocks and fixed income securities.
The plans sponsored by Domtar and DII are generally non-contributory in the
United States and contributory in Canada. In the United States, plan benefits
for non-unionized employees are based on the conversion into an annuity of an
amount equal to the accumulation of annual contributions expressed as a
percentage of salary. Such percentage is a function of the age of the employee.
In Canada, plan benefits are based primarily on years of service and each
employee's highest average eligible earnings during any consecutive 60-month
period. The plan sponsored by MDL is a defined contribution plan.
The cost reflects management's best estimates of the pension plan's expected
yield, salary escalation, mortality of members, termination and age at which
members will retire and includes adjustments arising from pension plan
amendments, experience gains and losses and changes in assumptions, which are
amortized over the estimated average remaining lives of the employees. DDP's
participation in Domtar's defined benefit pension plan has been accounted for
in these historical financial statements as a participation in a multi-employer
pension plan. Pension expense amounted to $92.
Other post retirement benefits
Domtar provides group health care and life insurance benefits to certain
retirees, their spouses and unmarried dependents. DDP's participation in
Domtar's post retirement benefit plan has been accounted for in these
historical financial statements as a participation in a multi-employer post
retirement benefit plan. The cost of providing these benefits, which is charged
against earnings as incurred, amounted to $107.
5. Commitments and contingencies
Contingencies and environment
DDP, in the ordinary course of business, has various litigations and
contingencies. Management believes that the resolution of the litigations in
which DDP is involved would not have a material adverse effect on the combined
financial condition or results of operations of DDP.
DDP's operations and properties are subject to extensive and changing
federal, state and local laws, regulations and ordinances governing the
protection of the environment, as well as laws relating to worker health and
workplace safety. Management is not aware of any exposures which would require
an accrual under SFAS No. 5.
F-44
<PAGE>
DOMTAR DECORATIVE PANELS
NOTES TO COMBINED DIVISIONAL FINANCIAL STATEMENTS--(Continued)
(in thousands of U.S. dollars, unless otherwise noted)
5. Commitments and contingencies--(Continued)
Lease commitments
DDP has entered into operating leases to lease property and equipment.
Minimum future rental payments under these operating leases, determined as at
June 11, 1996, were as follows:
<TABLE>
<S> <C>
1997................................................................... $ 337
1998................................................................... 386
1999................................................................... 260
2000................................................................... 152
2001 and thereafter.................................................... 70
------
Total.................................................................. $1,205
======
</TABLE>
Total rental expense amounted to $229.
Capital commitments
DDP entered into an agreement to purchase equipment amounting to $2,350. Of
this amount, a deposit of $850 has been made. The remaining $1,500 becomes due
only upon delivery of the equipment.
6. Related party transactions
In the normal course of its operations, Domtar incurs corporate overhead
expenses, a portion of which is allocated to DDP. These expenses, consisting of
management, legal, accounting, computer processing, insurance and other general
corporate expenses, totalled $1,004, and are presented in the combined
divisional statement of operations under the following captions:
<TABLE>
<CAPTION>
Period from
January 1 to
June 11,
1996
------------
<S> <C>
Cost of sales................................................... $ 348
Selling, general and administrative expenses.................... 656
------
$1,004
======
</TABLE>
F-45
<PAGE>
DOMTAR DECORATIVE PANELS
NOTES TO COMBINED DIVISIONAL FINANCIAL STATEMENTS--(Continued)
(in thousands of U.S. dollars, unless otherwise noted)
7. Segmented information
The operations of DDP by geographic area were as follows:
<TABLE>
<CAPTION>
Period from
January 1 to
June 11, 1996
-------------
<S> <C>
Net sales:
Canada
Within Canada................................................ $14,673
To United States............................................. 14,206
-------
28,879
United States................................................. 30,629
-------
$59,508
=======
Earnings from operations:
Canada........................................................ $ 4,394
United States................................................. (42)
-------
4,352
Head office................................................... (312)
-------
$ 4,040
=======
Depreciation and amortization:
Canada........................................................ $ 1,502
United States................................................. 733
-------
2,235
Head office................................................... 171
-------
$ 2,406
=======
</TABLE>
F-46
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholder of Pioneer Plastics Corporation:
In our opinion, the accompanying balance sheets and the related statements of
income and retained earnings and of cash flows for the years ended December 25,
1998 and December 26, 1997, present fairly, in all material respects, the
financial position of Pioneer Plastics Corporation (the "Company") at December
25, 1998 and December 26, 1997, and the results of their operations and their
cash flows for the years then ended, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
As discussed in Note I, on February 18, 1999, the Company was sold to Panolam
Industries, Inc. for approximately $159,000,000 plus additional consideration
contingent upon the future financial performance of the Company.
PricewaterhouseCoopers LLP
Atlanta, Georgia
January 16, 1999, except for Note I, as to which the date is February 18, 1999
F-47
<PAGE>
PIONEER PLASTICS CORPORATION
A wholly-owned subsidiary of RUGBY USA, INC.
BALANCE SHEETS
(in thousands, except share amounts)
<TABLE>
<CAPTION>
As of As of
December 26, December 25,
1997 1998
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Accounts receivable, net of allowancees of $792 in
1997 and $796 in 1998.............................. $13,129 $12,426
Related party trade receivable...................... 2,995 3,466
Inventories, net.................................... 24,294 25,864
Deferred income taxes............................... 2,457 2,717
Prepaid expenses.................................... 551 591
------- -------
Total current assets............................... 43,426 45,064
------- -------
Property, Plant and Equipment........................
Land and Buildings.................................. 13,631 14,069
Machinery & equipment............................... 31,613 36,124
Construction in progress............................ 5,478 12,051
------- -------
50,722 62,244
Less accumulated depreciation & amortization........ 9,845 14,881
------- -------
Net property, plant & equipment..................... 40,877 47,363
------- -------
Other assets:
Goodwill............................................ 3,718 3,423
Miscellaneous assets................................ 134 25
------- -------
Total other assets................................. 3,852 3,448
------- -------
Total assets....................................... $88,155 $95,875
======= =======
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable.................................... $ 9,224 $ 6,589
Accrued wages and related amounts................... 4,296 4,303
Other current liabilities........................... 2,476 2,137
------- -------
Total current liabilities.......................... 15,996 13,029
Long-term debt...................................... 27,631 27,631
Payable to Parent................................... 2,794 546
Deferred income taxes............................... 2,362 2,911
------- -------
Total liabilities.................................. 48,783 44,117
------- -------
Stockholder's equity:
Common stock, $1 par value, 1,000 shares authorized,
issued and outstanding............................. 1 1
Additional paid in capital.......................... 20,999 20,999
Retained earnings................................... 18,372 30,758
------- -------
Commitments and contingencies
Total shareholder's equity......................... 39,372 51,758
------- -------
Total liabilities and shareholder's equity......... $88,155 $95,875
======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-48
<PAGE>
PIONEER PLASTICS CORPORATION
A wholly-owned subsidiary of Rugby USA, Inc.
STATEMENTS OF INCOME AND RETAINED EARNINGS
(in thousands, except per share data)
<TABLE>
<CAPTION>
For the years ended
--------------------------------------
December 27, December 26, December 25,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Net Sales:
Trade.................................. $139,061 $144,904 $150,197
Related party.......................... 26,758 34,427 34,821
-------- -------- --------
165,819 179,331 185,018
Cost of Sales:
Trade.................................. 99,966 103,475 108,610
Related party.......................... 16,299 21,983 21,765
-------- -------- --------
116,265 125,458 130,375
Gross margin............................ 49,554 53,873 54,643
Overhead expenses:
Selling and distribution............... 23,873 23,685 24,116
Administrative......................... 10,780 7,030 6,982
Workers' compensation refund........... (1,200) -- --
-------- -------- --------
Operating income........................ 16,101 23,158 23,545
Other expense:
Interest expense, net.................. 3,384 2,666 2,587
(Gain) loss on disposal of fixed
assets................................ 77 (94) 21
-------- -------- --------
Income before income taxes.............. 12,640 20,586 20,937
Income taxes............................ 5,207 8,413 8,551
-------- -------- --------
Net income.............................. 7,433 12,173 12,386
Retained earnings, beginning of year.... 145 6,199 18,372
Dividends............................... (1,379) -- --
-------- -------- --------
Retained earnings, end of year.......... $ 6,199 $ 18,372 $ 30,758
======== ======== ========
Basic and diluted earnings per common
share.................................. $ 7,433 $ 12,173 $ 12,386
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-49
<PAGE>
PIONEER PLASTICS CORPORATION
A wholly-owned subsidiary of Rugby USA, Inc.
STATEMENTS OF CASH FLOWS
(in thousands, except per share data)
<TABLE>
<CAPTION>
For the years ended
--------------------------------------
December 27, December 26, December 25,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Cash flow from operating activities:
Net income............................. $ 7,433 $12,173 $ 12,386
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization........ 4,079 4,338 5,060
Amortization of goodwill............. 227 294 295
Loss on disposal of assets........... 77 (94) 21
Change in assets and liabilities;
Other assets......................... 45 (106) 109
Accounts receivable.................. 6,922 (1,568) 703
Related party trade receivable....... (2,031) (957) (471)
Inventories.......................... 8,730 (3,480) (1,570)
Net deferred income taxes............ 1,654 1,095 289
Prepaid expenses..................... (91) (260) (40)
Accounts payable..................... (642) 588 (2,635)
Accrued wages and related amounts.... 680 831 7
Other current liabilities............ (1,212) (1,009) (339)
-------- ------- --------
Net cash provided by operating
activities............................ 25,871 11,845 13,815
-------- ------- --------
Cash flow from investing activities:
Capital expenditures................... (2,584) (9,558) (11,594)
Proceeds from sale of assets........... 1,597 6 27
-------- ------- --------
Net cash used in investing activities.. (987) (9,552) (11,567)
-------- ------- --------
Cash flow from financing activities
Payment of long-term debt.............. (24,371) -- --
Net repayment to Parent................ 866 (2,293) (2,248)
Dividends paid......................... (1,379) -- --
-------- ------- --------
Net cash used in financing activities.. (24,884) (2,293) (2,248)
-------- ------- --------
Cash flow............................... -- -- --
Beginning cash balance.................. -- -- --
-------- ------- --------
Ending cash balance..................... $ -- $ -- $ --
======== ======= ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-50
<PAGE>
PIONEER PLASTICS CORPORATION
A wholly-owned subsidiary of Rugby USA, Inc.
NOTES TO FINANCIAL STATEMENTS
(Dollar amount in thousands)
NOTE A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Company is a wholly-owned subsidiary of Rugby USA, Inc. ("Parent") and is
a manufacturer of decorative laminates. The Company also manufactures specialty
resins and custom saturated papers. The Company's fiscal year is the 52 or 53
week period which ends on the last Friday of December.
Cash
The Company has a cash management program with its parent which provides for
the transfer of available cash balances to pay its parent each business day.
Inventory Valuation
Inventories are stated at the lower of standard cost, which approximates the
last-in, first out method (LIFO) or market. Year end inventory components are
summarized as follows:
<TABLE>
<CAPTION>
As of As of
December 26, December 25,
1997 1998
------------ ------------
<S> <C> <C>
Raw materials...................................... $11,524 $10,945
Work in process.................................... 2,542 1,741
Finished goods..................................... 11,406 14,697
Reserves........................................... (2,167) (2,232)
------- -------
Subtotal......................................... 23,305 25,151
LIFO reserve....................................... 989 713
------- -------
Total.......................................... $24,294 $25,864
======= =======
</TABLE>
Property, Plant & Equipment
Property, plant and equipment are carried at cost and are being depreciated
or amortized on the straight-line basis over the estimated useful life of each
asset. Leased property meeting certain criteria is capitalized and the present
value of the related lease payments is recorded as a liability. In general,
buildings are depreciated over 25 to 30 years and machinery and equipment is
depreciated over 3 to 10 years. Depreciation expense was $4,079, $4,338 and
$5,036 in 1996, 1997 and 1998, respectively. When assets are sold or retired,
their cost and accumulated depreciation are removed from the accounts and any
gain or loss is included in operations. Expenditures for maintenance, repairs
and minor renewals necessary to maintain facilities in operating condition are
expensed. Major repairs and renewals are capitalized.
Goodwill
Goodwill, representing the excess of the cost over the net tangible and
identifiable intangible assets of the company when acquired, is stated at cost
and is amortized, principally on a straight-line basis, over the estimated
future periods to be benefited (primarily 15 years). On an annual basis the
Company reviews the recoverability of goodwill based primarily upon an analysis
of undiscounted cash flows from the acquired business. Accumulated amortization
amounted to $705 at December 26, 1997 and $976 at December 25, 1998.
F-51
<PAGE>
PIONEER PLASTICS CORPORATION
A wholly-owned subsidiary of Rugby USA, Inc.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amount in thousands)
NOTE A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(Continued)
Income Taxes
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which the temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates or assumptions that
affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Significant Customers and Concentration of Credit Risk
The Company primarily sells high pressure and low pressure laminates to
various customers who use the Company's product in the construction,
leisure/sporting and office equipment industries. The Company extends credit
based on an evaluation of the customer's financial condition. The Company had
uncollateralized receivables with four non-affiliated customers approximating
$1,836 at December 26, 1997 and $1,811 at December 25, 1998. Sales to these
four nonaffiliated customers amounted to approximately $29,703 for the year
ended December 27, 1996, $37,407 for the year ended December 26, 1997, and
$33,518 for the year ended December 25, 1998.
The Company has entered into agreements whereby certain vendors have become
sole suppliers of key critical raw materials utilized by the Company including
melamine crystal, saturated kraft paper, phenolic resins and decorative papers.
In the event of the failure of any of the above vendors to deliver raw
materials as needed, the Company could experience near-term negative impact on
results of operations.
Capitalization of Software Costs
In 1998, the Company adopted SOP 98-1 "Accounting for the Costs of Computer
Software Developed and Obtained for Internal Use". SOP 98-1 requires computer
software costs that are incurred in the preliminary project stage to be
expensed as incurred. After the preliminary project stage, certain costs are to
be capitalized, which include external costs of materials and services consumed
in developing, modifying or obtaining internal-use computer software and
payroll and payroll related costs for employees who are directly associated
with and who devote time to the internal-use computer software project. Certain
costs are to be expensed as incurred, which include training costs and certain
data conversion costs. The capitalized costs will be amortized on a straight-
line basis, over a period not to exceed 5 years. In 1998, the Company
capitalized $4,648 of which $948 relate to payroll related costs and
consultants, in connection with the adoption of SOP 98-1.
Fair Value of Financial Instruments
The carrying amounts of accounts receivable, related party trade receivable,
accounts payable, accrued wages and related amounts, other current liabilities
and payable to Parent approximate fair value because of the short maturity of
these items. The carrying amount of the long term debt approximates fair value.
F-52
<PAGE>
PIONEER PLASTICS CORPORATION
A wholly-owned subsidiary of Rugby USA, Inc.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amount in thousands)
NOTE A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(Continued)
Reporting Comprehensive Income
In 1998, the Company adopted FAS 130, "Reporting Comprehensive Income." This
statement establishes rules for the reporting of comprehensive income and its
components which includes, among other items, net income and foreign currency
translation adjustments. The adoption of FAS 130 had no impact on the Company's
net income or stockholder's equity.
Earnings Per Share
Statement of Financial Accounting Standards No. 128 ("FAS 128"), "Earnings
per Share", establishes standards for computing and presenting earnings per
share. Basic earnings per share is calculated using the average shares of
common stock outstanding, while diluted earnings per share reflects the
potential dilution that could occur if stock options and warrants were
exercised. Stock options and warrants are excluded form the calculation if
their effect would be antidilutive. The Company has not issued any stock
options or warrants.
NOTE B: LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
As of As of
December 26, December 25,
1997 1998
------------ ------------
<S> <C> <C>
9.5% Promissory term note payable to Rugby USA,
Inc.;
due date July 21, 2000........................... $27,631 $27,631
Less amounts due within one year................ 0 0
------- -------
Total long-term debt............................ $27,631 $27,631
======= =======
</TABLE>
NOTE C: ACCOUNTING FOR INCOME TAXES
The Company was included in the consolidated income tax returns filed by the
Parent for 1996, 1997 and 1998. Income taxes related to the Company for these
years were determined on a separate entity basis and taxes payable were
remitted to the Parent. The Company files separate state income tax returns and
calculates its state tax provision on a separate company basis.
The income tax expense for the years ended December 27, 1996, December 26,
1997 and December 25, 1998 was as follows:
<TABLE>
<CAPTION>
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
Current tax expense
Federal............................................... $3,018 $6,213 $6,409
State................................................. 535 1,104 1,854
Deferred tax expense
Federal............................................... 1,408 933 245
State................................................. 246 163 43
------ ------ ------
Total Expense....................................... $5,207 $8,413 $8,551
====== ====== ======
</TABLE>
F-53
<PAGE>
PIONEER PLASTICS CORPORATION
A wholly-owned subsidiary of Rugby USA, Inc.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amount in thousands)
NOTE C: ACCOUNTING FOR INCOME TAXES--(Continued)
Deferred income taxes arise from temporary differences from the tax bases of
assets and liabilities and their amounts in the financial statements.
The provision for income taxes differs from the amount of income tax
determined by applying the applicable U.S. statutory income tax rate to pretax
income, as a result of the following differences:
<TABLE>
<CAPTION>
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
Tax at statutory rate................................... $4,298 $6,998 $7,119
State taxes, net........................................ 781 1,212 1,272
Other non deductible.................................... 128 203 160
------ ------ ------
Total income taxes.................................... $5,207 $8,413 $8,551
====== ====== ======
</TABLE>
A summary of the components of deferred tax assets and liabilities at
December 26, 1997 and December 25, 1998, are as follows:
<TABLE>
<CAPTION>
As of As of
December 26, December 25,
1997 1998
Assets/(Liabilities) ------------ ------------
<S> <C> <C>
Accounts receivable reserves....................... $ 316 $ 318
Inventory reserves................................. 866 892
Inventory capitalization........................... 281 281
Accrued liabilities................................ 1,465 1,588
------- -------
Total assets..................................... $ 2,928 $ 3,079
======= =======
Depreciation....................................... (2,362) (2,911)
Inventory (Purchase accounting step-up)............ (395) (285)
Other.............................................. (76) (77)
------- -------
Total liabilities................................ $(2,833) $(3,273)
======= =======
Net deferred tax asset (liability)................. $ 95 $ (194)
======= =======
</TABLE>
NOTE D: LEASE COMMITMENTS
The company leases certain real properties and equipment under noncancellable
lease agreements which expire at various dates through 2004. Total rental
expense under these leases was approximately $605 for the year ended December
27, 1996, $662 for the year ended December 26, 1997, and $723 for the year
ended December 25, 1998.
Minimum future payments for all noncancellable leases are as follows:
<TABLE>
<S> <C>
1999.................................................................. $681
2000.................................................................. 565
2001.................................................................. 544
2002.................................................................. 476
2003 and later years.................................................. 511
</TABLE>
F-54
<PAGE>
PIONEER PLASTICS CORPORATION
A wholly-owned subsidiary of Rugby USA, Inc.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amount in thousands)
NOTE E: RETIREMENT PLANS
On July 1, 1998, the Company transferred assets from a defined contribution
retirement plan in which it participated with the Parent to a separate plan
sponsored by the Company. This plan, which is essentially the same as the
predecessor plan, covers certain employees who meet specific service
requirements. Contributions are determined at the discretion of the Board of
Directors. Amounts contributed to both plans and charged to expense were $1,245
for the year ended December 27, 1996, $1,319 for the year ended December 26,
1997, and $1,333 in 1998.
NOTE F: RELATED PARTY TRANSACTIONS
The Company has transactions in the normal course of business with Rugby
Building Products, Inc. (RBP), a sister corporation. The Company had net sales
at market prices to RBP of $26,758 for the year ended December 27, 1996,
$34,427 for the year ended December 26, 1997, and $34,821 for the year ended
December 25, 1998. In addition, the company exchanged services with both RBP
and the Parent including delivery, sub-leasing, pension plan administration,
management charges, travel booking and insurance. The allocation method for
these expenses is at the discretion of the Parent. The actual expenses for
these services that will be incurred by the Company in the future may be
different if either the nature of the control relationship with the Parent
changes or the Parent's allocation method is changed. The net expense of
services provided to the Company were $3,306 for the year ended December 27,
1996, $1,221 for the year ended December 26, 1997, and $371 for the year ended
December 25, 1998. The Company was charged interest expense on its 9.5%
Promissory note payable to Parent in the amount of $3,355 for the year ended
December 27, 1996, $2,654 for the year ended December 26, 1997, and $2,582 for
the year ended December 25, 1998.
NOTE G: CONTINGENCIES
From time to time, the Company has had claims asserted against it by
regulatory agencies or private parties for environmental matters relating to
the generation or handling of hazardous substances by the Company or its
predecessor and has incurred obligations for investigations or remedial actions
with respect to certain of such matters. While the Company does not believe
that any such claims asserted or obligations incurred to date will result in a
material adverse effect upon the Company's financial position, results of
operations or liquidity, additional investigation will be, and remedial action
will or may be, required. There can be no assurance that activities at any
facility owned or operated by the Company or future facilities may not result
in additional environmental claims being asserted against the Company or
additional investigations or remedial actions being required.
Although there are certain unasserted possible claims and assessments, under
the Company's accounting policy, amounts will usually be accrued when 1) both
litigation has commenced or a claim or an assessment has been asserted, or,
based on available information, commencement of litigation or assertion of a
claim or an assessment is probable and 2) based on available information, it is
probable that the outcome of such litigation, claim, or assessment will be
unfavorable. In 1994, the Company entered into a Settlement Agreement with the
Company's predecessor ("Predecessor"), whereby the Predecessor agreed to retain
unlimited liability with respect to investigating and remediating environmental
sites where environmental claims have been identified, except for those sites
discussed below. In the event that the Predecessor is unable to meet the
financial obligations of remediating the sites, there is a possibility that the
Company will be required to assume the Predecessor's obligation of remediation.
No amounts, other than noted below, have been recorded for this potential
obligation in the financial statements.
F-55
<PAGE>
PIONEER PLASTICS CORPORATION
A wholly-owned subsidiary of Rugby USA, Inc.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollar amount in thousands)
NOTE G: CONTINGENCIES--(Continued)
The Company's Auburn, Maine facility, acquired from the Predecessor is
subject to a Compliance Order by Consent (COC) dated May 5, 1993, issued by the
State of Maine Department of Environmental Protection (DEP) with regard to
unauthorized discharges of hazardous substances into the environment. The
Company and the Predecessor, named in the COC, are required to investigate and,
as necessary, remediate the environmental contamination at the site. Because
the unauthorized discharges occurred during the time that the Predecessor owned
the land, the Predecessor has agreed to be responsible for compliance with the
COC. The Predecessor has completed and submitted to the State for its review, a
risk assessment. The nature and extent of remediation has not yet been
determined. The financial obligation of the Predecessor to
investigate/remediate is unlimited except with regard to a portion of the land
at the Company's Auburn, Maine facility, which is capped at $10,000. The
Company has recorded a reserve of $1,000 at December 27, 1996, December 26,
1997 and at December 25, 1998, being the Company's best estimate of its
liability for site remediation costs in excess of costs agreed to be assumed by
the Predecessor. The Company could incur additional obligations in excess of
its reserve. It is possible that the Company's recorded estimate of $1,000 may
change over time.
The Company is involved in certain litigation arising in the ordinary course
of business, but management believes that none will have a material effect on
the Company's business or financial position. The Company's management intends
to defend all such matters.
NOTE H: EMPLOYEE CONTINGENCIES
In March, 1998, the Company entered into various employment agreements with
eighteen key employees. If these key employees are terminated without cause
within twenty-four months after a change in control of ownership of the Company
occurs, the Company is liable for up to twelve months of severance, based on
certain employee earnings calculations.
In July, 1998, the Company entered into non-competition agreements with four
key employees. These agreements were subsequently amended in November, 1998.
The four key employees have agreed not to engage in any business which competes
with the Company's high pressure decorative laminating business for a period of
three years ending July, 2001. In February 1999, the Parent remitted payment
for the non-competition agreements directly to the four key employees. No
amounts were accrued by the Company at December 25, 1998 and no amounts will be
charged to the Company by the Parent for these payments.
NOTE I: SALE OF COMPANY
On February 18, 1999, Panolam Industries International, Inc. ("Buyer")
completed the acquisition of all of the outstanding stock of Pioneer Plastics
Corporation. Pursuant to the Stock Purchase Agreement, the Buyer paid
approximately $159,000 plus additional consideration contingent upon the
Buyer's financial performance during the fiscal years 1999 through 2003. The
additional consideration payable to the Parent is an amount equal to 50% of the
amount by which actual EBITDA exceeds the targeted EBITDA during the period
1999 through 2003. EBITDA is calculated using the operating performance of the
Buyer Group, which includes Panolam Industries International, Inc., its
subsidiaries and Pioneer. Total additional consideration payable to the Parent
will not exceed $15,000. The targeted EBITDA is contractually defined as
$60,000, $64,000, $68,000, $72,000 and $76,000 in 1999, 2000, 2001, 2002 and
2003, respectively.
F-56
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give any
information or represent anything not contained in this prospectus. You must
not rely on any unauthorized information. This prospectus does not offer to
sell or buy any shares in any jurisdiction where it is unlawful. The
information in this prospectus is current as of , 1999.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary................................................................... 1
Risk Factors.............................................................. 13
The Transactions.......................................................... 23
Use of Proceeds........................................................... 26
Capitalization............................................................ 26
The Exchange Offer........................................................ 27
Unaudited Pro Forma Combined Financial Data............................... 36
Selected Historical Financial Data........................................ 40
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 44
Business.................................................................. 55
Management................................................................ 68
Security Ownership of Certain Beneficial Owners and Management............ 73
Certain Relationships and Related Transactions............................ 74
Description of Credit Facilities and Other Indebtedness................... 76
Description of Exchange Notes............................................. 80
Material Federal Income Tax Consequences of the Exchange Offer............ 120
Plan of Distribution...................................................... 124
Legal Matters............................................................. 125
Experts................................................................... 125
Where You Can Find Additional Information................................. 125
Index to Financial Statements ............................................ F-1
</TABLE>
---------------
Until , 1999 (90 days after the date of this prospectus), all dealers
that buy, sell or trade these securities, whether or not participating in this
exchange offer, may be required to deliver a prospectus. This is in addition
to dealers' obligation to deliver a prospectus when acting as underwriters and
with respect to their unsold allotments or subscriptions.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[PANOLAM LOGO APPEARS HERE]
Panolam Industries International, Inc.
Offer To Exchange All Outstanding 11 1/2% Series A Senior Subordinated Notes
Due 2009
For Its 11 1/2% Series B Senior Subordinated Notes Due 2009,
Which Have Been Registered Under The Securities Act Of 1933
-----------------
PROSPECTUS
-----------------
, 1999
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Panolam Industries International, Inc. (the "Issuer") and each of Panolam
Group, Inc., PII Second, Inc., Panolam Industries, Inc. and Pioneer Plastics
Corporation (each, a "Guarantor"), are incorporated under the laws of the State
of Delaware. Section 145 of the General Corporation Law of the State of
Delaware, inter alia, ("Section 145") provides that a Delaware corporation may
indemnify any persons who were, are or are threatened to be made, parties to
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of such corporation), by reason of the fact that such person is or was an
officer, director, employee or agent of such corporation, or is or was serving
at the request of such corporation as a director, officer employee or agent of
another corporation or enterprise. The indemnity may include expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding, provided such person acted in good faith and in a manner he
reasonably believed to be in or not opposed to the corporation's best interests
and, with respect to any criminal action or proceeding, had no reasonable cause
to believe that his conduct was illegal. A Delaware corporation may indemnify
any persons who are, were or are threatened to be made, a party to any
threatened, pending or completed action or suit by or in the right of the
corporation by reason of the fact that such person was a director, officer,
employee or agent of such corporation, or is or was serving at the request of
such corporation as a director, officer, employee or agent of another
corporation or enterprise. The indemnity may include expenses (including
attorneys' fees) actually and reasonably incurred by such person in connection
with the defense or settlement of such action or suit, provided such person
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the corporation's best interests, provided that no indemnification
is permitted without judicial approval if the officer, director, employee or
agent is adjudged to be liable to the corporation. Where an officer, director,
employee or agent is successful on the merits or otherwise in the defense of
any action referred to above, the corporation must indemnify him against the
expenses which such officer or director has actually and reasonably incurred.
The Certificate of Incorporation and Bylaws of the Issuer and each Guarantor
provides for the indemnification of directors and officers to the fullest
extent permitted by the General Corporation Law of the State of Delaware, as it
currently exists or may hereafter be amended.
Section 145 further authorizes a corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee
or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation or
enterprise, against any liability asserted against him and incurred by him in
any such capacity, arising out of his status as such, whether or not the
corporation would otherwise have the power to indemnify him under Section 145.
The Company maintains and has in effect insurance policies covering all of
their respective directors and officers against certain liabilities for actions
taken in such capacities, including liabilities under the Securities Act of
1933.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
------------------
<C> <S>
2.1+ Stock Purchase Agreement, dated as of July 17, 1998, as amended by Amendment
No. 1 thereto dated September 11, 1998, Amendment No. 2 thereto dated
October 16, 1998 and Amendment No. 3 thereto dated November 30, 1998, between
Rugby USA, Inc. and Panolam Industries International Inc. (including as
exhibits thereto the form of Pionite Solid Surface Distribution Agreement
between Pioneer Plastics Corporation and the Distributors party thereto, and
the form of Pionite Decorative Laminates Distributorship Agreement between
Pioneer Plastics Corporation and the Distributors party thereto).
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
2.2 Amendment No. 4 to Stock Purchase Agreement dated as of May 25, 1999, between
Rugby USA, Inc. and Panolam Industries International, Inc.
3.1+ Certificate of Incorporation of Panolam Industries International, Inc., as amended
by Certificate of Amendment dated December 22, 1998 and Certificate of Amendment
dated December 17, 1997.
3.2+ Bylaws of Panolam Industries International, Inc.
3.3+ Certificate of Incorporation of Panolam Group, Inc., as amended by Certificate of
Amendment dated December 22, 1998 and Certificate of Amendment dated November 17,
1997.
3.4+ Bylaws of Panolam Group, Inc.
3.5+ Certificate of Incorporation of Panolam Industries, Inc., as amended by
Certificate of Amendment dated May 13, 1996.
3.6+ Bylaws of Panolam Industries, Inc.
3.7+ Certificate of Incorporation of PII Second, Inc., as amended by Certificate of
Amendment dated December 18, 1997.
3.8+ Bylaws of PII Second, Inc.
3.9+ Certificate of Incorporation of Pioneer Plastics Corporation, as amended by
Certificate of Amendment dated July 21, 1995.
3.10+ Bylaws of Pioneer Plastics Corporation
4.1 Indenture, dated as of February 18, 1999 by and among Panolam Industries
International, Inc., as Issuer, Panolam Group, Inc., PII Second, Inc., Panolam
Industries, Inc., and Pioneer Plastics Corporation, as Guarantors, and State
Street Bank and Trust Company, as Trustee
4.2+ Purchase Agreement, dated as of February 10, 1999 by and among Panolam Industries
International, Inc., as Issuer, Panolam Group, Inc., PII Second, Inc., Panolam
Industries, Inc., and Pioneer Plastics Corporation, as Guarantors, and Donaldson,
Lufkin & Jenrette Securities Corporation and Credit Suisse First Boston
Corporation, as Initial Purchasers
4.3+ Registration Rights Agreement, dated February 18, 1999 by and among Panolam
Industries International, Inc., as Issuer, Panolam Group, Inc., PII Second, Inc.,
Panolam Industries, Inc., and Pioneer Plastics Corporation, as Guarantors, and
Donaldson, Lufkin & Jenrette Securities Corporation and Credit Suisse First
Boston Corporation, as Initial Purchasers
5.1 Opinion of Brobeck, Phleger & Harrison LLP
10.1+ First Amendment to Credit Agreement, dated as of July 2, 1999 by and among Panolam
Industries Ltd., the other loan parties, certain financial institutions and
Credit Suisse First Boston Canada, as Canadian Administrative Agent, and Royal
Bank of Canada, as Documentation Agent
10.2+ First Amendment to Credit Agreement, dated as of July 2, 1999 by and among Panolam
Industries International, Inc., certain financial institutions and DLJ Capital
Funding, as Syndication Agent, and Credit Suisse First Boston, as Administrative
Agent
10.3+ Amended and Restated Management Advisory and Consulting Agreement dated as of
January 24, 1999 between Panolam Industries, Inc., Panolam Industries Ltd., and
Genstar Capital Partners II, L.P.
10.4+ Stockholders Agreement, dated as of June 7, 1996 between Panolam Industries
Holdings, Inc., Domtar Industries, Inc., Genstar Capital Partners II, L.P.,
Robert J. Muller, Jr., and each option holder party thereto
10.5+ Stock Option Agreement, dated as of June 7, 1996 and as amended on June 7, 1996
between Panolam Industries International, Inc., Genstar Capital Partners II, L.P.
and Domtar Industries, Inc.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
10.6+ Promissory Note dated June 12, 1996, executed by Panolam Industries Holdings, Inc. in favor of
Domtar Industries Inc.
10.7+ Warrant Agreement, dated as of June 7, 1996 between Panolam Industries Holdings, Inc. and Domtar
Industries, Inc.
10.8 Engagement Agreement, dated as of January 24, 1999, between the Issuer and Genstar Capital LLC.
10.9 Form of Executive Severance Benefit Agreement entered into by Messrs. Feuring, Ricci, Skojec and
Lishinsky and Ms. Foster
10.10+ Panolam Industries Holdings, Inc. 1996 Equity Incentive Plan
10.11 Employment Agreement, dated as of January 8, 1998, between Genstar Capital LLC and Robert J. Muller,
Jr.
10.12 Letter reducing the Canadian Credit Facility
10.13 First Amendment to Credit Agreement, dated as of July 2, 1999 by and among Panolam Industries Ltd.,
the other loan parties, certain financial institutions and Credit Suisse First Boston Canada, as
Canadian Administrative Agent, and Royal Bank of Canada, as Documentation Agent
10.14 First Amendment to Credit Agreement, dated as of July 2, 1999 by and among Panolam Industries
International, Inc., certain financial institutions and DLJ Capital Funding, as Syndication Agent,
and Credit Suisse First Boston, as Administrative Agent
12.1 Statement of Computation of Ratio of Earnings to Fixed Changes (Panolam)
12.2+ Statement of Computation of Ratio of Earnings to Fixed Changes (Pioneer)
21.1 Subsidiaries
23.1 Consent of PricewaterhouseCoopers LLP--Stamford (Panolam Group, Inc.)
23.2 Consent of PricewaterhouseCoopers LLP--Toronto (Panolam Group, Inc.)
23.3 Consent of PricewaterhouseCoopers LLP--Montreal (Domtar Decorative Panels division of Domtar, Inc.)
23.4 Consent of PricewaterhouseCoopers LLP--Atlanta (Pioneer Plastics Corporation)
23.5 Consent of Brobeck, Phleger & Harrison LLP (included in its opinion filed as Exhibit 5.1)
24.1+ Powers of Attorney
25+ Form T-1 Statement of Eligibility of State Street Bank and Trust Company
27 Financial Data Schedule
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
</TABLE>
- ---------------------
+ previously filed
(b) Financial Statement Schedules
Schedule II Valuation and Qualifying Accounts and Reserves (included on
pages S-1 and S-2 of this Registration Statement).
Schedules not listed above have been omitted because the information required
to be set forth therein is not applicable or is shown in the financial
statements or the notes thereto.
ITEM 22. UNDERTAKINGS
(a) The undersigned Registrants hereby undertake (i) to file, during any
period in which offers or sales are being made, a post-effective amendment to
this Registration Statement (A) to include any prospectus required by
II-3
<PAGE>
Section 10(a)(3) of the Securities Act of 1933, as amended (the "Act"); (B) to
reflect in the prospectus any facts or events arising after the effective date
of the Registration Statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental
change in the information set forth in the Registration Statement; and (C) to
include any material information with respect to the plan of distribution not
previously disclosed in the Registration Statement or any material information
with respect to the plan of distribution not previously disclosed in the
Registration Statement or any material change to such information in the
Registration Statement; (ii) that, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof; and (iii) to remove from registration
by means of a post-effective amendment of any of the securities being
registered which remain unsold at the termination of the offering.
(b) Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrants
pursuant to the provisions described under Item 20 hereof or otherwise, the
Registrants have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrants in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrants will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(c) Each undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
(d) Each undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
undersigned Registrants have duly caused this Registration Statement to be
signed on their behalf by the undersigned, thereunto duly authorized, in the
City of Shelton, State of Connecticut, on August 26, 1999.
ISSUER:
PANOLAM INDUSTRIES INTERNATIONAL, INC.
/s/ Robert J. Muller, Jr.
By: __________________________________
Name: Robert J. Muller, Jr.
Title:President and Chief
Executive Officer
GUARANTORS:
PANOLAM GROUP, INC.
/s/ Robert J. Muller, Jr.
By: __________________________________
Name: Robert J. Muller, Jr.
Title:President and Chief
Executive Officer
PII SECOND, INC.
/s/ Robert J. Muller, Jr.
By: __________________________________
Name: Robert J. Muller, Jr.
Title:President and Chief
Executive Officer
PANOLAM INDUSTRIES, INC.
/s/ Robert J. Muller, Jr.
By: __________________________________
Name: Robert J. Muller, Jr.
Title:President and Chief
Executive Officer
PIONEER PLASTICS CORPORATION
/s/ Robert J. Muller, Jr.
By: __________________________________
Name: Robert J. Muller, Jr.
Title:President and Chief
Executive Officer
II-5
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated below.
<TABLE>
<CAPTION>
Signature Title Dated
--------- ----- -----
<C> <S> <C>
/s/ Robert J. Muller, Jr. President, Chief August 26, 1999
____________________________________ Executive Officer
Robert J. Muller, Jr. (principal executive
officer) and Director
of the Issuer and
each Guarantor
/s/ Sara M. Foster Director of Finance August 26, 1999
____________________________________ (principal financial
Sara M. Foster officer and principal
accounting officer)
of the Issuer and
each Guarantor
* Director of the Issuer August 26, 1999
------------------------------------ and each Guarantor
Jean-Pierre L. Conte
* Director of the Issuer August 26, 1999
------------------------------------ and each Guarantor
Richard D. Paterson
* Director of the Issuer August 26, 1999
------------------------------------ and each Guarantor
Richard F. Hoskins
</TABLE>
*By: /s/ Robert J. Muller, Jr.
-------------------------------
Robert J. Muller, Jr.,
Attorney-in-fact
II-6
<PAGE>
Form of Report of Independent Accountants on
Financial Statement Schedules
To the Board of Directors
of Panolam Group, Inc.:
Our audits of the consolidated financial statements referred to in our
reports dated March 12, 1999 and February 13, 1998 which are included in this
Registration Statement on Form S-4 also included an audit of the financial
statement schedules listed in Item 21 (b) of this Form S-4. In our opinion,
these financial statement schedules present fairly, in all material respects,
the information set forth therein when read in conjunction with the related
consolidated financial statements.
Stamford, Connecticut
March 12, 1999
S-1
<PAGE>
SCHEDULE II
Panolam Group, Inc. and Subsidiaries
Valuation and Qualifying Accounts and Reserves
(in thousands)
<TABLE>
<CAPTION>
Additions
Balance ---------- Balance
Beginning Charges to End
of Year Earnings Deductions(1) of Year
--------- ---------- ------------- -------
<S> <C> <C> <C> <C>
Year ended December 31, 1998
Deducted from asset accounts:
Allowance for doubtful accounts.. $ 564 $ (26) $ (312) $ 226
Reserve for excess and obsolete
inventory....................... 512 499 (824) 187
------ ------ ------- ------
Total.......................... $1,076 $ 473 $(1,136) $ 413
====== ====== ======= ======
Year ended December 31, 1997
Deducted from asset accounts:
Allowance for doubtful accounts.. $ 716 $ 145 $ (297) $ 564
Reserve for excess and obsolete
inventory....................... 1,118 1,056 (1,662) 512
------ ------ ------- ------
Total.......................... $1,834 $1,201 $(1,959) $1,076
====== ====== ======= ======
Period from May 16, 1996 to
December 31, 1996
Deducted from asset accounts:
Allowance for doubtful accounts.. $ 577 $ 241 $ (102) $ 716
Reserve for excess and obsolete
inventory....................... 852 856 (590) 1,118
------ ------ ------- ------
Total.......................... $1,429 $1,097 $ (692) $1,834
====== ====== ======= ======
</TABLE>
- ---------------------
(1) Primarily represents the utilization of established reserves, net of
recoveries.
S-2
<PAGE>
EXHIBIT 2.2
AMENDMENT NO.4
TO STOCK PURCHASE AGREEMENT
AMENDMENT NO.4, dated as of May 25, 1999 ("Amendment No.4"), to that certain
Stock Purchase Agreement, dated as of July 17, 1998 (the "Agreement,"
capitalized terms used but not otherwise defined herein being used herein as
therein defined), between Rugby USA, Inc., a Georgia corporation (the "Seller"),
and Panolam Industries International, Inc. (formerly known as PII Third, Inc.),
a Delaware corporation (the "Buyer").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Section 2(e) of the Agreement sets forth certain conditions for
the adjustment of the Estimated Purchase Price after the Closing;
WHEREAS, Section 2(e)(ii) contemplates that within ninety (90) calendar
days following the Closing Date the Buyer shall deliver to the Seller the
Closing Net Operating Assets Statement, together with a report of the Buyer's
Accountants stating that the Closing Net Operating Assets Statement was prepared
in accordance with the Net Operating Assets Instructions and in conformity with
GAAP (except as provided for in the Net Operating Assets Instructions);
WHEREAS, the Buyer delivered to the Seller on May 5, 1999 a Closing Net
Operating Assets Statement, together with a review report thereof of the Buyer's
Accountants, and the Buyer further delivered to the Seller on May 19, 1999
another Closing Net Operating Assets Statement, together with a report thereon
of the Buyer's Accountants pursuant to Section 2(e)(ii) of the Agreement; and
the Seller acknowledges receipt of the foregoing deliveries on the dates set
forth above; and
WHEREAS, the Seller and the Buyer desire to establish between the parties
the Closing Net Operating Assets Statement which is subject to review and
possible dispute by the Seller and the Seller and the Buyer further desire to
amend the Agreement with respect to the date by which the Seller may deliver to
the Buyer a notice of dispute under Section 2(e)(iii)(2) of the Agreement.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, and intending to be legally bound hereby, the parties hereto agree
to amend the Agreement pursuant to Section 17(m) thereof as follows:
SECTION 1. Closing Net Operating Assets Statement. The Seller and the
Buyer agree that for the purposes of Section 2(e)(iii) of the Agreement the
Closing Net Operating Assets Statement delivered by the Buyer to the Seller on
May 19, 1999, together with the report thereon of the Buyer's Accountants, shall
be deemed to be the Closing Net Operating Assets Statement subject to the
Seller's review and possible dispute pursuant to Section 2(e)(iii)(2) of the
Agreement.
<PAGE>
SECTION 2. Amendment to the Agreement. Section 2(e)(iii)(2) of the
Agreement is hereby amended to delete from the first sentence thereof the
phrase "within thirty (30) calendar days of the Buyer's delivery of the Closing
Net Operating Assets Statement to the Seller" and substitute therefor the phrase
"no later than 5:00 p.m. eastern standard time on Friday, June 11, 1999."
SECTION 3. Reference to and Effect on the Agreement.
(a) Upon the effectiveness of Sections 1 and 2 hereof, on and after the
date hereof each reference in the Agreement to "this Agreement," "hereunder,"
"hereof," "herein" or words of like import shall mean and be a reference to the
Agreement as amended by Section 2 hereof.
(b) Except as specifically amended above, the Agreement shall remain in
full force and effect and is hereby ratified and confirmed.
SECTION 4. Execution and counterparts. This Amendment No. 4 may be
executed in one or more counterparts, and by the different parties hereto in
separate counterparts, each of which when executed shall be deemed to be an
original but all of which taken together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, each party has caused its duly authorized officer to
execute this Amendment No. 4 as of the date first written above.
RUGBY USA, INC.
By: /s/ R. MICHAEL SHARP
------------------------------------
Name: R. Michael Sharp
Title: Vice President
PANOLAM INDUSTRIES INTERNATIONAL, INC.
By: /s/ RICHARD PATERSON
------------------------------------
Name: Richard Paterson
Title: Director
Acknowledged:
THE RUGBY GROUP PLC
By: /s/ R. MICHAEL SHARP
--------------------------
Name: R. Michael Sharp
Title: Finance Director
<PAGE>
EXHIBIT 4.1
PANOLAM INDUSTRIES INTERNATIONAL, INC.
(as Issuer)
PANOLAM GROUP, INC.
PII SECOND, INC.
PANOLAM INDUSTRIES, INC.
PIONEER PLASTICS CORPORATION
(each a Guarantor)
11 1/2% SENIOR SUBORDINATED NOTES DUE 2009
_____________
INDENTURE
DATED AS OF FEBRUARY 18, 1999
_____________
STATE STREET BANK AND TRUST COMPANY
(as Trustee)
<PAGE>
TABLE OF CONTENTS [TO BE UPDATED]
<TABLE>
<CAPTION>
PAGE
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<S> <C>
ARTICLE I: DEFINITIONS AND INCORPORATION BY REFERENCE.........................1
SECTION 1.1 DEFINITIONS..............................................1
SECTION 1.2 OTHER DEFINITIONS.......................................27
SECTION 1.3 INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.......28
SECTION 1.4 RULES OF CONSTRUCTION...................................28
ARTICLE II: THE NOTES.........................................................29
SECTION 2.1 FORM AND DATING.........................................29
SECTION 2.2 EXECUTION AND AUTHENTICATION............................30
SECTION 2.3 REGISTRAR, PAYING AGENT AND DEPOSITARY..................30
SECTION 2.4 PAYING AGENT TO HOLD MONEY IN TRUST.....................31
SECTION 2.5 HOLDER LISTS............................................31
SECTION 2.6 TRANSFER AND EXCHANGE...................................31
SECTION 2.7 REPLACEMENT NOTES.......................................46
SECTION 2.8 OUTSTANDING NOTES.......................................47
SECTION 2.9 TREASURY NOTES..........................................47
SECTION 2.10 TEMPORARY NOTES.........................................47
SECTION 2.12 DEFAULTED INTEREST......................................48
SECTION 2.13 CUSIP NUMBERS...........................................49
ARTICLE III: REDEMPTION........................................................49
SECTION 3.1 NOTICES TO TRUSTEE......................................49
SECTION 3.4 EFFECT OF NOTICE OF REDEMPTION..........................51
SECTION 3.5 DEPOSIT OF REDEMPTION PRICE.............................51
SECTION 3.6 NOTES REDEEMED IN PART..................................52
SECTION 3.7 OPTIONAL REDEMPTION.....................................52
SECTION 3.8 NO MANDATORY REDEMPTION.................................53
ARTICLE IV: COVENANTS.........................................................53
SECTION 4.1 PAYMENT OF NOTES........................................53
SECTION 4.2 MAINTENANCE OF OFFICE OR AGENCY.........................54
SECTION 4.3 SEC REPORTS AND REPORTS TO HOLDERS......................54
SECTION 4.5 TAXES...................................................55
SECTION 4.6 STAY, EXTENSION AND USURY LAWS..........................56
SECTION 4.7 LIMITATION ON INCURRENCE OF ADDITIONAL
INDEBTEDNESS............................................56
SECTION 4.8 LIMITATION ON LIENS SECURING INDEBTEDNESS...............58
SECTION 4.9 LIMITATIONS ON RESTRICTED PAYMENTS......................59
SECTION 4.10 LIMITATION ON DIVIDENDS AND OTHER PAYMENT
RESTRICTIONS AFFECTING SUBSIDIARIES.....................60
</TABLE>
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<TABLE>
<S> <C>
SECTION 4.11 LIMITATION ON LINES OF BUSINESS......................61
SECTION 4.12 LIMITATION ON TRANSACTIONS WITH AFFILIATES...........62
SECTION 4.13 LIMITATION ON SALE OF ASSETS AND SUBSIDIARY STOCK....62
SECTION 4.14 REPURCHASE OF NOTES AT THE OPTION OF THE
HOLDER UPON A CHANGE OF CONTROL......................65
SECTION 4.15 LIMITATION ON LAYERING INDEBTEDNESS..................68
SECTION 4.16 SUBSIDIARY GUARANTORS................................68
SECTION 4.17 LIMITATION ON STATUS AS INVESTMENT COMPANY...........69
SECTION 4.18 MAINTENANCE OF PROPERTIES AND INSURANCE..............69
SECTION 4.19 CORPORATE EXISTENCE..................................69
ARTICLE V: SUCCESSORS.....................................................70
SECTION 5.1 MERGER, CONSOLIDATION OR SALE OF ASSETS..............70
SECTION 5.2 SUCCESSOR CORPORATION SUBSTITUTED....................70
ARTICLE VI: DEFAULTS AND REMEDIES..........................................71
SECTION 6.1 EVENTS OF DEFAULT....................................71
SECTION 6.2 ACCELERATION.........................................72
SECTION 6.3 OTHER REMEDIES.......................................74
SECTION 6.4 WAIVER OF PAST DEFAULTS..............................74
SECTION 6.5 CONTROL BY MAJORITY..................................75
SECTION 6.6 LIMITATION ON SUITS..................................75
SECTION 6.7 RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT........76
SECTION 6.8 COLLECTION SUIT BY TRUSTEE...........................76
SECTION 6.9 TRUSTEE MAY FILE PROOFS OF CLAIM.....................76
SECTION 6.10 PRIORITIES...........................................77
SECTION 6.11 UNDERTAKING FOR COSTS................................77
ARTICLE VII: TRUSTEE........................................................78
SECTION 7.1 DUTIES OF TRUSTEE....................................78
SECTION 7.3 INDIVIDUAL RIGHTS OF TRUSTEE.........................80
SECTION 7.4 TRUSTEE'S DISCLAIMER.................................81
SECTION 7.5 NOTICE OF DEFAULTS...................................81
SECTION 7.6 REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES...........81
SECTION 7.7 COMPENSATION AND INDEMNITY...........................81
SECTION 7.8 REPLACEMENT OF TRUSTEE...............................82
SECTION 7.9 SUCCESSOR TRUSTEE BY MERGER, ETC.....................84
SECTION 7.10 ELIGIBILITY; DISQUALIFICATION........................84
SECTION 7.11 PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY....84
</TABLE>
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<TABLE>
<S> <C>
SECTION 8.1 OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT
DEFEASANCE...........................................84
SECTION 8.2 LEGAL DEFEASANCE AND DISCHARGE.......................84
SECTION 8.3 COVENANT DEFEASANCE..................................85
SECTION 8.4 CONDITIONS TO LEGAL OR COVENANT DEFEASANCE...........86
SECTION 8.5 DEPOSITED MONEY AND GOVERNMENT SECURITIES TO
BE HELD IN TRUST; OTHER MISCELLANEOUS PROVISIONS.....87
SECTION 8.6 REPAYMENT TO COMPANY.................................88
SECTION 8.7 REINSTATEMENT........................................88
ARTICLE IX: AMENDMENT, SUPPLEMENT AND WAIVER...............................89
SECTION 9.1 WITHOUT CONSENT OF HOLDERS OF NOTES..................89
SECTION 9.2 WITH CONSENT OF HOLDERS OF NOTES.....................90
SECTION 9.3 COMPLIANCE WITH TRUST INDENTURE ACT..................91
SECTION 9.4 REVOCATION AND EFFECT OF CONSENTS....................92
SECTION 9.5 NOTATION ON OR EXCHANGE OF NOTES.....................92
SECTION 9.6 TRUSTEE TO SIGN AMENDMENTS, ETC......................92
ARTICLE X: GUARANTEES.....................................................93
SECTION 10.1 GUARANTEES...........................................93
SECTION 10.2 EXECUTION AND DELIVERY OF GUARANTEES.................95
SECTION 10.3 GUARANTORS MAY CONSOLIDATE, ETC., ON CERTAIN
TERMS................................................95
SECTION 10.4 RELEASE OF GUARANTORS................................96
SECTION 10.5 LIMITATION OF GUARANTOR'S LIABILITY; CERTAIN
BANKRUPTCY EVENTS....................................97
SECTION 10.6 APPLICATION OF CERTAIN TERMS AND PROVISIONS TO
THE GUARANTORS.......................................97
SECTION 10.7 SUBORDINATION OF GUARANTEES..........................98
ARTICLE XI: SUBORDINATION..................................................98
SECTION 11.2 NO PAYMENT ON NOTES IN CERTAIN CIRCUMSTANCES.........99
SECTION 11.3 NOTES SUBORDINATE TO PRIOR PAYMENT OF ALL SENIOR
DEBT ON DISSOLUTION, LIQUIDATION OR REORGANIZATION..101
SECTION 11.4 HOLDERS TO BE SUBROGATED TO RIGHTS OF HOLDERS
OF SENIOR DEBT......................................101
SECTION 11.5 OBLIGATIONS OF THE COMPANY AND THE GUARANTORS
UNCONDITIONAL.......................................102
SECTION 11.6 TRUSTEE ENTITLED TO ASSUME PAYMENTS NOT
PROHIBITED IN ABSENCE OF NOTICE.....................102
SECTION 11.7 APPLICATION BY TRUSTEE OF ASSETS DEPOSITED WITH IT..103
SECTION 11.8 SUBORDINATION RIGHTS NOT IMPAIRED BY ACTS OR
</TABLE>
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<TABLE>
<S> <C>
OMISSIONS OF THE COMPANY, THE GUARANTORS OR
HOLDERS OF SENIOR DEBT..............................103
SECTION 11.9 HOLDERS AUTHORIZE TRUSTEE TO EFFECTUATE
SUBORDINATION OF NOTES..............................104
SECTION 11.10 RIGHTS OF TRUSTEE TO HOLD SENIOR DEBT...............105
SECTION 11.11 ARTICLE XI NOT TO PREVENT EVENTS OF DEFAULT.........105
SECTION 11.12 NO FIDUCIARY DUTY OF TRUSTEE TO HOLDERS OF
SENIOR DEBT.........................................105
SECTION 11.13 NOTICE BY COMPANY...................................105
ARTICLE XII: MISCELLANEOUS............................................105
SECTION 12.1 TRUST INDENTURE ACT CONTROLS........................105
SECTION 12.2 NOTICES.............................................106
SECTION 12.3 COMMUNICATION BY HOLDERS OF NOTES WITH OTHER
HOLDERS OF NOTES....................................107
SECTION 12.4 CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT..107
SECTION 12.5 STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.......107
SECTION 12.6 RULES BY TRUSTEE AND AGENTS.........................108
SECTION 12.7 NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS,
EMPLOYEES AND STOCKHOLDERS..........................108
SECTION 12.8 GOVERNING LAW.......................................108
SECTION 12.9 NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.......108
SECTION 12.10 SUCCESSORS..........................................109
SECTION 12.11 SEVERABILITY........................................109
SECTION 12.12 COUNTERPART ORIGINALS...............................109
SECTION 12.13 TABLE OF CONTENTS, HEADINGS, ETC....................109
EXHIBIT BFORM OF CERTIFICATE OF TRANSFER................................B-1
EXHIBIT CFORM OF CERTIFICATE OF EXCHANGE................................C-1
EXHIBIT DFORM OF CERTIFICATE FROM ACQUIRING INSTITUTIONAL
ACCREDITED INVESTOR................................................D-1
EXHIBIT EFORM OF SUPPLEMENTAL INDENTURE TO BE
DELIVERED BY SUBSEQUENT SUBSIDIARY GUARANTORS......................E-1
</TABLE>
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CROSS-REFERENCE TABLE*
<TABLE>
<CAPTION>
TIA SECTION INDENTURE SECTION
- ----------- -----------------
<S> <C>
310(a)(1)...................................................................7.10
(a)(2)...................................................................7.10
(a)(3)...................................................................N.A.
(a)(4)...................................................................N.A.
(a)(5)..............................................................7.8; 7.10
(b)...........................................................7.8; 7.10; 12.2
(c)......................................................................N.A.
311(a)......................................................................7.11
(b)......................................................................7.11
(c)......................................................................N.A.
312(a).......................................................................2.5
(b)......................................................................12.3
(c)......................................................................12.3
313(a).......................................................................7.6
(b)(1)...................................................................N.A.
(b)(2)....................................................................7.6
(c).................................................................7.6; 12.2
(d).......................................................................7.6
314(a)............................................................4.3; 4.4; 12.2
(b)......................................................................N.A.
(c)(1)...................................................................12.4
(c)(2)...................................................................12.4
(c)(3)...................................................................N.A.
(d)......................................................................N.A.
(e)......................................................................12.5
(f)......................................................................N.A.
315(a)....................................................................7.1(b)
(b).................................................................7.5; 12.2
(c)....................................................................7.1(a)
(d)....................................................................7.1(c)
(e)......................................................................6.11
316(a)(last sentence)........................................................2.9
(a)(1)(A).................................................................6.5
(a)(1)(B).................................................................6.4
(a)(2)...................................................................N.A.
(b).......................................................................6.7
317(a)(1)....................................................................6.8
(a)(2)....................................................................6.9
(b).......................................................................2.4
318(a)......................................................................12.1
</TABLE>
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<TABLE>
<S> <C>
(c).....................................................................12.1
</TABLE>
______________________________
N.A. means not applicable
*This Cross-Reference table shall not, for any purpose, be deemed to be part of
the Indenture.
vi
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INDENTURE, dated as of February 18, 1999, among Panolam
Industries International, Inc., a Delaware corporation (the "Company"), the
Guarantors (as defined), and State Street Bank and Trust Company, as trustee
(the "Trustee").
Each party agrees as follows for the benefit of each other and
for the equal and ratable benefit of the Holders of the 11 1/2% Series A Senior
Subordinated Notes due 2009 (the "Series A Notes") and the 11 1/2% Series B
Senior Subordinated Notes due 2009 (the "Series B Notes" and, together with the
Series A Notes, the "Notes"):
ARTICLE I
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.1 Definitions
"144A Global Note" means one or more Global Notes bearing the
Private Placement Legend, that will be issued in an aggregate amount of
denominations equal in total to the outstanding principal amount of the Notes
sold in reliance on Rule 144A.
"Accrued Bankruptcy Interest" means, with respect to any
Indebtedness, all interest accruing thereon after the filing of a petition by or
against the Company or any of its Subsidiaries or any Parent under any
Bankruptcy Law, in accordance with and at the rate (including any rate
applicable upon any default or event of default, to the extent lawful) specified
in the documents evidencing or governing such Indebtedness, whether or not the
claim for such interest is allowed as a claim after such filing in any
proceeding under such Bankruptcy Law.
"Acquired Indebtedness" means Indebtedness or Disqualified
Capital Stock of any Person existing at the time such Person becomes a
Subsidiary of the Company, including by designation, or is merged or
consolidated into or with the Company or one of its Subsidiaries.
"Acquisition" means the purchase or other acquisition of any
Person or all or substantially all the assets of any Person by any other Person,
whether by purchase, merger, consolidation, or other transfer, and whether or
not for consideration.
"Affiliate" means any Person directly or indirectly controlling
or controlled by or under direct or indirect common control with the Company.
For purposes of this definition, the term "control" means the power to direct
the management and policies of a Person, directly or through one or more
intermediaries, whether through the ownership of voting securities, by
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contract, or otherwise; provided that with respect to ownership interest in the
Company and its Subsidiaries, a Beneficial Owner of 10% or more of the total
voting power normally entitled to vote in the election of directors, managers or
trustees, as applicable, shall for such purposes be deemed to constitute
control.
"Agent" means any Registrar, Paying Agent or co-registrar.
"Applicable Procedures" means, with respect to any transfer or
exchange of or for beneficial interests in any Global Note, the rules and
procedures of the Depositary, Euroclear and Cedel that apply to such transfer or
exchange at the relevant time.
"Average Life" means, as of the date of determination, with respect to
any security or instrument, the quotient obtained by dividing (i) the sum of the
products (a) of the number of years from the date of determination to the date
or dates of each successive scheduled principal (or redemption) payment of such
security or instrument and (b) the amount of each such respective principal (or
redemption) payment by (ii) the sum of all such principal (or redemption)
payments.
"Bankruptcy Code" means the United States Bankruptcy Code, codified at
11 U.S.C. (S)101-1330, as amended.
"Beneficial Owner" or "beneficial owner" for purposes of the
definition of Change of Control and Affiliate has the meaning attributed to it
in Rules 13d-3 and 13d-5 under the Exchange Act (as in effect on the Issue
Date), whether or not applicable.
"Board of Directors" means, with respect to any Person, the board of
directors of such Person or any committee of the Board of Directors of such
Person authorized, with respect to any particular matter, to exercise the power
of the Board of Directors of such Person.
"Broker-Dealer" means any broker-dealer that receives Exchange Notes
for its own account in the Exchange Offer in exchange for Notes that were
acquired by such broker-dealer as a result of market-making or other trading
activities.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in New York, New York
are authorized or obligated by law or executive order to close.
2
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"Canadian Credit Agreement" means the credit agreement dated as of
February 18, 1999 by and among Panolam Canada, certain financial institutions
and DLJ Capital Funding, as Syndication Agent, Royal Bank of Canada, as
Documentation Agent and Credit Suisse First Boston Canada, as Canadian
Administrative Agent, providing for one or more term loan facilities and a
revolving credit facility, including any related notes, letters of credit,
guarantees, collateral documents, instruments and agreements executed in
connection therewith, as such credit agreement and/or related documents may be
amended, restated, supplemented, renewed, replaced or otherwise modified from
time to time whether or not with the same agent, trustee, representative lenders
or holders, and, subject to the proviso to the next succeeding sentence,
irrespective of any changes in the terms and conditions thereof. Without
limiting the generality of the foregoing, the term "Canadian Credit Agreement"
shall include agreements in respect of Interest Swap and Hedging Obligations
with lenders party to the Canadian Credit Agreement and shall also include any
amendment, amendment and restatement, renewal, extension, restructuring,
supplement or modification to any Canadian Credit Agreement and all refundings,
refinancings and replacements of any Canadian Credit Agreement, including any
agreement (i) extending the maturity of any Indebtedness incurred thereunder or
contemplated thereby, (ii) adding or deleting borrowers or guarantors
thereunder, so long as such remaining borrowers or guarantors include one or
more of Panolam Canada and its Subsidiaries and their respective successors and
assigns, (iii) increasing the amount of Indebtedness incurred thereunder or
available to be borrowed thereunder; provided that on the date such Indebtedness
is incurred it would not be prohibited by Section 4.7 hereof or (iv) otherwise
altering the terms and conditions thereof in a manner not prohibited by the
terms of the Indenture.
"Canadian Subsidiary" means a Wholly Owned Subsidiary that is
domiciled and doing business principally in Canada.
"Capital Contribution" means any contribution to the equity of the
Company from a direct or indirect parent of the Company for which no
consideration is given other than the issuance of Qualified Capital Stock.
"Capitalized Lease Obligation" means, as to any Person, the
obligations of such Person under a lease that are required to be classified and
accounted for as capital lease obligations under GAAP and, for purposes of this
definition, the amount of such obligations at any date shall be the capitalized
amount of such obligations at such date, determined in accordance with GAAP.
"Capital Stock" means, with respect to any corporation, any and all
shares, interests, rights to purchase (other than convertible or exchangeable
Indebtedness that is not itself otherwise capital stock), warrants, options,
participations or other equivalents of or interests (however designated) in
stock issued by that corporation.
"Cash Equivalent" means (i) securities issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided
3
<PAGE>
that the full faith and credit of the United States of America is pledged in
support thereof) or (ii) time deposits and certificates of deposit and
commercial paper issued by the parent corporation of any domestic commercial
bank of recognized standing having capital and surplus in excess of $500,000,000
or (iii) commercial paper issued by others rated at least A-2 or the equivalent
thereof by S&P or at least P-2 or the equivalent thereof by Moody's, and in the
case of each of (i), (ii), and (iii) maturing within one year after the date of
acquisition, or (iv) repurchase obligations with a term of not more than seven
days for underlying securities of the types described in clauses (i) and (ii)
above entered into with any financial institution meeting the qualifications
specified in clause (ii) above, or (v) investments in money market funds which
invest substantially all their assets in securities of the types described in
the foregoing clauses (i) through (iv).
"Cedel" means Cedel Bank, S.A., or its successors.
"Consolidation" means, with respect to the Company, the consolidation
of the accounts of the Subsidiaries with those of the Company, all in accordance
with GAAP; provided that "consolidation" will not include consolidation of the
accounts of any Unrestricted Subsidiary with the accounts of the Company. The
term "consolidated" has a correlative meaning to the foregoing.
"Consolidated Coverage Ratio" of any Person on any date of
determination (the "Transaction Date") means the ratio, on a pro forma basis,
of (a) the aggregate amount of Consolidated EBITDA of such Person attributable
to continuing operations and businesses (exclusive of amounts attributable to
operations and businesses recorded as permanently discontinued or disposed of)
for the Reference Period to (b) the aggregate Consolidated Fixed Charges of such
Person (exclusive of amounts attributable to operations and businesses recorded
as permanently discontinued or disposed of, but only to the extent that the
obligations giving rise to such Consolidated Fixed Charges would no longer be
obligations contributing to such Person's Consolidated Fixed Charges subsequent
to the Transaction Date) during the Reference Period; provided that for purposes
of such calculation, (i) Acquisitions which occurred during the Reference Period
or subsequent to the Reference Period and on or prior to the Transaction Date
shall be assumed to have occurred on the first day of the Reference Period
without regard to the effect of subsection (c) of the definition of
"Consolidated Net Income," (ii) transactions giving rise to the need to
calculate the Consolidated Coverage Ratio shall be assumed to have occurred on
the first day of the Reference Period without regard to the effect of subsection
(c) of the definition of "Consolidated Net Income," (iii) the incurrence of
any Indebtedness during the Reference Period or subsequent to the Reference
Period and on or prior to the Transaction Date (and the application of the
proceeds therefrom to the extent used to refinance or retire other Indebtedness)
shall be assumed to have occurred on the first day of the Reference Period, and
(iv) the Consolidated Fixed Charges of such Person attributable to interest on
any Indebtedness (or dividends on any Disqualified Capital Stock) bearing a
floating interest (or dividend) rate shall be computed on a pro forma basis as
if the average rate in effect from the beginning of the Reference Period to the
Transaction Date had been the applicable rate for the entire period,
4
<PAGE>
unless such Person or any of its Subsidiaries is a party to an Interest Swap and
Hedging Obligation (which shall remain in effect for the 12-month period
immediately following the Transaction Date) that has the effect of fixing the
interest rate on the date of computation, in which case such rate (whether
higher or lower) shall be used.
"Consolidated EBITDA" means, with respect to any Person, for any
period, the Consolidated Net Income of such Person for such period adjusted to
add thereto (to the extent deducted from net revenues in determining
Consolidated Net Income), without duplication, the sum of (i) Consolidated
income tax expense, (ii) Consolidated depreciation and amortization expense,
(iii) Consolidated Fixed Charges and (iv) all other non-recurring non-cash
charges of such Person and its Consolidated Subsidiaries, less the amount of all
cash payments made by such Person or any of its Subsidiaries during such period
to the extent such payments relate to non-recurring non-cash charges that were
added back in determining Consolidated EBITDA for such period or any prior
period; provided that Consolidated income tax expense and depreciation and
amortization of a Subsidiary that is a less than a Wholly-Owned Subsidiary shall
only be added to the extent of the equity interest of the Company in such
Subsidiary.
"Consolidated Fixed Charges" of any Person means, for any period, the
aggregate amount (without duplication and determined in each case in accordance
with GAAP) of (a) interest expensed or capitalized, paid, accrued, or scheduled
to be paid or accrued (including, in accordance with the following sentence,
interest attributable to Capitalized Lease Obligations) of such Person and its
Consolidated Subsidiaries during such period, including (i) original issue
discount and non-cash interest payments or accruals on any Indebtedness, (ii)
the interest portion of all deferred payment obligations and (iii) all
commissions, discounts and other fees and charges owed with respect to bankers'
acceptances and letters of credit financings and currency and Interest Swap and
Hedging Obligations, in each case to the extent attributable to such period, and
(b) the amount of dividends accrued or payable (or guaranteed) by such Person or
any of its Consolidated Subsidiaries in respect of Preferred Stock (other than
by Subsidiaries of such Person to such Person or such Person's Wholly-Owned
Subsidiaries). For purposes of this definition, (x) interest on a Capitalized
Lease Obligation shall be deemed to accrue at an interest rate reasonably
determined in good faith by the Company to be the rate of interest implicit in
such Capitalized Lease Obligation in accordance with GAAP and (y) interest
expense attributable to any Indebtedness represented by the guaranty by such
Person or a Subsidiary of such Person of an obligation of another Person shall
be deemed to be the interest expense attributable to the Indebtedness
guaranteed.
"Consolidated Net Income" means, with respect to any Person for any
period, the net income (or loss) of such Person and its Consolidated
Subsidiaries (determined on a Consolidated basis in accordance with GAAP) for
such period, adjusted to exclude (only to the extent included in computing such
net income (or loss) and without duplication): (a) all gains and losses which
are either extraordinary (as determined in accordance with GAAP) or are either
unusual or nonrecurring (including any gain or loss from the sale or other
disposition of assets outside the ordinary course of business or from the
issuance or sale of any capital stock), (b) the
5
<PAGE>
net income, if positive, of any Person, other than a Consolidated Subsidiary, in
which such Person or any of its Consolidated Subsidiaries has an interest,
except to the extent of the amount of any dividends or distributions actually
paid in cash to such Person or a Consolidated Subsidiary of such Person during
such period, but in any case not in excess of such Person's pro rata share of
such Person's net income for such period, (c) the net income or loss of any
Person acquired in a pooling of interests transaction for any period prior to
the date of such acquisition and (d) the net income, if positive, of any of such
Person's Consolidated Subsidiaries to the extent that the declaration or payment
of dividends or similar distributions is not at the time permitted by operation
of the terms of its charter or bylaws or any other agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation applicable to
such Consolidated Subsidiary.
"Consolidated Subsidiary" means, for any Person, each Subsidiary of
such Person (whether now existing or hereafter created or acquired) the
financial statements of which are Consolidated for financial statement reporting
purposes with the financial statements of such Person in accordance with GAAP.
"Corporate Trust Office" shall be at the address of the Trustee
specified in Section 12.2 hereof or such other address as to which the Trustee
may give notice to the Company; provided that such address shall be in the
Borough of Manhattan, The City of New York. All notices by the Company sent to
the Trustee at its Corporate Trust Office in the Borough of Manhattan, The City
of New York shall also be sent to the Trustee at: State Street Bank and Trust
Company, Goodwin Square, 225 Asylum Street, Hartford, Connecticut 06103,
attention: Corporate Trust Department.
"Credit Agreement" means the credit agreement dated as of February 18,
1999 by and among the Company, certain of its Subsidiaries, certain financial
institutions and DLJ Capital Funding, as Syndication Agent, Royal Bank of
Canada, as Documentation Agent, and Credit Suisse First Boston, New York branch,
as Administrative Agent, providing for one or more term loan facilities and a
revolving credit facility, including any related notes, letters of credit,
guarantees, collateral documents, instruments and agreements executed in
connection therewith, as such credit agreement and/or related documents may be
amended, restated, supplemented, renewed, replaced or otherwise modified from
time to time whether or not with the same agent, trustee, representative lenders
or holders, and, subject to the proviso to the next succeeding sentence,
irrespective of any changes in the terms and conditions thereof. Without
limiting the generality of the foregoing, the term "Credit Agreement" shall
include agreements in respect of Interest Swap and Hedging Obligations with
lenders party to the Credit Agreement and shall also include any amendment,
amendment and restatement, renewal, extension, restructuring, supplement or
modification to any Credit Agreement and all refundings, refinancings and
replacements of any Credit Agreement, including any agreement (i) extending the
maturity of any Indebtedness incurred thereunder or contemplated thereby, (ii)
adding or deleting borrowers or guarantors thereunder, so long as such remaining
borrowers or guarantors include one or more of the Company and its Subsidiaries
and their respective successors and
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assigns, (iii) increasing the amount of Indebtedness incurred thereunder or
available to be borrowed thereunder; provided that on the date such Indebtedness
is incurred it would not be prohibited by Section 4.7 hereof or (iv) otherwise
altering the terms and conditions thereof in a manner not prohibited by the
terms of the Indenture.
"Default" means any event that is or with the passage of time or the
giving of notice or both would be an Event of Default.
"Definitive Note" means one or more certificated Notes registered in
the name of the Holder thereof and issued in accordance with Section 2.6 hereof,
in the form of Exhibit A hereto except that such Note shall not include the
information called for by footnotes 3, 4 and 8 thereof.
"Depositary" means, with respect to the Notes issuable or issued in
whole or in part in global form, the Person specified in Section 2.3 hereof as
the Depositary with respect to the Notes, until a successor will have been
appointed and become such pursuant to the applicable provisions of this
Indenture, and thereafter "Depositary" will mean or include such successor.
"Disqualified Capital Stock" means (a) except as set forth in (b),
with respect to any Person, Equity Interests of such Person that, by its terms
or by the terms of any security into which it is convertible, exercisable or
exchangeable, is, or upon the happening of an event (other than customary change
of control provisions) or the passage of time or both would be, required to be
redeemed or repurchased (including at the option of the holder thereof) by such
Person or any of its Subsidiaries, in whole or in part, other than solely for
Qualified Capital Stock of the Company, on or prior to 91 days following the
Stated Maturity of the Notes and (b) with respect to any Subsidiary of such
Person (including with respect to any Subsidiary of the Company), any Equity
Interests other than any common equity with no preference as to liquidation or
dividend payments, or redemption or repayment provisions.
"Distribution Compliance Period" means the 40-day restricted period as
defined in Regulation S.
"DLJ Capital Funding" means DLJ Capital Funding, Inc.
"Domtar Note" means that certain Promissory Note, dated June 12, 1996,
that Holdings issued to Domtar Industries, Inc., in the aggregate principal
amount of $8,000,000, plus any accrued interest thereon.
"Earn Out Payment" means a payment of additional consideration to
Rugby USA, Inc., a Georgia corporation, pursuant to section 2(e)(v) of the Stock
Purchase Agreement, in accordance with the terms thereof on the Issue Date.
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"Engagement Agreement" means that certain Engagement Agreement dated
as of January 24, 1999 between Genstar Capital, LLC and the Company, providing
for the payment of transaction fees of $2,000,000 payable on the Issue Date and
an aggregate of $2,025,000 payable in twelve quarterly installments of $168,750
(or the pro rata amount thereof), commencing on March 31, 1999, in accordance
with the terms thereof on the Issue Date and without giving effect to any future
amendment or supplement thereto.
"Equity Interest" of any Person means any shares, interests,
participations or other equivalents (however designated) in such Person's
equity, and shall in any event include any Capital Stock issued by, or
partnership, participation or membership interests in, such Person.
"Euroclear" means Morgan Guaranty Trust Company of New York, Brussels
office, or its successor, as operator of the Euroclear system.
"Event of Loss" means, with respect to any property or asset, any (i)
loss, destruction or damage of such property or asset or (ii) any condemnation,
seizure or taking, by exercise of the power of eminent domain or otherwise, of
such property or asset, or confiscation or requisition of the use of such
property or asset.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the SEC thereunder.
"Exchange Notes" means Series B Notes issued pursuant to an Exchange
Offer.
"Exchange Offer" means an offer that may be made by the Company
pursuant to the Registration Rights Agreement to exchange Exchange Notes for
Series A Notes.
"Exchange Offer Registration Statement" shall have the meaning set
forth in the Registration Rights Agreement.
"Excluded Person" means Genstar Capital and all Related Persons of
such Person.
"Exempted Affiliate Transaction" means (a) customary employee
compensation arrangements approved by a majority of independent (as to such
transactions) members of the Board of Directors of the Company, (b) dividends
permitted under the terms of Section 4.9 and payable, in form and amount, on a
pro rata basis to all holders of common stock of the Company, (c) transactions
solely between the Company and any of its Consolidated Subsidiaries or solely
among Consolidated Subsidiaries of the Company, (d) Permitted Investments, (e)
any issuance of securities, or other payments, awards or grants in cash,
securities or otherwise pursuant to, or the funding of, employment arrangements,
stock options and stock ownership plans approved by a majority of members of the
Board of Directors of the Company
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and, if any, a majority of the independent members of such Board consistent with
industry practice, (f) the grant of stock options or similar rights to employees
and directors of the Company and its Subsidiaries pursuant to plans approved by
a majority of members of the Board of Directors of the Company and, if any, a
majority of the independent members of such Board, (g) loans or advances to
employees in the ordinary course of business in accordance with the past
practices of the Company or its Subsidiaries, but in any event not to exceed
$1,500,000 in the aggregate outstanding at any one time, (h) the payment of
reasonable fees and indemnities to directors of the Company and its Subsidiaries
who are not employees of the Company or its Subsidiaries, (i) the issuance or
sale of any Capital Stock (other than Disqualified Capital Stock) of the Company
if approved by a majority of the members of the Board of Directors and, if any,
a majority of the independent members of such Board and (j) transactions
pursuant to the Management Services Agreement and the Engagement Agreement, both
in accordance with the terms thereof on the Issue Date and without giving effect
to any future amendment or supplement thereto.
"Existing Indebtedness" means the Indebtedness of the Company and its
Subsidiaries (other than Indebtedness under the Credit Agreement and the
Canadian Credit Agreement) in existence on the Issue Date, until such amounts
are repaid.
"fair market value" means the price that would be paid in an arm's-
length transaction between an informed and willing seller under no compulsion to
sell and an informed and willing buyer under no compulsion to buy, as determined
in good faith by the Company.
"Foreign Subsidiary" means any Subsidiary of the Company which (i) is
not organized under the laws of the United States, any state thereof or the
District of Columbia and (ii) conducts substantially all of its business
operations outside the United States of America.
"GAAP" means United States generally accepted accounting principles
set forth in the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession in the United States applied on a consistent basis and as
in effect from time to time.
"Genstar Capital" means Genstar Capital Corporation and its
Affiliates and stockholders.
"Global Notes" means one or more Notes in the form of Exhibit A hereto
that includes the information referred to in footnotes 3, 4 and 8 to the form of
Note, attached hereto as Exhibit A, issued under this Indenture, that is
deposited with or on behalf of and registered in the name of the Depositary or
its nominee.
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"Global Note Legend" means the legend set forth in Section 2.6(g)(ii),
which is required to be placed on all Global Notes issued under this Indenture.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness. When used with respect to the Notes, a "Guarantee" means a
guarantee by the Guarantors of all or any part of the Notes, in accordance with
Article X hereof.
"Guarantors" means the Subsidiary Guarantors and the Parent
Guarantors.
"Holder" means a Person in whose name a Note is registered on the
Registrar's books.
"Holdings" means Panolam Industries Holdings, Inc., a Delaware
corporation, so long as Panolam Industries Holdings, Inc. is the direct or
indirect parent of the Company.
"Indebtedness" of any Person means, without duplication, (a) all
liabilities and obligations, contingent or otherwise, of any such Person, to the
extent such liabilities and obligations would appear as a liability upon the
Consolidated balance sheet of such Person in accordance with GAAP, (i) in
respect of borrowed money (whether or not the recourse of the lender is to the
whole of the assets of such Person or only to a portion thereof), (ii) evidenced
by bonds, notes, debentures or similar instruments, (iii) representing the
balance deferred and unpaid of the purchase price of any property or services,
except (other than accounts payable or other obligations to trade creditors
which have remained unpaid for greater than 60 days past their original due
date) those incurred in the ordinary course of its business that would
constitute ordinarily a trade payable to trade creditors; (b) all liabilities
and obligations, contingent or otherwise, of such Person (i) evidenced by
bankers' acceptances or similar instruments issued or accepted by banks, (ii)
relating to any Capitalized Lease Obligation or (iii) evidenced by a letter of
credit or a reimbursement obligation of such Person with respect to any letter
of credit; (c) all net obligations of such Person under Interest Swap and
Hedging Obligations; (d) all liabilities and obligations of others of the kind
described in the preceding clause (a), (b) or (c) that such Person has
guaranteed or that is otherwise its legal liability or which are secured by any
assets or property of such Person; (e) any and all deferrals, renewals,
extensions, refinancing and refundings (whether direct or indirect) of, or
amendments, modifications or supplements to, any liability of the kind described
in any of the preceding clauses (a), (b), (c) or (d), or this clause (e),
whether or not between or among the same parties; and (f) all Disqualified
Capital Stock of such Person (measured at the greater of its voluntary or
involuntary maximum fixed repurchase price plus accrued and unpaid dividends).
For purposes hereof, the ''maximum fixed repurchase price'' of any Disqualified
Capital Stock which does not have a fixed repurchase price shall be calculated
in accordance with the terms of such Disqualified Capital Stock as if such
Disqualified Capital Stock were purchased on any date on which Indebtedness
shall be required to be
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determined pursuant to the Indenture, and if such price is based upon, or
measured by, the Fair Market Value of such Disqualified Capital Stock, such Fair
Market Value to be determined in good faith by the Board of Directors of the
Company (or managing general partner of the Company) of such Disqualified
Capital Stock. The amount of any Indebtedness issued with original issue
discount outstanding as of any date shall be the accreted value thereof, but the
accretion of original issue discount in accordance with the original terms of
Indebtedness issued with an original issue discount will not be deemed to be an
incurrence.
"Indenture" means this Indenture, as amended or supplemented from time
to time in accordance with the terms hereof.
"Indirect Participant" means an entity that, with respect to DTC,
clears through or maintains a direct or indirect, custodial relationship with a
Participant.
"Initial Public Equity Offering" means an initial Public Equity
Offering following which the common stock of the Company, the Parent Guarantors
or Holdings, as the case may be, is listed on a national securities exchange or
quoted on the national market system of the Nasdaq stock market.
"Initial Purchasers" mean the initial purchasers of the Series A Notes
under the Purchase Agreement, dated February 10, 1999, with respect to the
Series A Notes.
"Institutional Accredited Investor" means an institution that is an
"accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act, who is not also a QIB.
"Interest Payment Date" means the stated due date of an installment of
interest on the Notes.
"Interest Swap and Hedging Obligation" means any obligation of any
Person pursuant to any interest rate swap agreement, interest rate cap
agreement, interest rate collar agreement, interest rate exchange agreement,
currency exchange agreement or any other agreement or arrangement designed to
protect against fluctuations in interest rates or currency values, including,
without limitation, any arrangement whereby, directly or indirectly, such Person
is entitled to receive from time to time periodic payments calculated by
applying either a fixed or floating rate of interest on a stated notional amount
in exchange for periodic payments made by such Person calculated by applying a
fixed or floating rate of interest on the same notional amount.
"Investment" by any Person in any other Person means, without
duplication, (a) the acquisition (whether by purchase, merger, consolidation or
otherwise) by such Person (whether for cash, property, services, securities or
otherwise) of capital stock, bonds, notes, debentures, partnership or other
ownership interests or other securities, including any options or
11
<PAGE>
warrants, of such other Person or any agreement to make any such acquisition;
(b) the making by such Person of any deposit with, or advance, loan or other
extension of credit to, such other Person (including the purchase of property
from another Person subject to an understanding or agreement, contingent or
otherwise, to resell such property to such other Person) or any commitment to
make any such advance, loan or extension (but excluding accounts receivable,
endorsements for collection or deposits arising in the ordinary course of
business); (c) other than guarantees of Indebtedness of the Company or any
Subsidiary Guarantor to the extent permitted by Section 4.7, the entering into
by such Person of any guarantee of, or other credit support or contingent
obligation with respect to, Indebtedness or other liability of such other
Person; (d) the making of any capital contribution by such Person to such other
Person; and (e) the designation by the Board of Directors of the Company of any
Person to be an Unrestricted Subsidiary. The Company shall be deemed to make an
Investment in an amount equal to the fair market value of the net assets of any
subsidiary (or, if neither the Company nor any of its Subsidiaries has
theretofore made an Investment in such subsidiary, in an amount equal to the
Investments being made), at the time that such subsidiary is designated an
Unrestricted Subsidiary, and any property transferred to an Unrestricted
Subsidiary from the Company or a Subsidiary of the Company shall be deemed an
Investment valued at its fair market value at the time of such transfer. If the
Company or any of its Subsidiaries sells or otherwise disposes of any Equity
Interests of any direct or indirect Subsidiary such that, after giving effect to
any such sale or disposition, such Person is no longer a Subsidiary of the
Company or such Subsidiary, the Company shall be deemed to have made an
Investment on the date of any such sale or disposition equal to the fair market
value of the Equity Interests of such Person not sold or disposed of in an
amount determined as provided in the final paragraph of Section 4.9.
"Issue Date" means the date of first issuance of the Notes under the
Indenture.
"Junior Security" means any Qualified Capital Stock and any
Indebtedness of the Company or a Subsidiary Guarantor, as applicable, that is
subordinated in right of payment to Senior Debt at least to the same extent as
the Notes or the Guarantees, as applicable, and has no scheduled installment of
principal due, by redemption, sinking fund payment or otherwise, on or prior to
the Stated Maturity of the Notes; provided, that in case of subordination in
respect of Senior Debt under the credit facilities of the Credit Agreement and
the New Credit Agreement, ''Junior Security'' shall mean any Qualified Capital
Stock and any Indebtedness of the Company or Subsidiary Guarantor, as
applicable, that is issued to a Holder on account of the Notes pursuant to an
order or decree of a court of competent jurisdiction in a reorganization
proceeding under any applicable bankruptcy or reorganization law, which
Qualified Capital Stock or Indebtedness (i) has a maturity, mandatory redemption
obligation or put right, if any, longer than, or occurring after the final
maturity date of, all Senior Debt outstanding under the New Credit Facilities on
the date of issuance of such Qualified Capital Stock or Indebtedness (and to any
securities issued in exchange for any such Senior Debt), (ii) is unsecured,
(iii) has an Average Life longer than the security for which such Qualified
Capital Stock or Indebtedness is being exchanged, (iv) does not provide for
terms, conditions or covenants more onerous than those provided in the Notes and
(v) by its terms or by law is subordinated to Senior Debt outstanding
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<PAGE>
under the New Credit Facilities on the date of issuance of such Qualified
Capital Stock or Indebtedness (and to any securities in exchange for any such
Senior Debt) at least to the same extent as the Notes.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York, or the city in which the principal
corporate trust office of the Trustee is located, or at a place of payment are
authorized by law, regulation or executive order to remain closed. If a payment
date is a Legal Holiday, payment may be made at that place on the next
succeeding day that is not a Legal Holiday, and no interest shall accrue for the
intervening period.
"Letter of Transmittal" means the letter of transmittal to be prepared
by the Company and sent to all Holders of the Notes for use by such Holders in
connection with the Exchange Offer.
"Lien" means any mortgage, charge, pledge, lien (statutory or
otherwise), privilege, security interest, hypothecation or other encumbrance
upon or with respect to any property of any kind, real or personal, movable or
immovable, now owned or hereafter acquired.
"Liquidated Damages" means all Liquidated Damages, if any, then owing
pursuant to the Registration Rights Agreement.
"Management Services Agreement" means that certain Amended and
Restated Management Advisory and Consulting Agreement dated as of January 24,
1999, between the Company, Panolam Industries, Ltd. and Genstar Capital, LLC, in
accordance with the terms thereof on the Issue Date, and without giving effect
to any future amendment or supplement thereto; provided, that the consulting fee
payable thereunder may not increase to $1,391,000 pursuant to the terms thereof
before the last to occur of (i) the cancellation of, and the payment of all
amounts owing under, the Domtar Note, (ii) the termination of, and the payment
of all amounts owing under, the Engagement Agreement, and (iii) the third
anniversary date of the Issue Date.
"Material Facility" means the manufacturing facilities owned by the
Company, the Subsidiary Guarantors or the Canadian Subsidiary located in
Huntsville, Ontario and Auburn, Maine or any replacement facility thereof.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"New Credit Facilities" means the revolving credit facilities and the
term loan facilities under the Credit Agreement and the Canadian Credit
Agreement.
"Net Cash Proceeds" means the aggregate amount of cash or Cash
Equivalents received by the Company in the case of a sale, or Capital
Contribution in respect, of Qualified
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Capital Stock and by the Company and its Subsidiaries in respect of an Asset
Sale plus, in the case of an issuance of Qualified Capital Stock upon any
exercise, exchange or conversion of securities (including options, warrants,
rights and convertible or exchangeable debt) of the Company that were issued for
cash on or after the Issue Date, the amount of cash originally received by the
Company upon the issuance of such securities (including options, warrants,
rights and convertible or exchangeable debt) less, in each case, the sum of all
payments, fees, commissions and (in the case of Asset Sales, reasonable and
customary) expenses (including, without limitation, the fees and expenses of
legal counsel and investment banking fees and expenses) incurred in connection
with such Asset Sale or sale of Qualified Capital Stock, and, in the case of an
Asset Sale only, less the amount (estimated reasonably and in good faith by the
Company) of income, franchise, sales and other applicable taxes required to be
paid by the Company or any of its respective Subsidiaries in connection with
such Asset Sale in the taxable year that such sale is consummated or in the
immediately succeeding taxable year, the computation of which shall take into
account the reduction in tax liability resulting from any available operating
losses and net operating loss carryovers, tax credits and tax credit
carryforwards, and similar tax attributes.
"Non-Recourse Indebtedness" means Indebtedness (a) as to which
neither the Company nor any of its Subsidiaries nor any Guarantor (i) provides
credit support of any kind (including any undertaking, agreement or instrument
that would constitute Indebtedness), (ii) is directly or indirectly liable (as a
guarantor or otherwise) or (iii) constitutes the lender, and (b) no default with
respect to which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any of its Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity.
"Notes Custodian" means the Trustee, as custodian with respect to the
Notes in global form, or any successor entity thereto.
"Obligation" means any principal, premium or interest payment, or
monetary penalty, or damages, due by the Company or any Guarantor under the
terms of the Notes or the Guarantees or the Indenture, including any Liquidated
Damages, if any, due pursuant to the terms of the Registration Rights Agreement.
"Offering Memorandum" means the final Offering Memorandum, dated
February 10, 1999, relating to the offer and sale of the Series A Notes.
"Officer" means, with respect to any Person, the Chairman of the
Board, the Chief Executive Officer, the President, the Chief Operating Officer,
the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the
Controller, the Secretary, any Assistant Secretary or any Vice President of such
Person.
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"Officers' Certificate" means a certificate signed on behalf of the
Company or any Guarantor by two Officers of the Company or such Guarantor, one
of whom must be the principal executive officer, the principal financial
officer, the treasurer or the principal accounting officer of the Company or
such Guarantor, that meets the requirements of Sections 12.4 and 12.5 hereof.
"Opinion of Counsel" means an opinion from legal counsel who is
reasonably acceptable to the Trustee, that meets the requirements of Sections
12.4 and 12.5 hereof. The counsel may be an employee of or counsel to the
Company or any Subsidiary of the Company.
"Panolam Canada" means Panolam Industries Ltd., a Canadian
corporation, so long as Panolam Industries Ltd. is a direct or indirect
subsidiary of the Company.
"Panolam Group" means Panolam Group, Inc., a Delaware corporation, so
long as Panolam Group, Inc. is a direct or indirect parent of the Company.
"Parent Guarantors" means Panolam Group and PII Second, Inc., a
Delaware corporation, so long as they are direct or indirect parents of the
Company, and their respective successors and assigns, each of which shall
execute a Guarantee in accordance with the provisions of this Indenture.
"Participant" means, with respect to the Depositary, Euroclear or
Cedel, a Person who has an account with the Depositary, Euroclear or Cedel,
respectively (and, with respect to The Depository Trust Company, shall include
Euroclear and Cedel).
"Permitted Indebtedness" means that:
(1) the Company may incur Indebtedness evidenced by the Notes and the
Exchange Notes and represented by the Indenture and the Subsidiary Guarantors
may incur the Subsidiary Guarantees up to the amounts being issued on the
original Issue Date;
(2) the Company and the Subsidiary Guarantors, as applicable, may
incur Refinancing Indebtedness with respect to any Existing Indebtedness, any
Indebtedness or Disqualified Capital Stock, as applicable, described in clause
(a) of this definition, incurred under the Debt Incurrence Ratio test of Section
4.7 or pursuant to this clause (b);
(3) the Company and its Subsidiaries may incur Indebtedness solely in
respect of bankers acceptances, letters of credit, surety and appeal bonds, and
performance bonds (to the extent that such incurrence does not result in the
incurrence
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<PAGE>
of any obligation to repay any obligation relating to borrowed money of others),
all in the ordinary course of business in accordance with customary industry
practices, in amounts and for the purpose of purchasing or acquiring, or
securing the purchase or acquisition of, goods and services as is customary in
the Company's industry; provided that the aggregate principal amount outstanding
of such Indebtedness (including any Refinancing Indebtedness and any other
Indebtedness issued to retire, refinance, refund, defease or replace such
Indebtedness) shall at no time exceed $2,500,000.
(4) the Company may incur Indebtedness to any Subsidiary Guarantor or
Canadian Subsidiary and any Subsidiary Guarantor or Canadian Subsidiary may
incur Indebtedness to any other Subsidiary Guarantor or Canadian Subsidiary or
to the Company; provided that in the case of Indebtedness of the Company (except
for loans to the Company from any Canadian Subsidiary made with borrowings under
the Canadian Credit Agreement), such obligations shall be unsecured and
subordinated in all respects to the Company's obligations pursuant to the Notes
and any event that causes any such obligee to no longer be a Subsidiary
Guarantor or Canadian Subsidiary, as applicable, shall be deemed to be a new
incurrence subject to the Indenture at such time;
(5) any Foreign Subsidiary may incur Indebtedness owed to any other
Foreign Subsidiary; provided that any event that causes any such obligee to no
longer be a Subsidiary shall be deemed a new incurrence of Indebtedness subject
to the Indenture at such time;
(6) the incurrence by the Company or any of its subsidiaries of
Interest Swap and Hedging Obligations that are incurred for the purpose of
fixing or hedging (a) interest rate risk with respect to any floating rate
Indebtedness that is permitted by the Indenture to be incurred or (b) currency
risk (to the extent incurred in the ordinary course of business as is customary
practice in the Company's industry and not for purposes of speculation), but
only to the extent that such incurrence does not result in a net increase in the
notional amount of Indebtedness of the Company outstanding on a consolidated
basis; and
(7) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument inadvertently
drawn against insufficient funds in the ordinary course of business.
"Permitted Investment" means Investments in (a) any of the Notes; (b)
Cash Equivalents; (c) intercompany notes to the extent permitted under clauses
(d) or (e) of the definition of ''Permitted Indebtedness''; (d) Investments by
the Company or any
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Subsidiary Guarantor in a Person in a Related Business if as a result of such
Investment such Person immediately becomes a Wholly Owned Subsidiary Guarantor
or such Person is immediately merged with or into the Company or a Wholly Owned
Subsidiary Guarantor; (e) loans and advances to employees and officers of the
Company and its Subsidiaries in the ordinary course of business for a bona fide
business purpose not in excess of $1,500,000 at any one time outstanding; (f)
Interest Swap and Hedging Obligations entered into in the ordinary course of the
Company's or its Subsidiaries' business and otherwise in compliance with the
Indenture; (g) Investments in securities of trade creditors or customers
received pursuant to any plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of such trade creditors or customers; (h) Investments
by the Company or any Subsidiary Guarantor in a Canadian Subsidiary or a
Subsidiary of a Canadian Subsidiary; (i) any Investment in the Company or in a
Wholly Owned Subsidiary Guarantor; and (j) Investments made by the Company or
its Subsidiaries as a result of consideration received in connection with an
Asset Sale made in compliance with Section 4.13.
"Permitted Lien" means (a) Liens existing on the Issue Date; (b) Liens
imposed by governmental authorities for taxes, assessments or other charges not
yet subject to penalty or which are being contested in good faith and by
appropriate proceedings, if adequate reserves with respect thereto are
maintained on the books of the Company in accordance with GAAP; (c) statutory
liens of carriers, warehousemen, mechanics, material men, landlords, repairmen
or other like Liens arising by operation of law in the ordinary course of
business; provided that (i) the underlying obligations are not overdue for a
period of more than 30 days, or (ii) such Liens are being contested in good
faith and by appropriate proceedings and adequate reserves with respect thereto
are maintained on the books of the Company in accordance with GAAP; (d) Liens
securing the performance of bids, trade contracts (other than 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;
(e) easements, rights-of-way, zoning, similar restrictions and other similar
encumbrances or title defects which, singly or in the aggregate, do not in any
case materially detract from the value of the property subject thereto (as such
property is used by the Company or any of its Subsidiaries) or interfere with
the ordinary conduct of the business of the Company or any of its Subsidiaries;
(f) Liens arising by operation of law in connection with judgments, only to the
extent, for an amount and for a period not resulting in an Event of Default with
respect thereto; (g) pledges or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other types
of social security legislation; (h) Liens securing the Notes; (i) Liens securing
Indebtedness of a Person existing at the time such Person becomes a Subsidiary
or is merged with or
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into the Company or a Subsidiary or Liens securing Indebtedness incurred in
connection with an Acquisition; provided that such Liens were in existence prior
to the date of such acquisition, merger or consolidation, were not incurred in
anticipation thereof, and do not extend to any other assets; (j) Liens arising
from Purchase Money Indebtedness permitted to be incurred pursuant to clause (a)
of Section 4.7; provided that such Liens relate solely to the property which is
subject to such Purchase Money Indebtedness; (k) leases or subleases granted to
other Persons in the ordinary course of business not materially interfering with
the conduct of the business of the Company or any of its Subsidiaries or
materially detracting from the value of the relative assets of the Company or
any Subsidiary; (l) Liens arising from precautionary Uniform Commercial Code
financing statement filings regarding operating leases entered into by the
Company or any of its Subsidiaries in the ordinary course of business; (m) Liens
securing Refinancing Indebtedness incurred to refinance any Indebtedness that
was previously so secured in a manner no more adverse to the Holders of the
Notes than the terms of the Liens securing such refinanced Indebtedness;
provided that the Indebtedness secured is not increased and the lien is not
extended to any additional assets or property that would not have been security
for the Indebtedness refinanced; and (n) Liens securing Indebtedness incurred
under the Credit Agreement, the Canadian Credit Agreement or any of the
guarantees pursuant to either of them, all in accordance with the terms of the
Indenture.
"Permitted Payments to Holdings" means without duplication as to
amount, (a) payments to Holdings (or to any Parent Guarantor for immediate
payment to Holdings) in an amount sufficient to permit Holdings to pay
reasonable and necessary operating expenses and other general corporate expenses
to the extent such expenses relate or are fairly allocable to the Company and
its Subsidiaries including any reasonable professional fees and expenses, but
not in excess of $50,000 in the aggregate during any consecutive 12-month
period, and (b) payments to Holdings (or to any Parent Guarantor for immediate
payment to Holdings) to enable Holdings to pay foreign, federal, state or local
tax liabilities ("Tax Payments"), not to exceed the amount of any tax
liabilities that would be otherwise payable by the Company and its United States
Subsidiaries to the appropriate taxing authorities if they filed separate tax
returns, to the extent that Holdings has an obligation to pay such tax
liabilities relating to the operations, assets or capital of the Company or its
United States Subsidiaries; provided that (i), notwithstanding the foregoing, in
the case of determining the amount of a Tax Payment that is permitted to be paid
by the Company and any of its United States Subsidiaries in respect of their
Federal income tax liability, such payment shall be determined assuming that the
Company is the parent company of an affiliated group (the "Company Affiliated
Group") filing a consolidated Federal income tax return and that
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Holdings and each such United States Subsidiary is a member of the Company
Affiliated Group and (ii) any Tax Payments shall, within 90 days of Holdings'
receipt of such payment, either be (a) used by Holdings to pay such tax
liabilities or (b) refunded to the payor.
"Person" means an individual, partnership, corporation, limited
liability company, unincorporated organization, trust or joint venture, or a
governmental agency or political subdivision thereof.
"Pioneer" means Pioneer Plastics Corporation, a Delaware corporation,
so long as it is a direct or indirect Subsidiary of the Company.
"Pro Forma" or "pro forma" shall have the meaning set forth in
Regulation S-X of the Securities Act of 1933, as amended, unless otherwise
specifically stated herein.
"preferred stock" means, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated,
whether voting or non-voting) of such Person's preferred or preference stock,
whether outstanding on the Issue Date or issued thereafter, including, without
limitation, all series and classes of such stock with any preference as to
dividends, liquidation payments, redemption or repayment.
"Private Placement Legend" means the legend set forth in Section
2.6(g)(i) to be placed on all Notes issued under this Indenture except where
specifically stated otherwise by the provisions of this Indenture.
"Public Equity Offering" means an underwritten public offering
pursuant to a registration statement filed with the Commission in accordance
with the Securities Act of 1933, as amended, of (i) Qualified Capital Stock of
the Company or (ii) Qualified Capital Stock of any Parent Guarantor or Holdings,
to the extent that the cash proceeds therefrom are used as a Capital
Contribution to the Company.
"Purchase Money Indebtedness" of any Person means any Indebtedness of
such Person to any seller or other Person incurred solely to finance the
acquisition (including in the case of a Capitalized Lease Obligation, the
lease), construction, installation, or improvement of any after acquired real or
personal tangible property which, in the reasonable good faith judgment of the
Board of Directors of the Company, is directly related to a Related Business of
the Company and which is incurred within
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180 days of such acquisition, installation, construction or improvement and is
secured only by the assets so financed and is without recourse to the Company or
any Guarantor other than the Person which owns the related assets.
"QIB" means a "qualified institutional buyer" as defined in Rule 144A.
"Qualified Capital Stock" means any Capital Stock of the Company, and
for purposes of the definition of "Public Equity Offering" only, any Parent
Guarantor or Holdings, that is not Disqualified Capital Stock.
"Qualified Exchange" means (i) any legal defeasance, redemption,
retirement, repurchase or other acquisition of Capital Stock or Indebtedness of
the Company issued on or after the Issue Date with the Net Cash Proceeds
received by the Company from the substantially concurrent sale of Qualified
Capital Stock or, to the extent used to retire Indebtedness of the Company
issued on or after the Issue Date, Subordinated Indebtedness of the Company or
(ii) any exchange of Qualified Capital Stock for any Capital Stock or
Indebtedness of the Company issued on or after the Issue Date or (iii) any
exchange of Subordinated Indebtedness of the Company for Subordinated
Indebtedness of the Company issued after the Issue Date.
"Record Date" means a Record Date specified in the Notes, whether or
not such date is a Business Day.
"Reference Period" with regard to any Person means the four full
fiscal quarters (or such lesser period during which such Person has been in
existence) ended immediately preceding any date upon which any determination is
to be made pursuant to the terms of the Notes or the Indenture.
"Refinancing Indebtedness" means Indebtedness or Disqualified Capital
Stock (a) issued in exchange for, or the proceeds from the issuance and sale of
which are used substantially concurrently to repay, redeem, defease, refund,
refinance, discharge or otherwise retire for value, in whole or in part, or (b)
constituting an amendment, modification or supplement to, or a deferral or
renewal of ((a) and (b) above are, collectively, a "Refinancing"), any
Indebtedness or Disqualified Capital Stock in a principal amount or, in the case
of Disqualified Capital Stock, liquidation preference, not to exceed (after
deduction of reasonable and customary fees and expenses incurred in connection
with the Refinancing plus the amount of any premium paid in connection with such
Refinancing in accordance with the terms of the documents governing the
Indebtedness refinanced without giving effect to any modification thereof
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made in connection with or in contemplation of such refinancing) the lesser of
(i) the principal amount or, in the case of Disqualified Capital Stock,
liquidation preference, of the Indebtedness or Disqualified Capital Stock so
Refinanced and (ii) if such Indebtedness being Refinanced was issued with an
original issue discount, the accreted value thereof (as determined in accordance
with GAAP) at the time of such Refinancing; provided that (A) such Refinancing
Indebtedness shall only be used to Refinance outstanding Indebtedness or
Disqualified Capital Stock of such Person issuing such Refinancing Indebtedness,
(B) such Refinancing Indebted ness shall (x) not have an Average Life shorter
than the Indebtedness or Disqualified Capital Stock to be so refinanced at the
time of such Refinancing and (y) in all respects, be no less subordinated or
junior, if applicable, to the rights of Holders of the Notes than was the
Indebtedness or Disqualified Capital Stock to be refinanced, (C) such
Refinancing Indebtedness shall have a final stated maturity or redemption date,
as applicable, no earlier than the final stated maturity or redemption date, as
applicable, of the Indebtedness or Disqualified Capital Stock to be so
refinanced, and (D) such Refinancing Indebtedness shall be secured (if secured)
in a manner no more adverse to the Holders of the Notes than the terms of the
Liens (if any) securing such refinanced Indebtedness, including, without
limitation, the amount of Indebtedness secured shall not be increased.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the Issue Date, by and among the Company, the Guarantors
and the Initial Purchasers, as such agreement may be amended, modified or
supplemented from time to time.
"Reg S Permanent Global Note" means one or more permanent Global Notes
bearing the Private Placement Legend, that will be issued in an aggregate amount
of denominations equal in total to the outstanding principal amount of the Reg S
Temporary Global Note upon expiration of the Distribution Compliance Period.
"Reg S Temporary Global Note" means one or more temporary Global Notes
bearing the Private Placement Legend and the Reg S Temporary Global Note Legend,
issued in an aggregate amount of denominations equal in total to the outstanding
principal amount of the Notes initially sold in reliance on Rule 903 of
Regulation S.
"Reg S Temporary Global Note Legend" means the legend set forth in
Section 2.6(g)(iii), which is required to be placed on all Reg S Temporary
Global Notes issued under this Indenture.
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"Regulation S" means Regulation S promulgated under the Securities
Act, as it may be amended from time to time, and any successor provision
thereto.
"Regulation S Global Note" means a Reg S Temporary Global Note or a
Reg S Permanent Global Note, as the case may be.
"Related Business" means the business conducted (or proposed to be
conducted) by the Company and its Subsidiaries as of the Issue Date and any and
all businesses that in the good faith judgment of the Board of Directors of the
Company are materially related businesses.
"Related Person" means any Person who controls, is controlled by or is
under common control with an Excluded Person; provided that for purposes of this
definition ''control'' means the beneficial ownership of more than 50% of the
total voting power of a Person normally entitled to vote in the election of
directors, managers or trustees, as applicable of a Person.
"Representative" means the indenture trustee or other trustee, agent
or representative for any Senior Debt.
"Restricted Definitive Note" means one or more Definitive Notes
bearing the Private Placement Legend, issued under this Indenture.
"Restricted Global Note" means one or more Global Notes bearing the
Private Placement Legend, issued under this Indenture; provided, that in no case
shall an Exchange Note issued in accordance with this Indenture and the terms of
the Registration Rights Agreement be a Restricted Global Note.
"Restricted Investment" means, in one or a series or related
transactions, any Investment, other than Permitted Investments.
"Restricted Payment" means, with respect to any Person, (a) the
declaration or payment of any dividend or other distribution in respect of
Equity Interests of such Person or any parent or Subsidiary of such Person, (b)
any payment on account of the purchase, redemption or other acquisition or
retirement for value of Equity Interests of such Person or any Subsidiary or
parent of such Person, (c) other than with the proceeds from the substantially
concurrent sale of, or in exchange for, Refinancing Indebtedness any purchase,
redemption, or other acquisition or retirement for value of, any payment in
respect of any amendment of the terms of or any defeasance of, any Subordinated
Indebtedness, directly or indirectly, by such Person or a parent or Subsidiary
of such Person prior to the scheduled maturity, any scheduled repayment of
principal, or scheduled sinking fund payment, as the case may be, of such
Indebtedness and (d) any Restricted Investment by such Person; provided that the
term "Restricted Payment" does not include (i) any
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dividend, distribution or other payment on or with respect to Equity Interests
of an issuer to the extent payable solely in shares of Qualified Capital Stock
of such issuer; (ii) any dividend, distribution or other payment to the Company,
or to any of its Subsidiary Guarantors, by the Company or any of its
Subsidiaries; or (iii) Earn Out Payments made pursuant to the Stock Purchase
Agreement.
"Rule 144A" means Rule 144A promulgated under the Securities Act, as
it may be amended from time to time, and any successor provision thereto.
"SEC" means the United States Securities and Exchange Commission, or
any successor agency.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the SEC thereunder.
"Senior Debt" of the Company or any Guarantor means (i) all
Indebtedness (including any monetary obligation in respect of the Credit
Agreement or the Canadian Credit Agreement, and interest, whether or not
allowable, accruing on Indebtedness incurred pursuant to the Credit Agreement or
the Canadian Credit Agreement after the filing of a petition initiating any
proceeding under any bankruptcy, insolvency or similar law) outstanding under
the Credit Agreement and the Canadian Credit Agreement, including any guarantees
thereof and all Interest Swap and Hedging Obligations with respect thereto, (ii)
any other Indebtedness permitted to be incurred by the Company or such Guarantor
under the terms of the Indenture, unless the instrument under which such
Indebtedness is incurred expressly provides that it is on a parity with or
subordinated in right of payment to the Notes, and (iii) all Obligations with
respect to the foregoing. Notwithstanding anything to the contrary in the
foregoing, Senior Debt will not include (w) any liability for federal, state,
local or other taxes owed or owing by the Company, (x) any Indebtedness of the
Company or any Guarantor to any of its Subsidiaries or other Affiliates, (y) any
trade payables or (z) any Indebtedness that is incurred in violation of the
Indenture.
"Shelf Registration Statement" shall have the meaning set forth in the
Registration Rights Agreement.
"Significant Subsidiary" shall have the meaning provided under
Regulation S-X of the Securities Act, as in effect from time to time.
"S&P" means Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, and its successors.
"Special Record Date" means, for payment of any Defaulted Interest, a
date fixed by the Paying Agent pursuant to Section 2.12.
"Stated Maturity" or "stated maturity" means, (i) with respect to any
debt security, the date specified in such debt security as the fixed date on
which the final installment
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of principal of such debt security is due and payable (which shall mean February
15, 2009 with respect to the Notes) and (ii) with respect to any scheduled
installment of principal of or interest on any debt security, the date specified
in such debt security as the fixed date on which such installment is due and
payable.
"Stock Purchase Agreement" means that certain Stock Purchase
Agreement, dated as of July 17, 1998, as amended as of September 11, 1998,
October 16, 1998 and November 30, 1998, by and between Rugby USA, Inc., a
Georgia corporation, and the Company, as in effect on the Issue Date.
"Subordinated Indebtedness" means Indebtedness of the Company or a
Guarantor that is subordinated in right of payment by its terms or the terms of
any document or instrument or instrument relating thereto to the Notes or the
Guarantees, as applicable, in any respect or when used in the definition of
Restricted Payment has a final stated maturity on (except for the Notes) or
after the Stated Maturity of the Notes, and shall include all Indebtedness under
the Engagement Agreement.
"Subsidiary" with respect to any Person, means (i) any corporation a
majority of whose Equity Interests with voting power, under ordinary
circumstances, to elect directors is at the time, directly or indirectly, owned
by such Person, by such Person and one or more Subsidiaries of such Person or by
one or more Subsidiaries of such Person, (ii) any other Person (other than a
corporation) in which such Person, one or more Subsidiaries of such Person, or
such Person and one or more Subsidiaries of such Person, directly or indirectly,
at the date of determination thereof has at least majority ownership interest
and (iii) any partnership in which such Person or a Subsidiary of such Person
is, at the time, a general partner and in which such Person, directly or
indirectly, at the date of determination thereof has at least a majority
ownership interest. Notwithstanding the foregoing, an Unrestricted Subsidiary
shall not be a Subsidiary of the Company or of any Subsidiary of the Company.
Unless the context requires otherwise, Subsidiary means each direct and indirect
Subsidiary of the Company.
"Subsidiary Guarantors" means any Subsidiary that executes a Guarantee
in accordance with the provisions of this Indenture, and their respective
successors and assigns, until such Subsidiary is released from its obligations
as a Guarantor in accordance with the terms of this Indenture.
"Term Facilities" means an aggregate of $105,000,000 of term loan
facilities under the Credit Agreement and the Canadian Credit Agreement.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. (S)(S) 77aaa-
77bbbb) as in effect on the date on which this Indenture is qualified under the
TIA.
"Transactions" means all of the following transactions which will
occur on the date hereof: (i) the Company will purchase all of the equity
securities of Pioneer pursuant to the
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terms of the Stock Purchase Agreement, after which Pioneer will become a wholly
owned direct Subsidiary of the Company and a Subsidiary Guarantor hereunder (the
"Pioneer Acquisition"); (ii) the shareholders of Holdings in existence on the
date hereof will purchase shares of Class A Common Stock, par value $0.01 per
share, of Holdings, for an aggregate purchase price of $5,000,000, the proceeds
of which shall be contributed to the Qualified Capital Stock of the Company on
the Closing Date (the "Capital Contribution"); (iii) the Company and the
guarantors thereunder will enter into the Credit Agreement and Panolam Canada
and the guarantors thereunder will enter into the Canadian Credit Agreement;
(iv) the Company and the Canadian Subsidiary will borrow the full amount under
the Term Facilities (the "Initial Borrowings"); (v) the Company will issue the
Notes; and (vi) the Company will apply the net proceeds of the offering of the
Notes, the Initial Borrowings and the Capital Contribution in the manner
indicated in the Offering Memorandum under the caption "The Transactions", all
substantially on the terms described in the documentation for the Transactions
on the date of the Offering Memorandum (without regard to any amendment,
supplement or waiver thereto that is (a) entered into after the date of the
Offering Memorandum and (b) not contemplated in the Offering Memorandum);
provided , that for purposes of clause (s) of the second paragraph of Section
4.9, the Transactions shall not include any amounts owing or paid under the
Engagement Agreement and; provided, further, that the Company may pay the fees
and expenses described in the Offering Memorandum in connection with the
Transactions prior to, on or after the date hereof.
"Transfer Restricted Notes" means Global Notes and Definitive Notes
that bear or are required to bear the Private Placement Legend, issued under
this Indenture.
"Trustee" means the party named as such above until a successor
replaces it in accordance with the applicable provisions of this Indenture and
thereafter means such successor serving hereunder.
"Unrestricted Definitive Note" means one or more Definitive Notes that
do not bear and are not required to bear the Private Placement Legend, issued
under this Indenture.
"Unrestricted Global Note" means one or more permanent Global Notes
representing a series of Notes that does not bear and is not required to bear
the Private Placement Legend, issued under this Indenture.
"Unrestricted Subsidiary" means any subsidiary of the Company that
does not own any Capital Stock of, or own or hold any Lien on any property of,
the Company or any other Subsidiary of the Company and that, at the time of
determination, shall be an Unrestricted Subsidiary (as designated by the Board
of Directors of the Company); provided that at the time of designation such
Subsidiary: (a) has no Indebtedness other than Non-Recourse Indebtedness; (b) is
not party to any agreement, contract, arrangement or understanding with the
Company or any Subsidiary of the Company unless the terms of any such agreement,
contract, arrangement or understanding are no less favorable to the Company or
such Subsidiary than those that might be obtained at the time from Persons who
are not Affiliates of the Company; (c) is a Person with
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respect to which neither the Company nor any of its Subsidiaries has any direct
or indirect obligation (x) to subscribe for additional Equity Interests or (y)
to maintain or preserve such Person's financial condition or to cause such
Person to achieve any specified levels of operating results; and (d) has not
guaranteed or otherwise directly or indirectly provided credit support for any
Indebtedness of the Company or any of its Subsidiaries. The Board of Directors
of the Company may designate any Unrestricted Subsidiary to be a Subsidiary;
provided that (i) no Default or Event of Default is existing or will occur as a
consequence thereof and (ii) immediately after giving effect to such
designation, on a pro forma basis, the Company could incur at least $1.00 of
Indebtedness pursuant to the Debt Incurrence Ratio test of Section 4.7. Each
such designation shall be evidenced by filing with the Trustee a certified copy
of the resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing conditions. The
Company has designated two of its indirect, inactive subsidiaries, The Melamine
Group, Inc. and Melamine Decorative Laminate, Inc. as Unrestricted Subsidiaries.
Neither of such Unrestricted Subsidiaries has any material assets or liabilities
or conducts any operations.
"U.S. Government Obligations" means direct non-callable obligations
of, or noncallable obligations guaranteed by, the United States of America for
the payment of which obligation or guarantee the full faith and credit of the
United States of America is pledged.
"U.S. Person" means a U.S. person as defined in Rule 902(o) under the
Securities Act.
"Voting Equity Interests" means Equity Interests which at the time are
entitled to vote in the election of, as applicable, directors, members or
partners generally.
"Wholly Owned Subsidiary" means a Subsidiary all the Equity Interests
of which are owned by the Company or one or more Wholly-Owned Subsidiaries of
the Company.
Section 1.2 Other Definitions
Term Defined in Section
----- ------------------
"Affiliate Transaction" 4.12
"Asset Sale" 4.13
"Asset Sale Offer" 4.13
"Asset Sale Offer Amount" 4.13
"Asset Sale Offer Period" 4.13
"Asset Sale Offer Price" 4.13
"Authentication Order" 2.2
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"Bankruptcy Law" 6.1
"Benefitted Party" 10.1
"Change of Control" 4.14
"Change of Control Offer" 4.14
"Change of Control Offer Period" 4.14
"Change of Control Purchase Date" 4.14
"Change of Control Purchase Price" 4.14
"Covenant Defeasance" 8.3
"Custodian" 6.1
"Debt Incurrence Ratio" 4.7
"Defaulted Interest" 2.12
"DTC" 2.3
"Excess Proceeds" 4.13
"Guarantee Obligations" 10.1
"Incur" or "Incurrence" 4.7
"Incurrence Date" 4.7
"Legal Defeasance" 8.2
"Nonpayment Default" 11.3
"Paying Agent" 2.3
"Payment Blockage Notice" 11.3
"Payment Default" 11.3
"Registrar" 2.3
"Restricted Payments" 4.9
Section 1.3 Incorporation by Reference of Trust Indenture Act
Whenever this Indenture refers to a provision of the TIA, such
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
"Commission" means the Securities and Exchange Commission;
"indenture securities" means the Notes;
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"indenture security Holder" means a Holder of a Note;
`"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee;
"obligor" on the Notes means the Company, each Guarantor and any
successor obligor upon the Notes.
All other terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by SEC rule under
the TIA have the meanings so assigned to them.
Section 1.4 Rules of Construction
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the plural
include the singular;
(5) provisions apply to successive events and transactions;
(6) "herein," "hereof" and other words of similar import refer to
this Indenture as a whole and not to any particular Article, Section or other
subdivision; and
(7) references to sections of or rules under the Securities Act
and the Exchange Act shall be deemed to include substitute, replacement of
successor sections or rules adopted by the SEC from time to time.
ARTICLE II
THE NOTES
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Section 2.1 Form and Dating
(1) General. The Notes and the Trustee's certificate of
authentication shall be substantially in the form of Exhibit A hereto. The
Notes may have notations, legends or endorsements required by law, stock
exchange rule or usage. Each Note shall be dated the date of its
authentication. The Notes shall be in denominations of $1,000 and integral
multiples thereof.
The terms and provisions contained in the Notes shall constitute,
and are hereby expressly made, a part of this Indenture and the Company, the
Guarantors and the Trustee, by their execution and delivery of this Indenture,
expressly agree to such terms and provisions and to be bound thereby. However,
to the extent any provision of any Note conflicts with the express provisions of
this Indenture, the provisions of this Indenture shall govern and be
controlling.
(2) Global Notes. Notes issued in global form shall be
substantially in the form of Exhibit A attached hereto (including the Global
Note Legend thereon and the "Schedule of Exchanges of Interests in the Global
Note" attached thereto). Notes issued in definitive form shall be substantially
in the form of Exhibit A attached hereto (but without the Global Note Legend
thereon and without the "Schedule of Exchanges of Interests in the Global Note"
attached thereto). Each Global Note shall represent such of the outstanding
Notes as shall be specified therein and each shall provide that it shall
represent the aggregate principal amount of outstanding Notes from time to time
endorsed thereon and that the aggregate principal amount of outstanding Notes
represented thereby may from time to time be reduced or increased, as
appropriate, to reflect exchanges and redemptions. Any endorsement of a Global
Note to reflect the amount of any increase or decrease in the aggregate
principal amount of outstanding Notes represented thereby shall be made by the
Trustee or the Notes Custodian, at the direction of the Trustee, in accordance
with instructions given by the Holder thereof as required by Section 2.6 hereof.
(3) Euroclear and Cedel Procedures Applicable. The provisions of
the "Operating Procedures of the Euroclear System" and "Terms and Conditions
Governing Use of Euroclear" and the "General Terms and Conditions of Cedel Bank"
and "Customer Handbook" of Cedel Bank in effect at the relevant time shall be
applicable to transfers of beneficial interests in the Regulation S Global Notes
that are held by Participants through Euroclear or Cedel Bank.
Section 2.2 Execution and Authentication
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Two officers shall sign the Notes for the Company by manual or
facsimile signature. In the case of Definitive Notes, such signatures may be
imprinted or otherwise reproduced on such Notes. If an Officer whose signature
is on a Note no longer holds that office at the time a Note is authenticated,
the Note shall nevertheless be valid. A Note shall not be valid until
authenticated by the manual signature of the Trustee. The signature shall be
conclusive evidence that the Note has been authenticated under this Indenture.
The Trustee shall, upon a written order of the Company signed by an Officer (an
"Authentication Order"), authenticate Notes for issuance up to the aggregate
principal amount stated in such Authentication Order; provided that Notes
authenticated for issuance on the Issue Date shall not exceed $135,000,000 in
aggregate principal amount. The aggregate principal amount of Notes outstanding
at any time may not exceed $135,000,000, except in accordance with Section 2.8.
The Trustee may appoint an authenticating agent acceptable to the Company to
authenticate Notes. An authenticating agent may authenticate Notes whenever the
Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such agent. An authenticating agent has the
same rights as an Agent to deal with Holders or an Affiliate of the Company.
Section 2.3 Registrar, Paying Agent and depositary
The Company shall maintain an office or agency in the Borough of
Manhattan, The City of New York, where Notes may be presented for registration
of transfer or for exchange ("Registrar") and an office or agency where Notes
may be presented for payment ("Paying Agent"). The Registrar shall keep a
register of the Notes and of their transfer and exchange. The Company may
appoint one or more co-registrars and one or more additional paying agents. The
term "Registrar" includes any co-registrar and the term "Paying Agent" includes
any additional paying agent. The Company may change any Paying Agent or
Registrar without notice to any Holder. The Company shall notify the Trustee in
writing of the name and address of any Agent not a party to this Indenture. If
the Company fails to appoint or maintain another entity as Registrar or Paying
Agent, the Trustee shall act as such. The Company or any of its Subsidiaries
may act as Paying Agent or Registrar. The Company initially appoints The
Depository Trust Company ("DTC") to act as Depositary with respect to the Global
Notes. The Company initially appoints the Trustee to act as the Registrar and
Paying Agent and to act as Notes Custodian with respect to the Global Notes.
Section 2.4 Paying Agent to Hold Money in Trust
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The Company shall require each Paying Agent other than the Trustee to
agree in writing that the Paying Agent will hold in trust for the benefit of
Holders or the Trustee all money held by the Paying Agent for the payment of
principal, premium or Liquidated Damages, if any, or interest on the Notes, and
will notify the Trustee of any default by the Company in making any such
payment. While any such default continues, the Trustee may require a Paying
Agent to pay all money held by it to the Trustee. The Company at any time may
require a Paying Agent to pay all money held by it to the Trustee. Upon payment
over to the Trustee, the Paying Agent (if other than the Company or a
Subsidiary) shall have no further liability for the money. If the Company or a
Subsidiary acts as Paying Agent, it shall segregate and hold in a separate trust
fund for the benefit of the Holders all money held by it as Paying Agent. Upon
any bankruptcy or reorganization proceedings relating to the Company, the
Trustee shall serve as Paying Agent for the Notes.
Section 2.5 Holder Lists
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
all Holders and shall otherwise comply with TIA (S) 312(a). If the Trustee is
not the Registrar, the Company shall furnish, or shall cause the Registrar (if
other than the Company) to furnish, to the Trustee at least seven Business Days
before each Interest Payment Date and at such other times as the Trustee may
request in writing, a list in such form and as of such date as the Trustee may
reasonably require of the names and addresses of the Holders of Notes and the
Company shall otherwise comply with TIA (S) 312(a).
Section 2.6 Transfer and Exchange
(1) Transfer and Exchange of Global Notes. A Global Note may not be
transferred as a whole except by the Depositary to a nominee of the Depositary,
by a nominee of the Depositary to the Depositary or to another nominee of the
Depositary, or by the Depositary or any such nominee to a successor Depositary
or a nominee of such successor Depositary. All Global Notes will be exchanged
by the Company for Definitive Notes if (i) the Company delivers to the Trustee
notice from the Depositary that (x) the Depositary is unwilling or unable to
continue to act as Depositary for the Global Notes and the Company thereupon
fails to appoint a successor Depositary within 90 days or (y) the Depositary is
no longer a clearing agency registered under the Exchange Act, (ii) the Company
in its sole discretion determines that the Global Notes (in whole but not in
part) should be exchanged for Definitive Notes and delivers a written notice to
such effect to the Trustee or (iii) upon request of the Trustee or Holders
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of a majority of the aggregate principal amount of outstanding Notes if there
shall have occurred and be continuing a Default or Event of Default with respect
to the Notes; provided that in no event shall the Reg S Temporary Global Note be
exchanged by the Company for Definitive Notes prior to (x) the expiration of the
Distribution Compliance Period and (y) the receipt by the Registrar of any
certificate identified by the Company and its counsel to be required pursuant to
Rule 903 or Rule 904 under the Securities Act. Upon the occurrence of any of the
preceding events in (i), (ii) or (iii) above, Definitive Notes shall be issued
in such names as the Depositary shall instruct the Trustee. Global Notes also
may be exchanged or replaced, in whole or in part, as provided in Sections 2.7
and 2.10 hereof. Every Note authenticated and delivered in exchange for, or in
lieu of, a Global Note or any portion thereof, pursuant to this Section 2.6 or
Section 2.7 or 2.10 hereof, shall be authenticated and delivered in the form of,
and shall be, a Global Note. A Global Note may not be exchanged for another Note
other than as provided in this Section 2.6(a), however, beneficial interests in
a Global Note may be transferred and exchanged as provided in Section 2.6(b),
(c) or (f) hereof.
(2) Transfer and Exchange of Beneficial Interests in the Global Notes.
The transfer and exchange of beneficial interests in the Global Notes shall be
effected through the Depositary, in accordance with the provisions of this
Indenture and the Applicable Procedures. Beneficial interests in the Restricted
Global Notes shall be subject to restrictions on transfer comparable to those
set forth herein to the extent required by the Securities Act. Transfers of
beneficial interests in the Global Notes also shall require compliance with
either subparagraph (i) or (ii) below, as applicable, as well as one or more of
the other following subparagraphs, as applicable:
(1) Transfer of Beneficial Interests in the Same Global Note.
Beneficial interests in any Restricted Global Note may be transferred to Persons
who take delivery thereof in the form of a beneficial interest in the same
Restricted Global Note in accordance with the transfer restrictions set forth in
the Private Placement Legend; provided, however, that prior to the expiration of
the Distribution Compliance Period, transfers of beneficial interests in the Reg
S Temporary Global Note may not be made to a U.S. Person or for the account or
benefit of a U.S. Person (other than an Initial Purchaser). Beneficial
interests in any Unrestricted Global Note may be transferred to Persons who take
delivery thereof in the form of a beneficial interest in an Unrestricted Global
Note. No written orders or instructions shall be required to be delivered to
the Registrar to effect the transfers described in this Section 2.6(b)(i).
(2) All Other Transfers and Exchanges of Beneficial Interests
in Global Notes. In connection with all transfers and exchanges of beneficial
interests
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that are not subject to Section 2.6(b)(i) above, the transferor of such
beneficial interest must deliver to the Registrar either (A) (1) an order from a
Participant or an Indirect Participant given to the Depositary in accordance
with the Applicable Procedures directing the Depositary to credit or cause to be
credited a beneficial interest in another Global Note in an amount equal to the
beneficial interest to be transferred or exchanged and (2) instructions given in
accordance with the Applicable Procedures containing information regarding the
Participant account to be credited with such increase or (B) (1) an order from a
Participant or an Indirect Participant given to the Depositary in accordance
with the Applicable Procedures directing the Depositary to cause to be issued a
Definitive Note in an amount equal to the beneficial interest to be transferred
or exchanged and (2) instructions given by the Depositary to the Registrar
containing information regarding the Person in whose name such Definitive Note
shall be registered to effect the transfer or exchange referred to in (B)(1)
above; provided, that in no event shall Definitive Notes be issued upon the
transfer or exchange of beneficial interests in the Reg S Temporary Global Note
prior to (x) the expiration of the Distribution Compliance Period and (y) the
receipt by the Registrar of any certificates identified by the Company or its
counsel to be required pursuant to Rule 903 and Rule 904 under the Securities
Act. Upon consummation of an Exchange Offer by the Company in accordance with
Section 2.6(f) hereof, the requirements of this Section 2.6(b)(ii) shall be
deemed to have been satisfied upon receipt by the Registrar of the instructions
contained in the Letter of Transmittal delivered by the Holder of such
beneficial interests in the Restricted Global Notes. Upon satisfaction of all of
the requirements for transfer or exchange of beneficial interests in Global
Notes contained in this Indenture and the Notes or otherwise applicable under
the Securities Act, the Trustee shall adjust the principal amount of the
relevant Global Note(s) pursuant to Section 2.6(h) hereof.
(3) Transfer of Beneficial Interests to Another Restricted Global
Note. A beneficial interest in any Restricted Global Note may be transferred to
a Person who takes delivery thereof in the form of a beneficial interest in
another Restricted Global Note if the transfer complies with the requirements of
Section 2.6(b)(ii) above and the Registrar receives the following:
(1) if the transferee will take delivery in the form of a
beneficial interest in the 144A Global Note, then the transferor must deliver
a certificate in the form of Exhibit B hereto, including the certifications in
item (1) thereof; and
(2) if the transferee will take delivery in the form of a
beneficial interest in the Reg S Temporary Global Note or the Reg S Permanent
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Global Note, then the transferor must deliver a certificate in the form of
Exhibit B hereto, including the certifications in item (2) thereof.
(4) Transfer and Exchange of Beneficial Interests in a Restricted
Global Note for Beneficial Interests in the Unrestricted Global Note. A
beneficial interest in any Restricted Global Note may be exchanged by any holder
thereof for a beneficial interest in an Unrestricted Global Note or transferred
to a Person who takes delivery thereof in the form of a beneficial interest in
an Unrestricted Global Note if the exchange or transfer complies with the
requirements of Section 2.6(b)(ii) above and:
(1) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights Agreement and
Section 2.6(f) hereof, and the holder of the beneficial interest to be
transferred, in the case of an exchange, or the transferee, in the case of a
transfer, certifies in the applicable Letter of Transmittal that it is not (1)
a Broker-Dealer, (2) a Person participating in the distribution of the
Exchange Notes or (3) a Person who is an affiliate (as defined in Rule 144) of
the Company;
(2) such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights Agreement;
(3) such transfer is effected by a Broker-Dealer pursuant to
the Exchange Offer Registration Statement in accordance with the Registration
Rights Agreement; or
(4) the Registrar receives the following: (1) if the holder of
such beneficial interest in a Restricted Global Note proposes to exchange such
beneficial interest for a beneficial interest in an Unrestricted Global Note,
a certificate from such holder in the form of Exhibit C hereto, including the
certifications in item (1)(a) thereof; or (2) if the holder of such beneficial
interest in a Restricted Global Note proposes to transfer such beneficial
interest to a Person who shall take delivery thereof in the form of a
beneficial interest in an Unrestricted Global Note, a certificate from such
holder in the form of Exhibit B hereto, including the certifications in item
(4) thereof; and, in each such case set forth in this subparagraph (D), an
Opinion of Counsel in form, and from legal counsel, reasonably acceptable to
the Registrar and the Company to the effect that such exchange or transfer is
in compliance with the Securities Act and that the restrictions
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on transfer contained herein and in the Private Placement Legend are no longer
required in order to maintain compliance with the Securities Act.
If any such transfer is effected pursuant to subparagraph (B) or (D)
above at a time when an Unrestricted Global Note has not yet been issued, the
Company shall issue and, upon receipt of an Authentication Order in accordance
with Section 2.2 hereof, the Trustee shall authenticate one or more Unrestricted
Global Notes in an aggregate principal amount equal to the aggregate principal
amount of beneficial interests transferred pursuant to subparagraph (B) or (D)
above. Beneficial interests in an Unrestricted Global Note cannot be exchanged
for, or transferred to Persons who take delivery thereof in the form of, a
beneficial interest in a Restricted Global Note.
(3) Transfer or Exchange of Beneficial Interests for Definitive Notes.
(1) Beneficial Interests in Restricted Global Notes to Restricted
Definitive Notes. If any holder of a beneficial interest in a Restricted Global
Note proposes to exchange such beneficial interest for a Restricted Definitive
Note or to transfer such beneficial interest to a Person who takes delivery
thereof in the form of a Restricted Definitive Note, then, upon receipt by the
Registrar of the following documentation:
(1) if the holder of such beneficial interest in a Restricted
Global Note proposes to exchange such beneficial interest for a Restricted
Definitive Note, a certificate from such holder in the form of Exhibit C
hereto, including the certifications in item (2)(a) thereof;
(2) if such beneficial interest is being transferred to a QIB
in accordance with Rule 144A under the Securities Act, a certificate to the
effect set forth in Exhibit B hereto, including the certifications in item (1)
thereof;
(3) if such beneficial interest is being transferred to a Non-
U.S. Person in an offshore transaction in accordance with Rule 903 or Rule 904
under the Securities Act, a certificate to the effect set forth in Exhibit B
hereto, including the certifications in item (2) thereof;
(4) if such beneficial interest is being transferred pursuant
to an exemption from the registration requirements of the Securities Act in
accordance with Rule 144 under the Securities Act, a certificate to the effect
set forth in Exhibit B hereto, including the certifications in item (3)(a)
thereof;
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(5) if such beneficial interest is being transferred to an
Institutional Accredited Investor in reliance on an exemption from the
registration requirements of the Securities Act other than those listed in
subparagraphs (B) through (D) above, a certificate to the effect set forth in
Exhibit B hereto, including the certifications, certificates and Opinion of
Counsel required by item (3) thereof, if applicable;
(6) if such beneficial interest is being transferred to the
Company or any of its Subsidiaries, a certificate to the effect set forth in
Exhibit B hereto, including the certifications in item (3)(b) thereof; or
(7) if such beneficial interest is being transferred pursuant
to an effective registration statement under the Securities Act, a certificate
to the effect set forth in Exhibit B hereto, including the certifications in
item (3)(c) thereof,
the Trustee shall cause the aggregate principal amount of the applicable
Restricted Global Note to be reduced accordingly pursuant to Section 2.6(h)
hereof, and the Company shall execute and, upon receipt of an Authentication
Order pursuant to Section 2.2, the Trustee shall authenticate and deliver to the
Person designated in the instructions a Restricted Definitive Note in the
appropriate principal amount. Any Restricted Definitive Note issued in exchange
for a beneficial interest in a Restricted Global Note pursuant to this Section
2.6(c) shall be registered in such name or names and in such authorized
denomination or denominations as the holder of such beneficial interest shall
instruct the Registrar through instructions from the Depositary and the
Participant or Indirect Participant. The Trustee shall deliver such Restricted
Definitive Notes to the Persons in whose names such Notes are so registered.
Any Restricted Definitive Note issued in exchange for a beneficial interest in a
Restricted Global Note pursuant to this Section 2.6(c)(i) shall bear the Private
Placement Legend and shall be subject to all restrictions on transfer contained
therein.
(2) Beneficial Interests in Restricted Global Notes to
Unrestricted Definitive Notes. A holder of a beneficial interest in a Restricted
Global Note may exchange such beneficial interest for an Unrestricted Definitive
Note or may transfer such beneficial interest to a Person who takes delivery
thereof in the form of an Unrestricted Definitive Note only if:
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(1) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights Agreement and
Section 2.6(f) hereof, and the holder of such beneficial interest, in the case
of an exchange, or the transferee, in the case of a transfer, certifies in the
applicable Letter of Transmittal that it is not (1) a Broker-Dealer, (2) a
Person participating in the distribution of the Exchange Notes or (3) a Person
who is an affiliate (as defined in Rule 144) of the Company;
(2) such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights Agreement;
(3) such transfer is effected by a Broker-Dealer pursuant to
the Exchange Offer Registration Statement in accordance with the Registration
Rights Agreement; or
(4) the Registrar receives the following: (1) if the holder of
such beneficial interest in a Restricted Global Note proposes to exchange such
beneficial interest for a Definitive Note that does not bear the Private
Placement Legend, a certificate from such holder in the form of Exhibit C
hereto, including the certifications in item (1)(b) thereof; or (2) if the
holder of such beneficial interest in a Restricted Global Note proposes to
transfer such beneficial interest to a Person who shall take delivery thereof
in the form of a Definitive Note that does not bear the Private Placement
Legend, a certificate from such holder in the form of Exhibit B hereto,
including the certifications in item (4) thereof; and, in each such case set
forth in this subparagraph (D), an Opinion of Counsel in form, and from legal
counsel, reasonably acceptable to the Registrar and the Company to the effect
that such exchange or transfer is in compliance with the Securities Act and
that the restrictions on transfer contained herein and in the Private
Placement Legend are no longer required in order to maintain compliance with
the Securities Act.
(3) Beneficial Interests in Unrestricted Global Notes to
Unrestricted Definitive Notes. If any holder of a beneficial interest in an
Unrestricted Global Note proposes to exchange such beneficial interest for an
Unrestricted Definitive Note or to transfer such beneficial interest to a Person
who takes delivery thereof in the form of an Unrestricted Definitive Note, then,
upon satisfaction of the conditions set forth in Section 2.6(b)(ii) hereof, the
Trustee shall cause the aggregate principal amount of the applicable
Unrestricted Global Note to be reduced accordingly pursuant to Section 2.6(h)
hereof, and the Company shall execute and, upon receipt of an Authentication
Order pursuant to Section 2.2, the Trustee shall authenticate and deliver to the
Person
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designated in the instructions an Unrestricted Definitive Note in the
appropriate principal amount. Any Unrestricted Definitive Note issued in
exchange for a beneficial interest pursuant to this Section 2.6(c)(iii) shall be
registered in such name or names and in such authorized denomination or
denominations as the holder of such beneficial interest shall instruct the
Registrar through instructions from the Depositary and the Participant or
Indirect Participant. The Trustee shall deliver such Unrestricted Definitive
Notes to the Persons in whose names such Notes are so registered. Any
Unrestricted Definitive Note issued in exchange for a beneficial interest
pursuant to this Section 2.6(c)(iii) shall not bear the Private Placement
Legend.
(4) Transfer or Exchange of Reg S Temporary Global Notes.
Notwithstanding the other provisions of this Section 2.6, a beneficial interest
in the Reg S Temporary Global Note may not be (A) exchanged for a Definitive
Note prior to (x) the expiration of the Distribution Compliance Period (unless
such exchange is effected by the Company, does not require an investment
decision on the part of the holder thereof and does not violate the provisions
of Regulation S) and (y) the receipt by the Registrar of any certificates
identified by the Company or its counsel to be required pursuant to Rule
903(c)(3)(B) under the Securities Act or (B) transferred to a Person who takes
delivery thereof in the form of a Definitive Note prior to the events set forth
in clause (A) above or unless the transfer is pursuant to an exemption from the
registration requirements of the Securities Act other than Rule 903 or Rule 904.
(4) Transfer and Exchange of Definitive Notes for Beneficial
Interests.
(1) Restricted Definitive Notes to Beneficial Interests in
Restricted Global Notes. If any Holder of a Restricted Definitive Note proposes
to exchange such Note for a beneficial interest in a Restricted Global Note or
to transfer such Restricted Definitive Notes to a Person who takes delivery
thereof in the form of a beneficial interest in a Restricted Global Note, then,
upon receipt by the Registrar of the following documentation:
(1) if the Holder of such Restricted Definitive Note proposes
to exchange such Note for a beneficial interest in a Restricted Global Note, a
certificate from such Holder in the form of Exhibit C hereto, including the
certifications in item (2)(b) thereof;
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(2) if such Restricted Definitive Note is being transferred to
a QIB in accordance with Rule 144A under the Securities Act, a certificate to
the effect set forth in Exhibit B hereto, including the certifications in item
(1) thereof; or
(3) if such Restricted Definitive Note is being transferred to
a Non-U.S. Person in an offshore transaction in accordance with Rule 903 or
Rule 904 under the Securities Act, a certificate to the effect set forth in
Exhibit B hereto, including the certifications in item (2) thereof,
the Trustee shall cancel the Restricted Definitive Note, increase or cause to be
increased the aggregate principal amount of, in the case of clause (A) above,
the appropriate Restricted Global Note, in the case of clause (B) above, the
144A Global Note, and in the case of clause (C) above, the Regulation S Global
Note.
(2) Restricted Definitive Notes to Beneficial Interests in
Unrestricted Global Notes. A Holder of a Restricted Definitive Note may exchange
such Note for a beneficial interest in an Unrestricted Global Note or transfer
such Restricted Definitive Note to a Person who takes delivery thereof in the
form of a beneficial interest in an Unrestricted Global Note only if:
(1) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights Agreement and
Section 2.6(f) hereof, and the Holder, in the case of an exchange, or the
transferee, in the case of a transfer, certifies in the applicable Letter of
Transmittal that it is not (1) a Broker-Dealer, (2) a Person participating in
the distribution of the Exchange Notes or (3) a Person who is an affiliate (as
defined in Rule 144) of the Company;
(2) such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights Agreement;
(3) such transfer is effected by a Broker-Dealer pursuant to
the Exchange Offer Registration Statement in accordance with the Registration
Rights Agreement; or
(4) the Registrar receives the following: (1) if the Holder of
such Restricted Definitive Notes proposes to exchange such Notes for a
beneficial interest in the Unrestricted Global Note, a certificate from such
Holder in the form of Exhibit C hereto, including the certifications in item
(1)(c) thereof; or
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(2) if the Holder of such Restricted Definitive Notes proposes to transfer
such Notes to a Person who shall take delivery thereof in the form of a
beneficial interest in the Unrestricted Global Note, a certificate from such
Holder in the form of Exhibit B hereto, including the certifications in item
(4) thereof; and, in each such case set forth in this subparagraph (D), an
Opinion of Counsel in form, and from legal counsel, reasonably acceptable to
the Registrar and the Company to the effect that such exchange or transfer is
in compliance with the Securities Act and that the restrictions on transfer
contained herein and in the Private Placement Legend are no longer required in
order to maintain compliance with the Securities Act. Upon satisfaction of the
conditions of any of the subparagraphs in this Section 2.6(d)(ii), the Trustee
shall cancel the Restricted Definitive Notes so transferred or exchanged and
increase or cause to be increased the aggregate principal amount of the
Unrestricted Global Note.
(3) Unrestricted Definitive Notes to Beneficial Interests in
Unrestricted Global Notes. A Holder of an Unrestricted Definitive Note may
exchange such Note for a beneficial interest in an Unrestricted Global Note or
transfer such Definitive Notes to a Person who takes delivery thereof in the
form of a beneficial interest in an Unrestricted Global Note at any time. Upon
receipt of a request for such an exchange or transfer, the Trustee shall cancel
the applicable Unrestricted Definitive Note and increase or cause to be
increased the aggregate principal amount of one of the Unrestricted Global
Notes. If any such exchange or transfer from a Definitive Note to a beneficial
interest is effected pursuant to subparagraphs (ii)(B), (ii)(D) or (iii) of this
Section 2.6(d) at a time when an Unrestricted Global Note has not yet been
issued, the Company shall issue and, upon receipt of an Authentication Order in
accordance with Section 2.2 hereof, the Trustee shall authenticate one or more
Unrestricted Global Notes in an aggregate principal amount equal to the
principal amount of Definitive Notes so transferred.
(5) Transfer and Exchange of Definitive Notes for Definitive Notes.
Upon request by a Holder of Definitive Notes and such Holder's compliance with
the provisions of this Section 2.6(e), the Registrar shall register the transfer
or exchange of Definitive Notes. Prior to such registration of transfer or
exchange, the requesting Holder shall present or surrender to the Registrar the
Definitive Notes duly endorsed or accompanied by a written instruction of
transfer in form satisfactory to the Registrar duly executed by such Holder or
by its attorney, duly authorized in writing. In addition, the requesting Holder
shall provide any additional certifications, documents and information, as
applicable, required pursuant to the following provisions of this Section
2.6(e).
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(1) Restricted Definitive Notes to Restricted Definitive Notes. Any
Restricted Definitive Note may be transferred to and registered in the name of
Persons who take delivery thereof in the form of a Restricted Definitive Note if
the Registrar receives the following:
(1) if the transfer will be made pursuant to Rule 144A under the
Securities Act, then the transferor must deliver a certificate in the form of
Exhibit B hereto, including the certifications in item (1) thereof;
(2) if the transfer will be made pursuant to Rule 903 or Rule
904, then the transferor must deliver a certificate in the form of Exhibit B
hereto, including the certifications in item (2) thereof; and
(3) if the transfer will be made pursuant to any other exemption
from the registration requirements of the Securities Act, then the transferor
must deliver a certificate in the form of Exhibit B hereto, including the
certifications, certificates and Opinion of Counsel required by item (3)
thereof, if applicable.
(2) Restricted Definitive Notes to Unrestricted Definitive Notes. Any
Restricted Definitive Note may be exchanged by the Holder thereof for an
Unrestricted Definitive Note or transferred to a Person or Persons who take
delivery thereof in the form of an Unrestricted Definitive Note if:
(1) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights Agreement and
Section 2.6(f) hereof, and the Holder, in the case of an exchange, or the
transferee, in the case of a transfer, certifies in the applicable Letter of
Transmittal that it is not (1) a Broker-Dealer, (2) a Person participating in
the distribution of the Exchange Notes or (3) a Person who is an affiliate (as
defined in Rule 144) of the Company;
(2) any such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights Agreement;
(3) any such transfer is effected by a Broker-Dealer pursuant to
the Exchange Offer Registration Statement in accordance with the Registration
Rights Agreement; or
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(4) the Registrar receives the following: (1) if the Holder of
such Restricted Definitive Notes proposes to exchange such Notes for an
Unrestricted Definitive Note, a certificate from such Holder in the form of
Exhibit C hereto, including the certifications in item (1)(d) thereof; or (2)
if the Holder of such Restricted Definitive Notes proposes to transfer such
Notes to a Person who shall take delivery thereof in the form of an
Unrestricted Definitive Note, a certificate from such Holder in the form of
Exhibit B hereto, including the certifications in item (4) thereof; and, in
each such case set forth in this subparagraph (D), an Opinion of Counsel in
form, and from legal counsel, reasonably acceptable to the Registrar and the
Company to the effect that such exchange or transfer is in compliance with the
Securities Act and that the restrictions on transfer contained herein and in
the Private Placement Legend are no longer required in order to maintain
compliance with the Securities Act.
(3) Unrestricted Definitive Notes to Unrestricted Definitive Notes. A
Holder of Unrestricted Definitive Notes may transfer such Notes to a Person who
takes delivery thereof in the form of an Unrestricted Definitive Note. Upon
receipt of a request to register such a transfer, the Registrar shall register
the Unrestricted Definitive Notes pursuant to the instructions from the Holder
thereof.
(6) Exchange Offer. Upon the occurrence of the Exchange Offer in
accordance with the Registration Rights Agreement, the Company shall issue and,
upon receipt of an Authentication Order in accordance with Section 2.2 and an
Opinion of Counsel for the Company as to certain matters discussed in this
Section 2.6(f), the Trustee shall authenticate (i) one or more Unrestricted
Global Notes in an aggregate principal amount equal to the sum of (A) the
principal amount of the beneficial interests in the Restricted Global Notes
tendered for acceptance by Persons that certify in the applicable Letters of
Transmittal that (x) they are not Broker-Dealers, (y) they are not participating
in a distribution of the Exchange Notes and (z) they are not affiliates (as
defined in Rule 144) of the Company, and accepted for exchange in the Exchange
Offer and (B) the principal amount of Definitive Notes exchanged or transferred
for beneficial interests in Unrestricted Global Notes in connection with the
Exchange Offer pursuant to Section 2.6(d)(ii) and (ii) Definitive Notes in an
aggregate principal amount equal to the principal amount of the Restricted
Definitive Notes accepted for exchange in the Exchange Offer (other than
Definitive Notes described in clause (i)(B) immediately above). Concurrently
with the issuance of such Notes, the Trustee shall cause the aggregate principal
amount of the applicable Restricted Global Notes to be reduced accordingly, and
the Company shall execute and, upon receipt of an Authentication Order pursuant
to Section 2.2, the Trustee shall authenticate and deliver to the Persons
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designated by the Holders of Definitive Notes so accepted Definitive Notes in
the appropriate principal amount.
The Opinion of Counsel for the Company referenced above shall state
that:
(1) the issuance and sale of the Exchange Notes by the Company have been
duly authorized and, when executed and authenticated in accordance with the
provisions of this Indenture and delivered in exchange for Series A Notes in
accordance with this Indenture and the Exchange Offer, will be entitled to the
benefits of this Indenture and will be valid and binding obligations of the
Company, enforceable against the Company in accordance with their terms except
as the enforceability thereof may be limited by (x) bankruptcy, fraudulent
transfer, insolvency, reorganization, moratorium or similar laws affecting
creditors' rights generally and (y) equitable principles of general
applicability (regardless of whether enforceability is considered at equity or
in law); and
(2) when the Exchange Notes are executed and authenticated in accordance
with the provisions of this Indenture and delivered in exchange for Series A
Notes in accordance with this Indenture and the Exchange Offer, the Guarantees
by the Guarantors endorsed thereon will be entitled to the benefits of this
Indenture and will be valid and binding obligations of the Guarantors,
enforceable against the Guarantors in accordance with their terms except as
the enforceability thereof may be limited by (x) bankruptcy, fraudulent
transfer, insolvency, reorganization, moratorium or similar laws affecting
creditors' rights generally and (y) equitable principles of general
applicability (regardless of whether enforceability is considered at equity or
in law).
(7) Legends. The following legends shall appear on the face of all Global
Notes and Definitive Notes issued under this Indenture unless specifically
stated otherwise in the applicable provisions of this Indenture.
(1) Private Placement Legend.
(1) Except as permitted by subparagraph (B) below, each Global
Note and each Definitive Note (and all Notes issued in exchange therefor or
substitution thereof) shall bear the legend in substantially the following
form:
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"THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY,
MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED
STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET
FORTH BELOW. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE
HOLDER:
(1) REPRESENTS THAT, IN CONNECTION WITH EXEMPT RESALES OF THE NOTES BY
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION AND CREDIT SUISSE FIRST
BOSTON CORPORATION (THE "INITIAL PURCHASERS"), (A) IT IS A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A
"QIB") OR (B) IT IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION IN
COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT;
(2) AGREES THAT, IN CONNECTION WITH RESALES AND TRANSFERS OF THE NOTES OTHER
THAN EXEMPT RESALES OF THE NOTES BY THE INITIAL PURCHASERS, IT WILL NOT
RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO THE ISSUER OR ANY
GUARANTOR OR ANY OF THEIR RESPECTIVE SUBSIDIARIES, (B) TO A PERSON WHOM THE
SELLER REASON ABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR
THE ACCOUNT OF A QIB IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A,
(C) IN AN OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR 904
OF REGULATION S UNDER THE SECURITIES ACT, (D) IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL
"ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) OF
REGULATION D UNDER THE SECURITIES ACT) THAT, PRIOR TO SUCH TRANSFER, FURNISHES
THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS
RELATING TO THE TRANSFER OF THIS NOTE (THE FORM OF WHICH CAN BE OBTAINED FROM
THE TRUSTEE) AND, IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL
AMOUNT OF NOTES LESS THAN $250,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE
ISSUER THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (F) IN
ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL
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ACCEPTABLE TO THE ISSUER), OR (G) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS
OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION; AND
(3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE OR AN
INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS
LEGEND.
AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "U.S. PERSON" AND "UNITED
STATES" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE
SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO
REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING."
(2) Notwithstanding the foregoing, any Global Note or Definitive
Note issued pursuant to subparagraphs (b)(iv), (c)(ii), (c)(iii), (d)(ii),
(d)(iii), (e)(ii), (e)(iii) or (f) to this Section 2.6 (and all Notes issued
in exchange therefor or substitution thereof) shall not bear the Private
Placement Legend.
(2) Global Note Legend. To the extent required by the Depositary,
each Global Note shall bear legends in substantially the following forms:
"THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE
GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE
BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY
CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS
MAY BE REQUIRED PURSUANT TO SECTION 2.6 OF THE INDENTURE, (II) THIS GLOBAL
NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.6(a) OF
THE INDENTURE, (III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR
CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL
NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN
CONSENT OF THE COMPANY."
"UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE
FORM, THIS NOTE MAY NOT BE TRANSFERRED
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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 ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY
OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS CERTIFICATE IS
PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55
WATER STREET, NEW YORK, NEW YORK) ("DTC"), TO THE COMPANY OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS
REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE REQUESTED BY
AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR
SUCH OTHER ENTITY AS MAY BE 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 INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN
INTEREST HEREIN."
(3) Reg S Temporary Global Note Legend. To the extent required
by the Depositary, each Reg S Temporary Global Note shall bear a legend in
substantially the following form:
"THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE
CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR DEFINITIVE NOTES, ARE AS
SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER NOR THE
BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL NOTE SHALL BE ENTITLED
TO RECEIVE CASH PAYMENTS OF INTEREST DURING THE PERIOD WHICH SUCH HOLDER HOLDS
THIS NOTE. NOTHING IN THIS LEGEND SHALL BE DEEMED TO PREVENT INTEREST FROM
ACCRUING ON THIS NOTE."
(8) Cancellation and/or Adjustment of Global Notes. At such time as
all beneficial interests in a particular Global Note have been exchanged for
Definitive Notes or a particular Global Note has been redeemed, repurchased or
cancelled in whole and not in part, each such Global Note shall be returned to
or retained and cancelled by the Trustee in accordance with Section 2.11 hereof.
At any time prior to such cancellation, if any beneficial interest in a Global
Note is exchanged for or transferred to a Person who will take delivery thereof
in the form of a beneficial interest in another
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Global Note or for Definitive Notes, the principal amount of Notes represented
by such Global Note shall be reduced accordingly and an endorsement may be made
on such Global Note by the Trustee or by the Depositary at the direction of the
Trustee to reflect such reduction; and if the beneficial interest is being
exchanged for or transferred to a Person who will take delivery thereof in the
form of a beneficial interest in another Global Note, such other Global Note
shall be increased accordingly and an endorsement may be made on such Global
Note by the Trustee or by the Depositary at the direction of the Trustee to
reflect such increase.
(9) General Provisions Relating to Transfers and Exchanges.
(1) To permit registrations of transfers and exchanges, the
Company shall execute and the Trustee shall authenticate Global Notes and
Definitive Notes upon receipt of an Authentication Order.
(2) No service charge shall be made to a holder of a beneficial
interest in a Global Note or to a Holder of a Definitive Note for any
registration of transfer or exchange, but the Company may require payment of a
sum sufficient to cover any transfer tax or similar governmental charge payable
in connection therewith (other than any such transfer taxes or similar
governmental charge payable upon exchange or transfer pursuant to Sections 2.10,
3.6, 4.13 and 4.14 hereof).
(3) The Registrar shall not be required to register the transfer
of or exchange any Note selected for redemption in whole or in part, except the
unredeemed portion of any Note being redeemed in part.
(4) All Global Notes and Definitive Notes issued upon any
registration of transfer or exchange of Global Notes or Definitive Notes shall
be the valid obligations of the Company, evidencing the same Indebtedness, and
entitled to the same benefits under this Indenture, as the Global Notes or
Definitive Notes surrendered upon such registration of transfer or exchange.
(5) The Company shall not be required (A) to issue, to register
the transfer of or to exchange any Notes during a period beginning at the
opening of business 15 days before the day of any selection of Notes for
redemption under Section 3.2 hereof and ending at the close of business on the
day of selection, (B) to register the transfer of or to exchange any Note so
selected for redemption in whole or in part, except the unredeemed portion of
any Note being redeemed in part or (C) to
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register the transfer of or to exchange a Note between a Record Date and the
next succeeding Interest Payment Date.
(6) Prior to due presentment for the registration of a transfer
of any Note, the Trustee, any Agent and the Company may deem and treat the
Person in whose name any Note is registered as the absolute owner of such Note
for the purpose of receiving payment of principal of and interest on such Notes
and for all other purposes, and none of the Trustee, any Agent or the Company
shall be affected by notice to the contrary.
(7) The Trustee shall authenticate Global Notes and Definitive
Notes in accordance with the provisions of Section 2.2 hereof.
(8) All certifications, certificates and Opinions of Counsel
required to be submitted to the Registrar pursuant to this Section 2.6 to effect
a registration of transfer or exchange may be submitted by facsimile.
Notwithstanding anything herein to the contrary, as to any
certifications and certificates delivered to the Registrar pursuant to this
Section 2.6, the Registrar's duties shall be limited to confirming that any such
certifications and certificates delivered to it are in the form of Exhibits A,
B, C and D attached hereto. The Registrar shall not be responsible for
confirming the truth or accuracy of representations made in any such
certifications or certificates.
Section 2.7 Replacement Notes
If any mutilated Note is surrendered to the Trustee or the
Company and the Trustee and the Company receive evidence (which evidence may be
from the Trustee) to their satisfaction of the destruction, loss or theft of any
Note, the Company shall issue and the Trustee, upon receipt of an Authentication
Order, shall authenticate a replacement Note if the Trustee's requirements are
met. If required by the Trustee or the Company, an indemnity bond must be
supplied by the Holder that is sufficient in the judgment of the Trustee and the
Company to protect the Company, the Trustee, any Agent and any authenticating
agent from any loss that any of them may suffer if a Note is replaced. The
Company may charge for its expenses in replacing a Note. Every replacement Note
is an additional obligation of the Company and shall be entitled to all of the
benefits of this Indenture equally and proportionately with all other Notes duly
issued hereunder.
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Section 2.8 Outstanding Notes
The Notes outstanding at any time are all the Notes authenticated
by the Trustee (including any Note represented by a Global Note) except for
those cancelled by it or at its direction, those delivered to it for
cancellation, those reductions in the interest in a Global Note effected by the
Trustee in accordance with the provisions hereof, and those described in this
Section as not outstanding. Except as set forth in Section 2.9 hereof, a Note
does not cease to be outstanding because the Company or an Affiliate of the
Company holds the Note. If a Note is replaced pursuant to Section 2.7 hereof,
such Note, together with the Guarantee of that particular Note endorsed thereon,
ceases to be outstanding unless the Trustee receives proof satisfactory to it
that the replaced Note is held by a bona fide purchaser. If the principal amount
of any Note is considered paid under Section 4.1 hereof, it ceases to be
outstanding and interest on it ceases to accrue. If the Paying Agent (other than
the Company, a Subsidiary or an Affiliate of any thereof) holds, on a redemption
date or the maturity date, money sufficient to pay Notes payable on that date,
then on and after that date such Notes shall be deemed to be no longer
outstanding and shall cease to accrue interest.
Section 2.9 Treasury Notes
In determining whether the Holders of the required principal
amount of Notes have concurred in any direction, waiver or consent, Notes owned
by the Company, or by any Person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company, shall
be considered as though not outstanding, except that for the purposes of
determining whether the Trustee shall be protected in relying on any such
direction, waiver or consent, only Notes that the Trustee knows are so owned
shall be so disregarded.
Section 2.10 Temporary Notes
Until certificates representing Notes are ready for delivery, the
Company may prepare and the Trustee, upon receipt of an Authentication Order,
shall authenticate temporary Notes. Temporary Notes shall be substantially in
the form of Definitive Notes but may have variations that the Company considers
appropriate for temporary Notes and as shall be reasonably acceptable to the
Trustee. Without unreasonable delay, the Company shall prepare and the Trustee
shall authenticate Definitive Notes in exchange for temporary Notes. Holders of
temporary Notes shall be entitled to all of the benefits of this Indenture.
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Section 2.11 Cancellation
The Company at any time may deliver Notes to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Notes surrendered to them for registration of transfer, exchange or payment.
The Trustee, or at the direction of the Trustee, the Registrar or the Paying
Agent (other than the Company or an Affiliate of the Company), and no one else
shall cancel all Notes surrendered for registration of transfer, exchange,
payment, replacement or cancellation and shall destroy cancelled Notes (subject
to the record retention requirement of the Exchange Act). Certification of the
destruction of all cancelled Notes shall be delivered to the Company. The
Company may not issue new Notes to replace Notes that it has paid or that have
been delivered to the Trustee for cancellation.
Section 2.12 Defaulted Interest
Any interest on any Note which is payable, but is not punctually
paid or duly provided for, on any Interest Payment Date plus, to the extent
lawful, any interest payable on the defaulted interest at the rate and in the
manner provided in Section 4.1 hereof and in the Note (herein called "Defaulted
Interest") shall forthwith cease to be payable to the registered holder on the
relevant Record Date, and such Defaulted Interest may be paid by the Company, at
its election in each case, as provided in clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted
Interest to the Persons in whose names the Notes are registered at the
close of business on a Special Record Date for the payment of such
Defaulted Interest, which shall be fixed in the following manner. The
Company shall notify the Trustee and the Paying Agent in writing of the
amount of Defaulted Interest proposed to be paid on each Note and the date
of the proposed payment, and at the same time the Company shall deposit
with the Paying Agent an amount of cash equal to the aggregate amount
proposed to be paid in respect of such Defaulted Interest or shall make
arrangements reasonably satisfactory to the Paying Agent for such deposit
prior to the date of the proposed payment, such cash when deposited to be
held in trust for the benefit of the Persons entitled to such Defaulted
Interest as provided in this clause (1). Thereupon the Paying Agent shall
fix a "Special Record Date" for the payment of such Defaulted Interest
which shall be not more than 15 days and not less than 10 days prior to the
date of the proposed payment and not less than 10 days after the receipt by
the Paying Agent of the notice of the proposed payment. The Paying Agent
shall
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promptly notify the Company and the Trustee of such Special Record Date
and, in the name and at the expense of the Company, shall cause notice of
the proposed payment of such Defaulted Interest and the Special Record Date
therefor to be mailed, first-class postage prepaid, to each Holder at its
address as it appears in the Note register maintained by the Registrar not
less than 10 days prior to such Special Record Date. Notice of the
proposed payment of such Defaulted Interest and the Special Record Date
therefor having been mailed as aforesaid, such Defaulted Interest shall be
paid to the persons in whose names the Notes (or their respective
predecessor Notes) are registered on such Special Record Date and shall no
longer be payable pursuant to the following clause (2).
(2) The Company may make payment of any Defaulted Interest in
any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Notes may be listed, and upon such notice
as may be required by such exchange, if, after notice given by the Company
to the Trustee and the Paying Agent of the proposed payment pursuant to
this clause, such manner shall be deemed practicable by the Trustee and the
Paying Agent.
Subject to the foregoing provisions of this Section, each Note
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Note shall carry the rights to interest accrued and
unpaid, and to accrue, which were carried by such other Note.
Section 2.13 CUSIP NUMBERS
The Company in issuing the Notes may use "CUSIP" numbers (if then
generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices
of redemption as a convenience to Holders; provided that any such notice may
state that no representation is made as to the correctness of such numbers
either as printed on the Notes or as contained in any notice of a redemption and
that reliance may be placed only on the other identification numbers printed on
the Notes, and any such redemption shall not be affected by any defect in or
omission of such numbers. The Company will promptly notify the Trustee of any
change in the "CUSIP" numbers.
ARTICLE III
REDEMPTION
Section 3.1 Notices to Trustee
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If the Company elects to redeem Notes pursuant to the optional
redemption provisions of Section 3.7 hereof, it shall furnish to the Trustee, at
least 45 days (unless a shorter period is acceptable to the Trustee) but not
more than 60 days (unless a longer period is acceptable to the Trustee) before a
redemption date, an Officers' Certificate setting forth (i) the clause of this
Indenture pursuant to which the redemption shall occur, (ii) the redemption
date, (iii) the principal amount of Notes to be redeemed and (iv) the redemption
price.
Section 3.2 Selection of Notes to Be Redeemed
If less than all of the Notes are to be redeemed at any time, the
Trustee shall select the Notes to be redeemed among the Holders of the Notes in
compliance with the requirements of the principal national securities exchange,
if any, on which the Notes are listed or, if the Notes are not so listed, on a
pro rata basis, by lot or in accordance with any other method the Trustee
considers fair and appropriate. In the event of partial redemption by lot, the
particular Notes to be redeemed shall be selected, unless otherwise provided
herein, not less than 30 nor more than 60 days prior to the redemption date by
the Trustee from the outstanding Notes not previously called for redemption.
The Trustee shall promptly notify the Company in writing of the
Notes selected for redemption and, in the case of any Note selected for partial
redemption, the principal amount thereof to be redeemed. Notes and portions of
Notes in denominations of larger than $1,000 selected shall be in amounts of
$1,000 or integral multiples of $1,000; except that if all of the Notes of a
Holder are to be redeemed, the entire outstanding amount of Notes held by such
Holder, even if not an integral multiple of $1,000, shall be redeemed. Except as
provided in the preceding sentence, provisions of this Indenture that apply to
Notes called for redemption also apply to portions of Notes called for
redemption.
Section 3.3 Notice of Redemption
Subject to the provisions of Section 3.7 hereof, at least 30 days
but not more than 60 days before a redemption date, the Company shall mail or
cause to be mailed, by first class mail, a notice of redemption to each Holder
whose Notes are to be redeemed at its registered address.
The notice shall identify the Notes to be redeemed and shall
state:
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(1) the redemption date;
(2) the redemption price;
(3) if any Note is being redeemed in part, the portion of the
principal amount of such Note to be redeemed and that, after the redemption date
upon surrender of such Note, a new Note or Notes in principal amount equal to
the unredeemed portion shall be issued upon cancellation of the original Note;
(4) the name and address of the Paying Agent;
(5) that Notes called for redemption must be surrendered to the
Paying Agent to collect the redemption price;
(6) that, unless the Company defaults in making such redemption
payment, interest on Notes called for redemption ceases to accrue on and after
the redemption date;
(7) the paragraph of the Notes and/or Section of this Indenture
pursuant to which the Notes called for redemption are being redeemed; and
(8) that no representation is made as to the correctness or
accuracy of the CUSIP number, if any, listed in such notice or printed on the
Notes.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at its expense; provided, however, that the
Company shall have delivered to the Trustee, at least 45 days prior to the
redemption date, an Officers' Certificate requesting that the Trustee give such
notice and setting forth the information to be stated in such notice as provided
in the preceding paragraph.
Section 3.4 Effect of Notice of Redemption
Once notice of redemption is mailed in accordance with Section
3.3 hereof, Notes called for redemption become irrevocably due and payable on
the redemption date at the redemption price. A notice of redemption may not be
conditional.
Section 3.5 Deposit of Redemption Price
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On the Business Day immediately prior to the redemption date, the
Company shall deposit with the Trustee or with the Paying Agent immediately
available funds sufficient to pay the redemption price of and accrued and unpaid
interest (and Liquidated Damages, if any) on all Notes to be redeemed on that
date. The Trustee or the Paying Agent shall promptly return to the Company any
money deposited with the Trustee or the Paying Agent by the Company in excess of
the amounts necessary to pay the redemption price of, and accrued and unpaid
interest (and Liquidated Damages, if any) on, all Notes to be redeemed.
If the Company complies with the provisions of the preceding
paragraph, on and after the redemption date, interest shall cease to accrue on
the Notes or the portions of Notes called for redemption. If a Note is redeemed
on or after an interest Record Date but on or prior to the related Interest
Payment Date, then any accrued and unpaid interest (and Liquidated Damages, if
any) shall be paid to the Person in whose name such Note was registered at the
close of business on such Record Date. If any Note called for redemption shall
not be so paid upon surrender for redemption because of the failure of the
Company to comply with the preceding paragraph, interest shall be paid on the
unpaid principal, from the redemption date until such principal is paid, and to
the extent lawful on any interest not paid on such unpaid principal, in each
case at the rate provided in the Notes and in Section 4.1 hereof.
Section 3.6 Notes Redeemed in Part
Upon surrender of a Note that is redeemed in part, the Company
shall issue and, upon receipt of an Authentication Order, the Trustee shall
authenticate for the Holder at the expense of the Company a new Note equal in
principal amount to the unredeemed portion of the Note surrendered.
Section 3.7 Optional Redemption
(a) Except as set forth in clause (b) of this Section 3.7, the
Company shall not have the option to redeem the Notes pursuant to this Section
3.7 prior to February 15, 2004. The Notes will be redeemable for cash at the
option of the Company, in whole or in part, at any time on or after February 15,
2004, upon not less than 30 days nor more than 60 days prior notice mailed by
first class mail to each Holder at its last registered address, at the following
redemption prices (expressed as percentages of the principal amount) if redeemed
during the 12-month period commencing February 15 of the years indicated below,
in each case (subject to the right of Holders of record on a Record Date to
receive the corresponding interest due (and the
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corresponding Liquidated Damages, if any) on the corresponding Interest Payment
Date that is on or prior to such redemption date) together with accrued and
unpaid interest and Liquidated Damages, if any, thereon to the redemption date:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2004...................105.750%
2005...................103.833%
2006...................101.917%
2007 and thereafter....100.000%
</TABLE>
(b) Notwithstanding the provisions of clause (a) of this Section 3.7,
at any time or from time to time until February 15, 2002, up to 35% of the
aggregate principal amount of the Notes originally issued under this Indenture
may be redeemed at the option of the Company within 90 days of a Public Equity
Offering, on not less than 30 days, but not more than 60 days, prior notice to
each Holder of the Notes to be redeemed, with cash from the Net Cash Proceeds of
such Public Equity Offering, at a redemption price equal to 111.50% of the
principal amount thereof (subject to the right of Holders of record on a Record
Date to receive the corresponding interest (and the corresponding Liquidated
Damages, if any) due on the Interest Payment Date that is on or prior to such
redemption date) together with accrued and unpaid interest and Liquidated
Damages, if any, thereon to the redemption date; provided that immediately
following such redemption not less than 65% of the aggregate principal amount of
the Notes originally issued pursuant to this Indenture remain outstanding.
(c) Any redemption pursuant to this Section 3.7 shall be made pursuant
to the provisions of Sections 3.1 through 3.6 hereof.
Section 3.8 No Mandatory Redemption
The Company shall not be required to make mandatory redemption
payments with respect to the Notes (however, the Company is required to offer to
repurchase Notes in accordance with the provisions of Sections 4.13 and 4.14
below). The Notes shall not have the benefit of any sinking fund.
ARTICLE IV
COVENANTS
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Section 4.1 Payment of Notes
The Company shall pay or cause to be paid the principal of,
premium, if any, and interest on the Notes on the dates and in the manner
provided in the Notes. Principal, premium, if any, and interest shall be
considered paid on the date due if the Paying Agent, if other than the Company
or a Subsidiary thereof, holds as of 12:00 noon Eastern time on the due date
money deposited by the Company in immediately available funds and designated for
and sufficient to pay all principal, premium, if any, and interest then due. The
Company shall pay all Liquidated Damages, if any, in the same manner on the
dates and in the amounts set forth in the Registration Rights Agreement and
herein.
The Company shall pay interest (including Accrued Bankruptcy
Interest in any proceeding under any Bankruptcy Law) on overdue principal at the
then applicable interest rate on the Notes to the extent lawful; it shall pay
interest (including Accrued Bankruptcy Interest in any proceeding under any
Bankruptcy Law) on overdue installments of interest and Liquidated Damages, if
any, (without regard to any applicable grace period) at the same rate to the
extent lawful.
Section 4.2 Maintenance of Office or Agency
The Company and the Guarantors shall maintain in the Borough of
Manhattan, The City of New York, an office or agency (which may be an office of
the Trustee or an affiliate of the Trustee, Registrar or co-registrar) where
Notes may be surrendered for registration of transfer or for exchange and where
notices and demands to or upon the Company and the Guarantors in respect of the
Notes and this Indenture may be served. The Company and the Guarantors shall
give prompt written notice to the Trustee of the location, and any change in the
location, of such office or agency. If at any time the Company and the
Guarantors shall fail to maintain any such required office or agency or shall
fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the Corporate Trust
Office.
The Company and the Guarantors may also from time to time
designate one or more other offices or agencies where the Notes may be presented
or surrendered for any or all such purposes and may from time to time rescind
such additional designations; provided that no such designation or recission
shall in any manner relieve the Company and the Guarantors of their obligation
to maintain an office or agency in the Borough of Manhattan, The City of New
York. The Company and the Guarantors
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shall give prompt written notice to the Trustee of any such designation or
rescission and of any change in the location of any such other office or agency.
The Company hereby designates the Corporate Trust Office as one such
office or agency of the Company in accordance with Section 2.3 hereof.
Section 4.3 SEC Reports and Reports to Holders
(a) Whether or not the Company or any direct or indirect parent
of the Company is subject to the reporting requirements of Section 13 or 15(d)
of the Exchange Act, the Company shall deliver to the Trustee and to each Holder
and to prospective purchasers of Notes identified to the Company by an Initial
Purchaser, within 15 days after it is or would have been (if it were subject to
such reporting obligations) required to file such documents with the Commission,
annual and quarterly financial statements substantially equivalent to financial
statements that would have been included in reports filed with the Commission if
the Company were subject to the requirements of Section 13 or 15(d) of the
Exchange Act, including, with respect to annual information only, a report
thereon by the Company's certified independent public accountants as such would
be required in such reports to the Commission, and, in each case, together with
a management's discussion and analysis of financial condition and results of
operations which would be so required and, unless the Commission will not accept
such reports, file with the Commission the annual, quarterly and other reports
which it is or would have been required to file with the Commission. In lieu of
filing and providing reports as set forth above, the Company may, so long as any
direct or indirect parent of the Company owns 100% of the Capital Stock of the
Company and if permitted by the Commission, include in the reports filed and
provided by such direct or indirect parent of the Company such financial
information and narrative disclosure regarding the Company and the Subsidiary
Guarantors as required by the Commission in lieu of filing such reports by the
Company.
(b) For so long as any Transfer Restricted Notes remain
outstanding, the Company shall make available (which shall include filings by
EDGAR) to all Holders and to securities analysts and prospective investors, upon
their request, the information required to be delivered pursuant to Rule
144A(d)(4) under the Securities Act.
Section 4.5 Compliance Certificate
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(1) The Company shall deliver to the Trustee, within 120 days after
the end of each fiscal year, an Officers' Certificate stating that a review of
the activities of the Company and its Subsidiaries during the preceding fiscal
year has been made under the supervision of the signing Officers with a view to
determining whether the Company and its Subsidiaries have kept, observed,
performed and fulfilled their obligations under this Indenture, and further
stating, as to each such Officer signing such certificate, that to the best of
his or her knowledge the Company and its Subsidiaries are not in default in the
performance or observance of any of the terms, provisions and conditions of this
Indenture (or, if a Default or Event of Default shall have occurred and be
continuing, describing all such Defaults or Events of Default of which he or she
may have knowledge and what action the Company is taking or proposes to take
with respect thereto) and that to the best of his or her knowledge no event has
occurred and remains in existence by reason of which payments on account of the
principal of or interest, if any, on the Notes is prohibited or if such event
has occurred, a description of the event and what action the Company is taking
or proposes to take with respect thereto. The Company shall provide the Trustee
with timely written notice of any change in its fiscal year end, which is
currently December 31.
(b) The Company shall, so long as any of the Notes are outstanding,
deliver to the Trustee, within five Business Days of any Officer becoming aware
of any Default or Event of Default, an Officers' Certificate specifying such
Default or Event of Default and what action the Company is taking or proposes to
take with respect thereto.
Section 4.6 Taxes
The Company shall pay, and shall cause each of its Subsidiaries to
pay, prior to delinquency, all material taxes, assessments, and governmental
levies except such as are contested in good faith and by appropriate proceedings
or where the failure to effect such payment would not have a material adverse
effect on the ability of the Company and the Guarantors to satisfy their
obligations under the Notes, the Guarantees and this Indenture.
Section 4.7 Stay, Extension and Usury Laws
The Company covenants (to the extent that it may lawfully do so) that
it shall not at any time insist upon, plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay, extension or usury law wherever
enacted, now or at any time hereafter in force, that may affect the covenants or
the performance of this
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Indenture; and the Company (to the extent that it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law, and covenants that it
shall not, by resort to any such law, hinder, delay or impede the execution of
any power herein granted to the Trustee, but shall suffer and permit the
execution of every such power as though no such law has been enacted.
Section 4.8 Limitation on Incurrence Of Additional Indebtedness
Except as set forth in this Section 4.7, the Company and the
Subsidiary Guarantors shall not, and shall not permit any of their Subsidiaries
to, directly or indirectly, issue, assume, guaranty, incur, become directly or
indirectly liable with respect to (including as a result of an Acquisition), or
otherwise become responsible for, contingently or otherwise (individually and
collectively, to "incur" or, as appropriate, an "incurrence"), any Indebtedness
(including Acquired Indebtedness), other than Permitted Indebtedness.
Notwithstanding the foregoing if (i) no Default or Event of Default shall have
occurred and be continuing at the time of, or would occur after giving effect on
a pro forma basis to, such incurrence of Indebtedness (including Acquired
Indebtedness) and (ii) on the date of such incurrence (the "Incurrence Date"),
the Consolidated Coverage Ratio of the Company for the Reference Period
immediately preceding the Incurrence Date, after giving effect on a pro forma
basis to such incurrence of such Indebtedness and, to the extent set forth in
the definition of Consolidated Coverage Ratio, the use of proceeds thereof,
would be at least 2.0 to 1.0 (the "Debt Incurrence Ratio"), then the Company and
the Subsidiary Guarantors may incur such Indebtedness (including Acquired
Indebtedness).
In addition, the foregoing limitations will not apply to:
(1) the incurrence by the Company or any Subsidiary Guarantor or
Foreign Subsidiary of Purchase Money Indebtedness; provided that (i) the
aggregate amount of such Indebtedness incurred and outstanding at any time
pursuant to this paragraph (a) (plus any Refinancing Indebtedness incurred to
retire, defease, refinance, replace or refund such Indebtedness) shall not
exceed $10,000,000 (or the equivalent thereof, at the time of incurrence, in the
applicable foreign currencies), and (ii) in each case, such Indebtedness shall
not constitute more than 100% of the cost (determined in accordance with GAAP in
good faith by the Board of Directors of the Company) to the Company or such
Subsidiary Guarantor or Foreign Subsidiary, as applicable, of the property so
acquired, constructed or improved;
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(2) (i) the incurrence by the Company or any Subsidiary Guarantor of
Indebtedness (including Acquired Indebtedness) in an aggregate amount incurred
and outstanding at any time pursuant to this clause (b)(i) (plus any Refinancing
Indebtedness incurred to retire, defease, refinance, replace or refund such
Indebtedness) of up to $45,000,000 (or the equivalent thereof, at the time of
incurrence, in the applicable foreign currencies) less the aggregate amount of
Indebtedness incurred pursuant to clause (b)(ii) of this Section 4.8, and (ii)
the incurrence by any Canadian Subsidiary of Indebtedness (including Acquired
Indebtedness) in an aggregate amount incurred and outstanding at any time
pursuant to this clause (b)(ii) (plus any Refinancing Indebtedness incurred to
retire, defease, refinance, replace or refund such Indebtedness) of up to
$20,000,000 (or the equivalent thereof, at the time of incurrence, in the
applicable foreign currencies) less the aggregate amount of Indebtedness in
excess of $25,000,000 incurred pursuant to clause b(i) of this Section 4.7;
provided, that the aggregate amount of Indebtedness incurred pursuant to clauses
b(i) and b(ii) of this Section 4.8 shall in no event exceed $45,000,000 (or the
equivalent thereof, at the time of incurrence, in the applicable foreign
currencies);
(3) the incurrence by the Company or any Subsidiary Guarantor of
Indebtedness pursuant to the Term Facilities of the Credit Agreement and the
Canadian Credit Agreement in an aggregate amount incurred and outstanding at any
time pursuant to this paragraph (c) (plus any Refinancing Indebtedness incurred
to retire, defease, refinance, replace or refund such Indebtedness) of up to
$105,000,000 (or the equivalent thereof, at the time of incurrence, in the
applicable foreign currencies) less the aggregate amount of Indebtedness
incurred pursuant to paragraph (d) of this Section 4.7, minus the amount of any
such Indebtedness (i) retired with the Net Cash Proceeds from any Asset Sale
applied to permanently reduce the outstanding amounts or the commitments with
respect to such Indebtedness pursuant to clause (1)(b)(ii) of the first
paragraph of Section 4.13 or (ii) assumed by a transferee in an Asset Sale;
provided, that the aggregate amount of Indebtedness incurred pursuant to this
paragraph (c) and paragraph (d) of this Section 4.7 shall in no event exceed
$105,000,000 (or the equivalent thereof, at the time of incurrence, in the
applicable foreign currencies); and
(4) the incurrence by any Canadian Subsidiary, and the guarantee
thereof by the Company or any other Subsidiary, of Indebtedness pursuant to the
Term Facilities of the Canadian Credit Agreement in an aggregate amount incurred
and outstanding at any time pursuant to this paragraph (d) (plus any Refinancing
Indebtedness incurred to retire, defease, refinance, replace or refund such
Indebtedness) of up to $50,000,000 (or the equivalent thereof, at the time of
incurrence, in the applicable foreign currencies) less the aggregate amount of
Indebtedness in excess of
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$55,000,000 incurred pursuant to paragraph (c) of this Section 4.7 minus the
amount of any such Indebtedness (i) retired with the Net Cash Proceeds from any
Asset Sale applied to permanently reduce the outstanding amounts or the
commitments with respect to such Indebtedness pursuant to clause (1)(b)(ii) of
the first paragraph of Section 4.13 or (ii) assumed by a transferee in an Asset
Sale; provided, that the aggregate amount of Indebtedness incurred pursuant to
paragraph (c) of this Section 4.7 and this paragraph (d) shall in no event
exceed $105,000,000 (or the equivalent thereof, at the time of incurrence, in
the applicable foreign currencies).
Indebtedness of any Person which is outstanding at the time such Person
becomes a Subsidiary of the Company (including upon designation of any
subsidiary or other Person as a Subsidiary) or is merged with or into or
consolidated with the Company or a Subsidiary of the Company shall be deemed to
have been incurred at the time such Person becomes such a Subsidiary of the
Company or is merged with or into or consolidated with the Company or a
Subsidiary of the Company, as applicable.
Notwithstanding any other provision of this Section 4.7, and to avoid
duplication only, a guarantee of Indebtedness of the Company or a Subsidiary
Guarantor or a Canadian Subsidiary, incurred in accordance with the terms of
this Indenture issued at the time such Indebtedness was incurred or at the time
the guarantor thereof became a Subsidiary of the Company, will not constitute a
separate incurrence, or amount outstanding, of Indebtedness. Upon each
incurrence, the Company may designate the provision of this Section 4.7 pursuant
to which such Indebtedness is being incurred and such Indebtedness shall not be
deemed to have been incurred or outstanding under any other provision of this
Section 4.7, except as stated otherwise in the foregoing provisions.
Section 4.9 Limitation on Liens Securing Indebtedness
The Company and the Guarantors shall not, and shall not permit
any of the Company's Subsidiaries to, create, incur, assume or suffer to exist
any Lien of any kind, other than Permitted Liens, upon any of their respective
assets now owned or acquired on or after the date of this Indenture or upon any
income or profits therefrom securing any Indebtedness of the Company or any
Guarantor, unless the applicable Guarantor and the Company provide, and cause
their Subsidiaries (that are Subsidiaries of the Company) to provide,
concurrently therewith, that the Notes and the applicable Guarantees are equally
and ratably so secured; provided that if such Indebtedness is Subordinated
Indebtedness, the Lien securing such Subordinated Indebtedness shall be
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subordinate and junior to the Lien securing the Notes with the same relative
priority as such Subordinated Indebtedness shall have with respect to the Notes.
Section 4.10 Limitations on Restricted Payments
The Company and the Subsidiary Guarantors shall not, and shall
not permit any of their Subsidiaries to, directly or indirectly, make any
Restricted Payment if, after giving effect to such Restricted Payment on a pro
forma basis, (1) a Default or an Event of Default shall have occurred and be
continuing, (2) the Company is not permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Debt Incurrence Ratio in Section 4.7, or
(3) the aggregate amount of all Restricted Payments made by the Company and its
Subsidiaries, including after giving effect to such proposed Restricted Payment,
from and after the Issue Date, would exceed, without duplication of any credits
in this paragraph, the following paragraph or the definition of Permitted
Indebtedness, the sum of (a) 50% of the aggregate Consolidated Net Income of the
Company for the period (taken as one accounting period), commencing on the first
day of the first full fiscal quarter commencing after the Issue Date, to and
including the last day of the Company's most recently ended fiscal quarter for
which internal financial statements are available at the time of such
calculation (or, in the event Consolidated Net Income for such period is a
deficit, then minus 100% of such deficit), plus (b) the aggregate Net Cash
Proceeds received by the Company from a Capital Contribution or from the sale of
its Qualified Capital Stock (other than (i) to a Subsidiary of the Company or
(ii) to the extent applied in connection with a Qualified Exchange), after the
Issue Date, plus (c) other than amounts credited pursuant to clause (t) of the
next following paragraph or permitted pursuant to the definition of Permitted
Investments, the net amount of any Restricted Investments (not to exceed the
original amount of such Investment) made after the Issue Date (other than
pursuant to clause (t) of the next following paragraph or permitted pursuant to
the definition of Permitted Investments) that are returned to the Company or the
Subsidiary that made such prior Restricted Investment, without restriction, in
cash or Cash Equivalents on or prior to the date of any such calculation and the
Company's direct and indirect proportionate interest in the fair market value of
an Unrestricted Subsidiary which is redesignated to be a Subsidiary, at the time
of such redesignation.
The foregoing clause (3) of the immediately preceding paragraph, however,
will not prohibit (r) Restricted Payments in addition to those set forth in the
immediately preceding paragraph after the Issue Date not in excess of
$15,189,000 in the aggregate which may be used only to repay or settle amounts
owing to Domtar, Inc. or its Affiliates with respect to the Domtar Note
(including dividends to any Parent Guarantor
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or Holdings for such purpose); in addition the foregoing clauses (2) and (3) of
the immediately preceding paragraph, however, will not prohibit (s) the
Transactions (including dividends to any Parent Guarantor or Holdings for the
purpose of payments pursuant to the Transactions), (t) Restricted Investments;
provided that after giving pro forma effect to such Restricted Investment, the
aggregate amount of all such Restricted Investments made on or after the Issue
Date that are outstanding (after giving effect to any such Restricted
Investments that are returned to the Company or the Subsidiary that made such
prior Restricted Investment, without restriction, in cash on or prior to the
date of any such calculation, but not to exceed the original amount of such
Restricted Investment) at any time does not exceed $5,000,000 (each such
Restricted Investment being measured at the time made or returned, as
applicable), and (u) repurchases of Capital Stock of Holdings from employees of
Holdings, any Parent Guarantor, the Company or its Subsidiaries upon the death,
disability or termination of employment in an aggregate amount to all such
employees not to exceed the sum of (A) $1,000,000 per year or $2,500,000 in the
aggregate on and after the Issue Date (including dividends to any Parent
Guarantor or Holdings for the purpose of such payment) plus (B) the aggregate
amount of proceeds of Qualified Capital Stock issued to employees of Holdings,
such Parent Guarantor, the Company or such Subsidiary in the same year and Net
Cash Proceeds from life insurance payments in the same year, and the provisions
of the immediately preceding paragraph will not prohibit (v) any dividend,
distribution or other payments by any Subsidiary of the Company on its Equity
Interests that is paid pro rata to all holders of such Equity Interests, (w) a
Qualified Exchange, (x) the payment of any dividend on Qualified Capital Stock
within 60 days after the date of its declaration if such dividend could have
been made on the date of such declaration in compliance with the foregoing
provisions, (y) to the extent deemed a Restricted Payment, payment of amounts to
Genstar Capital in accordance with the terms of the Management Services
Agreement and the Engagement Agreement, both in accordance with the terms
thereof on the Issue Date (including dividends to any Parent Guarantor or
Holdings for the purpose of such payment), and (z) Permitted Payments to
Holdings. The full amount of any Restricted Payment made pursuant to the
foregoing clauses (t), (u), (v) and (x) (but not pursuant to clauses (r), (s),
(w), (y) or (z)) of the immediately preceding sentence, however, will be
deducted in the calculation of the aggregate amount of Restricted Payments
available to be made referred to in clause (3) of the immediately preceding
paragraph.
The amount of any Restricted Payment made or returned, if other than in
cash, shall be the fair market value thereof, as determined in the good faith
reasonable judgment of the Board of Directors of the Company. Additionally,
concurrently with each Restricted Payment, the Company shall deliver an
Officers' Certificate to the
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Trustee describing in reasonable detail the nature of such Restricted Payment,
stating the amount of such Restricted Payment, stating in reasonable detail the
provisions of this Indenture pursuant to which such Restricted Payment was made
and certifying that such Restricted Payment was made in compliance with the
terms of this Indenture.
Section 4.11 Limitation on Dividends and Other Payment Restrictions Affecting
Subsidiaries
The Company and the Subsidiary Guarantors shall not, and shall
not permit any of their Subsidiaries to, directly or indirectly, create, assume
or suffer to exist any consensual restriction on the ability of any Subsidiary
of the Company to pay dividends or make other distributions to or on behalf of,
or to pay any obligation to or on behalf of, or otherwise to transfer assets or
property to or on behalf of, or make or pay loans or advances to or on behalf
of, the Company or any Subsidiary of the Company, except (a) restrictions
imposed by the Notes or this Indenture or by other indebtedness of the Company
(which may also be guaranteed by the Subsidiary Guarantors) ranking senior or
pari passu with the Notes or the Guarantee(s), as applicable; provided that such
restrictions are no more restrictive taken as a whole than those imposed by this
Indenture and the Notes, (b) restrictions imposed by applicable law, (c)
existing restrictions under Existing Indebtedness, (d) restrictions under any
Acquired Indebtedness not incurred in violation of this Indenture or any
agreement relating to any property, asset, or business acquired by the Company
or any of its Subsidiaries, which restrictions in each case existed at the time
of Acquisition, were not put in place in connection with or in anticipation of
such Acquisition and are not applicable to any Person, other than the Person
acquired, or to any property, asset or business, other than the property, assets
and business so acquired, (e) any such restriction or requirement imposed by
Indebtedness incurred under the Credit Agreement or the Canadian Credit
Agreement or any guarantee thereof in accordance with Section 4.7; provided that
such restriction or requirement is no more restrictive taken as a whole than
that imposed by the Credit Agreement or the Canadian Credit Agreement or any
such guarantee as of the Issue Date, (f) restrictions with respect solely to a
Subsidiary of the Company imposed pursuant to a binding agreement which has been
entered into for the sale or disposition of all or substantially all of the
Equity Interests or assets of such Subsidiary; provided that such restrictions
apply solely to the Equity Interests or assets of such Subsidiary which are
being sold, (g) restrictions on transfer contained in Purchase Money
Indebtedness incurred pursuant to paragraph (a) of Section 4.7 provided that
such restrictions relate only to the transfer of the property acquired with the
proceeds of such Purchase Money Indebtedness and (h) in connection with and
pursuant to permitted Refinancings, replacements of restrictions imposed
pursuant to clauses (a), (c), (d), (e)
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or (g) of this Section 4.10 that are not more restrictive taken as a whole than
those being replaced and do not apply to any other Person or assets than those
that would have been covered by the restrictions in the Indebtedness so
refinanced.
Notwithstanding the foregoing, (a) customary provisions
restricting subletting or assignment of any lease entered into in the ordinary
course of business, consistent with industry practice shall not in and of
themselves be considered a restriction on the ability of the applicable
Subsidiary to transfer such agreement or assets, as the case may be and (b) any
asset subject to a Lien which is not prohibited to exist with respect to such
asset may be subject to restrictions on the transfer or disposition thereof
pursuant to such Lien.
Section 4.12 Limitation on Lines of Business
Neither the Company nor any of its Subsidiaries shall directly or
indirectly engage to any substantial extent in any line or lines of business
activity other than that which, in the reasonable good faith judgment of the
Board of Directors of the Company, is a Related Business.
Section 4.13 Limitation on Transactions with Affiliates
Neither the Company nor any of its Subsidiaries will be permitted
on or after the Issue Date to enter into or suffer to exist any contract,
agreement, arrangement or transaction with any Affiliate (an "Affiliate
Transaction"), or any series of related Affiliate Transactions, (other than
Exempted Affiliate Transactions), (i) unless it is determined that the terms of
such Affiliate Transaction are fair and reasonable to the Company, and no less
favorable to the Company, than could have been obtained in an arm's length
transaction with a non-Affiliate, and (ii) if involving consideration to either
party in excess of $1,000,000 unless such Affiliate Transaction(s) is evidenced
by an Officers' Certificate addressed and delivered to the Trustee certifying
that such Affiliate Transaction (or Transactions) has been approved by a
majority of the members of the Board of Directors of the Company that are
disinterested in such transaction, if any, and (iii) if involving consideration
to either party in excess of $5,000,000 unless in addition the Company, prior to
the consummation thereof, obtains a written favorable opinion as to the fairness
of such transaction to the Company from a financial point of view from an
independent investment banking firm of national reputation or, if pertaining to
a matter for which such investment banking firms do not customarily render such
opinions, an appraisal or valuation firm of national reputation.
Section 4.14 Limitation on Sale Of Assets And Subsidiary Stock
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The Company and the Subsidiary Guarantors shall not, and shall
not permit any of their Subsidiaries to, in one or a series of related
transactions, convey, sell, transfer, assign or otherwise dispose of, directly
or indirectly, any of its property, business or assets, including by merger or
consolidation (in the case of a Subsidiary Guarantor or a Subsidiary of the
Company), and including any sale or other transfer or issuance of any Equity
Interests of any Subsidiary of the Company (other than directors' qualifying
shares or shares required by applicable law to be held by a Person other than
the Company or a Subsidiary), whether by the Company or a Subsidiary or through
the issuance, sale or transfer of Equity Interests by a Subsidiary of the
Company, and including any sale and leaseback transaction (any of the foregoing,
an "Asset Sale"), unless (l)(a) the Net Cash Proceeds therefrom (the "Asset Sale
Offer Amount") are applied (i) within 180 days after the date of such Asset Sale
to the optional redemption of the Notes in accordance with the terms of this
Indenture and other Indebtedness of the Company ranking on a parity with the
Notes and with similar provisions requiring the Company to redeem such
Indebtedness with the proceeds for asset sales, pro rata in proportion to the
respective principal amounts (or accreted values in the case of Indebtedness
issued with an original issue discount) of the Notes and such other Indebtedness
then outstanding or (ii) within 210 days after the date of such Asset Sale to
the repurchase of the Notes and such other Indebtedness on a parity with the
Notes and with similar provisions requiring the Company to make an offer to
purchase such Indebtedness with the proceeds for asset sales pursuant to a cash
offer (subject only to conditions required by applicable law, if any) (pro rata
in proportion to the respective principal amounts (or accreted values in the
case of Indebtedness issued with an original issue discount) of the Notes and
such other Indebtedness properly tendered) (the "Asset Sale Offer") at a
purchase price of 100% of principal amount (or accreted value in the case of
Indebtedness issued with an original issue discount) (the "Asset Sale Offer
Price") together with accrued and unpaid interest and Liquidated Damages, if
any, to the date of payment, made within 180 days of such Asset Sale or (b)
within 180 days following such Asset Sale, the Asset Sale Offer Amount is (i)
invested (or committed, pursuant to a binding commitment subject only to
reasonable, customary closing conditions, to be invested, and in fact is so
invested, within an additional 90 days) in assets and property (except in
connection with the acquisition of a Wholly Owned Subsidiary in a Related
Business, other than notes, bonds, obligation and securities) which in the good
faith reasonable judgment of the Board of Directors of the Company will
immediately constitute or be a part of a Related Business of the Company or such
Subsidiary (if it continues to be a Subsidiary) immediately following such
transaction or in Restricted Investments permitted by Section 4.9; provided that
proceeds from Asset Sales effected by a Subsidiary Guarantor or a Canadian
Subsidiary may not be reinvested in a Foreign Subsidiary which is not a Canadian
Subsidiary or (ii) used to retire Purchase Money Indebtedness or Senior Debt and
to permanently reduce (in the case of Senior Debt that is not Purchase Money
Indebtedness) the amount of such Indebtedness outstanding on the Issue Date or
permitted pursuant to paragraph (b) (but only to the extent that such paragraph
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(b) relates to revolving credit borrowings under the Credit Agreement and the
Canadian Credit Agreement), (c) or (d), as applicable, of Section 4.7 (including
that in the case of a revolver or similar arrangement that makes credit
available, such commitment is so permanently reduced by such amount); provided
that any proceeds from Asset Sales effected by a Subsidiary Guarantor or a
Canadian Subsidiary may not be used to retire Indebtedness of or make an
Investment in any Foreign Subsidiary which is not a Canadian Subsidiary, except
to the extent allowable pursuant to clause (h) of the definition of Permitted
Investment, (2) at least 75% of the total consideration for such Asset Sale or
series of related Asset Sales consists of cash or Cash Equivalents, (3) no
Default or Event of Default shall have occurred and be continuing at the time
of, or would occur after giving effect, on a pro forma basis, to, such Asset
Sale, and (4) the Board of Directors of the Company determines in good faith
that the Company or such Subsidiary, as applicable, receives the fair market
value for such Asset Sale.
An acquisition of Notes pursuant to an Asset Sale Offer may be deferred
until the accumulated Net Cash Proceeds from Asset Sales not applied to the uses
and in the time periods set forth in 1(a)(i) or 1(b) above (the "Excess
Proceeds") exceeds $10,000,000 and that each Asset Sale Offer shall remain open
for 20 Business Days following its commencement (the "Asset Sale Offer Period").
Pending application of the Net Cash Proceeds pursuant to this Section 4.13, such
Net Cash Proceeds shall be invested in Permitted Investments (other than
pursuant to clause (a), (e) or (h) of the definition thereof) or used to reduce
outstanding loans under any working capital facility. Upon expiration of the
Asset Sale Offer Period, the Company shall apply the Asset Sale Offer Amount
plus an amount equal to accrued and unpaid interest and Liquidated Damages, if
any, to the purchase of all Indebtedness properly tendered (on a pro rata basis
if the Asset Sale Offer Amount is insufficient to purchase all Indebtedness so
tendered) at the Asset Sale Offer Price (together with accrued interest and
Liquidated Damages, if any). To the extent that the aggregate amount of Notes
and such other pari passu Indebtedness tendered pursuant to an Asset Sale Offer
is less than the Asset Sale Offer Amount, the Company may use any remaining Net
Cash Proceeds for general corporate purposes as otherwise permitted by this
Indenture and following each Asset Sale Offer the Excess Proceeds amount shall
be reset to zero. For purposes of (2) in the preceding paragraph, total
consideration received means the total consideration received for such Asset
Sales minus the amount of (a) Purchase Money Indebtedness secured solely by the
assets sold and assumed by a transferee and Senior Debt assumed by the
transferee, provided in each case that the Company, the Guarantors and their
Subsidiaries are released from all obligations in connection therewith and (b)
property that within 30 days of such Asset Sale is converted into cash or Cash
Equivalents; provided that such cash and Cash Equivalents shall be treated as
Net Cash Proceeds attributable to the original Asset Sale for which such
property was received.
Notwithstanding, and without complying with, the provisions of this Section
(1) the Company and its Subsidiaries may, in the ordinary course of
business, (1) convey, sell, transfer, assign or otherwise dispose of inventory
and other
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assets acquired and held for resale in the ordinary course of business and (2)
liquidate Cash Equivalents;
(2) the Company and its Subsidiaries may convey, sell, transfer, assign or
otherwise dispose of assets pursuant to and in accordance with Article V;
(3) the Company and its Subsidiaries may sell or dispose of damaged, worn
out or other obsolete personal property in the ordinary course of business so
long as such property is no longer necessary for the proper conduct of the
business of the Company or such Subsidiary, as applicable;
(4) the Company and the Subsidiary Guarantors may convey, sell, transfer,
assign or otherwise dispose of assets to the Company, any of its Subsidiary
Guarantors or any Canadian Subsidiary;
(5) the Company and its Subsidiaries, in the ordinary course of business,
may convey, sell transfer, assign, or otherwise dispose of assets (or related
assets in related transactions) with a fair market value of less than $500,000;
(6) the Company and each of its Subsidiaries may surrender or waive
contract rights or settle, release or surrender contract, tort or other claims
of any kind or grant Liens (and permit foreclosure thereon) not prohibited by
this Indenture; and
(7) Foreign Subsidiaries may convey, sell, transfer, assign or otherwise
dispose of assets to the Company, any of the Subsidiary Guarantors, or any other
Foreign Subsidiary.
All Net Cash Proceeds from an Event of Loss relating to a Material Facility
(other than the proceeds of any business interruption insurance) shall be
reinvested, used for prepayment of Senior Debt, or used to repurchase Notes and
pari passu Indebtedness on a pro rata basis, all within the period and as
otherwise provided above in clauses 1(a) or 1(b) of the first paragraph of this
Section 4.13.
Any Asset Sale Offer shall be made in compliance with all applicable laws,
rules, and regulations, including, if applicable, Regulation 14E of the Exchange
Act and the rules and regulations thereunder and all other applicable Federal
and state securities laws. To the extent that the provisions of any securities
laws or regulations conflict with the provisions of this Section 4.13,
compliance by the Company or any of its
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Subsidiaries with such laws and regulations shall not in and of itself cause a
breach of its obligations under this Section 4.13.
If the payment date in connection with an Asset Sale Offer hereunder is on
or after an interest payment Record Date and on or before the associated
Interest Payment Date, any accrued and unpaid interest (and Liquidated Damages,
if any, due on such Interest Payment Date) will be paid to the Person in whose
name a Note is registered at the close of business on such Record Date, and such
interest (or Liquidated Damages, if applicable) will not be payable to Holders
who tender Notes pursuant to such Asset Sale Offer.
Section 4.15 Repurchase of Notes At The Option Of The Holder upon a Change of
Control
In the event that a Change of Control has occurred, each Holder
of Notes will have the right, at such Holder's option, pursuant to an offer
(subject only to conditions required by applicable law, if any) by the Company
(the "Change of Control Offer"), to require the Company to repurchase all or any
part of such Holder's Notes (provided that the principal amount of such Notes
must be $1,000 or an integral multiple thereof) on a date (the "Change of
Control Purchase Date") that is no later than 35 Business Days after the
occurrence of such Change of Control, at a cash price equal to 101% of the
principal amount thereof (the "Change of Control Purchase Price"), together with
accrued and unpaid interest and Liquidated Damages, if any, to the Change of
Control Purchase Date. The Change of Control Offer shall be made within 10
Business Days following a Change of Control and shall remain open for 20
Business Days following its commencement (the "Change of Control Offer Period").
Upon expiration of the Change of Control Offer Period, the Company promptly
shall purchase all Notes properly tendered in response to the Change of Control
Offer.
As used herein, a "Change of Control" means (i) prior to
consummation of an Initial Public Equity Offering, the Excluded Person shall
cease beneficially to own, directly or indirectly, at least 51% of the voting
power of the Voting Equity Interests of the Company or (ii) following the
consummation of an Initial Public Equity Offering, (A) any merger or
consolidation of the Company with or into any Person or any sale, transfer or
other conveyance, whether direct or indirect, of all or substantially all of the
assets of the Company, on a consolidated basis, in one transaction or a series
of related transactions occurs, if, immediately after giving effect to such
transaction(s), (x) any "person" or "group" (as such terms are used for purposes
of Sections 13(d) and 14(d) of the Exchange Act, whether or not applicable)
(other than the Excluded Person and
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Robert J. Muller, Jr.) is or becomes the "beneficial owner," directly or
indirectly, of more than 35% of the total voting power in the aggregate normally
entitled to vote in the election of directors, managers, or trustees, as
applicable, of the transferee(s) or surviving entity or entities and (y) the
Excluded Person and Robert J. Muller, Jr. "beneficially own," directly or
indirectly, in the aggregate a lesser percentage of such voting power than such
other person or group, (B) any Schedule 13D, Form 13F or Schedule 13G under the
Exchange Act, or any amendment to such Schedule or Form, is received by the
Company which indicates that, or the Company otherwise becomes aware that, (x)
any "person" or "group" (as such terms are used for purposes of Sections 13(d)
and 14(d) of the Exchange Act, whether or not applicable) (other than the
Excluded Person and Robert J. Muller, Jr.) is or becomes the "beneficial owner,"
directly or indirectly, of more than 35% of the total voting power in the
aggregate of all classes of Capital Stock of the Company then outstanding
normally entitled to vote in elections of directors, managers, or trustees, as
applicable, of the transferee(s) or surviving entity or entities and (y) the
Excluded Person and Robert J. Muller, Jr. "beneficially own," directly or
indirectly, in the aggregate a lesser percentage of such voting power than such
other person or group; provided, however, that a Person shall not be deemed the
"beneficial owner" of shares tendered pursuant to a tender or exchange offer
made by such Person or any Affiliate of such Person until the tendered shares
are accepted for purchase or exchange, (C) during any period of 12 consecutive
months after the Issue Date, individuals who at the beginning of any such 12-
month period constituted the Board of Directors of the Company (together with
any new directors whose election by such Board of Directors or whose nomination
for election by the shareholders of the Company was approved by a vote of a
majority of the directors then still in office who were either directors at the
beginning of such period or whose election or nomination for election was
previously so approved, including new directors designated in or provided for in
an agreement regarding the merger, consolidation or sale, transfer or other
conveyance, of all or substantially all of the assets of the Company or any
Parent Guarantor or Holdings, if such agreement was approved by a vote of such
majority of directors) cease for any reason to constitute a majority of the
Board of Directors of the Company then in office or (D) the Company adopts a
plan of liquidation.
Notwithstanding the foregoing, the Company will not be required to make a
Change of Control Offer upon a Change of Control if a third party makes the
Change of Control Offer in the manner, at the times and otherwise in compliance
with the requirements set forth herein applicable to a Change of Control Offer
made by the Company, including any requirements to repay in full all
Indebtedness under the Credit Agreement and the Canadian Credit Agreement, any
Senior Debt of the Company or
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Senior Debt of any Subsidiary Guarantor or obtain the consents of such lenders
to such Change of Control Offer as set forth in the following paragraph, and
purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
Prior to the commencement of a Change of Control Offer, but in any event
within 30 days following any Change of Control, the Company shall (i)(a) repay
in full and terminate all commitments under Indebtedness under the Credit
Agreement and the Canadian Credit Agreement or (b) offer to repay in full and
terminate all commitments under all Indebtedness under the Credit Agreement and
the Canadian Credit Agreement and repay in full the Indebtedness owed to each
such lender which has accepted such offer or (ii) obtain the requisite consents
under the Credit Agreement and the Canadian Credit Agreement to permit the
repurchase of the Notes as provided herein. The Company's failure to comply with
the preceding sentence shall constitute an Event of Default described in clause
(d) and not in clause (b) of Section 6.1 below.
On or before the Change of Control Purchase Date, the Company shall, to the
extent lawful, (i) accept for payment Notes or portions thereof properly
tendered and not validly withdrawn pursuant to the Change of Control Offer, (ii)
deposit with the Paying Agent an amount in cash sufficient to pay the Change of
Control Purchase Price (together with accrued and unpaid interest and Liquidated
Damages, if any), of all Notes so tendered and (iii) deliver or cause to be
delivered to the Trustee the Notes so accepted together with an Officers'
Certificate listing the Notes or portions thereof being purchased by the
Company. The Paying Agent promptly will pay the Holders of Notes so accepted an
amount equal to the Change of Control Purchase Price (together with accrued and
unpaid interest and Liquidated Damages, if any), and the Trustee promptly will
authenticate and deliver to such Holders a new Note equal in principal amount to
any unpurchased portion of the Note surrendered. Any Notes not so accepted will
be delivered promptly by the Company to the Holder thereof. The Company publicly
will announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Purchase Date.
Any Change of Control Offer shall be made in compliance with all applicable
laws, rules and regulations, including, if applicable, Regulation 14E under the
Exchange Act and the rules thereunder and all other applicable Federal and state
securities laws. To the extent that the provisions of any securities laws or
regulations conflict with the provisions of this Section 4.14, compliance by the
Company or any of the Guarantors with such laws and regulations shall not in and
of itself cause a breach of its obligations under this Section 4.14.
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If the Change of Control Purchase Date hereunder is on or after an interest
payment Record Date and on or before the associated Interest Payment Date, any
accrued and unpaid interest (and Liquidated Damages, if any) due on such
Interest Payment Date will be paid to the Person in whose name a Note is
registered at the close of business on such Record Date, and such interest (and
Liquidated Damages, if applicable) will not be payable to Holders who tender the
Notes pursuant to the Change of Control Offer.
Section 4.16 Limitation on Layering Indebtedness
The Company and the Guarantors shall not, and shall not permit
any of the Company's Subsidiaries to, directly or indirectly, incur, or suffer
to exist any Indebtedness that is subordinate in right of payment to any other
Indebtedness of the Company or a Guarantor unless, by its terms, such
Indebtedness is subordinate in right of payment to, or ranks pari passu with,
the Notes or the Guarantees, as applicable, provided that this limitation will
not apply to Acquired Indebtedness (other than Acquired Indebtedness incurred in
connection with or in contemplation of a merger of the Company, any Guarantor or
any of their Subsidiaries, or in connection with another transaction pursuant to
which a Person becomes a Subsidiary of the Company or any Guarantor); provided,
further that this limitation will not apply to guarantees by the Company or any
Guarantor of Indebtedness incurred pursuant to the Canadian Credit Agreement.
Section 4.17 Subsidiary Guarantors
All present and future Subsidiaries of the Company other than
Foreign Subsidiaries shall jointly and severally guaranty irrevocably and
unconditionally all principal, premium, if any, and interest on the Notes on a
senior subordinated basis and shall execute a Guarantee substantially in the
form included in Exhibit A hereto (in the case of present and future
Subsidiaries of the Company) and in the form of Exhibit E hereto (in the case of
future Subsidiaries of the Company) and deliver an Opinion of Counsel in form
and substance reasonably satisfactory to the Trustee regarding the due
authorization, execution and delivery of the Guarantee.
Notwithstanding anything herein to the contrary, if any
Subsidiary (including Foreign Subsidiaries) of the Company that is not a
Subsidiary Guarantor guarantees any other Indebtedness of the Company or any
Subsidiary Guarantor (other than any guarantee by a Foreign Subsidiary of
Indebtedness of any other Foreign Subsidiary of the Company), or the Company or
a Subsidiary of the Company,
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individually or collectively, pledges more than 65% of the Equity Interests of
any such Subsidiary to a United States lender, then such Subsidiary must become
a Subsidiary Guarantor and shall execute a Guarantee substantially in the form
of Exhibit E hereto and deliver an Opinion of Counsel in form and substance
reasonably satisfactory to the Trustee regarding the due authorization,
execution and delivery of the Guarantee.
Section 4.18 Limitation On Status As Investment Company
The Company and its Subsidiaries shall be prohibited from being
required to register as an "investment company" (as that term is defined in the
Investment Company Act of 1940, as amended (the "Investment Company Act")), or
from otherwise becoming subject to registration or regulation under the
Investment Company Act.
Section 4.19 maintenance of properties and insurance
The Company and the Subsidiary Guarantors shall cause all
material properties used or useful to the conduct of their business and the
business of each of their Subsidiaries to be maintained and kept in good
condition, repair and working order (reasonable wear and tear excepted) and
supplied with all necessary equipment and shall cause to be made all necessary
repairs, renewals, replacements, betterments and improvements thereof, all as in
their reasonable judgment may be necessary, so that the business carried on in
connection therewith may be properly conducted at all times; provided, however,
that nothing in this Section 4.18 shall prevent the Company or any Subsidiary
Guarantor from discontinuing any operation or maintenance of any of such
properties, or disposing of any of them, if such discontinuance or disposal is
(a) (i) in the judgment of the Board of Directors of the Company, desirable in
the conduct of the business of such entity and (ii) would not have a material
adverse effect on the ability of the Company and the Guarantors to satisfy their
obligations under the Notes, the Guarantees and this Indenture, or (b) otherwise
permitted under Section 4.13.
The Company and Subsidiary Guarantors shall provide, or cause to
be provided, for themselves and each of their Subsidiaries, insurance (including
appropriate self-insurance) against loss or damage of the kinds that, in the
reasonable, good faith opinion of the Board of Directors of the Company is
adequate and appropriate for the conduct of the business of the Company, the
Subsidiary Guarantors and such Subsidiaries.
Section 4.20 corporate existence
Subject to Article V hereof, the Company shall do or cause to be
done all things necessary to preserve and keep in full force and effect (i) its
corporate existence, and the corporate, partnership or other existence of each
of its Subsidiaries, in accordance with the
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respective organizational documents (as the same may be amended from time to
time) of the Company or any such Subsidiary and (ii) the rights (charter and
statutory), licenses and franchises of the Company and its Subsidiaries;
provided, however, that the Company shall not be required to preserve any such
right, license or franchise, or the corporate, partnership or other existence of
any of its Subsidiaries, if the Board of Directors shall determine that the
preservation thereof is no longer desirable in the conduct of the business of
the Company and its Subsidiaries, taken as a whole, and that the loss thereof
would not have a material adverse effect on the ability of the Company and the
Guarantors to satisfy their obligations under the Notes, the Guarantees and this
Indenture.
ARTICLE V
SUCCESSORS
Section 5.1 Merger, Consolidation or Sale of Assets
The Company shall not consolidate with or merge with or into
another Person or, directly or indirectly, sell, lease, convey or transfer all
or substantially all of its assets (computed on a consolidated basis), whether
in a single transaction or a series of related transactions, to another Person
or group of affiliated Persons, unless (i) either (a) the Company is the
continuing entity or (b) the resulting, surviving or transferee entity is a
corporation organized under the laws of the United States, any state thereof or
the District of Columbia and expressly assumes by supplemental indenture all of
the obligations of the Company in connection with the Notes and this Indenture;
(ii) no Default or Event of Default shall exist or shall occur immediately after
giving effect on a pro forma basis to such transaction; and (iii) immediately
after giving effect to such transaction on a pro forma basis, the consolidated
resulting, surviving or transferee entity would immediately thereafter be
permitted to incur at least $1.00 of additional Indebtedness pursuant to the
Debt Incurrence Ratio set forth in Section 4.7.
For purposes of the foregoing, the transfer (by lease,
assignment, sale or otherwise) of all or substantially all of the properties and
assets of one or more Subsidiaries, the Company's interest in which constitutes
all or substantially all of the properties and assets of the Company, shall be
deemed to be the transfer of all or substantially all of the properties and
assets of the Company.
Section 5.2 Successor Corporation Substituted
Upon any consolidation or merger or any transfer of all or
substantially all of the assets of the Company in accordance with Section 5.1
hereof, the successor corporation formed by such consolidation or into which the
Company is merged or to
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which such transfer is made shall (except in the case of a lease) succeed to and
be substituted for, and may exercise every right and power of, the Company under
this Indenture with the same effect as if such successor corporation had been
named therein as the Company, and (except in the case of a lease) the Company
shall be released from the obligations under the Notes and this Indenture except
with respect to any obligations that arise from, or are related to, such
transaction.
ARTICLE VI
DEFAULTS AND REMEDIES
Section 6.1 Events of Default
"Event of Default," wherever used herein, means any one of the
following events:
(1) the failure by the Company to pay any installment of interest
(or Liquidated Damages, if any) on the Notes as and when the same becomes due
and payable and the continuance of any such failure for 30 days;
(2) the failure by the Company or any Subsidiary of the Company
to pay all or any part of the principal, or premium, if any, on the Notes when
and as the same becomes due and payable at maturity, redemption, by acceleration
or otherwise, including, without limitation, payment of the Change of Control
Purchase Price or the Asset Sale Offer Price, or otherwise on Notes validly
tendered and not properly withdrawn pursuant to a Change of Control Offer or
Asset Sale Offer, as applicable (as set forth in Sections 4.14 and 4.13);
(3) failure by the Company or any Subsidiary of the Company for
30 days after notice from the Trustee or Holders of at least 25% in principal
amount of the Notes then outstanding to comply with the provisions described in
Sections 4.7 and 4.9;
(4) failure by the Company or any Subsidiary of the Company for
60 days after notice from the Trustee or the Holders of at least 25% in
principal amount of the Notes then outstanding to comply with any of their
respective other agreements in this Indenture or the Notes (other than with
respect to (a), (b) and (c) above);
(5) the failure to pay at final stated maturity (giving effect to
any applicable grace periods) the principal amount of any Indebtedness of the
Company or any Subsidiary of the Company or the acceleration of the final stated
maturity of any Indebtedness if the aggregate principal amount of such
Indebtedness, together with the
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principal amount of any such Indebtedness in default for failure to pay
principal at final maturity or which has been accelerated, aggregates $5,000,000
or more at any one time;
(6) final unsatisfied judgments not covered by insurance for the
payment of money, or the issuance of any warrant of attachment against any
portion of the property or assets of the Company or any of its Subsidiaries,
aggregating in excess of $5,000,000, at any one time shall be rendered against
the Company or any of its Subsidiaries and not be stayed, bonded or discharged
for a period of 60 days;
(7) except as otherwise permitted in this Indenture, any of the
Guarantees shall be held in a judicial proceeding to be unenforceable or invalid
or shall cease for any reason to be in full force and effect or the respective
Guarantor, or any Person acting on behalf of such Guarantor, shall deny or
disaffirm its obligations under its Guarantee;
(8) a court having jurisdiction in the premises enters a decree
or order for (A) relief in respect of the Company or any Significant Subsidiary
in an involuntary case under any applicable Bankruptcy Law now or hereafter in
effect, (B) appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of the Company or any Significant Subsidiary or
for all or substantially all of the property and assets of the Company or any
Significant Subsidiary or (C) the winding up or liquidation of the affairs of
the Company or any Significant Subsidiary and, in each case, such decree or
order shall remain unstayed and in effect for a period of 60 consecutive days;
or
(9) the Company or any Significant Subsidiary (A) commences a
voluntary case under any applicable Bankruptcy Law now or hereafter in effect,
or consents to the entry of an order for relief in an involuntary case under any
such law, (B) consents to the appointment of or taking possession by a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar official of
the Company or any Significant Subsidiary or for all or substantially all of the
property and assets of the Company or any Significant Subsidiary or (C) effects
any general assignment for the benefit of creditors.
The term "Bankruptcy Law" means Title 11, U.S. Code or any
similar federal or state law for the relief of debtors. The term "Custodian"
means any receiver, trustee, assignee, liquidator or similar official under any
Bankruptcy Law.
Section 6.2 Acceleration
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If an Event of Default (other than an Event of Default specified
in clause (h) or (i) of Section 6.1 that occurs with respect to the Company)
occurs and is continuing under this Indenture, then in every such case, unless
the principal of all of the Notes shall have already become due and payable,
either the Trustee or the Holders of at least 25% in aggregate principal amount
of the Notes, then outstanding, by written notice to the Company (and to the
Trustee if such notice is given by the Holders), may, and the Trustee at the
request of such Holders shall, declare the principal of, premium, if any, and
accrued interest (and Liquidated Damages, if any) on the Notes to be immediately
due and payable. Upon a declaration of acceleration, such principal of, premium,
if any, and accrued interest (and Liquidated Damages, if any) shall be
immediately due and payable; provided that if any Senior Debt is outstanding
pursuant to the Credit Agreement or the Canadian Credit Agreement, any such
declaration of acceleration shall not become effective until the earlier of (A)
the fifth Business Days after the sending to the Company and the Representative
under the Credit Agreement and the Canadian Credit Agreement of such written
notice, unless such Event of Default is cured or waived prior to such date and
(B) the date of acceleration of any Senior Debt under the Credit Agreement or
the Canadian Credit Agreement, as applicable. In the event a declaration of
acceleration resulting solely from an Event of Default described in clause (e)
above has occurred and is continuing, such declaration of acceleration shall be
automatically annulled if such default is cured or waived or the holders of the
Indebtedness which is the subject of such default have rescinded their
declaration of acceleration in respect of such Indebtedness within five days
thereof and the Trustee has received written notice of such cure, waiver or
rescission and no other Event of Default described in clause (e) above has
occurred that has not been cured or waived within five days of the declaration
of such acceleration in respect of such Indebtedness. If an Event of Default
specified in clauses (h) and (i) above, relating to the Company, occurs, all
principal and accrued interest (and Liquidated Damages, if any) thereon will be
immediately due and payable on all outstanding Notes without any declaration or
other act on the part of the Trustee or the Holders. As of the Issue Date, the
Representative under the Credit Agreement is Credit Suisse First Boston, as
Administrative Agent, with an address of 11 Madison Avenue, New York, New York
10010, attention: Syndication Agency, and the Representative under the Canadian
Credit Agreement is Credit Suisse First Boston Canada, as Administrative Agent,
with an address of One First Canadian Place, Suite 3000, P.O. Box 301, Toronto,
Ontario, M5X 1C9, attention: Syndications Administration, and the Company shall
provide the Trustee with timely written notice of any change in the name or
address of the Representatives under the Credit Agreement or the Canadian Credit
Agreement.
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At any time after such a declaration of acceleration being made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as hereinafter provided in this Article VI, the Holders of not less
than a majority in aggregate principal amount of then outstanding Notes, by
written notice to the Company and the Trustee, may rescind, on behalf of all
Holders, any such declaration of acceleration if:
(1) the Company has paid or deposited with the Trustee cash
sufficient to pay: (a) all overdue interest and Liquidated
Damages, if any, on all Notes; (b) the principal of (and premium,
if any, applicable to) any Notes which would become due other
than by reason of such declaration of acceleration, and interest
thereon at the rate borne by the Notes; (c) to the extent that
payment of such interest is lawful, interest upon overdue
interest at the rate borne by the Notes; (d) all sums paid or
advanced by the Trustee hereunder and the reasonable
compensation, expenses, disbursements and advances of the Trustee
and its agents and counsel, and all other amounts due the Trustee
under Section 7.7; and
(2)
all Events of Default, other than the non-payment of the
principal of, premium, if any, and interest (and Liquidated
Damages, if any) on the Notes which have become due solely by
such declaration of acceleration, have been cured or waived as
provided in Section 6.4.
Notwithstanding the previous sentence of this Section 6.2, no waiver
shall be effective against any Holder for any Event of Default or event which
with notice or lapse of time or both would be an Event of Default with respect
to (i) any covenant or provision which cannot be modified or amended without the
consent of the Holder of each outstanding Note affected thereby, unless all such
affected Holders agree, in writing, to waive such Event of Default or other
event and (ii) any provision or covenant requiring supermajority approval to
amend, unless such default has been waived by such a supermajority. No such
waiver shall cure or waive any subsequent default or impair any right consequent
thereon.
If payment of the Notes is accelerated because of an Event of Default,
the Company shall promptly notify each Representative of Senior Debt of the
acceleration.
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Section 6.3 Other Remedies
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy to collect the payment of principal, premium, if
any, and interest on the Notes or to enforce the performance of any provision of
the Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess
any of the Notes or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder of a Note in exercising any right or
remedy accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. All remedies are
cumulative to the extent permitted by law.
Section 6.4 Waiver of Past Defaults
Subject to Section 6.7, the Holders of at least a majority in
principal amount of the outstanding Notes by written notice to the Company and
to the Trustee, may, on behalf of all Holders, waive any existing or past
Default or Event of Default hereunder and its consequences under this Indenture,
except a default:
(1) in the payment of principal of, premium, if any, or interest on
any Note not yet cured as specified in clauses (a) and (b) of
Section 6.1 hereof;
(2) in respect of a covenant or provision hereof which, under Article
IX, cannot be modified or amended without the consent of the
Holder of each outstanding Note affected, unless all such affected
Holders agree, in writing, to waive such default;
(3) any provision or covenant requiring supermajority approval to
amend, unless such default has been waived by such a
supermajority; or
(4) the rescission of which would conflict with any judgment or decree
of a court of competent jurisdiction.
Upon any such waiver, such default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other default or impair any right arising therefrom.
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Section 6.5 Control by Majority
Holders of at least a majority in aggregate principal amount of
the then outstanding Notes may direct the time, method and place of conducting
any proceeding for exercising any remedy available to the Trustee or exercising
any trust or power conferred on it. However, the Trustee may refuse to follow
any direction that conflicts with law or this Indenture, that the Trustee
determines in good faith may be unduly prejudicial to the rights of other
Holders of Notes not joining in the giving of such direction or that may involve
the Trustee in personal liability and the Trustee may take any other action it
deems proper that is not inconsistent with any such direction received from
Holders of the Notes.
Section 6.6 Limitation on Suits
A Holder of a Note may pursue a remedy with respect to this
Indenture or the Notes only if:
(1) the Holder of a Note gives to the Trustee written notice of a
continuing Event of Default;
(2) the Holders of at least 25% in aggregate principal amount of
the then outstanding Notes make a written request to the Trustee to pursue the
remedy;
(3) such Holder of a Note or Holders of Notes offer and, if
requested, provide to the Trustee indemnity satisfactory to the Trustee against
any costs, liability or expense;
(4) the Trustee does not comply with the request within 60 days
after receipt of the request and the offer and, if requested, the provision of
indemnity; and
(5) during such 60-day period the Holders of a majority in
principal amount of the then outstanding Notes do not give the Trustee a
direction inconsistent with the request.
A Holder of a Note may not use this Indenture to prejudice the rights of another
Holder of a Note or to obtain a preference or priority over another Holder of a
Note.
Section 6.7 Rights of Holders of Notes to Receive Payment
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Notwithstanding any other provision of this Indenture, except as
permitted by Section 9.2, the right of any Holder of a Note to receive payment
of the principal of, premium and Liquidated Damages, if any, and interest on the
Note, on or after the respective due dates expressed in the Note (including in
connection with an offer to purchase) or to bring suit for the enforcement of
any such payment on or after such respective dates, shall not be impaired or
affected without the consent of such Holder.
Section 6.8 Collection Suit by Trustee
If an Event of Default specified in Section 6.1 occurs and is
continuing, the Trustee is authorized to recover judgment in its own name and as
trustee of an express trust against the Company for the whole amount of
principal of, premium and Liquidated Damages, if any, and interest remaining
unpaid on the Notes and interest on overdue principal and, to the extent lawful,
interest and such further amount as shall be sufficient to cover the costs and
expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.
Section 6.9 Trustee May File Proofs of Claim
The Trustee is authorized to file such proofs of claim and other
papers or documents as may be necessary or advisable in order to have the claims
of the Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Holders of the Notes allowed in any judicial proceedings relative to the Company
(or any other obligor upon the Notes), its creditors or its property and shall
be entitled and empowered to collect, receive and distribute any money or other
property payable or deliverable on any such claims and any custodian in any such
judicial proceeding is hereby authorized by each Holder to make such payments to
the Trustee, and in the event that the Trustee shall consent to the making of
such payments directly to the Holders, to pay to the Trustee any amount due to
it for the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 7.7 hereof. To the extent that the payment of any such compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel, and
any other amounts due the Trustee under Section 7.7 hereof out of the estate in
any such proceeding, shall be denied for any reason, payment of the same shall
be secured by a Lien on, and shall be paid out of, any and all distributions,
dividends, money, securities
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and other properties that the Holders may be entitled to receive in such
proceeding whether in liquidation or under any plan of reorganization or
arrangement or otherwise; provided that nothing stated herein shall modify the
rights as between the Holders of the Notes and the holders of Senior Debt or
Senior Debt of the Guarantors, as applicable, as set forth in Article XI.
Nothing herein contained shall be deemed to authorize the Trustee to authorize
or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Notes or
the rights of any Holder, or to authorize the Trustee to vote in respect of the
claim of any Holder in any such proceeding; provided, however that the Trustee
may, on behalf of the Holders, vote for the election of a trustee in bankruptcy
or similar official and may be a member of the creditor's committee.
Section 6.10 Priorities
If the Trustee collects any money pursuant to this Article, it shall
pay out the money in the following order:
First: to the Trustee, its agents and attorneys for amounts due under
Section 7.7 hereof, including payment of all compensation, expense and
liabilities incurred, and all advances made, by the Trustee and the costs and
expenses of collection (including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel);
Second: to Holders of Notes for amounts due and unpaid on the Notes
for principal and Liquidated Damages, if any, and interest, ratably, without
preference or priority of any kind, according to the amounts due and payable on
the Notes for principal, premium and Liquidated Damages, if any, and interest,
respectively; and
Third: to the Company or to such party as a court of competent
jurisdiction shall direct.
The Trustee may fix a Record Date and payment date for any payment to
Holders of Notes pursuant to this Section 6.10.
Section 6.11 Undertaking for Costs
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, a court in its discretion may require the filing by any party
litigant in the suit
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of an undertaking to pay the costs of the suit, and the court in its discretion
may assess reasonable costs, including reasonable attorneys' fees, against any
party litigant in the suit, having due regard to the merits and good faith of
the claims or defenses made by the party litigant. This Section does not apply
to a suit by the Trustee, a suit by a Holder of a Note pursuant to Section 6.7
hereof, or a suit by Holders of more than 10% in principal amount of the then
outstanding Notes.
ARTICLE VII
TRUSTEE
Section 7.1 Duties of Trustee
(1) If an Event of Default of which the Trustee has knowledge has
occurred and is continuing, the Trustee shall exercise such of the rights and
powers vested in it by this Indenture, and use the same degree of care and skill
in its exercise, as a prudent man would exercise or use under the circumstances
in the conduct of its own affairs.
(2) Except during the continuance of an Event of Default of which the
Trustee has knowledge:
(1) the duties of the Trustee shall be determined solely by the
express provisions of this Indenture and the Trustee need perform only those
duties that are specifically set forth in this Indenture and no others, and no
implied covenants or obligations shall be read into this Indenture against the
Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of the
opinions expressed therein, upon certificates or opinions furnished to the
Trustee and conforming to the requirements of this Indenture. However, the
Trustee shall examine the certificates and opinions to determine whether or not
they conform to the requirements of this Indenture.
(3) The Trustee may not be relieved from liabilities for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(1) this paragraph (c) does not limit the effect of paragraph
(b) of this Section;
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(2) the Trustee shall not be liable for any error of judgment
made in good faith by an Officer, unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts; and
(3) the Trustee shall not be liable with respect to any action
it takes or omits to take in good faith in accordance with a direction received
by it pursuant to Section 6.5 hereof.
(4) Whether or not therein expressly so provided, every provision of
this Indenture that in any way relates to the Trustee is subject to Sections 7.1
and 7.2.
(5) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or incur any liability. The Trustee shall be under
no obligation to exercise any of its rights and powers under this Indenture at
the request of any Holders, unless such Holder shall have offered to the Trustee
security and indemnity satisfactory to it against any loss, liability or
expense.
(6) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
Section 7.2 Rights of Trustee
(1) In connection with the Trustee's rights and duties under
this Indenture, the Trustee may conclusively rely upon any document believed by
it to be genuine and to have been signed or presented by the proper Person. The
Trustee need not investigate any fact or matter stated in the document.
(2) Before the Trustee acts or refrains from acting under this
Indenture, it may require an Officers' Certificate or an Opinion of Counsel or
both. The Trustee shall not be liable for any action it takes or omits to take
in good faith in reliance on such Officers' Certificate or Opinion of Counsel.
The Trustee may consult with counsel and the written advice of such counsel or
any Opinion of Counsel shall be full and complete authorization and protection
from liability in respect of any action taken, suffered or omitted by it
hereunder in good faith and in reliance thereon.
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(3) The Trustee may act through its attorneys and agents and shall
not be responsible for the misconduct or negligence of any agent appointed with
due care.
(4) The Trustee shall not be liable for any action it takes or omits
to take in good faith that it believes to be authorized or within the rights or
powers conferred upon it by this Indenture.
(5) Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Company shall be sufficient if
signed by an Officer of the Company.
(6) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders unless such Holders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
that might be incurred by it in compliance with such request or direction.
(7) Except with respect to Section 4.1 hereof, the Trustee shall have
no duty to inquire as to the performance of the Company's covenants in Article
IV hereof. In addition, the Trustee shall not be deemed to have knowledge of any
Default or Event of Default except (i) any Event of Default occurring pursuant
to Sections 6.1(a), 6.1(b) and 4.1 or (ii) any Default or Event of Default of
which the Trustee shall have received written notification in the manner set
forth in this Indenture or an officer in the corporate trust administration of
the Trustee shall have obtained actual knowledge.
(8) The Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture,
note, other evidence of indebtedness or other paper or document, but the Trustee
may, in its discretion, make such further inquiry or investigation into such
facts or matters as it may see fit.
Section 7.3 Individual Rights of Trustee
The Trustee in its individual or any other capacity may become the
owner or pledgee of Notes and may otherwise deal with the Company or any
Affiliate of the Company with the same rights it would have if it were not
Trustee. However, in the event that the Trustee acquires any conflicting
interest (as defined in the TIA) it must
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eliminate such conflict within 90 days, apply to the SEC for permission to
continue as trustee or resign. Any Agent may do the same with like rights and
duties. The Trustee is also subject to Sections 7.10 and 7.11 hereof.
Section 7.4 Trustee's Disclaimer
The Trustee shall not be responsible for and makes no representation
as to the validity or adequacy of this Indenture or the Notes, it shall not be
accountable for the Company's use of the proceeds from the Notes or any money
paid to the Company or upon the Company's direction under any provision of this
Indenture, it shall not be responsible for the use or application of any money
received by any Paying Agent other than the Trustee, and it shall not be
responsible for any statement or recital herein or any statement in the Notes or
any other document in connection with the sale of the Notes or pursuant to this
Indenture other than its certificate of authentication.
Section 7.5 Notice of Defaults
If a Default or Event of Default occurs and is continuing and if it is
known to the Trustee, the Trustee shall mail to Holders of Notes a notice in the
manner and to the extent provided by Section 313(c) of the TIA of the Default or
Event of Default within 90 days after it occurs. Except in the case of a Default
or Event of Default in payment of principal of, premium, if any, or interest on
any Note, the Trustee may withhold the notice if and so long as a committee of
its Officers in good faith determines that withholding the notice is in the
interests of the Holders of the Notes.
Section 7.6 Reports by Trustee to Holders of the Notes
Within 60 days after each May 15 beginning with the May 15 following
the date of this Indenture, and for so long as Notes remain outstanding, the
Trustee shall mail to the Holders of the Notes a brief report dated as of such
reporting date that complies with TIA (S) 313(a) (but if no event described in
TIA (S) 313(a) has occurred within the 12 months preceding the reporting date,
no report need be transmitted). The Trustee also shall comply with TIA (S)
313(b)(2). The Trustee shall also transmit by mail all reports as required by
TIA (S) 313(c).
A copy of each report at the time of its mailing to the Holders of
Notes shall be mailed to the Company and filed with the SEC and each stock
exchange on which the Notes are listed in accordance with TIA (S) 313(d). The
Company shall promptly notify the Trustee when the Notes are listed on any stock
exchange.
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Section 7.7 Compensation and Indemnity
The Company shall pay to the Trustee from time to time reasonable
compensation for its acceptance of this Indenture and services hereunder. The
Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust. The Company shall reimburse the Trustee promptly
upon request for all reasonable disbursements, advances and expenses incurred
or made by it in addition to the compensation for its services. Such expenses
shall include the reasonable compensation, disbursements and expenses of the
Trustee's agents and counsel.
The Company shall indemnify the Trustee against any and all losses,
liabilities or expenses (including reasonable attorneys' fees) incurred by it
arising out of or in connection with the acceptance or administration of its
duties under this Indenture, including the costs and expenses of enforcing this
Indenture against the Company (including this Section 7.7) and defending itself
against any claim (whether asserted by the Company or any Holder or any other
Person) or liability in connection with the exercise or performance of any of
its powers or duties hereunder, except to the extent any such loss, liability or
expense may be attributable to its negligence, bad faith or willful misconduct.
The Trustee shall notify the Company promptly of any claim for which it may seek
indemnity. Failure by the Trustee to so notify the Company shall not relieve the
Company of its obligations hereunder. The Company shall defend the claim and the
Trustee shall cooperate in the defense. The Trustee may have separate counsel
and the Company shall pay the reasonable fees and expenses of such counsel. The
Company need not pay for any settlement made without its consent, which consent
shall not be unreasonably withheld.
The obligations of the Company under this Section 7.7 shall survive
the satisfaction and discharge of this Indenture.
To secure the Company's payment obligations in this Section, the
Trustee shall have a Lien prior to the Notes on all money or property held or
collected by the Trustee, except that held in trust to pay principal and
interest on particular Notes; provided that nothing stated herein shall modify
the rights as between the Holders of the Notes and the holders of the Senior
Debt or Senior Debt of the Guarantors, as applicable, as set forth in Article XI
hereof. Such Lien shall survive the satisfaction and discharge of this
Indenture.
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When the Trustee incurs expenses or renders services after an
Event of Default specified in Sections 6.1(h) or 6.1(i) hereof occurs, the
expenses and the compensation for the services (including the fees and expenses
of its agents and counsel) are intended to constitute expenses of administration
under any Bankruptcy Law.
The Trustee shall comply with the provisions of TIA (S) 313(b)(2)
to the extent applicable.
Section 7.8 Replacement of Trustee
A resignation or removal of the Trustee and appointment of a
successor Trustee shall become effective only upon the successor Trustee's
acceptance of appointment as provided in this Section.
The Trustee may resign in writing at any time and be discharged
from the trust hereby created by so notifying the Company. The Holders of Notes
of a majority in principal amount of the then outstanding Notes may remove the
Trustee by so notifying the Trustee and the Company in writing. The Company may
remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10 hereof;
(2) the Trustee is adjudged a bankrupt or an insolvent or an
order for relief is entered with respect to the Trustee under any Bankruptcy
Law;
(3) a Custodian or public officer takes charge of the Trustee or
its property; or
(4) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in
the office of Trustee for any reason, the Company shall promptly appoint a
successor Trustee. Within one year after the successor Trustee takes office, the
Holders of a majority in principal amount of the then outstanding Notes may
appoint a successor Trustee to replace the successor Trustee appointed by the
Company.
If a successor Trustee does not take office within 60 days after
the retiring Trustee resigns or is removed, the retiring Trustee, the Company,
or the Holders
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of Notes of at least 10% in principal amount of the then outstanding Notes may
petition any court of competent jurisdiction for the appointment of a successor
Trustee.
If the Trustee, after written request by any Holder of a Note who
has been a Holder of a Note for at least six months, fails to comply with
Section 7.10, such Holder of a Note may petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a successor
Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Holders of the Notes. The retiring Trustee shall promptly transfer
all property held by it as Trustee to the successor Trustee; provided all sums
owing to the Trustee hereunder have been paid and subject to the Lien provided
for in Section 7.7 hereof. Notwithstanding replacement of the Trustee pursuant
to this Section 7.8, the Company's obligations under Section 7.7 hereof shall
continue for the benefit of the retiring Trustee.
Section 7.9 Successor Trustee by Merger, etc.
If the Trustee consolidates, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation, the successor corporation without any further act shall be the
successor Trustee.
Section 7.10 Eligibility; Disqualification
There shall at all times be a Trustee hereunder that is a
corporation or trust company (or a member of a bank holding company) organized
and doing business under the laws of the United States of America or of any
state thereof that is authorized under such laws to exercise corporate trustee
power, that is subject to supervision or examination by federal or state
authorities and that has (or the bank holding company of which it is a member
has) a combined capital and surplus of at least $50,000,000 as set forth in its
most recent published annual report of condition.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA (S) 310(a)(1), (2) and (5). The Trustee is subject to TIA
(S) 310(b).
Section 7.11 Preferential Collection of Claims Against Company
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The Trustee is subject to TIA (S) 311(a), excluding any creditor
relationship listed in TIA (S) 311(b). A Trustee who has resigned or been
removed shall be subject to TIA (S) 311(a) to the extent indicated therein.
ARTICLE VIII
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.1 Option to Effect Legal Defeasance or Covenant Defeasance
The Company may, at the option of its Board of Directors evidenced by
a resolution set forth in an Officers' Certificate, at any time, elect to have
either Section 8.2 or 8.3 hereof be applied to all outstanding Notes upon
compliance with the conditions set forth below in this Article VIII.
Section 8.2 Legal Defeasance and Discharge
Upon the Company's exercise under Section 8.1 hereof of the option
applicable to this Section 8.2, each of the Company and the Guarantors, as
applicable, shall, subject to the satisfaction of the applicable conditions set
forth in Section 8.4 hereof, be deemed to have been discharged from its
obligations with respect to all outstanding Notes and Guarantees, as applicable,
on the date the conditions set forth below are satisfied (hereinafter, "Legal
Defeasance"). For this purpose, Legal Defeasance means that the Company shall be
deemed to have paid and discharged the entire Indebtedness represented by the
outstanding Notes and the Guarantors shall be deemed to have paid and discharged
the entire Indebtedness represented by the outstanding Guarantees, which shall
thereafter be deemed to be "outstanding" only for the purposes of Section 8.5
hereof and the other Sections of this Indenture referred to in (a) and (b)
below, and to have satisfied all its other obligations under such Notes, such
Guarantees and this Indenture (and the Trustee, on demand of and at the expense
of the Company, shall execute proper instruments acknowledging the same), except
for the following provisions which shall survive until otherwise terminated or
discharged hereunder: (a) the rights of Holders of outstanding Notes to receive
solely from the trust fund described in Section 8.4 hereof, and as more fully
set forth in such Section, payments in respect of the principal of, premium, if
any, and interest and Liquidated Damages, if any, on such Notes when such
payments are due, (b) the Company's obligations with respect to such Notes under
Article II and Section 4.2 hereof, (c) the rights, powers, trusts, duties and
immunities of the Trustee hereunder and the Company's obligations in connection
therewith and (d) this Article VIII. Subject to
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compliance with this Article VIII, the Company may exercise its option under
this Section 8.2 notwithstanding the prior exercise of its option under Section
8.3 hereof.
Section 8.3 Covenant Defeasance
Upon the Company's exercise under Section 8.1 hereof of the option
applicable to this Section 8.3, subject to the satisfaction of the applicable
conditions set forth in Section 8.04 hereof, the Company and the Guarantors
shall be released from their respective obligations under Sections 4.3, 4.4,
4.5, 4.7, 4.8, 4.9, 4.10, 4.11, 4.12, 4.13, 4.14, 4.15, 4.16 and 4.18 hereof and
the Guarantors shall be released from their obligations under Section 10.3(b)
hereof, in each case on and after the date the conditions set forth below are
satisfied (hereinafter, "Covenant Defeasance"), and the Notes and the Guarantees
shall thereafter be deemed not "outstanding" for the purposes of any direction,
waiver, consent or declaration or act of Holders (and the consequences of any
thereof) in connection with such covenants, but shall continue to be deemed
"outstanding" for all other purposes hereunder (it being understood that such
Notes shall not be deemed outstanding for accounting purposes). For this
purpose, Covenant Defeasance means that, with respect to the outstanding Notes,
the Company may omit to comply with and shall have no liability in respect of
any term, condition or limitation set forth in any such covenant, whether
directly or indirectly, by reason of any reference elsewhere herein to any such
covenant or by reason of any reference in any such covenant to any other
provision herein or in any other document and such omission to comply shall not
constitute a Default or an Event of Default under Section 6.1 hereof, but,
except as specified above, the remainder of this Indenture and such Notes shall
be unaffected thereby. In addition, upon the Company's exercise under Section
8.1 hereof of the option applicable to this Section 8.3 hereof, subject to the
satisfaction of the applicable conditions set forth in Section 8.4 hereof, (x)
Sections 6.1(c) through 6.1(g) hereof shall not constitute Events of Default and
(y) Sections 6.1(h) and 6.1(i) shall not constitute Events of Default as of the
91st day following the occurrence of the Company's exercise of Covenant
Defeasance; provided, however that for all other purposes as set forth herein,
such Covenant Defeasance provisions shall be effective.
Section 8.4 Conditions to Legal or Covenant Defeasance
The following shall be the conditions to the application of either
Section 8.2 or 8.3 hereof to the outstanding Notes:
In order to exercise either Legal Defeasance or Covenant Defeasance:
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(1) the Company must irrevocably deposit with the Trustee, in trust,
for the benefit of the Holders, cash in United States legal tender, U.S.
Government Obligations, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, premium, if any, and Liquidated Damages,
if any, and interest on the outstanding Notes on the stated date for payment
thereof or on the applicable redemption date, as the case may be, and the
Company must specify whether the Notes are being defeased to maturity or to a
particular redemption date and the Holders must have a valid, perfected
exclusive security interest in such trust;
(2) in the case of an election under Section 8.2 hereof, the Company
shall have delivered to the Trustee an Opinion of Counsel in the United States
reasonably acceptable to the Trustee confirming that (A) the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling or (B) since the date of this Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that, and based
thereon such Opinion of Counsel shall confirm that, the Holders of the
outstanding Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such Legal Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Legal Defeasance had not occurred;
(3) in the case of an election under Section 8.3 hereof, the Company
shall have delivered to the Trustee an Opinion of Counsel in the United States
reasonably acceptable to the Trustee confirming that the Holders of the
outstanding Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such Covenant Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Covenant Defeasance had not occurred;
(4) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of Default
resulting from the incurrence of Indebtedness all or a portion of the proceeds
of which are used to defease the Notes pursuant to this Article VIII
concurrently with such incurrence);
(5) such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under this Indenture, any other
material agreement or instrument to which the Company or any of its Subsidiaries
is a party or by which the Company or any of its Subsidiaries is bound;
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(6) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the intent
of preferring the Holders over any other creditors of the Company or with the
intent of defeating, hindering, delaying or defrauding any other creditors of
the Company; and
(7) the Company shall have delivered to the Trustee (i) an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent provided for, in the case of the Officers' Certificate, (a)
through (f) and, in the case of the Opinion of Counsel, clause (a) (with respect
to the validity and perfection of the security interest), (b), (c) and (e) of
this Section 8.4 have been complied with (except, in each case, that condition
(b) thereof shall not be applicable to Covenant Defeasance and condition (c)
thereof shall not be applicable to Legal Defeasance), and (ii) the opinion of a
nationally recognized firm of independent public accountants referred to in
Section 8.4(a).
Legal Defeasance and Covenant Defeasance shall be deemed to occur
on the date of the deposit required under Section 8.4(a), so long as all of the
other conditions set forth in Section 8.4 are satisfied as of such date.
Section 8.5 Deposited Money and Government Securities to be Held in Trust;
Other Miscellaneous Provisions
Subject to Section 8.6 hereof, all money and U.S. Government
Obligations (including the proceeds thereof) deposited with the Trustee (or
other qualifying trustee, collectively for purposes of this Section 8.5, the
"Trustee") pursuant to Section 8.4 hereof in respect of the outstanding Notes
shall be held in trust and applied by the Trustee, in accordance with the
provisions of such Notes and this Indenture, to the payment, either directly or
through any Paying Agent (including the Company acting as Paying Agent) as the
Trustee may determine, to the Holders of such Notes of all sums due and to
become due thereon in respect of principal, premium, if any, and interest (and
Liquidated Damages, if any), but such money need not be segregated from other
funds except to the extent required by law.
The Company shall pay and indemnify the Trustee against any tax,
fee or other charge imposed on or assessed against the cash or U.S. Government
Obligations deposited pursuant to Section 8.4 hereof or the principal and
interest received in respect thereof, other than any such tax, fee or other
charge which by law is for the account of the Holders of the outstanding Notes.
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Anything in this Article VIII to the contrary notwithstanding,
the Trustee shall deliver or pay to the Company from time to time upon the
request of the Company any money or U.S. Government Obligations held by it as
provided in Section 8.4 hereof which, in the opinion of a nationally recognized
firm of independent public accountants expressed in a written certification
thereof delivered to the Trustee (which may be the opinion delivered under
Section 8.4(a) hereof), are in excess of the amount thereof that would then be
required to be deposited to effect an equivalent Legal Defeasance or Covenant
Defeasance.
Section 8.6 Repayment to Company
Any money deposited with the Trustee or any Paying Agent, or then
held by the Company, in trust for the payment of the principal of, premium, if
any, Liquidated Damages, if any, or interest on any Note and remaining unclaimed
for two years after such principal, and premium, if any, Liquidated Damages, if
any, or interest has become due and payable shall be paid to the Company on its
written request or (if then held by the Company) shall be discharged from such
trust; and the Holder of such Note shall thereafter, as a creditor, look only to
the Company for payment thereof, and all liability of the Trustee or such Paying
Agent with respect to such trust money, and all liability of the Company as
trustee thereof, shall thereupon cease; provided, however, that the Trustee or
such Paying Agent, before being required to make any such repayment, may at the
expense of the Company cause to be published once, in the New York Times and The
Wall Street Journal (national edition), notice that such money remains unclaimed
and that, after a date specified therein, which shall not be less than 30 days
from the date of such notification or publication, any unclaimed balance of such
money then remaining will be repaid to the Company.
Section 8.7 Reinstatement
If the Trustee or Paying Agent is unable to apply any United
States legal tender or U.S. Government Obligations in accordance with Section
8.2 or 8.3 hereof, as the case may be, by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise prohibiting
such application, then the Company's obligations under this Indenture and the
Notes shall be revived and reinstated as though no deposit had occurred pursuant
to Section 8.2 or 8.3 hereof until such time as the Trustee or Paying Agent is
permitted to apply all such money in accordance with Section 8.2 or 8.3 hereof,
as the case may be; provided, however, that, if the Company makes any payment of
principal of, premium, if any, or interest on any Note following the
reinstatement of its obligations, the Company shall be subrogated to
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the rights of the Holders of such Notes to receive such payment from the money
held by the Trustee or Paying Agent.
ARTICLE IX
AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.1 Without Consent of Holders of Notes
Notwithstanding Section 9.2 of this Indenture, the Company, the
Guarantors and the Trustee may amend or supplement this Indenture, the Notes or
any Guarantee, without the consent of any Holder of a Note:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated Notes in addition to or in
place of certificated Notes;
(3) to provide for the assumption of the Company's obligations to
the Holders of the Notes in the case of a merger or consolidation pursuant to
Article V hereof;
(4) to provide for additional Guarantors as set forth in Section
4.16 or for the release or assumption of a Guarantee in compliance with this
Indenture;
(5) to make any change that would provide any additional rights
or benefits to the Holders of the Notes or that does not adversely affect the
rights hereunder of any Holder of the Note;
(6) to comply with the provisions of the Depositary, Euroclear or
Cedel or the Trustee with respect to the provisions of this Indenture or the
Notes relating to transfers and exchanges of Notes or beneficial interests
therein; or
(7) to comply with requirements of the SEC in order to effect or
maintain the qualification of this Indenture under the TIA.
Upon the request of the Company accompanied by a resolution of
its Board of Directors authorizing the execution of any such amended or
supplemental Indenture, and upon receipt by the Trustee of the documents
described in Section 9.6 hereof, the Trustee shall join with the Company in the
execution of any amended or
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supplemental Indenture authorized or permitted by the terms of this Indenture
and to make any further appropriate agreements and stipulations that may be
therein contained, but the Trustee shall not be obligated to enter into such
amended or supplemental Indenture that adversely affects its own rights, duties
or immunities under this Indenture or otherwise.
Section 9.2 With Consent of Holders of Notes
Except as expressly stated otherwise in this Section 9.2, and
subject to Sections 6.4 and 6.7 hereof, the Company, the Guarantors and the
Trustee may amend or supplement this Indenture, the Notes and the Guarantees,
with the consent of the Holders of a majority in aggregate principal amount of
the Notes then outstanding (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for, the
Notes), and, subject to Sections 6.4 and 6.7 hereof, any existing Default or
Event of Default (other than a Default or Event of Default in the payment of the
principal of, premium, if any, or interest on the Notes, except a payment
default resulting from an acceleration that has been rescinded) or compliance
with any provision of this Indenture or the Notes may be waived with the consent
of the Holders of a majority in aggregate principal amount of the then
outstanding Notes (including consents obtained in connection with a purchase of,
or tender offer or exchange offer for, the Notes); provided, that, except as
expressly stated otherwise in paragraphs (a), (b) and (c) of this Section 9.2,
no such modification may, without the consent of Holders of at least 66% in
aggregate principal amount of Notes at the time outstanding, modify the
provisions (including the defined terms used therein) of Section 4.14 in a
manner adverse to the Holders.
In connection with any amendment, supplement or waiver under this
Article IX, the Company may, but shall not be obligated to, offer to any Holder
who consents to such amendment, supplement or waiver, or to all Holders,
consideration for such Holder's consent to such amendment, supplement or waiver.
Upon the request of the Company accompanied by a resolution of
its Board of Directors authorizing the execution of any such amended or
supplemental Indenture, and upon the filing with the Trustee of evidence
satisfactory to the Trustee of the consent of the Holders of Notes as aforesaid,
and upon receipt by the Trustee of the documents described in Section 9.6
hereof, the Trustee shall join with the Company in the execution of such amended
or supplemental Indenture unless such amended or supplemental Indenture
adversely affects the Trustee's own rights, duties or immunities
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under this Indenture or otherwise, in which case the Trustee may in its
discretion, but shall not be obligated to, enter into such amended or
supplemental Indenture.
It shall not be necessary for the consent of the Holders of Notes
under this Section 9.2 to approve the particular form of any proposed amendment
or waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment, supplement or waiver under this Section becomes
effective, the Company shall mail to the Holders of Notes affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such amended or supplemental
Indenture or waiver. Subject to Sections 6.4 and 6.7 hereof, the Holders of a
majority in aggregate principal amount of the Notes then outstanding may waive
compliance in a particular instance by the Company with any provision of this
Indenture or the Notes; provided, that no such modification may, without the
consent of Holders of at least 66% in aggregate principal amount of Notes at
the time outstanding, modify the provisions (including the defined terms used
therein) of Section 4.14 in a manner adverse to the Holders. However, without
the consent of each Holder affected (it being understood that, except as
expressly stated otherwise in paragraphs (a), (b) and (c) below, Sections 4.13
and 4.14 may be amended, waived or modified in accordance with the first
paragraph of this Section 9.2), an amendment or waiver may not (with respect to
any Notes held by a non-consenting Holder):
(a) change the final Stated Maturity on any Note, or reduce the principal
amount thereof or the rate (or extend the time for payment) of interest thereon
or any premium payable upon the redemption thereof pursuant to Article III
hereof, or change the place of payment where, or the coin or currency in which,
any Note or any premium or the interest thereon (and Liquidated Damages, if any)
is payable, or impair the right to institute suit for the enforcement of any
such payment on or after the Stated Maturity thereof (or in the case of
redemption pursuant to Article III hereof, on or after the redemption date), or,
after the applicable Change of Control or Asset Sale occurs, reduce the
corresponding Change of Control Purchase Price or the Asset Sale Offer Price or
alter the provisions (including the defined terms used herein) of Article III of
this Indenture in a manner adverse to the Holders; or
(b) reduce the percentage in principal amount of the outstanding Notes,
the consent of whose Holders is required for any such amendment, supplemental
indenture or waiver provided for in this Indenture; or
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(c) modify any of the waiver provisions, except to increase any
required percentage or to provide that certain other provisions of this
Indenture cannot be modified or waived without the consent of the Holder of each
outstanding Note affected thereby.
Section 9.3 Compliance with Trust Indenture Act
Every amendment or supplement to this Indenture or the Notes
shall be set forth in an amended or supplemental Indenture that complies with
the TIA as then in effect.
Section 9.4 Revocation and Effect of Consents
Until an amendment, supplement or waiver becomes effective (as
determined by the Company and which may be prior to any such amendment,
supplement or waiver becoming operative), a consent to it by a Holder of a Note
is a continuing consent by the Holder of a Note and every subsequent Holder of a
Note or portion of a Note that evidences the same Indebtedness as the consenting
Holder's Note, even if notation of the consent is not made on any Note.
However, any such Holder of a Note or subsequent Holder of a Note may revoke the
consent as to its Note if the Trustee receives written notice of revocation
before the date the waiver, supplement or amendment becomes effective (as
determined by the Company).
The Company may, but shall not be obligated to, fix a record date
for the purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver, which record date shall be the date so fixed by the
Company notwithstanding the provisions of the TIA. If a record date is fixed,
then notwithstanding the last sentence of the immediately preceding paragraph,
those Persons who were Holders at such record date, and only those Persons (or
their duly designated proxies), shall be entitled to revoke any consent
previously given, whether or not such Persons continue to be Holders after such
record date.
After an amendment, supplement or waiver becomes effective, it
shall bind every Holder unless it makes a change described in any of clauses (a)
through (c) of Section 9.2 hereof, in which case, the amendment, supplement or
waiver shall bind only each Holder of a Note who has consented to it and every
subsequent Holder of a Note or portion of a Note that evidences the same debt as
the consenting Holder's Note; provided, that any such waiver shall not impair or
affect the right of any Holder to receive payment of principal and premium of
and interest (and Liquidated Damages, if any) on a Note, on or after the
respective dates set for such
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amounts to become due and payable expressed in such Note, or to bring suit for
the enforcement of any such payment on or after such respective dates.
Section 9.5 Notation on or Exchange of Notes
The Trustee may place an appropriate notation about an amendment,
supplement or waiver on any Note thereafter authenticated. The Company in
exchange for all Notes may issue and the Trustee shall authenticate new Notes
that reflect the amendment, supplement or waiver.
Failure to make the appropriate notation or issue a new Note
shall not affect the validity and effect of such amendment, supplement or
waiver.
Section 9.6 Trustee to Sign Amendments, etc.
The Trustee shall sign any amended or supplemental Indenture
authorized pursuant to this Article IX if the amendment or supplement does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
The Company may not sign an amendment or supplemental Indenture until the Board
of Directors approves it. In executing any amended or supplemental indenture,
the Trustee shall be entitled to receive indemnity reasonably satisfactory to it
and to receive and (subject to Section 7.1) shall be fully protected in relying
upon, an Officers' Certificate and an Opinion of Counsel stating that the
execution of such amended or supplemental indenture is authorized or permitted
by this Indenture.
ARTICLE X
GUARANTEES
Section 10.1 Guarantees
Subject to the provisions of this Article X, and in consideration
of good and valuable consideration, the receipt of and sufficiency of which are
hereby acknowledged, each Guarantor, jointly and severally, hereby
unconditionally guarantees to each Holder of a Note authenticated and delivered
by the Trustee and to the Trustee and its successors and assigns, that: (a) the
principal of, and premium and interest and Liquidated Damages, if any, on the
Notes shall be duly and punctually paid in full when due, whether at maturity,
by acceleration, call for redemption, upon a Change of Control Offer, upon an
Asset Sale Offer or otherwise, and interest on overdue principal, and premium,
if any, and (to the extent permitted by law) interest on any interest, if any,
on
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the Notes and all other obligations of the Company to the Holders or the
Trustee hereunder or under the Notes (including fees, expenses or other) shall
be promptly paid in full or performed, all in accordance with the terms hereof;
and (b) in case of any extension of time of payment or renewal of any Notes or
any of such other obligations, the same shall be promptly paid in full when due
or performed in accordance with the terms of the extension or renewal, whether
at stated maturity, by acceleration, call for redemption, upon a Change of
Control, upon an Asset Sale Offer or otherwise (collectively, the "Guarantee
Obligations"). Failing payment when due of any Guarantee Obligation or failing
performance of any other obligation of the Company to the Holders, for whatever
reason, each Guarantor shall be obligated to pay, or to perform or to cause the
performance of, the same immediately and before the failure to so pay becomes an
Event of Default. An Event of Default under this Indenture or the Notes shall
constitute an event of default under this Guarantee, and shall entitle the
Trustee or the Holders of Notes to accelerate the Guarantee Obligations of each
Guarantor hereunder in the same manner and to the same extent as the Obligations
of the Company.
Each Guarantor hereby agrees that its Guarantee Obligations hereunder
shall be unconditional, irrespective of the validity, regularity or
enforceability of the Notes or this Indenture, the absence of any action to
enforce the same, any waiver or consent by any Holder of the Notes with respect
to any thereof, the entry of any judgment against the Company, any action to
enforce the same or any other circumstance which might otherwise constitute a
legal or equitable discharge or defense of a Guarantor. Each Guarantor hereby
waives and relinquishes: (a) any right to require the Trustee, the Holders or
the Company (each, a "Benefitted Party") to proceed against the Company, the
Subsidiaries or any other Person or to proceed against or exhaust any security
held by a Benefitted Party at any time or to pursue any other remedy in any
secured party's power before proceeding against the Guarantors; (b) any defense
that may arise by reason of the incapacity, lack of authority, death or
disability of any other Person or Persons or the failure of a Benefitted Party
to file or enforce a claim against the estate (in administration, bankruptcy or
any other proceeding) of any other Person or Persons; (c) demand, protest and
notice of any kind (except as expressly required by this Indenture), including
but not limited to notice of the existence, creation or incurring of any new or
additional Indebtedness or obligation or of any action or non-action on the part
of the Guarantors, the Company, the Subsidiaries, any Benefitted Party, any
creditor of the Guarantors, the Company or the Subsidiaries or on the part of
any other Person whomsoever in connection with any obligations the performance
of which are hereby guaranteed; (d) any defense based upon an election of
remedies by a Benefitted Party, including but not limited to an election to
proceed against the Guarantors for
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reimbursement; (e) any defense based upon any statute or rule of law which
provides that the obligation of a surety must be neither larger in amount nor in
other respects more burdensome than that of the principal; (f) any defense
arising because of a Benefitted Party's election, in any proceeding instituted
under the Bankruptcy Law, of the application of Section 1111(b)(2) of the
Bankruptcy Code; and (g) any defense based on any borrowing or grant of a
security interest under Section 364 of the Bankruptcy Code. The Guarantors
hereby covenant that, except as otherwise provided therein, the Guarantees shall
not be discharged except by payment in full of all Guarantee Obligations,
including the principal, premium, if any, and interest on the Notes and all
other costs provided for under this Indenture or as provided in Section 8.1.
If any Holder or the Trustee is required by any court or
otherwise to return to either the Company or the Guarantors, or any trustee or
similar official acting in relation to either the Company or the Guarantors, any
amount paid by the Company or the Guarantors to the Trustee or such Holder, the
Guarantees, to the extent theretofore discharged, shall be reinstated in full
force and effect. Each of the Guarantors agrees that it shall not be entitled to
any right of subrogation in relation to the Holders in respect of any Guarantee
Obligations hereby until payment in full of all such obligations guaranteed
hereby. Each Guarantor agrees that, as between it, on the one hand, and the
Holders of Notes and the Trustee, on the other hand, (x) the maturity of the
obligations guaranteed hereby may be accelerated as provided in Article VI
hereof for the purposes hereof, notwithstanding any stay, injunction or other
prohibition preventing such acceleration in respect of the Guarantee
Obligations, and (y) in the event of any acceleration of such obligations as
provided in Article VI hereof, such Guarantee Obligations (whether or not due
and payable) shall forthwith become due and payable by such Guarantor for the
purpose of the Guarantee.
Section 10.2 Execution and Delivery of Guarantees
To evidence the Guarantees set forth in Section 10.1 hereof, each
of the Guarantors agrees that a notation of the Guarantees substantially in the
form included in Exhibit A hereto shall be endorsed on each Note authenticated
and delivered by the Trustee and that this Indenture shall be executed on behalf
of each of the Guarantors by an Officer of each of the Guarantors.
Each of the Guarantors agree that the Guarantees set forth in
this Article X shall remain in full force and effect and apply to all the Notes
notwithstanding any failure to endorse on each Note a notation of the
Guarantees.
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If an Officer whose facsimile signature is on a Note or a
notation of Guarantee no longer holds that office at the time the Trustee
authenticates the Note on which the Guarantees are endorsed, the Guarantees
shall be valid nevertheless.
The delivery of any Note by the Trustee, after the authentication
thereof hereunder, shall constitute due delivery of the Guarantees set forth in
this Indenture on behalf of the Guarantors.
Section 10.3 Guarantors May Consolidate, etc., on Certain Terms
(1) Nothing contained in this Indenture or in the Notes shall
prevent any consolidation or merger of any Guarantor with or into each other or
with or into the Company. Upon any such consolidation or merger, the Subsidiary
Guarantee of the Subsidiary Guarantor that does not survive the consolidation or
merger shall no longer be of any force or effect.
(2) Except as set forth in Article IV and for a merger or
consolidation in which a Guarantor is sold and its Guarantee is released in
compliance with the provisions of Section 10.4, no Guarantor shall consolidate
or merge with or into (whether or not such Guarantor is the surviving Person)
another Person unless, subject to the provisions of the following paragraph and
certain other provisions of this Indenture, (i) the Person formed by or
surviving any such consolidation or merger (if other than such Guarantor)
assumes all the obligations of such Guarantor pursuant to a supplemental
indenture in form reasonably satisfactory to the Trustee, pursuant to which such
person shall unconditionally guarantee, on a senior subordinated basis, all of
such Guarantor's obligations under such Guarantor's Guarantee and this Indenture
on the terms set forth in this Indenture; and (ii) immediately before and
immediately after giving effect to such transaction on a pro forma basis, no
Default or Event of Default shall have occurred or be continuing. In case of
any such consolidation or merger and upon the assumption by the successor
corporation, by supplemental indenture, executed and delivered to the Trustee
and reasonably satisfactory in form to the Trustee, of the Guarantees endorsed
upon the Notes and the due and punctual performance of all of the covenants and
conditions of this Indenture to be performed by such Guarantor, such successor
corporation shall succeed to and be substituted for such Guarantor with the same
effect as if it had been named herein as a Guarantor. Such successor
corporation thereupon may cause to be signed any or all of the Guarantees to be
endorsed upon all of the Notes issuable hereunder which theretofore shall not
have been signed by the Company and delivered to the Trustee. All the
Guarantees so issued shall in all respects have the same legal rank and benefit
under this Indenture as the Guarantees theretofore
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and thereafter issued in accordance with the terms of this Indenture as though
all of such Guarantees had been issued at the date of the execution hereof.
(c) The Trustee, subject to the provisions of Section 12.4
hereof, shall be entitled to receive an Officers' Certificate as conclusive
evidence that any such consolidation or merger, and any such assumption of
Guarantee Obligations, comply with the provisions of this Section 10.3. Such
Officers' Certificate shall comply with the provisions of Section 12.5.
Section 10.4 Release of guarantors
Notwithstanding Section 10.3(b), upon the sale or disposition
(whether by merger, stock purchase, asset sale or otherwise) of a Subsidiary
Guarantor (or all of its assets) to an entity which is not a Subsidiary
Guarantor, or the designation of a Subsidiary to become an Unrestricted
Subsidiary, which transaction is otherwise in compliance with this Indenture
(including, without limitation, the provisions of Section 4.13), such Subsidiary
Guarantor shall be deemed released from its obligations under its Guarantee of
the Notes; provided that any such termination shall occur only to the extent
that all obligations of such Subsidiary Guarantor under all of its guarantees of
any Indebtedness of the Company or any other Subsidiary of the Company shall
terminate upon such release, sale or transfer.
Upon delivery by the Company to the Trustee of an Officer's
Certificate, to the effect that such sale or other disposition or that such
designation was made by the Company in accordance with the provisions of this
Indenture, and the Trustee shall execute any documents reasonably required in
order to evidence the release of any such Subsidiary Guarantor from its
Guarantee Obligations under its Subsidiary Guarantee. Except as provided in
Section 10.3(a), any Subsidiary Guarantor not released from its Guarantee
Obligations under its Subsidiary Guarantee shall remain liable for the full
amount of principal of and interest on the Notes and for the other obligations
of any Subsidiary Guarantor under this Indenture as provided in this Article X.
Notwithstanding the foregoing provisions of this Article X, (i)
any Guarantor whose Guarantee would otherwise be released pursuant to the
provisions of this Section 10.4 may elect, at its sole discretion, by written
notice to the Trustee, to maintain such Guarantee in effect notwithstanding the
event or events that otherwise would cause the release of such Guarantee (which
election to maintain such Guarantee in effect may be conditional or for a
limited period of time), and (ii) any Subsidiary of the Company which is not a
Guarantor may elect, at its sole discretion, by written notice
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to the Trustee, to become a Guarantor (which election may be conditional or for
a limited period of time).
Section 10.5 Limitation of Guarantor's Liability; certain bankruptcy events
(a) Each Guarantor, and by its acceptance hereof each Holder,
hereby confirms that it is the intention of all such parties that the Guarantee
Obligation of such Guarantor pursuant to its Guarantee not constitute a
fraudulent transfer or conveyance for purposes of any Bankruptcy Law, the
Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any
similar federal or state law. To effectuate the foregoing intention, the Holders
and such Guarantor hereby irrevocably agree that the Guarantee Obligations of
such Guarantor under this Article X shall be limited to the maximum amount as
will, after giving effect to all other contingent and fixed liabilities of such
Guarantor and after giving effect to any collections from or payments made by or
on behalf of any other Guarantor in respect of the Guarantee Obligations of such
other Guarantor under this Article X, result in the Guarantee Obligations of
such Guarantor under the Guarantee of such Guarantor not constituting a
fraudulent transfer or conveyance.
(b) Each Guarantor hereby covenants and agrees, to the fullest extent
that it may do so under applicable law, that in the event of the insolvency,
bankruptcy, dissolution, liquidation or reorganization of the Company, such
Guarantor shall not file (or join in any filing of), or otherwise seek to
participate in the filing of, any motion or request seeking to stay or to
prohibit (even temporarily) execution on the Guarantee and hereby waives and
agrees not to take the benefit of any such stay of execution, whether under
Section 362 or 105 of the Bankruptcy Law or otherwise.
Section 10.6 Application of Certain Terms and Provisions to the Guarantors
(1) For purposes of any provision of this Indenture which
provides for the delivery by any Guarantor of an Officers' Certificate and/or an
Opinion of Counsel, the definitions of such terms in Section 1.1 shall apply to
such Guarantor as if references therein to the Company were references to such
Guarantor.
(2) Any request, direction, order or demand which by any
provision of this Indenture is to be made by any Guarantor, shall be sufficient
if evidenced as described in Section 12.2 as if references therein to the
Company were references to such Guarantor.
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(c) Any notice or demand which by any provision of this Indenture
is required or permitted to be given or served by the Trustee or by the holders
of Notes to or on any Guarantor may be given or served as described in Section
12.2 as if references therein to the Company were references to such Guarantor.
(d) Upon any demand, request or application by any Guarantor to
the Trustee to take any action under this Indenture, such Guarantor shall
furnish to the Trustee such certificates and opinions as are required in Section
12.4 hereof as if all references therein to the Company were references to such
Guarantor.
Section 10.7 Subordination of Guarantees
The obligations of each Guarantor under its Guarantee pursuant to
this Article X is subordinated in right of payment to the prior payment in full
in cash of all Senior Debt of such Guarantor on the same basis as the Notes are
subordinated to Senior Debt of the Company. For the purposes of the foregoing
sentence, the Trustee and the Holders shall have the right to receive and/or
retain payments by any of the Guarantors only at such times as they may receive
and/or retain payments in respect of Notes pursuant to this Indenture, including
Article XI hereof. In the event that the Trustee receives any Guarantor payment
at a time when an officer of the corporate trust administration of the Trustee
has actual knowledge that such payment is prohibited by the foregoing sentence,
such Guarantor payment shall be paid over and delivered to the holders of the
Senior Debt of such Guarantor remaining unpaid, to the extent necessary to pay
in full all such Senior Debt. In the event that a Holder receives any Guarantor
payment at a time when such payment is prohibited by the foregoing sentence,
such Guarantor payment shall be paid over and delivered to the holders of the
Senior Debt of such Guarantor remaining unpaid, to the extent necessary to pay
in full all such Senior Debt.
Each Holder of a Note by its acceptance thereof (a) agrees to and
shall be bound by the provisions of this Section 10.7, (b) authorizes and
directs the Trustee on the Holder's behalf to take such action as may be
necessary and appropriate to effectuate the subordination so provided, and (c)
appoints the Trustee as the Holder's attorney-in-fact for any and all such
purposes.
ARTICLE XI
SUBORDINATION
Section 11.1 Notes Subordinate to Senior Debt.
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The Company, the Guarantors and each Holder, by its acceptance of
the Notes, agree that (a) the payment of the principal of and interest on the
Notes and (b) any other payment in respect of the Notes, including on account of
the acquisition or redemption of the Notes by the Company and the Guarantors
(including, without limitation, pursuant to Sections 4.13 and 4.14 and Article
X) is subordinated, to the extent and in the manner provided in this Article XI,
to the prior payment in full in cash or Cash Equivalents of all Senior Debt of
the Company and the Guarantors and that these subordination provisions are for
the benefit of the holders of Senior Debt. References herein to payment in full
of Senior Debt shall in any event be construed to require cash collateralization
on terms satisfactory to the representative under the Credit Agreement and the
Canadian Credit Agreement of any letters of credit outstanding thereunder or
pursuant to such other arrangements as are satisfactory to the representative
under the Credit Agreement and the Canadian Credit Agreement.
This Article XI shall constitute a continuing offer to all
Persons who, in reliance upon such provisions, become holders of, or continue to
hold, Senior Debt, and such provisions are made for the benefit of the holders
of Senior Debt and such holders are made obligees hereunder and any one or more
of them may enforce such provisions.
Section 11.2 No Payment On Notes In Certain Circumstances.
No payment (by set-off or otherwise) shall be made by or on
behalf of the Company or the Guarantors, as applicable, on account of the
principal of, premium, if any, or interest or Liquidated Damages, if any, on the
Notes (including any repurchases of Notes), or on account of any other
obligation for the payment of money due in respect of the Notes, or on account
of the redemption provisions of the Notes, for cash or property (other than
Junior Securities), (i) upon the maturity of any Senior Debt of the Company or
such Guarantor by lapse of time, acceleration (unless waived) or otherwise,
unless and until all principal of, premium, if any, and the interest on or other
amounts owing in respect of such Senior Debt are first paid in full in cash or
Cash Equivalents (or, such payment is duly provided for in accordance with the
terms thereof) or otherwise to the extent holders accept satisfaction of amounts
due by settlement in other than cash or Cash Equivalents, or (ii) in the event
of default in the payment of any principal of, premium, if any, or interest on,
or any other amount owing in respect of, Senior Debt of the Company or such
Guarantor when it becomes due and payable, whether at maturity, a scheduled
payment date, or at a date fixed for prepayment or by declaration of
acceleration or otherwise (a "Payment Default"), unless and until such Payment
Default has been cured or waived or otherwise has ceased to exist.
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Upon (i) the happening of an event of default other than a Payment
Default that permits the holders of Senior Debt or any representative thereof to
declare such Senior Debt to be due and payable and (ii) written notice of such
event of default specifically referring to this Section 11.2 given to the
Company and the Trustee by the Representative under the Credit Agreement or the
Canadian Credit Agreement or the holders of an aggregate of at least $5,000,000
principal amount outstanding of any other Senior Debt or their representative (a
"Payment Notice"), then, unless and until such event of default has been cured
or waived or otherwise has ceased to exist, no payment (by set-off or otherwise)
may be made by or on behalf of the Company or any Guarantor, as applicable,
which is an obligor under such Senior Debt on account of any Obligation in
respect of the Notes, including the principal of, premium, if any, or interest
on the Notes (including any repurchases of any of the Notes), or on account of
the redemption provisions of the Notes (or Liquidated Damages, if any pursuant
to the Registration Rights Agreement), in any such case, other than payments
made with Junior Securities. Notwithstanding the foregoing, unless the Senior
Debt in respect of which such event of default exists has been declared due and
payable in its entirety within 179 days after the Payment Notice is delivered as
set forth above (the "Payment Blockage Period") (and such declaration has not
been rescinded or waived), at the end of the Payment Blockage Period, the
Company and the Guarantors shall be required to pay all sums not paid to the
Holders of the Notes during the Payment Blockage Period due to the foregoing
prohibitions and to resume all other payments as and when due on the Notes,
subject to the provisions of the preceding paragraph. Any number of Payment
Notices may be given; provided, that (i) not more than one Payment Notice shall
be given within a period of any 360 consecutive days, and (ii) no default that
existed upon the date of such Payment Notice or the commencement of such Payment
Blockage Period (whether or not such event of default is on the same issue of
Senior Debt) shall be made the basis for the commencement of any other Payment
Blockage Period unless such default shall have been cured or waived for a
period of not less than 90 days (it being acknowledged that any subsequent
action, or any subsequent breach of any financial covenant for a period
commencing after the expiration of such Payment Blockage Period that, in either
case, would give rise to a new event of default, even though it is an event that
would also have been a separate breach pursuant to any provision under which a
prior event of default previously existed, shall constitute a new event of
default for this purpose).
In furtherance of the provisions of Section 11.1, in the event that,
notwithstanding the foregoing provisions of this Section 11.2, any payment or
distribution of assets of the Company or any Guarantor (other than Junior Notes)
shall
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be received by the Trustee or the Holders at a time when the Trustee or such
Holder, as applicable, has actual knowledge that such payment or distribution is
prohibited by the foregoing provisions of this Section 11.2, such payment or
distribution shall be held in trust for the benefit of the holders of such
Senior Debt, and shall be paid or delivered by the Trustee or such Holders, as
the case may be, to the holders of such Senior Debt remaining unpaid or
unprovided for or to their representative or representatives, or to the trustee
or trustees under any indenture pursuant to which any instruments evidencing any
of such Senior Debt may have been issued, ratably according to the aggregate
principal amounts remaining unpaid on account of such Senior Debt held or
represented by each, for application to the payment of all such Senior Debt
remaining unpaid, to the extent necessary to pay or to provide for the payment
of all such Senior Debt in full in cash or Cash Equivalents or otherwise to the
extent holders accept satisfaction of amounts by settlement in other than cash
or Cash Equivalents after giving effect to any concurrent payment or
distribution to the holders of such Senior Debt.
Section 11.3 Notes Subordinate To Prior Payment Of All Senior Debt On
Dissolution, Liquidation or Reorganization.
Upon any distribution of assets of the Company or any Guarantor
upon any dissolution, winding up, total or partial liquidation or reorganization
of the Company or a Guarantor, whether voluntary or involuntary, in bankruptcy,
insolvency, receivership or a similar proceeding or upon assignment for the
benefit of creditors or any marshalling of assets or liabilities:
(i) the holders of all Senior Debt of the Company or such
Guarantor, as applicable, shall first be entitled to receive payment in full in
cash or Cash Equivalents (or have such payment duly provided for in accordance
with the terms thereof) or otherwise to the extent holders accept satisfaction
of amounts due by settlement in other than cash or Cash Equivalents before the
Holders are entitled to receive any payment on account of any Obligation in
respect of the Notes, including the principal of, premium, if any, and interest
on the Notes or Liquidated Damages, if any, pursuant to the Registration Rights
Agreement (other than Junior Securities); and
(ii) any payment or distribution of assets of the Company or such
Guarantor of any kind or character from any source, whether in cash, property or
securities (other than Junior Securities) to which the Holders or the Trustee on
behalf of the Holders would be entitled (by set-off or otherwise), except for
the subordination provisions contained in this Indenture, shall be paid by the
liquidating trustee or agent or other person making such a payment or
distribution directly to the holders of such Senior Debt or their representative
to the extent necessary to make payment in full (or
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have such payment duly provided for) on all such Senior Debt remaining unpaid,
after giving effect to any concurrent payment or distribution to the holders of
such Senior Debt.
Section 11.4 Holders To Be Subrogated To Rights OF Holders Of Senior Debt.
Subject to the payment in full in cash or Cash Equivalents of all
Senior Debt of the Company or any Guarantor as provided herein, the Holders of
Notes shall be subrogated to the rights of the holders of such Senior Debt to
receive payments or distributions of assets of the Company and any Guarantor
applicable to the Senior Debt until all amounts owing on the Notes shall be paid
in full, and for the purpose of such subrogation no such payments or
distributions to the holders of such Senior Debt by or on behalf of the Company
or any Guarantor, or by or on behalf of the Holders by virtue of this Article
XI, which otherwise would have been made to the Holders shall, as between the
Company or any Guarantor and the Holders, be deemed to be payment by the Company
or any Guarantor or on account of such Senior Debt, it being understood that the
provisions of this Article XI are and are intended solely for the purpose of
defining the relative rights of the Holders, on the one hand, and the holders of
such Senior Debt, on the other hand.
Section 11.5 Obligations Of The Company And The Guarantors Unconditional.
Nothing contained in this Article XI or elsewhere in this
Indenture or in the Notes is intended to or shall impair, as between the Company
and any Guarantors and the Holders, the obligation of each such Person, which is
absolute and unconditional, to pay to the Holders the principal of, premium, if
any, and interest on (or, if applicable, Liquidated Damages, if any) the Notes
as and when the same shall become due and payable in accordance with their
terms, or is intended to or shall affect the relative rights of the Holders and
creditors of the Company and the Guarantors other than the holders of the Senior
Debt, nor shall anything herein or therein prevent the Trustee or any Holder
from exercising all remedies otherwise permitted by applicable law upon default
under this Indenture, subject to the rights, if any, under this Article XI, of
the holders of Senior Debt, including, without limitation, their right to
receive any cash, property or Notes of the Company and the Guarantors received
upon the exercise of any such remedy. Notwithstanding anything to the contrary
in this Article XI or elsewhere in this Indenture or in the Notes, upon any
distribution of assets of the Company and the Guarantors referred to in this
Article XI, the Trustee, subject to the provisions of Sections 7.1 and 7.2, and
the Holders shall be entitled to rely upon any order or decree made by any court
of competent jurisdiction in which such dissolution,
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winding up, liquidation or reorganization proceedings are pending, or a
certificate of the liquidating trustee or agent or other Person making any
distribution to the Trustee or to the Holders for the purpose of ascertaining
the Persons entitled to participate in such distribution, the holders of the
Senior Debt and other Indebtedness of the Company or any Guarantor, the amount
thereof or payable thereon, the amount or amounts paid or distributed thereon
and all other facts pertinent thereto or to this Article XI so long as such
court has been apprised of the provisions of, or the order, decree or
certificate makes reference to, the provisions of this Article XI. Nothing in
this Article XI shall apply to the claims of, or payments to, the Trustee under
or pursuant to Section 7.7.
Section 11.6 Trustee Entitled To Assume Payments Not Prohibited In Absence Of
Notice
The Trustee shall not at any time be charged with knowledge of
the existence of any facts which would prohibit the making of any payment to or
by the Trustee unless and until a corporate trust officer of the Trustee or any
Paying Agent shall have received at the addresses for notices set forth in
Section 12.2, no later than two Business Days prior to such payment written
notice thereof specifically referring to this Article XI from the Company or
from one or more holders of Senior Debt or from any representative therefor and,
prior to the receipt of any such written notice, the Trustee, subject to the
provisions of Sections 7.1 and 7.2, shall be entitled in all respects
conclusively to assume that no such fact exists.
The Trustee shall be entitled to rely on the delivery to it of a
written notice by a Person representing himself to be a holder of Senior Debt
(or a representative on behalf of such holder) to establish that such notice has
been given by a holder of Senior Debt or a representative on behalf of such
holder. In the event that the Trustee determines in good faith that further
evidence is required with respect to the right of any Person who is a holder of
Senior Debt to participate in any payment or distribution pursuant to this
Article XI, the Trustee may request such Person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amount of Senior Debt held by
such Person, the extent to which such Person is entitled to participate in such
payment or distribution and any other facts pertinent to the rights of such
Person under this Article XI, and if such evidence is not furnished the Trustee
may defer any payment to such Person pending judicial determination as to the
right of such Person to receive such payment or until such time as the Trustee
shall be otherwise satisfied as to the right of such Person to receive such
payment.
Section 11.7 Application By Trustee Of Assets Deposited With It.
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Amounts deposited in trust with the Trustee pursuant to and in
accordance with Article VIII shall be for the sole benefit of Holders and, to
the extent (i) the making of such deposit by the Company shall not be in
contravention of any term or provision of the Credit Agreement or the Canadian
Credit Agreement or other Senior Debt and (ii) allocated for the payment of
Notes, shall not be subject to the subordination provisions of this Article XI.
Otherwise, any deposit of assets with the Trustee or the Agent (whether or not
in trust) for the payment of principal of or interest on any Notes shall be
subject to the provisions of Sections 11.1, 11.2, 11.3 and 11.4; provided that,
if prior to one Business Day preceding the date on which by the terms of this
Indenture any such assets may become distributable for any purpose (including
without limitation, the payment of either principal of or interest on any
Security) the Trustee or such Paying Agent shall not have received with respect
to such assets the written notice provided for in Section 11.6, then the Trustee
or such Paying Agent shall have full power and authority to receive such assets
and to apply the same to the purpose for which they were received, and shall not
be affected by any notice to the contrary which may be received by it on or
after such date.
Section 11.8 Subordination Rights Not Impaired By Acts Or Omissions Of The
Company, The Guarantors or Holders Of Senior Debt.
No right of any present or future holders of any Senior Debt to
enforce subordination provisions contained in this Article XI shall at any time
in any way be prejudiced or impaired by any act or failure to act on the part of
the Company or any Guarantor or by any act or failure to act, in good faith, by
any such holder, or by any noncompliance by the Company or any Guarantor with
the terms of this Indenture, regardless of any knowledge thereof which any such
holder may have or be otherwise charged with. The holders of Senior Debt may
extend, renew, modify or amend the terms of the Senior Debt or any security
therefor and release, sell or exchange such security and otherwise deal freely
with the Company and the Guarantors, all without affecting the liabilities and
obligations of the parties to this Indenture or the Holders. The subordination
provisions contained in this Indenture are for the benefit of the holders from
time to time of Senior Debt and may not be rescinded, cancelled, amended or
modified in any way other than any amendment or modification that would not
adversely affect the rights of any holder of Senior Debt or any amendment or
modification that is consented to by each holder of Senior Debt that would be
adversely affected thereby. The subordination provisions hereof shall continue
to be effective or be reinstated, as the case may be, if at any time any payment
of any of the Senior Debt is rescinded or must otherwise be returned by any
holder of the Senior Debt upon the
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insolvency, bankruptcy, or reorganization of the Company or any Guarantor, or
otherwise, all as though such payment has not been made.
Section 11.9 Holders Authorize Trustee To Effectuate Subordination Of Notes.
Each Holder of the Notes by his acceptance thereof authorizes and
expressly directs the Trustee on his behalf to take such action as may be
necessary or appropriate to effectuate the subordination provisions contained in
this Article XI and to protect the rights of the Holders pursuant to this
Indenture, and appoints the Trustee his attorney-in-fact for such purpose,
including, in the event of any dissolution, winding up, liquidation or
reorganization of the Company or any Guarantor (whether in bankruptcy,
insolvency or receivership proceedings or upon an assignment for the benefit of
creditors or any other marshalling of assets and liabilities of the Company or
any Guarantor), the immediate filing of a claim for the unpaid balance of his
Notes in the form required in said proceedings and cause said claim to be
approved. In the event of any liquidation or reorganization of the Company or
any Guarantor in bankruptcy, insolvency, receivership or similar proceeding, if
the Holders of the Notes (or the Trustee on their behalf) have not filed any
claim, proof of claim, or other instrument of similar character necessary to
enforce the obligations of the Company or any Guarantor in respect of the Notes
at least thirty (30) days before the expiration of the time to file the same,
then in such event, but only in such event, the representatives under the Credit
Agreement or the Canadian Credit Agreement or the holders of an aggregate of at
least $5,000,000 principal amount outstanding of any other Senior Debt or a
representative on their behalf may, as an attorney-in-fact for such Holders,
file any claim, proof of claim, or other instrument of similar character on
behalf of such Holders. Nothing herein contained shall be deemed to authorize
the Trustee or the holders of Senior Debt or their representative to authorize
or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Notes or
the rights of any Holder thereof, or to authorize the Trustee or the holders of
Senior Debt or their representative to vote in respect of the claim of any
Holder in any such proceeding. As a condition to taking any action by the
Trustee pursuant to this Section 11.9, the Holders shall have offered to the
Trustee reasonable security or indemnity against the costs, expenses and
liabilities which may be incurred thereby.
Section 11.10 Rights Of Trustee To Hold Senior Debt.
The Trustee shall be entitled to all of the rights set forth in
this Article XI in respect of any Senior Debt at any time held by it to the same
extent as any other holder of Senior Debt, and nothing in this Indenture shall
be construed to deprive the Trustee of any of its rights as such holder.
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Section 11.12 Article XI Not To Prevent Events Of Default.
The failure to make a payment on account of principal of,
premium, if any, or interest (or Liquidated Damages, if any) on the Notes by
reason of any provision of this Article XI shall not be construed as preventing
the occurrence of a Default or an Event of Default under Section 6.1 or in any
way limit the rights of the Trustee or any Holder to pursue any other rights or
remedies with respect to the Notes.
Section 11.13 No Fiduciary Duty Of Trustee To Holders Of Senior Debt.
The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Senior Debt, and shall not be liable to any such holders (other than
for its willful misconduct or negligence) if it shall in good faith mistakenly
pay over or distribute to the Holders of Notes or the Company, any Guarantor or
any other Person, cash, property or Notes to which any holders of Senior Debt
shall be entitled by virtue of this Article XI or otherwise. Nothing in this
Section 11.12 shall affect the obligation of any other such Person to hold such
payment for the benefit of, and to pay such payment over to, the holders of
Senior Debt or their representative. In the event of any conflict between the
fiduciary duty of the Trustee to the Holders of Notes and any duty to the
holders of Senior Debt, the Trustee is expressly authorized to resolve such
conflict in favor of the Holders.
Section 11.14 Notice by company.
The Company shall promptly notify the Trustee and the Paying
Agent of any facts known to the Company that would cause a payment of any
Obligations with respect to the Notes to violate this Article XI, but failure to
give such notice shall not affect the subordination of the Notes to the Senior
Debt as provided in this Article XI.
ARTICLE XII
MISCELLANEOUS
Section 12.1 Trust Indenture Act Controls
If any provision of this Indenture limits, qualifies or conflicts
with the duties imposed by the TIA, the imposed duties shall control.
Section 12.2 Notices
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Any notice or communication by the Company or the Trustee to the
others is duly given if in writing and delivered in Person or mailed by first
class mail (registered or certified, return receipt requested), telex,
telecopier or overnight air courier guaranteeing next day delivery, to the
others' address:
If to the Company:
Panolam Industries International, Inc.
20 Progress Drive
Shelton, Connecticut 06484
Telephone No.: (203) 925-1556
Telecopier No.: (203) 225-0051
Attention: Chief Financial Officer
If to the Trustee:
State Street bank and Trust Company
Goodwin Square, 225 Asylum Street
Hartford, Connecticut 06103
Telephone No.: (860) 244-1820
Telecopier No.: (860) 244-1889
Attention: Corporate Trust Department
with a copy to:
State Street Bank and Trust Company
61 Broadway, 15/th/ Floor
New York, New York 10006
Attention: Corporate Trust Department
The Company or the Trustee, by notice to the others may designate
additional or different addresses for subsequent notices or communications;
provided, that until such time, all notices under this Indenture to the Trustee
shall be sent to both of the Trustee's addresses set forth above.
All notices and communications (other than those sent to Holders)
shall be deemed to have been duly given: at the time delivered by hand, if
personally delivered; when answered back, if telexed; when receipt acknowledged,
if telecopied; and the next Business Day after timely delivery to the courier,
if sent by overnight air courier guaranteeing next day delivery.
Any notice or communication to a Holder shall be mailed by first class
mail, certified or registered, return receipt requested, or by overnight air
courier guaranteeing next day
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delivery to its address shown on the register kept by the Registrar. Any notice
or communication shall also be so mailed to any Person described in TIA (S)
313(c), to the extent required by the TIA. Failure to mail a notice or
communication to a Holder or any defect in it shall not affect its sufficiency
with respect to other Holders.
If a notice or communication is mailed in the manner provided
above within the time prescribed, it is duly given, whether or not the addressee
receives it.
If the Company mails a notice or communication to Holders, it
shall mail a copy to the Trustee and each Agent at the same time.
Section 12.3 Communication by Holders of Notes with Other Holders of Notes
Holders may communicate pursuant to TIA (S) 312(b) with other
Holders with respect to their rights under this Indenture or the Notes. The
Company, the Trustee, the Registrar and anyone else shall have the protection of
TIA (S) 312(c).
Section 1.105 Certificate and Opinion as to Conditions Precedent
Upon any request or application by the Company to the Trustee to
take any action under this Indenture, the Company shall furnish to the Trustee:
(1) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth in
Section 12.5 hereof) stating that, in the opinion of the signers, all conditions
precedent and covenants, if any, provided for in this Indenture relating to the
proposed action have been satisfied; and
(2) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth in
Section 12.5 hereof) stating that, in the opinion of such counsel, all such
conditions precedent and covenants have been satisfied.
Section 12.4 Statements Required in Certificate or Opinion
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than a certificate
provided pursuant to TIA (S) 314(a)(4)) shall comply with the provisions of TIA
(S) 314(e) and shall include:
(1) a statement that the Person making such certificate or
opinion has read such covenant or condition;
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(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained in
such certificate or opinion are based;
(3) a statement that, in the opinion of such Person, he or she
has made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or condition has
been satisfied; and
(4) a statement as to whether or not, in the opinion of such
Person, such condition or covenant has been satisfied; provided, however, that
with respect to matters of fact, an Opinion of Counsel may rely on an Officers'
Certificate or certificate of public officials.
Section 12.5 Rules by Trustee and Agents
The Trustee may make reasonable rules for action by or at a
meeting of Holders. The Registrar or Paying Agent may make reasonable rules and
set reasonable requirements for its functions.
Section 12.6 No Personal Liability of Directors, Officers, Employees and
Stockholders
No past, present or future director, officer, employee,
incorporator or stockholder (direct or indirect) of the Company or the
Guarantors (or any such successor entity), as such, shall have any liability for
any Obligations of the Company or the Guarantors under the Notes, the Guarantees
or this Indenture or for any claim based on, in respect of, or by reason of,
such Obligations or their creation, except in their capacity as an obligor or
Guarantor of the Notes in accordance with this Indenture. Each Holder by
accepting a Note waives and releases all such liability. The waiver and release
are part of the consideration for issuance of the Notes.
Section 12.7 Governing Law
THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE
USED TO CONSTRUE THIS INDENTURE, THE NOTES AND THE GUARANTEES, INCLUDING,
WITHOUT LIMITATION, SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW.
Section 12.8 No Adverse Interpretation of Other Agreements
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This Indenture may not be used to interpret any other indenture,
loan or debt agreement of the Company or its Subsidiaries or of any other
Person. Any such indenture, loan or debt agreement may not be used to interpret
this Indenture.
Section 12.9 Successors
All agreements of the Company and the Guarantors in this
Indenture and the Notes shall bind their successors. All agreements of the
Trustee in this Indenture shall bind its successors.
Section 12.13 Severability
In case any one or more of the provisions of this Indenture or in
the Notes or in the Guarantees shall be held invalid, illegal or unenforceable,
in any respect for any reason, the validity, legality and enforceability of any
such provision in every other respect and of the remaining provisions shall not
in any way be affected or impaired thereby, it being intended that all of the
provisions hereof shall be enforceable to the full extent permitted by law.
Section 12.14 Counterpart Originals
The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.
Section 12.15 Table of Contents, Headings, Etc.
The Table of Contents and headings of the Articles and Sections
of this Indenture have been inserted for convenience of reference only, are not
to be considered a part of this Indenture and shall in no way modify or restrict
any of the terms or provisions hereof.
[Signatures on following page]
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SIGNATURES
IN WITNESS WHEREOF, the parties hereto have executed this Indenture as of
the date first written above.
THE COMPANY:
PANOLAM INDUSTRIES INTERNATIONAL, INC.
By: __________________________________
Name:
Title:
THE GUARANTORS:
PANOLAM GROUP, INC.
By: __________________________________
Name:
Title:
PII SECOND, INC.
By: __________________________________
Name:
Title:
PANOLAM INDUSTRIES, INC.
By: __________________________________
Name:
Title:
PIONEER PLASTICS CORPORATION
By: __________________________________
<PAGE>
Name:
Title:
THE TRUSTEE:
STATE STREET BANK AND TRUST COMPANY
By: _______________________________
Name:
Title:
<PAGE>
Exhibit A
[FORM OF NOTE]
PANOLAM INDUSTRIES INTERNATIONAL, INC.
11 1/2% [SERIES A] [SERIES B]/1/ SENIOR SUBORDINATED NOTE
DUE 2009
CUSIP: __________
No. $_________________
Panolam Industries International, Inc., a Delaware corporation (hereinafter
called the "Company" which term includes any successors under this Indenture
hereinafter referred to), for value received, hereby promises to pay to
__________, or registered assigns, the principal sum of __________ Dollars, on
February 18, 2009.
Interest Payment Dates: February 15 and August 15; commencing August 15,
1999.
Record Dates: February 1 and August 1.
Reference is made to the further provisions of this Note on the reverse
side, which will, for all purposes, have the same effect as if set forth at this
place.
_________________________________
/1/ Series A should be replaced with Series B in the Exchange Notes.
A-1
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
PANOLAM INDUSTRIES INTERNATIONAL, INC.
a Delaware corporation
By: ___________________________
Name:
Title:
By: ___________________________
Name:
Title:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Notes described in the within-mentioned Indenture.
STATE STREET BANK AND TRUST COMPANY
By: ____________________________
Authorized Signatory
Dated: February , 1999
<PAGE>
(Back of Note)
11 1/2% [Series A] [Series B]/2/ Senior Subordinated Notes due 2009
[THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE
GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL
OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES
EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED
PURSUANT TO SECTION 2.6 OF THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE EXCHANGED
IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.6(a) OF THE INDENTURE, (III) THIS
GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION
2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A
SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY.]/3/
[UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE
FORM, THIS NOTE 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 ANY SUCH NOMINEE TO A
SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS
CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"), TO THE COMPANY OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
/2/ To be included only on Global Notes deposited with DTC as Depositary.
/3/ To be included only on Global Notes deposited with DTC as Depositary.
A-3
<PAGE>
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED
OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.]/4/
___________________________
/4/ To be included only on Global Notes deposited with DTC as Depositary.
A-4
<PAGE>
[THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE AND THE
CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR DEFINITIVE NOTES, ARE AS
SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER NOR THE
BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL NOTE SHALL BE ENTITLED
TO RECEIVE CASH PAYMENTS OF INTEREST DURING THE PERIOD WHICH SUCH HOLDER HOLDS
THIS NOTE. NOTHING IN THIS LEGEND SHALL BE DEEMED TO PREVENT INTEREST FROM
ACCRUING ON THIS NOTE.]/5/
[THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY
NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES
OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH
BELOW. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE HOLDER:
(1) REPRESENTS THAT, IN CONNECTION WITH EXEMPT RESALES OF THE NOTES BY
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION AND CREDIT SUISSE FIRST
BOSTON CORPORATION (THE "INITIAL PURCHASERS"), (A) IT IS A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A
"QIB") OR (B) IT IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION IN COMPLIANCE
WITH REGULATION S UNDER THE SECURITIES ACT;
(2) AGREES THAT, IN CONNECTION WITH RESALES AND TRANSFERS OF THE NOTES OTHER
THAN EXEMPT RESALES OF THE NOTES BY THE INITIAL PURCHASERS, IT WILL NOT RESELL
OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO THE ISSUER OR ANY GUARANTOR OR ANY
OF THEIR RESPECTIVE SUBSIDIARIES, (B) TO A PERSON WHOM THE SELLER REASONABLY
BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QIB IN
A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (C) IN AN OFFSHORE
TRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR 904 OF REGULATION S UNDER
THE SECURITIES ACT, (D) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144
UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS
DEFINED IN RULE 501(A)(1), (2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES
ACT) THAT, PRIOR TO SUCH TRANSFER, FURNISHES THE TRUSTEE A SIGNED LETTER
CONTAINING CERTAIN
______________________
/5/ To be included only on Reg S Temporary Global Notes.
A-5
<PAGE>
REPRESENTATIONS AND AGREEMENTS RELATING TO THE TRANSFER OF THIS NOTE (THE FORM
OF WHICH CAN BE OBTAINED FROM THE TRUSTEE) AND, IF SUCH TRANSFER IS IN RESPECT
OF AN AGGREGATE PRINCIPAL AMOUNT OF NOTES LESS THAN $250,000, AN OPINION OF
COUNSEL ACCEPTABLE TO THE ISSUER THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE
SECURITIES ACT, (F) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL
ACCEPTABLE TO THE ISSUER), OR (G) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS
OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION; AND
(3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE OR AN INTEREST
HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.
AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "U.S. PERSON" AND "UNITED
STATES" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S UNDER THE
SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO
REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE FOREGOING.]/6/
Capitalized terms used herein shall have the meanings assigned to them in
the Indenture referred to below unless otherwise indicated.
1. Interest. Panolam Industries International, Inc., a Delaware
corporation (the "Company"), promises to pay interest on the principal amount of
this Note at 11 1/2% per annum from February 18, 1999 until maturity and shall
pay the Liquidated Damages, if any, payable pursuant to Section 5 of the
Registration Rights Agreement referred to below. The Company will pay interest
and Liquidated Damages, if any, semi-annually on February 15 and August 15 of
each year, or if any such day is not a Business Day, on the next succeeding
Business Day (each an "Interest Payment Date"). Interest on the Notes will
accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from the Issue Date; provided that if there is no
existing Default in the payment of interest, and if this Note is authenticated
between a Record Date (defined below) referred to on the face hereof and the
next succeeding
________________________
/6/ To be included only on Transfer Restricted Notes.
A-6
<PAGE>
Interest Payment Date, interest shall accrue from such next succeeding Interest
Payment Date; provided, further, that the first Interest Payment Date shall be
August 15, 1999. The Company shall pay interest (including Accrued Bankruptcy
Interest in any proceeding under any Bankruptcy Law) on overdue principal and
premium, if any, from time to time on demand at the rate then in effect; it
shall pay interest (including Accrued Bankruptcy Interest in any proceeding
under any Bankruptcy Law) on overdue installments of interest and Liquidated
Damages, if any, (without regard to any applicable grace periods) from time to
time on demand at the same rate to the extent lawful. Interest will be computed
on the basis of a 360-day year of twelve 30-day months.
2. Method of Payment. The Company will pay interest on the Notes (except
defaulted interest) and Liquidated Damages, if any, to the Persons who are
registered Holders of Notes at the close of business on the February 1 or August
1 next preceding the Interest Payment Date (each a "Record Date"), even if such
Notes are cancelled after such Record Date and on or before such Interest
Payment Date, except as provided in Section 2.12 of the Indenture (as defined
below) with respect to defaulted interest. The Notes will be payable as to
principal, premium, interest and Liquidated Damages, if any, at the office or
agency of the Company maintained within the City and State of New York for such
purpose, or, at the option of the Company, payment of interest and Liquidated
Damages, if any, may be made by check mailed to the Holders at their addresses
set forth in the register of Holders, and provided that payment by wire transfer
of immediately available funds to an account within the United States will be
required with respect to principal of and interest, premium and Liquidated
Damages, if any, on all Global Notes. Such payment shall be in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts.
3. Paying Agent and Registrar. Initially, State Street Bank and Trust
Company, the Trustee under the Indenture, will act as Paying Agent and
Registrar. The Company may change any Paying Agent or Registrar without notice
to any Holder. The Company or any of its Subsidiaries may act in any such
capacity.
4. Indenture. The Company issued the Notes under an Indenture dated as
of February 18, 1999 ("Indenture") among the Company, the Guarantors party
thereto and the Trustee. The terms of the Notes include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (15 U.S. Code (S)(S) 77aaa-77bbbb). The Notes
are subject to all such terms, and Holders
A-7
<PAGE>
are referred to the Indenture and such Act for a statement of such terms. The
Notes will be limited in aggregate principal amount to $135,000,000.
5. Optional Redemption.
(a) Except as set forth in clause (b) of this Section, the Company
shall not have the option to redeem the Notes pursuant to this Section 5 prior
to February 15, 2004. The Notes will be redeemable for cash at the option of the
Company, in whole or in part, at any time on or after February 15, 2004, upon
not less than 30 days nor more than 60 days prior notice mailed by first class
mail to each Holder at its last registered address, at the following redemption
prices (expressed as percentages of the principal amount) if redeemed during the
12-month period commencing February 15 of the years indicated below, in each
case (subject to the right of Holders of record on a Record Date to receive the
corresponding interest due (and the corresponding Liquidated Damages, if any) on
the corresponding Interest Payment Date that is on or prior to such redemption
date) together with accrued and unpaid interest and Liquidated Damages, if any,
thereon to the redemption date:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2004................................. 105.750%
2005................................. 103.833%
2006................................. 101.917%
2007 and thereafter.................. 100.000%
</TABLE>
(b) Notwithstanding the provisions of clause (a) of this Section, at
any time or from time to time until February 15, 2002, up to 35% of the
aggregate principal amount of the Notes originally issued under the Indenture
may be redeemed at the option of the Company within 90 days of a Public Equity
Offering, on not less than 30 days, but not more than 60 days, prior notice to
each Holder of the Notes to be redeemed, with cash from the Net Cash Proceeds of
such Public Equity Offering, at a redemption price equal to 111.50% of the
principal amount thereof (subject to the right of Holders of record on a Record
Date to receive the corresponding interest (and the corresponding Liquidated
Damages, if any) due on the Interest Payment Date that is on or prior to such
redemption date) together with accrued and unpaid interest and Liquidated
Damages, if any, thereon to the redemption date; provided that immediately
following such redemption not less than 65% of the aggregate principal amount of
the Notes originally issued pursuant to the Indenture remain outstanding.
(c) Notice of redemption will be mailed by first class mail at least
30 days but not more than 60 days before the redemption date to each Holder
whose Notes are to be redeemed at its registered address. Notes in denominations
larger than $1,000 may be redeemed
A-8
<PAGE>
in part but only in integral multiples of $1,000, unless all of the Notes held
by a Holder are to be redeemed. On and after the redemption date interest ceases
to accrue on Notes or portions thereof called for redemption unless the Company
defaults in such payments due on the redemption date.
6. Mandatory Redemption. The Company shall not be required to make
mandatory redemption payments with respect to the Notes. The Notes shall not
have the benefit of any sinking fund.
7. Offers to Purchase.
(2) Change of Control. In the event that a Change of Control has
occurred, each Holder of Notes will have the right, at such Holder's option,
pursuant to an offer (subject only to conditions required by applicable law, if
any) by the Company (the "Change of Control Offer"), to require the Company to
repurchase all or any part of such Holder's Notes (provided that the principal
amount of such Notes must be $1,000 or an integral multiple thereof) on a date
(the "Change of Control Purchase Date") that is no later than 35 Business Days
after the occurrence of such Change of Control, at a cash price equal to 101% of
the principal amount thereof (the "Change of Control Purchase Price"), together
with accrued and unpaid interest and Liquidated Damages, if any, to the Change
of Control Purchase Date. The Change of Control Offer shall be made within 10
Business Days following a Change of Control and shall remain open for 20
Business Days following its commencement (the "Change of Control Offer
Period"). Upon expiration of the Change of Control Offer Period, the Company
promptly shall purchase all Notes properly tendered in response to the Change of
Control Offer.
Prior to the commencement of a Change of Control Offer, but in
any event within 30 days following any Change of Control, the Company shall
(i)(a) repay in full and terminate all commitments under Indebtedness under the
Credit Agreement and the Canadian Credit Agreement or (b) offer to repay in full
and terminate all commitments under all Indebtedness under the Credit Agreement
and the Canadian Credit Agreement and repay in full the Indebtedness owed to
each such lender which has accepted such offer or (ii) obtain the requisite
consents under the Credit Agreement and the Canadian Credit Agreement to permit
the repurchase of the Notes as provided herein. The Company's failure to comply
with the preceding sentence shall constitute an Event of Default described in
clause (d) and not in clause _(b) of Section 6.1 of the Indenture.
A-9
<PAGE>
On or before the Change of Control Purchase Date, the Company
shall, to the extent lawful, (i) accept for payment Notes or portions thereof
properly tendered and not validly withdrawn pursuant to the Change of Control
Offer, (ii) deposit with the Paying Agent an amount in cash sufficient to pay
the Change of Control Purchase Price (together with accrued and unpaid interest
and Liquidated Damages, if any), of all Notes so tendered and (iii) deliver or
cause to be delivered to the Trustee the Notes so accepted together with an
Officers' Certificate listing the Notes or portions thereof being purchased by
the Company. The Paying Agent promptly will pay the Holders of Notes so accepted
an amount equal to the Change of Control Purchase Price (together with accrued
and unpaid interest and Liquidated Damages, if any), and the Trustee promptly
will authenticate and deliver to such Holders a new Note equal in principal
amount to any unpurchased portion of the Note surrendered. Any Notes not so
accepted will be delivered promptly by the Company to the Holder thereof. The
Company publicly will announce the results of the Change of Control Offer on or
as soon as practicable after the Change of Control Purchase Date.
(3) Asset Sale. The Company and the Subsidiary Guarantors shall not,
and shall not permit any of their Subsidiaries to, in one or a series of related
transactions, convey, sell, transfer, assign or otherwise dispose of, directly
or indirectly, any of its property, business or assets, including by merger or
consolidation (in the case of a Subsidiary Guarantor or a Subsidiary of the
Company), and including any sale or other transfer or issuance of any Equity
Interests of any Subsidiary of the Company (other than directors' qualifying
shares or shares required by applicable law to be held by a Person other than
the Company or a Subsidiary), whether by the Company or a Subsidiary or through
the issuance, sale or transfer of Equity Interests by a Subsidiary of the
Company, and including any sale and leaseback transaction (any of the foregoing,
an "Asset Sale"), unless (l)(a) the Net Cash Proceeds therefrom (the "Asset
Sale Offer Amount") are applied (i) within 180 days after the date of such
Asset Sale to the optional redemption of the Notes in accordance with the terms
of this Indenture and other Indebtedness of the Company ranking on a parity with
the Notes and with similar provisions requiring the Company to redeem such
Indebtedness with the proceeds for asset sales, pro rata in proportion to the
respective principal amounts (or accreted values in the case of Indebtedness
issued with an original issue discount) of the Notes and such other Indebtedness
then outstanding or (ii) within 210 days after the date of such Asset Sale to
the repurchase of the Notes and such other Indebtedness on a parity with the
Notes and with similar provisions requiring the Company to make an offer to
purchase such Indebtedness with the proceeds for asset sales pursuant to a cash
offer (subject only to conditions required by applicable law, if any) (pro rata
in proportion to the respective principal amounts (or accreted
A-10
<PAGE>
values in the case of Indebtedness issued with an original issue discount) of
the Notes and such other Indebtedness properly tendered) (the "Asset Sale
Offer") at a purchase price of 100% of principal amount (or accreted value in
the case of Indebtedness issued with an original issue discount) (the "Asset
Sale Offer Price") together with accrued and unpaid interest and Liquidated
Damages, if any, to the date of payment, made within 180 days of such Asset Sale
or (b) within 180 days following such Asset Sale, the Asset Sale Offer Amount is
(i) invested (or committed, pursuant to a binding commitment subject only to
reasonable, customary closing conditions, to be invested, and in fact is so
invested, within an additional 90 days) in assets and property (except in
connection with the acquisition of a Wholly Owned Subsidiary in a Related
Business, other than notes, bonds, obligation and securities) which in the good
faith reasonable judgment of the Board of Directors of the Company will
immediately constitute or be a part of a Related Business of the Company or such
Subsidiary (if it continues to be a Subsidiary) immediately following such
transaction or in Restricted Investments permitted by Section 4.9 of the
Indenture; provided that proceeds from Asset Sales effected by a Subsidiary
Guarantor or a Canadian Subsidiary may not be reinvested in a Foreign Subsidiary
which is not a Canadian Subsidiary or (ii) used to retire Purchase Money
Indebtedness or Senior Debt and to permanently reduce (in the case of Senior
Debt that is not Purchase Money Indebtedness) the amount of such Indebtedness
outstanding on the Issue Date or permitted pursuant to paragraph (b) (but only
to the extent that such paragraph (b) relates to revolving credit borrowings
under the Credit Agreement and the Canadian Credit Agreement), (c) or (d), as
applicable, of Section 4.7 of the Indenture (including that in the case of a
revolver or similar arrangement that makes credit available, such commitment is
so permanently reduced by such amount); provided that any proceeds from Asset
Sales effected by a Subsidiary Guarantor or a Canadian Subsidiary may not be
used to retire Indebtedness of or make an Investment in any Foreign Subsidiary
which is not a Canadian Subsidiary, except to the extent allowable pursuant to
clause (h) of the definition of Permitted Investment, (2) at least 75% of the
total consideration for such Asset Sale or series of related Asset Sales
consists of cash or Cash Equivalents, (3) no Default or Event of Default shall
have occurred and be continuing at the time of, or would occur after giving
effect, on a pro forma basis, to, such Asset Sale, and (4) the Board of
Directors of the Company determines in good faith that the Company or such
Subsidiary, as applicable, receives the fair market value for such Asset Sale.
An acquisition of Notes pursuant to an Asset Sale Offer may be deferred
until the accumulated Net Cash Proceeds from Asset Sales not applied to the uses
and in the time periods set forth in 1(a)(i) or 1(b) above (the "Excess
Proceeds") exceeds $10,000,000 and that each Asset Sale Offer shall remain open
for 20 Business Days following its commencement (the "Asset Sale Offer Period").
Pending application of the Net Cash Proceeds pursuant to Section 4.13 of the
Indenture, such Net Cash Proceeds shall be invested in Permitted Investments
(other than pursuant to clause (a), (e) or (h) of the definition thereof) or
used to reduce outstanding loans under any working capital facility. Upon
expiration of the Asset Sale Offer Period, the Company shall apply the Asset
Sale Offer Amount plus an amount equal to accrued and unpaid
A-11
<PAGE>
interest and Liquidated Damages, if any, to the purchase of all Indebtedness
properly tendered (on a pro rata basis if the Asset Sale Offer Amount is
insufficient to purchase all Indebtedness so tendered) at the Asset Sale Offer
Price (together with accrued interest and Liquidated Damages, if any). To the
extent that the aggregate amount of Notes and such other pari passu Indebtedness
tendered pursuant to an Asset Sale Offer is less than the Asset Sale Offer
Amount, the Company may use any remaining Net Cash Proceeds for general
corporate purposes as otherwise permitted by this Indenture and following each
Asset Sale Offer the Excess Proceeds amount shall be reset to zero. For purposes
of (2) in the preceding paragraph, total consideration received means the total
consideration received for such Asset Sales minus the amount of (a) Purchase
Money Indebtedness secured solely by the assets sold and assumed by a transferee
and Senior Debt assumed by the transferee, provided in each case that the
Company, the Guarantors and their Subsidiaries are released from all obligations
in connection therewith and (b) property that within 30 days of such Asset Sale
is converted into cash or Cash Equivalents; provided that such cash and Cash
Equivalents shall be treated as Net Cash Proceeds attributable to the original
Asset Sale for which such property was received.
1. Denominations, Transfer, Exchange. The Notes are in registered form
without coupons in denominations of $1,000 and integral multiples of $1,000. The
transfer of Notes may be registered and Notes may be exchanged as provided in
the Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company need not exchange or register the
transfer of any Note or portion of a Note selected for redemption, except for
the unredeemed portion of any Note being redeemed in part. Also, it need not
exchange or register the transfer of any Notes for a period of 15 days before a
selection of Notes to be redeemed or during the period between a Record Date and
the corresponding Interest Payment Date.
2. Persons Deemed Owners. The registered Holder of a Note may be treated
as its owner for all purposes.
3. Amendment, Supplement and Waiver. Subject to certain exceptions, the
Indenture, the Notes or the Guarantees may be amended or supplemented with the
consent of the Holders of at least a majority in principal amount of the then
outstanding Notes, and any existing Default or compliance with any provision of
the Indenture, the Notes or the Guarantees may be waived with the consent of the
Holders of a majority in principal amount of the then outstanding Notes;
provided, that no such modification may, without the consent of Holders of at
least 66_% in aggregate principal amount of Notes at the time outstanding,
modify the provisions (including the defined terms used
A-12
<PAGE>
therein) of Section 4.14 of the Indenture in a manner adverse to the Holders.
Without the consent of any Holder of a Note, the Indenture, the Notes or the
Guarantees may be amended or supplemented to cure any ambiguity, defect or
inconsistency, to provide for uncertificated Notes in addition to or in place of
certificated Notes, to provide for the assumption of the Company's obligations
to Holders of the Notes in case of a merger or consolidation, to provide for
additional Guarantees as set forth in the Indenture or for the release or
assumption of Guarantees in compliance with the Indenture, to make any change
that would provide any additional rights or benefits to the Holders of the Notes
(including the addition of any Guarantor) or that does not adversely affect the
rights under the Indenture of any such Holder, to comply with the provisions of
the Depositary, Euroclear or Cedel or the Trustee with respect to the provisions
of the Indenture or the Notes relating to transfers and exchanges of Notes or
beneficial interests therein, or to comply with the requirements of the SEC in
order to effect or maintain the qualification of the Indenture under the TIA.
4. Defaults and Remedies. The Indenture provides that each of the
following constitutes an Event of Default: (a) the failure by the Company to pay
any installment of interest (or Liquidated Damages, if any) on the Notes as and
when the same becomes due and payable and the continuance of any such failure
for 30 days; (b) the failure by the Company or any Subsidiary of the Company to
pay all or any part of the principal, or premium, if any, on the Notes when and
as the same becomes due and payable at maturity, redemption, by acceleration or
otherwise, including, without limitation, payment of the Change of Control
Purchase Price or the Asset Sale Offer Price, or otherwise on Notes validly
tendered and not properly withdrawn pursuant to a Change of Control Offer or
Asset Sale Offer, as applicable (as set forth in Sections 4.14 and 4.13 of the
Indenture); (c) failure by the Company or any Subsidiary of the Company for 30
days after notice from the Trustee or Holders of at least 25% in principal
amount of the Notes then outstanding to comply with the provisions described in
Sections 4.7 and 4.9 of the Indenture; (d) failure by the Company or any
Subsidiary of the Company for 60 days after notice from the Trustee or the
Holders of at least 25% in principal amount of the Notes then outstanding to
comply with any of their respective other agreements in this Indenture or the
Notes (other than with respect to (a), (b) and (c) above); (e) the failure to
pay at final stated maturity (giving effect to any applicable grace periods) the
principal amount of any Indebtedness of the Company or any Subsidiary of the
Company or the acceleration of the final stated maturity of any Indebtedness if
the aggregate principal amount of such Indebtedness, together with the principal
amount of any such Indebtedness in default for failure to pay principal at final
maturity or which has been accelerated, aggregates $5,000,000 or more at any
time; (f) final unsatisfied judgments not covered by insurance for the payment
of money, or the issuance of any warrant of attachment against any portion of
the property or assets of the
A-13
<PAGE>
Company or any of its Subsidiaries, aggregating in excess of $5,000,000, at any
one time shall be rendered against the Company or any of its Subsidiaries and
not be stayed, bonded or discharged for a period of 60 days; (g) except as
otherwise permitted in this Indenture, any of the Guarantees shall be held in a
judicial proceeding to be unenforceable or invalid or shall cease for any reason
to be in full force and effect or the respective Guarantor, or any Person acting
on behalf of such Guarantor, shall deny or disaffirm its obligations under its
Guarantee; (h) court having jurisdiction in the premises enters a decree or
order for (A) relief in respect of the Company or any Significant Subsidiary in
an involuntary case under any applicable Bankruptcy Law now or hereafter in
effect, (B) appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of the Company or any Significant Subsidiary or
for all or substantially all of the property and assets of the Company or any
Significant Subsidiary or (C) the winding up or liquidation of the affairs of
the Company or any Significant Subsidiary and, in each case, such decree or
order shall remain unstayed and in effect for a period of 60 consecutive days;
or (i) the Company or any Significant Subsidiary (A) commences a voluntary case
under any applicable Bankruptcy Law now or hereafter in effect, or consents to
the entry of an order for relief in an involuntary case under any such law, (B)
consents to the appointment of or taking possession by a receiver, liquidator,
assignee, custodian, trustee, sequestrator or similar official of the Company or
any Significant Subsidiary or for all or substantially all of the property and
assets of the Company or any Significant Subsidiary or (C) effects any general
assignment for the benefit of creditors.
5. Subordination. The Notes and the Guarantees are subordinated in right
of payment, to the extent and in the manner provided in Article XI and Section
10.7 of the Indenture, to the prior payment in full of all Senior Debt. The
Company agrees, and each Holder by accepting a Note consents and agrees, to the
subordination provided in the Indenture and authorizes the Trustee to give it
effect.
6. Trustee Dealings with Company. The Trustee, in its individual or any
other capacity, may make loans to, accept deposits from, and perform services
for the Company or its Affiliates, and may otherwise deal with the Company or
its Affiliates, as if it were not the Trustee.
7. No Recourse Against Others. No past, present or future director,
officer, employee, incorporator or stockholder (direct or indirect) of the
Company or the Guarantors (or any such successor entity), as such, shall have
any liability for any Obligations of the Company or the Guarantors under the
Notes, the Guarantees or this
A-14
<PAGE>
Indenture or for any claim based on, in respect of, or by reason of, such
Obligations or their creation, except in their capacity as an obligor or
Guarantor of the Notes in accordance with this Indenture. Each Holder by
accepting a Note waives and releases all such liability. The waiver and release
are part of the consideration for issuance of the Notes.
8. Authentication. This Note shall not be valid until authenticated by
the manual signature of the Trustee or an authenticating agent.
9. Abbreviations. Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
10. Additional Rights of Holders of Transfer Restricted Notes/7/. In
addition to the rights provided to Holders of Notes under the Indenture, Holders
of Transferred Restricted Notes shall have all the rights set forth in the
Registration Rights Agreement dated as of the date of the Indenture, among the
Company, the Guarantors and the Initial Purchasers (the "Registration Rights
Agreement").
11. CUSIP Numbers. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers
in notices of redemption as a convenience to Holders. No representation is made
as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon, and any such redemption shall not
be affected by any defect in or omission of such numbers.
12. Notation of Guarantee. As more fully set forth in the Indenture, each
of the Guarantors from time to time, in accordance with the provisions of the
Indenture, unconditionally and jointly and severally guarantee, in accordance
with Section 10.1 of the Indenture, to each Holder of a Note authenticated and
delivered by the Trustee and to the Trustee and its successors and assigns,
that: (a) the principal of, and premium, if
_________________________
/7/ To be included only on Transfer Restricted Notes.
A-15
<PAGE>
any, Liquidated Damages, if any, and interest on the Notes will be duly and
punctually paid in full when due, whether at maturity, by acceleration, call for
redemption, upon a Change of Control Offer, upon an Asset Sale Offer or
otherwise, and interest on overdue principal of, and premium, if any, Liquidated
Damages, if any and (to the extent permitted by law) interest on any interest,
if any, on the Notes and all other obligations of the Company to the Holders or
the Trustee hereunder or under the Notes (including fees, expenses or other)
will be promptly paid in full or performed, all in accordance with the terms
hereof; and (b) in case of any extension of time of payment or renewal of any
Notes or any of such other obligations, the same will be promptly paid in full
when due or performed in accordance with the terms of the extension or renewal,
whether at stated maturity, by acceleration, call for redemption, upon a Change
of Control Offer, upon an Asset Sale Offer or otherwise. Such Guarantees are
subordinated in right of payment to the prior payment in full of all Obligations
in respect of Senior Debt of the Guarantors as set forth in Article XI of the
Indenture and shall cease to apply, and shall be null and void, with respect to
any Guarantor who, pursuant to Article X of the Indenture, is released from its
Guarantee or whose Guarantee otherwise ceases to be applicable pursuant to the
terms of the Indenture.
When a successor assumes all the obligations of its predecessor under the
Notes and the Indenture, the predecessor will be released from those
obligations.
20. Governing Law. THE INDENTURE AND THE NOTES SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, INCLUDING,
WITHOUT LIMITATION, SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW.
The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture and/or the Registration Rights Agreement.
Requests may be made to:
Panolam Industries International, Inc.
20 Progress Drive
Shelton, Connecticut 06484
Attention: Chief Financial Officer
Telephone No.: (203) 925-1556
A-16
<PAGE>
ASSIGNMENT FORM
To assign this Note, fill in the form below: (I) or (we) assign and transfer
this Note to
________________________________________________________________________________
(Insert assignee's soc. sec. or tax I.D. no.)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint_________________________________________________________
to transfer this Note on the books of the Company. The agent may substitute
another to act for him.
________________________________________________________________________________
Date:___________________________
Your Signature:____________________________
(Sign exactly as your name appears on the face of this Note)
Signature Guarantee*
________________________________________________________________________________
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<PAGE>
*NOTICE: The Signature must be guaranteed by an Institution which is a member
of one of the following recognized signature Guarantee Programs: (i) The
Securities Transfer Agent Medallion Program (STAMP); (ii) The New York Stock
Exchange Medallion Program (MNSP); (iii) The Stock Exchange Medallion Program
(SEMP); or (iv) in such other guarantee program acceptable to the Trustee.
A-18
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company pursuant to
Section 4.13 or 4.14 of the Indenture, check the box below:
Section 4.13 Section 4.14
If you want to elect to have only part of the Note purchased by the Company
pursuant to Section 4.13 or Section 4.14 of the Indenture, state the amount you
elect to have purchased (in denominations of $1,000 only, except if you have
elected to have all of your Notes purchased): $___________
Date:_____________________ Your Signature:________________________________
(Sign exactly as your name appears on the Note)
Tax Identification No.:______________
Signature Guarantee*
________________________________________________________________________________
*NOTICE: The Signature must be guaranteed by an Institution which is a member
of one of the following recognized signature Guarantee Programs: (i) The
Securities Transfer Agent Medallion Program (STAMP); (ii) The New York Stock
Exchange Medallion Program (MNSP); (iii) The Stock Exchange
A-19
<PAGE>
Medallion Program (SEMP); or (iv) in such other guarantee program acceptable to
the Trustee.
A-20
<PAGE>
SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE/8/
The following exchanges of a part of this Global Note for an interest in
another Global Notes or for a Definitive Note, or exchanges of a part of another
Global Note or Definitive Note for an interest in this Global Note, have been
made:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Date of Exchange Amount of decrease Amount of increase Principal Amount ofthis Signature of authorized
- ---------------- inPrincipal Amount inPrincipal Amount Global Notefollowing officer of Trustee or
ofthis Global Note ofthis Global Note such decrease(or increase) NoteCustodian
----------- ---------------- ----------- ---------
</TABLE>
_____________________
/8/ This should be included only if the Note is issued in global form
A-21
<PAGE>
GUARANTEE
The Guarantors listed below (hereinafter referred to as the
"Guarantors," which term includes any successors or assigns under the Indenture,
dated the date hereof, among the Guarantors, the Company (defined below) and
State Street Bank and Trust Company, as trustee (the "Indenture") and any
additional Guarantors), have irrevocably and unconditionally guaranteed the
Guarantee Obligations, (as defined in Section 10.1 of the Indenture) which
include (i) the due and punctual payment of the principal of, premium, if any,
and interest and Liquidated Damages, if any, on the 11 1/2% Senior Subordinated
Notes due 2009 (the "Notes") of Panolam Industries, International, Inc., a
Delaware corporation (the "Company"), whether at maturity, by acceleration, call
for redemption, upon a Change of Control Offer, upon an Asset Sale Offer or
otherwise, the due and punctual payment of interest on the overdue principal and
premium, if any, and (to the extent permitted by law) interest on any interest
on the Notes, and the due and punctual performance of all other obligations of
the Company, to the Holders or the Trustee all in accordance with the terms set
forth in Article X of the Indenture (ii) in case of any extension of time of
payment or renewal of any Notes or any such other obligations, that the same
will be promptly paid in full when due or performed in accordance with the terms
of the extension or renewal, whether at stated maturity, by acceleration, call
for redemption, upon a Change of Control Offer, upon an Asset Sale Offer or
otherwise and (iii) the payment of any and all costs and expenses (including
reasonable attorneys' fees) incurred by the Trustee in enforcing any rights
under this Guarantee.
The obligations of each Guarantor to the Holders and to the Trustee
pursuant to this Guarantee and the Indenture are expressly set forth in Article
X of the Indenture and reference is hereby made to such Indenture for the
precise terms of this Guarantee.
The obligations of each Guarantor to the Holders and to the Trustee
pursuant to this Guarantee and the Indenture are expressly subordinated to
Senior Debt of the Guarantor as set forth in Section 10.7 of the Indenture and
reference is hereby made to such Section for the precise terms of such
subordination.
No past, present or future director, officer, employee, incorporator
or stockholder (direct or indirect) of the Guarantors (or any such successor
entity), as such, shall have any liability for any Obligations of the Guarantors
under the Guarantees or the Indenture or for any claim based on, in respect of,
or by reason of, such Obligations or their creation, except in their capacity as
an obligor or Guarantor of the Notes in accordance with the Indenture.
This is a continuing Guarantee and shall remain in full force and
effect and shall be binding upon each Guarantor and its successors and assigns
until full and final payment of all of the Company's obligations under the Notes
and Indenture or until released or legally defeased in accordance with the
Indenture and shall inure to the benefit of the successors and assigns of
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the Trustee and the Holders, and, in the event of any transfer or assignment of
rights by any Holder or the Trustee, the rights and privileges herein conferred
upon that party shall automatically extend to and be vested in such transferee
or assignee, all subject to the terms and conditions hereof. This is a Guarantee
of payment and not of collectibility.
This Guarantee shall not be valid or obligatory for any purpose until
the certificate of authentication on the Note upon which this Guarantee is noted
shall have been executed by the Trustee under the Indenture by the manual
signature of one of its authorized officers.
The Obligations of each Guarantor under its Guarantee shall be limited
to the extent necessary to insure that it does not constitute a fraudulent
conveyance under applicable law.
THE TERMS OF ARTICLES X AND XI OF THE INDENTURE ARE INCORPORATED
HEREIN BY REFERENCE.
Capitalized terms used herein have the same meanings given in the
Indenture unless otherwise indicated.
A-23
<PAGE>
IN WITNESS WHEREOF, each of the Guarantors has caused this instrument
to be duly executed.
Dated: February ____, 1999
PANOLAM GROUP, INC.
By: __________________________
Name:
Title:
PII SECOND, INC.
By: __________________________
Name:
Title:
PANOLAM INDUSTRIES, INC.
By: __________________________
Name:
Title:
PIONEER PLASTICS CORPORATION
By: __________________________
Name:
Title:
<PAGE>
EXHIBIT B
FORM OF CERTIFICATE OF TRANSFER
Panolam Industries International, Inc.
20 Progress Drive
Shelton, Connecticut 06484
Attention: Chief Financial Officer
State Street Bank and Trust Company
Goodwin Square, 225 Asylum Street
Hartford Connecticut 06103
Attention: Corporate Trust Group
Re: 11 1/2% Senior Subordinated Notes due 2009
Dear Sirs:
Reference is hereby made to the Indenture, dated as of February 18, 1999
(the "Indenture"), among Panolam Industries International, Inc., as issuer (the
"Company"), the Guarantors party thereto and State Street Bank and Trust
Company, as trustee. Capitalized terms used but not defined herein shall have
the meanings given to them in the Indenture. ______________, (the "Transferor")
owns and proposes to transfer the Note[s] or interest in such Note[s] specified
in Annex A hereto, in the principal amount of $___________ in such Note[s] or
interests (the "Transfer"), to __________ (the "Transferee"), as further
specified in Annex A hereto. In connection with the Transfer, the Transferor
hereby certifies that:
[CHECK ALL THAT APPLY]
1. CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE
144A GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO RULE 144A. The Transfer is
being effected pursuant to and in accordance with Rule 144A under the United
States Securities Act of 1933, as amended (the "Securities Act"), and,
accordingly, the Transferor hereby further certifies that the beneficial
interest or Definitive Note is being transferred to a Person that the Transferor
reasonably believed and believes is purchasing the beneficial interest or
Definitive Note for its own account, or for one or more accounts with respect to
which such Person exercises sole investment discretion, and such Person and each
such account is a "qualified institutional buyer" within the meaning of Rule
144A in a transaction meeting the requirements of Rule 144A and such Transfer is
in compliance with any applicable blue sky securities laws of any State of the
United States. Upon consummation of the proposed Transfer in accordance with the
terms of the Indenture, the transferred beneficial interest or Definitive Note
will be subject to the restrictions on transfer enumerated in the Private
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<PAGE>
Placement Legend printed on the 144A Global Note and/or the Definitive Note and
in the Indenture and the Securities Act.
2. CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE
REGULATION S GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO REGULATION S. The
Transfer is being effected pursuant to and in accordance with Rule 903 or Rule
904 under the Securities Act and, accordingly, the Transferor hereby further
certifies that (i) the Transfer is not being made to a person in the United
States and (x) at the time the buy order was originated, the Transferee was
outside the United States or such Transferor and any Person acting on its behalf
reasonably believed and believes that the Transferee was outside the United
States or (y) the transaction was executed in, on or through the facilities of a
designated offshore securities market and neither such Transferor nor any Person
acting on its behalf knows that the transaction was prearranged with a buyer in
the United States, (ii) no directed selling efforts have been made in
contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S
under the Securities Act, (iii) the transaction is not part of a plan or scheme
to evade the registration requirements of the Securities Act and (iv) if the
proposed transfer is being made prior to the expiration of the Distribution
Compliance Period, the transfer is not being made to a U.S. Person or for the
account or benefit of a U.S. Person (other than an Initial Purchaser) and the
interest transferred will be held immediately thereafter through Euroclear or
Cedel. Upon consummation of the proposed transfer in accordance with the terms
of the Indenture, the transferred beneficial interest or Definitive Note will be
subject to the restrictions on Transfer enumerated in the Private Placement
Legend printed on the Regulation S Global Note and/or the Definitive Note and in
the Indenture and the Securities Act.
3. CHECK AND COMPLETE IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL
INTEREST IN A DEFINITIVE NOTE PURSUANT TO ANY PROVISION OF THE SECURITIES ACT
OTHER THAN RULE 144A OR REGULATION S. The Transfer is being effected in
compliance with the transfer restrictions applicable to beneficial interests in
Restricted Global Notes and Restricted Definitive Notes and pursuant to and in
accordance with the Securities Act and any applicable blue sky securities laws
of any State of the United States, and accordingly the Transferor hereby further
certifies that (check one):
(a) Such Transfer is being effected pursuant to and in
accordance with Rule 144 under the Securities Act; or
(b) Such Transfer is being effected to the Company or a
subsidiary thereof; or
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<PAGE>
(c) Such Transfer is being effected pursuant to an effective
registration statement under the Securities Act and in compliance
with the prospectus delivery requirements of the Securities Act; or
(d) such Transfer is being effected to an Institutional
Accredited Investor and pursuant to an exemption from the
registration requirements of the Securities Act other than Rule
144A, Rule 144 or Rule 904, and the Transferor hereby further
certifies that it has not engaged in any general solicitation within
the meaning of Regulation D under the Securities Act and the
Transfer complies with the transfer restrictions applicable to
beneficial interests in a Restricted Global Note or Restricted
Definitive Notes and the requirements of the exemption claimed,
which certification is supported by (1) a certificate executed by
the Transferee in a form of Exhibit D to the Indenture and (2) if
such Transfer is in respect of a principal amount of Notes at the
time of transfer of less than $250,000, an Opinion of Counsel
provided by the Transferor or the Transferee (a copy of which the
Transferor has attached to this certification and provided to the
Company, which has confirmed its acceptability), to the effect that
such Transfer is in compliance with the Securities Act. Upon
consummation of the proposed transfer in accordance with the terms
of the Indenture, the Definitive Note will be subject to the
restrictions on transfer enumerated in the Private Placement Legend
printed on the Definitive Notes and in the Indenture and the
Securities Act.
4. CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN
AN UNRESTRICTED GLOBAL NOTE OR OF AN UNRESTRICTED DEFINITIVE NOTE.
(a) CHECK IF TRANSFER IS PURSUANT TO RULE 144. (i) The
Transfer is being effected pursuant to and in accordance with Rule 144 under the
Securities Act and in compliance with the transfer restrictions contained in the
Indenture and any applicable blue sky securities laws of any State of the United
States and (ii) the restrictions on transfer contained in the Indenture and the
Private Placement Legend are not required in order to maintain compliance with
the Securities Act. Upon consummation of the proposed Transfer in accordance
with the terms of the Indenture, the transferred beneficial interest or
Definitive Note will no longer be subject to the restrictions on transfer
enumerated in the Private Placement Legend printed on the Restricted Global
Notes, on Restricted Definitive Notes and in the Indenture and the Securities
Act.
(b) CHECK IF TRANSFER IS PURSUANT TO REGULATION S. (i) The
Transfer is being effected pursuant to and in accordance with Rule 903 or Rule
904 under the Securities Act and in compliance with the transfer restrictions
contained in the Indenture and any applicable blue sky securities laws of any
State of the United States and (ii) the restrictions on transfer contained in
the Indenture and the Private Placement Legend are not required in order
B-3
<PAGE>
to maintain compliance with the Securities Act. Upon consummation of the
proposed Transfer in accordance with the terms of the Indenture, the transferred
beneficial interest or Definitive Note will no longer be subject to the
restrictions on transfer enumerated in the Private Placement Legend printed on
the Restricted Global Notes, on Restricted Definitive Notes and in the Indenture
and the Securities Act.
(c) CHECK IF TRANSFER IS PURSUANT TO OTHER EXEMPTION. (i)
The Transfer is being effected pursuant to and in compliance with an exemption
from the registration requirements of the Securities Act other than Rule 144,
Rule 903 or Rule 904 and in compliance with the transfer restrictions contained
in the Indenture and any applicable blue sky securities laws of any State of
the United States and (ii) the restrictions on transfer contained in the
Indenture and the Private Placement Legend are not required in order to maintain
compliance with the Securities Act. Upon consummation of the proposed Transfer
in accordance with the terms of the Indenture, the transferred beneficial
interest or Definitive Note will not be subject to the restrictions on transfer
enumerated in the Private Placement Legend printed on the Restricted Global
Notes or Restricted Definitive Notes and in the Indenture.
B-4
<PAGE>
This certificate and the statements contained herein are made for your benefit
and the benefit of the Company.
_______________________________ Dated: ____________________________
[Insert Name of Transferor]
By: ___________________________
Name:
Title:
B-5
<PAGE>
ANNEX A TO CERTIFICATE OF TRANSFER
1. The Transferor owns and proposes to transfer the following:
[CHECK ONE OF (a) OR (b)]
(a) a beneficial interest in the:
(i) 144A Global Note (CUSIP _______), or
(ii) Regulation S Global Note (CUSIP _________), or
(b) a Restricted Definitive Note.
2. After the Transfer the Transferee will hold:
[CHECK ONE]
(a) a beneficial interest in the:
(i) 144A Global Note (CUSIP ________), or
(ii) Regulation S Global Note (CUSIP ________), or
(iii) Unrestricted Global Note (CUSIP ________); or
(b) a Restricted Definitive Note; or
(c) an Unrestricted Definitive Note,
in accordance with the terms of the Indenture.
B-6
<PAGE>
EXHIBIT C
FORM OF CERTIFICATE OF EXCHANGE
Panolam Industries International, Inc.
20 Progress Drive
Shelton, Connecticut 06484
Attention: Chief Financial Officer
State Street Bank and Trust Company
Goodwin Square, 225 Asylum Street
Hartford Connecticut 06103
Attention: Corporate Trust Group
Re: 11 1/2% Senior Subordinated Notes due 2009
Dear Sirs:
Reference is hereby made to the Indenture, dated as of February 18,
1999 (the "Indenture"), between Panolam Industries International, Inc., as
issuer (the "Company"), the Guarantors party thereto and State Street Bank and
Trust Company, as trustee. Capitalized terms used but not defined herein
shall have the meanings given to them in the Indenture.
____________, (the "Owner") owns and proposes to exchange the Note[s]
or interest in such Note[s] specified herein, in the principal amount of
$____________ in such Note[s] or interests (the "Exchange"). In connection with
the Exchange, the Owner hereby certifies that:
1. EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS
IN A RESTRICTED GLOBAL NOTE FOR UNRESTRICTED DEFINITIVE NOTES OR BENEFICIAL
INTERESTS IN AN UNRESTRICTED GLOBAL NOTE.
(a) CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A
RESTRICTED GLOBAL NOTE TO BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE. In
connection with the Exchange of the Owner's beneficial interest in a Restricted
Global Note for a beneficial interest in an Unrestricted Global Note in an equal
principal amount, the Owner hereby certifies (i) the beneficial interest is
being acquired for the Owner's own account without transfer, (ii) such Exchange
has been effected in compliance with the transfer restrictions applicable to the
Global Notes and pursuant to and in accordance with the United States Securities
Act of 1933, as amended (the "Securities Act"), (iii) the restrictions on
transfer contained in the Indenture and the Private Placement Legend are not
required in order to maintain compliance with the Securities Act and (iv) the
beneficial interest in an
C-1
<PAGE>
Unrestricted Global Note is being acquired in compliance with any applicable
blue sky securities laws of any State of the United States.
(b) CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A
RESTRICTED GLOBAL NOTE TO UNRESTRICTED DEFINITIVE NOTE. In connection with the
Exchange of the Owner's beneficial interest in a Restricted Global Note for an
Unrestricted Definitive Note, the Owner hereby certifies (i) the Definitive Note
is being acquired for the Owner's own account without transfer, (ii) such
Exchange has been effected in compliance with the transfer restrictions
applicable to the Restricted Global Notes and pursuant to and in accordance with
the Securities Act, (iii) the restrictions on transfer contained in the
Indenture and the Private Placement Legend are not required in order to maintain
compliance with the Securities Act and (iv) the Definitive Note is being
acquired in compliance with any applicable blue sky securities laws of any State
of the United States.
(c) CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO
BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE. In connection with the
Owner's Exchange of a Restricted Definitive Note for a beneficial interest in an
Unrestricted Global Note, the Owner hereby certifies (i) the beneficial interest
is being acquired for the Owner's own account without transfer, (ii) such
Exchange has been effected in compliance with the transfer restrictions
applicable to Restricted Definitive Notes and pursuant to and in accordance with
the Securities Act, (iii) the restrictions on transfer contained in the
Indenture and the Private Placement Legend are not required in order to maintain
compliance with the Securities Act and (iv) the beneficial interest is being
acquired in compliance with any applicable blue sky securities laws of any State
of the United States.
(d) CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO
UNRESTRICTED DEFINITIVE NOTE. In connection with the Owner's Exchange of a
Restricted Definitive Note for an Unrestricted Definitive Note, the Owner hereby
certifies (i) the Unrestricted Definitive Note is being acquired for the Owner's
own account without transfer, (ii) such Exchange has been effected in compliance
with the transfer restrictions applicable to Restricted Definitive Notes and
pursuant to and in accordance with the Securities Act, (iii) the restrictions on
transfer contained in the Indenture and the Private Placement Legend are not
required in order to maintain compliance with the Securities Act and (iv) the
Unrestricted Definitive Note is being acquired in compliance with any applicable
blue sky securities laws of any State of the United States.
2. EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN
RESTRICTED GLOBAL NOTES FOR RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS
IN RESTRICTED GLOBAL NOTES
C-2
<PAGE>
(a) CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A
RESTRICTED GLOBAL NOTE TO RESTRICTED DEFINITIVE NOTE. In connection with the
Exchange of the Owner's beneficial interest in a Restricted Global Note for a
Restricted Definitive Note with an equal principal amount, the Owner hereby
certifies that the Restricted Definitive Note is being acquired for the Owner's
own account without transfer. Upon consummation of the proposed Exchange in
accordance with the terms of the Indenture, the Restricted Definitive Note
issued will continue to be subject to the restrictions on transfer enumerated in
the Private Placement Legend printed on the Restricted Definitive Note and in
the Indenture and the Securities Act.
(b) CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO
BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE. In connection with the Exchange
of the Owner's Restricted Definitive Note for a beneficial interest in the:
[CHECK ONE] 144A Global Note or Regulation S Global Note with an equal principal
amount, the Owner hereby certifies (i) the beneficial interest is being acquired
for the Owner's own account without transfer and (ii) such Exchange has been
effected in compliance with the transfer restrictions applicable to the
Restricted Global Notes and pursuant to and in accordance with the Securities
Act, and in compliance with any applicable blue sky securities laws of any State
of the United States. Upon consummation of the proposed Exchange in accordance
with the terms of the Indenture, the beneficial interest issued will be subject
to the restrictions on transfer enumerated in the Private Placement Legend
printed on the relevant Restricted Global Note and in the Indenture and the
Securities Act.
C-3
<PAGE>
This certificate and the statements contained herein are made for your benefit
and the benefit of the Company.
__________________________
[Insert Name of Owner]
By:_______________________
Name:
Title:
Dated:________________
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<PAGE>
EXHIBIT D
FORM OF CERTIFICATE FROM ACQUIRING
INSTITUTIONAL ACCREDITED INVESTOR
Panolam Industries International, Inc.
20 Progress Drive
Shelton, Connecticut 06484
Attention: Chief Financial Officer
State Street Bank and Trust Company
Goodwin Square, 225 Asylum Street
Hartford Connecticut 06103
Attention: Corporate Trust Group
Re: 11 1/2% Senior Subordinated Notes due 2009
Dear Sirs:
Reference is hereby made to the Indenture, dated as of February 18,
1999 (the "Indenture"), between Panolam Industries International, Inc., as
issuer (the "Company"), the Guarantors party thereto and State Street Bank and
Trust Company, as trustee. Capitalized terms used but not defined herein
shall have the meanings given to them in the Indenture.
In connection with our proposed purchase of $____________ aggregate
principal amount of: (a) a beneficial interest in a Global Note, or (b) a
Definitive Note, we confirm that:
1. We understand that any subsequent transfer of the Notes or any
interest therein is subject to certain restrictions and conditions set forth in
the Indenture and the undersigned agrees to be bound by, and not to resell,
pledge or otherwise transfer the Notes or any interest therein except in
compliance with, such restrictions and conditions and the United States
Securities Act of 1933, as amended (the "Securities Act").
2. We understand that the offer and sale of the Notes have not been
registered under the Securities Act, and that the Notes and any interest therein
may not be offered or sold except as permitted in the following sentence. We
agree, on our own behalf and on behalf of any accounts for which we are acting
as hereinafter stated, that if we should sell the Notes or any interest therein,
we will do so only (A) to the Company or any Guarantor or any of their
respective subsidiaries, (B) in accordance with Rule 144A under the Securities
Act to a "qualified institutional buyer" (as defined therein), (C) to an
institutional "accredited investor" (as defined below) that, prior to such
transfer, furnishes (or has furnished on its
D-1
<PAGE>
behalf by a U.S. broker-dealer) to you and to the Company a signed letter
substantially in the form of this letter and, if the proposed transfer is in
respect of an aggregate principal amount of Notes of less than $250,000, an
Opinion of Counsel in form reasonably acceptable to the Company to the effect
that such transfer is in compliance with the Securities Act, (D) outside the
United States in accordance with Rule 904 of Regulation S under the Securities
Act, (E) pursuant to the provisions of Rule 144 under the Securities Act, (F) in
accordance with another exemption from the registration requirements of the
Securities Act (and based upon an opinion of counsel acceptable to the Company)
or (G) pursuant to an effective registration statement under the Securities Act,
and we further agree to provide to any person purchasing the Definitive Note
from us in a transaction meeting the requirements of clauses (A) through (F) of
this paragraph a notice advising such purchaser that resales thereof are
restricted as stated herein.
3. We understand that, on any proposed resale of the Notes or
beneficial interest therein, we will be required to furnish to you and the
Company such certifications, legal opinions and other information as you and the
Company may reasonably require to confirm that the proposed sale complies with
the foregoing restrictions. We further understand that the Notes purchased by
us will bear a legend to the foregoing effect. We further understand that any
subsequent transfer by us of the Notes or beneficial interest therein acquired
by us must be effected through one of the Initial Purchasers.
4. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of our investment in the Notes, and we and
any accounts for which we are acting are each able to bear the economic risk of
our or its investment.
5. We are acquiring the Notes or beneficial interest therein
purchased by us for our own account or for one or more accounts (each of which
is an institutional "accredited investor") as to each of which we exercise sole
investment discretion.
D-2
<PAGE>
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby.
_____________________________________ Dated: __________________, ____
[Insert Name of Accredited Investor]
By:_______________________________
Name:
Title:
D-3
<PAGE>
EXHIBIT E
FORM OF SUPPLEMENTAL INDENTURETO BE
DELIVERED BY SUBSEQUENTSUBSIDIARY GUARANTORS
Supplemental Indenture (this "Supplemental Indenture"), dated as of
____, among _____ (the "Guaranteeing Subsidiary"), a subsidiary of Panolam
Industries International, Inc. (or its permitted successor), a Delaware
corporation (the "Company"), the Company, the Guarantors (as defined in the
Indenture referred to herein) party thereto and State Street Bank and Trust
Company, as trustee under the Indenture referred to below (the "Trustee").
W I T N E S S E T H
WHEREAS, the Company has heretofore executed and delivered to the
Trustee an indenture (the "Indenture"), dated as of February 18, 1999 providing
for the issuance of 11 1/2% Senior Subordinated Notes due 2009 (the "Notes");
WHEREAS, the Indenture provides that under certain circumstances the
Guaranteeing Subsidiary shall execute and deliver to the Trustee a supplemental
indenture pursuant to which newly-acquired or created Subsidiary Guarantors
shall unconditionally guarantee all of the Company's obligations under the Notes
and the Indenture on the terms and conditions set forth herein (the "Subsidiary
Guarantee"); and
WHEREAS, pursuant to Section 9.1 of the Indenture, the Trustee is
authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt of which is hereby acknowledged, the
Guaranteeing Subsidiary and the Trustee mutually covenant and agree for the
equal and ratable benefit of the Holders of the Notes as follows:
1. Capitalized Terms. Capitalized terms used herein without
definition shall have the meanings assigned to them in the Indenture.
2. Agreement to Guarantee. The Guaranteeing Subsidiary irrevocably
and unconditionally guarantees the Guarantee Obligations, which include (i) the
due and punctual payment of the principal of, premium, if any, and interest and
Liquidated Damages, if any, on the Notes, whether at maturity, by acceleration,
call for redemption, upon a Change of Control Offer, upon an Asset Sale Offer or
otherwise, the due and punctual payment of interest on the overdue principal and
premium, if any, and (to the extent permitted by law)
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<PAGE>
interest on any interest on the Notes, and payment of expenses, and the due and
punctual performance of all other obligations of the Company, to the Holders or
the Trustee all in accordance with the terms set forth in Article X of the
Indenture, (ii) in case of any extension of time of payment or renewal of any
Notes or any such other obligations, that the same will be promptly paid in full
when due or performed in accordance with the terms of the extension or renewal,
whether at stated maturity, by acceleration, call for redemption, upon a Change
of Control Offer, upon an Asset Sale Offer or otherwise, and (iii) the payment
of any and all costs and expenses (including reasonable attorneys' fees)
incurred by the Trustee in enforcing any rights under this Guarantee.
The obligations of Guaranteeing Subsidiary to the Holders and to the
Trustee pursuant to this Subsidiary Guarantee and the Indenture are expressly
set forth in Article X of the Indenture and reference is hereby made to such
Indenture for the precise terms of this Subsidiary Guarantee.
No past, present or future director, officer, employee, incorporator
or stockholder (direct or indirect) of the Guarantors (or any such successor
entity), as such, shall have any liability for any Obligations of the Guarantors
under this Subsidiary Guarantees or the Indenture or for any claim based on, in
respect of, or by reason of, such Obligations or their creation, except in their
capacity as an obligor or Guarantor of the Notes in accordance with the
Indenture.
This is a continuing Guarantee and shall remain in full force and
effect and shall be binding upon the Guaranteeing Subsidiary and its successors
and assigns until full and final payment of all of the Company's obligations
under the Notes and Indenture or until released in accordance with the Indenture
and shall inure to the benefit of the successors and assigns of the Trustee and
the Holders, and, in the event of any transfer or assignment of rights by any
Holder or the Trustee, the rights and privileges herein conferred upon that
party shall automatically extend to and be vested in such transferee or
assignee, all subject to the terms and conditions hereof. This is a Guarantee
of payment and not of collectibility.
The Obligations of the Guaranteeing Subsidiary under its Subsidiary
Guarantee shall be limited to the extent necessary to insure that it does not
constitute a fraudulent conveyance under applicable law.
THE TERMS OF ARTICLE X OF THE INDENTURE ARE INCORPORATED HEREIN BY
REFERENCE.
3. NEW YORK LAW TO GOVERN. THE INTERNAL LAW OF THE STATE OF NEW
YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS
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<PAGE>
SUPPLEMENTAL INDENTURE, INCLUDING, WITHOUT LIMITATION, SECTION 5-1401 OF THE NEW
YORK GENERAL OBLIGATIONS LAW.
4. Counterparts. The parties may sign any number of copies of this
Supplemental Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement.
5. Effect of Headings. The Section headings herein are for
convenience only and shall not affect the construction hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed and attested, all as of the date first above
written.
THE COMPANY:
PANOLAM INDUSTRIES INTERNATIONAL, INC.
By: _______________________________
Name:
Title:
THE GUARANTORS:
PANOLAM GROUP, INC.
By: _______________________________
Name:
Title:
PII SECOND, INC.
By: _______________________________
Name:
Title:
PANOLAM INDUSTRIES, INC.
By: _______________________________
Name:
<PAGE>
Title:
PIONEER PLASTICS CORPORATION
By: _______________________________
Name:
Title:
[ADDITIONAL GUARANTOR]
By: _______________________________
Name:
Title:
TRUSTEE:
STATE STREET BANK AND TRUST COMPANY
By: _______________________________
Name:
Title:
<PAGE>
[Letterhead of Brobeck, Phleger & Harrison LLP]
August 27, 1999
Panolam Industries International, Inc.
20 Progress Drive
Shelton, Connecticut 06484
Ladies and Gentlemen:
We have acted as counsel to Panolam Industries International, Inc., a
Delaware corporation (the "Company"), Panolam Group, Inc., a Delaware
corporation ("Panolam"), PII Second, Inc., a Delaware corporation ("PII
Second"), and Panolam Industries, Inc., a Delaware corporation ("Panolam
U.S."), and, Pioneer Plastics Corporation, a Delaware corporation ("Pioneer"),
(Panolam, PII Second, Panolam U.S. and Pioneer are collectively referred to
herein as the "Guarantors"), in connection with the offering and issuance by
the Company and the Guarantors of $135,000,000 aggregate principal amount of
its 11 1/2% Senior Subordinated Notes due 2009 (the "Exchange Notes") and
related guarantees of the Guarantors (the "Guarantees"), in exchange for a like
amount of 11 1/2% Senior Subordinated Notes due 2009 (the "Old Notes") of the
Company, as contemplated by the Prospectus (the "Prospectus") included as part
of the Registration Statement on Form S-4 with respect to the Exchange Notes
and the Guarantees originally filed with the Securities and Exchange Commission
(the "Commission") on May 14, 1999 under the Securities Act of 1933 (the
"Securities Act") (such Registration Statement as amended and supplemented, is
hereinafter referred to as the "Registration Statement").
In our capacity as counsel to the Company and the, we have examined, among
other things, originals, or copies identified to our satisfaction as being true
copies, of the following:
(i) The Registration Statement and Prospectus contained therein;
(ii) The Indenture, dated as of February 18, 1999, by and between the
Company, the Guarantors and State Street Bank and Trust Company
(the "Trustee") (the "Indenture");
(iii) The Registration Rights Agreement, dated February 18, 1999, by and
between the Company, the Guarantors and the Initial Purchasers (as
defined therein);
(iv) The Certificates of Incorporation of the Company and the Guarantors
including all amendments thereto, as in effect on the date hereof;
(v) The Bylaws of the Company and the Guarantors including all amendments
thereto, as in effect on the date hereof;
(vi) Resolutions of the Board of Directors of the Company, adopted at a
meeting held on February 18, 1999, authorizing the issuance of the
Exchange Notes and certain other actions with regard thereto; and
(vii) Resolutions of the Board of Directors of each of Panolam, PII Second
and Panolam U.S, adopted at a meeting held on February 18, 1999,
authorizing the guarantee of the Exchange Notes and certain other
actions with regard thereto.
(viii) Resolutions of the Board of Directors Pioneer, adopted at a meeting
held on February 10, 1999, authorizing the guarantee of the Exchange
Notes and certain other actions with regard thereto.
1
<PAGE>
Panolam Industries International, Inc.
August 27, 1999
Page 2
In addition, we have obtained from public officials, officers and other
representatives of the Company and each of the Guarantors, and others such
certificates, documents and assurances as we considered necessary or
appropriate for purposes of rendering this opinion letter. In our examination
of the documents listed in (i) through (viii) above and the other certificates
and documents referred to herein, we have assumed the legal capacity of all
natural persons, the genuineness of all signatures, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as copies and the authenticity of the originals
of such documents. Regarding documents executed by parties other than the
Company or any of the Guarantors, we have assumed (i) that each such other
party had the power to enter into and perform all its obligations thereunder,
(ii) the due authorization, execution and delivery of such documents by each
such party, and (iii) that such documents constitute the legal, valid, binding
and enforceable obligations of each such party.
This opinion letter relates solely to the laws of the State of New York and
the General Corporation Law of the State of Delaware and we express no opinion
as to the effect or applicability of the laws of any other jurisdictions.
Based upon and subject to the foregoing and on our consideration of such
other matters of fact and questions of law as we considered relevant in the
circumstances, we are of the opinion that:
1. The Exchange Notes have been duly authorized by the Company and the
Guarantees have been duly authorized by each of the Guarantors;
2. When (i) authenticated (in the case of the Exchange Notes) by the
Trustee in accordance with the provisions of the Indenture, (ii) duly
executed by the Company and each of the Guarantors, respectively and (iii)
issued and delivered in exchange for the Old Notes in accordance with the
terms of the Exchange Offer (as defined in the Registration Statement), (a)
the Exchange Notes will constitute valid and legally binding obligations of
the Company, enforceable against the Company in accordance with their
terms, and (b) the Guarantees will constitute a valid and legally binding
obligation of the Guarantors, enforceable against the Guarantors in
accordance with its terms.
To the extent that the obligations of the Company or the Guarantors under the
Indenture may be dependent upon such matters, we have assumed for purposes of
this opinion that (i) the Trustee is duly organized, validly existing and in
good standing under the laws of its jurisdiction of organization and is duly
qualified to engage in the activities contemplated by the Indenture, (ii) the
Indenture has been duly authorized, executed and delivered by and constitutes
the legal, valid and binding obligation of the Trustee, (iii) the Trustee is in
compliance, generally and with respect to acting as Trustee, under the
Indenture, with all applicable laws and regulations and (iv) the Trustee has
the requisite organizational and legal power and authority to perform its
obligations under the Indenture.
The opinions set forth above are subject to the qualification that the
enforceability of the obligations of the Company may be subject to or limited
by (i) bankruptcy, insolvency, reorganization, arrangement, moratorium,
fraudulent transfer and other similar laws affecting the rights of creditors
generally; and (ii) general equitable principles (whether relief is sought in a
proceeding at law or in equity), including, without limitation, concepts of
materiality, reasonableness, good faith, and fair dealing.
You should be aware that under applicable New York law a number of statutory
and common law rights and protections exist in favor of guarantors. We express
no opinion herein as to the enforceability of any waivers and other provisions
of the Guarantees which purport to waive or alter rights provided to the
Guarantors by statute or judicial decision.
2
<PAGE>
Panolam Industries International, Inc.
August 27, 1999
Page 3
We express no opinion as to the enforceability of provisions relating to
indemnification, contribution or exculpation, to the extent any such provision
is contrary to public policy or prohibited by law (including, without
limitation, federal and state securities laws).
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement. We also consent to the reference to our firm under the
heading "Legal Matters" in the Registration Statement. In giving this consent,
we do not thereby admit that we are in the category of persons whose consent is
required under Section 7 of the Securities Act or the rules and regulations of
the Commission thereunder.
This opinion letter is rendered solely to you in connection with the above
referenced matter and may not be relied upon by you for any other purpose or
delivered to, or quoted or relied upon by, any other person without our prior
written consent. This opinion letter is expressly limited to the matters set
forth above and we render no other opinion and express no other belief whether
by implication or otherwise, as to any other matters. This opinion letter is
rendered as of the date hereof, and we assume no obligation to advise you of
any facts, circumstances, events or developments that may be brought to our
attention in the future, which facts, circumstances, events or developments may
alter, affect or modify the opinions or beliefs expressed herein.
Very truly yours,
Brobeck, Phleger & Harrison llp
3
<PAGE>
EXHIBIT 10.8
Genstar Capital LLC
Genstar Capital LLC
Metro Tower, Suite 1170
950 Tower Lane
Foster City, CA 94404
January 24, 1999
PERSONAL AND CONFIDENTIAL
- -------------------------
Panolam Industries International, Inc.
20 Progress Drive
Shelton, CT 06484
Attn: Robert J. Muller, Jr., President and Chief Executive Officer
Re: Pioneer
Dear Robert:
The purpose of this letter is to confirm and memorialize the arrangement under
which Genstar Capital LLC ("Genstar") has been engaged by Panolam Industries
International, Inc. ("Panolam") in connection with the acquisition of Pioneer
Plastics Corporation ("Pioneer"). The acquisition of Pioneer and the financing
of the acquisition is referred to herein as the "Transaction."
As you know, our engagement commenced with the decision to approach Pioneer in
April of 1998. In connection with our engagement we have and will continue to
provide Panolam with financial advice and assistance in connection with the
Transaction, including advice and assistance with respect to defining
objectives, performing valuation analyses, and structuring, planning and
negotiating the Transaction. In particular, we have negotiated the terms and
conditions of the acquisition and structured, negotiated and arranged $280
million of external financing for the acquisition ($135 million of senior
subordinated debt, $140 million of senior secured bank debt and $5 million of
equity)(the "Financing").
In the event the Transaction is consummated, Genstar will be paid a "Transaction
Fee." In light of the aggregate value of the Transaction (including contingent
payments) and the financing arranged, our Transaction Fee would typically be
between 1.3% and 1.4% of the aggregate value. For the Transaction, we have
agreed on a Transaction Fee of $4,025,000. The Transaction Fee will be fully
earned on the date of closing of the Transaction.
To accommodate cash flow concerns raised by some of the financing sources, you
and we have agreed that a portion of the Transaction Fee will be deferred and
payable over time. The Transaction Fee will be payable as follows:
(i) $2,000,000 upon closing of the Transaction; and
(ii) $2,025,000 payable in twelve quarterly installments of $168,750
(the "Deferred Fee"), commencing March 31, 1999 and at the end
of each June, September, December and March thereafter, which
amounts shall be prorated for the periods
<PAGE>
from February 18, 1999 to March 31, 1999 and January 1, 2002 to
February 18, 2002.
The Deferred Fee shall be subordinate in right of payment to the senior
subordinated debt and senior secured bank debt incurred in the Financing.
If an agreed upon Transaction with Pioneer is not thereafter consummated and
Panolam receives compensation pursuant to termination provisions (a "Breakup
Fee") contained in a definitive agreement related to a business combination with
Pioneer, then in lieu of a Transaction Fee, we will charge a "Termination Fee."
The Termination Fee shall be equal to 50% of the Breakup Fee.
Any advice or opinions provided by Genstar may not be disclosed or referred to
publicly except in accordance with our prior written consent.
In addition to our fee for professional services, we will separately bill our
expenses as incurred. Generally, these expenses include travel costs, document
product and other expenses of this type.
Genstar will act under this letter agreement as an independent contractor with
duties to Panolam. Because we will be acting on your behalf in this capacity,
it is our practice to receive indemnification. A copy of our standard indemnity
form is attached to this letter.
Our services hereunder may be terminated with or without cause by you or us at
any time and without liability or continuing obligation to you or us (except for
any compensation earned and expenses incurred by us to date of termination and
except, in the case of termination by you, for our right pursuant to this letter
for any transactions effected within one year of such termination) and provided
that the indemnity provisions will remain operative regardless of any such
termination.
Genstar and Panolam (on its own behalf and, to the extent permitted by law, on
behalf of its shareholders) each waives any rights to trial by jury in any
action, claim, suit or proceeding with respect to Genstar's engagement as
financial advisor or its role in connection herewith.
If the terms of our engagement as set forth in this letter are satisfactory,
kindly sign the enclosed copy of this letter and indemnification form and return
them to us.
Very truly yours,
Genstar Capital LLC
By:
---------------------------
Managing Director
By:
---------------------------
Managing Director
2 of 5
<PAGE>
Accepted:
Panolam Industries International, Inc.
By:
-----------------------------------
Robert J. Muller, Jr.
President and Chief Executive Officer
Date: January 24, 1999
Enclosure
3 of 5
<PAGE>
Genstar Capital LLC
Metro Tower, Suite 1170
950 Tower Lane
Foster City, CA 94404
This letter will confirm that we have engaged Genstar Capital LLC to advise and
assist us in connection with the matters referred to in our letter agreement
dated January 24, 1999 (the "Engagement Letter"). In consideration of your
agreement to act on our behalf in connection with such matters, we agree to
indemnify and hold harmless you and your affiliates and your and their
respective officers, directors, employees and agents and each other person, if
any, controlling you or any of your affiliates (you and each such person being
an "Indemnified Person") from and against any losses, claims, damages or
liabilities related to, arising out of or in connection with the engagement
(the "Engagement") under the Engagement Letter, and will reimburse each
Indemnified Person for all expenses (including fees and expenses of counsel) as
they are incurred in connection with investigating, preparing, pursuing or
defending any action, claim, suit, investigation or proceeding related to,
arising out of or in connection with the Engagement, whether or not pending or
threatened and whether or not any Indemnified Person is a party. We also agree
that no Indemnified Person shall have any liability (whether direct or indirect
in contract or tort or otherwise) to us or in connection with the Engagement
except for any such liability for losses, claims, damages or liabilities
incurred by us that are finally judicially determined to have resulted from bad
faith or gross negligence of such Indemnified Person.
We will not, without your prior written consent, settle, compromise, consent to
the entry of judgement in or otherwise seek to terminate any action, claims,
suit or proceeding in respect of which indemnification may be sought hereunder
(whether or not any Indemnified Person is a party thereto) unless such
settlement, compromise, consent or termination includes a release of each
Indemnified Person from any liabilities arising out of such action, claim, suit
or proceeding. No Indemnified Person seeking indemnification, reimbursement or
contribution under this agreement will, without our prior written consent,
settle, compromise, consent to the entry of judgement in or otherwise seek to
terminate any action, claim, suit, investigation or proceeding referred to in
the preceding paragraph.
If the indemnification provided for in the first paragraph of this agreement is
judicially determined to be unavailable (other than in accordance with the terms
hereof) to an Indemnified Person in respect of any losses, claims, damages or
liabilities referred to herein, than, in lieu of indemnifying such Indemnified
Person hereunder, we shall contribute to the amount paid or payable by such
Indemnified Person as a result of such losses, claims, damages, or liabilities
(and expenses relating thereto) (i) in such proportion as is appropriate to
reflect the relative benefits to you, on the one hand, and us, on the other
hand, of the Engagement or (ii) if the allocation provided by cause (i) above is
not available, in such proportion as is appropriate to reflect not only the
relative benefits referred to in such clause (i) but also the relative fault of
each of you and us, as
1
<PAGE>
well as any other relevant equitable considerations; provided, however, in no
-------- -------
event shall your aggregate contribution to the amount paid or payable exceed the
aggregate amount of fees actually received by you for the specific transaction
in question under the Engagement Letter. For the purpose of this agreement, the
relative benefits to us and you of the Engagement shall be deemed to be in the
same proportion as (a) the total value paid or contemplated to be paid or
received or contemplated to be received by us or our stockholders, as the case
may be, in the transaction or transactions that are the subject of the
Engagement, whether or not any such transaction is consummated, bears to (b) the
fees paid or to be paid to you under the Engagement Letter.
The provisions of this agreement shall apply to the Engagement and any
modification thereof and shall remain in full force and effect regardless of any
termination or the completion of your services under the Engagement Letter.
This agreement and the Engagement Letter shall be governed by and constructed in
accordance with the laws of the State of New York applicable to contracts
executed in and to be performed in that state.
Very truly yours,
Panolam Industries International, Inc.
By:
-------------------------------------
Robert J. Muller, Jr.
President and Chief Financial Officer
Accepted:
Genstar Capital LLC
By:
-----------------------------
Managing Director
By:
------------------------------
Managing Director
2
<PAGE>
EXHIBIT 10.9
EXECUTIVE SEVERANCE BENEFIT AGREEMENT
THIS EXECUTIVE SEVERANCE BENEFIT AGREEMENT dated as of July 1, 1999 by and
between Panolam Group, Inc., (the "Company"), and _______________ Executive;
W I T N E S S E T H:
WHEREAS, the Company desires to create a greater incentive for Executive to
remain in the employ of the Company, particularly in the event of any possible
change or threatened change in control of the Company,
NOW, THEREFORE, in partial consideration of Executive's past and future
services to the Company and the mutual covenants contained herein, the parties
hereto hereby agree as follows:
1. TERMINATION FOLLOWING A CHANGE IN CONTROL
(a) Qualifying Termination. Executive shall be entitled to the compensation
----------------------
and benefits listed in Paragraph 1(b), in addition to those accrued as of the
date of termination, if Executive's employment with the Company is terminated
(i) by the Company for any reason other than for Cause or (ii) by Executive for
Good Reason, in each case within one (1) year following the occurrence of a
Change in Control that occurs during the Period of Coverage (in each case a
"Qualified Termination").
(b) Compensation and Benefits
-------------------------
(i) Salary and Bonus. Executive shall receive (A) a continuation of
----------------
base salary for twelve months following the date of Qualifying Termination
payable, in accordance with the Company's normal payroll method, at an
annual rate equal to the greater of the annual rate of base salary in effect
for Executive at the time of Executive's Qualified Termination or the annual
rate of base salary in effect for Executive immediately before the Change in
Control and (B) a lump sum payment equal to the greater of the last annual
bonus paid to Executive before the date of Qualified Termination or the last
annual bonus payable to Executive before the date of the Change in Control.
Executive shall also be entitled to a pro rata bonus for that portion of any
annual bonus cycle applicable to Executive that occurs before the date of
the Qualifying Termination.
(ii) Health Care Coverage. The Company will provide, under the same
--------------------
terms available to its employees, Executive and Executive's eligible
dependents with continued health care coverage under the Company's
medical/dental plan until the earlier of (A) twelve (12) months after the
date of Executive's Qualified Termination or (B) the first
1
<PAGE>
date that Executive is covered under another employer's health benefit
program that provides substantially the same level of benefit coverage
without exclusion for pre-existing medical conditions. Such coverage will,
for the period of coverage, be in lieu of any other continued health care
coverage to which Executive or Executive's dependents would otherwise be
entitled for such period pursuant to the requirements of Internal Revenue
Code Section 4980B by reason of Executive's termination of employment.
(iii) Accelerated Vesting of Stock Options and Restricted Stock. All
---------------------------------------------------------
stock options then outstanding and previously unvested shall fully vest and
be exercisable, during the post-termination exercise period set forth in the
agreement evidencing such stock options, for fully vested shares and all
rights of the Company to repurchase any shares of restricted stock at the
price paid by Executive for such shares shall lapse; provided that such
accelerated vesting and lapse of repurchase rights shall not occur if it and
to the extent that it would prevent a transaction that is intended to
qualify for pooling of accounts accounting treatment to fail to quality for
such treatment.
2. DEFINITIONS
(a) Change in Control. A "Change in Control," for purposes of this
-----------------
Agreement, shall mean any of the following:
(i) the acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) of the Exchange Act) of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act),
(excluding however in all cases Genstar Capital Partners II, LP and its
affiliates) of Company Voting Securities representing more than 50% of the
combined voting power of such securities; provided, however, that (A) any
acquisition by the Company or an affiliate thereof or any employee benefit
plan (or related trust) sponsored or maintained by the Company or an
affiliate thereof or (B) any acquisition by any entity with respect to
which, following such acquisition, securities representing 50% or more of
the combined voting power of the then outstanding voting securities are then
thereof beneficially owned, directly or indirectly, by Genstar Capital
Partners II, LP or (C) any acquisition by any entity following which Genstar
Capital Partners II, LP and its affiliates control the Board of Directors of
the acquiring entity or the Company shall not constitute a Ownership Change;
(ii) consummation of a reorganization, merger or consolidation, if,
following such reorganization, merger or consolidation, both (A) Genstar
Capital Partners II, LP and its affiliates beneficially own, directly or
indirectly, less than 50% of the combined voting power of the then
outstanding voting securities entitled to vote generally in the election of
directors of the corporation resulting from such reorganization, merger or
consolidation and do not control the Board of Directors, and (B) an
---
individual, entity or group (other than an employee benefit plan sponsored
by the Company or an affiliate thereof) beneficially owns, directly or
indirectly securities representing more than 50% of the combined voting
power of the then outstanding voting securities entitled to vote generally
2
<PAGE>
in the election of directors of the corporation resulting from such
reorganization, merger or consolidation and controls the Board of Directors,
or
(iii) approval by the stockholders of the Company of (A) a complete
liquidation or dissolution of the Company, or (B) a sale or other
disposition of all or substantially all of the assets of the Company other
than to a corporation with respect to which, following such sale or
disposition, securities representing 50% or more of the combined voting
power of then outstanding voting securities of such corporation entitled to
vote generally in the election of directors is then beneficially owned,
directly or indirectly, by Genstar Capital Partners II, LP or an affiliate,
or an employee benefit plan sponsored by the Company or an affiliate.
(b) Period of Coverage. The "Period of Coverage" shall be the period
------------------
commencing with the date of this Agreement and ending on July 1, 2000, unless
either (i) the Company, by written action of its Board of Directors, extends the
period or (ii) the Company has entered into a definitive agreement to consummate
a transaction that would constitute a Change in Control, in which case the
period of coverage will continue until the date specified by the Board of
Directors or the date on which the pending transaction is consummated or
abandoned, respectively.
(c) Good Reason. "Good Reason" means (i) a change in Executive's position
-----------
with the Company which materially reduces Executive's level of responsibility or
the nature of Executive's functions or (ii) a reduction in Executive's base
salary or a material reduction in Executive's overall level of compensation
(including base salary, benefits and bonus opportunity) or (iii) a relocation of
Executive's principal place of employment by more than fifty (50) miles without
Executive's consent.
(d) Group. A "Group" means any two or more persons acting as a
-----
partnership, limited partnership, syndicate, or other group acting in concert
for the purpose of acquiring, holding or disposing of voting stock of the
Company.
(e) Cause. "Cause" means Executive's conviction of any felony, Executive's
-----
commission of any act of fraud or embezzlement, Executive's unauthorized use or
disclosure of confidential information or trade secrets of the Company or its
subsidiaries, or any other intentional misconduct on Executive's part which
adversely affects or threatens to adversely affect the business or affairs of
the Company in a material manner.
3. LIMITATION OF BENEFITS
If any compensation under this Agreement, alone or together with other
compensation payable to Executive, would in the determination of counsel or
other advisor mutually acceptable to the Company and Executive, constitute a
parachute payment within the meaning of Section 280G of the Code that would
subject Executive to an excise tax under Section 4999 of the Code or any
successor provisions, the Company shall pay Executive an additional amount in
cash, which when added to such compensation, provides Executive with the same
net after-tax compensation (considering Executive's federal and state income tax
brackets and the excise tax
3
<PAGE>
on such compensation and such additional payment) that Executive would realize
from such compensation (without such additional payment) if no excise tax
applied.
4. RESTRICTIVE COVENANTS OF EXECUTIVE
(a) Prohibited Acts. During any period that Executive is receiving
---------------
benefits under Paragraph 1 of this Agreement:
(i) Executive will not directly or indirectly encourage or solicit any
individual to leave the Company's employ for any reason or interfere in any
other manner with the employment relationships at the time existing between
the Company and its current or prospective employees.
(ii) Executive will not induce or attempt to induce any customer,
supplier, distributor, licensee or other business relation of the Company to
cease doing business with the Company or in any way interfere with the
existing business relationship between any such customer, supplier,
distributor, licensee or other business relation and the Company.
(b) Proprietary Information. Executive hereby acknowledges that the
-----------------------
Company may, from time to time during Executive's employment with the Company,
disclose to Executive confidential information pertaining to the Company's
business and affairs. All information and data, whether or not in writing, of a
private or confidential nature concerning the business or financial affairs of
the Company (collectively, "Proprietary Information") is and will remain the
sole and exclusive property of the Company. In connection with such Proprietary
Information, Executive agrees as follows:
(i) Executive will not, during Executive's employment with the Company
or at any time thereafter, disclose to any third party or directly or
indirectly make use of any such Proprietary Information other than in
connection with, and in furtherance of, the Company's business and affairs.
(ii) Executive agrees that Executive will use all files, letters,
memoranda, reports, records, data or other written, reproduced or other
tangible manifestations of the Proprietary Information, whether created by
Executive or others, to which Executive has access during Executive's
employment with the Company, only in the performance of Executive's duties
with the Company. Executive will return all such materials (whether written,
printed or otherwise reproduced or recorded) to the Company immediately upon
the Change in Control of Executive's employment with the Company or upon any
earlier request by the Company, without retaining any copies, notes or
excerpts thereof.
(iii) Executive's obligations under this Paragraph will continue in
effect after Executive's termination of employment with the Company,
whatever the reason or reasons for termination, and the Company will have
the right to communicate with any future or prospective employer concerning
Executive's continuing obligations under this paragraph.
4
<PAGE>
(c) Remedies. Executive acknowledges that monetary damages may not be
--------
sufficient to compensate the Company for any economic loss which may be incurred
by reason of Executive's breach of the foregoing restrictive covenants.
Accordingly, in the event of any such breach, Executive shall not be entitled to
any compensation or benefits otherwise payable under this Agreement and the
Company shall be entitled to any further remedies available to the Company at
law, be entitled to obtain equitable relief in the form of an injunction
precluding Executive from continuing to engage in such breach.
5. ARBITRATION
Any controversy between Executive and the Company involving the construction
or application of any of the terms, provisions, or conditions of this Agreement
or otherwise arising out of or relating to this Agreement shall be settled by
arbitration in accordance with the then current applicable rules of the American
Arbitration Association, and judgment on the award rendered by the arbitrator(s)
may be entered by any court having jurisdiction thereof. The location of the
arbitration shall be in Connecticut. Each party shall bear its own expenses in
settling such controversy, including the expenses of arbitration and reasonable
attorney fees.
6. MISCELLANEOUS
(a) Captions. The captions in this Agreement are not part of the
--------
provisions hereof, are merely for the purpose of reference and shall have no
force or effect.
(b) Governing Law. This Agreement is made in, and shall be governed by and
-------------
construed in accordance with the laws of, the State of Connecticut.
(c) Amendment or Modification. This Agreement contains the entire
-------------------------
agreement of the parties with respect to the subject matter hereof and no
amendment or modification shall be effective unless made in writing executed by
an authorized officer of the Company and Executive.
(d) Beneficiaries. This Agreement shall be binding on and inure to the
-------------
benefit of the successors, assigns, heirs, devisees and personal representatives
of the parties, including any successor to the Company by merger or combination
and any purchaser of substantially all of the assets of the Company. Should
Executive die before receipt of all benefits which Executive becomes entitled
under this agreement, the payment of such benefits will be made, on the due date
or dates hereunder had Executive survived, to the executors or administrators of
Executive's estate.
(e) Notices. All notices given hereunder shall be in writing and shall be
-------
sent by registered or certified mail or delivered by hand and, if intended for
the Company, shall be addressed to it (if sent by mail) or delivered to it (if
delivered by hand) at its principal office for the attention of the Secretary of
the Company or at such other address and for the attention of such other person
of which the Company shall have given notice to Executive in the manner herein
provided; and, if intended for Executive, shall be delivered personally or shall
be addressed
5
<PAGE>
(if sent by mail) at the then current residence address as reflected in the
personnel records of the Company, or at such other address or to such designee
of which Executive shall have given notice to the Company in the manner herein
provided. Each such notice shall be deemed to be given on the date received at
the address of the addressee or, if delivered personally, on the date so
delivered.
(f) Distributions. The benefits to which Executive may become entitled
-------------
under this agreement will be paid, when due, from the general assets of the
Company. Executive's right (or the right of the executors or administrators of
Executive's estate) to receive any such payments will at all times be that of a
general creditor of the Company and will have no priority over the claims of
other general creditors of the Company. The benefits provided under this
agreement are intended to be unfunded for purposes of the Employee Retirement
Security Act of 1974.
(g) Rights and Remedies. All rights and remedies provided pursuant to this
-------------------
letter agreement or by law will be cumulative, and no such right or remedy will
be exclusive of any other. A party may pursue any one or more rights or remedies
hereunder or may seek damages or specific performance in the event of another
party's breach hereunder or may pursue any other remedy by law or equity,
whether or not stated in this letter agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
PANOLAM GROUP, INC.
By _____________________________________
Chairman, Compensation Committee
EXECUTIVE:
________________________________________
(Signature)
________________________________________
(Print Name)
6
<PAGE>
Exhibit 10.11
Letterhead of Genstar Capital LLC
January 8, 1998
PRIVATE AND CONFIDENTIAL
- ------------------------
Mr. Robert J. Muller, Jr.
52 Crosswicks Road
Wilton, CT 06897
Dear Bob:
On behalf of the Genstar Capital Partners II, L.P. (Genstar), we are delighted
to extend to you this offer to become President and Chief Executive Officer of
Panolam, Inc. We are looking forward to your taking charge of the Company and
leading it to sustained growth and profitability in the years ahead. The balance
of this letter will address specific aspects of our compensation package for
you.
Authority/Position: You shall become the President & Chief
- ------------------ Executive Officer of Panolam, Inc. and report
to its Board of Directors. While employed you
will be expected to devote your full time and
attention and use your best efforts to advance
the business and welfare of Panolam. You are
also expected to perform services, acts and
duties connected with your position in such a
manner as the board of Panolam from time to
time may direct.
Base Compensation: Your base compensation will be $275,000 per
- ----------------- annum. This will be paid to you on the normal
Panolam pay schedule. The Board of Directors
will review your performance on each
anniversary date of hire and, at its sole
discretion, may increase your base
compensation based on your performance and the
financial condition of Panolam.
Incentive Bonus: The annual incentive bonus for which you will
- --------------- be eligible in 1998, is targeted at 65% of
base compensation. Bonus payments will be made
in each year following completion of the
annual audit. The Panolam incentive plan is
based on the annual EBITDA (earnings before
interest, taxes, depreciation and
amortization) budget with a threshold of 85%
of budget and without a cap. The target bonus
is payable upon achieving 100% of budget
(subject to review at the beginning of each
year). Typically there is an element of
personal performance in addition to financial
performance build into the incentive plan.
Vacation: You shall be entitled to four (4) weeks
- -------- vacation per year.
<PAGE>
Mr. Robert J. Muller, Jr.
January 8, 1998
Page 2
Company Benefits: You and your family will be entitled to the
- ---------------- Company medical, dental, disability and life
insurance plans and you will be eligible to
participate in the Company's pension plan. Copies
of these plans will be given to you.
Equity Grant: You will be entitled to receive a grant of stock
- ------------ options representing 5% of the common equity
(valued at Genstar's purchase price) of Panolam,
Inc. on your start date. Any subsequent grants of
stock options during the next five years would be
on an exception basis. These options will vest
ratably over five years. A copy of the stock
option plan will be provided for your review.
In the event of change of control (to be defined)
of Panolam, any unvested stock option will vest.
Severance: In the event of termination during the first
- --------- year of your employment for reasons other than for
cause, you shall be entitled to severance of six
(6) months of base compensation. Thereafter, you
shall be entitled to twelve (12) months severance
if terminated for reasons other than cause. In
addition, in case of change of control of Panolam
as a result of which you are terminated within six
(6) months, you shall be entitled to an additional
twelve (12) months of base compensation.
Stock Purchase: You have been invited to purchase shares of
- -------------- Panolam, Inc. at the same price per share as paid
by Genstar (approximately U.S $203.00 per share),
through a personal investment of $500,000 to
$1,000,000. It is anticipated that you will
purchase approximately $500,000 by May 31, 1998.
At that time you will have the option to invest a
further $500,000 to purchase common stock at the
same price or to defer such investment decision
until December 31, 1998, but at a price equal to
the then fair market value of the stock.
In the event that you voluntarily or involuntarily
leave the Company while the Company is privately
owned, the Company, should you so desire, will buy
your equity position at fair value, as determined
in good faith by the Board of Directors and, if
requested, independently confirmed by external
auditors, provided that the Company's borrowing
agreements permit the transaction.
Indemnification: The Company will indemnify you to the fullest
- --------------- extent possible by law for any liability incurred
as a result of the conduct of your duties as an
employee of Panolam.
<PAGE>
Mr. Robert J. Muller, Jr.
January 8, 1998
Page 3
Estimated Start Date: January 12, 1998
- --------------------
Relocation: As a U.S. citizen and U.S. based employee, working
- ---------- with the Board of Directors, you will determine
the appropriate location of the head office of
Panolam, effect the move of the head office and
you will relocate to that location. Panolam shall
provide relocation assistance to you and your
family that is consistent with normal relocation
practices. The Company, of course, will reimburse
you for costs incurred for temporary
accommodations pending the relocation of the head
office.
Bob, we are excited by the prospect of you joining Panolam as our partner. We
believe that you are the right person for the job and look forward to working
with you to build Panolam into a significantly larger and more profitable
enterprise.
We have extended this offer to you to become President and Chief Executive
Officer of Panolam in good faith. If you are in agreement, please sign where
indicated below.
Very truly yours.
/s/ Richard D. Paterson
Richard D. Paterson
Managing Director
RDP/smj
Accepted this 8 of January, 1998.
---
/s/ Robert J. Muller, Jr.
- ---------------------------------
Robert J. Muller, Jr.
c: Nicholas S. Young
Spencer Stuart
<PAGE>
EXHIBIT 10.12
[PANOLAM INDUSTRIES LETTERHEAD]
[LOGO]
June 24, 1999
Credit Suisse First Boston Canada, as Administrative Agent
for the Lenders party
to the Credit Agreement
referred to below
1 First Canadian Place
30th Floor
Toronto, Ontario, M5X 1C9
Att: Syndications Agency
RE: PERMANENT REDUCTION OF THE REVOLVING LOAN FACILITY
This notice is given in accordance with Section 2.04(b) of the Credit
Agreement, dated as of February 18, 1999 (as amended, amended and restated,
supplemented or otherwise modified from time to time, the "Credit Agreement" the
----------------
terms defined therein being used herein as therein defined), among PANOLAM
INDUSTRIES LTD., (the "Borrower"), the other Loan Parties signatory thereto, the
--------
financial institutions and other entities party thereto as Lenders, CREDIT
SUISSE FIRST BOSTON CANADA, for itself as an Initial Lender as Administrative
Agent, and ROYAL BANK OF CANADA, for itself as an Initial Lender and as
Documentation Agent.
We have opted to reduce the above facility from $15,000,000 to $8,000,000
effective June 30, 1999. In addition, please also reduce the Swing Line
Commitment from $5,000,000 to $3,200,000.
PANOLAM INDUSTRIES HOLDINGS, INC.
/s/ Sara Foster
By:________________________________
Name: Sara Foster
Title: Director of Finance
<PAGE>
EXHIBIT 10.13
FIRST AMENDMENT
To
CREDIT AGREEMENT
Dated as of July 2, 1999
This FIRST AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is among
---------
PANOLAM INDUSTRIES INTERNATIONAL, INC., a Delaware corporation (the "Borrower"),
--------
the Lenders (as defined in the Credit Agreement referred to below) party hereto,
DLJ CAPITAL FUNDING, INC., for itself as a Lender and as Syndication Agent and
CREDIT SUISSE FIRST BOSTON, for itself and as a Lender and as Administrative
Agent (the "Administrative Agent") for the Lenders.
--------------------
PRELIMINARY STATEMENTS:
1. The Borrower and Lenders have previously entered into that certain
Credit Agreement (as amended, supplemented or otherwise modified from time to
time, the "Credit Agreement"), dated as of February 18, 1999 with the
----------------
Syndication Agent, the Administrative Agent, and ROYAL BANK OF CANADA, for
itself as a Lender and as Documentation Agent.
2. The Borrower has requested that the Lenders consent to amendments to
certain of the provisions contained in the Credit Agreement; specifically, those
regarding mandatory prepayments from Excess Cash Flow and the definition of
"Excess Cash Flow," the monthly reporting requirements, and the merger or
consolidation of Group and/or PII Second with and into Holdings or certain of
its Subsidiaries.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
SECTION 1. Defined Terms. Capitalized terms used but not otherwise defined
-------------
herein shall have the respective meanings assigned to such terms in the Credit
Agreement.
SECTION 2. Amendments to Credit Agreement. Effective as of the First
------------------------------
Amendment Effective Date (as defined in Section 3 hereof), the Credit Agreement
is hereby amended as follows:
(a) Section 1.01. Section 1.01 of the Credit Agreement is hereby amended
------------
by deleting the text of clause (c)(iii) from the definition of the term "Excess
------
Cash Flow" and replacing such text with "[intentionally omitted]".
- ---------
(b) Section 2.04. Section 2.04(c)(i) of the Credit Agreement is hereby
------------
amended and restated in its entirety to read as follows:
<PAGE>
(i) Prepayments and Reductions from Excess Cash Flow. Within
------------------------------------------------
the earlier of five days after delivery of the Annual Financials pursuant to
Section 6.03(d) and 95 days following the end of each Fiscal Year, the Borrower
shall prepay the Term Loans and/or the Revolving Loans, and/or the Revolving
Commitments shall be permanently reduced (in each case, as and to the extent set
forth in Section 2.04(c)(xiii)), in an aggregate principal amount equal to (A)
the product of (1) the Applicable US Facility Percentage of the amount of the
total Excess Cash Flow of the Borrower and its Subsidiaries for such Fiscal Year
and (2) the prepayment percentage set forth below opposite the applicable
Consolidated Leverage Ratio as of the end of such Fiscal Year as set forth in
the Effective Quarterly Compliance Certificate delivered pursuant to Section
6.03(d), minus (B) the aggregate principal amount of all voluntary prepayments
-----
of Term Loans paid pursuant to Section 2.04(a) during such Fiscal Year;
provided, however, if no Quarterly Compliance Certificate has been delivered at
- -------- -------
the time required by Section 6.03(d), the Consolidated Leverage Ratio shall be
deemed to be greater than 3.50:1.00 for purposes of this clause:
<TABLE>
<CAPTION>
Excess Cash Flow
Consolidated Leverage Ratio Prepayment Percentage
--------------------------- ---------------------
<S> <C>
greater than 3.50:1.00 50%
greater than 3.00:1.00 less than 3.50:1.00 35%
less than 3.00:1.00 0%
</TABLE>
(c) Section 6.02.
------------
(i) Section 6.02(b) of the Credit Agreement is hereby amended by
(i) deleting the word "and" appearing at the end of the clause (vi)(B) thereof,
(ii) deleting the period at the end of clause (vii) thereof and replacing it
with "; and" and (iii) adding thereto a new clause (viii) to read as follows:
"(viii) in the case of Holdings, Group, PII Second and any
Domestic Subsidiary that is a Guarantor, Debt under guarantees of the
Subordinated Notes pursuant to Article X of the Subordinated Note
Indenture."
(ii) Section 6.02(d) of the Credit Agreement is hereby amended
and restated in its entirety to read as follows:
"(d) Mergers, Etc. Merge into or consolidate with any Person or
------------
permit any Person to merge into or consolidate with it, or permit Holdings or
any of its Subsidiaries to do so, except that (i) any Domestic Subsidiary of the
Borrower may merge into or consolidate with any other Domestic Subsidiary of the
Borrower provided that the Person formed by such merger or consolidation shall
be a Domestic Subsidiary of the Borrower, (ii) any of the Borrower's Domestic
Subsidiaries may merge into the Borrower, (iii) any Subsidiary of Panolam Canada
may amalgamate with any other Subsidiary of Panolam Canada, (iv) any of Panolam
Canada's Subsidiaries may amalgamate with Panolam Canada, (v) a wholly owned
Subsidiary of the Borrower or Panolam Canada formed primarily for the purposes
of consummating a Permitted Acquisition may, substantially contemporaneously
with the consummation of such
2
<PAGE>
Permitted Acquisition, be merged into or amalgamated with the Person being
acquired in such Permitted Acquisition, and (vi) Group may merge into Holdings,
PII Second or the Borrower, and PII Second may merge into Holdings, Group or the
Borrower, in each case so long as the representations and warranties set forth
in Section 5.01(p) as to Group and/or PII Second, as the case may be, are true
and correct on and as of the date of such merger with the same force and effect
as if made on such date; provided, however, that in the case of each of the
-------- -------
foregoing clauses (i) through (vi): (x) immediately after giving effect thereto,
no event shall occur and be continuing that constitutes a Default, (y) in the
case of any such merger to which the Borrower or Holdings is a party, the
Borrower or Holdings, as the case may be, is the surviving corporation, and (z)
each entity involved in any such merger, consolidation or amalgamation is
Solvent."
(d) Section 6.03. Section 6.03(b) of the Credit Agreement is hereby
------------
amended by inserting, immediately following the words "setting forth in
comparative form" appearing in the first sentence thereof, the following:
"(for each Fiscal Month ending on or after the date that is one year
and one month after the Closing Date)"
SECTION 3. Conditions to Effectiveness. The amendments set forth
---------------------------
herein shall become effective on the date (the "First Amendment Effective Date")
------------------------------
on which each of the following conditions has been satisfied:
(a) The Administrative Agent shall have executed this Amendment
and shall have received counterparts of this Amendment executed by the Borrower,
the Combined Required Lenders (as defined in the Intercreditor Agreement)
(provided that the amendments set forth in Sections 2(a) and 2(b) hereof shall
--------
become effective only upon receipt of counterparts of this Amendment executed by
the Combined Required Lenders and the Supermajority Lenders (as defined in the
Intercreditor Agreement), and a counterpart of the Consent attached hereto (the
"Consent") executed by each Guarantor.
-------
(b) The Administrative Agent shall have received evidence
satisfactory to it of the effectiveness of an amendment to the Canadian Credit
Agreement on terms substantially identical to the terms of this Amendment (and
by its execution hereof each signatory hereto approves such amendment and agrees
that its execution hereof shall be deemed execution thereof for purposes of
Section 11 of the Intercreditor Agreement).
(c) The Administrative Agent shall have received certified copies of
such documents and certificates as the Administrative Agent or its counsel may
reasonably request relating to the organization, existence and good standing of
each Loan Party, the authorization of this Amendment and any other legal matters
relating to the Loan Parties and this Amendment, all in form and substance
satisfactory to the Administrative Agent and its counsel.
SECTION 4. Representations and Warranties. The Borrower represents and
------------------------------
warrants as follows:
(a) Authority. The Borrower and each other Loan Party has the
---------
requisite corporate power and authority to execute and deliver this Amendment
and the Consent, as
3
<PAGE>
applicable, and to perform its obligations hereunder and under the Loan
Documents (as modified hereby) to which it is a party. The execution, delivery
and performance by the Borrower of this Amendment and by each other Loan Party
of the Consent, and the performance by each Loan Party of each Loan Document (in
each case as modified hereby) to which it is a party have been duly approved by
all necessary corporate action of such Loan Party and no other corporate
proceedings on the part of such Loan Party are necessary to consummate such
transactions.
(b) Enforceability. This Amendment has been duly executed and delivered by
--------------
the Borrower. The Consent has been duly executed and delivered by each Guarantor
and each Grantor. This Amendment and each Loan Document (in each case as
modified hereby) is the legal, valid and binding obligation of each Loan Party
party hereto and thereto, enforceable against such Loan Party in accordance with
its terms, and is in full force and effect.
(c) Representations and Warranties. The representations and warranties
------------------------------
contained in each Loan Document are true and correct on and as of the date
hereof as though made on and as of the date hereof will be true and correct on
and as of the First Amendment Effective Date as though made on and as of such
date (in each case, other than any such representations and warranties that, by
their terms, are specifically made as of a date other than the date hereof, in
which case such representations and warranties shall be true and correct as of
such other date).
(d) No Default. Both before and immediately after giving effect to this
----------
Amendment, no event has occurred and is continuing that constitutes a Default or
Event of Default under any Loan Document.
SECTION 5. Reference to and Effect on the Loan Documents.
---------------------------------------------
(a) Upon and after the effectiveness of this Amendment, each reference in
the Credit Agreement to "this Agreement," "hereunder," "hereof" or words of like
import referring to the Credit Agreement, and each reference in the other Loan
Documents to "the Credit Agreement," "thereunder," "thereof" or words of like
import referring to the Credit Agreement, shall mean and be a reference to the
Credit Agreement as modified hereby.
(b) Except as specifically modified above, the Credit Agreement and the
other Loan Documents are and shall continue to be in full force and effect and
are hereby in all respects ratified and confirmed. Without limiting the
generality of the foregoing, the Collateral Documents (as defined in the Credit
Agreement) and all of the Collateral described therein do and shall, to the
extent set forth therein, continue to secure the payment of all obligations and
liabilities of the Borrower and the other Loan Parties, as applicable, under the
Credit Agreement and/or any of the other Loan Documents, in each case as amended
hereby.
(c) The execution, delivery and effectiveness of this Amendment shall not
except as expressly provided herein, operate as a waiver of any right, power or
remedy of the Administrative Agent or Lenders under any of the Loan Documents,
nor constitute a waiver of any provision of any of the Loan Documents.
4
<PAGE>
SECTION 6. Costs, Expenses and Taxes. The Borrower agrees to pay on demand
-------------------------
all reasonable costs and expenses of the Administrative Agent, the Lead Arranger
and the Syndication Agent in connection with the preparation, execution,
delivery and administration of this Amendment and the other instruments and
documents, if any, to be delivered hereunder, including, without limitation, the
reasonable fees and out of pocket expenses of counsel for the Administrative
Agent, the Lead Arranger and the Syndication Agent with respect thereto and with
respect to advising each of such parties as to its rights and responsibilities
hereunder and thereunder. The Borrower further agrees to pay on demand all costs
and expenses, of the Administrative Agent, the Lead Arranger, the Syndication
Agent, each Lender and each Issuing Bank (including, without limitation,
reasonable counsel fees and expenses), in connection with the enforcement
(whether through negotiations, legal proceedings or otherwise) of this Amendment
and the other instruments and documents to be delivered hereunder, including,
without limitation, reasonable counsel fees and expenses in connection with the
enforcement of rights under this Section.
SECTION 7. Counterparts. This Amendment may be executed in any number of
------------
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed to be an original and all
of which taken together shall constitute but one and the same agreement.
Delivery of an executed counterpart of a signature page to this Amendment by
telefacsimile shall be effective as delivery of a manually executed counterpart
of this Amendment.
SECTION 8. Governing Law. This Amendment shall be governed by, and
-------------
construed in accordance with, the laws of the State of New York.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized, as of the date
first written above.
PANOLAM INDUSTRIES
INTERNATIONAL, INC.,
as Borrower
By: /s/ Robert J. Muller, Jr.
----------------------------
Name: Robert J. Muller, Jr.
Title: President
By: /s/ Sara Foster
----------------------------
Name: Sara Foster
Title: Director of Finance
S-1
<PAGE>
EXHIBIT 10.14
FIRST AMENDMENT
To
CREDIT AGREEMENT
Dated as of July 2, 1999
This FIRST AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is among
---------
PANOLAM INDUSTRIES LTD., an Ontario corporation (the "Borrower"), the other Loan
--------
parties (as defined in the Credit Agreement referred to below) party hereto, the
Lenders (as defined in the Credit Agreement referred to below) party hereto,
CREDIT SUISSE FIRST BOSTON CANADA, for itself as Lender and as Administrative
Agent (the "Administrative Agent") for the Lenders and ROYAL BANK OF CANADA,
--------------------
for itself as a Lender and as Documentation Agent (as defined in the Credit
Agreement referred to below).
RECITALS
A. The Borrower, the other Loan Parties and the Lenders have
previously entered into that certain Credit Agreement (as amended, supplemented,
restated, modified or otherwise modified from time to time, the "Credit
------
Agreement"), dated as of February 18, 1999, with the Administrative and the
- ---------
Documentation Agent.
B. The Borrower has requested that the Lenders consent to amendments
to certain of the provisions contained in the Credit Agreement; specifically,
those regarding mandatory prepayments from Excess Cash Flow and the definition
of "Excess Cash Flow," the monthly reporting requirements and the merger or
consolidation of Group and/or PII Second with and into Holdings or certain of
its Subsidiaries.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
SECTION 1. Defined Terms. Capitalized terms used but not otherwise
-------------
defined herein shall have the respective meanings assigned to such terms in the
Credit Agreement.
SECTION 2. Amendments to Credit Agreement. Effective as of the First
------------------------------
Amendment Effective date (as defined in Section 3 hereof), the Credit Agreement
is hereby amended as follows:
(a) Section 1.01. Section 1.01 of the Credit Agreement is hereby
------------
amended by deleting the text of clause (c) (iii) from the definition of the term
"Excess Cash Flow" and replacing such text with "[intentionally omitted]".
(b) Section 2.04. Section 2.04(c)(i) of the Credit Agreement is
------------
hereby amended and restated in its entirety to read as follows:
1
<PAGE>
(i) Prepayments and Reductions from Excess Cash Flow.
------------------------------------------------
Within the earlier of five days after delivery of the Annual Financials
pursuant to Section 6.03(d) and 95 days following the end of each Fiscal
Year, the Borrower shall prepay the Term Loans and/or the Revolving Loans,
and/or the Revolving Commitments shall be permanently reduced (in each
case, as and to the extent set forth in Section 2.04(c)(xiii)), in an
aggregate principal amount equal to (A) the product of (1) the Applicable
Canadian Facility Percentage of the amount of the total Excess Cash Flow of
Panolam International and its Subsidiaries for such Fiscal Year and (2) the
prepayment percentage set forth below opposite the applicable Consolidated
Leverage Ratio as of the end of such Fiscal Year as set forth in the
Effective Quarterly Compliance Certificate delivered pursuant to Section
6.03(d), minus (B) the aggregate principal amount of all voluntary
prepayments of Term Loans paid pursuant to Section 2.04(a) during such
Fiscal Year, provided, however, if no Quarterly Compliance Certificate has
-------- -------
been delivered at the time required by Section 6.03(d), the Consolidated
Leverage Ratio shall be deemed to be greater than 3.50:1.00 for purposes of
this clause (i):
Consolidated Leverage Ratio Excess Cash Flow
Prepayment Percentage
greater than or equal to 3.50:1.00 50%
greater than or equal to 3.00:1.00 less than 3.50:1.00 35%
less than 3.00:1.00 0%
(c) Section 6.02.
------------
(i) Section 6.02(b) of the Credit Agreement is hereby amended by
(i) deleting the word "and" appearing at the end of clause (vi)(B) thereof, (ii)
deleting the period at the end of clause (vii) thereof and replacing it with ";
and" and (iii) adding thereto a new clause (viii) to read as follows:
"(viii) in the case of Holdings, Group, PII Second and any
Domestic Subsidiary of Panolam International that is a Guarantor, Debt
under guarantees of the Subordinated Notes pursuant to Article X of
the Subordinated Note Indenture."
(ii) Section 6.02(d) of the Credit Agreement is hereby amended
and restated in its entirety to read as follows:
"(d) Mergers, Etc. Amalgamate with, merge into or consolidate
-------------
with any Person or permit any Person to amalgamate with, merge into or
consolidate with it, except that (i) any Domestic Subsidiary of
Panolam International may merge into or consolidate with any other
Domestic Subsidiary of Panolam International; provided that the Person
formed by such merger or consolidation shall be a Domestic Subsidiary
of Panolam International, (ii) any of Panolam
2
<PAGE>
International's Domestic Subsidiaries may merge into Panolam International,
(iii) any Canadian Subsidiary of the Borrower may amalgamate with a
Canadian Subsidiary of the Borrower or with the Borrower, (iv) a wholly-
owned Subsidiary of Panolam International or the Borrower formed primarily
for the purposes of consummating a Permitted Acquisition may, substantially
contemporaneously with the consummation of such Permitted Acquisition, be
merged into or amalgamated with the Person being acquired in such Permitted
Acquisition and (v) Group may merge into Holdings, PII Second or Panolam
International, and PII Second may merge into Holdings, Group or Panolam
International; provided, however, that (i) in the case of each of the
------- -------
foregoing clauses (i) through (v), immediately after giving effect thereto,
no event shall occur and be continuing that constitutes a Default, (ii) in
the case of any such merger to which Panolam International or Holdings is a
party, Panolam International or Holdings, as the case may be, is the
surviving corporation, (iii) in the case of any amalgamation to which the
Borrower or any of its Subsidiaries is party, the continuing corporation is
incorporated under the laws of Canada (but not the Province of Quebec) and
the Administrative Agent shall have been given sufficient prior notice by
the Borrower of such transaction to enable it to request and to receive, in
form and substance satisfactory to it, acting reasonably, concurrently
therewith if it reasonably determines it necessary or advisable one or more
agreements (including guarantees, security agreements and mortgages) duly
executed by the continuing person from such transaction together with
Officers' Certificates and legal opinions in connection therewith (as to
customary corporate matters relating to such continuing person and as to
the enforceability of such agreements and the perfection of the Liens
created by the Collateral Documents executed thereby), (iv) in each case,
each entity involved in any such merger, consolidation or amalgamation must
be Solvent and (v) the representations and warranties set forth in Section
5.01(p) as to Group and/or PII Second, as the case may be, are true and
correct on and as of the date of such merger or consolidations with the
same force and effect as if made on such date."
(d) Section 6.03. Section 6.03(b) of the Credit Agreement is hereby
------------
amended by inserting, immediately following the words "setting forth in
comparative form" appearing in the first sentence thereof, the following:
"(for each Fiscal Month ending on or after the date that is one year and
one month after the Closing Date)"
SECTION 3. Conditions to Effectiveness. The amendments set forth herein
---------------------------
shall become effective on the date (the "First Amendment Effective Date") on
------------------------------
which each of the following conditions has been satisfied:
(a) The Administrative Agent shall have executed this Amendment and shall
have received counterparts of this Amendment executed by the Borrower, the other
Loan Parties and the Combined Required Lenders (as defined in the Intercreditor
Agreement) (provided that the
--------
3
<PAGE>
amendments set forth in Sections 2(a) and 2(b) hereof shall become effective
only upon receipt of counterparts of this Amendment executed by the Combined
Required Lenders and the Supermajority Lenders (as defined in the Intercreditor
Agreement)), and a counterpart of the Consent attached hereto (the "Consent")
-------
executed by each Guarantor.
(b) The Administrative Agent shall have received evidence satisfactory
to it of the effectiveness of an amendment to the US Credit Agreement on terms
substantially identical to the terms of this Amendment (and by its execution
hereof, each signatory hereto approves such amendment and agrees that its
execution hereof shall be deemed execution thereof for purposes of Section 11 of
the Intercreditor Agreement).
(c) The Administrative Agent shall have received certified copies of
such documents and certificates as the Administrative Agent or its counsel may
reasonably request relating to the organization, existence and good standing of
each Loan Party, the authorization of this Amendment and any other legal matters
relating to the Loan Parties and this Amendment, all in form and substance
satisfactory to the Administrative Agent and its counsel.
SECTION 4. Representations and Warranties. Each Loan Party represents
------------------------------
and warrants as follows:
(a) Authority. Each Loan Party has the requisite corporate power and
---------
authority to execute and deliver this Amendment and the Consent, as applicable,
and to perform its obligations hereunder and under the Loan Documents (as
modified hereby) to which it is a party. The execution, delivery and performance
by each Loan Party of this Amendment and the Consent, and the performance by
each Loan Party of each Loan Document (in each case, as modified hereby) to
which it is a party have been duly approved by all necessary corporate action of
such Loan Party and no other corporate proceedings on the part of such Loan
Party are necessary to consummate the transactions contemplated hereby or
thereby.
(b) Enforceability. This Amendment has been duly executed and delivered
--------------
by each Loan Party. The Consent has been duly executed and delivered by each
Guarantor and each Grantor. Each of this Amendment and the Loan Documents (in
each case as modified hereby) is the legal, valid and binding obligation of each
Loan Party hereto and thereto, enforceable against such Loan Party in accordance
with its terms, and is in full force and effect.
(c) Representations and Warranties. The representations and warranties
------------------------------
contained in each Loan Document are true and correct on and as of the date
hereof as though made on and as of the date hereof and will be true and correct
on and as of the First Amendment Effective Date as though made on and as of such
date (in each case, other than any such representations and warranties that, by
their terms, are specifically made as of a date other than the date hereof, in
which case such representations and warranties shall be true and correct as of
such other date).
(d) No Default. Both before and immediately after giving effect to
----------
this Amendment, no event has occurred and is continuing that constitutes a
Default or an Event of Default under any Loan Document.
4
<PAGE>
SECTION 5. Reference to and Effect on the Loan Documents.
---------------------------------------------
(a) Upon and after the effectiveness of this Amendment, each reference in
the Credit Agreement to "this Agreement," "hereunder," "hereof" or words of like
import referring to the Credit Agreement, and each reference in the other Loan
Documents to "the Credit Agreement," "thereunder," "thereof" or words of like
import referring to the Credit Agreement, shall mean and be a reference to the
Credit Agreement, as modified hereby.
(b) Except as specifically modified above, the Credit Agreement and the
other Loan Documents are and shall continue to be in full force and effect and
are hereby in all respects ratified and confirmed. Without limiting the
generality of the foregoing, the Collateral Documents (as defined in the Credit
Agreement) and all of the Collateral described therein do and shall, to the
extent set forth therein, continue to secure the payment of all obligations and
liabilities of the Loan Party or Loan Parties, as applicable, party to such
collateral Documents under the Credit Agreement and/or any of the other Loan
Documents, in each case as amended hereby.
(c) The execution, delivery and effectiveness of this Amendment shall
not, except as expressly provided herein, operate as a waiver of any right,
power or remedy of the Administrative Agent or Lenders under any of the Loan
Documents, nor constitute a waiver of any provision of any of the Loan
Documents.
SECTION 6. Costs, Expenses and Taxes. The Borrower agrees to pay on demand
-------------------------
all reasonable costs and expenses of the Administrative Agent, the Lead Arranger
and the Syndication Agent in connection with the preparation, execution,
delivery and administration of this Amendment and the other instruments and
documents, if any, to be delivered hereunder, including, without limitation, the
reasonable fees and out of pocket expenses of counsel for the Administrative
Agent, the Lead Arranger and the Syndication Agent with respect thereto and with
respect to advising each of such parties as to its rights and responsibilities
hereunder and thereunder. The Borrower further agrees to pay on demand all costs
and expenses of the Administrative Agent, the Lead Arranger, the Syndication
Agent, each Lender and each Issuing Bank (including, without limitation,
reasonable counsel fees and expenses), in connection with the enforcement
(whether though negotiations, legal proceedings or otherwise) of this Amendment
and the other instruments and documents to be delivered hereunder, including
without limitation, reasonable counsel fees and expenses in connection with the
enforcement of rights under this Section.
SECTION 7. Counterparts. This Amendment may be executed in any number of
------------
counterpart and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed to be an original and all
of which taken together shall constitute but one and the same agreement.
Delivery of an executed counterpart of a signature page to this Amendment by
telecopier shall be effective as delivery of a manually executed counterpart of
this Amendment.
5
<PAGE>
SECTION 8. Governing Law. This Amendment shall be governed by, and
-------------
construed in accordance with, the laws of the Province of Ontario and of Canada
applicable therein.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized, as of the date
first written above.
PANOLAM INDUSTRIES LTD.
as Borrower
By: /s/ Robert J. Muller
----------------------------
Name: Robert J. Muller
Title: President
By: /s/ Sara Foster
----------------------------
Name: Sara Foster
Title: Director of Finance
S-1
<PAGE>
EXHIBIT 12.1
Statement of Computation of Ratio of Earnings to Fixed Charges
<TABLE>
<CAPTION>
Predecessor Panolam
-------------------------- -------------------------------------------
For the year For the year For the six
ended Period from Period from ended months ended
December 31, January 1 May 16 to December 31, June 30,
-------------- to June 11, December 31, --------------- --------------
1994 1995 1996 1996 1997 1998 1998 1999
------ ------- ----------- ------------ ------- ------- ------ -------
(in thousands, except ratios)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income from continuing
operations before
income taxes and
extraordinary item..... $9,383 $10,572 $4,040 $3,171 $ 2,708 $ 5,741 $5,592 $22,618
------ ------- ------ ------ ------- ------- ------ -------
Fixed charges:
Interest............... -- 103 -- 4,459 8,079 8,289 4,272 10,463
33% of rental expense.. 105 115 76 104 135 159 80 122
------ ------- ------ ------ ------- ------- ------ -------
Total fixed charges.... 105 218 76 4,563 8,214 8,448 4,352 10,585
------ ------- ------ ------ ------- ------- ------ -------
Income plus fixed
charges................ $9,488 $10,790 $4,116 $7,734 $10,922 $14,189 $9,944 $33,203
------ ------- ------ ------ ------- ------- ------ -------
Ratio of earnings to
fixed charges.......... 90.4x 49.5x 54.2x 1.7x 1.3x 1.7x 2.3x 3.1x
====== ======= ====== ====== ======= ======= ====== =======
</TABLE>
<PAGE>
Exhibit 21
----------
SUBSIDIARIES OF PANOLAM GROUP, INC.
-----------------------------------
Name Jurisdiction of Incorporation
- ---- -----------------------------
PII Second, Inc. Delaware
Panolam Industries International, Inc. Delaware
SUBSIDIARIES OF PANOLAM INDUSTRIES INTERNATIONAL, INC.
------------------------------------------------------
Name Jurisdiction of Incorporation
- ---- -----------------------------
Panolam Industries Ltd. Ontario
Panolam Industries, Inc. Delaware
Pioneer Plastics Corporation Delaware
Melamine Decorative Laminate, Inc. Oregon
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Amendment No. 1 to Registration Statement
on Form S-4 of Panolam Industries International, Inc. of our report dated March
12, 1999 relating to the financial statements of Panolam Group, Inc. and
Subsidiaries, which appears in such Registration Statement. We also consent to
the reference to us under the heading "Experts" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
Stamford, Connecticut
August 25, 1999
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Amendment No. 1 to Registration Statement
on Form S-4 of Panolam Industries International, Inc. of our report dated
February 13, 1998 relating to the financial statements of Panolam Group, Inc.
and Subsidiaries, which appears in such Registration Statement. We also consent
to the reference to us under the heading "Experts" in such Registration
Statement.
/s/ PricewaterhouseCoopers LLP
Toronto, Canada
August 25, 1999
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Amendment No. 1 to Registration Statement
on Form S-4 of Panolam Industries International, Inc. of the report of Price
Waterhouse dated April 3, 1997 relating to the combined divisional financial
statements of Domtar Decorative Panels, a division of Domtar Inc., which
appears in such Registration Statement. We also consent to the reference to us
under the heading "Experts" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
Chartered Accountants
Montreal, Canada
August 25, 1999
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Amendment No. 1 to Registration Statement
on Form S-4/A of Panolam Industries International, Inc. of our report dated
January 16, 1999, except for Note I, as to which date is February 18, 1999
relating to the financial statements of Pioneer Plastics Corporation, which
appears in such Registration Statement. We also consent to the reference to us
under the heading "Experts" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
Atlanta, GA
August 27, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PANOLAM
GROUP, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0001086385
<NAME> PANOLAM INDUSTRIES INTERNATIONAL INC
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 JUN-30-1999
<CASH> 5,456 14,451
<SECURITIES> 0 0
<RECEIVABLES> 8,182 41,558
<ALLOWANCES> (226) (624)
<INVENTORY> 14,788 38,271
<CURRENT-ASSETS> 29,142 95,013
<PP&E> 92,718 138,964
<DEPRECIATION> (12,591) 17,334
<TOTAL-ASSETS> 119,592 318,425
<CURRENT-LIABILITIES> 14,631 36,611
<BONDS> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 31,138 38,992
<TOTAL-LIABILITY-AND-EQUITY> 119,592 318,425
<SALES> 146,747 149,899
<TOTAL-REVENUES> 146,747 149,899
<CGS> (122,572) (110,386)
<TOTAL-COSTS> (122,572) (110,386)
<OTHER-EXPENSES> (10,145) (14,359)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (8,289) (10,463)
<INCOME-PRETAX> 5,741 14,691
<INCOME-TAX> (2,343) (5,448)
<INCOME-CONTINUING> 3,398 9,243
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 (1,794)
<CHANGES> 0 0
<NET-INCOME> 3,398 7,449
<EPS-BASIC> 0 0
<EPS-DILUTED> 0 0
</TABLE>
<PAGE>
Letter Of Transmittal
Panolam Industries International, Inc
Offer To Exchange All Outstanding 11 1/2% Series A Senior Subordinated Notes
Due 2009 For Its 11 1/2% Series B Senior Subordinated Notes Due 2009,
Which Have Been Registered Under The Securities Act Of 1933
Pursuant To The Prospectus
Dated , 1999
---------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME, ON
, 1999, UNLESS EXTENDED (THE "EXPIRATION DATE").
TENDERED SECURITIES MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE
EXPIRATION DATE.
TO: STATE STREET BANK AND TRUST COMPANY
<TABLE>
<S> <C> <C>
By Registered or Certified Mail: By Hand/Overnight Courier: By Regular Mail:
State Street Bank and Trust State Street Bank and Trust State Street Bank and Trust
Company Company Company
5th Floor, Corporate Trust Window 5th Floor, Corporate Trust Window P.O. Box 778
2 Avenue de Lafayette 2 Avenue de Lafayette Boston, MA 02101-0778
Boston, MA 02111-1724 Boston, MA 02111-1724 Attention: Corporate Trust Dept.
Attention: Kellie Mullen Attention: Kellie Mullen
</TABLE>
By Facsimile:
(617) 662-1452
To confirm by telephone or for Information Call:
(617) 622-1523
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS CONTAINED HEREIN
SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
HOLDERS WHO WISH TO BE ELIGIBLE TO RECEIVE EXCHANGE NOTES FOR THEIR OLD
NOTES PURSUANT TO THE EXCHANGE OFFER MUST VALIDLY TENDER (AND NOT WITHDRAW)
THEIR OLD NOTES TO THE EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE.
The undersigned acknowledges that he or she has received and reviewed the
Prospectus dated , 1999 (the "Prospectus"), of Panolam
Industries International, Inc. (the "Issuer"), and this Letter of Transmittal
(the "Letter of Transmittal"), which together constitute the Issuer's offer
(the "Exchange Offer") to exchange a new series of its 11 1/2% Senior
Subordinated Notes Due 2009 (the "Exchange Notes") which have been registered
under the Securities Act of 1933 (the "Securities Act"), for a like principal
amount of the Issuer's issued and outstanding 11 1/2% Senior Subordinated
Notes Due 2009 (the "Old Notes").
The undersigned has completed the appropriate boxes below and signed this
Letter of Transmittal to indicate the action the undersigned desires to take
with respect to the Exchange Offer.
<PAGE>
This Letter of Transmittal is to be used whether the Old Notes are to be
physically delivered herewith, or whether guaranteed delivery procedures or
book-entry delivery procedures are being used, pursuant to the procedures set
forth under "The Exchange Offer" in the Prospectus. If delivery of Old Notes
is to be made by book-entry transfer to the account maintained by the Exchange
Agent at The Depository Trust Company ("DTC"), this Letter of Transmittal need
not be manually executed, provided, however, that tenders of Old Notes must be
effected in accordance with the procedures mandated by DTC and the procedures
set forth in the Prospectus under the captions "The Exchange Offer--Procedures
for tendering old notes "and"--Book-entry delivery." If a person or entity in
whose name Old Notes are registered on the books of the Registrar (a
"Registered Holder") desires to tender Old Notes and such Old Notes are not
immediately available or time will not permit all documents required by the
Exchange Offer to reach the Exchange Agent (or such Registered Holder is
unable to complete the procedure for book-entry transfer on a timely basis)
prior to 5:00 P.M. New York City time on , 1999 (the "Expiration
Date"), a tender may be effected in accordance with the guaranteed delivery
procedures set forth in the Exchange Offer under the captions "The Exchange
Offer--Procedures for tendering old notes "and"--Guaranteed delivery
procedures." See Instruction 1.
DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE
DELIVERY TO THE EXCHANGE AGENT
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the principal amount of the Old
Notes indicated below. Subject to, and effective upon, the acceptance for
exchange of the Old Notes tendered hereby, the undersigned hereby irrevocably
sells, assigns and transfers to or upon the order of the Company all right,
title and interest in and to such Old Notes and hereby irrevocably constitutes
and appoints the Exchange Agent the true and lawful agent and attorney-in-fact
of the undersigned (with full knowledge that said exchange agent also acts as
the agent of the Company) with respect to such Old Notes, with full power of
substitution (such power of attorney being deemed to be an irrevocable power
coupled with an interest), to take such further action as may be required in
connection with the delivery, tender and exchange of the Old Notes.
The undersigned acknowledges that this Exchange Offer is being made in
reliance on an interpretation by the staff of the Securities and Exchange
Commission (the "SEC") that the Exchange Notes issued pursuant to the Exchange
Offer in exchange for the Old Notes may be offered for resale, resold and
otherwise transferred by holders thereof (other than (i) a broker-dealer who
purchased Old Notes directly from the Company for resale pursuant to Rule 144A
under the Securities Act, or (ii) a person that is an "affiliate" of the
Company or any Guarantor within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and prospectus delivery
provisions of the Securities Act provided that such Exchange Notes are
acquired in the ordinary course of such holders' business and such holders
have no arrangement with any person to participate in the distribution of such
Exchange Notes. See Morgan Stanley & Co. Inc., SEC No-Action Letter (available
June 5, 1991). Also see the Exchange Offer under the caption "The Exchange
Offer--Resales of exchange notes."
The undersigned acknowledges that the Exchange Notes have not been
registered or qualified under any state securities laws. This Offer is being
made to: (i) U.S. persons pursuant to exemptions from such laws for sales to
institutional investors, and (ii) non-U.S. persons (within the meaning of
Regulation S under the Securities Act), as state securities laws do not apply
to sales to persons who are not residents of any state. The undersigned hereby
represents and warrants that the undersigned is either (i) a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act,
(ii) an institutional "accredited investor" within the meaning of
subparagraph(a)(1), (2), (3) or (7) of Rule 501 under the Securities Act or
(iii) a non-U.S. person (within the meaning of Regulation S under the
Securities Act).
THE UNDERSIGNED UNDERSTANDS AND AGREES THAT THE COMPANY RESERVES THE RIGHT
NOT TO ACCEPT TENDERED OLD NOTES FROM ANY TENDERING HOLDER IF THE COMPANY
DETERMINES, IN ITS SOLE AND ABSOLUTE DISCRETION, THAT SUCH ACCEPTANCE COULD
RESULT IN A VIOLATION OF APPLICABLE SECURITIES LAWS.
2
<PAGE>
The undersigned, if the undersigned is a beneficial holder, represents, or,
if the undersigned is a broker, dealer, commercial bank, trust company or
other nominee, represents that it has received representations from the
beneficial owners of the Old Notes stating, (as defined in the Exchange Offer)
that (i) the Exchange Notes to be acquired in connection with the Exchange
Offer by the Holder and each Beneficial Owner of the Old Notes are being
acquired by the Holder (as defined in the Exchange Offer) and each Beneficial
Owner in the ordinary course of business of the Holder and each Beneficial
Owner, (ii) the Holder and each Beneficial Owner are not participating, do not
intend to participate, and have no arrangement or understanding with any
person to participate, in the distribution (within the meaning of the
Securities Act) of the Exchange Notes, (iii) the Holder and each Beneficial
Owner acknowledge and agree that any person participating in the Exchange
Offer for the purpose of distributing the Exchange Notes must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction of the Exchange Notes acquired
by such person and cannot rely on the position of the staff of the Commission
set forth in no-action letters that are discussed in the Exchange Offer under
the caption "The Exchange Offer--Resales of the exchange notes," (iv) that if
the Holder is a broker-dealer holding Old Notes acquired for its own account
as a result of market-making activities or other trading activities, it will
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of Exchange Notes received in respect of such Old
Notes pursuant to the Exchange Offer; provided that the delivery of a
Prospectus in connection with the exchange of Old Notes by such Holder will
not be deemed an admission that such Holder is an underwriter (within the
meaning of the Securities Act), (v) the Holder and each Beneficial Owner
understand that a secondary resale transaction described in clause (iii) above
should be covered by an effective registration statement containing the
selling security holder information required by item 507 of Regulations S-K of
the Securities Act and (vi) neither the Holder nor any Beneficial Owner is an
"affiliate," as defined under Rule 405 of the Securities Act, of the Company
or any of the Guarantors. In addition, if the undersigned is not a broker-
dealer, the undersigned represents that it is not engaged in, and does not
intend to engage in, a distribution of Exchange Notes. If the undersigned is a
broker-dealer holding Old Notes acquired for its own account as a result of
market-making activities or other trading activities, it will deliver a
prospectus meeting the requirements of the Securities Act in connection with
any resale of Exchange Notes received in respect of such Old Notes pursuant to
the Exchange Offer; provided, however, that by so acknowledging and by
delivering a prospectus, the undersigned will not be deemed to admit that it
is an underwriter (within the meaning of the Securities Act).
The Company has agreed, subject to the provisions of the Registration Rights
Agreement, that the Prospectus, as it may be amended or supplemented from time
to time, may be used by a Participating Broker-Dealer (as defined below) in
connection with resales of Exchange Notes received in exchange for Old Notes,
where such Old Notes were acquired by such broker-dealer for its own account
as a result of market-making activities or other trading activities, for a
period ending 180 days after the Expiration Date or, if earlier, when all such
Exchange Notes have been disposed of by such participating broker-dealer. In
that regard, each broker-dealer who acquired Old Notes for its own account as
a result of market-making or other trading activities (a "Participating
Broker-Dealer"), by tendering such Old Notes and executing this Letter of
Transmittal, agrees that, upon receipt of notice from the Company of the
occurrence of any event or the discovery of any fact which makes any statement
contained or incorporated by reference in the Prospectus untrue in any
material respect or which causes the Prospectus to omit to state a material
fact necessary in order to make the statements contained or incorporated by
reference therein, in light of the circumstances under which they were made,
not misleading or of the occurrence of certain other events specified in the
Registration Rights Agreement, such Participating Broker-Dealer will suspend
the sale of Exchange Notes pursuant to the Prospectus until the Company has
amended or supplemented the Prospectus to correct such misstatement or
omission and the Company has furnished copies of the amended or supplemented
Prospectus to the Participating Broker-Dealer or the Company has given notice
that the sale of the Exchange Notes may be resumed, as the case may be. If the
Company gives such notice to suspend the sale of the Exchange Notes, they
shall extend the 180-day period referred to above during which Participating
Broker-Dealers are entitled to use the Prospectus in connection with the
resale of Exchange Notes by the number of days during the period from and
including the date of the giving of such notice to and including the date when
Participating Broker-Dealers shall have received copies of the supplemented or
amended Prospectus necessary to permit resales of the Exchange Notes up to and
including the date on which the Company has given notice that the sale of
Exchange Notes may be resumed, as the case may be.
3
<PAGE>
The undersigned understands and acknowledges that the Company reserves the
right in its sole discretion to purchase or make offers for any Old Notes that
remain outstanding subsequent to the Expiration Date or as set forth in the
Exchange Offer under the caption "The Exchange Offer--Conditions of the
exchange offer," to terminate the Exchange Offer and, to the extent permitted
by applicable law, purchase Old Notes in the open market, in privately
negotiated transactions or otherwise. The term of any such purchases or offers
could differ from the terms of the Exchange Offer.
The undersigned hereby represents and warrants that the undersigned accepts
the terms and conditions of the Exchange Offer, has full power and authority
to tender, exchange, assign and transfer the Old Notes tendered hereby, and
that when the same are accepted for exchange by the Company, the Company will
acquire good and unencumbered title thereto, free and clear of all liens,
restrictions, charges and encumbrances and not subject to any adverse claim or
right. The undersigned will, upon request, execute and deliver any additional
documents deemed by the Exchange Agent or the Company to be reasonably
necessary or desirable to complete the sale, assignment and transfer the Old
Notes tendered hereby.
The undersigned agrees that all authority conferred or agreed to be
conferred by this Letter of Transmittal and every obligation of the
undersigned hereunder shall be binding upon the successors, assigns, heirs,
executors, administrations, trustees in bankruptcy and legal representatives
of the undersigned and shall not be affected by, and shall survive, the death
or incapacity of the undersigned.
The undersigned understands that tenders of the Old Notes pursuant to any
one of the procedures described under "The Exchange Offer--Procedures for
tendering old notes" in the Exchange Offer and in the instructions hereto will
constitute a binding agreement between the undersigned and the Company in
accordance with the terms and subject to the conditions of the Exchange Offer.
The undersigned understands that by tendering Old Notes pursuant to one of
the procedures describe in the Exchange Offer and the instructions thereto,
the tendering holder will be deemed to have waived the right to receive any
payment in respect of interest on the Old Notes subsequent to the date of
issuance of the Exchange Notes.
The undersigned recognizes that, under certain circumstances set forth in
the Exchange Offer, the Company may not be required to accept for exchange any
of the Old Notes tendered. Old Notes not accepted for exchange or withdrawn
will be returned to the undersigned as the address set forth below unless
otherwise indicated under "Special Delivery Instructions" below.
Unless otherwise indicated herein in the box entitled "Special Exchange
Instructions" below, the undersigned hereby directs that the Exchange Notes be
issued in the name(s) of the undersigned or, in the case of a book-entry
transfer of Old Notes, that such Exchange Notes be credited to the account
indicated above maintained at DTC. If applicable, substitute certificates
representing the Old Notes not exchanged or not accepted for exchange will be
issued to the undersigned or, in the case of a book-entry transfer of Old
Notes, will be credited to the account indicated below maintained at DTC.
Similarly, unless otherwise indicated under "Special Delivery Instructions,"
the undersigned hereby directs that the Exchange Notes be delivered to the
undersigned at the address shown below the undersigned's signature. The
undersigned recognizes that the Company has no obligation pursuant to the
"Special Exchange Instructions" to transfer any Old Notes from the name of the
Registered Holder thereof if the Company does not accept for exchange any of
the principal amount of such Old Notes so tendered.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING ANY BOX
4
<PAGE>
THE UNDERSIGNED BY COMPLETING THE BOX "DESCRIPTION OF OLD NOTES" BELOW AND
SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE OLD NOTES AND MADE
CERTAIN REPRESENTATIONS DESCRIBED HEREIN AND IN THE EXCHANGE OFFER.
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
(SEE INSTRUCTIONS 1 AND 3)
(Complete Accompanying Substitute Form W-9)
Dated: _________________________________________________________________, 1999
____________________________________________________________________________ x
____________________________________________________________________________ x
Signature(s) of Owner (Date)
If a holder(s) is/are tendering any Old Notes, this Letter of Transmittal
must be signed by the registered holder(s) as the name(s) appear(s) on the
Old Note(s) or on a security position listing or by person(s) authorized to
become Registered Holder(s) by endorsements and documents transmitted
herewith. If signature is by a trustee, executor, administrator, guardian,
officer or other person acting in a fiduciary or representative capacity,
please set forth full title. See Instruction 3.
Name(s):______________________________________________________________________
_______________________________________________________________________
(Please Type or Print)
Capacity:_____________________________________________________________________
Address:______________________________________________________________________
_______________________________________________________________________
(Including Zip Code)
SIGNATURE GUARANTEE
(If Required by Instruction 3)
Signature(s) Guaranteed by
an Eligible Institution: ____________________________________________________
(Authorized Signature)
______________________________________________________________
(Title)
______________________________________________________________
(Name of Firm)
Dated: ____________________________, 1999
IMPORTANT: THIS LETTER (TOGETHER WITH THE OLD NOTES OR A NOTICE OF GUARANTEED
DELIVERY AND ALL OTHER REQUIRED DOCUMENTS) MUST BE RECEIVED BY THE EXCHANGE
AGENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
5
<PAGE>
List below the Old Notes to which this Letter of Transmittal relates. If the
space provided below is inadequate, the certificate numbers and principal
amount of Old Notes should be listed on a separate signed schedule affixed
hereto. See Instruction 7. The minimum permitted tender is $1,000 principal
amount of Old Notes; all other tenders must be in integral multiples of
$1,000.
DESCRIPTION OF OLD NOTES
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Name(s) and
Address(es)
of
Registered
Holder(s)
(Please
fill in, if Old Notes(s) Tendered
blank) (Attach additional signed list if necessary)
- ------------------------------------------------------------------
Principal amount
of Old Notes
Tendered(2) (must
be in
denominations of
$1,000 or
Aggregate integral
Certificate Principal Amount multiples
Number(s)(1) of Old Note thereof)
---------------------------
---------------------------
---------------------------
---------------------------
---------------------------
<S> <C> <C> <C>
Total
</TABLE>
- -------------------------------------------------------------------------------
(1) Certificate numbers not required if Old Notes are being tendered by
book-entry transfer.
(2) Unless otherwise indicated in this column, a holder will be deemed to
have tendered the entire principal amount represented by the Old Note
indicated in column 2. Old Notes tendered hereby must be in
denominations of principal amount of $1,000 and any integral multiple
thereof. See Instruction 8.
(BOXES BELOW TO BE CHECKED BY ELIGIBLE INSTITUTIONS ONLY)
[_]CHECK HERE IF TENDERED OLD NOTES ARE ENCLOSED HEREWITH.
[_]CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY IF
TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED
DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING
(See Instructions 1 and 3):
Name(s) of Registered Holder(s): ___________________________________________
Window Ticket Number (if any): _____________________________________________
Date of Execution of Notice of Guaranteed Delivery: ________________________
Name of Eligible institution that Guaranteed Delivery: _____________________
If Guaranteed Delivery is to be made by Book-Entry Transfer:
Name of Tendering Institution: __________________________________________
Account Number: _________________________________________________________
Transaction Code Number: ________________________________________________
6
<PAGE>
[_]CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name: ______________________________________________________________________
Address: ___________________________________________________________________
-----------------------------------------------------------------------
-----------------------------------------------------------------------
[_]CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO AN ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY
TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution: _____________________________________________
Account Number: ____________________________________________________________
Transaction Code Number: ___________________________________________________
[_]CHECK HERE IF TENDERED BY BOOK ENTRY TRANSFER AND NON-EXCHANGED OLD NOTES
ARE TO BE RETURNED BY CREDITING THE BOOK-ENTRY TRANSFER FACILITY ACCOUNT
NUMBER SET FORTH ABOVE.
If delivery of Old Notes is to be made by book-entry transfer to the account
maintained by the Exchange Agent at DTC, then tenders of Old Notes must be
effected in accordance with the procedures mandated by DTC and the procedures
set forth in the Exchange Offer under the caption "The Exchange Offer--
Procedures for Tendering Old Notes--Book Entry Delivery."
7
<PAGE>
SPECIAL EXCHANGE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 4 and 5) (See Instructions 4 and 5)
To be completed ONLY if To be completed ONLY if
certificates for Old Notes not certificates for Old Notes not
exchanged and/or Exchange Notes exchanged and/or Exchange Notes
are to be issued in the name of are to be sent to someone other
and sent to someone other than than the person or persons whose
the person or person(s) whose signature(s) appear(s) on this
signature(s) appear(s) on this Letter of Transmittal above or to
Letter of Transmittal above, or such person or persons at an
if Old Notes delivered by book- address other than shown in the
entry transfer which are not box entitled "Description of Old
accepted for exchange are to be Notes" on this Letter of
returned by credit to an account Transmittal above.
maintained at the Book-Entry
Transfer Facility other than the
account indicated above.
Mail Exchange Notes and/or Old
Notes to:
Issue Exchange Notes and/or Old Name(s)___________________________
Notes to: (Please Type or Print)
__________________________________
Name(s) __________________________ (Please Type or Print)
(Please Type or Print)
__________________________________ Address __________________________
(Please Type or Print)
__________________________________
Address __________________________ (Including Zip Code)
__________________________________
(Including Zip Code)
(Complete accompanying Substi-
tute Form W-9)
Credit unexchanged Old Notes
delivered by book-entry transfer
to the Book-Entry Transfer
Facility account set forth below:
__________________________________
(Book-Entry Transfer Facility
Account Number, if Applicable)
8
<PAGE>
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY BEFORE COMPLETING ANY
BOX ABOVE.
THIS LETTER OF TRANSMITTAL MUST BE USED TO FORWARD, AND MUST ACCOMPANY, ALL
CERTIFICATES FOR OLD NOTES TENDERED PURSUANT TO THE EXCHANGE OFFER.
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. Delivery of this Letter of Transmittal and Old Notes: Guaranteed Delivery
Procedures. To be effectively tendered pursuant to the Exchange Offer, the Old
Notes, together with a properly completed Letter of Transmittal (or manually
signed facsimile hereof) duly executed by the Registered Holder thereof, and
any other documents required by this Letter of Transmittal must be received by
the Exchange Agent at one of its addresses set forth on the front page of this
Letter of Transmittal and tendered Old Notes must be received by the Exchange
Agent at one of such addresses on or prior to the Expiration Date; provided,
however, that book-entry transfers of Old Notes may be effected in accordance
with the procedures set forth in the Exchange Offer under the caption, "The
Exchange Offer--Procedures for tendering old notes" and "--Book entry
delivery." If the Beneficial Owner of any Old Notes is not the Registered
Holder, then such person may validly tender such person's Old Notes only by
obtaining and submitting to the Exchange Agent a properly completed Letter of
Transmittal from the Registered Holder. LETTERS OF TRANSMITTAL OF OLD NOTES
SHOULD BE DELIVERED ONLY BY HAND OR BY COURIER, OR TRANSMITTED BY MAIL, AND
ONLY TO THE EXCHANGE AGENT AND NOT TO THE COMPANY OR TO ANY OTHER PERSON.
THE METHOD OF DELIVERY OF OLD NOTES AND ALL OTHER REQUIRED DOCUMENTS TO THE
EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE HOLDER, AND IF SUCH DELIVERY
IS BY MAIL, IT IS SUGGESTED THAT THE HOLDER USE PROPERLY INSURED, REGISTERED
MAIL WITH RETURN RECEIPT REQUESTED. IF OLD NOTES ARE SENT BY MAIL, IT IS
SUGGESTED THAT THE MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE EXPIRATION
DATE TO PERMIT DELIVERY TO THE EXCHANGE AGENT PRIOR TO 5:00 P.M., NEW YORK
CITY TIME, ON THE EXPIRATION DATE.
If a holder desires to tender Old Notes and such holder's Old Notes are not
immediately available or time will not permit such holder to complete the
procedures for book-entry transfer on a timely basis or time will not permit
such holder's Letter of Transmittal and other required documents to reach the
Exchange Agent on or before the Expiration Date, such holder's tender may be
effected if:
(a) such tender is made by or through an Eligible Institution (as defined
below);
(b) on or prior to the Expiration Date, the Exchange Agent has received a
telegram, facsimile transmission or letter from such Eligible Institution
setting forth the name and address of the holder of such Old Notes, the
certificate number(s) of such Old Notes (except in the case of book-entry
tenders) and the principal amount of Old Notes tendered and stating that
the tender is being made thereby and guaranteeing that, within three
business days after the Expiration Date, a duly executed Letter of
Transmittal, or facsimile thereof, together with the Old Notes, and any
other documents required by this Letter of Transmittal and Instructions,
will be deposited by such Eligible Institution with the Exchange Agent; and
(c) this Letter of Transmittal, or a manually signed facsimile hereof,
and Old Notes, in proper form for transfer (or a Book-Entry confirmation
with respect to such Old Notes), and all other required documents are
received by the Exchange Agent within three business days after the
Expiration Date.
2. Withdrawal of Tenders. Tendered Old Notes may be withdrawn at anytime
prior to 5:00 p.m., New York City time, on the Expiration Date. To be
effective, a written, telegraphic or facsimile transmission notice of
withdrawal must (i) be timely received by the Exchange Agent at one of its
addresses set forth on the first page of this Letter of Transmittal before the
Exchange Agent receives notice of acceptance from the Company, (ii) specify
the name of the person who tendered the Old Notes, (iii) contain the
description of the Old Notes to be withdrawn, the certificate number(s) of
such Old Notes(except in the case of book-entry tenders) and the aggregate
principal amount represented by such Old Notes or a Book-
9
<PAGE>
Entry Confirmation with respect to such Old Notes, and (iv) be signed by the
holder of such Old Notes in the same manner as the original signature appears
on this Letter of Transmittal (including any required signature guarantees) or
be accompanied by evidence satisfactory to the Company that the person
withdrawing the tender has succeeded to the beneficial ownership of the Old
Notes. The signature(s) on the notice of withdrawal must be guaranteed by an
Eligible Institution unless such Old Notes have been tendered (i) by a
Registered Holder (which term for purposes of this document shall include any
participant tendering by book-entry transfer) of Old Notes who has not
completed either the box entitled "Special Exchange Instructions" or the box
entitled "Special Delivery Instructions" on this Letter of Transmittal or (ii)
for the account of an Eligible Institution. If the Old Notes have been
tendered pursuant to the procedure for book-entry tender set forth in the
Exchange Offer under the caption "The Exchange Offer--Book entry delivery," a
notice of withdrawal is effective immediately upon receipt by the Exchange
Agent of a written, telegraphic or facsimile transmission notice of withdrawal
even if physical release is not yet effected. In addition, such notice must
specify, in the case of Old Notes tendered by delivery of such Old Notes, the
name of the Registered Holder (if different from that of the tendering holder)
to be credited with the withdrawn Old Notes. Withdrawals may not be rescinded,
and any Old Notes withdrawn will thereafter be deemed not validly tendered for
purposes of the Exchange Offer. However, properly withdrawn Old Notes may be
retendered by following one of the procedures described under "The Exchange
Offer--Procedures for tendering old notes" in the Exchange Offer at any time
on or prior to the applicable Expiration Date.
3. Signatures on this Letter of Transmittal, Bond Powers and Endorsements;
Guarantee of Signatures. If this Letter of Transmittal is signed by the
Registered Holder of the Old Notes tendered hereby, the signature must
correspond exactly with the name as written on the face of the Old Notes
without any change whatsoever.
If any Old Notes tendered hereby are owned of record by two or more joint
owners, all such owners must sign this Letter of Transmittal.
If any Old Notes tendered hereby are registered in different names, it will
be necessary to complete, sign and submit as many separate copies of this
Letter of Transmittal as there are different registrations of Old Notes.
When this Letter of Transmittal is signed by the Registered Holder or
Holders specified herein and tendered hereby, no endorsements of such Old
Notes or separate bond powers are required. If, however, Exchange Notes are to
be issued, or any untendered principal amount of Old Notes are to be reissued
to a person other than the Registered Holder, then endorsements of any Old
Notes transmitted hereby or separate bond powers are required.
If this Letter of Transmittal is signed by a person other than the
Registered Holder or Holders, such Old Notes must be endorsed or accompanied
by appropriate bond powers, in either case signed exactly as the name or names
of the Registered Holder or Holders appear(s) on the Old Notes.
If this Letter of Transmittal or a Notice of Guaranteed Delivery or any Old
Notes or bond powers are signed by trustees, executors, administrators,
guardians, attorneys-in-fact, officers of corporations or others acting in a
fiduciary or representative capacity, such persons should so indicate when
signing, and, unless waived by the Company, proper evidence satisfactory to
the Company of their authority so to act must be submitted.
Except as describe in this paragraph, signatures on this Letter of
Transmittal or a notice of withdrawal, as the case may be, must be guaranteed
by an Eligible Institution which is a firm which is a member of a registered
national securities exchange or the National Association of Securities
Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or otherwise be an "eligible guarantor
institution" within the meaning of Rule 17Ad-15 under the Exchange Act (each
an "Eligible Institution"). Signatures on this Letter of Transmittal or a
notice of withdrawal, as the case may be, need not be guaranteed if the Old
Notes tendered pursuant hereto are tendered (i) by a Registered Holder of Old
Notes who has not completed either the box entitled "Special Exchange
Instructions" or the box entitled "Special Delivery Instructions" on this
Letter of Transmittal or (ii) for the account of an Eligible Institution.
Endorsement on Old Notes or signatures on bond forms required by this
Instruction 3 must be guaranteed by an Eligible Institution.
10
<PAGE>
4. Special Issuance and Delivery Instructions. Tendering holders should
indicate in the applicable box the name and address to which Exchange Notes
and/or substitute Old Notes for the principal amounts not exchanged are to be
issued or sent, if different from the name and address of the person signing
this Letter of Transmittal. In the case of issuance in a different name, the
employer identification or social security number of the person named must
also be indicated. If no such instructions are given, such Old Notes not
exchanged will be returned to the name and address of the person signing this
Letter of Transmittal.
5. Taxpayer Identification Number and Backup Withholding. Federal income tax
law of the United States requires that a holder of Old Notes whose Old Notes
are accepted for exchange provide the Company with such holder's correct
taxpayer identification number, which, in the case of a holder who is an
individual, is the holder's social security number, or otherwise establish an
exemption from backup withholding. If the Company is not provided with the
holder's correct taxpayer identification number, the exchanging holder of Old
Notes may be subject to a penalty imposed by the Internal Revenue Service. In
addition, interest on the Exchange Notes acquired pursuant to the Exchange
Offer may be subject to backup withholding in an amount equal to 31 percent of
any interest payment. If withholding occurs and results in an overpayment of
taxes, a refund may be obtained from the Internal Revenue Service by filing a
return.
To prevent backup withholding, each exchanging holder of Old Notes subject
to backup withholding must provide his correct taxpayer identification number
by completing the Substitute Form W-9 provided in this Letter of Transmittal,
certifying that the taxpayer identification number provided is correct (or
that the exchanging holder of Old Notes is awaiting a taxpayer identification
number) and that either (a) the exchanging holder has not been notified by the
Internal Revenue Service that he is subject to backup withholding as a result
of failure to report all interest or dividends or (b) the Internal Revenue
Service has notified the exchanging holder that he is no longer subject to
backup withholding.
Certain exchanging holders of Old Notes (including, among others, all
corporations and certain foreign individuals) are not subject to these backup
withholding requirements. A foreign individual and other exempt holders (e.g.,
corporations) should certify, in accordance with the enclosed Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9, to
such exempt status on the Substitute Form W-9 provided in this Letter of
Transmittal. Nonresident aliens should submit Form W-8, available from the
Exchange Agent upon request.
6. Transfer Taxes. Holders tendering pursuant to the Exchange Offer will not
be obligated to pay brokerage commissions or fees or to pay transfer taxes
with respect to their exchange under the Exchange Offer unless the box
entitled "Special Issuance Instructions" in this Letter of Transmittal has
been completed, or unless the securities to be received upon exchange are to
be issued to any person other than the holder of the Old Notes tendered for
exchange. The Company will pay all other charges or expenses in connection
with the Exchange Offer. If holders tender Old Notes for exchange and the
Exchange Offer is not consummated, such Old Notes will be returned to the
holders at the Company expense. Except as provided in this Instruction 6, it
will not be necessary for transfer tax stamps to be affixed to the Old Notes
specified in this Letter of Transmittal.
7. Inadequate Space. If the space provided herein is inadequate, the
aggregate principal amount of the Old Notes being tendered and the security
numbers (if available) should be listed on a separate schedule attached hereto
and separately signed by all parties required to sign this Letter of
Transmittal.
8. Partial Tenders. Tenders of Old Notes will be accepted only in integral
multiples of $1,000. If tenders are to be made with respect to less than the
entire principal amount of any Old Notes, fill in the principal amount of Old
Notes which are tendered in column (iv) of the "Description of Old Notes." In
the case of partial tenders, the Old Notes in fully registered form for the
remainder of the principal amount of the Old Notes will be sent to the
persons(s) signing this Letter of Transmittal, unless otherwise indicated in
the appropriate place on this Letter of Transmittal, as promptly as
practicable after the expiration or termination of the Exchange Offer.
Unless otherwise indicated in column (iv) in the box labeled "Description of
Old Notes," and subject to the terms and conditions of the Exchange Offer,
tenders made pursuant to this Letter of Transmittal will be deemed to have
been made with respect to the entire aggregate principal amount represented by
the Old Notes indicated in column (iii) of such box.
11
<PAGE>
9. Mutilated, Lost, Stolen or Destroyed Old Notes. Any holder whose Old
Notes have been mutilated, lost, stolen or destroyed should contact the
Exchange Agent at the address indicated above for further instructions.
10. Validity and Acceptance of Tenders. All questions as to the validity,
form, eligibility (including time of receipt), acceptance and withdrawal of
Old Notes tendered for exchange will be determined by the Company in its sole
discretion, which determination shall be final and binding. The Company
reserves the absolute right to reject any and all Old Notes not properly
tendered and to reject any Old Notes the Company's acceptance of which might,
in the judgment of the Company or its counsel, be unlawful. The Company also
reserves the absolute right to waive any defects or irregularities or
conditions of the Exchange Offer as to particular Old Notes either before or
after the Expiration Date (including the right to waive the ineligibility of
any holder who seeks to tender Old Notes in the Exchange Offer). The
interpretation of the terms and conditions of the Exchange Offer (including
the Letter of Transmittal and the instructions thereto) by the Company shall
be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Old Notes for exchange must be
cured within such period of time as the Company shall determine. The Company
will use reasonable efforts to give notification of defects or irregularities
with respect to tenders of Old Notes for exchange but shall not incur any
liability for failure to give such notification. Tenders of the Old Notes will
not be deemed to have been made until such irregularities have been cured or
waived.
11. Requests for Assistance or Additional Copies. State Street and Trust
Company is the Exchange Agent. All tendered Old Notes, executed Letters of
Transmittal and other related documents should be directed to the Exchange
Agent at the addresses or facsimile number set forth on the first page of this
Letter of Transmittal. Questions and requests for assistance and requests for
additional copies of the Prospectus, the Letter of Transmittal and other
related documents should be addressed to the Exchange Agent as follows:
<TABLE>
<S> <C> <C>
By Registered or Certified Mail: By Hand/Overnight Courier: By Regular Mail:
State Street Bank and Trust State Street Bank and Trust State Street Bank and Trust
Company Company Company
5th Floor, Corporate Trust Window 5th Floor, Corporate Trust Window P.O. Box 778
2 Avenue de Lafayette 2 Avenue de Lafayette Boston, MA 02101-0778
Boston, MA 02111-1724 Boston, MA 02111-1724 Attention: Corporate Trust Dept.
Attention: Kellie Mullen Attention: Kellie Mullen
</TABLE>
By Facsimile:
(617) 662-1452
To confirm by telephone or for Information Call:
(617) 622-1523
12
<PAGE>
IMPORTANT TAX INFORMATION
Under U.S. federal income tax laws, a registered holder of Old Notes or
Exchange Notes is required to provide the Trustee (as payor) with such
holder's correct Taxpayer Identification Number ("TIN") on Substitute Form W-9
below or otherwise establish a basis for exemption from backup withholding. If
such holder is an individual, the TIN is his or her social security number. If
the Trustee is not provided with the correct TIN, a $50 penalty may be imposed
by the Internal Revenue Service, and payments made to such holder with respect
to Old Notes or Exchange Notes may be subject to backup withholding.
Certain holders (including, among others, all corporations and certain
foreign persons) are not subject to these backup withholding and reporting
requirements. Exempt holders should indicate their exempt status on Substitute
Form W-9. A foreign person may qualify as an exempt recipient by submitting to
the Trustee a properly completed Internal Revenue Service Form W-8, signed
under penalties of perjury, attesting to that holder's exempt status. A Form
W-8 can be obtained from the Trustee.
If backup withholding applies, the Trustee is required to withhold 31% of
any payments made to the holder or other payee. Backup withholding is not an
additional U.S. federal income tax. Rather, the U.S. federal income tax
liability of persons subject to backup withholding will be reduced by the
amount of tax withheld. If withholding results in an overpayment of taxes, a
refund may be obtained from the Internal Revenue Service.
Purpose of Substitute Form W-9. To prevent backup withholding on payments
made with respect to Old Notes or Exchange Notes the holder is required to
provide the Trustee with: (i) the holder's correct TIN by completing the form
below, certifying that the TIN provided on Substitute Form W-9 is correct (or
that such holder is awaiting a TIN) and that (A) such holder is exempt from
backup withholding, (B) the holder has not been notified by the Internal
Revenue Service that the holder is subject to backup withholding as a result
of failure to report all interest or dividends or (C) the Internal Revenue
Service has notified the holder that the holder is no longer subject to backup
withholding and (ii) if applicable, an adequate basis for exemption.
13
<PAGE>
TO BE COMPLETED BY ALL TENDERING HOLDERS (see "Important Tax Information"
above)
PAYER'S NAME: U.S. BANK TRUST NATIONAL ASSOCIATION
- -------------------------------------------------------------------------------
SUBSTITUTE Part I -- PLEASE PROVIDE SOCIAL SECURITY NUMBER
Form W-9 YOUR TIN IN THE BOX AT OR EMPLOYER IDENTIFI-
RIGHT AND CERTIFY BY CATION NUMBER
SIGNING AND DATING BELOW.
DEPARTMENT OF THE
TREASURY ----------------------
Part II -- Certification -- Part III -- Awaiting
Under Penalties of TIN [_]
Perjury, I certify that:
INTERNAL REVENUE --------------------------------------------------------
SERVICE
(1) The number shown on
PAYER'S REQUEST FOR this form is my correct
TAXPAYER Taxpayer Identification
IDENTIFICATION NUMBER Number (or I am waiting
(TIN) for a number to be
issued to me) and
(2) I am not subject to
backup withholding
either because I have
not been notified by
the Internal Revenue
Service ("IRS") that I
am subject to backup
withholding as a result
of failure to report
all interest or
dividends, or the IRS
has notified me that I
am no longer subject to
backup withholding.
--------------------------------------------------------
Certificate Instructions -- You must cross out item
(2) in Part 2 above if you have been notified by the
IRS that you are subject to backup withholding
because of underreporting interest or dividends on
your tax return. However, if after being notified by
the IRS that you were subject to backup withholding
you received another notification from the IRS
stating that you are no longer subject to backup
withholding, do not cross out item (2).
- -------------------------------------------------------------------------------
SIGNATURE __________________________ DATE _______________________________
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO HOLDERS OF EXCHANGE NOTES
PURSUANT TO THE NEW EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON
SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN
PART 3 OF SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or
(b) I intend to mail or deliver an application in the near future. I
understand that if I do not provide a taxpayer identification number within
60 days, 31% of all payments made to me thereafter will be withheld until I
provide a number.
____________________________________ ____________________________________
Signature Date
14
<PAGE>
Notice of Guaranteed Delivery
Of
Panolam Industries International, Inc.
Offer To Exchange All Outstanding 11 1/2% Series A Senior Subordinated Notes
Due 2009 For Its 11 1/2% Series B Senior Subordinated Notes Due 2009,
Which Have Been Registered Under The Securities Act Of 1933
Pursuant To The Prospectus Dated , 1999
As set forth in the Prospectus dated , 1999 (the "Prospectus") of
Panolam Industries International, Inc. (the "Company") and in the accompanying
Letter of Transmittal and instructions thereto (the "Letter or Transmittal"),
this form or one substantially equivalent hereto must be used to tender for
exchange 11 1/2% senior subordinated notes due 2009 ("Old Notes") of the
Company, pursuant to the Exchange Offer (as defined below) if (i) certificates
representing the Old Notes to be tendered for exchange are not lost but are
not immediately available, (ii) time will not permit the Letter of
Transmittal, certificates representing such Old Notes or other required
documents to reach the Exchange Agent prior to the Expiration Date or (iii)
the procedures for delivery by book-entry transfer cannot be completed prior
to the Expiration Date. This form may be delivered by an Eligible Institution
by mail or hand delivery or transmitted, via facsimile (receipt confirmed by
telephone) to the Exchange Agent as set forth below. All capitalized terms
used herein but not defined herein shall have the meanings ascribed to them in
the Prospectus.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1999 UNLESS THE OFFER IS EXTENDED (THE "EXPIRATION DATE").
TENDERS OF OLD NOTES MAY BE WITHDRAWN AT ANY TIME PRIOR
TO 5:00 P.M. NEW YORK CITY TIME ON THE EXPIRATION DATE.
The Exchange Agent for the Exchange Offer is: STATE STREET BANK AND TRUST
COMPANY
<TABLE>
<S> <C> <C>
By Registered or Certified Mail: By Hand/Overnight Courier: By Regular Mail:
State Street Bank and Trust State Street Bank and Trust State Street Bank and Trust
Company Company Company
5th Floor, Corporate Trust Window 5th Floor, Corporate Trust Window P.O. Box 778
2 Avenue de Lafayette 2 Avenue de Lafayette Boston, MA 02101-0778
Boston, MA 02111-1724 Boston, MA 02111-1724 Attention: Corporate Trust Dept.
Attention: Kellie Mullen Attention: Kellie Mullen
</TABLE>
By Facsimile:
(617) 662-1452
To confirm by telephone or for Information Call:
(617) 622-1523
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS, OR TRANSMISSION VIA FACSIMILE,
OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
This Notice of Guaranteed Delivery is not to be used to guarantee
signatures. If a signature on the Letter of Transmittal is required to be
guaranteed by an "Eligible Institution" under the instructions thereto, such
signature guarantee must appear in the applicable space provided in the
signature box on the Letter of Transmittal.
<PAGE>
LADIES AND GENTLEMEN:
The undersigned hereby tender(s) to the Company, upon the terms and subject
to the conditions set forth in the Prospectus and the Letter of Transmittal
(which, together with any amendments or supplements thereto, collectively
constitute the "Exchange Offer"), receipt of which is hereby acknowledged, the
aggregate principal amount of Old Notes set forth below pursuant to the
guaranteed delivery procedures set forth in the Prospectus under the caption
"The Exchange Offer--Guaranteed delivery procedures."
The undersigned understands that tenders of Old Notes will be accepted only
in principal amounts equal to $1,000 or integral multiples thereof. The
undersigned understands that tenders of Old Notes pursuant to the Exchange
Offer may not be withdrawn after 5:00 p.m., New York City time, on the
Expiration Date pursuant to the procedures set forth in the Prospectus under
the caption "The Exchange Offer--Withdrawal rights."
All authority herein conferred or agreed to be conferred by this Notice of
Guaranteed Delivery shall survive the death or incapacity of the undersigned,
and every obligation of the undersigned under this Notice of Guaranteed
Delivery shall be binding upon the heirs, personal representatives, executors,
administrators, successors, assigns, trustees in bankruptcy and other legal
representatives of the undersigned.
2
<PAGE>
PLEASE COMPLETE AND SIGN
Signature(s) of Registered Other(s) or Authorized Signatory:
Name(s) of Registered Holder(s):
______________________________________ ______________________________________
______________________________________ ______________________________________
______________________________________
______________________________________ Address:
Principal Amount of Old Notes Tendered: _______________________________
______________________________________ ______________________________________
______________________________________
Area Code and Telephone No.:
Certificate No(s). of Old Notes (if ______________________________________
available):
______________________________________ If Old Notes will be delivered by
______________________________________ book-entry transfer at The Depository
Date: ______________________________ Trust Company, insert Depository
Trust Account No.:
______________________________________
This Notice of Guaranteed Delivery must be signed by the registered
holder(s) of Old Notes exactly as its (their) name(s) appear on certificates
for Old Notes or on a security position listing as the owner of Old Notes, or
by person(s) authorized to become registered holder(s) by endorsements and
documents transmitted with this Notice of Guaranteed Delivery. If signature is
by a trustee, executor, administrator, guardian, attorney-in-fact, officer or
other person acting in a fiduciary or representative capacity, such person
must provide the following information.
Please print name(s) and address(es)
Name(s): ______________________________________________________________________
_______________________________________________________________________________
Capacity: _____________________________________________________________________
Address(es): __________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
DO NOT SEND OUTSTANDING NOTES WITH THIS FORM. OUTSTANDING NOTES SHOULD BE
SENT TO THE EXCHANGE AGENT TOGETHER WITH A PROPERLY COMPLETED AND DULY
EXECUTED LETTER OF TRANSMITTAL.
3
<PAGE>
The undersigned, a member firm of a registered national securities exchange
or of the National Association of Securities Dealers, Inc. or a commercial
bank or trust company having an office or a correspondent in the United
States, hereby (a) represents that each holder of Old Notes on whose behalf
this tender is being made "own(s)" the Outstanding Notes covered hereby within
the meaning of Rule 14e-4 under the Securities Exchange Act of 1934, as
amended, (b) represents that such tender of Old Notes complies with such Rule
14e-4, and (c) guarantees that, within three New York Stock Exchange trading
days from the date of this Notice of Guaranteed Delivery, a properly completed
and duly executed Letter of Transmittal (or a facsimile thereof), together
with certificates representing the Old Notes covered hereby in proper form for
transfer (or confirmation of the book-entry transfer of such Old Notes into
the Exchange Agent's account at The Depository Trust Company, pursuant to the
procedure for book-entry transfer set forth in the Prospectus) and required
documents will be deposited by the undersigned with the Exchange Agent.
The undersigned acknowledges that it must deliver the Letter of Transmittal
and Old Notes tendered hereby to the Exchange Agent within the time period set
forth above and that failure to do so could result in financial loss to the
undersigned.
______________________________________ ______________________________________
Name of Firm Authorized Signature
Address: _____________________________ ______________________________________
______________________________________ Name
______________________________________ ______________________________________
Area Code and Telephone No. Title
______________________________________
Date
4
